Zions Bancorporation (ZION) reported third-quarter adjusted earnings of 38 cents, which missed the Zacks Consensus Estimate of 45 cents. Moreover, this compared unfavorably with the prior-year quarter adjusted figure of 44 cents.

Results suffered from a decline in the top line, further aggravated by mounting expenses as well as provisions. However, growth in loans and deposits slightly salvaged the results. While profitability ratios weakened, capital ratios displayed improvement.

After considering certain non-recurring items, Zions’ net earnings applicable to common shareholders came in at $79.1 million or 40 cents per share compared with $209.7 million or $1.12 per share in the year-ago quarter.

Behind the Headlines

Zions’ total revenue summed $576.3 million, down 3.2% from the prior-year quarter, but beat the Zacks Consensus Estimate of $545.0 million.

Net interest income (NII.TO) increased marginally year over year to $416.8 million. However, net interest margin (NIM) inched down 2 basis points (bps) to 3.20%.

Non-interest income totaled $116.1 million, down 5% from the year-ago quarter. The fall was primarily the result of a reduction in capital markets and foreign exchange, dividends and other investment income, loan sales and servicing income, net equity securities gains and a substantial fall in noncredit-related losses on securities not expected to be sold as well as net fixed income securities gains. These were, however, partly offset by a rise in other service charges, commissions and fees, wealth management income as well as fall in the fair value and non-hedge derivative loss and n impairment losses on investment securities.

Non-interest expenses rose 18.3% year over year to $438.5 million. Notably, this quarter’s expenses included an expense of $44 million related to debt extinguishment.

Total loans, including FDIC supported loans, grew 3.8% year over year to $39.7 billion. Moreover, total deposits rose 1.3% year over year to $46.3 billion.

Credit Quality

Zions’ credit quality reflected a mixed scenario. The ratio of nonperforming lending-related assets to net loans and leases as well as other real estate owned fell 56 bps year over year to 0.84%. However, net loans and lease charge-offs climbed 26% year over year to $11.0 million.

Allowance for credit losses as a percentage of loans and leases stood at 1.74%, down 56 bps year over year. Nevertheless, provisions for loan losses surged significantly year over year to $54.6 million.

Profitability and Capital Ratios

Zions’ capital ratios improved but profitability ratios deteriorated. As of Sep 30, 2014, Tier 1 leverage ratio was 11.87% versus 10.63% in the prior-year quarter. Likewise, Tier 1 risk-based capital ratio was 14.45% compared with 13.10% as of Sep 30, 2013.

Return on average assets stood at 0.68% against 0.80% in the prior-year quarter. Moreover, as of Sep 30, 2014, tangible return on common equity came in at 6.19% compared with 20.34% in the year-ago quarter.

Our Viewpoint

Though Zions has been making efforts to curb expenses, its current quarter performance disappointed as elevated expenses weighed on the bank’s overall profitability. Moreover, the bank’s top line continues to be pressurized, given the prevailing low interest rate scenario.

However, Zions’ sustained improvement in loans and deposits remains its strength. We believe that the initiatives undertaken to enhance the balance sheet position will augur well for the company’s financials going forward.

Currently, Zions carries a Zacks Rank #3 (Hold).

Other Western Banks

Among other West banks, Westamerica Bancorp. (WABC) reported in-line third-quarter earnings of 58 cents per share.

Central Pacific Financial Corp. (CPF) is scheduled to report third-quarter results on Oct 29, while Bank of Commerce Holdings (BOCH) is slated to report on Oct 30.

Read the Full Research Report on WABC
Read the Full Research Report on ZION
Read the Full Research Report on CPF
Read the Full Research Report on BOCH


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