Zions Bancorp (ZION) Q4 2025: Net Interest Margin Expands to 3.31% as Deposit Mix Shifts
Zions Bancorp delivered its eighth consecutive quarter of net interest margin expansion, fueled by a strategic pivot toward granular deposit growth and disciplined funding cost management. While loan growth remains measured, the bank’s operational focus is shifting to small business lending and technology-driven efficiency. Management’s tone signals readiness to resume capital returns in the second half of 2026, contingent on continued capital build and regulatory clarity.
Summary
- Deposit Strategy Drives Margin Gains: Shift toward core, non-interest-bearing deposits reduced funding costs and improved net interest margin.
- Growth Orientation Accelerates: Increased investment in marketing and technology targets small business lending and fee income diversification.
- Capital Return on the Horizon: Management expects to resume buybacks in late 2026 as capital ratios strengthen.
Performance Analysis
Zions Bancorp’s Q4 2025 earnings showed a marked improvement in profitability, underpinned by a favorable deposit mix and strict expense discipline. Net interest income rose, driven by a richer mix of customer deposits and reduced reliance on short-term borrowings. The net interest margin (NIM), a key banking profitability ratio measuring the difference between interest income and interest paid, expanded for the eighth straight quarter to 3.31%. Customer deposits grew at a 9% annualized rate, while average loans remained flat, reflecting a cautious lending environment but strong funding momentum.
Non-interest income set a new record for customer-related fees, with capital markets and loan-related services leading the way. Adjusted non-interest expense increased, reflecting both a $15 million charitable contribution and stepped-up investment in marketing, technology, and business development. The bank continues to manage credit quality tightly, with net charge-offs at a low five basis points annualized, and tangible book value per share rising for the third consecutive year. Operating leverage remains positive, even as management invests for growth.
- Deposit Mix Optimization: Funding cost declined by 16 basis points, reflecting a deliberate shift from wholesale to core deposits.
- Fee Income Momentum: Customer-related non-interest income hit a record, with capital markets fees up 25% year-over-year.
- Expense Growth Managed: Core expenses rose, but efficiency gains from outsourcing and AI offset some inflationary pressures.
The quarter underscores Zions’ ability to manage through industry headwinds while positioning for measured, profitable growth in 2026.
Executive Commentary
"Our fourth quarter results reflected continued progress and steady improvement across variety of key financial metrics. Earnings of $262 million were up meaningfully, 19% from the prior quarter and 31% from a year ago, driven by stronger revenues and notably lower provision for credit losses. Our net interest margin expanded for the eighth consecutive quarter to 3.31%, benefiting from an improved funding mix as customer deposit initiatives reduced our reliance on short-term borrowings."
Harris Simmons, Chairman and Chief Executive Officer
"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. For the second consecutive quarter, growth in average customer deposits in excess of loan growth aided our ability to improve funding mix and reduce overall funding costs. As a result, the net interest margin expanded for the eighth consecutive quarter to 3.31%."
Ryan Richards, Chief Financial Officer
Strategic Positioning
1. Deposit Growth and Funding Mix
The bank’s strategy centers on granular deposit growth, especially in non-interest-bearing accounts, to lower funding costs and support margin expansion. Recent product revamps and targeted marketing campaigns have driven new account openings, with plans to accelerate these efforts in 2026. Zions’ focus on building a stable, insured deposit base is a direct response to industry volatility and competitive pressures.
2. Small Business and Commercial Lending Focus
Management is doubling down on small business lending, with SBA 7A loan production nearly doubling in volume and up 53% in dollars year-over-year. This segment, defined as lending to smaller enterprises often underserved by larger banks, is viewed as a strategic sweet spot due to its deposit-rich profile and lower credit risk. Commercial & Industrial (C&I) and owner-occupied real estate loans are expected to lead loan growth in 2026, while commercial real estate (CRE) exposure will be carefully managed.
3. Fee Income Diversification
Fee income is increasingly diversified, with capital markets, swaps, and loan syndications driving a 25% annual increase in capital markets revenue. The bank’s aspirational goal to double capital markets fees has been achieved, and management expects continued outperformance in this area, supported by broader fee income growth across business lines.
