Zions earnings rise 20%, but a $57 million credit swing drives the story

Zions Bancorporation’s third-quarter earnings rose 20% per share, but its underlying operating comparison moved in the opposite direction. The bank reported at 4:10 p.m. Eastern on October 19 that diluted earnings reached $1.78, up from $1.48 a year earlier. Its full financial schedules show adjusted pre-provision net revenue fell to $338 million from $352 million, a decline of about 4%.

The difference matters for investors assessing whether the higher profit is repeatable. Zions recorded an $8 million credit-loss provision benefit, compared with a $49 million expense a year earlier: a favorable $57 million swing before tax. Customer deposits grew, but loans were essentially unchanged from June and the net interest margin narrowed. The result provides stronger evidence of credit normalization than of an acceleration in lending profitability.

The $57 million change beneath the earnings headline

Zions earned $262 million for common shareholders in the quarter ended September 30, compared with $221 million in the same period of 2025. That is an 18.6% increase in total common earnings. The slightly faster 20.3% increase in diluted earnings per share also reflects a lower diluted share count. The percentage calculations use the prior-year figures as their denominators; neither measures a change in the share price.

The company’s detailed release separates two credit measures that should not be confused. Net charge-offs, which reflect loans written off after recoveries, fell to $3 million from $56 million. The provision is the income-statement expense or benefit associated with adjusting expected credit-loss allowances. Moving from a $49 million provision expense to an $8 million benefit improves pretax income by $57 million, all else equal.

That does not mean the bank collected an extra $57 million in revenue or that $57 million flowed unchanged into common earnings. Taxes, other income and expenses, and preferred dividends sit between those measures. It does mean that extrapolating the headline earnings growth without examining credit costs would overlook a substantial part of the improvement.

The comparison also starts from an unusual base. Zions’ third-quarter 2025 release described a $50 million charge-off on two related commercial and industrial loans, alongside a reserve against the remaining exposure. That disclosure helps explain why a year-over-year recovery in credit costs is different from a newly accelerating banking franchise. The current result is encouraging, but the comparison does not establish that exceptionally low charge-offs will persist.

Operating revenue has not kept pace with costs

Adjusted pre-provision net revenue, or adjusted PPNR, is a company-defined non-GAAP measure of operating performance before credit provisions. It is useful here because it helps separate the business’s earnings capacity from changes in expected loan losses. It is not a substitute for net income, and another bank’s adjusted measure may use different exclusions.

Zions reported adjusted PPNR of $338 million, $14 million below the year-earlier $352 million. TECHi calculates that decline as $14 million divided by $352 million, or 4.0% after rounding. The sequential comparison is more favorable: $338 million was $6 million above the second quarter’s $332 million, an increase of 1.8%. Both comparisons are needed. The bank improved modestly from June without matching the prior September quarter.

Net interest income rose to $684 million from $672 million a year earlier and $677 million in the second quarter. Yet the net interest margin fell to 3.23%, from 3.28% a year earlier and 3.27% in June. A larger or differently funded balance sheet can produce more interest income even while the spread earned on that balance sheet becomes thinner.

Costs remain part of the explanation. Adjusted noninterest expense reached $549 million, up from $520 million a year earlier. Technology, telecom and information-processing expense rose to $76 million from $70 million. Zions attributed that increase to higher application-software, licensing and maintenance costs. That is evidence of a higher technology cost base; the release does not isolate an AI spending figure or demonstrate a return on that spending.

The efficiency ratio was 61.9%, versus 59.6% a year earlier. On the company’s measure, more expense was required for each dollar of revenue. The ratio did improve from 62.2% in the second quarter, reinforcing the same mixed picture as adjusted PPNR: sequential progress, but a weaker year-over-year operating comparison.

Fee growth needs its own adjustment

Customer-related noninterest income rose 18% to $192 million. After the company’s credit valuation adjustment, the comparable figure was $182 million, up about 5% from $174 million a year earlier. The difference is material because an investor could otherwise mistake the faster reported growth for the pace of underlying customer activity.

