ZION Q3 Deep Dive: Core Earnings Growth and Credit Quality Scrutiny Shape Outlook

Regional banking company Zions Bancorporation (NASDAQ:ZION) beat Wall Street’s revenue expectations in Q3 CY2025, with sales up 8.7% year on year to $861 million. Its GAAP profit of $1.48 per share was 6.1% above analysts’ consensus estimates.

Is now the time to buy ZION? Find out in our full research report (it’s free for active Edge members).

StockStory’s Take

Zions Bancorporation’s third quarter results met market expectations with stronger-than-anticipated revenue growth and improved net interest margin, supported by a favorable shift in asset mix and ongoing deposit stability. Management pointed to momentum in core earnings, highlighting expansion in net interest margin for the seventh straight quarter and cost discipline that led to an improved efficiency ratio. However, the quarter included a notable credit event: a $50 million charge-off tied to two related commercial loans, which management emphasized as an isolated incident after internal and external portfolio reviews. CEO Harris Simmons acknowledged, “We have no further exposure related to these borrowers or guarantors,” underscoring confidence in the bank’s broader credit quality.

Looking ahead, Zions Bancorporation’s forward guidance centers on continued growth in net interest income and customer-related fees, supported by further loan and deposit expansion and ongoing asset repricing. Management expects commercial loans to drive lending growth, with new product launches and expanded capital markets activities contributing to fee income. CFO Ryan Richards noted, “Our outlook for net interest income...is moderately increasing...supported by continued earnings asset remix, growth in loans and deposits, and fixed asset repricing.” The company plans to sustain investment in marketing and technology while maintaining positive operating leverage, though expense growth will be monitored as revenue initiatives scale. Management remains watchful of macroeconomic conditions and regulatory developments, with a focus on disciplined underwriting and diversified revenue streams.

Key Insights from Management’s Remarks

Management credited the quarter’s positive trends to net interest margin expansion, deposit growth, and disciplined cost control, while addressing a one-off credit loss and discussing ongoing investments in revenue-generating businesses.

• Net interest margin expansion: The bank’s net interest margin rose for the seventh consecutive quarter, driven by repricing of fixed assets and favorable changes in the mix of interest-earning assets. Management attributed this improvement to both higher average customer deposits and effective loan pricing strategies, which are expected to continue supporting earnings.
• Deposit stability and growth: Zions reported an annualized 3.1% increase in average customer deposits compared to the prior quarter, alongside a migration of consumer interest-bearing products to noninterest-bearing accounts. This shift improved funding costs and underscored management’s focus on maintaining a peer-leading mix of stable, low-cost deposits.
• Credit event management: The quarter included a $50 million charge-off related to two commercial loans, described as an isolated issue after comprehensive portfolio review. Chief Credit Officer Derek Steward stated, “We haven’t found similar loans or other issues,” and highlighted ongoing external and internal reviews to strengthen risk oversight.
• Capital markets and fee income growth: Management highlighted strong performance in capital markets, with fee income from loan syndications, customer swaps, and new capital markets offerings such as securities underwriting and advisory services showing notable increases. This diversification within noninterest income is seen as a key lever for future growth.
• Cost discipline and technology investment: Adjusted expenses declined slightly from the previous quarter but increased year-over-year, primarily due to technology and salary costs. Management continues to invest in marketing and revenue-generating initiatives, balancing these with efficiency improvements to achieve positive operating leverage.

Drivers of Future Performance

Zions Bancorporation expects moderate growth in revenue and positive operating leverage next year, with commercial lending, asset repricing, and fee income diversification as central themes.

• Commercial loan growth emphasis: Management anticipates that commercial and industrial (C&I) loans will be the primary driver of loan growth over the next year, supported by product launches and strategic marketing. Scott McLean, President and COO, noted efforts to expand SBA lending and introduce new offerings for small businesses.
• Asset repricing and funding mix: Ongoing repricing of fixed assets and a shift toward noninterest-bearing deposits are expected to incrementally improve net interest income. Management projects a 2–3 basis point yield improvement per quarter, contingent on reinvestment and the pace of rate changes.
• Expense management and investment: While investments in technology, marketing, and new talent are planned to support growth, management aims to offset these costs with back-office efficiencies. CFO Ryan Richards indicated that expense growth would be monitored to ensure operating leverage is maintained as revenue initiatives mature.

Catalysts in Upcoming Quarters

In future quarters, our analysts will be monitoring (1) the pace and sustainability of commercial loan growth, especially in C&I and SBA lending; (2) the impact of deposit migration on funding costs and noninterest income; and (3) progress in managing credit quality, including the resolution of the recent charge-off event. Additionally, we will track the effectiveness of continued investments in technology and marketing as drivers of new client acquisition and fee income diversification.

Zions Bancorporation currently trades at $52.94, up from $52 just before the earnings. At this price, is it a buy or sell? Find out in our full research report (it’s free for active Edge members).

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