Following the fourth-quarter 2014 earnings release, shares of Zions Bancorporation (ZION) slipped 2.1% in the after-market trading session on concerns over the weak performance. The company reported fourth-quarter earnings of 36 cents, which lagged the Zacks Consensus Estimate of 43 cents. However, this compared favorably with the prior-year quarter adjusted loss of 32 cents.
For full-year 2014, earnings per share stood at $1.71, up 8% year over year. However, this missed the Zacks Consensus Estimate of $1.81.
Results suffered from a decline in net interest income (NII) as well as elevated provisions. However, growth in loans and deposits along with lower expenses slightly salvaged the results. Profitability and capital ratios displayed improvement.
Zions’ net earnings applicable to common shareholders came in at $73.2 million compared with a net loss of $59.4 million in the year-ago quarter. Earnings per share for the prior-year quarter included an adverse impact of impairment losses on collateralized debt obligation securities.
For 2014, net earnings applicable to common shareholders rose 13% year over year to $333.0 million.
Behind the Headlines
Zions’ total revenue summed $591.4 million, up 29% year over year. Moreover, this beat the Zacks Consensus Estimate of $557.0 million.
For 2014, total revenue climbed 4% year over year to $2.36 billion. Further, it outpaced the Zacks Consensus Estimate of $2.19 billion.
NII decreased marginally year over year to $430.4 million. However, net interest margin (NIM) inched down 8 basis points (bps) to 3.25%.
Non-interest income totaled $129.4 million, substantially up from the non-interest loss of $31.2 million in the year-ago quarter. Higher dividends and other investment income, other service charges, commissions and fees as well as net equity securities gains contributed to the rise. Notably, loss in the prior-year corresponding period was a result of significant impairment losses on investment securities.
Non-interest expenses declined 17% year over year to $412.2 million. The reduction in expenses was mainly driven by lower provision for unfunded lending commitments, absence of debt extinguishment cost as well as other expenses. These were, however, partially offset by an increase in salaries and employee benefits, professional and legal services as well as furniture, equipment and software.
Total loans, including FDIC supported loans, grew 3% year over year to $40.1 billion. Moreover, total deposits rose 3% year over year to $47.8 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 descended 34 bps year over year to 0.81%. However, net loans and lease charge-offs fell 11% year over year to $17.2 million.
Allowance for credit losses as a percentage of loans and leases stood at 1.71%, down 43 bps year over year. Nevertheless, provisions for loan losses surged significantly to $11.6 million, compared with the negative provision of $30.5 million in the year-ago quarter.
Profitability and Capital Ratios
Zions’ capital ratios and profitability ratios reflected improvement. As of Dec 31, 2014, Tier 1 leverage ratio came in at 11.84% versus 10.48% in the prior-year quarter. Likewise, Tier 1 risk-based capital ratio stood at 14.47% compared with 12.77% as of Dec 31, 2013.
Return on average assets stood at 0.61% against a negative return of 0.30% in the prior-year quarter. Moreover, as of Dec 31, 2014, tangible return on common equity came in at 5.42% compared with a negative return of 5.45% in the year-ago quarter.
Our Viewpoint
Zions’ top line continues to be pressurized, given the prevailing low interest rate scenario. Also, rise in provisions add to the strain, thus further weighing on profitability. However, the bank’s efforts towards better cost management were visible in the current results.
Further, 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).
Among other Western banks, BofI Holding, Inc. (BOFI) is scheduled to release its fiscal second-quarter 2015 earnings results on Jan 29. Moreover, Bank of Commerce Holdings (BOCH) and Central Pacific Financial Corp. (CPF) are slated to report their fourth-quarter 2014 earnings results on Jan 30 and Feb 5, respectively.
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