Zions Bancorporation, National Association Q1 2025 Earnings Call Transcript

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April 21, 2025
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Operator

Greetings, and welcome to the Zions Bancorp Q1 twenty twenty five Earnings Conference Call. At this time, all participants are in a listen only mode. A question and answer session will follow the formal presentation. As a reminder, this conference is being recorded. It is now my pleasure to introduce Shannon Drage.

Operator

Thank you, Shannon. You may begin.

Shannon Drage
Shannon Drage
Senior Director of Investor Relations and Strategy at Zions Bancorporation

Thank you, Julian, and good evening, everyone. Welcome to our conference call to discuss the first quarter earnings for 2025. My name is Shannon Drage, Senior Director of Investor Relations. I would like to remind you that during this call, we will be making forward looking statements. Please note that actual results may differ materially.

Shannon Drage
Shannon Drage
Senior Director of Investor Relations and Strategy at Zions Bancorporation

We encourage you to review the disclaimer in the press release or Slide two of the presentation dealing with forward looking information and the presentation of non GAAP measures, which applies equally to statements made during this call. A copy of the earnings release as well as the presentation are available on zionsbancorporation.com. For our agenda today, Chairman and Chief Executive Officer, Harris Simmons, will provide opening remarks. Following Harris' comments, Ryan Richards, our Chief Financial Officer, will review our financial results. Also with us today are Scott McClain, President and Chief Operating Officer Derek Stewart, Chief Credit Officer and Chris Kuryakakis, Chief Risk Officer.

Shannon Drage
Shannon Drage
Senior Director of Investor Relations and Strategy at Zions Bancorporation

After our prepared remarks, we will hold a question and answer session. This call is scheduled for one hour. I will now turn the time over to Harris Simmons.

Harris Simmons
Harris Simmons
Chairman & CEO at Zions Bancorporation

Thanks very much, Shannon, and good evening, everyone. We are generally pleased with our fundamental performance and the financial results for the first quarter, which reflects meaningful year over year improvement. Our ratio of non performing assets to loans, leases and other real estate owned remained stable last quarter, though up somewhat from last year. Net loan charge offs remained low. Our allowance for credit losses is well aligned with the current economic outlook.

Harris Simmons
Harris Simmons
Chairman & CEO at Zions Bancorporation

We feel well positioned for what could be a period of increased economic uncertainty. I suspect that we'd all agree that prognostication about loan growth, unemployment, the path of interest rates and other drivers of performance seems especially challenging at the present moment. Consistent with our determination to build an AI enabled culture, I asked CHAT GPT for help in explaining the world we are now living in, I got this. Trump's tariffs have caused quite a fuss with markets unsure who to trust. Will prices ascend?

Harris Simmons
Harris Simmons
Chairman & CEO at Zions Bancorporation

Will trade wars extend? Or will growth just stall in the dust? That actually seemed to explain the times that we're in pretty well, I thought. In our presentation materials and the remarks that Ryan will make, we're providing an outlook for the first quarter of twenty twenty six. While the outlook guidance always comes with disclaimers about the limitations of forward looking statements, it's worth emphasizing the particular difficulty right now for us and everybody else in this industry in forecasting results a year from now.

Harris Simmons
Harris Simmons
Chairman & CEO at Zions Bancorporation

While this heightened uncertainty has led to notable market volatility, the reality is that managing risk and uncertainty is a core part of what we do and it doesn't distract from our commitment to serving our customers and improving customers' experiences with us. On that note, we are pleased to once again be recognized by Coalition Greenwich as one of the top 10 banks in the industry and garnering best bank awards in a variety of categories, including being ranked third nationally and serving middle market clients, all as measured by the results of approximately 25,000 surveys conducted across the country. During a time of increased uncertainty for businesses and consumers, we'll be paying particular attention to staying close to clients and understanding their challenges and helping them in every way we prudently can in the months ahead. We were pleased to welcome new customers to our California Bank and Trust affiliate following the acquisition of four branches in the Coachella Valley Of California from First Bank of Denver, Colorado in late March. This acquisition added approximately $630,000,000 of deposits and $420,000,000 in loans, which when added to our own existing business in that market gives us a meaningful share of what is really a very attractive market in Southern California.

Harris Simmons
Harris Simmons
Chairman & CEO at Zions Bancorporation

As pleased as we are with the new customers we're serving there, we're equally pleased with the quality of the employees who joined our team as a result of this acquisition. They're absolutely first rate and we welcome them to our team. Shifting now to financial results for the quarter. Key metrics for the quarter are presented on Slide three. Net earnings for the quarter were $169,000,000 or $1.13 per share, representing an 18% improvement compared to the same period last year.

Harris Simmons
Harris Simmons
Chairman & CEO at Zions Bancorporation

Compared to the prior quarter, earnings declined due to the seasonality in share based compensation and payroll taxes, reduced day count, a decrease in non interest income and a higher effective tax rate, which I'll discuss in a moment. This was somewhat offset by reduced provision expense and reduced preferred dividend costs. The net interest margin increased for the fifth consecutive quarter to 3.1% compared to 3.05% in the previous quarter. Improvement during the quarter reflects the downward repricing of a significant portion of both customer and brokered term deposits and continued discipline in repricing across the other deposit categories, particularly in the highest cost products. The average cost of interest bearing deposits decreased by 26 basis points compared to the previous quarter and by 55 basis points versus the year ago period.

Harris Simmons
Harris Simmons
Chairman & CEO at Zions Bancorporation

First quarter adjusted pre provision net revenue or PPNR was $267,000,000 an increase of 10% from the $242,000,000 achieved a year ago. Efficiency ratio was seasonally higher though improved over last year's period. Deposits decreased both on an ending and average basis in the first quarter including the impact of Coachella related deposits added in late March. Non interest bearing deposits remained stable at 33% of total deposits. Average loans experienced modest growth of 0.5% on a linked quarter basis.

