What happened

Zions Bancorporation (ZION -1.21%) rewarded investors in July as its stock price surged 42% higher in the month, according to S&P Global Market Intelligence. Zions Bancorp is still down about 22% year to date as of Aug. 7, trading at just over $38 per share.

The bank stock beat the markets in July as the S&P 500 was up 3.2%, the Dow Jones Industrial Average rose 3.4%, and the Nasdaq Composite climbed 4.1% last month. 

So what

Zions Bancorp moved higher in July on a combination of good macroeconomic news and solid second-quarter earnings. On the macroeconomic front, the reduction in the inflation rate in June to 3.1% -- the lowest since March 2021 -- buoyed most stocks, as did the release of the second-quarter gross domestic product (GDP), which was up 2.4%. Both of these numbers were better than expected, as many economists had predicted an economic slowdown or recession.

For Zions, net income was basically flat year over year in the second quarter at $591 million, but down some 13% from the first quarter. The main reason for the quarter-over-quarter decline was higher deposits costs, as the bank had $386 million in interest expense, up from $241 million in the first quarter and just $15 million a year ago. The cost of deposit ratio was 1.27%, up from 0.47% in Q1.

However, loans were up 9% year over year and the net interest margin ticked up to 2.92%, from 2.87% a year ago.

It was also a good sign that deposits, at $74 billion, were up 3% from the first quarter, but they were still down 6% year over year. Also, nonperforming assets were down 18% year over year and 5% from the first quarter, while provisions for credit losses stayed stable at $45 million. In addition, the bank improved its capital position, as its Common Equity Tier 1 (CET1) ratio, a measure of its liquidity, climbed to 10%, from 9.9% the previous quarter.

Now what

Like most regional bank stocks, Zions is still trading at a discount, with a price-to-earnings (P/E) ratio of just 6.5 and a P/E-to-growth (PEG) ratio of 0.71. The latter measures its price relative to expected earnings growth five years out and anything under 1 indicates an undervalued stock.

Zions also declared a $0.41 dividend -- at a yield of 4.3% with a payout ratio of 28%. It has grown its dividend for 10 straight years, so it is not a bad option for dividend investors.