Market Mad House

In individuals, insanity is rare; but in groups, parties, nations and epochs, it is the rule. Friedrich Nietzsche

Long Ideas

What Zions Bancorp can tell us about the State of the Economy?

One of the best ways to check the health of the U.S. economy is to take a look at the finances of smaller regional banks. A good place to start is with Zions Bancorp (NYSE: ZION), a Utah based bank holding company sometimes associated with the Mormon Church.

Zions is a good barometer of the regional economy in the West because it owns several regional banks including: Amegy Bank of Texas, Vectra Bank in Colorado, California Bank & Trust, Nevada State Bank, the National Bank of Arizona, The Commerce Bank of Oregon, The Commerce Bank of Washington and Zions First National Bank in Utah. A look at Zions’ financial numbers can give us a glimpse of how the economy in those states is doing.

As so often happens with banks, Zions numbers are a mixed bag. On June 30, 2016, the Bancorp reported a profit margin of 19.29% and a free cash flow of -$40.06 million. This indicates the bank is making some money, but also taking some risks.


The West is Growing and so is Zions Bancorp

What is more important is that Zions has seen significant revenue growth over the past year.

Zions reported revenues of $2.046 billion in June 2015 that grew to $2.289 billion in June 2016. That means its revenues grew by $243 million or a growth rate of close to 10%, which indicates a large increase in basic banking business. That points to a very healthy economy on the Pacific Coast and in the Rocky Mountain West.

Part of the reason for Zions success is that the region it operates in is booming. The population of one of the area’s most prominent cities; Denver, grew by 18,582 people or 2.8% in 2015, the US Census Bureau and The Denver Post reported. Broomfield, Colorado, a Denver suburb is now the fifth fastest growing county in the United States.

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Five Colorado counties surrounding Denver; Boulder, Adams, Arapahoe, Jefferson and Douglas, were growing at a rate of 2.1% a year or 10.5% between 2010 and 2015. Since Zions’ subsidiary Vectra Bank operates in the Denver area it is easy to see where some of that revenue growth is coming from.

Is Zions Bancorp Making Money?

Okay, so Zions Bancorp is growing and it is in a great position geographically but is it making money? To answer that question we’ll take a look at a few of the other financial numbers as reported by our friends at Ycharts.

On June 30, 2016 Zions reported the following data on its performance:

  • A net income of $407.87 million.


  • Total Assets of $59.64 billion.


  • Cash and short-term investments of $2.715 billion

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  • Total liabilities of $52.02 billion.


  • $656.28 million in cash from financing


  • $595.89 million in cash from operations.

To that we can add a market capitalization of $6.247 billion and an enterprise value of $4.953 billion on September 1, 2016. That indicates this bank is overvalued by Mr. Market, so it might be a good buy for those traders who are looking for something to short.

Is it Time to Short Zions Bancorp?

One reason for that is the stock price; $30.53 a share on August 24, 2016, that seems high to me. Particularly with much larger banks like Bank of America (NYSE: BAC) trading at bargain-basement prices. B of A was trading at $15.80 a share September 1, 2016, 2016, even though it reported assets of $2.187 trillion on June 30, 2016.

Nor did, Zions shareholders get that much for their investment. They received a return on equity of 6.08% on June 30, 2016. That was a pretty poor deal considering the fact that a similar regional bank holding company; Huntington Bancshares (NASDAQ: HBAN), offered a return on equity of 10.76% but traded at just $9.87 a share.

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Meanwhile, a much regional bank; US Bancorp (NYSE: USB), was offering a return on equity of 14.4% on a share price of $43.84 a share on September 1, 2016. Bank of American investors received 6.19% a share.

Nor did Zions offer investors a particularly good dividend, one reason to buy banks if for the dividend yield. Zions offered a dividend yield of .85% on September 1, 2016, 2016. On the same day; Huntington Bancshares had a yield of 2.74%, US Bank was delivering a dividend yield of 2.32% and Bank of America was paying a dividend yield of 1.42%.

This means that Zion is a healthy company but not a particularly good investment right now because it looks overpriced. Investors looking for income would be better served by bargain banks like Huntington or Bank of America.

Still Zions, shows us that the economy in the Rocky Mountain West is very health. If you’re looking for a region of the country to invest in check it out.

Disclosure: your friendly neighborhood blogger lives in Colorado and owns a few shares of Bank of America.