The paragraph is an introduction to the Zions Bancorp Q1 2025 Earnings Conference Call. The call is initiated by the operator, who informs participants that it's in a listen-only mode until the Q&A session. Shannon Drage, Senior Director of Investor Relations, then addresses the audience, reminding them of potential discrepancies between forward-looking statements and actual results. It is noted that supporting materials are available online. The agenda for the call includes presentations by key executives: Harris Simmons, the Chairman and CEO, will give opening remarks; Ryan Richards, the CFO, will review financial results; and other senior staff members are present. Harris Simmons then begins his remarks, expressing satisfaction with the financial performance and improvement over the previous year, noting a slight increase in non-performing assets.

The paragraph discusses the bank's strong position in the face of potential economic uncertainty, noting low net loan charge-offs and a well-aligned allowance for credit losses. It highlights the challenges in forecasting key economic indicators like loan growth and interest rates. The CEO humorously references ChatGPT's take on tariffs to illustrate current confusion. Despite the uncertainty and market volatility, the bank remains focused on risk management and customer service. It also highlights their recognition by Coalition Greenwich as a top bank and winning awards for serving middle market clients.

The paragraph discusses the bank's strategic focus on maintaining close client relationships during uncertain times and highlights the acquisition of four branches from FirstBank, which added significant deposits and loans to their portfolio in Southern California. The acquisition also brought highly skilled employees to the team. Financially, the bank reported net earnings of $169 million for the quarter, an 18% increase from the previous year, despite a decline from the prior quarter due to seasonality and other factors. The bank's net interest margin improved for the fifth consecutive quarter, driven by effective repricing of deposits.

In the first quarter, the average cost of interest-bearing deposits decreased by 26 basis points from the previous quarter and by 55 basis points from the previous year. Adjusted pre-provision net revenue rose by 10% to $267 million compared to the previous year, though the efficiency ratio was seasonally higher despite an improvement over last year. Deposits declined both overall and on average in the first quarter, yet non-interest-bearing deposits remained stable at 33% of total deposits. Average loans grew modestly by 0.5%, and net loan losses for the quarter were $16 million with a significant charge-off from one loan. The CRE portfolio showed strong resilience, with minimal annual net charge-offs over five years amidst industry challenges. Diluted earnings per share decreased to $1.13, partly due to a one-time $0.11 tax charge following a Utah tax law change, which will be recuperated over time.

The paragraph discusses a legislative change that will reduce future tax on investment income despite a timing difference in deferred tax asset accounting. It highlights financial performance, noting a 10% improvement in first-quarter results to $267 million from the previous year. The Chief Financial Officer, Ryan Richards, then provides further details on components of pre-provision net revenue, showing a consistent increase in net interest margin for five consecutive quarters. Net interest income rose by $38 million compared to the first quarter of 2024 but fell by $3 million from the prior quarter, primarily due to two fewer days. A detailed breakdown on Slide 7 shows a 5 basis point increase in net interest margin, attributed to lower deposit costs. In comparison to the previous year, there was a 16 basis point margin improvement due to reduced borrowing costs and a significant decrease in average borrow funds. Additionally, customer-related income reached $158 million for the quarter, declining by 10% from the previous quarter but improving by 4% compared to the same period last year.

In the first quarter, there was a decline in customer-related fee income mainly due to a reduction in capital market fees compared to the previous quarter's record performance. Despite this, it was the third-best quarter for capital markets in the company's history. The income statement now includes fair value and non-hedged derivative income as part of capital markets fees, which were previously categorized under non-customer related fees, and past periods have been adjusted for comparability. Customer-related fee income for the first quarter of 2026 is expected to rise slightly to moderately compared to the first quarter of 2025, considering lower anticipated capital markets growth due to economic uncertainty. Adjusted non-interest expenses increased by $24 million, reaching $533 million, due primarily to seasonality in share-based compensation and payroll taxes, as well as an increase in deposit insurance and regulatory expenses by $5 million due to increased assessments. GAAP expenses rose by $29 million to $538 million compared to the previous quarter.

