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Zions (ZION) Q4 Earnings Beat Estimates Despite Higher Costs

Zacks Equity Research

Zions Bancorporation’s ZION fourth-quarter 2019 adjusted earnings per share of $1.14 surpassed the Zacks Consensus Estimate of $1.08.

Results benefited from an improvement in non-interest income and decline in provision for credit losses. Also, the company’s balance sheet position remained strong. However, lower net interest income and higher expenses hurt results to some extent.

Net income attributable to common shareholders (GAAP basis) was $174 million or 97 cents per share, down from $217 million or $1.08 per share recorded in the prior-year quarter.

In 2019, the company reported net income attributable to common shareholders of $782 million or $4.16 per share compared with $850 million or $4.08 per share recorded in 2018.

Revenues Decline Marginally, Expenses Rise

Net revenues for the quarter under review were $711 million, down marginally year over year. However, the top line surpassed the Zacks Consensus Estimate of $702 million.

For 2019, net revenues were $2.83 billion, up 1.9% year over year.

Net interest income was $559 million for the quarter, down 3% from the prior-year quarter. The decline resulted from a fall in interest income along with higher interest expenses. Net interest margin contracted 21 basis points (bps) year over year to 3.46%.

Non-interest income amounted to $152 million, up 8.6% from the year-ago quarter. The increase was driven by rise in total customer-related fees, and dividends and other income.

Adjusted non-interest expenses were $435 million, up 4.1% from the prior-year quarter.

Efficiency ratio was 61.3%, up from 57.8% reported a year ago. A rise in efficiency ratio indicates a decline in profitability.

Balance Sheet Strong

As of Dec 31, 2019, net loans held for investment were $48.2 billion, marginally down from $48.3 billion recorded at the end of the prior quarter. Total deposits were $57.1 billion, up from $56.1 billion recorded at the end of the third quarter.

Credit Quality: A Mixed Bag

The ratio of non-performing assets to loans and leases as well as other real estate owned shrunk 4 bps year over year to 0.51%. Further, provision for credit losses was $4 million, down 33.3% from the year-earlier quarter.

However, net loan and lease charge-offs were $22 million at the end of the reported quarter against recoveries of $8 million in the prior-year quarter.

Capital & Profitability Ratios Deteriorate

Tier 1 leverage ratio was 9.2% as of Dec 31, 2019, compared with 10.3% at the end of the prior-year quarter. Tier 1 risk-based capital ratio was 11.2%, down from 12.7% in the year-ago quarter.

At the end of the fourth quarter, return on average assets was 1.04%, down from 1.34% as of Dec 31, 2018. Also, return on average tangible common equity was 11.8%, down from 14.5% reported in the year-ago quarter.

Share Repurchases

During the quarter, Zions repurchased $275 million worth of shares.

Our Viewpoint

The company remains well-positioned for top-line growth, supported by rise in loans and deposits along with its business simplifying efforts. Moreover, given a solid balance sheet position, it is expected to continue with its efficient capital deployments, thereby enhancing shareholder value.

However, elevated expense levels (similar to the fourth quarter) will likely hurt bottom-line growth. Moreover, due to the Federal Reserve’s accommodative policy stance, net interest income is expected to decline in the near term.

Zions Bancorporation, N.A. Price, Consensus and EPS Surprise
 

Zions Bancorporation, N.A. Price, Consensus and EPS Surprise

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

Currently, Zions carries a Zacks Rank #3 (Hold). You can see the complete list of today’s Zacks #1 Rank (Strong Buy) stocks here.

Performance & Earnings Release Schedule of Other Banks

Washington Federal’s WAFD first-quarter fiscal 2020 (ended Dec 31) adjusted earnings were 58 cents per share, missing the Zacks Consensus Estimate of 60 cents. Results excluded the net positive impact of two significant non-recurring items.

Hancock Whitney Corporation’s HWC fourth-quarter 2019 adjusted earnings per share of $1.06 beat the Zacks Consensus Estimate of $1.04. However, the bottom line fell 5.4% from the year-ago quarter’s reported figure.

Prosperity Bancshares, Inc. PB is slated to report results on Jan 29.

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