Zions Bancorp reported strong fourth quarter 2025 results with earnings of $262 million, up 19% sequentially and 31% year-over-year, driven by an eighth consecutive quarter of net interest margin expansion to 3.31% and significantly lower credit provisions. Diluted EPS rose to $1.76, bolstered by a 26 basis point improvement in NIM year-over-year and robust fee income, while tangible book value per share grew 21% for the third straight year exceeding 20%. Credit quality remained resilient with net charge-offs at just 5 basis points and nonperforming assets declining to 52 basis points. Looking ahead to 2026, management provided guidance for 'moderately increasing' net interest income, loans, and fees, alongside positive operating leverage of 100-150 basis points, signaling a shift toward growth and a potential return of capital in the second half of the year.
| Metric | Value | Change |
|---|---|---|
| Diluted EPS | $1.76 | +19% QoQ / +31% YoY |
| Net Interest Margin | 3.31% | +3 bps QoQ / +26 bps YoY |
| Net Interest Income | N/A | +$11M QoQ / +$56M YoY |
| Provision for Credit Losses | $6 million | Significant decrease |
| Net Charge-offs | 5 bps | Annualized |
| Nonperforming Assets | 52 bps | -2 bps QoQ |
| Average Loans | Flat | 0% QoQ / +2.5% YoY |
| Average Deposits | N/A | +2.3% QoQ |
| Tangible Book Value/Share | N/A | +21% YoY |
| CET1 Ratio | 11.5% | Stable |
Management signaled a definitive shift from internal restructuring to external growth, emphasizing a 'determination to spend more on growth initiatives' including marketing, hiring, and product revamps. This strategic pivot is supported by a 53% increase in SBA 7(a) loan production and a doubling of capital markets fees since 2020. The focus on small business lending is central to this strategy, aiming to build a more productive balance sheet rather than just chasing volume.
A major strategic signal was the indication that Zions is nearing the point of returning capital to shareholders, specifically mentioning buybacks could resume in the second half of 2026. This is supported by a 21% increase in tangible book value per share and a CET1 ratio of 11.5%, suggesting the capital build phase is successfully concluding and shareholder returns will become a priority use of excess capital.
The company continues to execute successfully on its deposit gathering strategy, with average noninterest-bearing deposits growing $1.7 billion (6%) sequentially. This success in lowering the cost of deposits (down 11 bps sequentially to 1.56%) allows for the reduction of higher-cost short-term borrowings by $653 million, improving the funding mix and supporting NIM expansion even in a falling rate environment.
Zions is positioning itself to navigate the $100 billion asset threshold for SIFI regulation without altering its business model, viewing it as a 'nonevent' due to existing capabilities. This suggests management remains open to acquisitions or organic growth that pushes them past this mark without fear of regulatory speed bumps, maintaining flexibility for strategic M&A if 'absolutely compelling' opportunities arise.
While overall credit quality remains strong, there was a notable increase in C&I classified loans of $92 million during the quarter, which offset improvements in CRE classified assets. Management attributed this to broad economic factors rather than specific idiosyncratic issues, but the uptick in a typically stable category warrants monitoring as economic uncertainties regarding tariffs and commercial real estate persist.
Net interest margin expansion, while positive for the eighth straight quarter, is facing headwinds as earning asset yields decreased by 15 basis points sequentially. Management's guidance for 2026 NIM relies heavily on deposit beta assumptions and specific Fed rate cuts (225 bps), creating execution risk if deposit costs remain stickier than anticipated or if the rate environment differs from their baseline.
Adjusted noninterest expense increased 5% sequentially and 8% year-over-year, driven by marketing, technology, and legal fees. While management frames this as investment for growth, the rising expense base (excluding the charitable contribution) puts pressure on the company to deliver the promised 100-150 basis points of positive operating leverage in 2026, particularly if revenue growth slows.
The CRE portfolio remains a significant focus at 22% of total loans ($13.4 billion). While management highlighted declining classified balances and low delinquencies, the sector continues to face 'sobering' industry-wide sentiment. Any deterioration in this specific asset class could impact the strong credit metrics that currently underpin the investment thesis.
