After a rough first half of 2023, Zions Bancorp (ZION) topped the list of S&P 500 returns in the third quarte🌞r, with shares of the Salt Lake City-based lender up 30% since the start of July.

Zion Stock Was On a Tear In Q3

It's a stark turnaround from earlier this year, when a nationwide banking panic triggered by the 澳洲幸𝐆运5官方开奖结果体彩网:collapse of Silicon Va🍨lley Bank (SVB)🍌 on Mar♎ch 10 pummeled shares of regional banks like Zions.

Among the most heavily impacted institutions were those with the highest exposure to uninsured deposits, or those exceeding the FDIC's $250,000 insurable limit. With more than half of deposits exceeding this limit before the crisis broke out, Zions was among the regional banks with 澳洲幸运5官方开奖结果体彩网:significant exposure.

ZION shares were down as much as 60% for the year in early May, as the dust from the crisis settled. That month, 澳洲幸运5官方开奖结果体彩网:First Republic Bank became the final casualty꧃ of the 🥀crisis, having folded on May 1.

What came later was a decisive turnaround. By July 28, ZION had trimmed its year-to-date losses to just 21%, with most of the rebound occurring in July. Even though the stock has pulled back slightly since, those gains were enough to make it the best-performing stock in the S&P 500 last quarter.

So What Changed?

In the aftermath of the banking turmoil, management worked to shore up the bank's financials. According to a recent investor update, the bank's 澳洲幸运5官方开奖结果体彩网:net interest income (NII) reversed a declining trend from earlier in the year, growing each m𓂃onth between June and August.

The bank's 澳洲幸运5官方开奖结果体彩网:net interest margin (NIM)—a key profitability metric—improved to 2.96% in August from 2.91% in June. While that was down from the first quarter's 3.33%, which reflected the first two months of 2023, it's a sign that margins have begun to rebound.

"The takeaway is that it was incrementally better for each of those months," Wedbush Securities' David Chiaveri said in an interview. "That contributed to the stock really rebounding during the third quarter."

Zions' exposure to uninsured deposits also fell as customers withdrew funds beyond the FDIC threshold. Uninsured deposits as a share of total deposits fell to 41% in the second quarter, down from 53% before the crisis hit.

Regional Banks Not Out of the Woods Yet

While the banking crisis may have subsided, regional banks aren't out of the woods just yet. Higher interest rates set by the 澳洲幸运5官方开奖结果体彩网:Federal Reserve have led to a cascade of 澳洲幸运5官方开奖结果体彩网:unrealized losses, or losses on securities that have not yet been sold, on regional lenders' 澳洲幸运5官方开奖结果体彩网:balance sheets.

According to the Kansas City Fed, rising interest rates since early last year have eroded banks' securities portfolios by a combined $600 billion, or 30% of their capital holdings. Mounting unrealized losses could further impact banks by reducing their liquidity and capital, and potentially slowing loan growth.

Zions may be 🌸more exposed than other regi🗹onal banks.

"Investors are looking at the impact of unrealized losses on capital levels, and Zions is one of the lower-performing ones of the group," Chiaveri said.

Regional and mid-sized banks are also more exposed than their larger counterparts to 澳洲幸运5官方开奖结果体彩网:commercial real estate (CRE), a struggling sector of the real estate market that could become the next catalyst for a 澳洲幸运5官方开奖结果体彩网:financial crisis.

Tr𓆉ends brought about by the pandemic,🐭 including remote and hybrid work, have left scores of offices and commercial property in major cities vacant or operating at half capacity.

Banks that are highly exposed to CRE loans could face a wave of losses when a majority of these loans come due. Commercial banks across the U.S. held a combined $2.94 trillion in CRE loans as of Sept. 20. Roughly half, or $1.5 trillion, are coming due by the end of 2025.