On Jun 29, we issued an updated research report on Zions Bancorporation ZION. Shares of this Utah-based banking and related services provider have recorded a year-to-date return of 11.8%. We believe this growth story has been aided by Zions’ steady growth in loans and deposits, enhanced capital deployment activities, improvement in credit quality and expected growth in fee income.
Earlier this month, in an effort to improve profitability metrics, Zions revealed corporate restructuring and a number of initiatives to drive revenues and reduce expenses. With its organizational and operational modifications, the bank intends to provide better customer experience, simplify the corporate structure and significantly drive positive operating leverage.
For full year 2015 and 2016, Zions expects to maintain noninterest expense below $1.60 billion, while it may increase slightly in 2017 (excluding severance and other associated restructuring items). Through its operational expense initiatives, the company aims to achieve gross pre-tax cost savings of $120 million annually by fiscal 2017.
The company also remains focused on reducing financing costs. In this respect, owing to the maturity of subordinated debt in the second half of 2015, the company expects to achieve pre-tax cost savings of around $30 million annually. Further, the company expects to achieve savings of $20 million in its annual dividends on preferred equity for the upcoming several quarters.
Regarding revenues, Zions intends to drive revenues primarily through fee income and loan growth and deploying low-yielding cash into mortgage-backed securities.
Through the expense and revenue initiatives, the company expects to achieve efficiency ratio in the low 60s by fiscal 2017 (assuming interest rates to increase slightly). Also, the company expects increase in returns on tangible common equity to double digit levels in the long run.
On the flip side, a persistently low interest rate environment, slow economic recovery and stringent regulatory requirements will likely keep the bank’s financials under stress.
Over the past 7 days, the Zacks Consensus Estimate has increased slightly to $1.58 and $2.10 per share for 2015 and 2016, respectively. Hence, Zions currently carries a Zacks Rank #2 (Buy).
Key Picks from the Sector
Other finance stocks worth considering include KeyCorp. KEY, Bank of Hawaii Corporation BOH and BofI Holding, Inc. BOFI. All three stocks carry a Zacks Rank #2 (Buy).
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