Harris Simmons
Harris Simmons
Chairman & CEO at Zions Bancorporation

Net loan losses for the quarter were $16,000,000 or 11 basis points annualized and included an $8,000,000 charge off of a single commercial and industrial loan. There were no charge offs in the CRE portfolio and the non accrual ratio of CRE loans remained low at 43 basis points. Incidentally, over the past five years during which there have been CRE related concerns about the Amazon effect on retail properties, the impact of increased work from home on office properties and somewhat weaker performance in the multifamily segment of the industry, annual net charge offs in our $13,600,000,000 CRE portfolio have averaged a mere one basis point, which by most any measure is really outstanding performance over a five year period. Moving to Slide four, diluted earnings per share again was $1.13 compared to $1.34 in the prior period and $0.96 in the year ago period. This quarter's results include an $0.11 per share charge to income tax expense related to a required revaluation of our deferred tax assets associated with accumulated other comprehensive income, all resulting from a beneficial Utah tax law change on securities portfolio income.

Harris Simmons
Harris Simmons
Chairman & CEO at Zions Bancorporation

This one time revaluation will largely accrete back in income over the life of the related securities. The law change is beneficial because apart from the timing difference of deferred tax asset accounting treatment, the legislative change will serve to reduce the tax on investment income in future periods. Slide five provides a five quarter view of pre provision net revenue. As previously noted, on an adjusted basis, our first quarter results of $267,000,000 reflect an improvement of 10% over the prior year period. With that high level overview, I'll turn the time over to our Chief Financial Officer, Ryan Richards, for additional details related to our performance.

Harris Simmons
Harris Simmons
Chairman & CEO at Zions Bancorporation

Ryan?

Ryan Richards
Ryan Richards
CFO at Zions Bancorporation

Thank you, Harris, and good evening, everyone. Building on Harris' remarks, I will begin by deconstructing the components and drivers of pre provision net revenue. Beginning on Slide six, you will see the five quarter trend for net interest income and net interest margin. As Harris noted, the net interest margin increased for the fifth consecutive quarter. Net interest income increased by $38,000,000 relative to the first quarter of twenty twenty four and declined by $3,000,000 relative to the prior quarter, with the decrease driven by two fewer days.

Ryan Richards
Ryan Richards
CFO at Zions Bancorporation

Slide seven presents additional details on changes in the net interest margin. The linked quarter waterfall chart on the left outlines the changes in both rate and volume for key components of the net interest margin. The net interest margin expanded by five basis points sequentially due primarily to lower cost of deposits. Against the year ago quarter, the right hand chart on the slide presents a 16 basis point improvement in the margin, which also benefited from the improved cost of deposits as well as improved borrowing costs, reflecting both lower rates paid and a $570,000,000 decrease in average borrowed funds year over year. Moving to non interest income and revenue on Slide eight.

Ryan Richards
Ryan Richards
CFO at Zions Bancorporation

Customer related income was $158,000,000 for the quarter, a decrease of 10% on a linked quarter basis and 4% increase versus the year ago quarter. A reduction in capital markets fees versus the prior quarter's record performance was the primary driver for the sequential decline in customer related fee income. While down from the prior quarter, the first quarter marked the third best quarter for Capital Markets in our history. As indicated on Page three of the earnings release, effective this quarter, the Capital markets fees income statement line item includes the fair value and non hedge derivative income, also referred to as credit valuation adjustment or CVA income. This income has historically been presented in non customer related fees.

Ryan Richards
Ryan Richards
CFO at Zions Bancorporation

Prior periods have been reclassified for comparability and CVA income or loss continues to be excluded from adjusted revenues used in PPNR and the efficiency ratio calculation. The chart on the right side of this page presents both total revenue and adjusted revenue for the most recent five quarters, which were impacted by the factors previously noted for net interest income customer related fee income. Our outlook for customer related fee income for the first quarter of twenty twenty six is slightly to moderately increasing relative to the first quarter of twenty twenty five and contemplates lower capital markets growth than anticipated in the prior quarter given current economic uncertainty. Slide nine presents adjusted noninterest expense in the lighter blue bars. Adjusted expense increased by $24,000,000 versus the prior quarter to $533,000,000 This is largely attributable to first quarter seasonality related to share based compensation and payroll taxes.

Ryan Richards
Ryan Richards
CFO at Zions Bancorporation

Deposit insurance and regulatory expense also increased $5,000,000 during the quarter due in large part to increased assessments in view of classified asset balances in recent periods as well as activity in the fourth quarter of twenty twenty four. Reported GAAP expenses at $538,000,000 increased by $29,000,000 compared to the prior quarter. Our outlook for adjusted non interest expense for the quarter for the first quarter of twenty twenty six is slightly to moderately increasing relative to the first quarter of twenty twenty five. Slide 10 presents five quarter trends in our average loans and deposits. Average loans increased 0.5% over the previous quarter and 3% over the year ago period.

Ryan Richards
Ryan Richards
CFO at Zions Bancorporation

Total declined by eight basis points sequentially. Sequentially. Our outlook for period end loan balances for the first quarter of twenty twenty six is stable to slightly increasing relative to the first quarter of twenty twenty five and assumes growth will be slower in the near term as customers await clarity on impacts. Growth is expected to be led by commercial loans, offset somewhat by managed declines in mortgages and commercial real estate exposures as payoffs are expected to outpace originations. Average deposit balances are presented on the right side of the slide.

Ryan Richards
Ryan Richards
CFO at Zions Bancorporation

Relative to the prior quarter, total average deposits declined 1.9% due to seasonal outflows January. This decline was only slightly offset by the $78,000,000 impact of full quarter average deposit balances from the Coachella Valley branch acquisitions in late March that Harris alluded to earlier. Average non interest bearing deposits declined approximately $600,000,000 or 2.4 percent compared to the prior quarter. The cost of deposits declined by 17 basis points to 1.76%. On average, the rate on interest bearing deposits was 2.6% for the quarter compared to 2.87% in the prior period.

