Zions' Margin Holds at 3.27% as Credit Costs Collapse and Buybacks Resume
Zions Bancorporation (ZION) grew net interest income 4% YoY to $677 million in the second quarter as loan growth accelerated to an 8% annualized pace and the CET1 ratio climbed to an estimated 11.8%.
Zions Bancorporation, National Association (ZION), the Salt Lake City-based regional lender focused on commercial banking across the Western U.S., held its net interest margin flat at 3.27% in the second quarter, unchanged from the first quarter but up 10 basis points from 3.17% a year earlier. Net interest income rose to $677 million, up 4% YoY and 2% QoQ, extending a four-quarter climb from $648 million in the second quarter of 2024. The margin has eased slightly from a 4Q24 peak of 3.31%, but the composition of that move favored Zions: the cost of deposits fell to 1.48% from 1.68% a year earlier, outpacing a 21-basis-point decline in asset yields to 4.90%, meaning funding relief did more work than asset-side pressure took away.
Loan growth provided the other half of the story. Total loan and lease balances reached $62.5 billion, up 3% YoY and accelerating to an 8% annualized linked-quarter pace from 2% in the first quarter, driven by a $1.0 billion YoY increase in commercial and industrial loans and a $452 million rise in commercial real estate. Deposits told a more mixed story: total deposits of $76.6 billion were essentially flat QoQ, down $299 million from $76.9 billion in the first quarter, though still up 4% YoY from $73.8 billion. Customer deposits excluding brokered funds fell $439 million QoQ to $72.7 billion, a seasonal pullback after first-quarter growth.
Capital continued its steady multiyear build. The CET1 ratio rose to an estimated 11.8% in the second quarter, up from 11.6% in the first quarter and 11.0% a year earlier — a five-quarter climb of roughly 20 basis points per quarter. That cushion gave Zions room to step up shareholder returns: the bank repurchased 1.2 million shares for $75 million, compared with zero buybacks in the second quarter of 2024, and raised its common dividend to $0.45 a share from $0.43. Tangible book value per share climbed 22% YoY to $44.74.
Credit quality snapped back sharply from a one-off event in the third quarter of 2024. Provision for credit losses fell to just $3 million in the second quarter, versus a $49 million spike in the third quarter of last year tied to two related C&I loan charge-offs. The net charge-off ratio dropped to 0.06% from that 0.37% spike, and classified loans declined to 3.72% of total loans from 4.43% a year earlier and 3.80% in the first quarter. The improvement confirms the 3Q24 charge-offs were an isolated credit event rather than the start of a broader deterioration in Zions' commercial book.
Fee income growth was genuine but obscured by a large one-time gain. Customer-related noninterest income rose to $182 million, up 11% YoY and 6% QoQ, with capital markets fees climbing 29% YoY to $36 million on stronger real estate capital markets and investment banking advisory activity. Headline noninterest income jumped to $460 million from $187 million in the first quarter, but the swing was driven by $269 million in securities gains — a $215 million Visa Class B-1 share sale plus $37 million in SBIC gains — rather than by recurring fee momentum.
Expense discipline also improved the efficiency ratio, which held flat YoY at 62.2% but dropped sharply from 65.0% in the first quarter, aided by an $8 million to $13 million decline in FDIC deposit-insurance and special-assessment costs. Adjusted noninterest expense still rose 5% YoY to $546 million, reflecting higher incentive compensation and technology spending.
With funding costs falling faster than asset yields, credit costs normalized after last year's charge-off event, and capital ratios extending a five-quarter uptrend, Zions enters the back half of the year with more room to lean into loan growth and shareholder returns than it had a year ago.