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Zions Bancorporation’s (ZION - Free Report) second-quarter 2023 net earnings per share of $1.11 lagged the Zacks Consensus Estimate of $1.13. The bottom line decreased 14% from the year-ago quarter.
Results were adversely impacted by a decline in net interest income (NII), a rise in non-interest expenses and higher provisions. However, higher rates, decent loan demand and a rise in deposit balances were the major positives. Nevertheless, non-interest income also increased for the quarter.
Shares of ZION gained 5.9% in after-market trading hours despite lower-than-expected results.
Net income attributable to common shareholders was $166 million, down 14.9% year over year. Our estimate for the metric was $165.8 million.
Revenues Improve, Expenses Rise
Net revenues (tax equivalent) were $791 million, which increased 2.2% year over year. The top line surpassed the Zacks Consensus Estimate of $757.3 million.
NII was $591 million, marginally declining year over year. The fall was mainly driven by an increase in interest paid on deposits and short-term borrowings. It was also impacted by a reduction in interest-earning assets and a significant increase in interest-bearing liabilities. However, the net interest margin (NIM) expanded 5 basis points (bps) to 2.92%. Our estimates for NII and NIM were $630 million and 2.86%, respectively.
Non-interest income came in at $189 million, increasing 9.9% year over year. This was mainly attributable to a rise in capital markets fees, wealth management fees, commercial account fees, and dividends and other income. We had projected non-interest income to be lower on the back of a challenging operating backdrop. However, a slight improvement in the operating environment in the later part of the quarter seems to have helped the company report higher numbers.
In the reported quarter, ZION recorded nil net securities gains compared to a gain of $1 million in the prior-year quarter.
Adjusted non-interest expenses were $494 million, up 6.7% year over year. We had expected this metric to be $457 million.
The efficiency ratio was 62.5%, up from 60.7% in the prior-year period. A rise in the efficiency ratio indicates a decrease in profitability.
As of Jun 30, 2023, net loans and leases held for investment were $56.3 billion, up 1% from the prior quarter. Total deposits were $74.3 billion, up 7.4% sequentially.
Credit Quality: Mixed Bag
The ratio of non-performing assets to loans and leases, as well as other real estate owned, contracted 9 bps year over year to 0.30%.
In the reported quarter, the company recorded net loan and lease charge-offs of $13 million compared with $9 million in the prior-year quarter. The provision for credit losses was $46 million, up 12.2% from $41 million in the prior-year quarter. We had projected provisions of $49 million for the second quarter.
Capital Ratios Improve & Profitability Ratios Deteriorate
Tier 1 leverage ratio was 8.1% as of Jun 30, 2023 compared with 7.4% at the end of the prior-year quarter. Tier 1 risk-based capital ratio of 10.7% increased from 10.6%.
Further, as of Jun 30, 2023, the common equity tier 1 capital ratio was 10%, which increased from 9.9% in the prior-year period.
At the end of the second quarter, the return on average assets was 0.79%, down from 0.91% as of Jun 30, 2022. Also, the return on average tangible common equity was 10%, down from 12.5% in the year-ago quarter.
Share Repurchases
In the reported quarter, the company did not repurchase any shares.
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
U.S. Bancorp’s (USB - Free Report) second-quarter 2023 adjusted earnings per share (excluding merger and integration-related charges, balance sheet optimization, as well as provision for credit losses) of $1.12 missed the Zacks Consensus Estimate of $1.13. Nonetheless, it grew 2.8% from the prior-year quarter.
However, USB's results benefited from an increase in NII, supported by higher interest rates. Also, an increase in non-interest income and moderate loan growth were positives. On the flip side, higher expenses and deterioration of the company’s credit quality were headwinds.
Citizens Financial Group (CFG - Free Report) reported second-quarter 2023 earnings per share of 92 cents, missing the Zacks Consensus Estimate of $1. Nonetheless, the bottom line rose from 67 cents in the year-ago quarter.
Results reflected NII growth on a rise in interest-earning assets. However, an escalation in expenses, lower non-interest income and a decline in loans were the undermining factors for CFG.