The paragraph outlines financial projections and recent trends for a financial institution. The outlook for adjusted non-interest expense in Q1 2026 is expected to rise slightly compared to Q1 2025. Average loans saw a modest increase of 0.5% from the previous quarter and 3% from the previous year, but total loans yield declined by 8 basis points sequentially. Period-end loan balances in Q1 2026 are projected to remain stable or increase slightly, with commercial loan growth offset by declines in mortgages and commercial real estate. Average deposits decreased by 1.9% from the prior quarter, impacted by seasonal outflows and partially offset by deposits from recent branch acquisitions. Non-interest-bearing deposits fell by approximately $600 million or 2.4%. The cost of deposits decreased by 17 basis points, and interest-bearing deposit rates also fell. The paragraph concludes with details on the decrease in ending deposit balances, highlighting a decrease in interest-bearing deposits partially offset by an increase in non-interest-bearing demand deposits.

The paragraph discusses the financial performance and strategy of the company. It highlights the addition of $630 million in deposits from acquired Coachella Valley branches and a decrease in total funding costs by 11 basis points for the quarter. The investment portfolio serves as a liquidity resource and has seen a net cash flow of $265 million after reinvestment. The company is managing down wholesale funding costs by replacing lower-yielding securities and has an investment securities portfolio with a duration of four years. The presentation includes sensitivity measures to interest rate changes, with an anticipation of the Fed funds target rate reaching 3.75% by early 2026. The company uses a dynamic approach to assess interest rate sensitivity as expectations evolve.

The paragraph discusses a financial model's analysis of rate sensitivity and net interest income projections, assuming static balance sheet conditions with some migration of deposits. It estimates an 8.9% latent sensitivity in net interest income, assuming no future rate cuts, with a projected 4.6% increase from Q1 2025 to Q1 2026 when emergent sensitivity is considered. The model also explores the implications of a 100 basis point rate shock, indicating potential sensitivity between 2.1% and 6.6%. The outlook for net interest income in early 2026 is slightly to moderately increasing, accounting for various risks and opportunities. The discussion then shifts to credit quality, noting manageable losses at $16 million for the quarter, despite an increase in non-performing assets and classified loans.

The paragraph discusses the stability of the allowance for credit losses at 1.24% and the strong loan loss allowance coverage for non-accrual loans at 229%. It highlights the $13.6 billion commercial real estate (CRE) portfolio, which constitutes 23% of total loans, as being well-diversified, granular, and exhibiting low levels of non-accruals and delinquencies. Despite a $21 million increase in classified loans, mainly due to industrial and office credits, improvements in multifamily loans helped offset this growth. Most classified CRE loans have a loan-to-value ratio below 60%. The CRE portfolio is expected to perform well with limited losses, supported by a favorable economic outlook, low LTV ratios, and sponsor support. The common equity Tier 1 ratio stands at 10.8%, indicating strong capital reserves compared to the bank's risk profile.

The paragraph outlines an expectation for an organic increase in common equity from a regulatory and GAAP perspective, driven by earnings and improvement in accumulated other comprehensive income (AOCI) through unrealized loss accretion as securities mature. It discusses the financial outlook for the first quarter of 2026 compared to 2025, noting a higher level of uncertainty due to unclear trade policy and tariff outcomes, which impacts the economy. The company anticipates positive operating leverage, improved efficiency, and revenue growth exceeding expense pressures. After concluding prepared remarks, Shannon Drage opens the floor for a Q&A session, with Manan Gosalia from Morgan Stanley asking a question about client sentiment and middle market and small business customers. Harris Simmons acknowledges the uncertainty and begins to respond.

The paragraph discusses the uncertainties and challenges businesses face due to potential economic changes, particularly related to manufacturing outsourced to China and Vietnam. The author expresses concern about the impact on both small and large businesses, emphasizing the difficulty in quickly reversing the outsourcing trend. There's uncertainty about how long these challenges will persist and how they will affect the economy, including inventory management and consumer pricing. The situation is compared to historical tariffs, like the Smoot-Hawley Tariffs of 1930, with a note that the full impact is hard to predict. Markets reflect these concerns, and potential consequences include increased unemployment.

