Zions Bancorporation, National Association (ZION) Earnings

Management highlights

### Financial Results - Net earnings available to common shareholders was $452 million ($3.05 per diluted share), including $215 million pre-tax gain on Visa Class B1 share liquidation and a $37 million net unrealized pre-tax gain on an SBIC investment. Excluding these exceptional items, adjusted EPS was $1.74, a 10% increase from $1.58 in the year-ago quarter. - Taxable equivalent net interest income was $677 million, up 2% quarter-over-quarter and 4% year-over-year; net interest margin was stable at 3.27% quarter-over-quarter, up 10 basis points year-over-year, driven by lower deposit and borrowing funding costs. - Customer-related non-interest income was $182 million, up 5.8% quarter-over-quarter and 11% year-over-year; adjusted customer-related non-interest income was up 10% year-over-year, with broad-based growth across most revenue streams. - Adjusted non-interest expense was $546 million, down quarter-over-quarter due to lower seasonal compensation and an $8 million decrease in deposit/regulatory expense (including a $6 million reduction from a lower FDIC special assessment); expenses are up year-over-year due to higher professional/outsourced services, incentive compensation, and technology investments. - Credit quality remains very strong: net charge-offs were 6 basis points annualized of average loans, non-performing assets ratio held steady at 48 basis points sequentially, the allowance for credit losses is 1.13% of loans with 227% coverage of non-accrual loans, and classified/criticized balances declined modestly during the quarter. - The Common Equity Tier 1 capital ratio improved to 11.8% during the quarter, supported by strong earnings and the noted exceptional items; tangible book value per share increased 22% year-over-year. ### Strategic and Operational Updates - The bank has a pending acquisition of Basis Investment Group's Fannie Mae/Freddie Mac multifamily lending business, related mortgage servicing rights, and supporting team, expected to close in Q3 2026. The transaction will enhance commercial real estate client service across the Western U.S. and strengthen the capital markets franchise; financial benefits will build gradually post-close and are not included in current forecasts. - The bank is actively investing in core deposit growth initiatives: new product offerings for consumers and small businesses, increased marketing spend, and focused outreach to grow granular, lower-cost core deposits, with early progress from these efforts. - The bank has reduced off-balance sheet client deposits from a peak of $12 billion to $7.5 billion, bringing $3.5 billion back on balance sheet to date at rates accretive to overnight borrowing costs. - New leadership has been appointed for the wealth management division, with a plan to return the business to consistent revenue growth after several years of flat performance.

Guidance

- Net interest income (NII) for Q2 2027 is expected to be moderately increasing, with one 25 basis point interest rate hike from the Fed embedded in the baseline guidance. If two or more rate hikes materialize, NII growth could reach the upper single digits year-over-year. Even with no rate hikes, management expects moderate NII growth. - Adjusted customer fee-related income for Q2 2027 is expected to be moderately increasing versus Q2 2026, with capital markets expected to contribute outsized growth, and management currently expects results toward the top end of the expected range. - Adjusted non-interest expense for Q2 2027 is expected to be moderately increasing versus Q2 2026. - Full year 2026 positive operating leverage (adjusted for exceptional items like the Visa gain) is expected to be in the 100 to 150 basis point range, unchanged from prior guidance. This outlook is contingent on core deposit growth targets being met. - The securities portfolio is expected to continue to grind down for approximately 1-2 more quarters, after which the bank expects to begin fully reinvesting principal and prepayment cash flows back into the portfolio.

