"I'm gonna be iron like a lion in Zion."
-- "Iron Lion Zion," Bob Marley
I like ratios and statistics as much as the next value-oriented fundamental wonk, but you've got to keep an eye on them. See, they're shifty and not entirely honest, and if you just trust in them blindly, they'll betray you. Such is the case at Zions Bancorporation
After all, a return on assets of 1.3% and a return on equity of 13.2% are hardly special, particularly when they drop year on year. An efficiency ratio above 57% isn't terrible, but nor is it great. And why should anybody pay a P/E premium for this instead of just buying Bank of America
Well, I'm not going to say that you shouldn't also consider B of A and Wells Fargo, but let's look closer at Zions, OK?
Zions is a distinctive bank with a decentralized management structure and a reputation for fairly innovative thinking. It has a pretty healthy chunk of interest-free deposits and generally spreads its loan risk quite well. It also doesn't hurt that it targets major growth markets like Arizona, Washington, California, and Texas.
What's hurting results now, though, is an acquisition a year ago that swelled the equity line of the balance sheet and the costs from the deal itself. Also, the delay in bringing the acquired bank in line with Zions' historical margins has hampered the "return" part of the equation.
Zions did see some spread compression this quarter, but not a lot. What's more, while I'm a little concerned about the pace of sequential deposit growth (or rather, the lack of it), loan growth seems to be continuing nicely. Couple that with a high-quality balance sheet, and I think there's more going on here than the numbers initially suggest.
The trouble with Zions has generally been that its quality is no secret, and so the valuation is seldom a bargain. Such seems to be the case today. I think you could buy now and be happy years down the road, but that's a judgment call that each Fool needs to make for him or herself. For my own part, I'll be watching this one more carefully, hoping to see enough margin of safety to put my own money to work.
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Fool contributor Stephen Simpson has no financial interest in any stocks mentioned (that means he's neither long nor short the shares).