Zions Bancorporation: Financial Winner

NEW YORK ( TheStreet) -- Zions Bancorporation ( ZION) was the winner among large U.S. financial names on Wednesday, with shares rising 2% to close at $19.16.

The broad indexes ended mixed as light August trading continued, after the Federal Reserve announced that industrial production rose 0.6% during July, after increasing by a downwardly revised 0.1% in June, mainly because of a weather-related 1.3% increase in utilities output and a 1.2% increase in mining output. Capacity utilization rose to 79.3% after increasing to 78.9% the month before.

The National Association of Home Builders/Wells Fargo Housing Market Index gained two points to 37 in August, moving the index to its highest level since February 2007, for its fourth straight gain.

The KBW Bank Index ( I:BKX) rose slightly to close at 46.73, with 18 of the 24 index components rising for the session.

Zions Bancorporation's shares have now returned 18% year-to-date, following a 33% decline during 2011.

The shares trade for just below their reported June 30 tangible book value of $19.65, and for 11 times the consensus 2013 earnings estimate of $1.75 a share, among analysts polled by Thomson Reuters. The consensus 2012 EPS estimate is $1.14.

Zions owes $700 million in federal bailout funds received in November 2008 through the Troubled Assets Relief Program, or TARP, having repaid $700 million in TARP money during the first quarter.

The company on July 23 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.

FBR analyst Paul Miller rates Zions Bancorporation "Market Perform," with a price target of $21, and said on July 24 that "ZION was able to add to its loan portfolio this quarter as commercial and industrial loan balances increased, and the company continues to see a good amount of loan demand in its footprint."

On a more negative note, Zions Bancorporation's management said that the company's loan growth depended in part on aggressive price competition, which Miller said "does not bode well for the company's net interest margin , which is already under pressure due to the general low rate environment, and we expect estimates to come down as a result.

Zions reported a second-quarter net interest margin -- the difference between a bank's average yield on loans and investment securities and its average cost for deposits and borrowings -- of 3.62%, declining from 3.73% the previous quarter, but unchanged from a year earlier.

Miller called Zions "an asset-sensitive bank that thrives in a rising rate environment," and said that "with rates likely to remain flat for the foreseeable future, we look to remain on the sidelines with regard to shares.

The analyst estimates that Zions Bancorporation will earn 98 cents a share for all of 2012, followed by 2013 EPS of $1.85.

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.