The paragraph involves a discussion about financial expectations and uncertainties in the current economic climate. Harris Simmons addresses a question from Manan Gosalia regarding net interest income (NII) guidance and the risk factors affecting it. Simmons mentions that their outlook largely depends on the yield curve and notes that loan growth is expected to be tepid this year due to uncertainties surrounding trade policies. Previously, they were optimistic about loan growth but have since observed reluctance from businesses to make long-term investment decisions without clearer trade policy direction. John Pancari from Evercore ISI then asks about loan demand and pipeline strength, seeking further insights into current economic conditions and potential areas of growth.

In this conversation, Derek Steward, the Chief Credit Officer, discusses current trends in commercial and industrial (C&I) and commercial real estate (CRE) lending. Despite uncertainty in the C&I sector, there is increased activity in CRE, which is rebounding. Interest rates are noted as a factor affecting these trends. John Pancari raises concerns about a sharp increase in 30 to 89-day past-due payments, but Derek reassures that the credit reserve is adequate. They note stabilization in CRE classified assets and steady conditions in C&I, with some migration to criticized assets but no significant issues. Harris Simmons mentions fluctuations in past due figures.

The paragraph discusses the performance and risks associated with classified loans, particularly in commercial real estate (CRE). It highlights that a significant portion of issues stem from commercial real estate projects not meeting initial projections, despite having strong underlying factors like equity and sponsorship. The non-accrual figure for commercial real estate stands at $57.5 million, about 3% of the $1.7 billion in classified loans, indicating some potential losses. The focus is on non-accruals rather than classified numbers due to changes in regulatory policies. The overall performance is strong, with no charge-offs reported, and concerns are mainly directed towards the Commercial and Industrial (C&I) portfolio, especially given trade policy impacts. The CRE portfolio shows improvement, particularly in multifamily properties, as lease-ups continue.

The paragraph discusses the company's strategy for managing expenses if revenue weakens. Harris Simmons mentions that while efforts are being made to reduce headcount by about 3% from the previous year, the focus remains on long-term growth. He emphasizes careful expense management to avoid negatively impacting future growth, especially during uncertain times. There is an intention to increase marketing spend to attract new business, viewing the current climate as an opportunity to gain a competitive advantage. The company also aims to maintain strong relationships with customers and leverage its good credit quality to capitalize on opportunities that others might abandon.

The paragraph discusses the company's focus on building the business amidst challenges, with Scott McLean emphasizing the existence of numerous expense opportunities being pursued to control growth. Bernard von Gizycki inquires about customer-related fee income, noting fluctuations due to capital market uncertainties. Scott McLean responds that customer fees stood at $160 million in the first quarter, a slight decrease from $171 million previously but within a stable range compared to previous quarters. He views the $160 million as a solid figure, indicating a consistent capital markets run rate.

The paragraph discusses the financial breakdown and future growth expectations of a company's various revenue streams. Capital markets contribute approximately $120 million out of a total $635 million in customer fees. Treasury management is a significant contributor with $190 million, while card services generate around $100 million in revenue. The company expects future growth in mortgage-related fees as it transitions its business model. The wealth segment is described as a growth area, currently bringing in $60 million annually, with anticipated improvements. Overall, the company expects mid-single-digit growth across most fee income groups, with particular opportunities in capital markets, wealth, and mortgage fees. Additionally, there is a focus on monitoring the financial markets' impact on the wealth business. The paragraph concludes with a mention of a 40 million share repurchase plan announced in February.

In this discussion, Ryan Richards addresses a question from Peter Winter regarding the company's approach to stock buybacks given current stock price pressures. Richards explains that the company tries to balance the impact of share-based compensation on their finances by normalizing these payments, especially in the first quarter of the year. They also consider their capital position, particularly the CET1 ratio excluding AOCI, to improve their standing relative to peers. When asked about guidance for the next 12 months, Harris Simmons and Richards acknowledge the uncertainty in the environment and note that terms like "slightly" and "moderately" increasing are more qualitative, generally relating to low to mid-single-digit percentages, but ultimately depend on broader uncertainties. The session then moves on to a question from another analyst.

