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Zions (ZION) Down 12.5% Since Last Earnings Report: Can It Rebound?
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It has been about a month since the last earnings report for Zions (ZION - Free Report) . Shares have lost about 12.5% 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 catalysts.
Zions' Q1 Earnings Miss Estimates, Provisions Rise
Zions’ first-quarter 2023 net earnings per share of $1.33 lagged the Zacks Consensus Estimate of $1.51. The bottom line increased 4.7% from the year-ago quarter. We had projected earnings of $1.39 per share.
Results were adversely impacted by higher provisions, a rise in non-interest expenses and lower deposit balances. However, there was an improvement in net interest income (NII), which was driven by rising rates and decent loan demand. Non-interest income also increased for the quarter.
Net income attributable to common shareholders was $198 million, up 1.5% year over year. Our estimate for the metric was $205.8 million.
Revenues Improve, Expenses Rise
Net revenues (tax equivalent) were $848 million, jumping 22.2% year over year. The top line also surpassed the Zacks Consensus Estimate of $844.3 million. Our estimate for the metric was $856.8 million.
NII was $679 million, growing 24.8%. 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 73 basis points (bps) to 3.33%. Our estimates for NII and NIM were $661.2 million and 3.21%, respectively.
Non-interest income was $160 million, increasing 12.7%. This was mainly attributable to a rise in capital markets fees, commercial account fees and dividends and other income. We had projected a non-interest income of $185.7 million. In the reported quarter, the company recorded a net securities gain of $1 million against a loss of $17 million in the prior-year quarter.
Adjusted non-interest expenses were $509 million, up 9.7%. We had expected this metric to be $519.1 million.
The efficiency ratio was 59.9%, down from 65.8% in the prior-year period. A fall in the efficiency ratio indicates an improvement in profitability.
As of Mar 31, 2023, net loans and leases held for investment were $55.7 billion, up 1.1% from the prior quarter. Total deposits were $69.2 billion, down 3.4% sequentially.
Credit Quality: Mixed Bag
The ratio of non-performing assets to loans and leases, as well as other real estate owned, contracted 18 bps year over year to 0.31%. In the reported quarter, the company recorded nil net loan and lease charge-offs compared with $6 million in the prior-year quarter.
The provision for credit losses was $45 million against a benefit of $33 million in the year-earlier quarter. We had projected provisions of $59.7 million for the first quarter.
Capital Ratios and Profitability Ratios Solid
Tier 1 leverage ratio was 7.8% as of Mar 31, 2023 compared with 7.3% at the end of the prior-year quarter. Tier 1 risk-based capital ratio of 10.6% decreased from 10.8%.
Further, as of Mar 31, 2023, the common equity tier 1 capital ratio was 9.9%, which declined from 10% in the prior-year period.
At the end of the first quarter, the return on average assets was 0.91%, up from 0.90% as of Mar 31, 2022. Also, the return on average tangible common equity was 12.3%, down from 12.9% in the year-ago quarter.
Share Repurchases
The company repurchased 0.9 million shares for $50 million in the reported quarter.
Outlook
The company provided guidance for its first-quarter 2024 financial performance on a year-over-year basis. The quarters in between are subject to normal seasonality.
Loans (excluding PPP loans) are expected to witness a slight increase due to the impacts of higher rates and a probable slowdown in the economy on the company’s portfolio.
Deposit growth is expected to slow down.
Latent and emerging interest rate sensitivity, along with loan growth and manageable changes in deposit volumes and pricing, is expected to result in a slight decline in NII (excluding PPP loan income).
For the second quarter of 2023, NII is anticipated to decline 7% sequentially, given the recent hastening of deposit repricing beta and balance sheet changes.
Customer-related fees (excluding securities gains and dividends) are expected to increase moderately.
On the cost front, adjusted non-interest expenses are likely to be stable.
How Have Estimates Been Moving Since Then?
In the past month, investors have witnessed a downward trend in fresh estimates.
The consensus estimate has shifted -8.01% due to these changes.
VGM Scores
Currently, Zions has a subpar Growth Score of D, though it is lagging a bit on the Momentum Score front with an F. However, the stock was allocated a grade of B on the value side, putting it in the second quintile for this investment strategy.
Overall, the stock has an aggregate VGM Score of D. 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 indicates a downward shift. 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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Zions (ZION) Down 12.5% Since Last Earnings Report: Can It Rebound?