Ryan Richards
Ryan Richards
CFO at Zions Bancorporation

The interest bearing deposit spot rate at March month end was 2.54% and the total deposit spot rate was 1%. Slide 11 provides additional details on funding sources and total funding cost trends. Presented on the left are ending deposit balances, which decreased by five thirty one million dollars versus the prior quarter, including a $619,000,000 decrease in interest bearing deposits that was partially offset by an $88,000,000 increase in non interest bearing demand deposits. As noted by Harris, the four acquired Coachella Valley branches added approximately six thirty million dollars in period end deposits. On the right side, average balances for our key funding categories are shown along with the total funding cost.

Ryan Richards
Ryan Richards
CFO at Zions Bancorporation

As seen on this chart, our total funding cost declined by 11 basis points during the quarter and include the full quarter impact of the fourth quarter subordinated note issuance of last year, which increased quarterly debt expense, but was more than offset in earnings by the reduction in preferred dividends. Moving to Slide 12, Our investment portfolio exists primarily to be a storehouse of funds to absorb customer driven balance sheet changes, allowing for deep liquidity through the repo market. Here, we present our securities and money market investment portfolios over the last five quarters. Maturities, principal amortization and prepayment related cash flows from our securities portfolio were $743,000,000 in the quarter or $265,000,000 when considered net of reinvestment. The pay down and reinvestment of lower yielding securities continues to contribute to the favorable remix of our earning assets, as well as a means to manage down our wholesale funding costs.

Ryan Richards
Ryan Richards
CFO at Zions Bancorporation

The duration of our investment securities portfolio, which is a measure of price sensitivity to changes in interest rates, is estimated at four years. While we have provided standard parallel interest rate shock sensitivity measures on Slide 28 in the appendix of this presentation, we present on Slide 13 our view of net interest income sensitivity, assuming rates follow the implied path as of March 31, which assumes the Fed funds target reaches 3.75% by the first quarter of twenty twenty six. As expectations on the rate path continue to evolve, we have brought back our more dynamic view of latent As a reminder, this slide presents a model view of rate sensitivity based on static balance sheet assumptions, while allowing for some additional migration of non interest bearing deposits into higher cost time deposits. This view does not include expected balance sheet changes, pricing strategies and other strategic opportunities that will be included in the net interest income guidance. With those assumptions in mind, the latent sensitivity is estimated to be 8.9%, which assumes no future rate cuts, but reflects the net interest income path based on pass rate movements that have not yet been fully realized in revenues.

Ryan Richards
Ryan Richards
CFO at Zions Bancorporation

When combined with the emergent sensitivity, which includes the incremental impact of the future rate changes included in the forward curve, the implied net interest income in the first quarter of twenty twenty six is modeled to be two point excuse me, 4.6% higher when compared to the first quarter of twenty twenty five. We also provide 100 basis point shocks to the rates implied by the 4PAS, which suggests a sensitivity range between 2.16.6%. Our outlook for net interest income for the first quarter of twenty twenty six is slightly to moderately increasing relative to the first quarter of twenty twenty five.

Ryan Richards
Ryan Richards
CFO at Zions Bancorporation

The

Ryan Richards
Ryan Richards
CFO at Zions Bancorporation

sensitivity associated with this guidance includes risks and opportunities, including realized loan growth, competitions for deposits and depositor behavior, the path of interest rates across the yield curve and the unknown future impacts of the imposition of tariffs and resulting market volatility. We begin our discussion of credit quality on Slide 14. Realized losses in the portfolio continue to be very manageable at $16,000,000 this quarter or 11 basis points annualized. We continue to benefit from significant borrower equity, strong sponsor support and continued operating cash flows. Non performing assets and classified loan balances increased quarter over quarter by $9,000,000 and $21,000,000 respectively.

Ryan Richards
Ryan Richards
CFO at Zions Bancorporation

The allowance for credit losses was relatively stable versus prior quarters at 1.24% and the loan loss allowance coverage with respect to non accrual loans was two twenty We are well reserved for our portfolio and our ACL reflects our expectation of tariffs and their effects as of quarter end. Slide 15 provides an overview of the $13,600,000,000 CRE portfolio, which represents 23% of total loan balances. Notably, this portfolio continues to be in low levels of non accruals and delinquencies. The portfolio is granular and well diversified by property type and location, with its growth carefully managed for over a decade through disciplined concentration limits. Slide 16 provides a detailed view of the problem loans in our CRE portfolio.

Ryan Richards
Ryan Richards
CFO at Zions Bancorporation

The chart on the right hand side provides a breakout of which sub portfolios drove changes in criticized and classified assets during the quarter. Of the $21,000,000 increase in total classified loans, 26,000,000 was driven by commercial real estate, primarily industrial and office credits, offset by improvement in multifamily classified balances as a result of full repayments on several credits. The chart on the bottom left hand side of the slide reflects the LTV distribution of classified CRE loans, with more than two thirds of those classified loans having LTVs less than 60% when examined by either recent appraisal or index adjusted values. Overall, we continue to expect the CRE portfolio to perform well with limited losses based on the current economic outlook, the type of problems being experienced by borrowers, relatively low loan to value ratios and continued sponsor support. Our loss absorbing capital is shown on Slide 17.

Ryan Richards
Ryan Richards
CFO at Zions Bancorporation

Common equity Tier one ratio this quarter was 10.8%. This when combined with the allowance for credit losses compares well to our risk profile as reflected in top quartile performance of loan losses. We expect our common equity from both a regulatory and GAAP perspective to increase organically through earnings and that AOCI improvement will continue through unrealized loss accretion in the securities portfolio as individual securities pay down mature as shown on Slide 22 of the appendix. Slide 18 summarizes our financial outlook for the first quarter of twenty twenty as compared to the first quarter of twenty twenty five. As Harris mentioned in his opening remarks, while there is always a degree of imprecision in our outlook, there is more than the usual level of uncertainty as we, along with all of you, await clarity around trade policy and tariff outcomes with attendant impacts on the economy.

Ryan Richards
Ryan Richards
CFO at Zions Bancorporation

Our outlook includes somewhat wider ranges as a result and represent our best estimate of financial performance based on current information. We continue to expect positive operating leverage and improved efficiency as revenue growth outpaces expense pressures.

