Zions Earnings: Progressing Well, but With Some Dark Clouds in Commercial Real Estate

Key Morningstar Metrics for Zions Bancorporation

• Fair Value Estimate: $56.00
• Morningstar Rating: 3 stars
• Morningstar Economic Moat Rating: None
• Morningstar Uncertainty Rating: High

What We Thought of Zions Bancorporation’s Earnings

Zions Bancorporation ZION reported a mostly steady third quarter. Net interest income is performing well, with net interest margin expanding sequentially. Customer-related fees increased as capital-markets-related revenue grew, while other categories were mostly steady. Overall, little alters our long-term view of the firm, and we maintain our no-moat rating and fair value estimate of $56 per share.

NII grew 4% sequentially and 6% from the year-ago period to $620 million, still well below the $720 million quarterly peak in the fourth quarter of 2022. NIM is improving on both interest income and interest expense. On the interest income side, investment securities, which skew toward fixed rates, continue to run off and were down 2% on average. On the interest expense side, the bank has reduced its use of borrowings, which are more expensive than deposits. That said, the shift toward interest-bearing deposits is continuing. Non-interest-bearing deposits comprised 33.0% of the firm’s average deposits, compared with 33.9% in the second quarter and 34.8% in the first.

Noninterest income was down 4% sequentially and 4% from the year-ago period, as non-customer-related income, such as dividends, can be choppy. Customer-related fee income grew due to a rebound in capital markets activity—a trend we’ve seen across the banking industry.

Credit trends were mixed. On the positive side, net charge-offs were very low, at 0.02% of average loans. On the negative side, nonperforming assets increased to $368 million from $265 million at the beginning of the quarter, and classified and criticized loans saw meaningful increases. The culprit appears to be loans related to multifamily properties, which faced interest rate headwinds and rent concessions.