Zions (ZION) Q1 2026 Earnings Call Transcript

Zions Bancorporation reported net earnings of $232 million, or $1.56 per diluted share, up 37% year over year, with adjusted pre-provision net revenue rising 13% and net interest margin at 3.27% (+17 bps y/y). Management guided to 7%-8% net interest income growth over the next four quarters assuming no rate changes and maintained 100-150 bps of positive operating leverage for full-year 2026. Deposits rose $1.3 billion from year-end, credit quality remained strong with net charge-offs at 3 bps annualized, and capital actions included $77 million in buybacks and dividends.

Analysis

Zions is no longer a simple rate beta trade; it is trying to re-rate itself as a capital-light, fee-cycling regional with a deposit acquisition engine. The important second-order effect is that its new product push and SBA/multifamily initiatives are designed to lower marginal funding costs while simultaneously improving deposit granularity, which should compress beta in a flat-rate world and widen the spread advantage versus peers still leaning on higher-cost wholesale funding.

The cleanest near-term catalyst is not loan growth itself but the mix shift embedded in it: more fee-linked mortgage runoff, agency-lending optionality, and hedging/markets revenue can offset lower balance-sheet intensity. That matters because it reduces earnings volatility and should improve investor willingness to pay for the stock before the market fully credits the next 12 months of NII growth. The hidden beneficiary set includes mortgage REIT counterparties, agency execution partners, and commercial clients that value one-stop capital markets; the losers are brokered-deposit-dependent regionals and banks with heavier exposure to CRE pricing compression.

Credit is the main contrarian check, but the risk is more timing than thesis. Zions is not seeing a broad deterioration; the real watch item is whether C&I stress in restaurants and consumer-exposed borrowers becomes a lagging indicator for the rest of the cycle over the next 2-3 quarters. If that broadens while CRE pricing remains cutthroat, the market may punish the stock for being "cheap for a reason" even as reported charge-offs stay benign.

The biggest underappreciated variable is regulatory capital optionality. If the Basel proposal ultimately translates into even part of the estimated RWA relief, Zions has multiple capital return levers: buybacks, higher TBV accretion, and more room to absorb strategic acquisitions without diluting returns. That combination can drive a multiple expansion well before the income statement inflects, especially if the market starts valuing the stock on mid-cycle ROTCE rather than current-quarter NIM noise.

Key Decisions for Investors

• Long ZION for 3-6 months on pullbacks below the post-earnings move; target a rerating trade to the peer median if deposit repricing continues to outpace loan yield compression. Risk/reward improves if the market starts discounting Basel-driven capital relief before regulatory approval.
• Pair trade: long ZION / short a brokered-deposit-reliant regional bank ETF or weaker CRE-exposed regional for 1-2 quarters. The spread should widen if Zions' deposit mix improvement and fee diversification continue while CRE competition stays intense.
• Sell put spreads on ZION 2-3 months out, struck below tangible book, to express a view that downside is limited by capital return and TBV support. Key risk is a sudden C&I credit repricing or a delay in capital deployment.
• If you want lower beta exposure, pair long ZION common against short a mortgage REIT or a high-duration bank with more rate sensitivity. Zions benefits from flat rates via funding remix and delayed repricing, while the short leg remains more exposed to NII compression.
• Consider a tactical call spread in ZION into the next quarter if management continues to lean into buybacks and deposit growth; upside comes from capital return surprise, not operating earnings alone. Stop out if criticized/classified loans accelerate for two consecutive quarters.