Zions Bancorporation (NASDAQ: ZION) has released its first-quarter 2024 earnings report, which demonstrates positive developments for the bank. Pre-provision net revenue exceeded market expectations, primarily due to a higher net interest margin and lower operating expenses. The company experienced consistent loan growth; however, deposits declined by 1% quarter-over-quarter due to seasonal factors. While the stock price has remained relatively stable year-to-date, the S&P Bank ETF has decreased by nearly 5% during the same period.
Zions Bancorporation’s first-quarter pre-provision net revenue (PPNR) surpassed expectations, reaching $226 million. Adjusted PPNR was $242 million, marking a decline compared to $262 million in the fourth quarter of 2023 and $341 million in the first quarter of 2023. This sequential decrease was primarily influenced by a surge in seasonal non-interest related expenses. However, net interest income improved during this period. The year-over-year decline can be mainly attributed to increased funding costs due to the significant rise in U.S. treasury yields over the past year. Customer-related noninterest income remained stable at $151 million.
The company’s net interest income edged up slightly quarter-over-quarter. In the first quarter of 2024, net interest income reached $586 million with a net interest margin (NIM) of 2.94%, indicating a modest improvement from the previous quarter’s $583 million and 2.91%. Interest income from loans increased by $17 million or 2% sequentially, while interest expense paid to depositors decreased by $19 million or 5%. Notably, interest expense paid on borrowings increased by $30 million or 48%. Overall, the trend in the past three quarters has shown stability following the banking crisis in March 2023.
Total non-interest expense increased in the first quarter of 2024 compared to the fourth quarter of 2023, mainly attributable to the lower FDIC special assessment ($13 million versus $90 million). Adjusted non-interest expense grew by $22 million quarter-over-quarter due to seasonally linked increases in compensation. Despite this increase, the efficiency ratio has been gradually improving for the past five quarters.
Total loans increased, and the average yield on loans has gradually risen over the past year, reflecting macro demand and higher interest rates. The company maintains strong credit quality, as evidenced by net charge-offs and provisions of 0.04% and 0.09% of average loans (annualized), respectively. These figures are lower than those reported last year, indicating a more favorable macroeconomic environment despite higher rates.
Zions Bancorporation anticipates a 1.8% increase in NIM by the first quarter of 2025, based on the current Fed funds rate of 4.75% for December 2024 expiry. Management also forecasts that NIM could further increase by 2.8% if the Fed fund rates end up 100 basis points higher. Conversely, if Fed fund rates decrease by more than 100 basis points than what is currently implied, NIM is expected to decrease by 0.5%. This suggests that the bank is well-positioned to benefit from sustained high-interest rates, which are more likely given the recent string of hotter-than-expected inflation data.
Zions Bancorporation trades at 1.2x book value with a forward return on equity (ROE) of approximately 11%. While the valuation is considered inexpensive, it is essential to note that fundamentals have improved since the banking crisis in March 2023. Overall, analysts maintain a ‘buy’ rating for the stock due to its attractive valuation and positive rate outlook.
