Higher salaries and lower fee income at Zions Bancorp. chipped away at profits during the second quarter, though the company also benefited from an increase in interest income.
The $88 billion-asset bank reported net income of $203 million, down 43% from the same period last year. Earnings per share of $1.29 were below the $1.35 average of estimates from analysts.
Noninterest income fell 16% to $172 million, and the company said that changes to its overdraft-related practices, which take effect in the third quarter, are expected to reduce quarterly fee income by another $5 million.
Meanwhile, noninterest expenses rose 8% to $464 million, which the Salt Lake City-based company attributed to salary increases as a result of soaring inflation.
But interest rate hikes by the Federal Reserve, which announced another 75 basis point increase on Wednesday, continue to act “like a coiled spring” on the bank’s balance sheet, said Chief Financial Officer Paul Burdiss.
Zions reported $593 million in net interest income, up 7% from the same period last year. Its net interest margin of 2.87% was up 8 basis points.
Burdiss indicated that the bank will continue to realize benefits from the Fed’s hikes because of delays in the repricing of loans. Zions expects 15% net interest income growth by next year’s second quarter.
“Recent increases in interest rates have not yet been fully recognized in net interest income because the balance sheet does not reprice instantaneously,” Burdiss said Tuesday during the bank’s earnings call.
Kristiane Koontz at Zions and Neal Shah at Regions explained how they are coping with the many challenges of rebuilding the technology foundations of their banks at American Banker's Digital Banking Conference.
The bank’s total net loans and leases grew to $52.4 billion, up 2% from the same period last year. While total deposits were up 4% to $79.1 billion from the second quarter of 2021, more than $3 billion in deposits ran off from the first quarter.
“We have planned for and are prepared for deposit balance volatility,” Burdiss said.
With the possibility of a recession looming, Burdiss also said that Zions is limiting its exposure to certain types of loans. Specifically, he pointed to high-leverage lending, land development and certain other commercial real estate loans.
After Zions released its results, analysts expressed caution about its future expenses and the possibility that flat deposits growth will lead the bank to tap costlier sources of funding. But they also said that fee income, while down, was stronger than expected.
