Analyst Note| Eric Compton, CFA |
No-moat-rated Zions Bancorp reported decent third-quarter results that were generally in line with our expectations. Results were ahead of the FactSet consensus estimate of $1.35 per share with reported EPS of $1.45. This equates to a return on tangible common equity of 14% for the quarter. Overall, we didn’t see any big surprises. Fees are trending just slightly below our full year expectations, but the miss is slight, and net interest income and expenses are trending in line with our expectations. The bank’s updated guidance hints at a slowdown in fee growth after a strong third quarter, guiding for fees to be stable to slightly up in the third quarter of 2022. It’s not entirely surprising to expect a bit of a slowdown from here, as the third quarter was an exceptionally strong quarter for fee growth, although it would have been nice if some of this momentum was more sustainable. Mortgage fees, wealth fees, and other activity related fees all came in strong, and mortgage activity and fees may begin to tail off as rates increase. Management also guided for expenses to be moderately increasing, which is a bit above what we expected as we were looking for something approximating 1% expense growth next year. NII guidance, excluding PPP effects is essentially in line with our expectations for 2022, and there could be some upside to this if rate hikes materialize towards the end of 2022. While we plan to slightly adjust our expense expectations upwards for 2022, we don’t expect this to materially alter our fair value estimate of $56 for the bank as the increase will be slight and the rest of the bank’s results largely confirmed our previous projections.