ZIONS BANCORPORATION, NATIONAL ASSOCIATION /UT/ Q1 FY2025 earnings call

• Acquired four branches in the Coachella Valley of California from FirstBank, adding ~$630 million in deposits and ~$420 million in loans.
• Net earnings improved y-o-y but declined q-o-q due to seasonality in share-based comp, payroll taxes, reduced headcount, and lower non-interest income at a higher tax rate, offset by reduced provision expense and preferred dividend costs.
• Net interest margin increased due to lower cost of deposits, with average cost of interest-bearing deposits down 26 bps q-o-q and 55 bps y-o-y.
• Non-interest income saw a sequential decline in customer-related fees, but the first quarter was the third best for capital markets in the company's history, with CVA income reclassified for comparability.
• CRE portfolio remained granular, well-diversified, and performed strongly with low non-accruals and delinquencies.

Net earnings for the quarter were $169 million or $1.13 per share, an 18% improvement compared to the same period last year. The net interest margin increased to 3.10% for the fifth consecutive quarter, reflecting downward repricing of deposits. Adjusted pre-provision net revenue (PPNR) was $267 million, a 10% increase from the prior year. Deposits decreased on both ending and average basis, while average loans had modest growth of 0.5% q-o-q. The CRE portfolio, representing 23% of total loans, remained strong with low non-accruals and delinquencies, with an average annual net charge-off of 1 basis point over the past five years.

• Outlook for Q1 2026: net interest income is slightly to moderately increasing, driven by lower funding costs and expected rate path.
• Customer-related fee income outlook is slightly to moderately increasing, but lower capital markets growth anticipated due to economic uncertainty.
• Adjusted non-interest expense outlook is slightly to moderately increasing.
• Expect positive operating leverage in the range of 1% to 2% for the full year.

• Economic uncertainty surrounding loan growth, unemployment, interest rates, and trade tariffs.
• Market volatility resulting from trade policy impacts, particularly on C&I loans and certain industries.
• Potential impact of tariffs on specific sectors like manufacturing, trucking, and retail, which could affect credit quality.

Q: Manan Gosalia asked about client sentiment from middle market and small business customers regarding trade tariffs.

A: Harris Simmons noted businesses are grappling with trade policy uncertainty, unsure of impact duration and depth, with potential for significant impact on many businesses.

Q: John Pancari inquired about loan growth demand and credit stability.

A: Derek Steward said C&I loan growth is slower due to uncertainty, but CRE activity is increasing; credit quality in CRE is strong with low non-accruals, and C&I portfolio is stable though watched for migration.

Q: Bernard von Gizycki asked about expense flexibility and customer-related fee income.

A: Scott McLean mentioned ongoing expense opportunities across the bank, and customer-related fees include strong contributors like treasury management, with capital markets and wealth business as growth areas.

Q: Peter Winter asked about share repurchase and capital constraints.

A: Ryan Richards stated they aim for capital adequacy, with CET1 ratio considered ex AOCI, and room to build towards peer median.

Q: Benjamin Gerlinger inquired about deposit pricing trends.

A: Ryan Richards noted deposit spot rate at March end was 1.7%, with room for further deposit pricing adjustments due to latency in turn deposit pricing.

Q: Ken Usdin asked about funding leverage and loan growth expectations.

A: Ryan Richards discussed short-term borrowing and brokered deposits, with expectation of better outcomes as deposits grow; loan growth expected to continue with some moderation in CRE depending on rates.

Q: Anthony Elian asked about loan growth pull-forward and credit exposure to tariffs.

A: Harris Simmons noted Coachella acquisition impacted period-end balances, and Derek Steward mentioned watching C&I loans in sectors like trucking and transportation with less than $500M exposure.

Q: Christopher McGratty asked about sentiment reversal and operating leverage.

A: Harris Simmons thought sentiment could change with political feedback, and Ryan Richards affirmed positive operating leverage expected in 1-2% range.

Q: Jon Arfstrom asked about second-quarter loan growth expectations.

A: Harris Simmons and Derek Steward indicated expected loan growth in Q2, with some moderation in CRE offset by new originations.