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Dismal Lending, Low Rates to Hurt Zions (ZION) in Q4 Earnings

Zacks Equity Research

Zions Bancorporation, National Association ZION is scheduled to report fourth-quarter and 2019 results on Jan 21, after the market closes. Per the Fed’s latest data, the fourth quarter witnessed a decline in commercial and industrial loans (constituting a large part of the company’s loan portfolio). In fact, growth in overall loans remained soft.

Moreover, the Zacks Consensus Estimate for average interest earning assets is pegged at $65.2 billion for the fourth quarter, suggesting a marginal decline from the previous quarter’s reported number.

Thus, due to soft loan growth along with decline in interest rates, Zions’ net interest income (NII), which is its major revenue component, is expected to have been negatively impacted in the quarter.

The consensus estimate for NII for the fourth quarter is pegged at $559 million, indicating a decline of 1.4% sequentially. Moreover, the company expects NII to decrease marginally due to a slight decline in securities portfolio balances.

Management also anticipates net interest margin (NIM) to decline, owing to lower rates.

Now, let’s check out some of the other factors that are likely to have influenced Zions’ performance in the fourth quarter.

Other Factors to Note

Fee revenues may not offer much support: The Federal Reserve’s accommodative monetary policy and lower mortgage rates during the fourth quarter drove mortgage origination volumes and refinancing activities. Hence, the company’s loan sales and servicing income are likely to have improved in the quarter.

Moreover, the consensus estimate for card fees of $25 million indicates rise of 4.2% sequentially.

However, while fixed-income trading activities were good in the fourth quarter, foreign exchange trading volumes and volatility declined. Thus, Zions’ capital markets and foreign exchange fees are not expected to have benefited in the quarter. The consensus estimate for the same is pegged at $21.75 million, which indicates a decline of 5.4% from the previous quarter’s reported figure.

Also, the consensus estimate for commercial account fees of $30.50 million suggests a 1.6% decline sequentially.

The Zacks Consensus Estimate for wealth management and trust fees of $16 million indicates no change from the previous quarter’s reported number.

Thus, total customer-related fee is not expected to have improved in the quarter. The Zacks Consensus Estimate for the same is pegged at $139 million, which indicates a decline of nearly 1% sequentially.

Given the expectation of a decline in total customer-related fees (accounting for more than 95% of total fee revenues), total fee revenues are likely to have been negatively impacted.

The consensus estimate for total non-interest income for the fourth quarter is pegged at $145 million, which indicates a marginal decline from the prior quarter’s reported number.

Expenses likely to rise modestly: Despite undertaking several cost-control initiatives, Zions has been witnessing an increase in non-interest expenses over the past few quarters. Expenses are likely to have remained elevated in the fourth quarter as well, owing to the company’s continued investment in franchise.

It expects to incur nearly 25 million of severance charges in the to-be-reported quarter due to its plan to lower workforce by 5%.

Asset quality not likely to offer support: The Zacks Consensus Estimate for total non-performing assets is pegged at $243 million for the fourth quarter, which indicates a rise of 2.5% sequentially. Also, the consensus estimate for non-performing loans of $239 million suggests 2.6% rise from the previous quarter’s reported figure.

Here is what our quantitative model predicts:

According to our quantitative model, chances of Zions beating the Zacks Consensus Estimate in the fourth quarter are high. This is because it has the right combination of the two key ingredients — a positive Earnings ESP and a Zacks Rank #3 (Hold) or better, which is required to be confident of an earnings surprise call.

You can uncover the best stocks to buy or sell before they’re reported with our Earnings ESP Filter.

Earnings ESP: The Earnings ESP for Zions is +2.99%.

Zacks Rank: The company currently carries a Zacks Rank #3.

Notably, the Zacks Consensus Estimate for Zions’ earnings is pegged at $1.08 for the to-be-reported quarter, which suggests no change year over year. The figure has been unchanged over the past 30 days.

The consensus estimate for the company’s sales is pegged at $702 million, which suggests a decline of nearly 2% from the prior-year quarter’s reported figure.

Zions Bancorporation, N.A. Price and EPS Surprise
 

Zions Bancorporation, N.A. Price and EPS Surprise

Zions Bancorporation, N.A. price-eps-surprise | Zions Bancorporation, N.A. Quote

Other Stocks That Warrant a Look

Here are some other finance stocks that you may want to consider as these too have the right combination of elements to post an earnings beat in their upcoming releases, per our model.

TD Ameritrade Holding Corporation AMTD has an Earnings ESP of +0.39% and a Zacks Rank #3 at present. The company is slated to release results on Jan 21.

Commerce Bancshares, Inc CBSH is slated to release results on Jan 22. It currently has an Earnings ESP of +0.12% and a Zacks Rank #3. You can see the complete list of today’s Zacks #1 Rank (Strong Buy) stocks here.

Associated Banc-Corp ASB is slated to release results on Jan 23. It presently has an Earnings ESP of +0.49% and a Zacks Rank #3.

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