A weakening U.S. economy will likely depress loan growth at Zions Bancorp. in the coming quarters, executives said Monday.
"Depending on how and when the economy slows, we think that will be the natural outcome of higher rates — loan demand will ebb," said Zions CEO Harris Simmons.
Still, executives said they're confident the Salt Lake City-based bank can grow loans, "barring a really serious recession."
Zions reported loan growth of 6% in the third quarter. Loan growth outpaced retained earnings, pulling the bank's Tier 1 common equity ratio down to 9.6% from 10.9%.
The $88.5 billion-asset bank reported softer demand for loans backed by one- to four-family residential properties but said it is still seeing "healthy activity" in its commercial and industrial lending segment. Total C&I loans increased about 18% to $15.7 billion in the third quarter.
Zions said it has restrained growth in areas that can become riskier during recessions, including commercial real estate. Its commercial real estate portfolio totaled about $12.2 billion at the end of the third quarter, or about 23% of the bank's balance sheet. In
The bank's commercial real estate portfolio was hit particularly hard during the 2008 financial crisis. Zions operates in 11 states, including three Southwestern ones that suffered high rates of single-family and CRE delinquencies.
Shares of Zions fell more than 6% in after-hours trading after the bank reported earnings per share of $1.40, below estimates of $1.56. Profit fell to $211 million, down almost 10% from a year ago, partially because of increased reserves. The bank's allowance for loan losses increased to $541 million, up 10% from a year ago.
Revenue increased 32% to $359 million. Net interest income accounted for about 80% of third-quarter revenue at Zions, which has benefited significantly from higher interest rates. If the Federal Reserve raises interest rates another 150 basis, the bank said it expects net interest income to increase about 13% by the third quarter of 2023. That estimate excludes interest income driven by loan growth.
Noninterest expenses rose 12% to $479 million. Cybersecurity costs alone have increased 25% from a year ago, executives said.
