Zions Bancorp Earnings: Deposit Costs Soar, but We Still Think Market Prices Are Far Too Harsh

No-moat-rated Zions Bancorp reported mixed second-quarter results as deposit costs soared during the quarter. Earnings per share of $1.11 were in line with FactSet consensus of $1.08 but missed our expectations of $1.26. The miss was largely driven by weaker net interest income, or NII, of $591 million versus our estimate of $626 million, and higher noninterest expenses. Higher funding costs have been a common pattern among the banks this quarter, but Zions stood out in this regard, with the highest deposit beta and the largest increase in interest-bearing deposit costs so far. Management reduced its NII expectations, indicating flat to slightly decreasing levels from the current quarterly run rate, which implies to us that the bank will see a decline in annual NII in 2023. This is the first bank in our coverage where we've seen this amount of pressure on NII. Even so, the bank is still set to earn decent adjusted returns on tangible equity (likely somewhere in a 9%-11% range) and is still building capital.