Zions Bancorp Earnings: Net Interest Income Stabilizing and Credit Is Benign

Key Morningstar Metrics for Zions Bancorporation

• Fair Value Estimate: $56.00
• Morningstar Rating: 4 stars
• Morningstar Economic Moat Rating: None
• Morningstar Uncertainty Rating: High

What We Thought of Zions Bancorporation’s Earnings

Zions Bancorporation ZION reported a mostly stable end to 2023. Net interest income in the fourth quarter 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 $56 fair value estimate for Zions shares.

Credit appears to be strong for the bank, and it recorded zero provisions in the quarter. This was a positive surprise for us, as the firm’s macroeconomic forecast improved from its last update. Nonperforming assets as a percentage of the total decreased slightly to 0.40% from 0.41% sequentially.

Reported expenses were up 23%, driven by the FDIC special assessment that is hitting all large banks. Excluding this, adjusted expenses were up 4%, and the firm expects adjusted expenses to “slightly” increase in 2024, which we interpret as a 1%-2% increase. A lower inflation rate and severance expenses in 2023 should make this expense deceleration achievable.

The firm’s capital positioning was also stable, with its common equity Tier 1 ratio at 10.3% versus 10.2% at the beginning of the quarter. Management appears to value flexibility, and as a result, it isn’t prioritizing ramping up share repurchases. Loan demand is expected to continue to be anemic, and as such, we do not foresee large changes to the firm’s balance sheet size.