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Zions (ZION) Aided by Loans & Rising Rates, Cost Woes Stay

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Solid loan balance, efforts to improve non-interest income and higher interest rates are expected to aid Zions Bancorporation (ZION - Free Report) . However, rising costs, a worsening economic outlook and a high debt level are major headwinds.

ZION has been witnessing consistent organic growth. The company’s total revenues witnessed a compound annual growth rate (CAGR) of 3.4% over the last three years (2019-2022) despite witnessing a fall in total revenues in 2020. The upward trend continued in the first quarter of 2023.

However, the operating environment is expected to deteriorate in the near term on rising recession fears. We expect total revenues to decline 0.3% and 2.5% in 2023 and 2024, respectively, before rebounding and growing 1.4% in 2025.

Net loans and leases (net of unearned income and fees) witnessed a CAGR of 4.5% for the same period (2019-2022). Though loan balance decreased in the first quarter on gradually declining demand, our estimates for total loans suggest a CAGR of 5.2% over the next three years. 

With the Federal Reserve expected to keep the interest rates higher in the near term, ZION’s net interest margin (NIM) is likely to witness a decent expansion despite a rise in deposit costs. We project NIM to be 3.04% for 2023 as rising funding costs weigh on the financials.

However, ZION has been witnessing a persistent rise in expenses. Though total non-interest expenses declined in 2020, it recorded a CAGR of 2.5% over the last three years (ended 2022). The same trend persisted in the first quarter of 2023.Higher salaries and employee benefit costs were the primary reasons behind elevated expenses.

Our estimates for non-interest expenses suggest a CAGR of 1.7% over the next three years. As the company continues to invest in franchises and digitize operations, expenses are expected to remain elevated in the quarters ahead.

ZION’s asset quality has been deteriorating over the past few years. Provision for credit losses increased in 2022, with the uptrend continuing in the first quarter of 2023. As it continued to build reserves to combat the tough operating environment, we project provisions for credit losses to surge 96.4% this year.

The Zacks Consensus Estimate for ZION’s current-year earnings has been revised 10.1% downward over the past 30 days. The same for 2024 has been revised nearly 11% downward over the past month. Shares of the company have declined 51.1% over the past six months compared with the 45.9% fall recorded by the industry. It currently carries a Zacks Rank #3 (Hold).

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Bank Stocks Worth Considering

A couple of better-ranked bank stocks are Pathward Financial, Inc. (CASH - Free Report) and JPMorgan (JPM - Free Report) .

Earnings estimates Pathward Financial have been revised 1.8% upward over the past 30 days. In the past six months, CASH’s shares have increased 5.9%. Currently, the company carries a Zacks Rank #2 (Buy). You can see the complete list of today’s Zacks #1 Rank (Strong Buy) stocks here.

Earnings estimates for JPMorgan have been revised 8% upwards for 2023 over the past 30 days. Shares of JPM have gained 0.3% over the past six months. Currently, the company carries a Zacks Rank #2.

See More Zacks Research for These Tickers

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JPMorgan Chase & Co. (JPM) - free report >>

Zions Bancorporation, N.A. (ZION) - free report >>

Pathward Financial, Inc. (CASH) - free report >>

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