Q1 2025 Zions Bancorp Earnings Call
Speaker Change: Greetings and welcome to the Zions Bancorp Q1 2025 earnings conference call. At this time, all participants are in a listen only mode. A question and answer session will follow the formal presentation.
Speaker Change: If anyone should require operator assistance, please press star zero or your telephone keypad. As a reminder, this conference is being recorded. It is now my pleasure to introduce Shannon Drage. Thank you Shannon. You may begin.
Speaker Change: 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.
Speaker Change: 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.
Speaker Change: 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-gat 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 on ZionsBankcorporation.com Thank you for joining us on ZionsBankcorporation.com for more on ZionsBankcorporation.com
Speaker Change: 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.
Speaker Change: Also with us today are Scott McLean, President and Chief Operating Officer, Derek Steward, Chief Credit Officer, and Chris Kirikakis, Chief Risk Officer.
Speaker Change: After our prepare 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.
Thanks very much, Shannon, and good evening, everyone.
Harris Simmons: We are generally pleased with our fundamental performance and the financial results for the first quarter which reflect meaningful year over year improvement.
Harris Simmons: Our ratio of non-performing assets to loans, lease is another real estate owned, remained stable in the last quarter, though up somewhat from last year. That loan charge off, remained low.
Harris Simmons: I suspect that we'd all agree that prognostication about long growth, unemployment, the path of interest rates and other drivers of performance seems especially challenging at the present moment.
Harris Simmons: Consistent with our determination to build an AI-enabled culture, I asked ChatGPT for help in explaining the world we're now living in. I got this.
Speaker Change: Trump's tariffs have caused quite a fuss, with markets unsure who to trust. Will prices ascend? Will trade wars extend? Or will growth just stall in the dust? [inaudible]
Speaker Change: That actually seemed to explain that times are in pretty well, I thought. In our presentation materials and the remarks that Ryan will make,
Speaker Change: We are providing an outlook for the first quarter of 2026 [inaudible]
Speaker Change: Well, the outlet guidance always comes with disclaimers about the limitations of forward-looking statements.
Speaker Change: It's worth emphasizing the particular difficulty right now for us and everybody else in this industry in forecasting results a year from now.
Speaker Change: While this heightened uncertainty is 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. [inaudible]
Speaker Change: On that note, we are pleased to once again be recognized by Coalition Greenwich
Speaker Change: as one of the top ten banks in the industry and garnering desk bank awards in a variety of categories, including being ranked third nationally and serving middle market clients, all those measured by the results of approximately 25,000 surveys conducted across the country.
Speaker Change: During a time of increased uncertainty for businesses and consumers who will be paying a particular attention to staying close to clients and understanding our challenges and helping them in every way we prudently can in the months ahead.
Speaker Change: 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 and late March.
Speaker Change: This acquisition added approximately $630 million of deposits and $420 million in loans.
Speaker Change: 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.
Speaker Change: 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.
Speaker Change: Shifting now to financial results for the quarter key metrics for the quarter represented on slide three . . .
Speaker Change: Net earnings for the quarter were $169 million or $1.13 per share representing an 18% improvement compared to the same period last year.
Speaker Change: Compared to the prior quarter, earnings declined due to the seasonality and share-based compensation and payroll taxes The reduced day count, a decrease in non-interest income at a higher effective tax rate, shall discuss in a moment
Speaker Change: This was somewhat offset by reduced provision of expense and reduced preferred dividend costs.
Speaker Change: The net interest margin increased with a fifth consecutive quarter to 3.10% compared to 3.05% in the previous quarter.
Speaker Change: Improvement during the quarter reflects the downward repricing of a significant portion of both customer and brokerage term deposits.
Speaker Change: and continued discipline in repressing across the other deposit categories, particularly in the highest cost products.
Speaker Change: 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.
Speaker Change: First quarter adjusted pre-provision net revenue, or PPRR, was $267 million, and an increase of 10% from the $242 million achieved a year ago.
Speaker Change: Efficiency ratio was seasonally higher, though improved over last year's period.
Speaker Change: Deposits decreased both on an ending and average basis in the first quarter, including the impact of Coachella related deposits added in late March.
Speaker Change: Non-interest-sparing deposits remained relatively stable at 33% of total deposits.
Speaker Change: Average loans experience modest growth of 0.5% on a linked quarter basis. [inaudible]
Speaker Change: Net loan losses for the quarter were $16 million or 11 basis points annualized and included an $8 million charge off of a single commercial and industrial loan.