It has been about a month since the last earnings report for Zions (ZION - Free Report) . Shares have lost about 12.5% 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 catalysts.
Zions' Q1 Earnings Miss Estimates, Provisions Rise
Zions’ first-quarter 2023 net earnings per share of $1.33 lagged the Zacks Consensus Estimate of $1.51. The bottom line increased 4.7% from the year-ago quarter. We had projected earnings of $1.39 per share.
Results were adversely impacted by higher provisions, a rise in non-interest expenses and lower deposit balances. However, there was an improvement in net interest income (NII), which was driven by rising rates and decent loan demand. Non-interest income also increased for the quarter.
Net income attributable to common shareholders was $198 million, up 1.5% year over year. Our estimate for the metric was $205.8 million.
Revenues Improve, Expenses Rise
Net revenues (tax equivalent) were $848 million, jumping 22.2% year over year. The top line also surpassed the Zacks Consensus Estimate of $844.3 million. Our estimate for the metric was $856.8 million.
NII was $679 million, growing 24.8%. 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 73 basis points (bps) to 3.33%. Our estimates for NII and NIM were $661.2 million and 3.21%, respectively.
Non-interest income was $160 million, increasing 12.7%. This was mainly attributable to a rise in capital markets fees, commercial account fees and dividends and other income. We had projected a non-interest income of $185.7 million. In the reported quarter, the company recorded a net securities gain of $1 million against a loss of $17 million in the prior-year quarter.
Adjusted non-interest expenses were $509 million, up 9.7%. We had expected this metric to be $519.1 million.
The efficiency ratio was 59.9%, down from 65.8% in the prior-year period. A fall in the efficiency ratio indicates an improvement in profitability.
As of Mar 31, 2023, net loans and leases held for investment were $55.7 billion, up 1.1% from the prior quarter. Total deposits were $69.2 billion, down 3.4% sequentially.
Credit Quality: Mixed Bag
The ratio of non-performing assets to loans and leases, as well as other real estate owned, contracted 18 bps year over year to 0.31%. In the reported quarter, the company recorded nil net loan and lease charge-offs compared with $6 million in the prior-year quarter.
The provision for credit losses was $45 million against a benefit of $33 million in the year-earlier quarter. We had projected provisions of $59.7 million for the first quarter.
Capital Ratios and Profitability Ratios Solid
Tier 1 leverage ratio was 7.8% as of Mar 31, 2023 compared with 7.3% at the end of the prior-year quarter. Tier 1 risk-based capital ratio of 10.6% decreased from 10.8%.
Further, as of Mar 31, 2023, the common equity tier 1 capital ratio was 9.9%, which declined from 10% in the prior-year period.
At the end of the first quarter, the return on average assets was 0.91%, up from 0.90% as of Mar 31, 2022. Also, the return on average tangible common equity was 12.3%, down from 12.9% in the year-ago quarter.
Share Repurchases
The company repurchased 0.9 million shares for $50 million in the reported quarter.
Outlook
The company provided guidance for its first-quarter 2024 financial performance on a year-over-year basis. The quarters in between are subject to normal seasonality.
Loans (excluding PPP loans) are expected to witness a slight increase due to the impacts of higher rates and a probable slowdown in the economy on the company’s portfolio.
Deposit growth is expected to slow down.
Latent and emerging interest rate sensitivity, along with loan growth and manageable changes in deposit volumes and pricing, is expected to result in a slight decline in NII (excluding PPP loan income).
For the second quarter of 2023, NII is anticipated to decline 7% sequentially, given the recent hastening of deposit repricing beta and balance sheet changes.
Customer-related fees (excluding securities gains and dividends) are expected to increase moderately.
On the cost front, adjusted non-interest expenses are likely to be stable.
How Have Estimates Been Moving Since Then?
In the past month, investors have witnessed a downward trend in fresh estimates.
The consensus estimate has shifted -8.01% due to these changes.
VGM Scores
Currently, Zions has a subpar Growth Score of D, though it is lagging a bit on the Momentum Score front with an F. However, the stock was allocated a grade of B on the value side, putting it in the second quintile for this investment strategy.
Overall, the stock has an aggregate VGM Score of D. 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 indicates a downward shift. Notably, Zions has a Zacks Rank #3 (Hold). We expect an in-line return from the stock in the next few months.