Zions Bancorporation’s ( ZION Quick Quote ZION - Free Report) third-quarter 2020 net earnings per share of $1.01 surpassed the Zacks Consensus Estimate of 86 cents. However, the bottom line compares unfavorably with the year-ago quarter’s $1.17.
Results reflect higher non-interest income and a rise in deposits balance. However, a significant rise in provision for credit losses and expenses, along with a fall in net interest income are concerns.
Net income attributable to common shareholders was $167 million, down from the prior-year quarter’s $214 million.
Revenues Decline, Expenses Down
Net revenues for the third quarter came in at $712 million, down marginally year over year. However, the top line surpassed the Zacks Consensus Estimate of $708 million.
Net interest income in the quarter came in at $555 million, down 2% from the prior-year quarter. This downside resulted from a fall in interest income. Net interest margin contracted 42 basis points (bps) year over year to 3.06%.
Non-interest income amounted to $157 million, up 7.5% from the year-ago quarter. This upswing resulted from a rise in loan related fees and commercial account fees.
Adjusted non-interest expenses came in at $440 million, flaring up 6% from the prior-year quarter.
Efficiency ratio was 62.2%, up from the 57.3% reported in the prior-year period. A rise in efficiency ratio indicates a decrease in profitability.
Balance Sheet: A Mixed Bag
As of Sep 30, 2020, net loans held for investment were $53.9 billion, down from the $54.3 billion recorded at the end of the prior quarter. Total deposits were $67.1 billion, up 2.1% from the $65.7 billion recorded at the end of second-quarter 2020.
Credit Quality Deteriorates
The ratio of non-performing assets to loans and leases as well as other real estate owned expanded 20 bps year over year to 0.68%. Provision for credit losses was $55 million compared with the $10 million reported in the year-earlier quarter.
Moreover, net loan and lease charge-offs were $52 million at the end of the reported quarter compared with the $1 million witnessed in the year-earlier quarter.
Capital & Profitability Ratios Deteriorate
Tier 1 leverage ratio was 8.3% as of Sep 30, 2020, compared with the 9.3% recorded at the end of the prior-year quarter. Tier 1 risk-based capital ratio of 11.4% remained flat, year on year.
At the end of the September quarter, return on average assets was 0.89%, down from 1.25% as of Sep 30, 2019. Also, return on average tangible common equity was 11%, down from the 14.2% witnessed in the year-ago quarter.
During the September-end quarter, the company did not repurchase any shares.
Zion’s balance-sheet position strength was derived from a rise in deposits strong during the third quarter. Moreover, a rise in non-interest income bodes well for the company.
However, a decline in interest rates amid the Federal Reserve's accommodative policy stance is expected to hurt the company’s margins and revenues in the days to come. Further, a rise in provisions is a concern for the company.
Currently, Zions carries a Zacks Rank #3 (Hold). You can see
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