Zions identified a $10 million net credit valuation adjustment gain on client-related interest-rate swaps in the current quarter, worth $0.05 per share. Its fee schedule shows that changes in this adjustment explain much of the increase in capital-markets fees. Excluding those changes, capital-markets fees increased by $1 million, which the bank attributed to higher swap revenue.

This does not make the reported income invalid. It means the sources of income have different implications for forecasting. Commercial-account fees, card fees and wealth-management fees can help show how customer relationships are developing. A valuation adjustment can move with credit and market assumptions. Treating all of them as one recurring growth rate would give the next quarter too much credit before it arrives.

Deposits are growing faster than loans

Period-end loans and leases were $62.472 billion, compared with $62.481 billion at June 30. The $9 million decline is effectively flat at that scale. Loans were still up roughly 4% from September 2025, so the bank has not reported a year-over-year contraction. The distinction is between an expanded loan book over twelve months and a pause in its most recent quarter.

Customer deposits, excluding brokered deposits, reached about $74.5 billion, compared with $72.7 billion in June. Management described that as nearly 10% growth on an annualized basis. Annualization expresses one quarter’s pace as a yearly rate; it is not a forecast that deposits will grow by that amount over the next twelve months.

More customer funding gives the bank options. It can replace more expensive borrowing, support future lending or remain in liquid investments. Zions said deposit growth outpaced loan growth, reducing reliance on borrowed funds and contributing to higher money-market investments. Those are useful balance-sheet improvements, but they do not automatically create the same earnings contribution as profitable new loans.

There is also a cost to retaining that funding. The total cost of deposits rose to 1.59% from 1.48% in the second quarter, although it remained below the year-earlier 1.67%. The bank attributed the sequential increase partly to a shift toward higher-cost interest-bearing deposits and partly to an accounting presentation change that added approximately three basis points. It would be misleading to attribute the entire increase to competitive pricing.

Credit is better, with some measures still worth watching

Classified loans fell to $2.123 billion from $2.415 billion a year earlier and $2.327 billion in June. That supports the argument that credit improvement is broader than simply the absence of last year’s large charge-off. The allowance for credit losses was $696 million, or 1.11% of outstanding loans and leases, compared with $725 million and 1.20% a year earlier.

Not every measure improved sequentially. Nonperforming assets increased to $315 million from $298 million in June, even though they remained below the year-earlier $324 million. The current release therefore supports a measured conclusion: lower losses and fewer classified loans coexist with a small quarterly increase in nonperforming assets. It does not establish either a new credit crisis or an end to credit risk.

The strongest counterargument to a cautious reading is that better credit quality has economic value. Lower expected losses can preserve capital and leave more earnings available to shareholders. Zions’ estimated common equity tier 1 capital ratio was 11.8%, above the year-earlier 11.3%. Investors should recognize those improvements without assuming another large favorable provision swing is necessary, or likely, every quarter.

What would make the earnings improvement more durable

The next test is whether operating income can carry more of the growth. Sustained loan expansion at acceptable returns, customer-fee growth after valuation adjustments and expenses growing more slowly than revenue would strengthen that case. Continued improvement in classified loans would support the credit story, while rising nonperforming assets or a renewed provision expense would require closer examination.

The previous quarter is another comparison trap. Zions’ second-quarter release reported $3.05 in diluted EPS, including gains from selling Visa shares and from small-business investment-company holdings. It presented $1.74 excluding notable items. The fall from reported EPS of $3.05 to $1.78 is therefore not, by itself, proof of a collapse in the ongoing business. Adjusted PPNR provides a cleaner sequential reference, while still requiring attention to the company’s reconciliation.

Management expects its moderately asset-sensitive balance sheet to benefit from higher interest rates. That remains a forecast: deposit repricing, borrower demand, credit performance and hedging can influence what actually reaches earnings. Readers following subsequent results can use TECHi’s ZION earnings page alongside the company research page, keeping changing market quotes separate from this quarter’s fixed financial figures.

For now, the October 19 report shows a bank earning more partly because credit costs became much less burdensome. The more demanding proof of durable growth will be higher operating earnings before that benefit. Zions has made modest progress on that measure since June; it still has ground to recover against last year.