Zions Earnings: Positive Revenue Trends, but Commercial Real Estate Clouds Darkened

Key Morningstar Metrics for Zions Bancorp

• Fair Value Estimate: $59.00
• Morningstar Rating: ★★★
• Morningstar Economic Moat Rating: None
• Morningstar Uncertainty Rating: High

What We Thought of Zions Bancorp’s Earnings

Zions Bancorp ZION reported mixed fourth-quarter results. Revenue trends were generally strong and noninterest expenses remained stable, but credit trends weakened. Our long-term view of the business remains largely intact, and we do not anticipate a material change to our fair value estimate of $59 per share.

Net interest income sequentially increased 1% from the linked quarter, as interest-earning asset growth and funding cost declines more than offset the yield compression on interest-earning assets. While net interest income gains were largely attributable to total deposit costs falling by 21 basis points from the prior quarter to 1.93%, deposit trends were not entirely positive. Despite a backdrop of falling rates during the quarter, the deposit mix became less attractive as noninterest-bearing deposit levels sequentially declined by 1%, while time deposits and savings and money-market deposits increased by 2%.

Credit trends were generally poor as the net chargeoff ratio sequentially rose by 22 basis points from the prior quarter to 0.24%. This may not be particularly worrisome in isolation because an NCO ratio of 0.24% is still much better than average for regional banks we cover, and roughly two-thirds of the total net chargeoffs for the quarter can be attributed to just one non-commercial real estate loan, which may imply that the dramatic rise in the ratio may not necessarily indicate deterioration in the credit quality of the loan book.

The provision expense still came in slightly higher than NCOs for the quarter as improvements in economic forecasts only partially offset some of the weakness exhibited in the CRE portfolio. This weakness, particularly within multifamily and industrial CRE, has been largely responsible for the rise in classified loans, which exhibited a 37% increase from the previous quarter and a 248% increase from the year-ago quarter, warranting further monitoring in 2025.