10-Q: Zions Bancorporation Q3 2025 Earnings Rise Amid Credit Loss Provision

Zions Bancorporation reported increased net earnings and diluted EPS in Q3 2025, driven by higher net interest income, despite a significant provision for credit losses related to commercial loans.

Summary

• Net earnings applicable to common shareholders grew to $221 million in Q3 2025, up from $204 million in Q3 2024.
• Diluted EPS increased to $1.48 in Q3 2025, compared with $1.37 in Q3 2024.
• Net interest income increased by $52 million, or 8%, to $672 million in Q3 2025 compared to the prior year period.
• The net interest margin improved to 3.28% in Q3 2025, up from 3.03% in Q3 2024.
• A provision for credit losses of $49 million was recorded in Q3 2025, significantly higher than $13 million in Q3 2024, primarily due to a $60 million provision for revolving lines of credit to two related commercial borrowers.
• This $60 million provision included a $50 million charge-off and a $10 million full reserve, resulting from 'apparent irregularities and misrepresentations' by the borrowers and guarantors.
• Customer-related noninterest income increased $5 million, or 3%, in Q3 2025, or $13 million (8%) excluding an $11 million net credit valuation adjustment (CVA) loss.
• Noncustomer-related noninterest income increased $12 million, or 86%, driven by a $6 million gain on the sale of a bank-owned property and higher Federal Home Loan Bank (FHLB) stock dividends.
• Noninterest expense increased $25 million, or 5%, primarily due to higher salaries and employee benefits, and increased technology costs.
• Total loans and leases increased $1.4 billion, or 2%, to $60.3 billion at September 30, 2025, driven by growth in consumer 1-4 family residential mortgage and commercial and industrial loan portfolios.
• Net loan and lease charge-offs totaled $56 million (0.37% annualized) in Q3 2025, up from $3 million (0.02%) in Q3 2024, mainly due to the $50 million commercial loan loss.
• Nonperforming assets decreased to $324 million (0.54% of total loans and leases and other real estate owned) at September 30, 2025, from $368 million (0.62%) in the prior year period.
• Classified loans increased to $2.4 billion (4.00% of total loans and leases) at September 30, 2025, from $2.1 billion (3.55%) in the prior year, but decreased from $2.7 billion (4.43%) in the prior quarter.
• Total deposits declined $1.3 billion, or 2%, from December 31, 2024, primarily due to a $2.8 billion reduction in interest-bearing deposits, partially offset by a $1.4 billion increase in noninterest-bearing demand deposits due to product migration.
• Total available liquidity was $42.4 billion at September 30, 2025, exceeding estimated uninsured deposits of $33.6 billion.
• Common Equity Tier 1 (CET1) capital increased 7% to $7.7 billion, with the CET1 capital ratio improving to 11.3% from 10.7% in the prior year period.
• Tangible book value per common share increased $5.52, or 17%, to $38.64.

Sentiment

Score: 7

Explanation: The company demonstrated strong earnings growth, improved net interest margin, and robust capital ratios, indicating solid operational performance. However, a significant provision for credit losses due to specific commercial loan irregularities and a decline in total deposits temper the overall positive sentiment.

Positives

• Net earnings applicable to common shareholders increased to $221 million in Q3 2025 from $204 million in Q3 2024.
• Diluted EPS grew to $1.48 in Q3 2025 from $1.37 in Q3 2024.
• Net interest income increased by $52 million (8%) year-over-year, reaching $672 million.
• Net interest margin improved to 3.28% in Q3 2025 from 3.03% in Q3 2024, driven by lower funding costs and favorable asset composition.
• Customer-related noninterest income, excluding the CVA loss, increased $13 million (8%), benefiting from improved loan syndication activity and higher customer swap fees.
• Noncustomer-related noninterest income increased significantly by $12 million (86%), including a $6 million gain on the sale of a bank-owned property and higher FHLB stock dividends.
• The efficiency ratio improved to 59.6% from 62.5%, reflecting positive operating leverage.
• Total loans and leases grew by $1.4 billion (2%), with notable increases in consumer 1-4 family residential mortgage and commercial and industrial loan portfolios.
• Nonperforming assets decreased to $324 million (0.54%) from $368 million (0.62%) in the prior year.
• Classified loans decreased from $2.7 billion (4.43%) in the prior quarter to $2.4 billion (4.00%) in Q3 2025.
• Strong capital position with CET1 capital increasing 7% to $7.7 billion and the CET1 capital ratio improving to 11.3% from 10.7%.
• Tangible book value per common share increased by $5.52 (17%) to $38.64.
• Total available liquidity of $42.4 billion comfortably exceeds uninsured deposits of $33.6 billion, indicating robust liquidity management.
• Successful completion of a multi-year project to replace core loan and deposit banking systems in July 2024.

