2026-10-20

Zions (ZION) Charge-Offs Collapse From $56M to $3M, But Western Alliance (WAL) Trades Near a 1-Year Low Despite Beating Estimates - One Year After the Fraud Loan Scare

Written & reviewed by the TradeSmrt editorial team · 2026-10-20

In this article

What Happened
Why Two Similar Credit Recoveries Produced Opposite Stock Reactions
What to Take Away From This
FAQ
Sources

What Happened

After the close on Monday, October 19, two regional banks that once shook the entire sector reported third-quarter earnings: Zions Bancorporation (Nasdaq: ZION) and Western Alliance Bancorporation (NYSE: WAL). The timing matters because exactly one year earlier, on Thursday, October 16, 2025, these same two banks triggered a credit scare that hit regional bank stocks broadly. Back then, Zions disclosed a $50 million charge-off tied to loans its subsidiary, California Bank & Trust, had made in 2016-2017 to investment vehicles affiliated with Cantor Group, after it emerged that borrowers had transferred lien rights without authorization. Western Alliance separately said it was pursuing roughly $100 million from Cantor Group V over alleged forged collateral documents and misappropriated funds from a pledged account. Shares of Zions fell about 13% that day and Western Alliance fell about 11%, with both ranking among the biggest decliners in the KBW Bank Index as fears of a repeat of the 2023 regional banking crisis spread across the sector.

A year later, this week's numbers are the clearest evidence yet of how much of that damage has actually healed. Start with Zions. Third-quarter diluted EPS came in at $1.78, beating the $1.66 consensus estimate by about 7.2% and up 20% year over year. Revenue of $881 million landed slightly below the $889.98 million expected, but net earnings of $262 million were well above the $221 million from a year earlier. The number that stood out most was net charge-offs: just $3 million for the quarter, down from $56 million in the same quarter a year ago. That $56 million figure was the exact quarter that absorbed the brunt of the Cantor-related fraud losses, so seeing it shrink to $3 million read as confirmation that the issue is now fully worked through. Average customer deposits grew at an annualized 8.8% from the prior quarter to $74.0 billion, and management described capital markets activity as strong heading into what it expects to be a solid fourth quarter. The one soft spot was net interest margin, which slipped to 3.23%, down 4 basis points quarter over quarter and 5 basis points year over year, as deposit competition pushed up funding costs. The market rewarded the quarter modestly: shares traded up roughly 1% to around $63.88 the following session.

Western Alliance's headline numbers looked solid too. GAAP EPS of $2.45 beat the $2.43 estimate, and revenue of $1.01 billion topped the $988.23 million consensus. Net income came in at $277.2 million, and pre-provision net revenue rose 6.4% year over year to $419.1 million, with EPS growth of 7.5%. Net interest margin was actually higher than Zions' at 3.57%. Credit quality improved clearly too: nonaccrual loans fell $77 million, or about 14%, to 0.79% of funded held-for-investment loans, and the annualized net charge-off ratio eased to 0.30% from 0.37% in the second quarter. Yet the market's reaction was almost the opposite of Zions'. Financial data outlet GuruFocus headlined its coverage "Earnings Beat Expectations, Shares Trade Near 1-Year Low" - a beat that barely moved the needle. Total deposits of $81.76 billion also missed the $82.73 billion analysts expected, and the company trimmed its full-year net interest income growth guidance even as it raised its noninterest income outlook. Adding to the unease, the release disclosed a fresh $26.1 million charge-off against the specific reserve set aside for the Cantor Group V loan - a reminder, even if the reserve absorbed the hit without a new P&L shock, that the fraud story isn't entirely closed.

Why Two Similar Credit Recoveries Produced Opposite Stock Reactions

Both banks' core credit metrics point in the same direction - normalization. The divergence in how the market reacted comes down to a handful of specific differences.

First is the question of closure. Zions' $3 million charge-off figure is, by any measure, an unremarkable number - and the fact that the earnings release had nothing new to say about Cantor Group was itself the signal investors wanted: this chapter is closed. Western Alliance, by contrast, disclosed another Cantor Group V-related charge-off this quarter. The money came out of a reserve built a year ago, so it carried no fresh earnings hit, but the fact that "Cantor Group" kept appearing in the release at all told investors the matter still isn't fully behind the company. Markets tend to care less about the dollar size of a lingering issue than about whether it has a definite endpoint.

