Gary Yeowell
Zions Bancorporation (NASDAQ:ZION) has just released its 1Q24 earnings report, and we think the results speak well for the improving trends of the bank we wrote about last quarter. Pre-provision net revenue beat market expectations slightly due to higher net interest margin and lower expenses. Steady loan growth was recorded, but deposits fell 1% Q/Q owing to seasonal reasons. The stock has been trading relatively flat YTD, while the S&P Bank ETF is down almost 5% in the same period.
1Q24 pre-provision net revenue (PPNR) was ahead of expectations
PPNR reached $226M, while adjusted PPNR of $242M was down from $262M in 4Q23 and from $341M in 1Q23. The sequential decline was led by a surge in seasonal non-interest related expenses, but net interest income actually improved. The Y/Y decline was mainly brought about by higher funding costs, as U.S. treasury yields significantly climbed during the past year. Customer-related noninterest income was stable at $151M.
Net interest income edged up slightly Q/Q
1Q24 NII hit $586M with an NIM of 2.94% which saw a mild improvement from last quarter’s $583M and 2.91%. Sequentially, interest income from loans improved by $17M or 2% while interest expense paid to deposits fell by $19M or 5%. However, interest expense paid on borrowings increased by $30M or 48%. Overall, the trend in the past three quarters show stability after the banking crisis in March 2023.
Company
Non-interest expense up due to seasonality
Total non-interest expense was down in 1Q24 compared to that of 4Q23 primarily due to the lower FDIC special assessment ($13M vs. $90M). Adjusted non-interest expense grew $22M Q/Q because of seasonally linked increases in compensation. Overall, the efficiency ratio has been gradually improving for the past five quarters.
Company
Total loans increased while yields have gone up, Deposits fell Q/Q on seasonality
Total loans and average yield on the loans have gradually increased in the past year, reflecting macro demand and higher interest rates in the year.
Company
Credit quality remains high
Net charge-offs and provisions were at 0.04% and 0.09% of average loans (annualized). These figures are lower than those of last year, implying a better macro economy in the face of higher rates.
The company expects a 1.8% increase in NIM by 1Q25 based on the current Fed funds rate of 4.75% for December 2024 expiry. Management also predicts that NIM will further increase by 2.8% if the Fed fund rates end up 100bps higher. If the Fed fund rates decreases by more than 100bps than what is currently implied, NIM will decrease by 0.5%.
It appears that the bank is well positioned should the rates stay high, which is more likely the case given the string of hotter-than-expected inflation data.
Valuation: Still inexpensive
ZION trades at 1.2x book value with a forward ROE of about 11%. The valuation is inexpensive, however, fundamentals have improved since the banking crisis in March 2023. Overall, we continue to rate the stock a buy, especially with positive rates and NIM outlook for the next year.
Himalayas Research, Koyfin
