KBRA Affirms Ratings for Zions Bancorporation, N.A.

KBRA affirms the deposit and senior unsecured debt ratings of A-, the subordinated debt rating of BBB+, the preferred stock rating of BBB, and the short-term deposit and debt ratings of K2 for Salt Lake City, UT-based Zions Bancorporation, National Association (NASDAQ: ZION) (“Zions” or “the bank”). The Outlook for all long-term ratings is Stable.

Key Credit Considerations

Zions' ratings are supported by an experienced management team with deep knowledge of its core Western and Southwestern markets, where it typically maintains a solid deposit market presence. The bank’s loan portfolio is well diversified and more granular than many peers, reflecting a disciplined approach to credit risk management. In this regard, the bank employs prudent loan hold limits to manage exposure by borrower and sector, reinforcing portfolio stability through economic cycles. Zions has also been proactive in its risk grading process, and while some credit normalization has emerged recently - particularly within the multifamily portfolio - loss content remains limited. The bank’s earnings performance has historically trailed similarly rated peers, largely due to a lower-yielding loan portfolio, a less-levered balance sheet, and, more recently, some disintermediation within the deposit base. However, recent NIM expansion - driven by asset remixing and deposit stabilization - has helped bring earnings closer to historical norms (3Q24 ROA ~1%). Maintaining low credit costs will be crucial to sustaining durable earnings power, with potential tailwinds from further net interest income growth and the long-term technology investments that have streamlined operations and, in our view, set Zions apart from other regional peers.

Since 1Q23, Zions has engaged in a strategic core capital rebuild, with its CET1 ratio rising from a mid-9% trough in late 2022 to 10.7% as of 3Q24. This improvement reflects a shift toward capital conservation through limited share repurchases and a manageable dividend payout ratio to support steady growth. These efforts have also driven a 200 bp rebound in TCE (to 5.7% as of 3Q24), enhancing Zions’ ability to navigate economic and regulatory uncertainties. With share repurchases likely on hold for the near to intermediate term, core capital levels are expected to continue trending upward. Although Zions has experienced some deposit degradation in recent years, it remains primarily core deposit-funded, with noninterest-bearing deposits still above peer levels (33% of total deposits). The bank has maintained a below-peer loan-to-deposit (LTD) ratio in the upper-70% range, providing balance sheet flexibility, and has proactively increased secured borrowing capacity, which appears sufficient to meet contingent funding needs.

Today’s rating actions consider Zions’ $500 million subordinated notes issuance priced on November 14th, 2024, along with the announced redemptions of 3 series of preferred stock (aggregate outstandings of $373 million at 3Q24) and the bank’s $87.9 million of subordinated notes due September 2028.

Rating Sensitivities

Positive rating momentum could result from a continued conservative bias towards capital management, favorable through-the-cycle credit performance, and additional evidence of improved financial efficiency from substantial, multiyear technology investments. Deterioration in asset quality and operating performance beyond KBRA’s expectations, as well as unexpectedly aggressive capital management, could pressure ratings.

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Methodologies