Speaker Change: There were no charge-offs in the CRE portfolio and the non-accrual ratio of CRE loans remained low at 43 basis points.
Speaker Change: and somewhat weaker performance in the multi-family segment of the industry. Annual net charge-offs in our $13.6 billion CRE portfolio have averaged a mere one basis point, which by most any measure is really outstanding performance over a five-year period.
Speaker Change: Moving to slide four, diluted earnings per share, again was $1.13 compared to $1.34 in the prior period, and 96 cents in the year ago period.
Speaker Change: This courtous results include an 11-centth for sheer charge to income tax expense related to a required revaluation of our deferred tax assets associated with a cumulative other comprehensive income.
Speaker Change: All resulting from a beneficial Utah tax law change on security's portfolio income.
Speaker Change: This one-time revaluation will largely accrete back in the income over the life of the related securities.
Speaker Change: The law change is beneficial because apart from the timing difference of the third tax asset accounting treatment, the legislative change will serve to reduce the tax on investment income and future periods.
Speaker Change: Slide 5 provides a five-quarter view of pre-provisioned net revenue. This previously noted on an adjusted basis of first quarter results of $267 million.
Speaker Change: to reflect an improvement of 10% over the prior your period.
Speaker Change: 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. Brian ?
Thank you, Harris, some good evening everyone. [inaudible]
Speaker Change: Building on Harris's remarks, I will begin by deconstructing the components.
and drivers to pre-provision that revenue.
Speaker Change: 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.
Speaker Change: That interest income increased by 38 million relative to the first quarter of 2024 and declined by 3 million relative to the prior quarter, with a decrease driven by two fewer days.
Speaker Change: Slide 7 presents additional details on changes in the net interest margin.
Speaker Change: The length quarter waterfall chart on the left outlines the changes in both rate and volume for key components of the netish margin.
Speaker Change: The Nettish margin expanded by five basis points sequentially due primarily to lower cost of the profits.
Speaker Change: Against the year ago quarter, the right hand chart on this slide presents the 16 basis point improvement in the margin, which also benefited from the improved cost of deposits.
Speaker Change: as well as improved borrowing costs, reflecting both lower rates paid and a $570 million decrease in average borrow funds year-over-year.
Moving to non-interested income and revenue on slide eight,
Speaker Change: Customer-related income was 158 million for the quarter, a decrease of 10% on a race versus the year-to-go quarter.
Speaker Change: A reduction in capital market fees versus the prior court's directed performance was the primary driver for the sequential decline in customer related fee income.
Speaker Change: While down from the prior quarter, the first quarter marked the third-best quarter for capital markets in our history.
Speaker Change: 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.
This income has historically been presented in non-customer related fees.
Speaker Change: Prior periods have been reclassified for comparability and CVA income or loss, continues to be excluded from adjusted revenues used in PPRR and the efficiency ratio calculation.
Speaker Change: 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 and customer related fee income.
Speaker Change: Our outlook for customer-related income for the first quarter of 2026 is slightly to moderately increasing.
Speaker Change: Relative to the first quarter of 2025 and contemplates lower capital markets growth than anticipated in the prior quarter given current economic uncertainty.
Speaker Change: Slide 9 presents adjusted non-interest expense in the lighter blue bars, adjusted expense increased by 24 million versus the prior order to 533 million.
Speaker Change: This is largely attributable to first-quarter seasonality related to share-based compensation and payroll taxes.
Speaker Change: The positive insurance and regulatory expense also increased 5 million during the quarter. Do in large part, to increase assessments of view of classified asset balance and recent periods as well as activity in the fourth quarter, that's 2024. The positive insurance and regulatory expense also increased 5 million during the quarter.
Speaker Change: reported gap expenses at $538 million increased by $29 million compared to the prior quarter.
Speaker Change: Our outlook for adjusted on interest expense for the quarter. [inaudible]
Speaker Change: For the first quarter of 2026 is slightly to moderately increasing relative to the first quarter of 2025.
Speaker Change: Light 10 presents five quarter trends in our average loans in deposits.
Speaker Change: Average loans increase 0.5% over the previous quarter and 3% over the year ago period.
Total loans declined by 8 basis points sequentially. [inaudible]
Speaker Change: Don't allow yields, I should say, declined by a basis point sequentially. [inaudible]
Speaker Change: Our outlook for period end loan balances for the first quarter of 2026 is stable to slightly increasing relative to the first quarter of 2025 and assumes growth will be slower in the near term as customers await clarity on tear impacts.