Negatives

• A significant increase in the provision for credit losses to $49 million in Q3 2025 from $13 million in Q3 2024.
• A $60 million provision for credit losses, including a $50 million charge-off, related to two commercial borrowers due to 'apparent irregularities and misrepresentations'.
• Total deposits decreased $1.3 billion (2%) from December 31, 2024, primarily due to a reduction in interest-bearing deposits.
• Noninterest expense increased $25 million (5%), driven by higher salaries and employee benefits, and increased technology costs.
• An $11 million net credit valuation adjustment (CVA) loss was recorded in capital markets fees and income due to an update in valuation methodology and market factors.

Risks

• The quality and composition of loan and investment securities portfolios and the quality and composition of deposits.
• Changes in general industry, political, and economic conditions, including increases in national debt, elevated inflation, economic slowdowns or recessions, and changes in interest and reference rates.
• Political developments, including government shutdowns and disruptions, and changes in government funding, size, scope, and effectiveness.
• The effects of newly enacted and proposed regulations affecting the banking industry, as well as uncertainties in the interpretation, enforcement, and applicability of laws and fiscal, monetary, regulatory, trade, and tax policies.
• Actions taken by governments, agencies, and central banks, including those that result in decreases in revenue, increases in regulatory bank fees, insurance assessments, and capital standards.
• Evolving trade policies and disputes, such as proposed and implemented tariffs and resulting market volatility and uncertainty.
• Judicial, regulatory, and administrative inquiries, investigations, examinations, or proceedings and their outcomes.
• Changes in the company's credit ratings.
• Ability to innovate and address competitive pressures, including pricing, relevance of products, and talent recruitment and retention.
• Potential for both positive and disruptive impacts of emerging technologies, including stablecoins, digital currencies, blockchain, artificial intelligence, and quantum computing.
• Ability to complete projects and initiatives, execute strategic plans, manage risks, control compensation and other expenses, and achieve business objectives.
• Ability to develop and maintain technology and information security systems, along with effective controls against fraud, cybersecurity, and privacy risks.
• Ability to provide adequate oversight of suppliers to mitigate effects of inadequate performance, system failures, or cyber incidents by third parties.
• Effects of wars, geopolitical conflicts, and other local, national, or international disasters, crises, or conflicts.
• Natural disasters, pandemics, wildfires, catastrophic events, and other emergencies and incidents, and their impact on operations and insurance costs.
• Governmental and social responses to environmental, social, and governance (ESG) issues, including climate change and diversity.
• Securities and capital markets behavior, including volatility and changes in market liquidity and the ability to raise capital.
• The possibility that recorded goodwill could become impaired, adversely impacting earnings and shareholders' equity.
• The impact of bank closures or adverse developments at other banks on general investor sentiment regarding the stability and liquidity of banks.
• Adverse news and other expressions of negative public opinion that may affect the company's reputation and that of the banking industry generally.
• Uncertainty in legal proceedings, where outcomes are inherently uncertain and potentially involve large or indeterminate damages.

Future Outlook

Forward-looking statements are inherently subject to known and unknown risks and uncertainties, and actual results may differ materially. Latent interest rate sensitivity is projected to increase net interest income by approximately 8.0% in Q3 2026 compared to Q3 2025. Emergent interest rate sensitivity, assuming interest rates follow the forward curve, is modeled to reduce net interest income by approximately 6.6% from the latent level, yielding a cumulative increase of 1.4% in net interest income in Q3 2026 relative to Q3 2025. Under a parallel interest rate shock of +/100 bps to the implied forward rate path, cumulative net interest income sensitivity is projected to range between -1.9% and 4.7%. The company expects to recover the full principal value of available-for-sale (AFS) securities with unrealized losses upon maturity, as these losses are attributed to higher interest rates rather than credit-related factors, and there is no intent to sell them. Management believes that substantially all multifamily, industrial, and office commercial real estate (CRE) borrowers will be able to refinance at maturity through the Bank or other lenders, supported by property cash flows, acceptable loan-to-value (LTV) ratios, equity levels, and guarantor support. Deferred losses from terminated cash flow hedges, totaling $48 million, are expected to be fully reclassified into earnings by October 2027.

Management Comments

• "Our financial performance in the third quarter of 2025, relative to the prior year period, reflected growth in net earnings applicable to common shareholders, diluted earnings per share (EPS), and adjusted pre-provision net revenue (PPNR)."
• "These actions resulted from a review of the borrowers, guarantors, and associated collateral, which identified apparent irregularities and misrepresentations. As a result, legal action has been initiated to pursue recovery of the outstanding amounts owed from the guarantors of the credits." (Regarding the $60 million credit loss provision)
• "The paydown of lower-yielding securities continues to improve the overall yield of interest-earning assets and the net interest margin."
• "We believe that substantially all of these borrowers [multifamily, industrial, office CRE] will be able to refinance at maturity through the Bank or other lenders, due to the cash flows from the properties, acceptable LTVs, equity levels, and guarantor support."
• "We believe the risk of loss and borrower default in the event of a loan becoming fully amortizing and the effect of significant interest rate changes is low, given the rate shock analysis performed at origination." (Regarding Home Equity Credit Lines)
• "We do not intend to sell any securities with unrealized losses."
• "Based on our internal stress testing and other assessments of capital adequacy, we believe our capital levels sufficiently exceed both internal and regulatory requirements for well-capitalized banks."
• "Based on our current knowledge, we believe that our estimated liability for litigation and other legal actions and claims, as reflected in our accruals and determined in accordance with applicable accounting guidance, is adequate."

