Zions Q3 Earnings Rise as Credit Costs Fall; NII Growth Seen

Zions Bancorporation, N.A. reported higher third-quarter earnings from a year earlier as credit costs fell sharply, while deposit and loan growth supported revenue despite a narrower net interest margin and higher operating expenses. The bank also expects net interest income to grow 8% to 12% by the third quarter of 2027 compared with the third quarter of 2026.

Net earnings applicable to common shareholders were $262 million, or $1.78 per diluted share, for the quarter ended September 30, 2026. That compared with $221 million, or $1.48 per share, a year earlier. The provision for credit losses was a benefit of $8 million, versus an expense of $49 million in the prior-year quarter, making improved credit performance the main driver of the earnings increase.

Results fell from the second quarter’s $452 million, or $3.05 per share, which included a $215 million pretax gain from the sale of Visa shares and a $37 million net unrealized gain from valuation adjustments in the small business investment company portfolio. Excluding those notable second-quarter items, Zions said third-quarter earnings per share increased by $0.04 sequentially. The latest quarter included a $10 million net credit valuation adjustment gain, with a positive impact of $0.05 per share.

Revenue and margin trends

Net interest income increased 1% from the previous quarter to $684 million and rose 2% year over year. However, the net interest margin declined to 3.23%, down four basis points sequentially and five basis points from a year earlier. Zions attributed the quarterly contraction to higher deposit costs and the placement of excess funds into money-market investments.

Interest expense on deposits increased by $32 million, or 11%, from the second quarter, while the total cost of deposits rose to 1.59% from 1.48%. The bank’s overall funding cost increased six basis points sequentially to 1.75%. Lower borrowing expense partly offset that pressure, declining $12 million from the previous quarter and $30 million from a year earlier.

Adjusted pre-provision net revenue, a non-GAAP measure, increased 2% sequentially to $338 million but declined 4% year over year. Compared with the prior-year quarter, taxable-equivalent net interest income rose 2% and adjusted customer-related fee income increased 5%, but adjusted noninterest expense grew 6% and adjusted noncustomer-related fee income fell 40%.

Adjusted customer-related noninterest income was $182 million, little changed from $181 million in the second quarter and up from $174 million a year earlier. Total GAAP revenue was $881 million, compared with $861 million in the third quarter of 2025.

Adjusted noninterest expense rose 1% sequentially and 5.6% year over year to $549 million. The annual increase was driven primarily by higher salary, technology, and professional and legal costs. The efficiency ratio was 61.9%, improving from 62.2% in the second quarter but above 59.6% a year earlier.

Deposits, lending and credit quality

Average customer deposits, excluding brokered deposits, reached $74.03 billion, increasing at an 8.8% annualized pace from the previous quarter and rising 5.2% year over year. Period-end customer deposits increased by $1.8 billion sequentially and $3.4 billion from a year earlier. Brokered deposits and short-term borrowings both declined.

Average loans were $62.44 billion, up at a 3.7% annualized rate from the second quarter and 2.7% from a year earlier. Period-end loans were nearly unchanged sequentially, decreasing by $9 million, as declines in commercial-and-industrial and term commercial real estate loans offset growth in municipal, commercial real estate construction and consumer lending. Period-end loans increased by $2.19 billion year over year, led by commercial-and-industrial, term commercial real estate and home-equity lending.

Credit metrics remained comparatively stable. Annualized net charge-offs were 0.02% of average loans, down from 0.06% in the second quarter and 0.37% a year earlier. Criticized loans declined by $190 million during the quarter to 4.20% of total loans, while classified loans fell by $204 million to 3.40%. Nonperforming assets increased by $17 million and represented 0.50% of loans, leases and other real estate owned, compared with 0.48% in the second quarter.

Commercial real estate totaled $14.2 billion, or 23% of loans. Zions reported weighted-average loan-to-value ratios below 60% for term commercial real estate and office loans. Office exposure was $1.5 billion, representing 2.5% of total loans, while multifamily exposure was $4.2 billion, or 7% of total loans. The allowance for credit losses equaled 1.11% of total loans and leases, down two basis points sequentially.

The estimated Common Equity Tier 1 ratio remained 11.8%.

Growth priorities and outlook

Zions is expanding fee-generating operations in capital markets and wealth management. Annualized 2026 year-to-date capital-markets fee income was $136 million, excluding credit valuation adjustments, compared with $70 million in 2020. The bank completed the acquisition of an agency multifamily lending platform in July, adding direct access to Fannie Mae DUS and Freddie Mac Optigo conventional programs.

Management also identified wealth management as a growth opportunity. The business has about $12 billion in assets under management and generated $57 million of fee revenue in 2025. Its Wealth Select service extends advisory offerings to customers with as little as $50,000 in investable assets.

For the third quarter of 2027 compared with the third quarter of 2026, Zions expects period-end loan balances to grow 2% to 4%, led by commercial lending. Net interest income is expected to increase 8% to 12%, supported by asset sensitivity, a changing mix of earning assets, and loan and deposit growth. Adjusted customer-related noninterest income is projected to rise 6% to 9%, with capital markets expected to make the largest contribution, followed by wealth management and commercial account fees.

Adjusted noninterest expense is expected to increase 4% to 6% as the bank spends more on technology, marketing and revenue-generating businesses. Management nevertheless expects positive operating leverage.

The outlook remains subject to changes in interest rates, deposit pricing, economic conditions, credit performance and regulation. Zions also identified commercial real estate conditions, technology and cybersecurity threats, competition, geopolitical disruptions, trade policy, capital-market volatility and execution of strategic initiatives among the factors that could cause actual results to differ from its expectations.