Zions' TARP Exit Barely Moves Share Needle

The company reported second-quarter earnings applicable to common shareholders of $55.2 million, or 30 cents a share, increasing from $25.5 million, or 14 cents a share, during the first quarter, and $29.0 million, or 16 cents a share, during the second quarter of 2011. The earnings improvement mainly reflected "dividends and other investment income from private equity investments," primarily at its Amegy subsidiary. The second-quarter results were also boosted by a $32 million release of loan loss reserves.

Guggenheim Securities analyst Marty Mosby has a neutral rating on Zions Bancorporation, with a $23 price target, and on Friday predicted that investors would see "favorable short-term headlines" heading into third-quarter earnings season. In addition to the repayment of TARP, Mosby predicted that the company would "likely report stronger loan growth than expected in 3Q12... and see an increase in reported earnings per share due to less debt conversion costs."

Mosby raised his third-quarter EPS estimate for Zions by a nickel to 42 cents. The analyst estimates the company will earn $1.32 a share for all of 2012, followed by 2013 EPS of $1.96.

Mosby said that "after achieving the full benefit from the TARP repayment and lower debt conversion costs, we have forecasted that net interest margin compression and less release of loan loss reserves could stall quarterly earnings at around the $0.50 level until 4Q13," and that "ZION's Recovery: ZION's recovery could take longer than other banks' as the two levers of capital restructuring and the eventual rise in short-term interest rates could take the next three to four years to complete."

After those events take place Mosby sees "we see significant upside potential for ZION."

ZION data by YCharts

Interested in more on Zions Bancorporation? See TheStreet Ratings' report card for this stock.

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-- Written by Philip van Doorn in Jupiter, Fla.

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Philip W. van Doorn is a member of TheStreet's banking and finance team, commenting on industry and regulatory trends. He previously served as the senior analyst for TheStreet.com Ratings, responsible for assigning financial strength ratings to banks and savings and loan institutions. Mr. van Doorn previously served as a loan operations officer at Riverside National Bank in Fort Pierce, Fla., and as a credit analyst at the Federal Home Loan Bank of New York, where he monitored banks in New York, New Jersey and Puerto Rico. Mr. van Doorn has additional experience in the mutual fund and computer software industries. He holds a bachelor of science in business administration from Long Island University.

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