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Zions Bancorp (ZION - Free Report) remains well-positioned for growth driven by strong loans and deposits, higher interest rates and efforts to boost fee income. However, a mounting expense base and deteriorating asset quality act as headwinds.
Zions remains focused on its organic growth strategy. The company’s total revenues recorded a CAGR of 2.3% in the last five years (2018-2023). This was primarily driven by robust loan growth, with loans and net leases (net of unearned income and fees) witnessing a 4.4% CAGR in the last four years ended 2023. Decent loan demand, initiatives to boost fee income (majorly capital markets fees) and higher rates will likely aid the company’s top-line expansion. As the near-term operating environment remains challenging, we project total revenues (FTE) to decline 2% in 2024. Post that, the metric is expected to rise 3% and 4.9% in 2025 and 2026, respectively.
Given the high interest rate regime, Zions’ net interest margin (NIM) is expected to record a modest expansion, while rising deposit costs will weigh on it. NIM increased to 3.06% in 2022 attributed to higher rates. Though NIM declined in 2023 and the first half of 2024 due to higher funding costs, the metric is expected to improve going forward, given the stabilizing deposit costs, asset yield repricing and high rates. We project NIM to be 2.96%, 3.02% and 3.07% in 2024, 2025 and 2026, respectively.
ZION currently carries a Zacks Rank #3 (Hold). So far this year, shares of the company have gained 11.9% compared with the industry’s growth of 8.2%.
Image Source: Zacks Investment Research
Zions has been witnessing a consistent rise in expenses. While total non-interest expenses fell in 2020, the metric witnessed a 4.5% CAGR in the last five years (2018-2023). The uptrend persisted in the first six months of 2024 as well. Amid its ongoing investments in franchise and digitizing operations, total expenses are expected to stay elevated. We anticipate adjusted non-interest expenses to increase 3% this year.
Also, ZION’s deteriorating asset quality poses a concern. A significant rise in provision for credit losses was witnessed in 2022 and 2023. The current tough macroeconomic backdrop will continue to exert pressure on the company’s asset quality, keeping the provision level elevated. While we project provision for credit losses to decline in 2024, the metric will likely rise 19.5% in 2025.
The Zacks Consensus Estimate for NRIM’s current-year earnings has been revised 4.7% upward in the past 30 days. The company’s shares have risen 18.6% year to date.
The Zacks Consensus Estimate for BSRR’s current-year earnings has been revised 12.7% upward in the past two months. Sierra Bancorp’s shares have gained 32.3% so far this year.
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Zions Rides on Rates, Loans & Deposits Amid Weak Asset Quality
Zions Bancorp (ZION - Free Report) remains well-positioned for growth driven by strong loans and deposits, higher interest rates and efforts to boost fee income. However, a mounting expense base and deteriorating asset quality act as headwinds.
Zions remains focused on its organic growth strategy. The company’s total revenues recorded a CAGR of 2.3% in the last five years (2018-2023). This was primarily driven by robust loan growth, with loans and net leases (net of unearned income and fees) witnessing a 4.4% CAGR in the last four years ended 2023. Decent loan demand, initiatives to boost fee income (majorly capital markets fees) and higher rates will likely aid the company’s top-line expansion. As the near-term operating environment remains challenging, we project total revenues (FTE) to decline 2% in 2024. Post that, the metric is expected to rise 3% and 4.9% in 2025 and 2026, respectively.
Given the high interest rate regime, Zions’ net interest margin (NIM) is expected to record a modest expansion, while rising deposit costs will weigh on it. NIM increased to 3.06% in 2022 attributed to higher rates. Though NIM declined in 2023 and the first half of 2024 due to higher funding costs, the metric is expected to improve going forward, given the stabilizing deposit costs, asset yield repricing and high rates. We project NIM to be 2.96%, 3.02% and 3.07% in 2024, 2025 and 2026, respectively.
ZION currently carries a Zacks Rank #3 (Hold). So far this year, shares of the company have gained 11.9% compared with the industry’s growth of 8.2%.
Image Source: Zacks Investment Research
Zions has been witnessing a consistent rise in expenses. While total non-interest expenses fell in 2020, the metric witnessed a 4.5% CAGR in the last five years (2018-2023). The uptrend persisted in the first six months of 2024 as well. Amid its ongoing investments in franchise and digitizing operations, total expenses are expected to stay elevated. We anticipate adjusted non-interest expenses to increase 3% this year.
Also, ZION’s deteriorating asset quality poses a concern. A significant rise in provision for credit losses was witnessed in 2022 and 2023. The current tough macroeconomic backdrop will continue to exert pressure on the company’s asset quality, keeping the provision level elevated. While we project provision for credit losses to decline in 2024, the metric will likely rise 19.5% in 2025.
Bank Stocks Worth a Look
Some better-ranked stocks in the banking space are Northrim BanCorp, Inc. (NRIM - Free Report) and Sierra Bancorp (BSRR - Free Report) . At present, NRIM carries a Zacks Rank #2 (Buy) and BSRR sports a Zacks Rank #1 (Strong Buy). You can see the complete list of today’s Zacks Rank #1 stocks here.
The Zacks Consensus Estimate for NRIM’s current-year earnings has been revised 4.7% upward in the past 30 days. The company’s shares have risen 18.6% year to date.
The Zacks Consensus Estimate for BSRR’s current-year earnings has been revised 12.7% upward in the past two months. Sierra Bancorp’s shares have gained 32.3% so far this year.