Credit repair is working at Zions
- Zions is a traditional regional bank, with net interest income making up about 78% of net revenue.
- The main debate has shifted from credit fear to credit cleanup.
- Classified loans fell to $2.3 billion, or 3.80% of total loans, in the 2026 first quarter.
- Nonperforming assets stayed low at 0.48%, which suggests most watched loans are not turning into losses.
- The stock still needs proof that credit keeps improving while core earnings hold up.
Credit cleanup is now the story
Zions had a scary credit moment in 2024. Classified loans, meaning loans the bank rates as higher risk, jumped hard, mostly in commercial real estate. That made investors worry that a normal regional bank problem could turn into a bigger loss cycle.
That fear has faded. Classified loans fell for a third straight quarter and reached $2.3 billion, or 3.80% of total loans, at March 31, 2026. They were $2.4 billion, or 3.91%, at the end of 2025. Nonperforming assets also fell to 0.48%, down from 0.52%. In plain terms, the watch list is shrinking and few loans are moving into the worst bucket.
The bull case is that Zions is getting back to a normal credit profile. If the classified loan ratio drops below 3.5% and keeps moving toward less than 3%, the market can focus more on the bank's basic earnings power. Stable net interest income and low nonperforming assets would support that case.
The bear case is weaker, but not gone. A sharp recession could slow payoffs, hurt borrowers, and make the last $2.3 billion of classified loans harder to resolve. There is also an open question around new commercial and industrial loan growth, since faster growth only helps if underwriting stays careful.
Deposits in, loans out
Zions makes money like a classic bank. It gathers deposits from customers, then lends that money at higher rates. The gap between what it earns on loans and securities and what it pays on deposits is called net interest income. That made up about 78% of net revenue in the cited company filings.
The model works best when deposits are stable, loan losses stay low, and interest rates do not squeeze the spread too much. Noninterest income adds a smaller second stream through commercial account fees, capital markets fees, and wealth management services.
The weak point is credit. A loan book can look fine until borrowers start missing payments or refinancing becomes hard. For Zions, the key test is whether the improvement in commercial real estate credit continues without a new problem forming in commercial and industrial lending.
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.
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.
Consumer lending
Consumer loans are 24.8% of the portfolio. The main pieces are 1-4 family mortgages and home equity lines of credit.
Deposit accounts
Deposits are the bank's main funding source. Noninterest-bearing demand deposits were 33% of deposits, which helps funding costs when those 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 Multifamily Finance I, LLC acquisition is an open question for future fee and capital markets revenue.
A Western loan book
The mix below uses the loan portfolio split cited in the current company context from 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
Classified loan cleanup stalls
High impact · Low oddsThe central thesis depends on classified loans continuing to fall. They are down to $2.3 billion, or 3.80% of total loans, but that is still above the less than 3% level described in the internal thesis as a more normal target. 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. Higher rates or weaker property values could slow that process.
Nonperforming assets rise
High impact · Low oddsNonperforming assets were only 0.48% at March 31, 2026. That low level is a key reason the bear case looks weak. A move above about 0.60% would show more problem loans are turning into loans that are no longer paying as agreed.
New C&I growth hides new risk
Medium impact · Medium oddsCommercial and industrial loans are the single largest loan category at 29.2% of the portfolio. Growth there can help earnings, but only if the bank keeps standards tight. The open question is whether new growth is coming from good demand or looser credit terms.
Capital return disappoints
Medium impact · Medium oddsCredit improvement could support more capital return over time. The internal thesis names the $225 million share repurchase plan and any dividend increase as positive signals. If management stays cautious, the stock may not get the rerating bulls expect.
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 and much of the recent improvement.
What is the next key thing to watch for ZION?
Watch whether classified loans fall below 3.5% of total loans while nonperforming assets stay below about 0.60%. That combination would support the view that the credit cleanup is still working.