Q4 2024 Zions Bancorporation NA Earnings Call
Greetings and welcome to the Zions Bancorp Q4 Earnings Conference Call.
At this time, all participants are in a listen-only mode. A question-and-answer session will follow the promo presentation.
Speaker Change: If anyone should require operator assistance, please press star zero on your telephone keypad as a reminder. This conference is being recorded It is now my pleasure to introduce our host Shannon Drage. Thank you. You may begin
Shannon Drage: Thank you, Matt, and good evening. We welcome you to this conference call to discuss our 2024 fourth quarter and full year earnings. My name is Shannon Drage, Senior Director of Investor Relations.
Speaker Change: I would like to remind you that during this call we will be making forward looking statements although actual results may differ materially. We encourage you to review the disclaimer in the press release or slide 2 of the presentation dealing with forward looking information and the presentation of non-GAP measures which applies equally to statements made during this call.
Speaker Change: A copy of the earnings release, as well as the presentation, are available at zionsbankcorporation.com.
Speaker Change: For our agenda today, Chairman and Chief Executive Officer Harris Simmons will provide opening remarks. Following Harris's comments, Ryan Richards, our Chief Financial Officer, will review our financial results.
Speaker Change: Also with us today are Scott McLean, President and Chief Operating Officer, Derek Stewart, Chief Credit Officer, and Chris Kiriakakis, Chief Risk Officer.
Speaker Change: 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.
Speaker Change: Thanks very much Shannon and good evening everyone. I'd like to start off our call by acknowledging the devastating wildfires which started in Southern California earlier this month and continue to impact so many people.
Speaker Change: Our focus continues to be on the safety and well-being of our colleagues, customers, and their families.
Speaker Change: We've been fortunate. There have been no reported injuries or property loss among our people. We're grateful for the first responders and charitable organizations who are working to protect so many people and to assist them in getting back on their feet.
Speaker Change: As it relates to anticipated credit losses related to damage from the wildfires, we have a very limited amount of residential exposure in the burn zones.
Speaker Change: And due to insurance in place, we anticipate any losses or credit impacts to be minimal. We have programs in place to work with borrowers who may need payment restructuring due to the fires, based on past experience with similar natural disasters.
We expect any losses to be very low.
Speaker Change: Shifting now to performance, key metrics for the year and the quarter are presented on slide three. We're pleased with the continued improvement in our financial performance relative to the prior year.
Speaker Change: Fourth quarter adjusted pre-provision net revenue, which excludes most notably the impact of the FDIC special assessment for the 2023 bank failures, increased 19% relative to the prior year quarter.
Speaker Change: Net earnings for the year were $737 million or $4.95 per share.
Speaker Change: The net interest margin expanded for the fourth consecutive quarter, primarily due to interest-bearing liabilities repricing downward faster than earning asset yields.
Speaker Change: The margin was 3.05% for the quarter compared to 3.03% in the prior quarter and against its trough of 2.91% in the year ago quarter.
Our efficiency ratio improved to 62%.
Speaker Change: As Ryan will highlight later, our guidance for 2025 anticipates continued improvement in these profitability measures and positive operating leverage for the year.
Speaker Change: We continue to see relative stability and non-interest bearing demand deposits, which on average grew slightly over the prior quarter.
Speaker Change: Average loan growth was modest at 1.1% on a linked quarter basis and 3.2% for the full year.
Speaker Change: Net loan losses were higher in the quarter at $36 million, or 24 basis points annualized, with two-thirds of the net loss amount attributable to a single commercial and industrial credit.
Speaker Change: The level of classified balances increased by $777 million, primarily in commercial real estate.
Speaker Change: At the same time, the levels of non-accrual loans in the portfolio remain low and in fact decreased by 18% during the quarter due to significant equity and strong guarantor support in the portfolio.
Speaker Change: We believe we're at or nearing the peak for CRE classified balances and we continue to expect that any realized losses that may occur over the next year will be very manageable.
