Zions Bancorporation, National Association Q3 FY2025 earnings call

Core Earnings Momentum

• Net interest margin expanded by 11 basis points to 3.28% relative to the prior quarter.
• Customer fees, excluding net credit valuation adjustment, grew $10 million, and adjusted expenses declined $1 million, improving the efficiency ratio to 59.6%.
• Average loans and customer deposits increased by annualized 2.1% and 3.1%, respectively.

Credit Losses

• Recorded a $49 million provision for credit loss. Net charge-offs were $56 million or 37 basis points of loans annualized. An isolated legal action was initiated for recovery of ~$60 million related to 2 C&I loans, with $50 million charged off and a full reserve established for the remaining $10 million.

Financial Metrics

• Diluted earnings per share was $1.48, with a $0.06 per share negative impact from net credit valuation adjustment. Pre-provision net revenue on an adjusted basis was $352 million, up 11% QoQ and 18% YoY.

Net interest income increased by $52 million or 8% relative to the third quarter of 2024. Net interest margin expanded to 3.28%. Customer-related noninterest income was $163 million for the quarter, with adjusted customer-related noninterest income (excluding net CVA) at $174 million, a 6% increase versus the second quarter and an 8% increase versus the year ago quarter. Average loans increased by an annualized 2.1% compared to the prior quarter, and average customer deposits increased by an annualized 3.1%. The efficiency ratio improved to 59.6%.

Net Interest Income

• Outlook for net interest income in Q3 2026 is slightly to moderately increasing, supported by earning asset remix, loan and deposit growth, and fixed asset repricing.

Customer-Related Fee Income

• Outlook for customer-related fee income in Q3 2026 is moderately increasing, driven by broad-based growth and new client acquisition.

Noninterest Expense

• Outlook for adjusted noninterest expense in Q3 2026 is moderately increasing, considering increased marketing, investments in revenue-generating businesses, and technology costs.

Loan Growth

• Outlook for period-end loan balances in Q3 2026 is slightly to moderately increasing, led by commercial loans.

• Isolated legal action related to recovery of ~$60 million from guarantors of 2 C&I loans. Concerns about private credit sector growth due to rapid expansion, lack of regulation, and potential spillover risk in credit markets. Impact of economic cycles on credit quality.

Q: I wanted to start on the announcement in the 8-K. Can you talk about what gives you conviction that this is isolated?

A: This is Derek. We've reviewed the portfolio and think it's an isolated incident. We haven't found similar loans or other issues. Harris added that our credit history speaks for itself and we're reviewing with an external party to learn and improve.

Q: How much fixed rate asset repricing are you factoring into that NII guide outlook?

A: Thanks, Dave. We see the opportunity for securities remix to continue into loans. There's potential for 2 to 3 basis points on earning asset yields to play through embedded in our guidance, considering a mix of fixed and behaviorally fixed rate loans.

Q: Just on the 8-K, can you just maybe step back and give us some more color on how things unfolded?

A: This is Derek. Upon learning the fact during the quarter, we commenced review. As we described in our 8-K, we took time for analysis. Harris added it's a process where our credit team monitors collateral and loan documentation, and this was an isolated case not picked up early, leading to an external review.