Zions Bancorporation (ZION) Q3 2026 earnings review
Zions' loan losses almost disappear, but lending income barely grows
Zions, a bank in the western US, earned more because loan losses almost vanished, but its lending income has nearly stopped growing. Profit per share rose 20% from a year ago, chief executive Harris Simmons said, mainly because charge-offs fell to $3 million. Lending income grew just 2% because deposits cost more.
| Net interest income | $684 million +2% from a year ago |
|---|---|
| Profit per share | $1.78 +20% from a year ago |
| Cost of deposits | 1.59% 1.48% last quarter |
| Net interest income outlook, year ahead | New: +8% to +12% middle of the range: about $752 million a quarter |
⚖️ Verdict: 🔴 Bearish
The story got worse because the gap between what Zions earns on lending and what its plan promises has widened. The outlook calls for 8% to 12% growth in net interest income a year out. Yet the bank bought hedges that trim its gain from the rate rises it needs. The good news: credit, deposits and the dividend improved without help from rates.
The question now is whether rising rates will deliver the lending income growth Zions has promised. Either its floating-rate loans reprice fast and each rate rise lifts revenue, or hedges and deposit costs absorb most of it, as they did this quarter. Fourth-quarter net interest income will tell.
🐂 Bull Case
Loan Losses Almost Disappeared
Zions, a Salt Lake City lender that runs seven local bank brands across 11 Western states, lost almost nothing on its loans this quarter. Net charge-offs were $3 million, against $56 million a year ago, when the bank wrote off loans to two related commercial borrowers. So Zions released $8 million of reserves instead of adding to them, and that is where most of the profit gain came from.
- Classified loans, those the bank flags as weak: 3.40% of loans, down from 4.00% a year ago
- Nonperforming assets: 0.50% of loans, up from 0.48% last quarter
- Loss allowance: 1.11% of loans, down from 1.20%
Paid-off commercial real estate loans took weak credits off the books, the company said. But nonaccrual commercial and industrial loans, those no longer paying interest, rose by about a third from last quarter, so one portfolio’s gain is masking another’s slippage.
What to watch: commercial and industrial nonaccruals in the fourth-quarter release. Another rise would mean Zions released reserves while a new set of problem loans was still growing.
Fee Income Keeps Growing Across the Bank
Zions wants fees to carry more of its earnings, because they do not depend on interest rates. Customer-related fee income, what the bank earns from account charges, cards, trading and advice, reached $192 million. Most of the 18% rise came from a swing in the value of client interest-rate swaps; without it the gain was 5%.
Wealth management and retail banking fees each added $2 million, the company said. Capital markets fees, excluding the swap valuation, added only $1 million. Yet the plan has fees growing 6% to 9% over the next year with “capital markets contributing in an outsized way”.
What to watch: capital markets fees, excluding swap valuation, in the fourth quarter. A reading near this quarter’s $36 million would mean the fee outlook rests on lines that grow about 5% a year, not on the new platform.
Zions Raised Its Dividend and Kept Buying Shares
Zions resumed buybacks in January after pausing for most of last year to rebuild capital. This quarter it bought back $75 million of shares, the amount it had planned. Its common equity tier 1 ratio, the main regulatory capital measure, ended the quarter at 11.8%, above a year ago. It also lifted the quarterly dividend to $0.48 from $0.45.
The bank can afford it because the paper losses on its bond portfolio, which once blocked buybacks, are $67 million smaller than a year ago. But they widened by $122 million during the quarter as market rates rose, and the company now expects a much smaller improvement this year than it projected in July.
What to watch: the fourth-quarter buyback. The 2026 target leaves about $73 million for the quarter by our math; a larger figure would mean the bank is returning capital faster despite the bond losses.
🐻 Bear Case
The Outlook Needs Rate Rises Zions Hedges Against
Net interest income, what Zions earns on loans minus what it pays on deposits, is more than three-quarters of its revenue. It grew just 2% from a year ago while the margin narrowed to 3.23%. Yet the plan calls for double-digit growth a year from now, from “asset sensitivity, earning asset remix, and loan and deposit growth”.
Asset sensitivity means the bank earns more when short-term rates rise, because most of its loans reprice within three months. Simmons expects that “our moderately asset-sensitive balance sheet should produce stronger net interest income in a higher rate environment”.
In the same quarter the bank bought $5.5 billion of futures and more fixed-rate swaps “to manage asset sensitivity down”. So a one-point rise in rates still adds only 4% to net interest income, the same as in June, and the plan leans on rate rises whose benefit Zions has deliberately capped.
Loans did not help: the book was flat from last quarter after “an increased pace of loan payoffs, combined with a highly competitive market”, Simmons said. By our math the middle of the income range means about $68 million more a quarter than Zions earns now, and that must come from rates and deposits rather than from more lending.
What to watch: fourth-quarter net interest income. A reading near this quarter’s level after rates have risen would mean the hedges and deposit costs are absorbing the gain the plan relies on.
Costs Grew Three Times Faster Than Revenue
Zions tells investors to expect “positive operating leverage”, meaning revenue growing faster than costs. This quarter delivered the opposite: revenue excluding one-offs rose 2% from a year ago, while the matching costs climbed 6%.
- Salaries and benefits: 38.9% of revenue, up 0.3 points on bonus accruals
- Technology and software: 8.6% of revenue, up 0.5 points
- Efficiency ratio, costs as a share of revenue: 61.9%, from 59.6% a year ago
The comparison is hard because costs a year ago were the lowest of 2025, but for the year to date revenue is still up only 4.6% against costs up 5.0% by our math, so the operating leverage the company keeps promising has not shown up.
