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Why Is Zions (ZION) Down 7.8% Since Last Earnings Report?
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It has been about a month since the last earnings report for Zions (ZION - Free Report) . Shares have lost about 7.8% 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 Q2 Earnings Miss Estimates, Provisions Rise
Zions’ 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. Non-interest income also increased for the quarter.
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.
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 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.
Outlook
The company provided guidance for its second-quarter 2024 financial performance on a year-over-year basis. The quarters in between are subject to normal seasonality.
Loans are expected to witness a slight increase as interest rates and the worsening economic outlook will result in softening loan demand.
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 stable to a slight decline in NII.
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. This excludes the proposed FDIC special assessment charges.
How Have Estimates Been Moving Since Then?
It turns out, estimates review have trended upward during the past month.
VGM Scores
At this time, Zions has an average Growth Score of C, though it is lagging a bit on the Momentum Score front with a D. However, the stock was allocated a grade of B on the value side, putting it in the top 40% for this investment strategy.
Overall, the stock has an aggregate VGM Score of B. If you aren't focused on one strategy, this score is the one you should be interested in.
Outlook
Estimates have been broadly trending upward for the stock, and the magnitude of these revisions looks promising. 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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Why Is Zions (ZION) Down 7.8% Since Last Earnings Report?
It has been about a month since the last earnings report for Zions (ZION - Free Report) . Shares have lost about 7.8% 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 Q2 Earnings Miss Estimates, Provisions Rise
Zions’ 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. Non-interest income also increased for the quarter.
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.
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 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.
Outlook
The company provided guidance for its second-quarter 2024 financial performance on a year-over-year basis. The quarters in between are subject to normal seasonality.
Loans are expected to witness a slight increase as interest rates and the worsening economic outlook will result in softening loan demand.
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 stable to a slight decline in NII.
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. This excludes the proposed FDIC special assessment charges.
How Have Estimates Been Moving Since Then?
It turns out, estimates review have trended upward during the past month.
VGM Scores
At this time, Zions has an average Growth Score of C, though it is lagging a bit on the Momentum Score front with a D. However, the stock was allocated a grade of B on the value side, putting it in the top 40% for this investment strategy.
Overall, the stock has an aggregate VGM Score of B. If you aren't focused on one strategy, this score is the one you should be interested in.
Outlook
Estimates have been broadly trending upward for the stock, and the magnitude of these revisions looks promising. Notably, Zions has a Zacks Rank #3 (Hold). We expect an in-line return from the stock in the next few months.