Zions projects moderately increasing NII and loan growth for Q3 2026 amid improved net interest margin and isolated credit event

Earnings Call Insights: Zions Bancorporation (ZION) Q3 2025

MANAGEMENT VIEW

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Chairman & CEO Harris Simmons highlighted continued momentum in core earnings, with net interest margin expanding by 11 basis points to 3.28%. He pointed to improvements in the efficiency ratio and noted, “Customer fees, excluding the net credit valuation adjustment, grew $10 million, and adjusted expenses declined $1 million. The efficiency ratio improved to 59.6%. Average loans and customer deposits increased by an annualized 2.1% and 3.1%, respectively, compared to the prior quarter.” Simmons addressed a $49 million provision for credit loss, clarifying, “We view this as an isolated situation resulting from a particular -- a couple of borrowers. We have no further exposure related to these borrowers or guarantors.”

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Executive VP & CFO R. Richards stated, “Net interest income increased by $52 million or 8% relative to the third quarter 2024. We continue to see the benefit from fixed asset repricing and favorable shifts in the composition of average interest earning assets.” Richards also remarked on the net interest margin, “The net interest margin expanded for the seventh consecutive quarter to 3.28%.”

OUTLOOK

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Management’s outlook for net interest income in Q3 2026 is “moderately increasing relative to the third quarter of 2025, supported by continued earnings asset remix, growth in loans and deposits, and fixed asset repricing.” The bank’s guidance assumes “225 basis point cuts to the Fed funds rate in October and December of this year, with additional 25 basis point cuts in March and July of 2026.”

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The outlook for customer-related fee income in Q3 2026 is “moderately increasing relative to the third quarter of 2025. The growth is expected to be broad-based and driven by increased customer activity and new client acquisition.”

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Adjusted noninterest expense for Q3 2026 is projected to be “moderately increasing relative to the third quarter of 2025.”

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The outlook for period-end loan balances for Q3 2026 is “slightly to moderately increasing relative to the third quarter 2025 and assumes growth will be led by commercial loans.”

FINANCIAL RESULTS

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Diluted earnings per share was $1.48 compared to $1.63 in the prior period and $1.37 in the year ago period. This quarter’s results include a $0.06 per share negative impact related to the net credit valuation adjustment and an adverse impact from the elevated credit provision.

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Pre-provision net revenue on an adjusted basis was $352 million, reflecting an improvement of 11% compared to the prior quarter and 18% compared to the prior year period.

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Customer-related noninterest income, excluding net CVA, was $174 million for the quarter, a 6% increase versus the second quarter and an 8% increase versus the year ago quarter. Capital market fees, excluding net CVA, increased 25% compared to the prior year period.

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Adjusted expenses of $520 million decreased by $1 million versus the prior quarter and increased 4% versus the year ago period. Average loans increased 2.1% annualized over the previous quarter, and total average deposits were relatively flat, with average noninterest-bearing deposits growing by $192 million or 0.8% compared to the prior quarter.

Q&A

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Manan Gosalia, Morgan Stanley: Asked about the isolated credit event and internal review process. Derek Steward, Chief Credit Officer, responded, “We’ve reviewed -- gone through the portfolio, and we think it’s an isolated incident. As we’ve gone through it, we haven’t found similar loans or other issues, so we’re very confident that it’s -- this is an isolated incident.”

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David Rochester, Cantor: Inquired about fixed rate asset repricing in NII guidance. R. Richards answered, “We see the potential for 2 to 3 basis points on earning asset yields to play through that’s sort of embedded in our guidance.”

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Kenneth Usdin, Bernstein Autonomous: Queried about the magnitude of operating leverage for next year. R. Richards said, “We see enough to know that there’s going to be a positive operating leverage. Where exactly that lands is not perfectly clear yet, but we know it’s there.”

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Benjamin Gerlinger, Citigroup: Asked about capital and M&A. Harris Simmons stated, “I am quite sensitive to the concept of dilution and would want to make sure that it was a really sound, strategic fit for a deal. We feel no compulsion to get anything done that way.”

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Peter Winter, D.A. Davidson: Asked about loan demand and spreads. Scott McLean, President & COO, noted, “Loan spreads have actually improved just a little bit, depending on the category...production, if you actually look at production, it’s been up in most months this year compared to 2024.”

SENTIMENT ANALYSIS

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Analysts’ tone was slightly negative, focusing on the impact and scope of the credit event, internal controls, loan growth prospects, and capital deployment, with repeated questions on risk containment and guidance clarity.

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Management tone during prepared remarks was confident and measured, emphasizing “continued momentum,” “positive operating leverage,” and “isolated” nature of credit losses. In Q&A, management remained composed but occasionally defensive, especially regarding the credit event: “We’re going to continue reviewing with an external party to make sure that we’re learning from experience.”

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Compared to the previous quarter, the current tone was more defensive and cautious due to the credit event, while analysts were more probing and skeptical.

QUARTER-OVER-QUARTER COMPARISON

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Guidance language shifted from “slightly increasing” to “moderately increasing” for net interest income and fee income, while expense growth remains slightly elevated but controlled.

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Strategic focus remains on growing commercial loans, capital markets expansion, and disciplined cost management. The isolated credit event in Q3 2025 contrasts with the relatively benign credit environment reported in Q2 2025.

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Analysts in Q3 2025 focused more on credit quality and risk review, while in Q2 2025, attention was on loan growth and deposit stability. Management’s confidence in core earnings momentum remained, but tone was more defensive due to scrutiny over credit controls.

RISKS AND CONCERNS

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Management highlighted a $49 million provision for credit loss and a $50 million charge-off related to two C&I loans, stressing the incident was isolated. Steward explained, “We haven’t found similar loans or other issues.”

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The company is conducting an external review of credit processes and procedures, with management emphasizing ongoing monitoring and “learning from experience.”

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Analysts expressed concern over the thoroughness of portfolio reviews, potential for other credit events, and clarity on risk exposure.

FINAL TAKEAWAY

Management maintains that core earnings momentum and positive operating leverage continue, even as the company addresses an isolated credit event with a $49 million provision for credit loss. Strategic efforts remain focused on commercial loan growth, capital markets expansion, and disciplined cost management, with guidance for moderately increasing net interest income and fee income in the coming year. The company is taking additional steps to review and strengthen credit oversight, emphasizing that broader credit quality remains solid outside the identified incident.

Read the full Earnings Call Transcript [https://seekingalpha.com/symbol/zion/earnings/transcripts]

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