Zions Bancorporation, National Association Q4 FY2024 earnings call

• Wildfires Impact: Acknowledged devastating wildfires in Southern California, with limited residential exposure in burn zones, minimal expected losses, and programs in place to assist borrowers.
• Financial Performance: Fourth quarter net earnings $200 million ($1.34 per share), efficiency ratio 62%. Customer deposits increased, average loan growth modest. Net loan losses higher in Q4 due to a single C&I credit. Classified balances in commercial real estate increased but non-accrual loans decreased.
• Capital Markets: Strong results, maintained expense discipline despite inflationary pressure.
• Funding and Deposits: Customer deposits stable, non-interest bearing demand deposits stable. Interest-bearing liabilities repriced downward faster than earning asset yields; average short-term borrowings reduced by $1.4 billion.

Net Interest Income: Fourth quarter adjusted pre-provision net revenue increased 19% relative to the prior year quarter. Net interest margin expanded for the fourth consecutive quarter to 3.05% (compared to 3.03% prior quarter and 2.91% year ago). Customer deposits increased on both ending and average basis in Q4 and full year. Average loan growth was 1.1% linked quarter and 3.2% full year. Net loan losses in Q4 were $36 million (24 basis points annualized) with two-thirds attributable to a single commercial and industrial credit. Classified balances in commercial real estate increased by $777 million, but non-accrual loans decreased by 18%. Non-Interest Income: Customer-related non-interest income was $173 million in Q4, up 7.5% q/q and 15% y/y. Capital markets were up 36% full year compared to 2023.

• 2025 Outlook: Anticipates continued improvement in profitability measures and positive operating leverage. Net interest margin expected to continue improving, profitability to increase. Loan balances expected to slightly increase in 2025, led by commercial loans, with managed declines in mortgages and commercial real estate.
• Net Interest Income: Modeled net interest income in Q4 2025 expected 6.8% higher than Q4 2024, with outlook for 2025 moderately increasing.

• Wildfires: Limited residential exposure, but potential for minimal losses.
• Credit Quality: Commercial real estate classified balances increased, but expected losses manageable.
• Interest Rate Volatility: Impact on net interest income sensitivity, need to monitor capital including accumulated other comprehensive income (AOCI).

Q: It looks like deposit betas on a spot basis are running close to 60% already. Can you talk about how you expect that to progress from here?

A: Deposit betas have been in line with expectations, with a lag factor for different types of deposits. Anticipate in-line performance with further potential 25 basis point rate decrease in 2025.

Q: Where your CET1 ratio is including AOCI for the quarter? And is that something you need to manage to especially given the volatility that we're seeing in the long end of the curve?

A: CET1 ratio is monitored, with consideration of AOCI and uncertainty around Basel III rules; aim to grow capital to median peer levels.

Q: Do you have where your CET1 ratio is including AOCI for the quarter? And is that something you need to manage to especially given the volatility that we're seeing in the long end of the curve?

A: We are cognizant of AOCI, with $2.4 billion in AOCI losses over the past year; monitor capital levels to be at median peer levels.

Q: Just unpack a little bit more about the rate sensitivity, the model net interest income that you have from Page 13. The implied path of the 6.8% versus the 1.4% at 9/30, obviously, the difference in the Fed funds and then the big increase in the deposit beta from 58% from 36%.

A: Deposit beta assumption in line, with tighter migration assumptions from non-interest-bearing to interest-bearing deposits, benefiting net interest income sensitivity.

Q: Just any idea is that something to think about for '26? Anything you can kind of give us for timing and any expectations on how we should think about that like kind of longer term NIM outlook?

A: NIM has potential to return to mid-3% range, but timing uncertain as not managed to a specific outcome.

Q: Just on the balance sheet, some movement between liquidity and the bond portfolio in the quarter, could you help us, within your guide for NII help on just the total earning asset levels?

A: Investment securities portfolio run-off used to pay down wholesale funding; expect slight tapering of security run-off with potential loan growth to support customer needs.

Q: Any comments about inorganic growth? Obviously, regulatory world is shifting in real time. But any thoughts about -- you have the branch deal that's going to close. Any other thoughts about potential M&A?

A: Prepared for potential M&A, not actively seeking but positioned to do strategic deals that make sense, with systems conversions behind us.

Q: Can you just give us a sense for the type of business that is or was, and kind of what exactly happened there with the C&I credit charge-offs?

A: Charge-off from a long-time retail client purchased by private equity, leading to challenges for the company.

Q: Can you give us a sense for the pipeline there for customer fees, capital markets up nicely. And do you think you can kind of build off that fourth quarter number given the change in environment or do you feel like, we'll step seasonally?

A: Capital markets business has solid pipeline, with investment in infrastructure and active calling programs; expect continued progress as shoe leather pays off.

Q: This question is kind of related to the -- just obviously, the election and post-election and just the kind of the change in attitude and I see there is a big pop in energy, oil and gas growth, Slide 24, especially when you compare to the prior quarter. Just is there -- how much do you think that is -- might be election related?

A: Energy portfolio saw increase due to being a long-time player with good opportunities, with small and medium-sized business owners more optimistic.

Q: For your loan growth guide of slightly increasing, is that more half weighted in 2025 or do you expect the level of loan growth you've seen in the past couple of quarters to continue in the first half of this year?

A: Expect steady growth through the year, not strongly weighted to any particular half.

Q: Can you just provide more color on the increase in classified loans? I know you called out multifamily, industrial and office. But was that broad based across your footprint and any large credits that drove the increase this quarter?

A: Classified loans increase was granular, with $609 million from CRE, $254 million from multifamily, $242 million from industrial; due to construction delays, lease-up issues, etc., but expected to work through over time.