Speaker Change: Moving to slide 4, diluted earnings per share was $1.34 compared to $1.37 in the prior period and $0.78 in the prior year quarter.
Speaker Change: Provision for credit losses this quarter of $41 million had a negative impact of 21 cents per share.
Slide 5 provides a five-quarter view of pre-provisioned net revenue.
Speaker Change: On an adjusted basis, our fourth quarter results of $312 million reflect an improvement of 4% on a linked quarter basis and, as previously noted, a 19% improvement over the prior year period.
Speaker Change: Adjusted revenue growth outpaced expenses as funding cost pressures abated somewhat. Our capital markets business experienced strong results and we continued to maintain expense discipline despite inflationary pressure.
Speaker Change: Looking to the next year, we're optimistic that our performance will reflect sustained growth, continued improvement in our net interest margin, and increased profitability.
Speaker Change: That high-level overview, I'll turn the time over to our Chief Financial Officer, Ryan Richards, for additional details related to our performance. Ryan?
Ryan Richards: Thank you, Harris, and good evening, everyone. I will begin with a discussion of the components and associated performance drivers and pre-provision net revenue.
Ryan Richards: Beginning with net interest income and net interest margin on slide 6, you will see the five-quarter trend for both measures, reflecting four consecutive quarters of improvement. During the quarter, the downward repricing of interest bearing liabilities outpaced the pressure on asset yields.
Ryan Richards: The net interest margin further benefited from a reduction of $1.4 billion in average short-term borrowings.
Ryan Richards: Additional details on changes in the net interest margin are included on slide 7.
Ryan Richards: On the left-hand side of this page, we provided a linked quarter waterfall chart outlining the key changes and key components of the net interest margin, incorporating changes in both rate and volume.
Ryan Richards: The net interest margin expanded by two basis points sequentially, due primarily to the lower cost of funding. This is reflected in the 23 basis point and 12 basis point margin improvements in the waterfall attributable to deposits and borrowings, respectively.
Ryan Richards: Improved funding costs were somewhat offset by the declines in earning asset yields and a lesser contribution from non-interest bearing sources of funds.
Ryan Richards: The right-hand chart on this slide shows a 14 basis point improvement in the net interest margin versus the prior year quarter, also benefiting from the improved cost deposits.
Ryan Richards: Moving to non-interest income and revenue on slide 8, customer-related non-interest income was $173 million for the quarter, an increase of 7.5% on a leap quarter basis and 15% versus the year-ago quarter.
Ryan Richards: We are pleased with the record performance of customer fees for the quarter and full year, driven in large part by capital markets as we continue to realize growth from our strategic investments.
Ryan Richards: Capital markets were up 36% for the full year compared to 2023. Commercial account fees were also a key contributor to increased fee revenue for the quarter and the full year.
Ryan Richards: As shown on the chart on the right side of this page, both total revenue and adjusted revenue increased from the prior quarter and prior year periods due to factors previously noted for net interest income and customer related fee income.
Ryan Richards: Our outlook for customer-related fee income for the full year 2025 is moderately increasing relative to the full year 2024.
Ryan Richards: Adjusted non-interest expense, shown in the lighter blue bars on slide 9, increased $10 million to $509 million, attributable to slight increases in compensation-related accruals, legal services, and occupancy.
Ryan Richards: Reported expenses also at $509 million, increased by $7 million compared to the prior quarter. Our outlook for adjusted non-interest expense for full year 2025 is slightly to moderately increasing relative to the full year 2024.
Ryan Richards: Included in this outlook is the expectation that we will increase marketing spend, incur expenses related to the branch acquisition in California and other investments in revenue generating businesses.
Ryan Richards: Slide 10 highlights trends in our average loans and deposits over the year.
Ryan Richards: On the left side, you can see that average loans increased just over 1% for the quarter.
Ryan Richards: Consumer mortgages and CNI loans continue to be the drivers for this increase.
