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Zions (ZION) Down as Q2 Earnings Miss on Higher Provisions

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Shares of Zions Bancorporation (ZION - Free Report) lost 2.1% in after-hours trading in response to lower-than-expected second-quarter 2022 results. Net earnings per share of $1.29 lagged the Zacks Consensus Estimate of $1.35. Also, the bottom line plunged 38% from the year-ago quarter.

Results were adversely impacted by higher provisions on worsening economic outlook. A decline in non-interest income, lower deposit balance and deteriorating capital and profitability ratios were the other headwinds. However, improvement in net interest income (NII) driven by rising rates and increasing loan demand was the major positive.

Net income attributable to common shareholders was $195 million, down 43.5% year over year.

Revenues & Expenses Rise

Net revenues (tax equivalent) were $774 million, up 1.8% year over year. The top line beat the Zacks Consensus Estimate of $745.6 million.

NII was $593 million, rising 6.8% in the prior-year quarter. Net interest margin (NIM) expanded 8 basis points (bps) to 2.87%.

Non-interest income was $172 million, down 16.1%. The decline was mainly due to lower net securities gains.

Adjusted non-interest expenses were $463 million, up 10.5%.

The efficiency ratio (non-GAAP) was 60.7%, up from 59.1% in the prior-year period. A rise in the efficiency ratio indicates a decrease in profitability.

As of Jun 30, 2022, net loans held for investment were $51.8 billion, up 2.2% from the prior quarter. Total deposits were $79.1 billion, down 4%.

Credit Quality: Mixed Bag

The ratio of non-performing assets to loans and leases, as well as other real estate owned, contracted 22 bps year over year to 0.38%.

In the reported quarter, the company recorded net loan and lease charge-offs of $9 million against net recoveries of $2 million in the prior-year quarter. Also, provision for credit losses was $41 million against a benefit of $123 million in the year-earlier quarter.

Capital & Profitability Ratios Deteriorate

Tier 1 leverage ratio was 7.4% as of Jun 30, 2022, compared with 8.0% recorded at the end of the prior-year quarter. Tier 1 risk-based capital ratio of 10.6% decreased from 12.1%.

Further, as of Jun 30, 2022, common equity tier 1 capital ratio of 9.9% declined from 11.3% in the prior-year period.

At the end of the reported quarter, the return on average assets was 0.91%, down from 1.65% as of Jun 30, 2021. Also, the return on average tangible common equity was 17.1%, down from 21.6% in the year-ago quarter.

Share Repurchases

The company repurchased 0.9 million shares for $50 million in the reported quarter.

Our Take

Zions’ strong balance-sheet position, business-simplifying efforts, higher interest rates and a rise in loan demand bodes well for the future. However, persistently increasing operating expenses are likely to hurt the bottom line to some extent.

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 #2 (Buy). You can see the complete list of today’s Zacks #1 Rank (Strong Buy) stocks here.

Performance of Other Banks

SVB Financial Group’s (SIVB - Free Report) second-quarter 2022 earnings per share of $5.60 lagged the Zacks Consensus Estimate of $7.68. The bottom line reflects a decline of 38.4% from the prior-year quarter.

Results were primarily hurt by a decline in non-interest income, higher expenses, lower deposit balance and a rise in provisions. However, driven by higher rates and loan growth, SIVB witnessed a rise in NII.

KeyCorp’s (KEY - Free Report) second-quarter 2022 earnings from continuing operations of 54 cents per share beat the Zacks Consensus Estimate of 52 cents. The bottom line, however, declined 25% from the prior-year quarter.

A rise in NII driven by robust average loan growth and higher interest rates supported KEY’s results. However, a fall in non-interest income due to a tough operating backdrop and higher provisions acted as headwinds.


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