Shannon Drage
Shannon Drage
Senior Director of Investor Relations and Strategy at Zions Bancorporation

This concludes our prepared remarks. As we move to the question and answer section of the call, we request that you limit your questions to one primary and one follow-up question to enable other participants to ask questions. Julian, will you please open the line for questions?

Operator

Absolutely. Thank you. We will be conducting a question and answer session. Session. And our first question comes from Manan Gosalia with Morgan Stanley.

Operator

Please proceed with your question.

Manan Gosalia
Manan Gosalia
Analyst at Morgan Stanley

Hi, good afternoon. Aris, I totally hear you on the opening, Liberic. It is fairly difficult to prognosticate here. But I was hoping you could give us some more color on what you're hearing on the ground from clients. What are you seeing from middle market and small business customers over the past few weeks in terms of sentiment?

Harris Simmons
Harris Simmons
Chairman & CEO at Zions Bancorporation

Yes, thanks. I think it's still I think we've got a lot of businesses in this country that are kind of trying to grapple with really what this is going to mean, it's grand kind of negotiation I think that the administration is trying to conduct. Question as to how far they'll actually allow the economy to get into the ditch before they start to perhaps pull back. I was talking to one owner of a business recently, he noted that most all of their manufacturing is done in China and Vietnam. Said the only silver lining is all of competitors are in the same boat.

Harris Simmons
Harris Simmons
Chairman & CEO at Zions Bancorporation

And so I think that's I think it's really hard to gauge how long, how deep the impact could be. But if this goes on for a prolonged period, I personally think it's going to be has the potential to be reasonably impactful and really tough for a lot of businesses, small business and large businesses. I don't think it's going to distinguish between the size of the business. It's really all about where their inputs are coming from. And we've moved so much of our manufacturing base to other places in particular Asia in the last twenty or thirty years that the idea that you can bring that back quickly is kind of far fetched in my mind.

Harris Simmons
Harris Simmons
Chairman & CEO at Zions Bancorporation

So I think it's still early to know. I think the equity markets are certainly reflecting a lot of concern about it and that would extend to smaller businesses as well. I think it's going to have an impact on their willingness to build inventories to not knowing kind of what the price point is that consumers are going to be willing to buy product that where their costs are increasing pretty significantly and where you could see increased unemployment as a byproduct of all of this. So anyway, I think we're signaling in every way possible, but I just don't know that anybody can credibly say that they understand what the impact is going to be. We haven't really been here before.

Harris Simmons
Harris Simmons
Chairman & CEO at Zions Bancorporation

Some people like this to the Smoot Hawley tariffs 1930. My belief is it's a really poor analogy because the world was much less interconnected in 1930 than it is today. And so I don't think we have any history that gives us much of a guide personally. So that's my own take on it.

Manan Gosalia
Manan Gosalia
Analyst at Morgan Stanley

I appreciate that. Maybe as follow-up to that, in terms of your net interest income guide is slightly to moderately increasing, how much of that risk is baked in? And can you frame the risk around that NII guide? And how much is already locked in? And how much do you need loan growth to pick up in order to achieve that?

Harris Simmons
Harris Simmons
Chairman & CEO at Zions Bancorporation

Yes. Mean, that's where we provide a slide there, and Ryan spoke to this latent and emergent kind of rate sensitivity. So we think a reasonable amount of it is baked in and reflected in the yield curve. And so our outlook is largely predicated on that. On loan growth, it's maybe likely to be kind of tepid this year.

Harris Simmons
Harris Simmons
Chairman & CEO at Zions Bancorporation

I think if you'd asked us three months ago, we just said we thought it was going to be a pretty good year in terms of loan growth. We're all talking about animal spirits and everything else. A lot of those animals are going into the caves kind of hibernating, waiting to see what happens with trade policy, I think. I just think it's a tough time for businesses to be making long term decisions, investment decisions about the businesses in the absence of understanding kind of where all this policy is going to take us.

Operator

Thank you. And our next question comes from John Pancari with Evercore ISI. Please proceed with your question.

John Pancari
Senior Managing Director & Senior Research Analyst at Evercore ISI

Good afternoon. I wanted to see if you can give us a little bit more color on loan growth, what you're seeing in terms of demand? Are you seeing any weakening in the pipelines, any erosion in the pipeline, just given the uncertainty that you discussed? Are you seeing some any areas of strength at all? And I know you kind of just alluded to it, but what do you think brings back some of the appetite to draw down here?

Harris Simmons
Harris Simmons
Chairman & CEO at Zions Bancorporation

I'm going to ask our Chief Credit Officer, Derek Stewart, to also maybe why don't you offer a couple of thoughts on that?

Derek Steward
Derek Steward
Executive VP & Chief Credit Officer at Zions Bancorporation

Okay.

Derek Steward
Derek Steward
Executive VP & Chief Credit Officer at Zions Bancorporation

Well, as Sarah has indicated, think the borrowers just basically with the uncertainty that's occurring on the C and I side, it's certainly it's been slower as they're looking for just which way things are going to go for the year. I think there's a lot of people that are willing to invest and want to grow. On the CRE side, we're actually seeing increased activity. That's an area that actually is coming back. Interest rates certainly will play a bearing there over the year.

Derek Steward
Derek Steward
Executive VP & Chief Credit Officer at Zions Bancorporation

But that's what we're seeing so far.

John Pancari
Senior Managing Director & Senior Research Analyst at Evercore ISI

Okay. All right. Thank you. And then separately, actually on credit, it's good to see stability in the classified assets after they increase for a few quarters in a row there. But we did see the thirty to eighty nine day past dues increase pretty sharply.

John Pancari
Senior Managing Director & Senior Research Analyst at Evercore ISI

Can you give us just a little bit of an update what drove that? And what are you seeing on the credit front? Any signs of incremental weakening in C and I credit to take note and maybe discuss your confidence in the adequacy of the reserve here? Thanks.

Derek Steward
Derek Steward
Executive VP & Chief Credit Officer at Zions Bancorporation

Well, let me start with the reserve. We're very comfortable with the reserve and where we establish that. And correct, we're happy to see the stabilization in the CRE classifieds and hope that assuming the economy holds that will continue to improve throughout the year. As far as C and I, it's holding up. It's stable.