Ryan Richards: Total loan yields declined by 23 basis points, largely in response to the reductions in short-term benchmark rates, with some partial offsets from fixed loan repricing and loan swaps.
Ryan Richards: Our frontline bankers have noted increased client optimism, particularly from our commercial and small business customers.
Ryan Richards: Our outlook for period and loans balances for full year 2025 is slightly increasing relative to full year 2024.
Ryan Richards: 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 due originations.
Ryan Richards: Turning to deposits on the right side of the page, average deposit balances for the fourth quarter increased modestly. As Harris mentioned earlier, we are pleased by the stability we continue to see in the level of non-interest bearing deposits.
Ryan Richards: The cost of total deposits, shown in the white boxes, declined by 21 basis points to 1.93%.
Ryan Richards: Interest bearing deposits cost decreased by 32 basis points versus the prior quarter. On average, the rate on interest bearing deposits was 2.87% for the quarter compared to 3.19% in the prior period.
Ryan Richards: The interest bearing deposit spot rate at December month end was 2.62% and the total deposit spot rate was 1.78%.
Ryan Richards: Deposit repricing has been disciplined and aligned with our expectations, reflecting near 100% betas on higher cost deposits.
Ryan Richards: Slide 11 includes a more comprehensive view of funding sources and total funding cost trends.
Ryan Richards: The left side chart includes ending balance trends. Compared to the prior quarter, total deposits grew approximately $500 million comprised of period growth of $670 million in customer deposits, offset by a $163 million reduction in higher cost broker deposits.
Ryan Richards: On the right side, average balances for our key funding categories are shown along with the total cost of funding. As seen on this chart, the total funding cost declined by 24 basis points during the quarter.
Ryan Richards: Moving to slide 12, our investment portfolio exists primarily to be a storehouse of funds to absorb customer-driven balance sheet changes.
Ryan Richards: Here we present our securities and money market investment portfolios over the last five years.
Ryan Richards: Maturities, principal amortization, and prepayment-related cash flows from our investment securities portfolio were $749 million in the fourth quarter. Net of reinvestment, cash flows for the quarter were $370 million.
Ryan Richards: 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: The duration of the investment portfolio, which is a measure of price sensitivity to changes in interest rates, is estimated at 3.4 years.
Ryan Richards: While we provided standard parallel interest rate shock sensitivity measures on slide 28 in the appendix of this presentation
Ryan Richards: We present on slide 13 our view of net interest income sensitivity, assuming interest rates follow the path implied as of December 31st, which assumes the Fed Fund's target reaches 4.25%.
Ryan Richards: Modeled net interest income in the fourth quarter of 2025 is expected to be 6.8% higher when compared with the fourth quarter of 2024. This includes the impact of both latent and emergent sensitivity that we have broken out in prior quarters.
Ryan Richards: As expectations on the rate path continue to evolve, we also provide 100 basis point shocks to the rates implied by the 4-path, which suggests a sensitivity range between 4% and 9.4%.
Ryan Richards: 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.
Ryan Richards: This view does not include expected balance sheet changes, pricing strategies, and other strategic factors included in full year net interest income guidance.
Ryan Richards: Our outlook for net interest net interest income for full year 2025 is moderately increasing relative to the full year 2024.
Ryan Richards: The sensitivity associated with this guidance includes risks and opportunities, including realized loan growth, competition for deposits and deposit behavior, and the path of interest rates across the yield curve.
Ryan Richards: When combined with our outlook for customer-related fee income and non-interest expense, we anticipate continued positive operating leverage moving forward into 2025.
We begin our discussion of credit quality on slide 14.
Ryan Richards: Harris previously noted that realized losses in the portfolio continue to be quite manageable.
Ryan Richards: With annualized net charge-offs to 24 basis points of loans in the quarter and just 10 basis points over the last 12 months With the jump in losses this quarter attributable to a single commercial credit
Ryan Richards: Non-performing assets decreased $70 million in the quarter while criticized and classified loan balances increased by $849 million and $777 million respectively.
