A month has gone by since the last earnings report for Zions (ZION - Free Report) . Shares have lost about 6.3% 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 Lag Estimates, Revenues & Costs Up
Zions’ first-quarter 2019 earnings per share of $1.04 missed the Zacks Consensus Estimate of by a penny. Also, the figure compared unfavorably with the prior-year quarter’s earnings per share of $1.09.
Results were adversely affected by an increase in expenses and lower non-interest income. Moreover, the company recorded higher provision for credit losses during the quarter. However, rise in net interest income was a tailwind. Also, the balance sheet position remained strong.
Net income attributable to common shareholders was $205 million, down 11.3% year over year.
Revenues Improve, Costs Rise
Net revenues were $708 million, increasing 4.1% year over year. However, the top line lagged the Zacks Consensus Estimate of $715.6 million.
Net interest income was $576 million, up 6.3% from the prior-year quarter. This rise was primarily attributable to loan growth and increase in interest and fees on loans, partially offset by higher interest expenses. Further, net interest margin expanded 12 basis points (bps) year over year to 3.68%.
Non-interest income amounted to $132 million, down 4.3% from the year-ago quarter. This downside was due to a fall in almost all fee income components.
Adjusted non-interest expenses were $431 million, up 2.9% from the prior-year quarter.
Efficiency ratio was 60.2%, down from 61.3% reported a year ago. A fall in efficiency ratio indicates improvement in profitability.
Strong Balance Sheet
As of Mar 31, 2019, total net loans held for investment were $47.1 billion, up from $46.2 billion recorded at the end of the prior quarter. Total deposits were $54.5 billion, up nearly 1% from the fourth-quarter end.
Credit Quality: A Mixed Bag
The ratio of non-performing assets to loans and leases as well as other real estate owned shrunk 37 bps year over year to 0.50%. Moreover, net loan and lease charge-offs were nil compared with charge-offs of $5 million in the prior-year quarter.
However, provision for credit losses was $4 million against a benefit of $47 million in the year-earlier quarter.
Capital & Profitability Ratios Deteriorate
Tier 1 leverage ratio was 9.9% as of Mar 31, 2019, compared with 10.5% at the end of the prior-year quarter. Tier 1 risk-based capital ratio was 12.3%, down from 13.3% in the year-ago quarter.
At the end of the first quarter, return on average assets was 1.26%, down from 1.45% as of Mar 31, 2018. Also, as of Mar 31, 2019, return on average tangible common equity was 13.9%, down from 15.5% witnessed a year earlier.
During the quarter, Zions repurchased $275 million worth of shares.
Management expects pre-provision net revenue growth rate to be in high single digits.
Net interest income is expected to increase moderately in the next 12 months, on assumptions of no additional rate increases and slight decline in securities portfolio balances.
In case of no further interest rate hikes, NIM is expected to remain stable over the near term, driven by rise in non-interest bearing deposits.
Customer-related fees (excludes securities gains, dividends) are expected to increase slightly.
Loan balance is anticipated to marginally rise over the next 12 months. This is likely to be driven by moderate to strong growth in 1-4 family, municipal, C&I and owner-occupied loans as well as stable to moderate increase in Oil & Gas and CRE loans. These are expected to be partially offset by moderate decline in national real estate loans.
Adjusted non-interest expenses in 2019 are expected to increase at low-single digit rate on a year-over-year basis.
The company expects to achieve an efficiency ratio of below 60% for 2019, excluding the possible benefits of rate hikes.
Effective tax rate is anticipated to be approximately 23% for 2019.
Increase in loan loss provisions is projected to be modest in the next 12 months.
How Have Estimates Been Moving Since Then?
It turns out, fresh estimates have trended upward during the past month.
At this time, Zions has a poor Growth Score of F, however its Momentum Score is doing a lot better with a B. Following the exact same course, 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 D. If you aren't focused on one strategy, this score is the one you should be interested in.
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.