Derek Steward
Derek Steward
Executive VP & Chief Credit Officer at Zions Bancorporation

We've migration here and there into more into criticized than classified. It's something certainly that we're watching for over the coming months. But nothing has jumped out there regarding an industry or trends that we've identified within C and I book.

Harris Simmons
Harris Simmons
Chairman & CEO at Zions Bancorporation

I might just add on the thirty to eighty nine days past due, I mean it's increased $57,000,000 to $105,000,000 It's bounced around 114 back in June. So you can have kind of a single deal that might create that kind of change. I think the most I'll just tell you how I think about we've had a run up in classifieds. That's fundamentally due in large part due to projects, particularly commercial real estate, which is roughly two thirds of the total classified number, which haven't performed according to their original projections, but which have a lot of underlying strength in terms of the equity, the sponsorship, etcetera. And if you look at the non accrual number for commercial real estate, it's $57,500,000 which is about 3% of the classified number of to $1,700,000,000 And the non accrual number is, I mean, that is a very small handful of deals where we actually think we probably got some loss that could be experienced.

Harris Simmons
Harris Simmons
Chairman & CEO at Zions Bancorporation

By definition, we stop accruing interest if we think we're not going to get our interest and principal back. So I would when I think about how well I sleep, it's I focus a lot more on the non accrual number than I do from the classified number. I think it's become much less meaningful as some of the guidance and policy regulatory policies changed around that metric. But that's why you see this continued really strong performance, no charge offs this quarter, like I said, single basis point on average over the last five years. And so we think that that portfolio is very strong.

Harris Simmons
Harris Simmons
Chairman & CEO at Zions Bancorporation

I think, Derek, you'd probably agree that if we have concerns, it's probably more around C and I and kind of and then particularly given the impacts of trade policy.

Derek Steward
Derek Steward
Executive VP & Chief Credit Officer at Zions Bancorporation

Exactly. Yes. C and I portfolio is what I would be concerned with versus the portfolio. CRE portfolio really you see also in the change in the classifieds, the multifamily is actually performing and starting to reduce. I would expect that to continue to reduce with the lease up that's occurring.

Derek Steward
Derek Steward
Executive VP & Chief Credit Officer at Zions Bancorporation

We've seen a little increase in industrial and office just as leasing in the industrial book is taking a little longer. Pretty much the same story as multifamily over the last several quarters. Expect over time that those will get leased up and start reducing as well.

Operator

Thank you. And our next question comes from Bernard Von Gieszczyk with Deutsche Bank. Please proceed with your question.

Bernard Von Gizycki
Bernard Von Gizycki
Equity Research Analyst at Deutsche Bank

Yes. Hi. Good afternoon. Just wanted to follow-up. If revenue environment comes in weaker than expected, are there any expenses that can be pulled back or investments slowed to kind of right size the expense base to maintain that positive OpEx outlook?

Harris Simmons
Harris Simmons
Chairman & CEO at Zions Bancorporation

Well, absolutely we'll be working at that. Mean, we've been pulling a lot of levers. Our headcount is down about it's down roughly 3% or something like that from last year. And so that's something we're always working at. So the answer is yes.

Harris Simmons
Harris Simmons
Chairman & CEO at Zions Bancorporation

It will be a real focus if revenues drift down. But at the same time, I think we're pretty determined to run this place for the long run. We want to be careful that we're not cutting in places that actually create further problems in terms of growth as we come recover from this uncertainty, etcetera. We've noted, for example, we said in prior quarters that we expect to ramp up some marketing spend. I think that becomes actually times like these are some of the best times to actually bring new business on.

Harris Simmons
Harris Simmons
Chairman & CEO at Zions Bancorporation

I mean, when there's uncertainty, we're going to have a real focus on keeping our people close to customers through all of this. And I think that's going to help protect the downside in terms of growth. But also, just an opportunity as others tighten. I think we've had the benefit of really good credit quality. And my hope and expectation is that, that will place us in a really good place to be able to bring business on that others might be trying to back out of.

Harris Simmons
Harris Simmons
Chairman & CEO at Zions Bancorporation

We're not going to do it foolishly. We're not going to take on problems. But we are going to stay focused on continuing to build the business through all of this.

Scott McLean
Scott McLean
President and COO at Zions Bancorporation

I would just add to that, this is

Scott McLean
Scott McLean
President and COO at Zions Bancorporation

Scott McClain

Scott McLean
Scott McLean
President and COO at Zions Bancorporation

that as we've said for years rarely has there been one or two key expense initiatives. There's just this portfolio of opportunities that exist in a company our size and particularly a company that is still pretty much evolved from our legacy highly customized approach to processes in each of our seven affiliates. We've come a long way there. But there's still a good bit of ways to go in every part of the bank. And so again, we without calling it a process or a program, we at any point in time we've got a couple of dozen to 30 active expense opportunities that we're pursuing, none of which by themselves cause one to just go wow, but collectively it allows us to dampen the expense growth.

Bernard Von Gizycki
Bernard Von Gizycki
Equity Research Analyst at Deutsche Bank

I appreciate that. Maybe just a follow-up on the customer related fee income. Obviously, the cap market seems to be the biggest swing on the outlook given the recent uncertainty versus last quarter. Seems to be maybe kind of an outsized contributor. Just maybe on the other parts in customer fee income, can you just walk through any expectations there?

Bernard Von Gizycki
Bernard Von Gizycki
Equity Research Analyst at Deutsche Bank

Anything to be mindful of whether it's a little bit lower or better?

Scott McLean
Scott McLean
President and COO at Zions Bancorporation

Yes, certainly. This is Scott. So our customer fees were about $160,000,000 in the first quarter. And yes, that was down from $171,000,000 But if you look at the four or five quarters leading up to that, we had been sort of in the 150,000,000 to $155,000,000 range. So $160,000,000 compared to the last five quarters or so prior to that fourth quarter, '1 hundred and '60 million is a good number.

