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Zions (ZION) Tanks as Q3 Earnings Miss on Higher Provisions
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Shares of Zions Bancorporation (ZION - Free Report) lost 7% in after-hours trading in response to lower-than-expected third-quarter 2022 results. Net earnings per share of $1.40 lagged the Zacks Consensus Estimate of $1.58. Also, the bottom line declined 3% from the year-ago quarter. We too had projected earnings to be $1.58 per share.
Results were adversely impacted by higher provisions on worsening macroeconomic outlook. A rise in non-interest expenses, lower deposit balance and deteriorating capital and profitability ratios were the other undermining factors. Yet, improvement in net interest income (NII) driven by rising rates and increasing loan demand was a major positive. Also, higher non-interest income on solid capital markets performance was a tailwind.
Net income attributable to common shareholders was $211 million, down 10% year over year.
Revenues & Expenses Rise
Net revenues (tax equivalent) were $838 million, jumping 20% year over year. The top line also surpassed the Zacks Consensus Estimate of $813 million. Our estimate for the metric was $807.3 million.
NII was $663 million, growing 19% in the prior-year quarter. The rise was mainly driven by higher interest rates and a favorable change in the composition of interest-earning assets. Likewise, the net interest margin (NIM) expanded 56 basis points (bps) to 2.87%. Our estimates for NII and NIM were $653.2 million and 2.83%.
Non-interest income was $165 million, increasing 19%. This was mainly attributable to a rise in capital markets and foreign exchange fees and commercial account fees.
Adjusted non-interest expenses were $477 million, up 10%. We had expected this metric to be $483.6 million.
The efficiency ratio (non-GAAP) was 57.6%, down from 59.8% in the prior-year period. A rise in the efficiency ratio indicates a decrease in profitability.
As of Sep 30, 2022, net loans and leases held for investment were $53.4 billion, up 3% from the prior quarter. Total deposits were $76 billion, down 4%.
Credit Quality Worsening
The ratio of non-performing assets to loans and leases, as well as other real estate owned, contracted 36 bps year over year to 0.28%.
In the reported quarter, the company recorded net loan and lease charge-offs of $27 million against net recoveries of $1 million in the prior-year quarter. Also, the provision for credit losses was $71 million against a benefit of $46 million in the year-earlier quarter.
Capital & Profitability Ratios Deteriorate
Tier 1 leverage ratio was 7.5% as of Sep 30, 2022, compared with 7.6% at the end of the prior-year quarter. Tier 1 risk-based capital ratio of 10.3% decreased from 11.6%.
Further, as of Sep 30, 2022, the common equity tier 1 capital ratio of 9.6% declined from 10.9% in the prior-year period.
At the end of the third quarter, the return on average assets was 0.97%, down from 1.08% as of Sep 30, 2021. Also, the return on average tangible common equity was 19.5%, up from 14.2% 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 bode well for the future. However, persistently increasing operating expenses and deteriorating economic outlook are near-term concerns.
Zions Bancorporation, N.A. Price, Consensus and EPS Surprise
SVB Financial Group’s third-quarter 2022 earnings per share of $7.21 surpassed the Zacks Consensus Estimate of $6.79. The bottom line reflects a rise of 15.5% from the prior-year quarter.
SIVB’s results were primarily aided by an improvement in net interest income (NII), driven by higher rates and loan growth. However, a rise in expenses, lower non-interest income and higher provisions were the undermining factors.
BankUnited, Inc.’s (BKU - Free Report) third-quarter 2022 earnings per share of $1.12 outpaced the Zacks Consensus Estimate of $1.01. The bottom line also grew 19.1% from the prior-year quarter. We had projected earnings per share of $1.02.
Results benefited from higher net interest income, a decent rise in loan balance and increasing rates. However, subdued fee income performance, a rise in expenses and an increase in credit costs acted as headwinds for BKU.
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Zions (ZION) Tanks as Q3 Earnings Miss on Higher Provisions
Shares of Zions Bancorporation (ZION - Free Report) lost 7% in after-hours trading in response to lower-than-expected third-quarter 2022 results. Net earnings per share of $1.40 lagged the Zacks Consensus Estimate of $1.58. Also, the bottom line declined 3% from the year-ago quarter. We too had projected earnings to be $1.58 per share.
Results were adversely impacted by higher provisions on worsening macroeconomic outlook. A rise in non-interest expenses, lower deposit balance and deteriorating capital and profitability ratios were the other undermining factors. Yet, improvement in net interest income (NII) driven by rising rates and increasing loan demand was a major positive. Also, higher non-interest income on solid capital markets performance was a tailwind.
Net income attributable to common shareholders was $211 million, down 10% year over year.
Revenues & Expenses Rise
Net revenues (tax equivalent) were $838 million, jumping 20% year over year. The top line also surpassed the Zacks Consensus Estimate of $813 million. Our estimate for the metric was $807.3 million.
NII was $663 million, growing 19% in the prior-year quarter. The rise was mainly driven by higher interest rates and a favorable change in the composition of interest-earning assets. Likewise, the net interest margin (NIM) expanded 56 basis points (bps) to 2.87%. Our estimates for NII and NIM were $653.2 million and 2.83%.
Non-interest income was $165 million, increasing 19%. This was mainly attributable to a rise in capital markets and foreign exchange fees and commercial account fees.
Adjusted non-interest expenses were $477 million, up 10%. We had expected this metric to be $483.6 million.
The efficiency ratio (non-GAAP) was 57.6%, down from 59.8% in the prior-year period. A rise in the efficiency ratio indicates a decrease in profitability.
As of Sep 30, 2022, net loans and leases held for investment were $53.4 billion, up 3% from the prior quarter. Total deposits were $76 billion, down 4%.
Credit Quality Worsening
The ratio of non-performing assets to loans and leases, as well as other real estate owned, contracted 36 bps year over year to 0.28%.
In the reported quarter, the company recorded net loan and lease charge-offs of $27 million against net recoveries of $1 million in the prior-year quarter. Also, the provision for credit losses was $71 million against a benefit of $46 million in the year-earlier quarter.
Capital & Profitability Ratios Deteriorate
Tier 1 leverage ratio was 7.5% as of Sep 30, 2022, compared with 7.6% at the end of the prior-year quarter. Tier 1 risk-based capital ratio of 10.3% decreased from 11.6%.
Further, as of Sep 30, 2022, the common equity tier 1 capital ratio of 9.6% declined from 10.9% in the prior-year period.
At the end of the third quarter, the return on average assets was 0.97%, down from 1.08% as of Sep 30, 2021. Also, the return on average tangible common equity was 19.5%, up from 14.2% 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 bode well for the future. However, persistently increasing operating expenses and deteriorating economic outlook are near-term concerns.
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 of Other Banks
SVB Financial Group’s third-quarter 2022 earnings per share of $7.21 surpassed the Zacks Consensus Estimate of $6.79. The bottom line reflects a rise of 15.5% from the prior-year quarter.
SIVB’s results were primarily aided by an improvement in net interest income (NII), driven by higher rates and loan growth. However, a rise in expenses, lower non-interest income and higher provisions were the undermining factors.
BankUnited, Inc.’s (BKU - Free Report) third-quarter 2022 earnings per share of $1.12 outpaced the Zacks Consensus Estimate of $1.01. The bottom line also grew 19.1% from the prior-year quarter. We had projected earnings per share of $1.02.
Results benefited from higher net interest income, a decent rise in loan balance and increasing rates. However, subdued fee income performance, a rise in expenses and an increase in credit costs acted as headwinds for BKU.