Company Reports

Zions Bancorporation is off to a good start in 2024. First-quarter revenue was roughly in line with the FactSet consensus estimate, and GAAP earnings per share of $0.96 beat the consensus estimate by a penny. FDIC special assessments were a $0.07 drag on the quarter’s EPS, but this was largely offset by lower credit provisions, which decreased to $13 million versus $45 million in the year-ago period. Net interest margin of 2.94% was consistent with the range of 2.90%-2.95% we’ve seen since the second quarter of 2023. Adjusted expenses were well controlled, in our view. Credit trends were mostly healthy, though criticized loans increased. We will maintain our no-moat rating and $56 fair value estimate. We regard the shares as undervalued as the market is too negative on the firm’s net interest income outlook.

Zions Bancorporation is one of the smaller regional banks that we cover. It is primarily a commercial bank focused on small to midsize businesses in the western half of the United States, where on-the-ground relationships are key. Although Zions struggled during the financial crisis, it has made meaningful improvements to its credit risk management and operational efficiency. We think the main determinants of the bank’s future success will be the interest-rate environment, the stability of the deposit base, and the ability to maintain and improve operational efficiency.

Zions Bancorporation is one of the smaller regional banks that we cover. It is primarily a commercial bank focused on small to midsize businesses in the western half of the United States, where on-the-ground relationships are key. Although Zions struggled during the financial crisis, it has made meaningful improvements to its credit risk management and operational efficiency. We think the main determinants of the bank’s future success will be the interest-rate environment, the stability of the deposit base, and the ability to maintain and improve operational efficiency.

Our thesis on the U.S. banks following the Silicon Bank fallout was that all of the banks we covered, except for First Republic (which we downgraded to a $3 fair value estimate on March 20, 2023, and a $0 fair value on April 27, 2023), would be able to weather the storm. We believed that banks in trouble were in uniquely risky positions. We believe this thesis has largely held up, and sorting through banks based on their unique risk profiles remains necessary and valuable. To the extent that the market is selling off all banks because of what has happened to NYCB, we think there could be opportunities once again while acknowledging the significant time horizon risk (how long does it take for the banks to prove to the market they are fine) and the choppy waters that could occur in the meantime (we expect more commercial real estate related loan losses in the future).

Zions Bancorporation reported a mostly stable end to 2023. Net interest income in the fourth quarter of 2023 was $583 million. While this was down 19% from last year, it was relatively stable compared with the $585 million in the third quarter. The net interest margin compression was mostly offset by a slightly bigger balance sheet. While deposits continue to shift toward interest-bearing, the pace has greatly lessened. Overall, the firm’s descriptive 2024 revenue outlook was slightly ahead of our model. We will maintain our no-moat rating and the $56 fair value estimate on Zions shares.

Zions Bancorporation is one of the smaller regional banks that we cover. It is primarily a commercial bank focused on small to midsize businesses in the western half of the United States, where on-the-ground relationships are key. Although Zions struggled during the financial crisis, it has made meaningful improvements to its credit risk management and operational efficiency. We think the main determinants of the bank’s future success will be the interest-rate environment, the stability of the deposit base, and the ability to maintain and improve operational efficiency.

Zions Bancorporation is one of the smaller regional banks that we cover. Zions is primarily a commercial bank focused on small to midsize businesses in the western half of the United States, where on-the-ground relationships are key. Although it struggled during the financial crisis, it has made meaningful improvements to its credit risk management and operational efficiency. We think the main determinants of the bank’s future success will be the interest-rate environment, stability of the deposit base, and the ability to maintain and improve operational efficiency.

No-moat Zions Bank's third-quarter results were much more encouraging than last quarter's, as much of the pressure the bank was facing last quarter that seemed to be accelerating now seems to be bottoming. Earnings per share of $1.13 was in line with FactSet consensus of $1.11 and ahead of our own expectations of $1.01.

Zions Bancorporation is one of the smaller regional banks that we cover. Zions is primarily a commercial bank focused on small to midsize businesses in the western half of the United States, where on-the-ground relationships are key. Although it struggled during the financial crisis and the early years afterward, it has made meaningful improvements to its credit risk management and operational efficiency. We think the main determinants of the bank’s future success will be the interest-rate environment, stability of the deposit base, and the ability to maintain and improve operational efficiency.

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.

Zions Bancorporation is one of the smaller regional banks that we cover. Zions is primarily a commercial bank focused on small to midsize businesses in the western half of the United States, where on-the-ground relationships are key. Although it struggled during the financial crisis and the early years afterward, it has made meaningful improvements to its credit risk management and operational efficiency. We think the main determinants of the bank’s future success will be the interest-rate environment, stability of the deposit base, and the ability to maintain and improve operational efficiency.

