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Zions (ZION) Rides on Loans & Rising Rates, Higher Costs Ail

Rising interest rates and decent loan demand are expected to keep supporting Zions Bancorporation’s ZION financials. However, persistently increasing expenses and a less diversified loan portfolio are key near-term headwinds.

Zions has been witnessing solid organic growth, with total revenues recording a CAGR of 2.8% over the last five years (2017-2021). Revenues were driven by robust loan balance, with net loans and leases (net of unearned income and fees) recording a CAGR of 3.2% over the same time frame. Further, the bank's non-interest-bearing deposits (51% of total deposits as of Jun 30, 2022) aid its financials. Further, With the Federal Reserve raising the interest rates and more such hikes expected to come, Zions’ net interest margin is likely to witness decent improvement.

Zions has an impressive capital deployment plan on the back of its solid balance sheet. In July 2022, the company announced an 8% hike in the quarterly dividend to 41 cents per share. The company has a dividend yield of 3.06% and five-year annualized dividend growth of 18.4%. Further, ZION's payout ratio is 28% of earnings at present.

The company has a share repurchase program in place as well. For the third quarter of 2022, the bank has authorized the buyback of up to $50 million. Given its robust capital position and lower dividend payout ratio compared with peers, ZION is expected to sustain its capital deployments.

Over the past three months, shares of this Zacks Rank #2 (Buy) company have rallied 1.6% against the industry’s decline of 4.6%. You can see the complete list of today’s Zacks #1 Rank (Strong Buy) stocks here.

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However, Zions has been witnessing a persistent rise in expenses. Though total non-interest expenses declined in 2020, the same recorded a CAGR of 1.3% over the last five years (ended 2021). As the company continues to invest in franchise and digitize operations, expenses are expected to remain elevated in the quarters ahead. Management expects adjusted non-interest expenses to rise moderately this year on elevated inflationary pressure.

Other Bank Stocks Worth a Look

A couple of other top-ranked stocks from the banking space are Bank OZK OZK and Associated Banc-Corp ASB. At present, both OZK and ASB carry a Zacks Rank of 2.

So far this year, shares of Bank OZK have lost 16.8%, while that of Associated Banc-Corp have declined 11%.

Over the past 30 days, the Zacks Consensus Estimate for Bank OZK’s current-year earnings has remained unchanged, while the same for Associated Banc-Corp has moved marginally north.

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