Zions' 2Q profit suppressed by rising deposit costs

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Earnings at Zions Bancorp. in Salt Lake City fell well short of expectations in the second quarter as strong loan growth was offset by surging deposit costs.

The $70 billion-asset Zions said Monday that it earned $189 million in the quarter, up just 1% from the second quarter of 2018. Earnings per share of 99 cents were 11 cents below the mean estimates of analysts surveyed by FactSet Research Systems.

In a press release, Chairman and CEO Harris Simmons blamed the quarter's results on the "challenging interest rate environment." Like many banks, Zions has had to continue to raise deposit rates to keep customers from shifting deposits to online and other banks paying above-market rates.

Net loans and leases increased 7% to $48.7 billion, driven by broad-based loan growth. Commercial and industrial loans rose 8% to $25.1 billion, commercial real estate grew 8% to $11.8 billion, and consumer loans rose 6% to $11.9 billion.

Net interest income climbed 4% to $569 million, but the net interest margin declined by 14 basis points to 3.54%.

That's largely because interest paid on deposits increased 127% to $66 million.

Deposits increased just 1% to $54.3 billion, but continued to shift out of non-interest-bearing demand deposits and into more expensive accounts.

Fee income was a mixed bag for Zions in the second quarter, as noninterest income declined 4% to $132 million. Wealth management and trust income, service charges and deposit fees, and dividends and other investment income fell year over years. Capital markets and foreign exchange fees, loan sales and servicing income and other income and commissions increased.

Noninterest expenses ticked up 1% to $424 million. Employee salaries, the largest expense, rose 3% to $274 million, but Zions also lowered its expenses for professional and legal services, advertising and Federal Deposit Insurance Corp. premiums.

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