Credit stabilizes as interest income growth takes focus
- Zions relies heavily on net interest income, which makes up about 78% of its net revenue.
- The bank expects net interest income to grow in the upper single digits if a rate hike occurs.
- Credit concerns are fading with nonperforming assets holding flat at 0.48% of total loans.
- The upcoming Basis Investment Group acquisition aims to boost capital markets and fee revenue.
From credit cleanup to earnings growth
Zions faced severe credit fears in 2024 when classified loans jumped. That fear has largely faded. Credit metrics are stable, with nonperforming assets flat at 0.48% in the 2026 second quarter. The watch list is shrinking, and few loans are moving into the worst bucket.
The bull case is now shifting from credit repair to earnings growth. Management sees potential for upper single-digit growth in net interest income over the next year, assuming one rate hike. The pending acquisition of Basis Investment Group in the third quarter adds another growth avenue by expanding capital markets and fee revenue.
The bear case focuses on deposit costs. Competition for funding is intense. If the bank cannot grow deposits cheaply through initiatives like its Business Beyond Account, rising funding costs could erase the expected gains in net interest margin.
Deposits in, loans out
Zions operates as a classic regional bank. It gathers deposits from customers and lends that money out at higher rates. The difference between interest earned and interest paid is net interest income, which accounts for about 78% of net revenue.
The model relies heavily on keeping deposit costs low and avoiding large loan losses. When deposits are stable, the bank generates steady cash flow. Zions also earns noninterest income through commercial account fees, wealth management, and capital markets services.
The weak point is funding competition and credit cycles. A loan book can look fine until borrowers struggle to refinance or face higher rates. Zions navigated a rough patch in commercial real estate, but the focus has now turned to managing deposit pricing against aggressive competitors.
Loans are the product
Commercial lending
This is the largest loan group at 52.3% of the portfolio. It includes commercial and industrial loans, owner-occupied real estate, municipal finance, and equipment leasing.
Consumer lending
Consumer loans are 24.8% of the portfolio. The main pieces are 1-4 family mortgages and home equity lines of credit.
Commercial real estate lending
CRE is 22.9% of the loan portfolio. It includes construction, land development, and term loans tied to multifamily, industrial, office, and retail properties.
Deposit accounts
Deposits are the bank's main funding source. Noninterest-bearing demand deposits were 33% of deposits, which helps funding costs when balances stay in place.
Fees and wealth services
Noninterest income comes from customer services such as commercial account fees, capital markets fees, and wealth management. The Basis Investment Group acquisition adds new capital markets revenue.
A Western loan book
The mix below uses the loan portfolio split cited in recent filings. Commercial lending is concentrated in Texas at 25.2%, Utah and Idaho at 20.4%, and California at 20.0%.
What could still break
Deposit costs surge
High impact · Medium oddsThe bank faces intense competition for deposits. If granular deposit growth initiatives fail, the bank may have to pay higher rates to keep funds, which would compress the expected net interest margin.
Classified loan cleanup stalls
High impact · Low oddsThe central thesis depends on classified loans continuing to fall or stay low. If progress stops, investors may treat the credit issue as delayed rather than solved.
CRE payoffs slow
Medium impact · Medium oddsRecent improvement came largely from payoffs in commercial real estate. That is good, but it means the cleanup partly depends on borrowers being able to sell, refinance, or repay.
Basis acquisition integration struggles
Medium impact · Low oddsThe pending acquisition of Basis Investment Group is expected to boost capital markets revenue. If the integration is messy or the revenue run-rate falls short, noninterest income could disappoint.
In one breath
What does Zions Bancorporation do?
Zions is a regional bank based in Salt Lake City. It serves customers mainly across 11 Western states through deposits, commercial loans, real estate loans, consumer loans, and related banking services.
Why do classified loans matter for Zions?
Classified loans are loans the bank has marked as higher risk. For Zions, this metric became the main investor concern after a large 2024 increase, so the recent decline is a major sign that credit risk is easing.
Is Zions mainly a commercial real estate bank?
No. Commercial real estate is important at 22.9% of the loan portfolio, but commercial lending is larger at 52.3%. The reason CRE gets so much attention is that it drove much of the earlier classified loan jump.
What is the next key thing to watch for ZION?
Watch whether the bank achieves its projected upper single-digit growth in net interest income. Additionally, monitor the revenue contribution from the closing of the Basis Investment Group acquisition.
