Apparently Zions Bancorporation
For the quarter, Zions reported, on a sequential annualized basis, 11.4% loan growth and 8.7% core deposit growth, plus 15% organic loan growth for the year. Zions slightly upped its impressive net interest margin (the margin a bank earns on its earning assets) to 4.60% sequentially -- a pretty good showing compared to its peers, given that banks are fiercely competing for deposits by upping interest rates. After adjusting for some items such as debt-extinguishing costs and venture capital gains, the efficiency ratio (expense ratio) improved 60 basis points sequentially to 55.5%. Credit quality remained decent, with most credit quality ratios slightly worse for the quarter.
Credit where credit is due
During the call, management also spoke about the $10.9 million charge taken for a bad loan to a water bottling company; they felt that the loan was within their lending parameters and was simply a case of pure fraud, rather than a hint of lax lending practice or reaching for yield. Also, management provided detail on the uptick in loan delinquency caused by an $18 million commercial real estate loan. In this case, a Las Vegas commercial real estate borrower had liquidity issues. Because Zions' loan to this borrower is less than 50% of the value of this land, with many interested parties willing to pay more than the loan value for the land, it's highly unlikely that Zions will suffer any credit losses. Furthermore, the builders it has asked to put up more cash have all complied, without any defections.
Management forecast strong organic loan growth for 2007 in the high single to low double digits, plus stable net interest margins and credit quality. They hope to cut their efficiency ratio another 100 basis points, although it wasn't clear over what time horizon. Management was also optimistic that the competitive environment may be improving -- they noted that the decline in net interest spread had subsided, thanks to a moderation in pricing pressures, especially from rival Las Vegas banks in CD interest rates.
All in all, Zions had a great quarter and was relatively upbeat about 2007. Although the bank isn't screamingly cheap (at 15 times trailing net income and almost twice book value), I sure wouldn't bet against it.
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Fool contributor Emil Lee is an analyst and a disciple of value investing. He doesn't own shares in any of the companies mentioned above. Emil appreciates comments, concerns, and complaints. The Motley Fool has a disclosure policy.