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Lower Interest Rates to Hurt Zions (ZION) in Q1 Earnings

Zacks Equity Research

Zions Bancorporation, National Association ZION is scheduled to report first-quarter 2020 results on Apr 20, after market close. During the to-be-reported quarter, the overall lending scenario remained decent, with considerable support from growth in commercial and industrial loans (constituting a large part of Zions’ loan portfolio).

Moreover, the Zacks Consensus Estimate for the company’s average interest-earning assets for the first quarter is pegged at $64.9 billion, suggesting a marginal rise from the previous quarter’s reported number.

Despite decent growth in loans, Zions’ net interest income (NII), which is its major revenue component, is not expected to have improved in the quarter because of lower interest rates.

Notably, in March, the Federal Reserve reduced interest rates to near-zero in order to protect the economy from the impacts of the coronavirus outbreak. This is expected to have hurt the company’s NII and margins to quite an extent in the first quarter.

The consensus estimate for NII for the first quarter is pegged at $547 million, indicating a decline of 2.1% sequentially.

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 quarter.

Fee revenues may not offer much support: While the first quarter did not witness a significant rise in new mortgage origination volumes, refinancing activities improved to quite an extent, owing to the Federal Reserve’s accommodative monetary policy and decline in mortgage rates. Hence, the company’s loan sales and servicing income are likely to have improved in the quarter.

However, the consensus estimate for Zions’ commercial account fees of $30.52 million suggests a 1.5% decline sequentially.

Moreover, the consensus estimate for card fees of $22.14 million indicates a decline of 3.7% sequentially. The consensus estimate for retail and business banking fees is pegged at $19 million for the quarter, indicating a 5% decline from the prior quarter’s reported number.

The Zacks Consensus Estimate for wealth management and trust fees of $15.86 million indicates a decline of 1% from the previous quarter.

Thus, total customer-related fee is not expected to have improved in the quarter. The Zacks Consensus Estimate for the same is pegged at $130 million, which indicates a decline of 3% sequentially.

Given the expectation of a decline in total customer-related fees (accounting for more than 85% of total fee revenues), total fee revenues are likely to have been negatively impacted.

The consensus estimate for total non-interest income for the first quarter is pegged at $137 million, which indicates a decline of 9.9% 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 first quarter as well, owing to the company’s continued investments in franchise.

Asset quality may not offer support: The Zacks Consensus Estimate for total non-performing assets is pegged at $291 million, which indicates a rise of 15.9% sequentially. Also, the consensus estimate for non-performing loans of $286 million suggests a 17.7% 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 first quarter are low. This is because it does not have 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 -10.38%.

Zacks Rank: The company currently carries a Zacks Rank #5 (Strong Sell).

Notably, the Zacks Consensus Estimate for Zions’ earnings is pegged at 48 cents for the to-be-reported quarter, which suggests a decline of 53.9% year over year. The figure has been revised 9.4% lower over the past seven days.

The consensus estimate for the company’s sales is pegged at $679 million, which indicates a decline of 4.1% 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

Stocks That Warrant a Look

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

CURO Group Holdings Corp. CURO is slated to release quarterly results on Apr 30. The company has an Earnings ESP of +1.47% and currently flaunts a Zacks Rank #1 (Strong Buy). You can see the complete list of today’s Zacks #1 Rank stocks here.

Virtu Financial, Inc. VIRT is scheduled to report quarterly earnings on May 7. The company, which sports a Zacks Rank of 1 at present, has an Earnings ESP of +41.57%.

SB ONE BANCORP SBBX is likely to report quarterly earnings soon. The company, which carries a Zacks Rank of 3 at present, has an Earnings ESP of +1.56%.

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