Scott McLean
Scott McLean
President and COO at Zions Bancorporation

And I think that the capital markets run rate consistently is probably more in the range of what we did for the first quarter this year. And we certainly hope we have some nice positive spikes. But so at 160,000,000 it's a good solid number. The other major components, capital markets is about 120,000,000 it's $110,000,000 1 hundred and 20 million dollars ish of our total customer fees of $135,000,000 I'm sorry, $635,000,000. Treasury management is the largest contributor to that's the basic operating services we provide to companies.

Scott McLean
Scott McLean
President and COO at Zions Bancorporation

That is the largest contributor at about $190,000,000 So it's a workhorse for us. And we're actually seeing some stabilization in our retail and business service charges as well as card. Card is about $100,000,000 revenue business for us. And we think the first quarter didn't show a lot of growth in our mortgage related fees, but the way we've transitioned that business to more of a held for sale business, it will be more fee oriented and less loans that we keep on our balance sheet. And so we think we didn't fully see the growth in that that we expect to see going forward.

Scott McLean
Scott McLean
President and COO at Zions Bancorporation

And then our wealth business, we've talked about a good bit, is definitely a growth business for us. It's about a $60,000,000 revenue business a year. And we think we're in a real nice inflection point there. So those are some of the relative sizes, but we most of our fee income groups to see mid single digit growth would not be inconsistent with what we've done for the last ten or twelve years and with kind of a special opportunity with capital markets, wealth and maybe on the mortgage fee side in the coming months.

Ryan Richards
Ryan Richards
CFO at Zions Bancorporation

And keeping an eye on the performance of the financial markets and what bearing that has on our wealth business for this year is another area that we're watching.

Operator

And

Operator

our next question comes from Peter Winter with D. A. Davidson.

Peter J. Winter
Managing Director & Senior Research Analyst at D.A. Davidson

You

Peter J. Winter
Managing Director & Senior Research Analyst at D.A. Davidson

guys in February announced a $40,000,000 share repurchase for the year. But I was just wondering, the pressure in the stock prices, is there any thought of upsizing that buyback? And aside from the focus on organic growth, kind of what is the binding constraint not to be more aggressive with buybacks? Is it CET1 inclusive of AOCI?

Ryan Richards
Ryan Richards
CFO at Zions Bancorporation

Yes. Thank you, Peter. I think you said that right. We now had a pattern here at least coming into this year, falling from last year of trying to sort of normalize for the share based compensation payments that tend to go out in the first quarter of the year and trying to neutralize that in terms of its impact. But in terms of how we think about capital more broadly, not knowing exactly what comes from here on the regulatory side, but I think understanding more acutely how the market sort of views banks, it tends to be more on an ex AOCI perspective.

Ryan Richards
Ryan Richards
CFO at Zions Bancorporation

And so when we adjust our CET1 ratio with that ex AOCI, we still think there's room to build to kind of get back to where we want to be around peer median or better.

Peter J. Winter
Managing Director & Senior Research Analyst at D.A. Davidson

Okay. Thanks, Ryan. And then if I could just ask also just with regards to the rolling twelve month guidance, not to get nitpicky, but you just remind us what the percentage ranges would be in terms of slightly increasing, model increasing, etcetera, just fully realizing there's a lot of uncertainty, just what those nuances are?

Harris Simmons
Harris Simmons
Chairman & CEO at Zions Bancorporation

We would if we knew. Don't it's truly we don't have actually a even internally hard and fast rule for the definitions for those terms. Think they reflect kind of qualitatively how we're thinking about things.

Ryan Richards
Ryan Richards
CFO at Zions Bancorporation

Is that what you I think that's right. Think some of the expressions we might use for slightly would be like low single digits, moderately being mid single digits. But the balance of that, Eris, you're right, depends on the amount of uncertainty that's in the environment at the time and how wide those balance hit.

Operator

All

Operator

right. And our next question comes from Ben Gerlinger with Citi. Please proceed with your question.

Ben Gerlinger
Ben Gerlinger
Vice President of Equity Research at Citigroup

Hey, guys. I appreciate the time. I apologize if this is a duplicate because I lost connection in there for a minute. But when you think about deposit pricing, overall, 4Q going into 1Q, pricing trends have been pretty strong or in your favor, I guess, you could say. I was curious if you can shed any more color on either March margin or any March pricing itself?

Ben Gerlinger
Ben Gerlinger
Vice President of Equity Research at Citigroup

Just trying to think about how we should think about 2Q starting off point.

Ryan Richards
Ryan Richards
CFO at Zions Bancorporation

Yes. Listen, I thank you for the observation. And I think so far through the cycle, we've seen the kind of response in deposit pricing that I think we would have signaled and hoped for. I shared in my prepared remarks a spot rate for the March and that's probably about as far as we've gone in terms of what we've offered up for a point in time and how we're doing outside of our broader one year forward guidance. But that spot rate was 1.7%, if you didn't catch it in my prepared remarks.

Ben Gerlinger
Ben Gerlinger
Vice President of Equity Research at Citigroup

Got you. Okay. That's helpful. And then from looking at deposit pricing trends in general, do you think you could lower them further from here without cuts? Let's say the Fed is entirely on hold or is it more so dependent upon kind of action of

Ben Gerlinger
Ben Gerlinger
Vice President of Equity Research at Citigroup

the Fed itself?

Ryan Richards
Ryan Richards
CFO at Zions Bancorporation

Yes, another excellent question. We do believe that there is a bit more room there because of the latency and the pricing down of term deposits that hasn't played all the way through. So even without additional rate cuts, we believe that there is still a little bit of room for maneuver. But there is a practical limit of course as you know that we want to maximize the experience for our clients outside of rate paid and make sure that we meet them wherever they need us to be and that we're competitive on the rate paid and historically we've done really well on that front.

Operator

Our next question comes from Ken Usdin with Autonomous Research. Please proceed with your question.

Ken Usdin
Senior Research Analyst at Autonomous Research

One follow-up on the liability side. You still have a bunch of FHLBs and looks like brokered I think you still have some brokered inside time and then the other borrowings. How much leeway and leverage do you still have also to reduce funding on the lower right side of the balance sheet, especially if loan growth doesn't pan out as hoped?