Ryan Richards: The decline in non-performing assets was driven largely by several successful resolutions at par, together with the large charge-off previously noted in the portfolio.
Ryan Richards: The increase in classified loans was primarily driven by commercial real estate, primarily in multifamily, industrial, and office.
Ryan Richards: Expected loss content in classified loans remains low due to significant borrower equity, strong sponsor support, and continued borrower cash flows despite the pressure on those cash flows.
Ryan Richards: The recent reductions in short-term benchmark interest rates should benefit borrower operating costs and slow unfavorable grade migration, while the increase in term rates may result in criticized balances staying higher for longer due to less favorable refinance opportunities.
Transcription by CastingWords
Ryan Richards: The allowance for credit losses was stable versus the prior quarter at 1.25% and the loan loss allowance
Coverage compared with non-accrual loans improved to 234 percent.
Ryan Richards: For reference in our appendix, we've included a trend for ACL, non-accrual, and classified loans.
Ryan Richards: As a reminder, classified loans primarily reflect a measure of probability of default. Why the CECL methodology used to set the reserve is a forward-looking measure of expected loss, which also encompasses loss given default.
Ryan Richards: Slide 15 provides an overview of the $13.5 billion CRE portfolio, which represents 23% of total loan balances.
Ryan Richards: The portfolio is granular and well diversified by property type and location, with its growth carefully managed over a decade through discipline concentration limits.
Ryan Richards: Slide 16 provides a detailed view of the problem loans in our CRE portfolio.
Ryan Richards: The chart on the right hand side provides a breakout of which subportfolios drove increases in criticized and classified assets during the quarter.
Ryan Richards: Of the $777 million increase in total classified loans, $609 million was driven by commercial real estate, primarily multifamily, industrial, and office credits.
Ryan Richards: The chart on the bottom left-hand side of the slide reflects the LTV distribution of classified CRE loans, with more than three-quarters of the portfolio having loans to value less than 60% when examined by either most recent appraisal or index-adjusted values.
Ryan Richards: Overall, we continue to expect the CRE portfolio to perform reasonably well with limited losses based on the current economic outlook, the types of problems being experienced by the borrowers, relatively low loan-to-value ratios, and continued sponsor support.
Our loss absorbing capital is shown on slide 17.
Ryan Richards: The common equity tier one ratio grew in the fourth quarter to 10.9%. This when combined with the allowance for credit losses compares well to our risk profile as reflected in top quartile performance and loan losses.
Ryan Richards: 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 and mature.
Ryan Richards: Of note, in the fourth quarter of 2024, we redeemed $374 million of preferred stock with coupons exceeding 9% and called $88 million of subordinated debt, the latter of which had begun to phase out of Tier 2 capital.
Ryan Richards: These issuances were replaced with $500 million of lower cost subordinated notes that will positively impact earnings per share starting in the first quarter of 2025 by $0.02 to $0.03 per share.
Ryan Richards: Slide 18 summarizes the financial outlook provided over the course of this presentation. As a reminder, this outlook represents our best estimate for the financial performance for the full year of 2025 as compared to the full year of 2024.
Ryan Richards: With this outlook, we expect to see positive operating leverage and improved efficiency as revenue growth outpaces funding and expense pressures.
Ryan Richards: 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. Matt, will you please open the line for questions?
Speaker Change: Great, thank you. We will now be conducting a question and answer session. If you'd like to ask a question, please press star 1 on your telephone keypad. A confirmation tone will indicate your line is in the question queue. You may press star 2 to remove yourself from the queue.
Speaker Change: For participants using speaker equipment, it may be necessary to pick up your handset before pressing the start key.
One moment please while I call for questions.
It looks like
Speaker Change: Deposit betas and a spot basis are running close to 60% already. Can you talk about how you expect that to progress from here?
Speaker Change: I'm assuming there's still some benefit that's going to come with the lag, but at the same time, there's fewer rate cuts in the forward curve, which might impact how much more you can do. So if you can just run through some of that.
