Zions Bank reassures investors as earnings fall below Wall Street mark

Utah-based lender sees its deposits drop evens the overall number of accounts grows.

(Chris Samuels | The Salt Lake Tribune) A Zions Bank branch in Cottonwood Heights, Monday, March 13, 2023.

After its stock lurched downward amid reaction to March’s banking alarms, Zions Bancorp on Wednesday reported lower-than-expected earnings for the first quarter as the regional bank sought to highlight signs of its stability.

Announcing its results after the markets closed, Salt Lake City-based Zions said it had first-quarter net earnings of $198 million or $1.33 per share, 18 cents below a Wall Street consensus prediction of $1.54 per share.

That mark, though, was above its $195 million in earnings for the same quarter in 2022, while the bank’s net interest income jumped 25% over last year, to $679 million.

Zions Chairman and CEO Harris Simmons said in a statement the bank’s “fundamentally solid” first-quarter results were being overshadowed by liquidity worries flowing from the mid-March failures of California-based Silicon Valley Bank and New York’s Signature Bank.

Shares in Zions declined in after-hours trading Wednesday, then hovered just under $31.50 a share.

Its stock price fell dramatically in late February and early March, from a trading threshold of around $50 a share to less than $30 in recent weeks — part of broad market volatility stemming from the bank failures and fears those troubles would spread.

That has left its share price down almost 50% over the past year.

In a conference call later with analysts, Simmons said the scrutiny of Zions’ financial standing in the market turbulence had been “myopic,” and he urged investors “to really think more holistically about banks’ balance sheets and business models.”

“While the events of mid-March were disruptive, they were very manageable,” Simmons said, “and, in large measure, reflected a continuation of a trend seen in the industry and certainly in our own balance sheet over the past few quarters.”

Deposits dropped but have stabilized

Zions’ deposits sank by 16%, to $69.2 billion, for the most recent quarter, its latest report said. That drop also exceeded some analysts’ predictions, though only by a few percentage points.

Deposit outflows, according to the bank’s executives, started as the Federal Reserve first began to hike interest rates in hopes of tamping down inflation, with the bank seeing $1.8 billion in third-quarter outflows starting as early as June, then $5 billion between September and December and $8 billion over the first quarter of 2023.

“In some respects,” Simmons told analysts, “it’s a case of the Fed giveth and the Fed taketh away.”

Those deposit trends have stabilized since the end of the quarter, he and other Zions executives said.

Meanwhile, the CEO said, Zions gained more than 7,000 accounts between March 7 — when the banking crisis first struck — and March 31, with a total value of $629 million.

Simmons and other bank bosses also said Zions had steadily lessened its exposure to credit risks in commercial real estate sectors over more than a decade, fortifying it against current signs of a recession involving that sector.

The bank holding company serves customers primarily in Utah, Idaho and Wyoming, with nearly 10,000 full-time-equivalent employees as of the end of 2022. It reported annual net revenue of $3.2 billion in 2022 and total assets of approximately $90 billion.

Worries in commercial real estate lending

Shares in regional banks — such as Zions, San Francisco-based First Republic Bank, Phoenix-based Western Alliance and others — plunged as Silicon and Signature tanked in March, partly over perceived vulnerabilities from unrealized losses in their investments and over unprotected customer deposits in accounts above the $250,000 limit for federal insurance.

The ratings agency Moody’s Investors Service placed Zions and five other regional banks under review for possible downgrades in some of their credit ratings, threatening to increase their borrowing costs. The warning reflected what the agency said was “the extremely volatile funding conditions for some U.S. banks exposed to the risk of uninsured deposit outflows.”

Simmons said similar trends for deposits had taken shape in recent quarters across the industry after rapid deposit growth during the pandemic. He noted that Zions’ deposits were still up 18% over their pre-pandemic levels, at the end of 2019.

The value of the bank’s base of smaller depositors, the CEO said, had risen even as the value of some its key investments — including assets in fixed-yield U.S. Treasurys — diminished with the Fed’s recent rate hikes.

On rising concerns over low occupancies and a construction slowdown in the office sector, Simmons said growth in the bank’s lending for commercial real estate had been “carefully managed” in recent years, with only 0.1% of those loans currently described as “nonperforming.”

According to Michael Morris, Zion’s chief credit officer, the bank had systematically trimmed such loans as a share of its overall portfolio from 33% in 2008 to 23% today in an effort to lower its credit risk after the Great Recession.

The bank expects some commercial real estate loan losses centered on the office sector, Morris said, “but we think it’s very manageable.”