It has been about a month since the last earnings report for Zions (ZION). Shares have lost about 4.2% in that time frame, underperforming the S&P 500.
Will the recent negative trend continue leading up to its next earnings release, or is Zions due for a breakout? Before we dive into how investors and analysts have reacted as of late, let's take a quick look at the most recent earnings report in order to get a better handle on the important drivers.
Zions Q4 Earnings Beat Estimates Despite Higher Costs
Zions’ 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.
Outlook
Net interest income is expected to decrease marginally in the next 12 months on assumption of benchmark rates generally consistent with the forward curve.
Further, NIM is expected to decline over the next couple of quarters owing to lower interest rates.
Customer-related fees (excluding securities gains and dividends) are expected to rise slightly.
Loan balance is anticipated to moderately rise over the next 12 months. This is likely to be driven by moderate to robust growth in 1-4 family, municipal, C&I and low-single digits rate growth in CRE loans.
Further, deposit growth is expected to be moderate. Deposit costs are expected to decline slightly.
Driven by streamlining efforts that include branch closures, adjusted non-interest expenses for 2020 are expected to be flat or down year over year despite investment in technology upgrades. Additionally, the company is expected to incur one-time charge in mid-2020 related to elimination of its defined benefit pension plan.
Increase in loan loss provisions is projected to be modest in the next 12 months.
Management expects capital return to shareholders in 2020 to be significantly lower than 2019 level, assuming no material change in the macroeconomic environment.
The company believes that positive operating leverage will likely be difficult to achieve in 2020.
How Have Estimates Been Moving Since Then?
In the past month, investors have witnessed a downward trend in fresh estimates.
VGM Scores
At this time, Zions has a poor Growth Score of F, however its Momentum Score is doing a lot better with a C. However, the stock was allocated a grade of A on the value side, putting it in the top 20% for this investment strategy.
Overall, the stock has an aggregate VGM Score of C. If you aren't focused on one strategy, this score is the one you should be interested in.
Outlook
Estimates have been broadly trending downward for the stock, and the magnitude of these revisions has been net zero. Notably, Zions has a Zacks Rank #3 (Hold). We expect an in-line return from the stock in the next few months.
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Why Is Zions (ZION) Down 4.2% Since Last Earnings Report?
It has been about a month since the last earnings report for Zions (ZION). Shares have lost about 4.2% in that time frame, underperforming the S&P 500.
Will the recent negative trend continue leading up to its next earnings release, or is Zions due for a breakout? Before we dive into how investors and analysts have reacted as of late, let's take a quick look at the most recent earnings report in order to get a better handle on the important drivers.
Zions Q4 Earnings Beat Estimates Despite Higher Costs
Zions’ 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.
Outlook
Net interest income is expected to decrease marginally in the next 12 months on assumption of benchmark rates generally consistent with the forward curve.
Further, NIM is expected to decline over the next couple of quarters owing to lower interest rates.
Customer-related fees (excluding securities gains and dividends) are expected to rise slightly.
Loan balance is anticipated to moderately rise over the next 12 months. This is likely to be driven by moderate to robust growth in 1-4 family, municipal, C&I and low-single digits rate growth in CRE loans.
Further, deposit growth is expected to be moderate. Deposit costs are expected to decline slightly.
Driven by streamlining efforts that include branch closures, adjusted non-interest expenses for 2020 are expected to be flat or down year over year despite investment in technology upgrades. Additionally, the company is expected to incur one-time charge in mid-2020 related to elimination of its defined benefit pension plan.
Increase in loan loss provisions is projected to be modest in the next 12 months.
Management expects capital return to shareholders in 2020 to be significantly lower than 2019 level, assuming no material change in the macroeconomic environment.
The company believes that positive operating leverage will likely be difficult to achieve in 2020.
How Have Estimates Been Moving Since Then?
In the past month, investors have witnessed a downward trend in fresh estimates.
VGM Scores
At this time, Zions has a poor Growth Score of F, however its Momentum Score is doing a lot better with a C. However, the stock was allocated a grade of A on the value side, putting it in the top 20% for this investment strategy.
Overall, the stock has an aggregate VGM Score of C. If you aren't focused on one strategy, this score is the one you should be interested in.
Outlook
Estimates have been broadly trending downward for the stock, and the magnitude of these revisions has been net zero. Notably, Zions has a Zacks Rank #3 (Hold). We expect an in-line return from the stock in the next few months.