In the paragraph, Benjamin Gerlinger asks about deposit pricing trends, particularly as they transition from the fourth quarter into the first quarter, and looks for insights into how March and the second quarter might shape up. Ryan Richards responds by acknowledging the favorable deposit pricing trends and notes that they have achieved a spot rate of 1.7% by the end of March. Richards indicates there's still potential to lower rates, even if the Federal Reserve pauses any action, due to remaining latency in pricing down turn deposits. He emphasizes the importance of balancing competitive rates with customer experience. Finally, the operator announces the next question from Ken Usdin.

In the paragraph, Ken Usdin asks about the company's strategy for managing liabilities, particularly concerning short-term borrowings like FHLBs and brokered deposits, in light of potential slower loan growth. Ryan Richards responds that these borrowings are managed as a single category that they aim to reduce over time, though predicting changes is challenging due to various factors like depositor behavior and investment securities paydowns. He notes some recent success in reducing brokered CDs and efforts to smooth out maturities, expressing optimism for improved outcomes with continued deposit growth.

The paragraph discusses the growth in commercial real estate (CRE) and mortgage loan balances despite previous expectations of managed declines. Harris Simmons explains that growth in one-to-four family loans is partly due to a one-time close program, but this is expected to decrease. Ryan Richards adds that CRE growth is tied to construction loans transitioning to funded loans, but anticipates a reduction in new originations, potentially leading to declines in CRE loans depending on interest rates. Scott McLean further notes that the FirstBank acquisition contributed to loan growth, particularly in one-to-four family residential loans.

In the paragraph, Harris Simmons discusses a growth observed at the end of a quarter, attributed to the acquisition of four Coachella branches, which inflated period-end figures but weren't fully reflected in the quarterly average. Anthony Elian inquires about credit quality, specifically regarding loan portfolios vulnerable to tariffs and supply chain issues. Derek Steward identifies segments like manufacturing, machinery, equipment, trucking, transportation, consumer products, and retail as areas of concern, particularly focusing on the trucking sector, with less than $500 million in loans. Chris McGratty asks about the negative business sentiment and whether it will persist throughout the year. Harris Simmons suggests that sentiment could improve over time.

The paragraph discusses the potential impact of trade policy on the U.S. Congress, specifically the pressure Republican members may feel as they consider the upcoming midterm elections and the current administration’s financial strategies. It suggests that there could be changes in approach based on market feedback and constituent reactions, highlighting the unpredictable nature of the situation. Additionally, Christopher McGratty seeks clarification on operating leverage, to which Ryan Richards confirms a positive expectation of 1% to 2% growth based on current observations. The segment concludes with the operator introducing the next question from Jon Arfstrom of RBC Capital Markets.

In the discussion, Jon Arfstrom questions the potential for loan growth in the second quarter. Harris Simmons and Derek Steward express optimism about continued, albeit moderate, loan growth despite some potential pullbacks in commercial real estate (CRE) linked to interest rates. They mention a steady growth rate over the past four to five quarters, contrasting with previous broader increases. Arfstrom also inquires about regulatory changes, particularly regarding category 4 easing, and how these might impact Zions. Harris Simmons does not provide a specific update on the regulatory outlook within this excerpt.

The paragraph discusses the speaker's perspective on financial regulation and the current administration's approach to it. They express confidence in the existing regulatory framework established after Dodd-Frank, even after the 2018 legislative changes. They are encouraged by the current administration's agency selections and their efforts to balance regulation without stifling the banking industry, with figures like Miki Bowman and Scott Bessent influencing policy in a pragmatic way. The speaker criticizes the focus on politically driven issues like climate change, arguing for attention on more fundamental regulatory aspects. Ultimately, they advocate for sensible regulation that strengthens the industry rather than weakens it.

The paragraph discusses the desire for sensible regulation focused on real risk, expressing confidence in its implementation. Following this, the operator concludes the Q&A session, and Shannon Drage from Zions Bancorporation offers closing remarks, thanking participants for attending and inviting further inquiries through their contact details on the website, while looking forward to future engagements. The teleconference then concludes.

This summary was generated with AI and may contain some inaccuracies.