Zions Bancorporation, National Association (ZION) Q4 2025 Earnings Call Transcript
Access earnings results, analyst expectations, report, slides, earnings call, and transcript.
Overview
The earnings call summary presents strong financial metrics, with increasing net interest income, customer-related fee income, and loan balances. The company is also managing expenses effectively, with a focus on growth and strategic initiatives. The Q&A section reveals a positive outlook on loan growth, deposit expansion, and share buybacks resuming later in the year. While there are uncertainties around achieving certain margins, the overall sentiment is positive with strong capital position and organic growth, suggesting a likely positive stock price movement over the next two weeks.
Key Financial Performance
Earnings $262 million, up 19% from the prior quarter and 31% from a year ago, driven by stronger revenues and notably lower provision for credit losses.
Net Interest Margin Expanded to 3.31%, benefiting from an improved funding mix as customer deposit initiatives reduced reliance on short-term borrowings.
Customer Deposits Grew at a healthy pace, up 9% annualized, reflecting successful deposit gathering initiatives.
Average Loans Essentially flat compared with last quarter, though period-end balances increased by $615 million on solid production.
Credit Quality Strong with net charge-offs of just 5 basis points annualized of total loans.
Full Year Earnings Grew 21% relative to the prior year, reflecting resilience and stability in credit outcomes.
Tangible Book Value Per Share Increased 21% this year, marking the third straight year of growth greater than 20%.
Diluted Earnings Per Share $1.76, up from $1.48 last quarter and $1.34 a year ago, including an $0.08 per share headwind from the charitable contribution and a positive $0.11 per share combined impact from the reversal of the FDIC special assessment and net gains in the SBIC portfolio.
Adjusted PPNR $331 million, down 6% sequentially and up 6% year-over-year. When adjusted for the charitable contribution, it was down 2% versus last quarter and up 11% versus the year ago quarter.
Net Interest Income Increased by $56 million or 9% relative to the fourth quarter of 2024 and increased by $11 million relative to the prior quarter, supported by growth in average customer deposits and improved funding mix.
Customer-Related Noninterest Income $177 million for the quarter, up from $163 million in the prior period and $176 million a year ago, driven by higher customer swaps, investment banking, and loan syndication fee revenues.
Adjusted Noninterest Expense $548 million, increased by $28 million or 5% versus the prior quarter and increased 8% versus the year ago quarter, including a $15 million charitable donation. When adjusted for the donation, expenses were up 2% versus the prior quarter and up 5% versus the year ago quarter.
Average Loans Flat over the previous quarter and up 2.5% over the year ago period, with strong commercial growth in Texas, California, and Pacific Northwest markets.
Average Deposits Increased 2.3% relative to the prior quarter, with average noninterest-bearing deposits growing $1.7 billion or 6% compared to the prior quarter.
Total Funding Costs Declined by 16 basis points during the quarter to 1.76%.
Net Charge-Offs $7 million this quarter or 5 basis points annualized, with nonperforming assets at 52 basis points of loans and other real estate owned.
Allowance for Credit Losses 1.19% of loans, with loan loss allowance coverage for nonaccrual loans increasing to 215%.
Common Equity Tier 1 Ratio 11.5%, reflecting strong capital position and organic earnings growth.
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Operating Highlights
Capital Markets Fees: Capital markets fees, excluding net CVA, increased 25% compared to the full year 2024, driven by higher customer swaps, investment banking, and loan syndication fee revenues. Zions Capital Markets achieved its goal of doubling capital markets fees since its launch in 2020.
Loan Growth in Specific Markets: Strong commercial loan growth was observed in Texas, California, and Pacific Northwest markets.
Net Interest Margin: Net interest margin expanded for the eighth consecutive quarter to 3.31%, supported by improved funding mix and reduced reliance on short-term borrowings.
Deposit Growth: Customer deposits grew at a healthy pace, up 9% annualized, with average noninterest-bearing deposits increasing by $1.7 billion or 6% compared to the prior quarter.
Credit Quality: Credit quality remained strong with net charge-offs of just 5 basis points annualized of total loans. Nonperforming assets were low at 52 basis points of loans.
Capital Distributions: The company is nearing a position to increase capital distributions while continuing to strengthen capital.
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Risk or Challenges
Credit Quality: The CRE classified balances are expected to decline through payoffs and upgrades, but there is an increase in C&I classified loans by $92 million, which could pose a risk to credit quality.
Deposit Costs: Further opportunities to reduce deposit costs depend on the timing and speed of short-term benchmark rate changes, growth in customer deposits, and market competition, which could impact funding costs.
Noninterest Expense: Adjusted noninterest expenses increased by 5% year-over-year, driven by higher marketing, business development, and technology costs, which could pressure profitability.
Commercial Real Estate (CRE) Portfolio: The CRE portfolio, while diversified, represents 22% of loan balances and could be vulnerable to market fluctuations or economic downturns.
Interest Rate Sensitivity: The duration of the investment securities portfolio is estimated at 3.8 years, indicating sensitivity to interest rate changes, which could impact earnings.
Regulatory and Tax Changes: Recent tax law changes necessitated a $15 million charitable donation to optimize tax deductibility, reflecting potential challenges in adapting to regulatory changes.
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Guidance & Outlook
Net Interest Income: The outlook for net interest income for the full year of 2026 is moderately increasing relative to the full year of 2025, supported by favorable earning asset and interest-bearing liability remix in addition to growth in loans and deposits. Guidance assumes 225 basis point cuts to the Fed funds rate occurring in June and September of 2026.