Roath is expected to be led by commercial loans.
Speaker Change: Offset somewhat by managed to clients and mortgages and commercial real estate exposures as payoffs are expected to outpace new originations.
Speaker Change: Average deposit balances are presented on the right side of the slide. Relative to the prior quarter, total average deposits declined 1.9% due to seasonal uploads in early January .
Speaker Change: This decline was only slightly offset by the 78 million impact of full quarter average deposit balances from the Coachella Valley branch acquisitions and late March the Harris alluded to earlier.
Speaker Change: The cost of deposits declined by 17 basis points to 1.76 percent.
Speaker Change: On average, the rate on interest rate deposits was 2.61% for the quarter, compared to 2.87% in the prior period.
Speaker Change: The interest bearing deposit spot rate at March 1, then, was 2.54%, and the total deposit spot rate was 1.7%.
Speaker Change: Flight 11 provides additional details on funding sources and total funding cost trends.
Speaker Change: Presented on the left are ending the pause of balances, which decreased by 531 million versus the prior quarter.
Speaker Change: including a C-119 million decrease in interest variant deposits that was partially offset by an 88 million increase in non-interest variant demand deposits.
Speaker Change: At noted by Harris, before acquired Coachella Valley branches added approximately 630 million in period end deposits.
Speaker Change: On the right side, average balances for our key funding categories are shown along with the total funding cost.
Speaker Change: At scene 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 subordinate note issuance of last year, which increased quarterly debt expense, but was more than offset in earnings by the reduction in preferred dividends. [inaudible]
Speaker Change: 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. [inaudible]
Speaker Change: Here we present our securities and money market investment portfolios over the last five quarters.
Speaker Change: The pay down and reinvestment of lower yielding security continues to contribute to the favorable remix of our earning assets, as well as it means to manage down our wholesale funding costs.
Speaker Change: The duration of our investment security portfolio, which is a measure of price and dividends that lead to changes and interest rates, is estimated at four years.
Speaker Change: While we have provided standard parallel interstrait shock sensitivity measures on flight 28 in the appendix of this presentation,
Speaker Change: We present on slide 13, our view of net interest income sensitivity, assuming rates follow the implied path as of March 31st, which assumes the Fed funds target reaches 3.75%
by the first quarter of 2026.
Speaker Change: As expectations on the rate path continue to evolve, we have brought back our more dynamic view of latent and emergent interest rate sensitivity.
Speaker Change: As a reminder, this slide presents a model view of rate sensitivity based on static valichine assumptions.
Speaker Change: while allowing for some additional migration of non-interferring deposits into higher cost time deposits.
Speaker Change: This view does not include expected balance changes, pricing strategies and other strategic opportunities that will be included in the net interest income guidance.
Speaker Change: With those assumptions in mind, the latent sensitivity is estimated to be 8.9%, which assumes no future rate cuts, overflex the net interest income path based on pass rate movements that have not yet been fully realized the revenues.
Speaker Change: When combined with the emergent sensitivity, which includes the incremental impact of the future rate changes, including the floor curve,
Speaker Change: The implied vent interest income in the first quarter of 2026 is modeled to be 4.6% higher when compared to the first quarter of 2025.
Speaker Change: We also provide 100 basis point shocks to the rate supplied by the for-path, which suggests a sensitivity arrangement between 2.1% and 6.6%.
Speaker Change: Our outlook for net interest income for the first quarter of 2026 is slightly to moderately increasing relative to the first quarter of 2025.
Speaker Change: The sensitivity associated with this guidance includes risks and opportunities, including realized long row, competition for deposits and the positive 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 flight 14th.
Speaker Change: Realized losses in the portfolio continue to be very manageable at $16 million this quarter, or 11 basis points annualized.
We continue to benefit from significant borrower equity.
Strong sponsor support, and continued operating cash flows
Speaker Change: Non-performing assets and classified loan balances increase quarter to quarter by 9 million and 21 million respectively.
Speaker Change: The allowance for credit losses was relatively stable versus prior quarters at 1.24 percent. [inaudible]
Speaker Change: and the loan law that allow its coverage with respect to not accrual loans was 229%.
Speaker Change: We are well-reserved for our portfolio and our ACL reflects our expectation of tariffs and their effects as of quarter end.
Speaker Change: Live 15 provides an overview of the $13.6 billion CRE portfolio, which represents 23% of total loan balances.