Industry Context

The banking industry is currently operating in a lower interest rate environment, which Zions Bancorporation has navigated by improving its net interest margin through lower funding costs and a favorable shift in interest-earning assets. The company's diversified loan portfolio across various geographic regions and industry sectors, including a detailed focus on nondepository financial institutions (NDFIs) and commercial real estate (CRE), reflects a strategic approach to managing credit risk common among regional banks. The successful initial public offering (IPO) of an SBIC investment highlights the potential for value creation in venture capital-backed companies within the broader financial services ecosystem. The migration of consumer interest-bearing products to noninterest-bearing offerings indicates ongoing competitive pressures and evolving customer preferences in deposit gathering.

Comparison to Industry Standards

• The filing mentions that Zions Bancorporation's 2025-2027 Enterprise Value Sharing Plan includes relative performance measures such as average annual adjusted EPS growth and adjusted return on tangible assets relative to 'peer companies' in Zions Custom Peer Group. However, the filing does not provide specific names of these peer companies, projects, or their comparative results, preventing a detailed assessment against global benchmarks or specific comparable entities.

Corporate Governance

Legal Proceedings

• Two civil cases, Lifescan, Inc. and Johnson & Johnson Health Care Services v. Jeffrey C. Smith, et. al. (filed December 2017), and Roche Diagnostics and Roche Diabetes Care Inc. v. Jeffrey C. Smith, et. al. (filed March 2019), are pending in the United States District Court for the District of New Jersey. These cases seek to hold the company liable for allegedly fraudulent practices of a borrower who filed for bankruptcy. Discovery is substantially complete, final rulings on certain dispositive motions are outstanding, and a court-ordered mediation is expected in late 2025, with trials set for April 2027.
• Cayon and Reesor v. Zions Bancorporation, N.A. is an arbitration matter for claims of unpaid overtime, meal and rest break violations, and failure to reimburse work-related expenses, with a related Private Attorneys General Act (PAGA) action. A preliminary agreement has been reached to resolve the individual and collective claims, subject to final documentation and court approval.
• Legal action has been initiated to pursue recovery of outstanding amounts owed from the guarantors of two related commercial credits, following the identification of apparent irregularities and misrepresentations that led to a $60 million provision for credit losses.

Stakeholder Impact

• Shareholders: Positive impact from increased diluted EPS, improved capital ratios, higher tangible book value per share, and declared common dividends. Potential negative impact from the specific credit loss event and ongoing legal proceedings.
• Employees: Participation in the 2025-2027 Enterprise Value Sharing Plan provides incentive compensation. Higher salaries and employee benefits expense.
• Customers: Continued investment in technology initiatives to improve products and services and customer experiences. Diversified lending products and services.
• Guarantors of commercial loans: Subject to legal action for recovery of outstanding amounts owed due to irregularities.

Next Steps

• Legal action has been initiated to pursue recovery of outstanding amounts owed from the guarantors of the commercial credits with apparent irregularities and misrepresentations.
• A court-ordered mediation is expected to occur in late 2025 for the Lifescan/Johnson & Johnson and Roche Diagnostics legal cases.
• The trials for the Lifescan/Johnson & Johnson and Roche Diagnostics legal cases have been set for April 2027.
• Shares from the FatPipe, Inc. IPO are subject to a minimum 180-day lock-up period and will continue to be marked to market until fully divested.
• Deferred losses from terminated cash flow hedges ($48 million) are expected to be fully reclassified into earnings by October 2027.
• The Board declared a quarterly dividend of $0.45 per common share, payable on November 20, 2025, to shareholders of record on November 13, 2025.

Key Dates

Recommendation

While Zions Bancorporation demonstrated strong financial performance with increased net earnings, improved net interest margin, and robust capital, the significant provision for credit losses stemming from 'apparent irregularities and misrepresentations' in commercial loans introduces a notable concern regarding credit quality and risk management. The decline in total deposits also warrants attention. The positive aspects are substantial, but the specific credit event and ongoing legal matters suggest a 'hold' position until further clarity on these issues and sustained deposit growth is observed.

Keywords

Banking, Financial Services, Regional Bank, Commercial Banking, Consumer Lending, Mortgage, Credit Quality, Net Interest Income, Deposits, Loans, Capital, SEC Filing, 10-Q, Zions Bancorporation, ZION, Credit Losses, Nonperforming Assets, Shareholder Equity, Liquidity, Interest Rate Risk, SBIC, IPO, Corporate Governance