Introduction
Zions Bancorporation, N.A. (NASDAQ:ZION) is one of the nation’s premier financial services companies, with a rich history spanning over 150 years. Headquartered in Salt Lake City, Utah, the bank operates through seven separately managed affiliate banks, each with its own local branding and management team, serving 11 Western and Southwestern states.
Historical Overview
Founded in 1873, Zions Bancorporation has weathered numerous economic cycles and challenges, demonstrating its ability to adapt and thrive in the face of adversity. The bank’s commitment to its customers, prudent risk management, and strategic investments have been key drivers of its long-term success. Starting as a small, local bank serving the needs of the Salt Lake City community, Zions Bancorporation gradually expanded its footprint across the western United States over the decades.
The company faced significant challenges during the 1980s and 1990s as the savings and loan crisis and economic downturns impacted the banking industry. However, Zions Bancorporation successfully navigated these difficult times through prudent risk management and a focus on its core commercial and retail banking businesses. In the 2000s, the bank continued its growth trajectory, expanding both organically and through strategic acquisitions. It entered new markets such as California, Arizona, Colorado, and Texas by acquiring local banks and integrating them under the Zions brand, which helped diversify its geographic presence and reduce risk.
The 2008 financial crisis presented another major hurdle for Zions Bancorporation, as it grappled with rising defaults and non-performing loans. The company responded by raising capital, reducing its exposure to risky asset classes, and focusing on improving credit quality. These efforts paid off, and by 2012, Zions Bancorporation had returned to profitability, setting the stage for future growth.
Financials
Zions Bancorporation’s financial performance has been solid, with the company reporting net income of $680 million and total revenue of $3.12 billion in the 2023 fiscal year. The bank’s net interest margin, a crucial metric in the banking industry, has remained stable, standing at 3.06% as of the end of 2023. This figure compares favorably to the industry average, highlighting Zions’ ability to effectively manage its interest rate risk.
The company’s balance sheet is also well-positioned, with a total asset base of $87.20 billion as of the end of 2023. Zions’ capital ratios, which are important indicators of financial strength, are also strong, with a Common Equity Tier 1 ratio of 10.30% and a Tier 1 risk-based ratio of 10.90% at the end of the previous year.
Zions Bancorporation has demonstrated a commitment to returning capital to its shareholders, with the company paying a quarterly cash dividend of $0.41 per common share as of the third quarter of 2024. The bank has also implemented a share repurchase program, adding to its shareholder-friendly initiatives.
In the most recent quarter (Q3 2024), Zions reported revenue of $792 million, which remained flat year-over-year. However, net income increased by 22% to $214 million compared to the same period in the previous year. The bank’s operating cash flow (OCF) showed significant improvement, rising 78% year-over-year to $1.04 billion, while free cash flow (FCF) increased by 80% to $1.09 billion. These improvements were primarily driven by higher net interest income due to rising interest rates and an improved deposit mix, as well as strong growth in capital markets fees.
Liquidity
Despite the challenges posed by the COVID-19 pandemic, Zions Bancorporation has shown resilience and adaptability. The bank’s diversified loan portfolio, which includes commercial and industrial loans, commercial real estate loans, and consumer loans, has helped it navigate the economic uncertainty. Additionally, Zions’ investments in technology and digital capabilities have enabled it to better serve its customers during the pandemic and beyond.
As of September 30, 2024, Zions Bancorporation reported a debt-to-equity ratio of 0.34, indicating a relatively low level of leverage. The bank’s cash and cash equivalents stood at $1.11 billion, providing a solid liquidity buffer. Furthermore, Zions has substantial borrowing capacity, with $15.5 billion available from the Federal Home Loan Bank (FHLB) and $17.2 billion from the Federal Reserve Bank (FRB). Of this total capacity, $40.7 billion remained undrawn as of September 30, 2024, providing significant financial flexibility.
The bank’s current ratio and quick ratio both stood at 0.73, reflecting its ability to meet short-term obligations. While these ratios are below 1, it’s important to note that banks typically maintain lower liquidity ratios compared to non-financial companies due to the nature of their business model.
Business Overview and Product Segments
Zions Bancorporation operates as a diversified commercial bank, focusing on traditional banking services and products for its commercial and consumer customers. The bank’s core business activities can be broadly categorized into the following areas:
Consumer Lending: The consumer loan portfolio totaled $14.62 billion as of September 30, 2024, representing 24.8% of the total loan portfolio. This segment primarily consists of 1-4 family residential mortgages (64.9%) and home equity credit lines (HELOCs) (24.2%).
Deposits: Deposits, totaling $75.72 billion as of September 30, 2024, serve as the bank’s primary funding source. The deposit base comprises noninterest-bearing demand deposits (33.0%), interest-bearing savings and money market accounts (51.8%), time deposits (8.3%), and brokered deposits (6.9%).
Fee-based Services: Zions generates noninterest income from various fee-based services, including commercial account fees, card fees, retail and business banking fees, capital markets fees, and wealth management fees.
Recent Performance and Outlook
In the third quarter of 2024, Zions reported diluted earnings per share of $1.37, up 21% from the same period in the prior year. The bank’s net interest income increased by 6% year-over-year, driven by higher earning asset yields and improved deposit mix. Zions’ customer-related noninterest income also saw a 3% increase, with the bank’s capital markets division delivering a record quarter.
The bank’s net interest margin has expanded for three consecutive quarters, up 5 basis points in the current quarter and 10 basis points higher compared to the year-ago quarter. Net earnings for the quarter were $204 million, an improvement of $14 million due to higher revenues and lower expenses. Adjusted pre-provision net revenue was $299 million, up from $278 million in the prior quarter.
Looking ahead, Zions Bancorporation has provided guidance for the third quarter of 2025:
Conclusion
In conclusion, Zions Bancorporation, N.A. (NASDAQ:ZION) is a well-established financial institution with a proven track record of navigating through various challenges. Its strong financial performance, prudent risk management, and shareholder-friendly initiatives position the bank well for continued success in the years to come. The bank’s diverse loan portfolio, growing capital markets business, and strategic focus on commercial and consumer banking services provide a solid foundation for future growth. With a positive outlook for net interest income, expanding margins, and increasing customer-related non-interest income, Zions Bancorporation appears well-positioned to capitalize on opportunities in the evolving banking landscape.
Disclaimer: This article is for informational purposes only. It does not constitute financial, legal, or other types of advice. While every effort has been made to ensure the accuracy of the information presented here, the author and the publisher do not make any guarantees about the completeness, reliability, and accuracy of this information.