The Federal Reserve released its review of what went wrong with supervision and regulation of Silicon Valley Bank. There are still no official new regulatory proposals, but this is the first official clue about where the regulators are heading. Our thesis was that regulations were going to change but that they would be manageable changes phased in over a period of several years. This is why we do not think capital raises are likely for the banks under our coverage. We think this is a key point because prices currently seem to be implying permanently impaired profitability or capital raises for multiple banks under our coverage. We think this is too harsh.

While no-moat-rated Zions' first-quarter results showed that earnings pressure is building, we view the pressure as being quite manageable. We had already expected that fourth-quarter results would be the peak for profitability during the current rate cycle, and while the drop off from that peak has accelerated a bit more than we expected, it was not that categorically different. If anything, the bank's results were a bit better than our updated “shocked” projections, which were published at the end of March. As we revise our projections again to make sure we are being prudent with our through-the-cycle net interest margin, or NIM, estimates (assuming that rates eventually fall from current levels), we expect to decrease our $58 per share fair value estimate for Zions by a low- to mid-single-digit percentage. Even with that adjustment, we believe the shares remain materially undervalued.

We have updated our fair value estimates for a number of regional banks in our coverage (M&T Bank: $179 to $163, Fifth Third Bancorp: $42 to $38, Regions Financial: $21 to $19, KeyCorp: $24 to $21, Huntington: $17 to $15, Comerica: $86 to $79 , Zions: $66 to $58, Cullen/Frost: $133 to $124 ). We did this based on an expectation of increased funding costs, some pressure on deposit bases (in other words, deposit outflows), and potentially lower securities yields in the future due to potential changes in bank regulations (which would likely force banks to hold more short-term treasuries instead of their current preference for mortgage-backed securities).

Zions Bancorporation is one of the smaller regional banks that we cover. Zions is primarily a commercial bank focused on small to midsize businesses in the western half of the United States, where on the ground relationships are key. Although it struggled during the financial crisis and the early years afterward, it has made meaningful improvements to its credit risk management and operational efficiency. We think the main determinants of the bank’s future success will be the interest-rate environment and the ability to maintain and improve operational efficiency.

We are increasing our Morningstar Uncertainty Rating on our U.S. regional banking coverage (excluding U.S. Bancorp and PNC Financial Services) to High from Medium, to reflect the increased uncertainty associated with predicting what the deposit base, funding costs, and regulatory costs will look like in the future. We’re leaving the Uncertainty Ratings on the largest banks unchanged, as we believe they are less likely to experience deposit base volatility.

With the U.S. banking system coming under heightened liquidity pressure, we had speculated that the Federal Reserve might step in and provide some sort of solution. There was a lot of speculation about what mechanism/s could be used, and one of our favorites was simply allowing banks to exchange their underwater securities, at par, with the Fed. This has the benefit of taking away any concerns about being forced to sell these securities at fair value and therefore taking a hit to capital while also exposing the U.S. taxpayer to minimal risk of loss, as most securities held by the banks are either agency-backed MBS or Treasuries.

Bank stocks sold off meaningfully on March 9 as Silicon Valley Bank announced that it would have to take a number of “strategic actions,” including selling off its entire available-for-sale securities portfolio (incurring a $1.8 billion aftertax loss, or roughly 15% of the bank’s tangible common equity as of Dec. 31, 2022), announcing it is seeking to raise $2.25 billion in additional capital, and increasing its use of “term borrowings” (essentially higher-cost but more stable funding). Aside from crypto-related meltdowns, this is one of the first banks we’ve seen that has really suffered a liquidity crunch that has forced it to restructure the balance sheet and realize losses on its securities portfolios.

Zions Bancorporation is one of the smaller regional banks that we cover. Zions is primarily a commercial bank focused on small to midsize businesses in the western half of the United States, where on the ground relationships are key. Although it struggled during the financial crisis and the early years afterward, it has made meaningful improvements to its credit risk management and operational efficiency. We think the main determinants of the bank’s future success will be the interest-rate environment and the ability to maintain and improve operational efficiency.

No-moat-rated Zions Bancorp reported fourth-quarter earnings of $1.84 per share, beating the FactSet consensus estimate of $1.66 and coming in fairly close to our own estimate of $1.79. Revenue was $873 million, in line with our own estimate of $876 million. From our perspective, there weren’t any real surprises in this quarter’s results, with net interest income, fees, and expenses all roughly on the paths they need to be in order to meet our previous expectations. Zions was set to see some nice preprovision net revenue growth as its net interest income continued its upward trajectory while expenses were expected to remain well controlled, and the bank is delivering on these expectations.