Zions (ZION) Q1 2025 Earnings Transcript

Zions reported Q1 net earnings of $169 million, up 18% year over year, with diluted EPS of $1.13 and net interest margin expanding to 3.10% (+16 bps y/y). Pre-provision net revenue rose 10% to $267 million, but management flagged tariff-related uncertainty that could slow loan growth and widen outcome ranges for Q1 2026 guidance. Credit quality remained solid with net loan losses of $16 million (11 bps annualized), CET1 at 10.8%, and a $630 million deposit / $420 million loan boost from the Coachella Valley branch acquisition.

Analysis

The core setup is not a clean “better bank quarter” story; it is a spread story with a macro hedge embedded. The balance-sheet repricing is still doing work, but the larger implication is that management has now shifted from hunting growth to protecting option value: they want to keep deposit beta low, preserve liquidity, and use the branch deal as a cheap, durable funding source while waiting for tariff uncertainty to clear. That favors banks with sticky core deposits and disciplined capital allocation, and it argues against assuming the recent margin expansion is mechanically repeatable if loan demand stalls.

Credit is the subtle tell. The public emphasis on low CRE losses can obscure the more important second-order risk: tariff-sensitive C&I borrowers tend to break later and faster than office loans, because working-capital draws, inventory financing, and margin compression hit before charge-offs appear. That means the current benign reserve read is not a forward indicator for the next two quarters; if trade policy volatility persists, the first derivative will show up in utilization, criticized migration, and fee-income softness before it shows up in net charge-offs.

The market is likely underappreciating how much of the upside from rates is already harvested. There is still some deposit-cost lag, but the “easy” compression is mostly behind them, while buybacks are constrained by capital optics rather than absolute capital scarcity. That leaves a narrower path to re-rating: either loan growth reaccelerates once policy noise fades, or the stock stays range-bound as investors pay more attention to muted growth and a future mix shift toward lower-yield mortgage/CRE runoff. In that sense, the best near-term trade is not directional beta to the whole bank group, but a relative-value long on high-quality, deposit-rich regional franchises versus banks more exposed to C&I and trade-sensitive end markets.

Key Decisions for Investors

• Go long ZION vs. short FRBA for 1-3 months: ZION has stronger deposit momentum, better margin trajectory, and more visible capital flexibility; FRBA has less operating leverage to offset any slowdown in loan demand.
• Buy ZIONP on weakness over the next 2-4 weeks if the preferred trades below par: the capital cushion and low current loss profile support the coupon, while equity buyback limitations make preferred cash flows relatively more secure.
• Avoid chasing ZION common after the quarter; use rallies to trim or sell covered calls into the next 1-2 months: upside is increasingly capped by tepid loan growth and constrained repurchase capacity.
• Pair long JPM/C over ZION on a 3-6 month horizon if tariff uncertainty persists: larger banks have more diversified fee engines and better resilience if C&I demand slows before credit losses emerge.
• If macro headlines improve and tariffs de-escalate, consider a tactical long ZION common with a 6-12 month horizon: the setup offers optionality on loan growth reacceleration and continued NII tailwind, but entry should wait for confirmation in pipeline commentary.