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Zions (ZION) Gains Despite Q2 Earnings Miss, Costs Rise
Zions Bancorporation’s (ZION - Free Report) second-quarter 2023 net earnings per share of $1.11 lagged the Zacks Consensus Estimate of $1.13. The bottom line decreased 14% from the year-ago quarter.
Results were adversely impacted by a decline in net interest income (NII), a rise in non-interest expenses and higher provisions. However, higher rates, decent loan demand and a rise in deposit balances were the major positives. Nevertheless, non-interest income also increased for the quarter.
Shares of ZION gained 5.9% in after-market trading hours despite lower-than-expected results.
Net income attributable to common shareholders was $166 million, down 14.9% year over year. Our estimate for the metric was $165.8 million.
Revenues Improve, Expenses Rise
Net revenues (tax equivalent) were $791 million, which increased 2.2% year over year. The top line surpassed the Zacks Consensus Estimate of $757.3 million.
NII was $591 million, marginally declining year over year. The fall was mainly driven by an increase in interest paid on deposits and short-term borrowings. It was also impacted by a reduction in interest-earning assets and a significant increase in interest-bearing liabilities. However, the net interest margin (NIM) expanded 5 basis points (bps) to 2.92%. Our estimates for NII and NIM were $630 million and 2.86%, respectively.
Non-interest income came in at $189 million, increasing 9.9% year over year. This was mainly attributable to a rise in capital markets fees, wealth management fees, commercial account fees, and dividends and other income. We had projected non-interest income to be lower on the back of a challenging operating backdrop. However, a slight improvement in the operating environment in the later part of the quarter seems to have helped the company report higher numbers.
In the reported quarter, ZION recorded nil net securities gains compared to a gain of $1 million in the prior-year quarter.
Adjusted non-interest expenses were $494 million, up 6.7% year over year. We had expected this metric to be $457 million.
The efficiency ratio was 62.5%, up from 60.7% in the prior-year period. A rise in the efficiency ratio indicates a decrease in profitability.
As of Jun 30, 2023, net loans and leases held for investment were $56.3 billion, up 1% from the prior quarter. Total deposits were $74.3 billion, up 7.4% sequentially.
Credit Quality: Mixed Bag
The ratio of non-performing assets to loans and leases, as well as other real estate owned, contracted 9 bps year over year to 0.30%.
In the reported quarter, the company recorded net loan and lease charge-offs of $13 million compared with $9 million in the prior-year quarter. The provision for credit losses was $46 million, up 12.2% from $41 million in the prior-year quarter. We had projected provisions of $49 million for the second quarter.
Capital Ratios Improve & Profitability Ratios Deteriorate
Tier 1 leverage ratio was 8.1% as of Jun 30, 2023 compared with 7.4% at the end of the prior-year quarter. Tier 1 risk-based capital ratio of 10.7% increased from 10.6%.
Further, as of Jun 30, 2023, the common equity tier 1 capital ratio was 10%, which increased from 9.9% in the prior-year period.
At the end of the second quarter, the return on average assets was 0.79%, down from 0.91% as of Jun 30, 2022. Also, the return on average tangible common equity was 10%, down from 12.5% in the year-ago quarter.
Share Repurchases
In the reported quarter, the company did not repurchase any shares.
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 #5 (Strong Sell).
You can see the complete list of today’s Zacks #1 Rank (Strong Buy) stocks here.
Performance of Other Banks
U.S. Bancorp’s (USB - Free Report) second-quarter 2023 adjusted earnings per share (excluding merger and integration-related charges, balance sheet optimization, as well as provision for credit losses) of $1.12 missed the Zacks Consensus Estimate of $1.13. Nonetheless, it grew 2.8% from the prior-year quarter.
However, USB's results benefited from an increase in NII, supported by higher interest rates. Also, an increase in non-interest income and moderate loan growth were positives. On the flip side, higher expenses and deterioration of the company’s credit quality were headwinds.
Citizens Financial Group (CFG - Free Report) reported second-quarter 2023 earnings per share of 92 cents, missing the Zacks Consensus Estimate of $1. Nonetheless, the bottom line rose from 67 cents in the year-ago quarter.
Results reflected NII growth on a rise in interest-earning assets. However, an escalation in expenses, lower non-interest income and a decline in loans were the undermining factors for CFG.