Speaker Change: Yeah, listen, thanks for the observation. I think it's fair to say that so far
We've been pleased with the response, the pricing response.
Speaker Change: It's been very much in line with what we've discussed on previous calls about how we anticipated interest bearing deposits to behave. And as you also note, there is a lag factor associated with different types of time deposits and broker deposits.
Speaker Change: So we've been in an athletic posture each time that the Fed has been in a position to reduce rates. That will remain true. And so I think as we move forward with the prospect of another potential 25 basis point rate decrease.
Speaker Change: During 2025, right now I wouldn't think of any other reason to expect other than inline performance with what we've seen thus far. Predicting beyond that, it would be really difficult to do at this point.
Speaker Change: Got it. And for my follow-up, 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 at the long end of the curve?
Speaker Change: It is something that we certainly are cognizant of and I know that we periodically get the question about when might we take more additional capital actions.
Speaker Change: In view of still uncertainty that is in the environment about where the GOSL 3 in-game rules reside.
Speaker Change: And even without that, there's sort of an increasing, I think, expectation that we'd be managing our capital inclusive of AOCI.
Speaker Change: So, we do include in our appendix slide sort of the path that we see today with 2.4 billion in AOCI losses and the path one year hence.
Speaker Change: about where that goes. And we certainly do think internally about what our excluding AOCI capital levels are with an expectation of continuing to grow capital so that over time that we are more sort of at median peer capital levels.
Speaker Change: So those are things that we do monitor and that we are comfortable with the glide path or any realistic expectation about when Basel III in-game could be applicable for us.
So is it fair to say that
Speaker Change: If there is more volatility in the long end of the curve, that it would only really impact when you think about buybacks as opposed to impacting how you grow your loan book.
Speaker Change: I think that's probably the case. I mean, you know, I think you'll see back in the appendix the projections with respect to how AOCI runs off and it's, you know, if you look at, there's kind of a proxy for this, if you look at, you know, tangible book value has been
Speaker Change: Improving pretty, pretty rapidly, I think around 20-21% something over the last 12 months.
Speaker Change: and so yeah we expect that we don't know the final
Speaker Change: Outline of what the rules are going to look like, the transition period, kind of how regulators will re-engage with this. I think we'd certainly expect that AOCI will come back into capital. That's that's probably one thing that will survive, but the timing of it is this is not entirely clear.
Thank you. Thank you.
Speaker Change: But in the meantime, you know, we I think we're we feel like we're on a pretty good glide path to getting the point where this will solve itself without having to do anything in the way of
Speaker Change: Capital Actions. It'll probably continue to retard our, you know, buyback activity until we can...
Speaker Change: See this with more clarity. That's that's how I think about it
Great. Thank you.
Our next question is from Bernard Funches.
Vicki from Deutsche Bank, please go ahead.
Bernard Funches: Hey guys, good evening. I just wonder if you could just unpack a little bit more about the rate sensitivity, the model, let it just come that you have from page 13, you know, the implied path of the 6.8%.
Bernard Funches: versus the 1.4% at 930, obviously the difference in the fed funds.
and the big increase in the deposit beta. Thank you very much.
Bernard Funches: from, you know, 58% from 36%. Just wondering if you could just walk through any of the, you know, the assumptions that kind of, you know, update the previous quarter.
Bernard Funches: Yeah, listen, I think speaking to that deposit beta assumption that you quoted there on the interest-bearing deposits
That's very much in line with what we've been seeing.
Bernard Funches: I think one of the things that you've seen from us over time is that we've been working
Bernard Funches: As we've grown more comfortable with the level of non-interest bearing deposits and the behaviors there, is that the implied assumption about the continued migration from non-interest bearing into interest bearing has been tightened over time. And I think that's also allowed us to be a little bit more constructive about how we see NII sensitivity out one year.
