Higher wages and lower commission income at Zions Bancorporation squeezed profits in the second quarter, although the company also benefited from higher interest income.
The bank with assets of $88 billion reported net profit of $203 million, down 43% from the same period last year. Earnings per share of $1.29 were below the $1.35 average of analyst estimates.
Non-interest revenue fell 16% to $172 million, and the company said changes to its overdraft practices, which take effect in the third quarter, are expected to reduce quarterly commission revenue by 5%. million additional dollars.
Meanwhile, non-interest expenses rose 8% to $464 million, which the Salt Lake City-based company attributed to salary increases due to soaring inflation.
But interest rate hikes by the Federal Reserve, which announced another 75 basis point hike on Wednesday, continue to act “like a coil spring” on the bank’s balance sheet, chief financial officer Paul Burdiss said. .
Zions reported net interest income of $593 million, up 7% from the same period last year. Its net interest margin of 2.87% increased by eight basis points.
Burdiss said the bank will continue to take advantage of Fed hikes due to delays in loan repricing. Zions expects net interest income growth of 15% by the second quarter of next year.
“Recent increases in interest rates have not yet been fully reflected in net interest income because the balance sheet does not instantly revalue,” Burdiss said Tuesday during the bank’s earnings call.
The bank’s total net loans and leases reached $52.4 billion, up 2% from the same period last year. While total deposits increased 4% to $79.1 billion from the second quarter of 2021, more than $3 billion in deposits soared from the first quarter.
“We have anticipated and are prepared for volatility in the deposit balance,” Burdiss said.
With the possibility of a recession looming, Burdiss also said Zions was limiting its exposure to certain types of loans. Specifically, he pointed to highly leveraged loans, land development, and some other commercial real estate loans.
After Zions reported its results, analysts expressed caution about its future spending and the possibility that growth in flat deposits will lead the bank to tap more expensive sources of funding. But they also said commission income, while down, was higher than expected.