Zions (ZION) Q3 2026 Earnings Call Transcript

Zions Bancorporation reported Q3 2026 net earnings of $262 million, or $1.78 per diluted share, up 20% year over year; net interest margin fell 4 basis points sequentially to 3.23% as deposit costs rose and lower-yielding assets grew. Average customer deposits rose 8.8% annualized and average loans 3.7%, while annualized net charge-offs improved to 2 basis points. Management forecast 8%–12% net interest income growth and 2%–4% loan growth for Q3 2027, but reduced its 2026 operating leverage outlook to 40–50 basis points from 100–150 basis points, including Basis acquisition costs; the bank repurchased $75 million of shares during the quarter.

Analysis

The market may be tempted to capitalize ZION as a straightforward rising-rate beneficiary; that is the fragile part of the setup. The NII outlook depends on three rate hikes and assumes deposit costs rise materially, while the current quarter shows that deposit mix and excess liquidity can dilute margin before loan demand catches up. If rates do not follow the assumed path—or competition pushes deposit beta above plan—the earnings bridge narrows. Validate quarterly deposit costs, noninterest-bearing mix, and conversion of money-market balances into loans or lower-cost funding before extrapolating the guide.

Basis offers a different, longer-duration upside: agency origination and servicing can add fee capacity without requiring equivalent balance-sheet loan growth, and access to both Fannie Mae and Freddie Mac channels may help win multifamily mandates. But the near-term economics are not yet proven; 2027 revenue guidance leaves limited room over stated expenses, and the medium-term target depends on production, hiring, and multifamily activity. Higher rates may both support asset-sensitive NII and weigh on CRE/multifamily volumes—a natural hedge, but not a guaranteed one.

Credit is currently a cushion, not a reason to underwrite away CRE risk. Competitive loan pricing and softer CRE growth could precede deterioration with a lag. Texas bank consolidation may create a recruiting and customer-acquisition window for ZION, but this is a months-long execution opportunity, not a confirmed near-term earnings catalyst. Overall, fundamentals lean positive, but the rate-driven re-rating case looks more exposed than the fee-diversification case.

Key Decisions for Investors

• Consider a measured long ZION versus KRE only if post-earnings trading does not price in the full rate-sensitive earnings path; add on evidence that deposit costs track or undershoot the roughly 2% outlook and excess liquidity is being redeployed. Falsify if deposit beta exceeds plan or NII guidance is cut.
• Treat Basis as a 6–18 month execution watch, not a near-term earnings catalyst. Track quarterly production, revenue against the 2027 range, and expense ramp; reduce the thesis if activity stalls or costs rise without fee growth.
• Keep CRE credit as the key downside monitor: watch criticized/classified balances, nonperforming assets, and loan pricing/structure. A sustained deterioration would outweigh currently benign charge-offs and could reverse the positive read.
• Do not extrapolate the quarter’s deposit growth as a durable low-cost funding win. Monitor noninterest-bearing deposit mix and the runoff of brokered funding; if growth remains concentrated in higher-cost accounts, the margin benefit may disappoint even with higher rates.