What to watch: fourth-quarter costs excluding one-offs. A figure above $560 million would mean the new agency lending team and the marketing push are adding costs before they add revenue.
Zions Is Paying More for Its New Deposits
Zions gathered a lot of deposits this quarter: customer deposits, which exclude the brokered kind bought through intermediaries, rose $1.8 billion from last quarter to $74.5 billion. The money let the bank repay most of its short-term borrowings, which is what its new Gold and Business Beyond accounts, aimed at consumers and small businesses, are meant to deliver.
But the growth came almost entirely in interest-bearing savings and money market accounts, while free checking balances barely moved. The cost of deposits climbed to 1.59% from 1.48% last quarter, mostly from “a shift in deposit mix toward higher-cost interest-bearing deposits”, the company said. Deposits alone took 0.18 percentage points off the margin, more than cheaper borrowing gave back.
What to watch: the cost of deposits next quarter against the 1.60% rate at the end of September. A further rise with no change in market rates would mean Zions is buying growth by matching wholesale prices, and the margin plan does not survive that.
Risks this quarter didn't answer
Six standing concerns got little or no new information this quarter, so each stays open until the quarterly filing or the next call with investors.
- Credit migration: commercial and industrial nonaccruals rose to $130 million from $96 million; the filing’s segment table will show whether one borrower drove it.
- Bond losses: the 2026 improvement is now projected at $63 million, from $239 million in July, on a curve assuming three rate increases by end-2027.
- Capital markets: fees excluding swap valuation rose $1 million from a year ago; the Basis platform’s contribution is undisclosed.
- Non-bank lenders: $2.2 billion of loans, 1.1% classified; “portfolio growth has been limited”, the company says.
- Litigation over a borrower’s fraud, due for trial in April 2027: no update.
- The 3.50% margin goal, repeated without a date: the margin moved the other way again.
👓 Other Themes
Zions Now Owns an Apartment-Lending Platform
Zions completed the purchase of Basis Multifamily Finance in July, a team that originates and services apartment loans for Fannie Mae and Freddie Mac. Simmons called it “an important strategic advantage in serving our commercial real estate clients”. The deal added $229 million of goodwill and intangibles, and the bank has not yet disclosed what it paid or what the platform earns.
💲 Other KPIs
Up 13% from a year ago but down 3% from June, its first quarterly fall in the table. Goodwill from the July acquisition and a wider paper loss on the bond portfolio, as market rates rose, both reduced it. Growth had run near 20% a year for the previous three quarters.
Down 6% from a year ago as the lender lets bonds run off. It received $631 million of principal this quarter and reinvested $296 million. Cash in money market investments nearly doubled to $4.8 billion because deposits outran loans; that cash yields less than lending, which the company said weighed on the margin.
Down 1.4% from a year ago after buybacks of 1.1 million shares this quarter. The count has fallen for three straight quarters since repurchases restarted in January, so profit per share grows about a point faster than profit.
🔮 Guidance
New. The plan has the loan book growing 2% to 4% over the next year, led by commercial and owner-occupied lending. By our math that is about $64.3 billion at the middle of the range. It is slower than the 3.6% of the past year, and the company calls the outlook “tempered given the expected rate environment”; this quarter the book did not grow at all.
New. The plan calls for net interest income to rise 8% to 12% by the third quarter of next year, from asset sensitivity, a shift of earning assets into loans, and bigger loan and deposit balances. By our math the middle of the range is about $752 million a quarter. A quarter ago the one-year outlook said only that this line would increase moderately, so the target is now both more precise and more demanding.
New. Fee income from customers, excluding swings in the value of client swaps, is to grow 6% to 9% over the next year, with capital markets leading and wealth management and commercial account fees next. By our math the middle of the range is about $196 million a quarter. That is faster than the 4.6% of the past year, so the plan needs a pace the bank did not reach this quarter.
New. Costs excluding one-offs are to rise 4% to 6% over the next year, from technology, marketing and investment in revenue-producing businesses, and the lender again expects positive operating leverage. By our math the middle of the range is about $576 million a quarter. Set against the income outlooks, the plan implies revenue growing about four points faster than costs by our math, a gap this quarter did not deliver.
❓ Key Questions
What did Zions pay for Basis, and what does it earn?
The deal closed in July and added $229 million of goodwill and intangibles, yet neither the price nor the platform’s revenue appears in the release. The fee outlook leans on capital markets, so investors need the run-rate.
How many rate rises does the income outlook assume?
The forward curve Zions used assumes three increases by the end of 2027, and the bank added $5.5 billion of futures that cap its upside. The outlook should say what it delivers with one rise, or none.
Is the full-year positive operating leverage target still in place?
Costs grew faster than revenue this quarter and for the year to date by our math. Management should say whether the 2026 target stands and what the fourth quarter must deliver to reach it.
Why did commercial and industrial nonaccruals rise $34 million?
Loans no longer paying interest in this portfolio rose by more than a third from June while the rest of the book improved. Investors need to know whether this is one borrower or a wider trend.
What are the deposit campaigns paying, and what did they bring in?
Deposit costs rose 0.11 points in a quarter with no change in policy rates, and the growth came in interest-bearing accounts. The rate on new Gold and Business Beyond balances would show whether this growth is profitable.