Customer-Related Fee Income: The outlook for customer-related fee income for the full year 2026 is moderately increasing relative to the full year 2025, with expectations to be at the top end of the guidance. Growth will be led by capital markets, followed by loan-related fees, with broad-based growth in other categories from increased activity.
Adjusted Noninterest Expense: The outlook for adjusted noninterest expense for the full year 2026 is moderately increasing relative to the full year of 2025. Expense increases will include marketing-related costs, investments in revenue-generating personnel and business lines, and increases in contractual technology costs. Positive operating leverage is expected in 2026, estimated around 100 to 150 basis points.
Loan Balances: The outlook for period-end loan balances for the full year of 2026 is moderately increasing relative to the full year of 2025. Growth is expected to be led by commercial loans, primarily in the C&I and owner-occupied subcategories, with additional growth from commercial real estate loans.
Deposit Balances: Further opportunities to reduce deposit costs will depend on the timing and speed of short-term benchmark rate changes, growth in customer deposits, market competition, and market deposit behavior.
CRE Classified Balances: CRE classified balances are expected to continue declining through payoffs and upgrades.
Capital Distributions: The company believes it is nearing a position to increase capital distributions while continuing to invest in its franchise to support profitable growth.
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Shareholder Return Plan
Dividend Program: The company mentioned that they are nearing the point where they will be able to increase capital distributions, which could include dividends. However, no specific details or plans about a dividend program were provided.
Share Buyback Program: There was no mention of a share buyback program in the transcript.
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Key Q&A
Q:What is the base for the moderately increasing guide for expenses?
A:The base for the moderately increasing guide for expenses is the adjusted noninterest expense number of $2.122 billion, excluding the charitable contribution for the quarter.
Q:Are you seeing increased competition in your markets, and is that driving increased marketing and tech spend?
A:While there is competition in attractive markets, the increased marketing and tech spend is not driven by competition but by a revamp of products and a focus on growth initiatives after internal reengineering.
Q:What are the assumptions for funding loan growth in 2026?
A:The funding of loan growth assumes securities runoff continues, deposit growth fills the rest, and there is a remix out of broker deposits or wholesale funding. The organization is focusing on granular deposit growth and paying down broker deposits.
Q:Can the 3.50% margin be achieved by the end of 2027?
A:Management is not committing to a specific timeframe for achieving the 3.50% margin, as it depends on rate changes and other factors. However, they believe it is a stable state over time.
Q:What are the dynamics behind the moderately increasing loan growth guide?
A:Loan growth is driven by hiring good bankers, focusing on small business lending, SBA 7(a) loans, and growth in C&I and owner-occupied loans. There is also potential growth in CRE, municipal, and energy businesses.
Q:What is the timing for the return of share buybacks?
A:Share buybacks are expected to resume in the second half of the year, but not in the next quarter.
Q:How important are rating agencies in the decision to announce buybacks?
A:Rating agencies are an important stakeholder, and the organization is mindful of maintaining strong capital levels, including AOCI-inclusive metrics, while considering buybacks.
Q:What is the source of deposit growth in 2026?
A:Deposit growth is expected from both noninterest-bearing and interest-bearing deposits, driven by strategic initiatives, marketing campaigns, and refreshed product offerings.
Q:What is the impact of the legacy account migration on noninterest-bearing deposits?
A:The legacy account migration has ended, and new accounts have been opened, averaging $10,000 per account. Established accounts average $125,000 per customer, and growth is expected to continue.
Q:What is the impact of rate cuts on earning asset yields and NIM?
A:Earning asset yields are expected to decline with rate cuts, and the NIM trajectory will depend on the shape of the yield curve and deposit management.
Q:What is the stance on M&A?
A:The organization is not actively pursuing M&A but remains open to attractive opportunities that fit strategically and culturally.
Q:What is the outlook for C&I classified loans?
A:C&I classified loans increased this quarter but are down since year-end 2024. The increase is broadly distributed across industries, and stability or changes will depend on the economy.
Q:What is the base for fee income in operating leverage calculations?
A:The base for fee income excludes adjusted noncustomer fees, focusing on customer-related fees.
Q:What is the range for expense growth within the moderately increasing guide?
A:Expense growth is expected to be in the mid-single digits, with savings initiatives offsetting some increases.
Q:What are the drivers for customer-related fee income growth?
A:Customer-related fee income growth is driven by momentum across various product areas and increased marketing efforts.
Q:Review of Unclear Management Responses
A:Management avoided giving a direct answer on the specific timeframe for achieving the 3.50% margin, citing dependence on rate changes and other factors. Additionally, they did not provide specific guidance on deposit growth or a detailed breakdown of funding assumptions for loan growth.
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Earnings Word Cloud
The most frequently occurring keywords in this quarter's earning call
CRE
CVA
Credit quality
PPNR contribution
Senior Director
Shannon
Slide result
allowance credit
basis point
book value
borrowing
capital distribution
capital market
charge offs
chart
credit loss
customer deposit
customer income
donation
estate
evening
expense
fee
funding mix
interest income
interest margin
left
loan balance
loan deposit
market loan
point loan
portfolio
security
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The earnings call summary presents strong financial metrics, with increasing net interest income, customer-related fee income, and loan balances. The company is also managing expenses effectively, with a focus on growth and strategic initiatives. The Q&A section reveals a positive outlook on loan growth, deposit expansion, and share buybacks resuming later in the year. While there are uncertainties around achieving certain margins, the overall sentiment is positive with strong capital position and organic growth, suggesting a likely positive stock price movement over the next two weeks.
ZION Slides
ZION Report
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