Zions Bancorporation Q4 2025: Navigating the NIM Cycle and Capital Allocation in a Fed-Neutral Environment

The core earnings engine for Zions Bancorporation is the net interest margin, which expanded to 3.31% in the fourth quarter, marking its eighth consecutive quarterly improvement. This sustained expansion drove a 31% year-over-year earnings surge to $262 million. The durability of this trend, however, is now squarely in the crosshairs of the Federal Reserve's projected policy path for 2026.

Management's forward guidance paints a picture of moderation. The bank expects moderate increases in net interest income for the full year, a projection that explicitly assumes two 25-basis-point Fed rate cuts. This cautious view aligns with the broader market consensus that the Fed will likely keep rates steady at 3.50%-3.75% through 2026, with only a potential 25-50 bps of cuts later in the year. The implication is clear: the Fed-neutral environment creates a less favorable backdrop for further NIM expansion than earlier in the cycle.

The sustainability of the current margin level hinges on two factors. First, the bank has demonstrated effective funding mix management, with customer deposits growing 9% during the quarter and a $53 million reduction in higher-cost short-term borrowings. This lowered total funding costs by 16 basis points sequentially to 1.76%, a key contributor to the margin gain. Second, the outlook assumes loan growth remains relatively subdued, as average loans were essentially flat last quarter. This dynamic allows the bank to deploy its deposit base efficiently without being forced to lend at potentially lower yields.

For institutional investors, the setup is one of a peak-margin cycle transitioning to a maintenance phase. The bank's capital position provides a buffer, with a Common equity Tier 1 ratio at 11.5% and tangible book value per share up 21% year-over-year. This strength supports management's stated intent to accelerate capital returns in the second half of 2026, but the near-term earnings trajectory is now more dependent on navigating a stable, rather than rising, rate environment. The focus shifts from NIM expansion to the quality of earnings and the pace of capital allocation.