Bernard Funches: Still benefiting from some fixed asset repricing that that is still playing through the system and some of the latency and the repricing of time deposits
Bernard Funches: with down rates, still seeing the benefit from that. So with a more stable, and we hope and anticipate growing deposit base, supplanting wholesale fund sources, I think all that lends to a more constructive outlook.
Bernard Funches: Great. And then I know you guys have talked in the past about getting the NIM back to mid-3%.
Speaker Change: Just based on like the model assumptions here, you know, I think that's been discussed over maybe over a couple years. 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 like longer-term NMAT look?
Speaker Change: Yeah, listen, I thank you for the question. You know, we don't we don't manage to a nim outcome per se, but it's certainly true that with a more naturally sloped yield curve that we can stand to do better than what we've been experiencing before.
Speaker Change: So, as we sort of, you know, look at where we've been in the not-too-distant past, when things were more constructed that way, having something in the mid-threes doesn't seem like it's out of reach. And so, we think there's potential to get back to those levels, but the timing of when that occurs is yet to be seen.
All right, great. Thanks for taking my questions.
Next question is from Chris McGrady from KBW.
Please go ahead.
Oh, great. Thanks.
Speaker Change: Ryan, just on the balance sheet, some movement between liquidity and the bond portfolio and the floater. Could you help us within your guide for NII, you know, help on just total earning asset levels? Will you continue to use the bond portfolio as a source?
Speaker Change: Source of funds, how should we be thinking about the earning assets in the next year?
Speaker Change: Yeah, it's a good call out, Chris. I mean, I think if you look at the related slide we have in terms of investment securities, money market, kind of a share of total earning assets,
Speaker Change: That stayed pretty tried-and-true with maybe just a touchdown, but as you point out, you know, year over year we've seen that nice runoff
and Investment Securities Portfolio. And as I
noted in my prepared remarks.
Speaker Change: You know, to use those cash flows to sort of pay down more expensive wholesale cost of funding or invest in the loan growth.
Speaker Change: So I think if you look moving forward, you probably would have also heard from my prepared remarks that we're starting to do a little bit more in the reinvesting of those cash flows that are being kicked off from the investment securities portfolio.
Speaker Change: So, perhaps tapering a little bit in terms of the runoff on the security side, but with the prospects that we shared with you.
Speaker Change: Slightly increasing loan growth. We think there'll be opportunities to deploy that and
in an organic way to support our complaint.
Alliance, our customer growth objectives.
Okay, great. Thanks. Thanks, Ryan. And, Harris,
Speaker Change: Any comments about inorganic growth? Obviously the regulatory world is shifting, you know, in real time but any thoughts about, you have the branch deal that's going to close, any other thoughts about potential M&A?
Well, I think, I think that as
Speaker Change: First, I take it just a step back and say, if you look at our pre-provision net revenue over the last
Speaker Change: You know that that did a lot of damage We've been kind of clawing our way back is where I think of think about it. We've making steady progress and you know is it so
Speaker Change: Getting back into a position where we have the currency, the profitability to do something more is certainly top of mind. We're not out looking for opportunities per se, but we're in a position where increasingly I think we're in a position where we could be doing
Ahhhh
Speaker Change: You know, deals, you know, that strategically made sense to us.
Speaker Change: We have, you know, for a long time systems conversions were front and center for us getting through a lot of...
Speaker Change: A lot of kind of internal renovation. And that is now really behind us.
Speaker Change: You know, so in that respect, I think we're in pretty good shape.
Speaker Change: I think in terms of being prepared for anything that would come with sort of crossing a hundred billion dollar threshold, if that is still a thing in the new regulatory environment that has dawned upon us this week, you know, I think we're in good shape that way. So...
I'd say it is possible, you know, with anything that...
Speaker Change: Otherwise, pencils out well, make strategic sense, but it's not something that's kind of front and center for us.
Thank you very much.
Yep.
Transcription by CastingWords
Speaker Change: Next question is from Matthew Clark, from Piper Sandler, please go ahead [inaudible]
Yeah, good afternoon, everyone.
