Zions earnings increased in the third quarter of 2026 as sharply lower credit costs outweighed a narrower lending margin and higher operating expenses. The bank reported net earnings of $262 million, or $1.78 per diluted share, on October 19, up from $221 million, or $1.48 per share, a year earlier. Profit declined from the second quarter, when securities gains had boosted results.
Key Takeaways
- Diluted earnings per share rose 20% year over year, primarily reflecting improved credit quality.
- Net interest income increased 2%, despite a narrower margin and higher sequential deposit costs.
- Customer deposits grew nearly 10% annualized from the second quarter, while loan balances stayed essentially flat.
Table of Contents
- Zions earnings benefit from lower credit costs
- Operating gains were smaller than the profit increase
- Deposit growth outpaces lending
- Conclusion
Zions earnings benefit from lower credit costs
The bank’s third-quarter 2026 financial results showed an $8 million credit-loss provision benefit, compared with a $49 million expense a year earlier. Chairman and Chief Executive Harris H. Simmons identified improved credit quality as the primary reason for the increase in earnings per share.
Net loan and lease charge-offs fell to $3 million from $56 million. The year-earlier quarter included $50 million of charge-offs on revolving credit facilities to two related commercial borrowers that financed commercial mortgage originations and purchases. That concentration of losses makes the annual comparison particularly favorable.
Credit indicators were not uniformly better than in the preceding quarter. Nonperforming assets increased to $315 million from $298 million, although they remained below the $324 million recorded a year earlier.
| Item | Details |
|---|---|
| Estimated common equity tier 1 ratio | 11.8%, compared with 11.3% a year earlier. |
| Classified loans | $2.1 billion, or 3.40% of loans and leases, versus 4.00% a year earlier. |
| Allowance for credit losses | $696 million at September 30, 2026, versus $725 million a year earlier. |
| Basis Multifamily Finance acquisition | Agency lending platform acquisition completed in July 2026. |
Operating gains were smaller than the profit increase
Net interest income reached $684 million, up from $672 million a year earlier and $677 million in the second quarter. Lower funding costs and changes in the balance-sheet mix supported the annual increase, but net interest margin narrowed to 3.23% from 3.28% a year earlier.
Customer-related noninterest income rose 18% to $192 million. Excluding credit valuation adjustments, the bank’s adjusted measure increased a more modest 5% to $182 million. Meanwhile, noninterest expense rose 5% to $553 million, reflecting higher compensation, technology and outsourced-service costs.
Pre-provision net revenue, a non-GAAP measure, declined 1% to $340 million. The contrast with rising net earnings shows how important lower credit costs were to the quarterly result.
The sequential profit decline also needs context. Second-quarter earnings were $452 million, or $3.05 per share, and included substantial gains from selling Visa Class B-1 shares and unrealized gains in the bank’s Small Business Investment Company portfolio. Net securities results shifted from a $269 million gain in that quarter to a $4 million loss in the third quarter.
Deposit growth outpaces lending
Loans and leases totaled $62.5 billion, up 4% year over year but essentially unchanged from the second quarter. Simmons said faster loan payoffs and a highly competitive market limited sequential growth.
Customer deposits, excluding brokered deposits, reached $74.5 billion, up 5% year over year. Deposit inflows reduced reliance on higher-cost short-term borrowings, but the mix shifted toward interest-bearing accounts. Total deposit costs increased to 1.59% from 1.48% in the second quarter, partly reflecting an accounting presentation change.
Simmons said management expects the moderately asset-sensitive balance sheet to produce stronger net interest income in a higher-rate environment. He also anticipated continued improvement in noninterest income into 2027. Those comments describe management’s outlook, not reported results.
Conclusion
Lower credit costs drove the annual earnings improvement, while underlying operating gains were more limited. In coming quarters, the key test for management’s outlook will be whether deposit growth and fee income translate into stronger revenue without a corresponding increase in funding and operating costs.
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