Zions Bancorporation has had a difficult year since the regional banking crisis in early spring 2023, with shares still down more than 30% year to date. However, Citi thinks the stock has been “caught in the storm” and sees upside potential ahead. Analyst Keith Horowitz upgraded the stock to a buy rating. His price target of $42 implies 23.7% upside from Thursday’s close. Following the failure of Silicon Valley Bank, Zions got caught in a broader panic among regional banks, which led to deposit outflows and funding pressures. Between Dec. 31, 2022, and Mar. 31, 2023, the bank’s core deposits fell nearly 10% to about $64 billion, according to Citi. Things seem to be turning around for Zions, though. “We believe NII [net interest income] trends have stabilized earlier than peers and we see upside to consensus estimates from funding optimization and fixed asset repricing, leading to our positive Catalyst Watch,” Horowitz said. “Given the downward pressures on NII over the last few quarters, investors are increasingly focused on when NII can bottom. While most banks are calling for a bottom on NII in 4Q23-1Q24, we believe ZION’s NII has stabilized earlier than peers due to stabilizing deposit trends and hedging actions to position the balance sheet for a higher-for-longer rate environment,” he added. Zions is “paying the price” for mistakes made on its securities portfolio, said Horowitz. The regional bank saw significant deposit inflows of more than 40%, or more than $80 billion, between 2020 and 2021 due to quantitative easing and fiscal stimulus. The bank then deployed the deposits into doubling its higher-yield mortgage-backed securities portfolio. However, the dramatic rate hikes starting in 2022 led to significant unrealized losses on long duration securities. Nonetheless, Horowitz thinks Zions has a “good core deposit franchise” as well as positive balance trends. “ZION has been impacted by deposit outflows, but we find that ZION’s core deposits (excluding broker deposits) ranks second lowest on cumulative beta on total deposits so far this cycle. Management has recently noted that they are working to bring off-balance sheet deposits back on-balance sheet, which will help alleviate funding pressures and reduce ZION’s reliance on broker deposits. ZION reported positive trends towards the end of 2Q as core deposits were up 3% sequentially,” Horowitz said. He added that Zions stands to benefit the most from reducing broker deposits. “With positive trends in the core deposit base towards the end of 2Q and recent management commentary that there are positive trends again in 3Q, we believe the reduction of broker deposits can provide a meaningful tailwind to NII as ZION can reduce reliance on the more expensive broker deposits and wholesale funding,” said Horowitz. Shares gained 1.3% Friday before the bell. — CNBC’s Michael Bloom contributed to this report.