Thank you. Thank you.
Speaker Change: Just first on the C&I credit, where you realize some charge-offs, can you just give us a sense for the type of business that is or was and
What exactly happened there?
Sure, this is this is Derek. Thanks for the question.
Speaker Change: It actually was a longtime client of the bank, a 10 or 15 year client of the bank in the retail space. It was a very unique
Speaker Change: customer, actually. And we had banked the company for a long time. It was purchased by a private equity company that I think between pushing to grow a little faster along with some management challenges just created.
created challenges for the company that led to the loss.
Speaker Change: It's a pretty unique business and really nothing else like it in our portfolio, but that was what the situation was.
Speaker Change: Okay, thank you. And then shifting gears to customer fees, capital markets.
Speaker Change: Up nicely. Can you give us a sense for the pipeline there? And do you think you can kind of build off that fourth quarter number given?
Speaker Change: The change in environment or do you feel like we'll step back seasonally?
Speaker Change: Yeah, no, thank you. This is Scott McLean, and I appreciate the question. You know, we've been talking about building this business over the last couple of years, and our enthusiasm for it, we've really been adding
Speaker Change: The Product Capabilities, the Risk Structure, the Technology Structure, and in the fourth quarter we just saw, you know, a really nice
Increase in
Speaker Change: Just some of the basic products, loan syndications, interest rate products.
Speaker Change: and our real estate capital markets business, which we've been saying for the last
Speaker Change: year and a half we've been building out and the markets have haven't been overly friendly up until the last six months or so. But we're starting to see a more regular flow there. And it produced meaningful revenue in the in the fourth quarter.
Speaker Change: We've said, you know, as you know, the investment capital markets type businesses are lumpy.
Speaker Change: But we've spent a lot on the infrastructure here. We've got the people. We have very active calling programs with our commercial bankers.
Speaker Change: very pinpointed to capital markets opportunities current and longer term. I think all that
Speaker Change: that shoe leather should benefit us in the years to come. And then we're also seeing, you know, we're seeing some.
Speaker Change: Certainly some continuation of just our basic products, things like treasury management.
Speaker Change: Merchant Services, our corporate trust business which we don't talk about very often. You know it has a very large market share and I'll be a shrinking market but
Speaker Change: a significant position. It's just a nice business for us. So, so well, we should see continued progress, we think, because of all the hard work we've put into capital markets. And they start into the year with a with a solid pipeline. I think that's the other thing I would add. So I, I
Great. Thanks for the call.
Speaker Change: Our next question is from Christopher Starr from Wells Fargo. Please go ahead.
Hi, good afternoon. So,
This question is kind of related to
Speaker Change: The, just obviously the election and a post election and just the kind of the change of attitude and I see there's a big pop and energy oil and gas.
Speaker Change: Growth, slide 24, when you compare it to the prior quarter, how much do you think that is, might be election related, is there more momentum to that, and what other areas could might grow, commercial loans, like it should be a little bit higher than moderate for the year?
I'll take that. You know, our energy portfolio.
Outstanding, scored about $3 billion.
4 or 5 years ago.
They trended down during the
2020 downturn price volatility.
We've been around $2 billion.
Speaker Change: And basically we saw a $100 million increase in that portfolio from a little bit below.
2B and do a little bit of Bob.
Speaker Change: And I think we have good opportunities there. Pricing and credit structure has never been better, as many banks have exited the market. And we're a longtime player with a longtime reputation. So, so I, you know, we continue to hope it'll be a nice source of C&I growth going forward.
In terms of loan growth in general.
Speaker Change: We were up about $2.1 billion average loans year over year, about a 3.5% increase. Our general sense is, to your political comment,
Speaker Change: that small business, medium sized business owners, they're just a little
Speaker Change: More optimistic, I think there's a sense that regulatory issues that confront small and medium-sized businesses could abate, maybe not much.
