Zions Bank takes a hit from investors after profits plummet
After shares tumbled in response to bank alarms in March, Zions Bancorp on Wednesday reported lower-than-expected first-quarter earnings as the regional bank tried to highlight signs of its stability.
Salt Lake City-based Zions reported its results after the close and said it had net income of $198 million, or $1.33 per share, in the first quarter, 18 cents below a Wall Street consensus forecast of $1.54 per share.
However, that mark was above revenue of $195 million for the same quarter in 2022, while the bank’s net interest income rose 25% year over year to $679 million.
Zions chairman and CEO Harris Simmons said in a statement that the bank’s “fundamentally solid” first-quarter results were clouded by liquidity concerns stemming from the busts of California’s Silicon Valley bank and New York’s Signature bank in mid-March be.
Shares of Zions fell in after-hours trading on Wednesday, then hovered just under $31.50 a share.
The stock price fell dramatically in late February and early March from a trading level of around $50 per share to less than $30 in recent weeks – part of broad market volatility attributed to the bank failures and fears that these problems would spread.
As a result, the stock price has fallen nearly 50% over the past year.
In a later conference call with analysts, Simmons said reviewing Zions’ financial position during the market turmoil was “short-sighted,” and he urged investors to “really think more holistically about banks’ balance sheets and business models.”
“While disruptive, the events of mid-March were very manageable,” Simmons said, “and largely reflected the continuation of a trend seen in the industry and certainly on our own balance sheet over the past few quarters.” ”
Deposits have fallen but have stabilized
Zions’ deposits fell 16% to $69.2 billion last quarter, according to the latest report. This decline also exceeded some analysts’ forecasts, albeit by just a few percentage points.
According to bank executives, deposit outflows began when the Federal Reserve first began raising interest rates in hopes of curbing inflation, with the bank reporting $1.8 billion in outflows in the third quarter that were already in the month June, then $5 billion between September and December, and $8 billion in the first quarter of 2023.
“In some ways,” Simmons told analysts, “it’s a case of the Fed giving and the Fed taking away.”
Those deposit trends have stabilized since the end of the quarter, he and other Zions executives said.
Meanwhile, according to the CEO, between March 7 – when the banking crisis first hit – and March 31, Zions gained more than 7,000 accounts totaling $629 million.
Simmons and other bank chiefs also said Zions has steadily reduced its exposure to credit risk in commercial real estate sectors for more than a decade, strengthening it against recent signs of a recession in the sector.
The bank holding company serves clients primarily in Utah, Idaho and Wyoming with nearly 10,000 full-time employees as of the end of 2022. It reported annual net sales of $3.2 billion in 2022 and total assets of approximately $90 billion.
Concerns about commercial real estate financing
Shares in regional banks — such as Zions, San Francisco-based First Republic Bank, Phoenix-based Western Alliance and others — tumbled as Silicon and Signature fell in March, in part because of perceived vulnerabilities from unrealized losses in their investments and unprotected ones Customer deposit accounts over the $250,000 limit for federal insurance.
Rating agency Moody’s Investors Service has reviewed Zions and five other regional banks for possible downgrades of some of their credit ratings and threatened to increase their borrowing costs. The warning reflected what the agency said was “extremely volatile funding conditions for some U.S. banks, which face the risk of uninsured deposit outflows.”
Simmons said similar trends for deposits have emerged in recent quarters across the industry following the rapid growth in deposits during the pandemic. He noted that Zion’s deposits at the end of 2019 were still 18% above their pre-pandemic levels.
The value of the bank’s base of smaller depositors, the CEO said, has risen, although the value of some of its key assets — including assets in US fixed-rate Treasuries — has fallen with the Fed’s recent rate hikes.
Amid growing concerns about low occupancy and a slowdown in construction activity in the office sector, Simmons said the bank’s commercial real estate lending growth has been “carefully managed” in recent years, with just 0.1% of those loans currently classified as “non-performing “ would be referred to.
According to Michael Morris, Zion’s chief credit officer, the bank has systematically reduced the proportion of such loans in its overall portfolio from 33% in 2008 to 23% today to reduce its credit risk after the Great Recession.
The bank expects some losses on commercial real estate loans, which are focused on the office sector, Morris said, “but we think it’s very manageable.”