Zions Earnings: Steady Start to 2024 With Stable Net Interest Margin and Mostly Benign Credit

Key Morningstar Metrics for Zions Bancorp

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

What We Thought of Zions Bancorp’s Earnings

Zions Bancorp ZION 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 it by a penny. FDIC special assessments were a $0.07 drag on the quarter’s earnings per share, 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% seen since the second quarter of 2023, but well below the 3.33% seen in the first quarter of 2023 as the firm’s deposit costs have risen. Adjusted expenses were controlled well, 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.

Net interest margin increased 3 basis points sequentially, as the rate paid on interest-bearing deposits declined slightly due to fewer time deposits (certificates of deposit). The bank is seeing some headwinds from the continued shift from non-interest-bearing to interest-bearing deposits. Average interest-earning assets were up 1%, and as a result, net interest income increased to $586 million from $583 million in the fourth quarter.

Noninterest income was roughly flat, as a rebound in capital markets activity was offset by lower loan-related fees and income. We expect loan-related fees and income to be under pressure as rates rise, since volume and gains on sale tend to be sensitive to interest rates. Adjusted expenses grew less than 1% as the firm has reduced its headcount.