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Can Loan Growth, Higher Rates Aid Zions' (ZION) Q2 Earnings?

Zions Bancorporation ZION is scheduled to announce second-quarter 2018 results on Jul 23, after the market closes. Its revenues and earnings for the quarter under review are projected to grow year over year.

In the last reported quarter, Zions’ earnings outpaced the Zacks Consensus Estimate. Higher revenues and benefit from provisions aided results. However, higher adjusted non-interest expenses were the undermining factor.

Moreover, the company boasts an impressive earnings surprise history. Its earnings surpassed the Zacks Consensus Estimate in three and matched in one of the trailing four quarters, with an average beat of 14.7%.

Zions Bancorporation Price and EPS Surprise

Zions Bancorporation Price and EPS Surprise | Zions Bancorporation Quote

Before we take a look at what our quantitative model predicts for the to-be-reported quarter, let’s check the factors that are likely to impact Q2 results.

Factors to Influence Q2 Results

Modest Growth in Net Interest Income (NII): While the overall lending scenario was not very impressive during the second quarter, commercial and industrial loans (constituting a large part of Zions’ loan portfolio), as well as consumer loans, witnessed decent growth.

Thus, modest loan growth, along with higher interest rates, is expected to boost the bank’s NII in the to-be-reported quarter. However, this positive effect might be somewhat offset by the flattening of the yield curve.

Notably, considering the effect of $11 million of interest recoveries accounted in first-quarter 2018, management expects NII to rise moderately, driven by continued growth in loans, partially offset by slight rise in funding costs.

Muted Fee Revenue Growth: Zions’ second-quarter non-interest income is expected to benefit slightly from rise in service charge on deposits as deposit balances are expected to increase in the quarter, driven by higher rates. However, as trading activities declined sequentially during the quarter under review, the company’s capital markets and foreign exchange fees are not expected to benefit much.

Furthermore, as mortgage banking activities continue to be negatively impacted by higher rates, the company’s loan sales and servicing income are anticipated to either remain stable or decline.

Expenses Not to Lend Much Support: Despite undertaking a number of cost control initiatives, Zions’ adjusted non-interest expenses are expected to increase slightly in the to-be-reported quarter due to its continued spending on technology systems overhaul and investment in franchise.

Here is what our quantitative model predicts:

According to our quantitative model, chances of Zions beating the Zacks Consensus Estimate in the second quarter are high. This is because it has the right combination of the two main ingredients — a positive Earnings ESP and a Zacks Rank #3 (Hold) or better — to be confident of an earnings surprise call.

You can uncover the best stocks to buy or sell before they’re reported with our Earnings ESP Filter.

Zacks Earnings ESP: The Earnings ESP for Zions is +0.94%.

Zacks Rank: Zions currently has a Zacks Rank #3, which increases the predictive power of ESP and hence, makes us reasonably confident of an earnings beat.

Nonetheless, Zions’ activities in the second quarter failed to encourage analysts to revise earnings estimates upward. As a result, the Zacks Consensus Estimate for earnings of 92 cents for the to-be-reported quarter remained unchanged over the past 30 days. The figure reflects a year-over-year improvement of 26%.

The Zacks Consensus Estimate for revenues for the second quarter is $687.3 million, which reflects an improvement of 4.1% year over year.

Other Stocks That Warrant a Look

Here are a few other stocks that you may want to consider, as according to our model, these have the right combination of elements to post an earnings beat this quarter.

BankUnited, Inc. BKU has an Earnings ESP of +0.12% and carries a Zacks Rank of 3. The company is slated to release results on Jul 24.

SVB Financial Group SIVB is slated to report second-quarter 2018 results on Jul 26. It has an Earnings ESP of +1.66% and a Zacks Rank of 3. You can see the complete list of today’s Zacks #1 Rank (Strong Buy) stocks here.

Hilltop Holdings Inc. HTH is also slated to release results on Jul 26. It has an Earnings ESP of +0.40% and carries a Zacks Rank #3.

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