Speaker Change: But, and so I think we're a little more optimistic about C&I lending. I don't, we don't think our one to four family originations
Speaker Change: that go on the balance sheet will be as strong in the coming year. So that'll be a little bit of a drag, but we think C&I, for the reasons you said and others, has an opportunity to grow.
Speaker Change: And then for my follow-up, this is for Harris. So Harris, you spent some time talking about regulation.
In the twenty twenty three and report.
Speaker Change: calling out Basel III and that long-term debt proposal. I mean, obviously, you kind of talked about that just now, but what other areas of, we'll call it, just common sense approach and do you think might benefit for banks your size?
Thank you.
Speaker Change: The number and diversity of things coming out of the CFPB, some of which, you know,
Speaker Change: You know, I, I think have been just beyond the mark. You're seeing that in the legal challenges, etc, that have been made with respect to a lot of these things. The amount of time and energy that goes into things like
Speaker Change: just internally trying to prepare for the kind of climate disclosure regime that was coming at the industry. I think a lot of things like that probably
Speaker Change: It will just fade into the background for a while at least, maybe not permanently.
But, um...
Speaker Change: You know, and I see what Travis Hill, you know, the agenda he laid out yesterday. You know, it's just very sensible. It's meat and potatoes. It's, it's, it's, it's.
Speaker Change: Sort of back to basics, and I think for many banks, our own included,
Speaker Change: We've, you know, we've done a lot in the back to basics kind of categories of just building risk infrastructure, commensurate with.
Speaker Change: and so just being able to focus outwardly, the message that I have to our own people, is I making kind of a circuit recently is...
Speaker Change: is that we've been very inwardly focused. I think we have, I think the industry has, in a lot of respects over the last decade.
Speaker Change: And I think the message coming out of the new administration and the people coming into the agencies is that we want a safe and sound industry, but one that facilitates growth.
Speaker Change: I think it's going to be a really conducive environment for it. And I think there are worries, tariffs, you know, things like that.
Speaker Change: Certainly it could derail growth in the economy, but clearly the crowd in control wants to see growth. It's a very growth-oriented message that we're seeing coming from these people, so I'm very hopeful.
Transcription by https://otter.ai
Speaker Change: and Anthony Ellion from J.P. Morgan, please go ahead. Hi everyone. For
Speaker Change: For your loan growth guide of slightly increasing, is that more back 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?
I, you know, uh...
It's through the year, it's not so strong that...
Speaker Change: that it's going to matter a lot whether it's back half-weighted or not. It's, you know, I expect we'll just see pretty steady growth through the year, personally.
Speaker Change: Thank you. And then for my follow-up, could 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? Thank you.
Speaker Change: This is Derek. To answer the second question, it was pretty granular in the...
Speaker Change: with the downgrades and the increase in classifieds there was not a large increase, just one large credit that increased it.
It also was distributed across our footprint.
Speaker Change: in the geographies. As stated in the slides, 609 million were from
Speaker Change: was from CRE and $254 million from multi-family with $242 million from industrial, so that really drove it.
Speaker Change: And the story for industrial multifamily is exactly what we said last quarter. It's construction delays that are occurring, there are a leap of slow or leaf up performance to plan issues.
Speaker Change: increase costs and just increases in expenses as well. We combine that with the interest rate increase and we're seeing
Speaker Change: it moves to classified. At the same time, it does seem like it's a matter of timing and that most of these credits will work their way through. It's just take a little longer to reach stabilization and performance.
Speaker Change: And given our loan values, we expect, you know, that they'll just perform and either be able to be upgraded.
through progress or refinanced out over time.
Thank you.
Speaker Change: This concludes the question and answer session. I'd like to turn the floor back to management for any closing comments. Thank you, Matt, and thank you to all for joining us today. If you have additional questions, please contact us at the email or phone number listed on our website. We look forward to connecting with you throughout the coming months and appreciate your interest in Zions Bank Corporation. This concludes our call.
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Speaker Change: This concludes today's teleconference. You may disconnect your lines at this time. Thank you again for your participation.