Zions Bancorporation (ZION) Q4 2025 earnings review
Credit Scare Vanishes, Profits Surge on Lower Deposit Costs
Zions delivered a decisive 'return to normal' in Q4. After a spooked Q3 dominated by a $50M 'isolated' charge-off, Net Charge-offs collapsed to near-zero (0.05%), validating management's defense. Earnings per share surged 31% YoY to $1.76, driven by an expanding Net Interest Margin (3.31%) as deposit costs fell faster than asset yields. While expenses remain sticky (+7% YoY) and loan growth is tepid (+3%), the bank enters FY26 with momentum, guiding for moderate growth across NII and fees.
🐂 Bull Case
NIM expanded for the eighth consecutive quarter to 3.31% (up 26bps YoY). The driver is liability management: Cost of deposits dropped 11bps QoQ to 1.56%. Zions is proving it can widen spreads even as asset yields begin to roll over.
The 25Q3 spike in charge-offs (0.37%) was proven to be the 'isolated event' management claimed. Q4 NCOs fell to a negligible 0.05%, and classified loans dropped by $35M sequentially.
🐻 Bear Case
Adjusted noninterest expense rose 8% YoY to $548M. Even excluding a $15M charitable donation, expenses are climbing faster than the 'moderate' pace investors prefer, keeping the efficiency ratio elevated at 62.3%.
Total loans grew only 3% YoY and were flat sequentially. In an environment where the bank is guiding for 'moderately increasing' growth, actual production is barely offsetting payoffs.
⚖️ Verdict: 🟢
Bullish. Zions successfully put the Q3 credit controversy to bed. The bank is generating strong operating leverage through margin expansion (deposit costs falling faster than loan yields). If they can hit FY26 guidance for moderate growth, the stock is positioned for re-rating.
Key Themes
Deposit Beta Working in Reverse
Zions is winning the liability management game. While the yield on earning assets dropped 15bps (from 5.16% to 5.01%), the cost of total deposits fell faster (down 37bps YoY and 11bps QoQ to 1.56%). This spread widening drove a 9% YoY increase in Net Interest Income despite flat average assets.
Capital Markets Fee Breakout
Noninterest income isn't just steady; it's growing. Adjusted customer-related fees hit a record, driven by Capital Markets fees which jumped 54% YoY ($37M vs $24M). This diversification helps insulate earnings if NII faces pressure in a falling rate environment.
CRE Office & Classified Loans
While NCOs are low, the balance sheet isn't risk-free. Classified loans (loans with potential weakness) remain elevated at $2.38B (3.91% of loans), down slightly from $2.42B in Q3 but significantly higher than the $966M seen in early 2024. This reflects lingering stress in the CRE portfolio (22% of loans) despite management's assurances.
Tangible Book Value Compounding
Tangible Book Value (TBV) per share rose 21% YoY to $40.79. This was driven by retained earnings and the burn-down of AOCI losses (unrealized securities losses improved by $439M YoY). This rapid capital compounding sets the stage for potential buybacks in FY26.
Expense Creep vs Operating Leverage
Management cites 'positive operating leverage,' but adjusted expenses rose 8% YoY. Technology/Telecom expenses were up 8% YoY, and Salaries were up 4%. The bank relies heavily on NII growth to cover this; if NII stalls, the efficiency ratio (62.3%) will deteriorate quickly.
Other KPIs
Accelerating. Up 9% YoY and 2% QoQ. The narrative of 'NIM peaking' has not yet materialized for Zions, as they continue to cut funding costs aggressively.
Reversing. Down drastically from $49M in 25Q3 and $41M in 24Q4. The credit storm has passed.
Stable. Up 3% YoY. Commercial loans (+2%) and Consumer (+6%) drove modest gains, but C&I lending remains sluggish due to borrower caution.
Guidance
Accelerating vs FY25's 3% growth. Management expects Commercial and Owner-Occupied loans to drive volume, implying a return of business confidence.
Stable/Accelerating. Driven by balance sheet remix (moving from securities to loans) and fixed-rate asset repricing, which should offset falling rates.
Decelerating slightly. Q4 expenses grew 8%; 'moderate' implies mid-single digits. Tech costs and marketing remain headwinds.
Accelerating. Following a 4% increase in FY25 customer-related fees, this outlook suggests sustained momentum in Capital Markets and Wealth Management.
Key Questions
Share Buyback Timeline
Tangible Book Value is up 21% and CET1 is strong at 11.5%. In Q3, you mentioned being '12 months away' from buybacks due to AOCI. With AOCI improving $439M and earnings surging, has that timeline accelerated?
Expense Control in FY26
Adjusted expenses grew 8% this quarter. Can you define 'Moderately Increasing' for FY26? Are we looking at 4-6% growth, and where specifically can you cut if revenue growth slows?
Commercial Loan Demand
You guide for 'Moderately Increasing' loans, but C&I grew only 2% YoY. What leading indicators (pipeline utilization, line draws) give you confidence that business borrowing appetite is returning?
Deposit Beta Floor
Deposit costs fell 11bps this quarter. How much more room is there to cut deposit rates if the Fed pauses cuts? Have we reached a floor on non-maturity deposit pricing?