Zions Bancorporation Earnings Call Signals Profitable Momentum

Zions Bancorporation, National Association (N.A) ((ZION)) has held its Q4 earnings call. Read on for the main highlights of the call.

Zions Bancorporation Earnings Call Highlights Solid Growth, Strong Credit, and Cautious Optimism

Zions Bancorporation, N.A. struck a distinctly upbeat tone on its latest earnings call, underscoring broad-based progress across earnings, net interest margin, deposit gathering, credit quality and capital strength. Management acknowledged some near-term headwinds—most notably higher noninterest expenses, modest pressure on asset yields and a slight uptick in classified C&I loans—but emphasized that underlying operational momentum, diversified revenue streams and a rapidly growing tangible book value underpin a favorable near-term and medium-term outlook.

Meaningful Earnings Growth

Zions delivered a strong quarter on the bottom line, with reported earnings of $262 million, up 19% sequentially and 31% year over year. For the full year, earnings grew 21% versus the prior year, demonstrating that the bank’s profitability is not just recovering but expanding at a healthy clip. Management framed this performance as evidence that strategic investments and balance-sheet positioning are paying off despite a choppy rate environment.

Diluted EPS Improvement

Earnings strength translated into a solid improvement in per-share metrics. Diluted EPS came in at $1.76, up from $1.48 in the prior quarter and $1.34 a year ago. The figure includes an approximately $0.08 per-share drag from a sizable charitable contribution and an $0.11 benefit tied to an FDIC assessment reversal and SBIC gains. Adjusting for these items, the underlying EPS trend remains clearly positive, reinforcing investors’ confidence in the sustainability of earnings growth.

Net Interest Margin and NII Expansion

Core banking profitability continued to improve as net interest margin (NIM) expanded for the eighth consecutive quarter to 3.31%. That represents roughly a 3-basis-point increase sequentially and about 26 basis points year over year. Net interest income rose $56 million, or 9%, compared with the fourth quarter of 2024 and was up $11 million versus the prior quarter. This steady NIM and NII expansion, especially in a mixed rate environment, signals effective balance-sheet management and disciplined pricing on both loans and deposits.

Deposit Growth and Improved Funding Mix

Zions reported healthy deposit growth and a better funding mix, key positives for any bank in a competitive environment for deposits. Customer deposits increased at a 9% annualized pace, with period-end deposits up $766 million quarter over quarter. Average deposits rose 2.3% sequentially, while average noninterest-bearing deposits grew by roughly $1.7 billion, or 6%, quarter over quarter. Importantly, deposit costs declined 11 basis points to 1.56%, and total funding costs fell 16 basis points to 1.76%. The combination of volume growth and cheaper funding provides a strong tailwind to margins and supports future earnings.

Strong Credit Quality

Credit performance remained a key bright spot. Net charge-offs were very low at $7 million, roughly 5 basis points annualized of total loans, suggesting minimal credit strain in the portfolio. The provision for credit losses was just $6 million, and the allowance for credit losses stood at 1.19% of loans, with coverage of nonaccrual loans at a robust 215%. Nonperforming assets were contained at 52 basis points of loans. Altogether, these metrics highlight a conservative credit posture and provide comfort that loan losses are currently well under control.

Capital Strength and Tangible Book Value Growth

Zions continues to build capital and book value at an impressive rate. The bank’s Common Equity Tier 1 (CET1) ratio stands at 11.5%, giving it a solid capital cushion. Tangible book value per share increased 21% year over year, marking the third consecutive year of more than 20% growth. This rapid accretion in tangible book value is particularly appealing to long-term investors and has led management to suggest they are nearing a point where they can boost capital returns, including potential share repurchases in the second half of the year.

Revenue Diversification and Fee Momentum

Beyond traditional lending and spreads, Zions is clearly making progress in diversifying its revenue base. Adjusted customer-related noninterest income reached a record $175 million for the quarter. Within that, capital markets fees increased about 25% year over year, and management noted that these fees have doubled since 2020. Full-year adjusted pre-provision net revenue (PPNR) rose 12% year over year, indicating that fee businesses and other revenue streams are increasingly contributing to overall performance and making earnings less dependent on interest rates.

Loan Production and Targeted Growth Initiatives

Loan growth, particularly in targeted markets and segments, was another positive theme. Period-end loan balances increased by $615 million sequentially, with commercial loan growth concentrated in Texas, California and the Pacific Northwest. Zions is backing this growth with focused initiatives, including targeted marketing campaigns, strategic banker hiring and an emphasis on small business lending. Notably, SBA 7(a) loans nearly doubled in number and rose about 53% in dollar terms. These initiatives suggest that Zions is leaning into growth opportunities while maintaining a disciplined risk posture.

