Zions Bancorporation Q3 earnings decline despite beating estimates

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Zions Bancorporation Q3 earnings decline despite beating estimates
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Zions Bancorporation (NASDAQ: ZION ) reported a 19.3% year-over-year decrease in its third-quarter earnings, leading to a 4% drop in shares during after-market trading hours on Thursday. This decline occurred despite the company's Earnings Per Share (EPS) of $1.13 surpassing the Zacks Consensus Estimate of $1.10. According to InvestingPro data, the bank's P/E ratio stands at 5.7, indicating a low earnings multiple, a fact also highlighted by InvestingPro Tips.

The bank's net income attributable to shareholders fell by 20.4% year over year to $168 million. Net revenues were $776 million, exceeding the Zacks estimate, but this marked a 7.4% decrease from the previous year. Yet, as per InvestingPro data, the bank's revenue growth has been accelerating, with a 7.38% increase in the last twelve months.

One of the factors contributing to the decline was an 11.8% year-over-year fall in Net Interest Income (NII) to $585 million, caused by higher funding costs, fewer interest-earning assets, and more interest-bearing liabilities. This resulted in a decrease in the Net Interest Margin (NIM) by 31 basis points to 2.93%.

On the other hand, non-interest income rose by 9.1% year over year to $180 million, driven by increases in commercial account fees, loan-related fees and income, wealth management fees, fair value and non-hedge derivative income, and dividends and other income.

InvestingPro data indicates that adjusted non-interest expenses also rose by 3.4% year over year to $493 million. The bank's efficiency ratio increased from 57.6% to 64.4%, indicating lower profitability.

As of September 30, 2023, net loans and leases held for investment stood at $56.2 billion, while total deposits rose by 1.4% sequentially to $75.4 billion. The ratio of non-performing assets to loans and leases expanded by 10 basis points year over year to 0.38%.

Net loan and lease charge-offs decreased to $14 million from $27 million in the prior-year quarter, while the provision for credit losses fell by 42.3% from the previous year's quarter to $41 million.

Zions Bancorporation's capital ratios improved, with the Tier 1 leverage ratio at 8.3%, compared with 7.5% in the prior-year quarter. The Tier 1 risk-based capital ratio increased from 10.3% to 10.9%, and the common equity tier 1 capital ratio increased from 9.6% to 10.2%.

Despite these improvements, profitability ratios declined; return on average assets decreased from 0.97% to 0.80%, and the return on average tangible common equity fell from 19.6% to 17.3%. Yet, according to InvestingPro Tips, Zions has maintained dividend payments for 53 consecutive years and has raised its dividend for 10 consecutive years, with the dividend yield standing at 4.6% as per InvestingPro data. This suggests that stockholders continue to receive high returns on book equity, even in the face of declining profitability.

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