Ryan Richards
Ryan Richards
CFO at Zions Bancorporation

Yes. Thanks, Ken. I mean, we sort of think of that short term borrowing and the brokered all kind of one big unit, hopefully not too big. We'd like to have that shrinking over time. As you know, it's just so beholden to what we see in the depository reaction and the price function and how successful we are in growing that base.

Ryan Richards
Ryan Richards
CFO at Zions Bancorporation

So we haven't spent it's really, really hard to predict. So we haven't spent a lot of time giving guidance on that dimension. But we sort of roll it all up into our overall NII outcome and while allowing for that $1,700,000,000 of migration from non Experian to time deposits, but not knowing exactly what that looks like and how we can defray those short term borrowings together with broker CDs. And also with the pattern we have in the paydown of our investment securities portfolio, having about one half of that or more that rolls out based on those growth cash flows that are not reinvested. So there's a lot of puts and takes in that that makes it really, really hard to kind of predict the future on that one element.

Ryan Richards
Ryan Richards
CFO at Zions Bancorporation

But as you saw, we have had some success here recently in bringing down those brokered CDs a little bit and there has been some work done by our treasury team of trying to change the pattern. There has been a little bit of lumpiness in maturities that we have been trying to stage out and make it more ratable through the course of a quarter. So as we continue to work that down and with deposit growth, we expect to have better outcomes there.

Ken Usdin
Senior Research Analyst at Autonomous Research

Okay. And follow-up on, you talked about the managed declines in CRE and mortgage and the loan balance outlook, but I've noticed that those two categories have actually continued to grow. So can you just kind of walk us through what's going to change and when in terms of like, is it a retention thing? Or is it you're going to slow originations and those two

Harris Simmons
Harris Simmons
Chairman & CEO at Zions Bancorporation

Yes, it kind of cut off. Me just start. On the one to four family, one of the reasons that's continued to grow is construction loans funding up into term loans under a program that we call it the one time close program that we've had with customers. That's kind of approaching a point where we would expect that that starts to not play the kind of role it's played in the past. I think CRE, maybe speak to the CRE piece.

Derek Steward
Derek Steward
Executive VP & Chief Credit Officer at Zions Bancorporation

Yes, exactly. On the CRE, I mean, as we continue to work with our customers on some of the classifieds, I mean, depending on where the interest rates go, one avenue is refinanced. So we do expect some to refinance out, some to sell properties as well. A lot of the CRE actually started as construction loans and that's why you see it growing. These are construction loans funding up that would reduce originations.

Derek Steward
Derek Steward
Executive VP & Chief Credit Officer at Zions Bancorporation

I wouldn't expect to backfill all of that. And so you'll just see depending on where rates go, you may see some decline in the real estate, commercial real estate.

Ryan Richards
Ryan Richards
CFO at Zions Bancorporation

And for what it's worth of the loan growth that Harris noted in his remarks that were attributable to the FirstBank acquisition, the majority of those loans that we acquired were one to four family resi. So that's what was happening in the most recent period that was probably driving some of that.

Operator

You. And our next question comes from Anthony Elin with JPMorgan. Please proceed with your

Anthony Elian
Anthony Elian
Equity Research Analyst at JP Morgan

One on loan growth. Was any growth in the quarter you saw due to a pull forward late in 1Q, particularly if I noticed that period end balances were a few million few hundred million dollars higher than the average number?

Ryan Richards
Ryan Richards
CFO at Zions Bancorporation

Yes. I think that's what you're seeing there is that at the very March or towards the very March is when we executed officially closed on the Coachella four branch acquisitions, which brought up our spot for period end that would not as there wasn't pretty much in the average for the quarter. I think that's what you're seeing in the numbers.

Anthony Elian
Anthony Elian
Equity Research Analyst at JP Morgan

Okay. And then my follow-up on credit quality. Could you talk more about any loan portfolios or specific borrowers you're watching now that may have outsized exposure to tariffs, supply chain? And maybe if you can size them up for us.

Derek Steward
Derek Steward
Executive VP & Chief Credit Officer at Zions Bancorporation

Well,

Derek Steward
Derek Steward
Executive VP & Chief Credit Officer at Zions Bancorporation

we're watching the ones that you be concerned with tariffs on things manufacturing, machinery and equipment, trucking and transportation, consumer products and retail, sizing all that up. Not sure the exact amount of all of those components. I think the one that we're watching closest is trucking and transportation. Trucking book would be less than $500,000,000 but it's an area that we're watching. Those are the segments that we're focused on primarily today.

Operator

Thank you. And our next question comes from

Christopher Mcgratty
MD & Head of U.S. Bank Research at Keefe, Bruyette & Woods (KBW)

Harris, your comments about the animal spirits reversing. I'm interested in your thoughts. Is the damage done for the year, meaning the sentiment has turned so negative that businesses are kind of penciled down for the remainder? Or can this if we're having this conversation in three months, could this be significantly a better tone in terms of optimism?

Harris Simmons
Harris Simmons
Chairman & CEO at Zions Bancorporation

I think things can change. Listen, just my own opinion, it's kind of the question is kind of how to what extent you have an administration that's been itself into a corner with what they're trying to do with trade policy. Part of my thesis is that you're actually going to see a lot of pressure from the Congress, from Republicans in the Congress who have to be thinking about the midterms and what this all looks like, the impact of what's happening today on what the world looks like for them a year from now. And was at lunch today with a member of Congress who was Republican, was clearly very, very fun center and at least to his mind, I think that's probably true of a whole bunch of them. And so how this plays out, I think it's going to be fascinating.

Harris Simmons
Harris Simmons
Chairman & CEO at Zions Bancorporation

I don't know how it's going to play out, but I don't think it's too late to if the one thing that Donald Trump is pretty good at is pivoting and he's so I'd like to think it could change. And as they get more feedback from the markets, from constituents, members of Congress, etcetera, I wouldn't think this is necessarily a foregone conclusion. That's why one of the reasons I think that it's so hard to predict what happens a year from now.

