ZIONP

Management Statement and Operational Highlights

• Financial Progress: Earnings totaled $262 million, up 19% q/q and 31% y/y. Net interest margin expanded, and customer deposits grew at a 9% annualized rate.
• Full-Year Results: Full-year earnings grew 21%, net interest margin expanded 21 basis points, adjusted PPNR increased 12%. Tangible book value per share rose 21% for the third consecutive year >20%.
• Charitable Contribution: A $15 million donation to the charitable foundation, to be spent over 3 years.
• Deposit and Loan Trends: Customer deposits grew, funding mix improved, and loans were flat q/q but saw solid production at period-end.
• Credit Quality: Strong credit quality with low net charge-offs, low nonperforming assets, and expected decline in CRE classified balances.

Guidance

• Net Interest Income: Moderately increasing in 2026, supported by favorable earning asset and liability remix, loan/deposit growth, and 225 basis point Fed funds rate cuts in June and September 2026.
• Customer-Related Fee Income: Moderately increasing in 2026, expecting to be at the top end of the guide, led by capital markets, loan-related fees, and broad-based growth.
• Noninterest Expense: Moderately increasing in 2026, considering marketing costs, revenue-generating investments, and contractual tech costs, with expected positive operating leverage of 100-150 basis points.
• Loan Balances: Moderately increasing in 2026, led by commercial loans (C&I, owner-occupied) with commercial real estate loans also growing.
• Capital Distributions: Nearing a point to increase capital distributions while continuing to strengthen capital.

Segment Performance

• Net Interest Income: Increased by $56 million (9%) from Q4 2024 and by $11 million from prior quarter. Net interest margin expanded to 3.31% for the eighth consecutive quarter.
• Noninterest Income: Customer-related noninterest income was $177 million for the quarter, with adjusted customer-related noninterest income (excluding net CVA) at $175 million, a new record. Full-year capital markets fees (excluding net CVA) increased 25% compared to 2024.
• Noninterest Expense: Adjusted noninterest expense was $548 million, up 5% q/q and 8% y/y. Included a $15 million charitable donation.
• Loans and Deposits: Average loans were flat q/q but up 2.5% y/y, with period-end loans increasing by $615 million. Average deposits rose 2.3% q/q, noninterest-bearing deposits grew by $1.7 billion. Cost of deposits declined 11 bps to 1.56%.
• Credit Quality: Net charge-offs were 5 basis points annualized, nonperforming assets were 52 basis points of loans, and the allowance for credit losses decreased by $1 million relative to the prior quarter.

Risks

• Interest Rate Risks: Impact on asset yields, deposit costs, and funding mix, dependent on timing and speed of benchmark rate changes.
• Competition Risks: Attractive markets may attract new competitors, affecting deposit gathering and market share.
• Credit Risks: Potential for CRE classified balances to rise and C&I classified loans to fluctuate based on economic conditions.
• Regulatory Risks: Changes in regulatory requirements, including potential capital rule changes, affecting capital distributions and operations.

Question and Answer

• Q: Clarification on expense guide base.

A: R. Richards mentions stripping out the $15 million charitable contribution for the core expense base.

• Q: NII outlook for 2026.

A: R. Richards discusses balance sheet remix, securities runoff, and deposit growth as contributors to NII.

• Q: Loan growth dynamics.

A: Harris Simmons and Scott McLean discuss hiring, SBA loans, and focus on small business lending driving loan growth.

• Q: Capital return timing.

A: Harris Simmons states capital distributions are likely in 2026, second half.

• Q: Noninterest-bearing deposits.

A: Harris Simmons talks about new accounts, average balances, and focus on granular deposit growth.

• Q: CRE classified loans.

A: Scott McLean says CRE classifieds are expected to decline, with C&I classifieds broadly distributed.

• Q: Operating leverage.

A: R. Richards explains the base for operating leverage, considering revenue and expense dynamics.

• Q: M&A stance.

A: Harris Simmons says Zions is not actively seeking deals but would consider attractive ones.

• Q: Customer-related fees guide.

A: Scott McLean talks about momentum across fee product areas driving the top-end guide.

• Q: FTE and AI/tech.

A: Scott McLean discusses outsourcing, AI use, and FTE reduction through automation and technology.