4. Technology and Efficiency Initiatives
Outsourcing and artificial intelligence (AI) adoption are materially reducing the full-time equivalent (FTE) workforce, with headcount down by over 1,000 since 2019. AI is used for fraud detection, client authentication, and process automation, enabling cost control even as marketing and growth investments rise. Outsourcing is expected to increase toward peer levels, unlocking further savings.
5. Capital Build and Return Plans
Tangible book value per share rose 21% in 2025, marking the third consecutive year of 20%+ growth. With a Common Equity Tier 1 (CET1) ratio of 11.5%, Zions is approaching the threshold for resuming share buybacks, likely in the second half of 2026. Management remains cautious, balancing capital return with regulatory expectations and ongoing organic growth.
Key Considerations
This quarter marks a strategic transition for Zions, as management shifts from defensive posturing to selective growth investments while maintaining a disciplined risk and capital framework.
Key Considerations:
- Deposit Franchise Strengthening: Sustained deposit growth and product innovation are critical to funding cost control and future margin stability.
- Loan Growth Quality Over Quantity: Emphasis on small business and C&I segments should support both asset quality and deposit generation.
- Expense Management Levers: Efficiency gains from outsourcing and AI adoption will be needed to offset rising marketing and tech costs.
- Capital Flexibility: Accelerated capital build supports the potential for resumed buybacks, but regulatory and rating agency scrutiny remains a gating factor.
- CRE and C&I Credit Watch: While CRE classified balances are declining, ongoing C&I credit migration will require close monitoring as macro conditions evolve.
Risks
Key risks include the pace and composition of deposit growth, potential credit migration in the C&I portfolio, and sensitivity to interest rate cuts impacting asset yields and NIM trajectory. Regulatory changes, particularly around capital standards for banks near the $100 billion asset threshold, could impact growth and capital return plans. Management’s outlook assumes a benign credit environment and successful execution of deposit initiatives—both areas warranting continued vigilance.
Forward Outlook
For Q1 2026, Zions guided to:
- Moderately increasing net interest income and customer-related fee income
- Core non-interest expense growth in the mid-single-digit range, excluding the charitable contribution
For full-year 2026, management maintained guidance:
- Positive operating leverage of 100 to 150 basis points
- Moderate loan and deposit growth, led by commercial and small business segments
Management highlighted the following:
- Readiness to resume capital returns in the second half of 2026, contingent on continued capital build
- Continued investment in technology and marketing to drive growth while offsetting expense inflation with efficiency gains
Takeaways
Zions is executing a deliberate transition from post-crisis stabilization to targeted growth, with margin expansion and fee income diversification at the core of its strategy.
- Deposit-Led Margin Expansion: Success in driving granular deposit growth and remixing funding has been the engine behind NIM gains and lower funding costs, setting a foundation for future profitability.
- Growth Investment Discipline: Marketing, tech, and small business lending initiatives are being scaled up, but expense growth is being managed through outsourcing and AI-driven process automation.
- Capital Return Readiness: Tangible book value and CET1 ratios are trending toward levels that should enable share buybacks in late 2026, though regulatory and macro risks remain.
Conclusion
Zions Bancorp’s Q4 2025 results demonstrate a successful pivot toward deposit-led profitability and operational efficiency, with a clear roadmap for measured growth and capital return. The bank’s evolving business mix, technology adoption, and disciplined risk posture position it well for a more constructive 2026, provided execution remains tight and credit quality holds.
Industry Read-Through
Zions’ results reinforce a sector-wide trend of banks prioritizing core deposit growth, expense control through technology, and selective capital return over aggressive loan expansion. The focus on small business lending and fee income diversity is likely to be echoed by other regionals seeking stable funding and resilient profitability. Outsourcing and AI adoption for efficiency gains are becoming table stakes in banking, while regulatory scrutiny around capital and asset thresholds will continue to shape strategic decisions for peers approaching $100 billion in assets.