Overall: Management exhibited a confident and assured demeanor throughout the call, highlighting the 'resilience' of their performance amidst past industry disruptions. There was a clear strategic pivot from defensive positioning to offensive growth initiatives, with executives emphasizing their readiness to deploy capital and invest in the franchise. The tone shifted from detailed financial discipline in prepared remarks to enthusiastic discussions about growth opportunities and capital returns during the Q&A.
Confidence: HIGH - Management provided specific guidance ranges, detailed strategic initiatives, and committed to a timeline for capital returns. Their language was decisive regarding credit quality and the success of deposit gathering initiatives.
Moderately increasing relative to 2025
Period-end balances moderately increasing relative to 2025
Moderately increasing; expect to be at the top end
Moderately increasing relative to 2025
Positive, estimated around 100 to 150 basis points
Assumes 225 basis points of cuts occurring in June and September 2026
Hedging & Uncertainty: Management utilized moderate hedging, particularly regarding the timing of capital returns and the specific trajectory of NIM. Phrases like 'I'm not going to hazard a guess' and 'hard to say' were used when pressed on specific timelines for reaching a 3.50% NIM. However, they were less hedged on the immediate outlook, using 'moderately increasing' as a consistent, albeit qualitative, guidance term. The use of 'expect' and 'believe' was frequent but backed by specific data points, suggesting confidence in the directional view even if exact magnitudes are uncertain.
We believe that we are nearing a position to increase capital distributions while continuing to invest in our franchise to support profitable growth. - Harris Simmons, Chairman and CEO
Our outlook for net interest income for the full year of 2026 is moderately increasing relative to the full year of 2025. - Ryan Richards, CFO
We're determined to actually spend more on growth initiatives. - Harris Simmons, Chairman and CEO
I think it's probably this year, but not -- probably not this next quarter. In the second half, I think you'll see -- I would expect we're going to be in a position to start to accelerate capital returns. - Harris Simmons, Chairman and CEO
We don't feel compelled to try and... boy, you're going to cross 100, you got to get to 200 or anything like that sort. - Harris Simmons, Chairman and CEO
We're pleased with the resilience of our performance, particularly the stability in credit outcomes throughout that period. - Harris Simmons, Chairman and CEO
Analyst Sentiment: Analysts were generally inquisitive and focused on the sustainability of the net interest margin, the specific drivers of loan growth, and the timing of capital returns. There was a clear interest in understanding the 'new' growth phase of the company, with questions probing the expense base and the feasibility of buybacks in the near term.
Management Responses: Management responses were detailed and open, providing specific color on deposit migration, SBA lending growth, and the distinction between core expenses and one-off items. They effectively navigated questions about the $100 billion asset threshold, reassuring investors that it would not change their strategic calculus.
Discussion on the definition of the expense base for 2026 guidance, specifically regarding the treatment of the $15M charitable contribution.
Deep dive into the drivers of Net Interest Income (NII) and the possibility of reaching a 3.50% NIM.
Clarification on the timing of share buybacks, with management narrowing it to the second half of 2026.
Analysis of credit quality, specifically the increase in C&I classified loans versus the improvement in CRE.
Inquiry into the impact of potential regulatory changes (tailoring) on M&A strategy and growth.
Zions Bancorp presents a compelling investment case driven by a proven ability to expand net interest margin (8 consecutive quarters) and maintain exceptional credit quality (5 bps net charge-offs) despite a challenging macro environment. The shift from a defensive posture to a growth-oriented strategy, marked by increased marketing spend and a focus on high-quality small business lending, positions the company for revenue diversification and sustained earnings growth. The catalyst for the stock is the anticipated return of capital in the second half of 2026, supported by a robust 11.5% CET1 ratio and three consecutive years of >20% tangible book value growth. While expense management and CRE exposure require monitoring, the bank's strong deposit gathering capabilities and positive operating leverage guidance of 100-150 bps for 2026 signal strong momentum.
Management assumes 225 basis points of Fed rate cuts in 2026 (June and September). While this compresses asset yields, they believe deposit beta and balance sheet remix will allow NII to grow 'moderately'.
Borrower sentiment remains dampened by concerns over tariffs, commercial real estate, and the general economy, leading to 'sobering' loan growth numbers industry-wide, though Zions sees specific pockets of strength in SBA and municipal lending.
Zions views the potential crossing of the $100 billion SIFI threshold as a 'nonevent' due to existing infrastructure, indicating they will not let regulatory caps dictate their strategic growth or M&A decisions.