Second, deposits - arguably the better forward-looking signal for a bank - moved in opposite directions. Zions' average customer deposits grew at an annualized 8.8%, exactly the kind of growth investors want to see. Western Alliance's total deposits of $81.76 billion actually missed estimates. Deposits function as the raw material for future loan growth and interest income, so a miss there raises doubts about forward earnings power even when the backward-looking EPS and revenue beat - which is likely part of why Western Alliance also trimmed its net interest income growth guidance for the year, a tangible signal that management's own confidence in the near-term trajectory softened.

Third, the net interest margin story carried a different narrative at each bank. Zions' NIM declined, but the cause - rising deposit costs from competition for deposits - was clearly explained and came paired with actual deposit growth, which let investors read it as "paying up to grow." Western Alliance's NIM was higher in absolute terms at 3.57%, but with deposits shrinking rather than growing, investors couldn't be as confident the funding base supporting that margin was stable.

Fourth, the market's attention has simply moved on since a year ago. In October 2025, the fraud disclosure was itself the dominant market story. Today, with chip stocks just snapping an eight-session losing streak and Nasdaq futures stabilizing after last week's "Black Monday" scare, regional bank earnings are competing for attention against a much louder AI and semiconductor narrative. In that environment, only a genuinely clean, unambiguous "problem solved" quarter like Zions' is likely to draw fresh buying, while a "good but not perfect" quarter like Western Alliance's tends to get overlooked rather than punished or rewarded outright.

What to Take Away From This

A headline EPS or revenue beat doesn't guarantee a positive stock reaction. Western Alliance beat on both and still traded near a 52-week low. Deposits, guidance direction, and whether an old issue keeps resurfacing all matter just as much.
Tracking the same metric year over year is the cleanest way to gauge whether a crisis is actually resolved. Zions' net charge-offs falling from $56 million to $3 million captured both the scale of last year's shock and the scale of this year's recovery in a single number.
A charge-off drawn from an existing reserve has limited financial impact but can still carry psychological weight. Western Alliance's additional $26.1 million Cantor Group V charge-off didn't hit the P&L freshly, yet it kept investor unease alive simply by reappearing in the release.
Deposit growth direction can be a more important leading indicator than this quarter's EPS. When evaluating a bank, check whether deposits - the fuel for next quarter's loans and interest income - are growing or shrinking before anything else.
How much attention a sector is getting elsewhere in the market can shape the size of an individual stock's reaction. With chips and AI dominating headlines right now, a sector with lower relative visibility like regional banks tends to need a near-flawless quarter to move much at all.

FAQ

What exactly was the Cantor Group fraud loan episode?

In October 2025, Zions' subsidiary California Bank & Trust and Western Alliance both disclosed problems with commercial real estate loans made to investment vehicles affiliated with Cantor Group. Borrowers were accused of transferring lien rights without authorization and, in Western Alliance's case, of forging collateral documents and diverting funds from a pledged account. Zions took a $50 million charge-off, and Western Alliance sought to recover roughly $100 million from Cantor Group V. Shares of Zions and Western Alliance fell 13% and 11%, respectively, on the day of the disclosure, fueling broader fears about credit quality across regional banks.

Which bank's credit quality has recovered more clearly - Zions or Western Alliance?

By the numbers, Zions shows the cleaner recovery: net charge-offs collapsed from $56 million to $3 million year over year, with no new Cantor-related losses mentioned in the release. Western Alliance's existing loan book also improved - nonaccrual loans fell 14% and the charge-off ratio declined - but a fresh $26.1 million Cantor Group V-related charge-off this quarter left the impression that the matter isn't fully closed yet.

Does this mean regional banks as a group are now in the clear?

The credit normalization at both banks is a genuinely positive data point, but it doesn't mean risk has vanished across the regional banking sector. Net interest margin pressure from deposit competition shows up at both banks, and individual circumstances - like Western Alliance's deposit decline - still vary widely from bank to bank. For judging the sector as a whole, tracking deposits, net interest margin, and credit metrics together over several quarters is safer than reacting to any single earnings report.

Sources

This article is an original synthesis and analysis based on the reporting below, not a reproduction of the original articles. Please check the source articles directly for the most current figures.

⚠️ This article is for informational purposes only and is not investment advice. Market conditions change constantly - always verify the latest data before making investment decisions.