Christopher Mcgratty
MD & Head of U.S. Bank Research at Keefe, Bruyette & Woods (KBW)

Okay.

Christopher Mcgratty
MD & Head of U.S. Bank Research at Keefe, Bruyette & Woods (KBW)

Thank you. And then I guess my follow-up is just more of a clarification on the operating leverage, full year operating leverage. I guess, was there a recommitment to full year operating leverage that I heard in your prepared remarks regardless of the revenue environment?

Ryan Richards
Ryan Richards
CFO at Zions Bancorporation

Yes, thank you for that. I'm sorry if I wasn't clear. Yes, in terms of how we talk about, of course, I think folks here are familiar with our approach of going one year's quarter forward. And on that basis, yes, I did affirm right now that our expectation is positive operating leverage. We expect it to be somewhere in the 1% to 2% range based upon what we're seeing right now.

Operator

And great. Then our next question comes from Jon Arfstrom with RBC Capital Markets.

Jon Arfstrom
Jon Arfstrom
Managing Director - Associate Director of US Research at RBC Capital Markets

Just

Jon Arfstrom
Jon Arfstrom
Managing Director - Associate Director of US Research at RBC Capital Markets

back on loans. We've talked about it a lot during the call, but do you expect to grow loans in the second quarter? Or is the evidence piling up to the point where you expect to pull back in balances?

Harris Simmons
Harris Simmons
Chairman & CEO at Zions Bancorporation

Yes, I think we expect to see some loan growth in the second quarter. And again, haven't seen it's not like we've seen kind of a whiplash pullback. We just least the kind of deals I see coming through the pipeline, looks like things are still there's still a lot of business being done.

Derek Steward
Derek Steward
Executive VP & Chief Credit Officer at Zions Bancorporation

Yes. This is Derek here. I would expect that we'll continue to grow loans even through this.

Jon Arfstrom
Jon Arfstrom
Managing Director - Associate Director of US Research at RBC Capital Markets

Yes, that's helpful.

Derek Steward
Derek Steward
Executive VP & Chief Credit Officer at Zions Bancorporation

Even with

Derek Steward
Derek Steward
Executive VP & Chief Credit Officer at Zions Bancorporation

the discussion that I had on CRE potentially reducing depending on where rates go, I think some of that could be offset as we continue new originations.

Scott McLean
Scott McLean
President and COO at Zions Bancorporation

Don, I think if you just look back over the last four or five quarters and we've been growing at about the same kind of year over year growth rate, same kind of linked quarter growth rate. And it's not robust growth, but it's growth. And so I think what we're saying is, yes, we probably can continue that kind of moderate growth that's sort of going on. It's very different than the five or six quarters that preceded all that where we had some of the largest quarters of loan growth in our history.

Jon Arfstrom
Jon Arfstrom
Managing Director - Associate Director of US Research at RBC Capital Markets

Okay. Yes, that's helpful. We just kind of myopically focused on the negative and I just wanted to clarify that. Harris, have you seen anything in terms of the regulatory outlook or maybe changes that have happened already that would benefit Zions? I'm thinking about category four, maybe that could be eased.

Jon Arfstrom
Jon Arfstrom
Managing Director - Associate Director of US Research at RBC Capital Markets

Just curious where your head's at in terms of the regulatory outlook and what may have happened already?

Harris Simmons
Harris Simmons
Chairman & CEO at Zions Bancorporation

Yes. I mean, I'd start by saying, as we said previously, the whole $100,000,000,000 threshold category for kind of thing really has not been keeping us awake at night. We built so much of machinery for that back post Dodd Frank before the 2018 legislation that we've maintained it, still use it, etcetera. And I think we're in reasonably good shape whatever happens. But Al, I do think that I mean, I'm quite encouraged by what I'm seeing in terms of this administration's selection so far for to run these agencies.

Harris Simmons
Harris Simmons
Chairman & CEO at Zions Bancorporation

And if you read what Mickey Bowman said, that will set a lot of the tone for it. I mean, clearly, they're going to focus on kind of tapering. You go talk to French Hill, Chair of the House Financial Service Committee, he's very focused on making sure that we just that we're not that we don't suffocate this industry. And then Scott Besson has indicated he's going to take play a stronger role in policy making for the financial sector and he's clearly concerned that we don't suffocate the banking industry. I think he's concerned about how much gone into private credit.

Harris Simmons
Harris Simmons
Chairman & CEO at Zions Bancorporation

He would say that doesn't think that's a problem per se except that it probably is indicative of the fact that we've tightened the screws on banking in a way that's maybe gone beyond point of being productive. And so I think it's going to be a much more sort of thoughtful let's make sure to focus on basics, less focus on things politically correct or not. I'd say, I mean, the focus that was being shown, climate change, we just don't see it in our portfolio. We've been through some severe events in our history, Hurricane Harvey, droughts and wildfires and it doesn't show up in loan losses. So let's not spend a lot of energy on stuff that just doesn't matter.

Harris Simmons
Harris Simmons
Chairman & CEO at Zions Bancorporation

And let's get better at the things that do. I think that's the kind of regulations we're going to see out of this administration. And I think that's a welcome thing. I don't think anybody is looking for weak regulation. We're looking for sensible regulation that's focused on real risk.

Harris Simmons
Harris Simmons
Chairman & CEO at Zions Bancorporation

And that's where I think they'll be and that's where we'd be comfortable having them.

Operator

Thank you. And with that, there are no further questions at this time. I would like to turn the floor back to Shannon Dray for closing remarks.

Shannon Drage
Shannon Drage
Senior Director of Investor Relations and Strategy at Zions Bancorporation

Thank you, Julian, and thank you all for joining us today. We appreciate your interest in Zions Bank Corporation. If you have additional questions, please contact us at the e mail or phone number listed on our site. We look forward to connecting with you throughout the coming months. This concludes our call.

Operator

Thank you. This does conclude today's teleconference. We thank you for your participation. You may disconnect your lines at this time.

Operator

This concludes the playback affairs.

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Zions Bancorporation, National Association Q1 2025
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