Segment performance

Zions Bancorp does not break out formal product segments in the provided transcript, so segment-level financials are not explicitly disclosed. Key performance by business line is as follows: 1. Capital Markets: Capital markets fees increased $8 million quarter-over-quarter, driven by higher real estate capital markets and investment banking advisory fees, with a strong pipeline entering Q3 2026. This division has been a core driver of fee income growth since its 2020 launch, with steady investment in talent, technology and product capabilities across investment banking, sales and trading, and real estate capital markets. 2. Consumer and Small Business Banking: The bank has launched new consumer (Gold) and small business (Business Beyond) deposit and payment accounts, with over 10,000 total new accounts opened in 2026 to date, focused on growing granular core deposits. 3. Commercial Lending: Led quarter-over-quarter loan growth, with Commercial & Industrial (C&I) driving most of the 4.7% annualized average loan growth, supported by higher revolving credit utilization from growing businesses and increased working capital demand. The commercial real estate (CRE) portfolio totals $14.1 billion (22% of total loans), with growth concentrated in term CRE while construction CRE as a percentage of the CRE portfolio declined to 16%. 4. Wealth Management: Wealth management fees were flat quarter-over-quarter but up year-over-year, with new leadership in place to drive future high single-digit to low double-digit revenue growth.

Risks & headwinds

- Intense competition in both deposit gathering and commercial lending is expected to continue, creating pressure on deposit costs and causing mild loan spread compression. Some targeted deposit acquisition rates are approaching wholesale market levels. - Technology costs have been elevated for several quarters, driven by ongoing vendor price increases for software and services, and future investments in artificial intelligence are expected to keep technology spending elevated in the near term. - Ongoing legal costs related to outstanding legal issues (including the Cancer Fund matter) have increased credit-related expenses by $4 million in the quarter, and additional costs may continue to spill over into the second half of 2026, though the ultimate size of future costs is uncertain. - Future interest rate path and inflation outcomes are uncertain, and any deviation from the forward curve embedded in guidance could lead to lower than expected NII growth. The bank's performance is sensitive to changes in economic conditions, which would impact the allowance for credit losses. - Core deposit growth initiatives take time to scale, and slower than expected deposit growth could lead to greater reliance on wholesale funding, putting upward pressure on overall funding costs.

Analyst Q&A

• Q: What is Zions' current perspective on deposit pricing competition, loan spread pressure, and the trajectory of deposit growth? /

  A: Management confirms the industry continues to see intense competition on both deposits and loans, with mild loan spread compression and targeted deposit acquisition rates near wholesale levels. Zions is prioritizing growing granular core deposits through its new consumer and small business account offerings, with increased marketing spend supporting these initiatives. The bank currently has $2.5 billion in expensive net broker/overnight borrowings, and can replace these with accretive larger client deposits, creating room for continued improvement in funding costs. Management notes that deposit growth is a marathon, not a sprint, but early signs are positive, with 10,000 new accounts opened so far in 2026.\n\nQ: How comfortable is management with the current loan-to-deposit ratio of 82%, and how high could the ratio go before needing to add more stable funding? / A: Management notes that 82% is still a relatively low loan-to-deposit ratio, and the bank currently holds sufficient contingent liquidity and buffer to accommodate further increases in the ratio before needing to secure additional stable funding. The bank is still 1-2 quarters away from fully reinvesting all investment security cash flows, which provides additional flexibility to fund loan growth without immediately adding new wholesale funding.\n\nQ: What is management's outlook for M&A, given the bank's strengthening capital position? / A: Management states M&A is not a core daily focus, and the bank is currently prioritizing organic growth. Any future M&A would be opportunistic, focused on Zions' existing Western U.S. markets, and targets that add strategic value (particularly strong deposit bases). After a multi-year period of strengthening the bank's foundation (systems, risk management, capital), Zions is now well-positioned to pursue opportunistic deals if attractive opportunities arise, but there is no immediate pipeline of large transactions.\n\nQ: What is the outlook for capital return to shareholders, given the bank's strong capital position? / A: Management confirms the bank's CET1 ratio is currently above peer medians, even including AOCI, creating excess capital capacity. If performance continues in line with forecasts, management expects to incrementally increase capital return (both buybacks and dividends) over the coming year. The current pace of $75 million in share repurchases is sustainable, and gradual increases are likely rather than sudden large changes.