Sequential PPNR Decline and One-Time Donation Impact

One area of softness was a sequential decline in adjusted pre-provision net revenue. Adjusted PPNR came in at $331 million, down 6% from the prior quarter, though still up 6% year over year. A large charitable donation of $15 million weighed on the quarter, creating approximately an $0.08 per-share headwind and materially affecting quarter-to-quarter comparisons. Excluding that donation, adjusted PPNR was down about 2% sequentially and up around 11% year over year. Management framed the decline as largely timing- and donation-related rather than indicative of a structural deterioration.

Rising Noninterest Expense

Expenses were an area of investor focus. Adjusted noninterest expense reached $548 million, up $28 million, or 5%, versus the prior quarter and 8% year over year. Excluding the $15 million charitable contribution, expenses were still up 2% sequentially and 5% year over year. Management characterized the higher expense base as largely driven by growth investments—people, marketing and capabilities—while noting that they expect adjusted noninterest expense to be only moderately higher in 2026. The challenge for Zions will be to ensure that revenue growth continues to outpace this rising cost base.

Earning Asset Yield Compression and Rate Sensitivity

Despite strong NIM trends, Zions is not immune to pressure on asset yields. Total loan yields declined about 15 basis points sequentially, and earning-asset yields were similarly pressured by around 15 basis points. The benefit from repricing fixed-rate assets has slowed to roughly 1 basis point of uplift, versus prior expectations of 2–3 basis points. Management emphasized that their outlook is sensitive to interest-rate moves, and any deviation from expected Fed rate cuts could create downside risk to NIM. This rate sensitivity is a key variable investors will need to monitor.

CRE Concentration and Shift in Classified Loans

Commercial real estate (CRE) remains a sizable, though currently manageable, exposure. Zions’ CRE portfolio stands at $13.4 billion, about 22% of total loans. While CRE nonaccruals and delinquencies remain low and classified CRE balances actually declined by $132 million, there was a notable increase of $92 million in classified commercial and industrial (C&I) loans. Management said this is an area they are closely watching. For investors, the message is that CRE risk is stable for now, but attention is shifting more to C&I credit trends.

Terminated Swap Headwind to NII

The bank also flagged a technical but important headwind to future net interest income tied to terminated interest-rate swaps. Management expects about $29 million of terminated swap-related headwind in 2026, roughly half of what they will experience in 2025. While not large enough to derail the growth story, this drag will temper the pace of net interest income expansion and should be incorporated into investors’ forward models.

Guidance and Macro Uncertainty

Management stressed that several aspects of their 2026 outlook rely heavily on macro assumptions, particularly the timing and magnitude of Federal Reserve rate cuts. They are assuming 225 basis points of cuts, split between June and September. Under that scenario, net interest income, deposit cost reductions and loan growth all improve. However, if the Fed cuts rates more slowly or if deposit costs do not reprice downward as expected, margin and funding-cost improvements could be pressured. This introduces a degree of macro uncertainty into the otherwise constructive guidance.

Forward-Looking Guidance and Strategic Outlook

For 2026, Zions is guiding to moderately increasing net interest income, driven by a more favorable mix of earning assets and interest-bearing liabilities, moderate loan and deposit growth and declining funding costs, all under the assumption of significant Fed rate cuts. Period-end loans are expected to be moderately higher, led by C&I and owner-occupied commercial lending, with CRE remaining at about 22% of the book. Customer-related fee income is also projected to be moderately higher, with an expectation to be toward the high end of that range, supported by strong capital markets momentum. On the cost side, adjusted noninterest expense is expected to rise moderately from a roughly $2.122 billion base, with management targeting positive operating leverage of about 100–150 basis points in 2026 after delivering more than 300 basis points last year when excluding the charitable donation. Other key assumptions include low net charge-offs of around 5 basis points, an allowance ratio of 1.19% of loans, CET1 at 11.5%, and continued tangible book value growth. Management indicated they expect to be in a position to increase capital distributions—including potential buybacks—in the second half of 2026, even as they manage a roughly $29 million terminated-swap headwind.

Zions’ latest earnings call painted a picture of a bank with solid momentum: earnings are growing, margins are expanding, deposits are strengthening, and credit quality remains robust, all while capital and tangible book value continue to build. The main watchpoints are rising expenses, modest asset-yield compression and sensitivity to the interest-rate path, along with a slight uptick in classified C&I loans. Even so, the overall message to investors was constructive—Zions appears well positioned to generate steady growth and improved shareholder returns, provided the macro environment evolves roughly in line with management’s expectations.