Speaker Change: Notably, this portfolio continues to bane low levels of non-accruals and delinquencies.
Speaker Change: The portfolio is granular and well diversified by property type and location.
Speaker Change: with its growth carefully managed for over a decade through discipline concentration limits. [inaudible]
Speaker Change: Slide 16 provides a detailed view of the problem loans in our CRE portfolio.
Speaker Change: The chart on the right-hand side provides a breakout of which sub-portfolios grow changes in criticized and classified assets during the quarter.
of the 21 million increase in total classified loans. [inaudible]
Speaker Change: 26 million was driven by commercial real estate, primarily industrial and office credits, offset by improvement in multi-family class by balances as a result of full repayments on several credits.
Speaker Change: The chart on the bottom left-hand side of this 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.
Speaker Change: Overall, we continue to expect the CRE portfolio to perform well with limited losses based on the current economic outlook.
Speaker Change: The type of problems being experienced by borrowers, relatively low loan to value ratios, and continued
Our loss absorbing capital is shown on slide 17.
Common equity tier one ratio, this quarter was 10.8% [inaudible]
Speaker Change: This, when combined with the allowance for credit losses, compares well to our risk profile as reflected in top core top performance of low masses.
Speaker Change: and that AOCI improvement will continue through unrealized loss accretion in its securities portfolio, as individual securities pay down a mature, as shown on slide 22 of the appendix.
Speaker Change: Flight 18 summarizes our financial outlet for the first quarter of 2026, as compared to the first quarter of 2025.
Speaker Change: 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 care of outcomes, with the tended impacts on the economy.
Speaker Change: Our outlook includes somewhat wider ranges as a result and represent our best estimate of financial performance based on current information.
Speaker Change: We continue to expect positive operating leverage and improve efficiency as revenue growth outpaces expense pressures.
Speaker Change: 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?
Speaker Change: Absolutely. Thank you. We'll be conducting a question and answer session. If you'd like to ask a question, please press star one or your telephone keypad. The confirmation tone will indicate your line is in the question queue. You may press star two to remove yourself from the queue.
Speaker Change: For participants using speaker equipment and maybe necessary to pick up a handset before pressing the star keys, one moment while we pull for questions.
Speaker Change: And our first question comes from Manan Gosalia with Morgan Stanley . Please receive your question.
Hi, good afternoon.
Speaker Change: Harris, I totally hear you on the opening library. It is fairly difficult to prognosticate here, but I was hoping you could give us a more color on what you're hearing on the ground from clients.
Yeah, thanks. You know, I think it's still…
I think we got a lot of... [inaudible]
Speaker Change: Businesses in this country that are kind of trying to grapple with really what this is going to mean, whether it's, you know,
and, you know, question this, if...
Speaker Change: How far they'll actually allow the economy to get into the ditch before they...
before they start to...
Speaker Change: You know, perhaps pull back. I was talking to one to owner of a business recently, you noted that, you know,
Speaker Change: Most all of their manufacturing is done in China and Vietnam, said the only silver lining is all of my competitors are in the same boat and so I think that's
I think it's really hard to gauge.
How long, how deep? [inaudible]
Speaker Change: The impact could be, but if this goes on for a long period...
Speaker Change: I personally think it's going to be, has the potential to be. [inaudible]
you know, recently.
Speaker Change: Impactful, and really tough for a lot of businesses, small business and large businesses. I don't think it is going to...
Speaker Change: Distinguished 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.
So...
Speaker Change: I think it's still early to know, I think the equity markets are certainly reflecting a lot of concern about it, and
Speaker Change: That would extend to smaller businesses as well. I think it's going to have an impact on there.
Speaker Change: William Establed Inventories to not knowing kind of what the price point is that consumers are going to be willing to buy a product that, you know, when the costs are increasing pretty.
Speaker Change: Pretty significantly, and where you could see increased unemployment is a byproduct of all of this.
Speaker Change: So anyway, I think we're signaling every way possible that I just don't know that anybody can credibly say that they...
Speaker Change: I understand what the impacts are going to be. We haven't really been here before. Some people have likened this to, you know, the Smooth Holly, Terrace 1930. My voice is, it's a, it's really poor analogy because...
Speaker Change: The world was much less interconnected in 1930 and 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.
Speaker Change: I appreciate that. Maybe as a follow up to that in terms of your...
Net Interest Income Guide of Slyly to Moderately Increasing The End.
Speaker Change: How much of that risk is baked in and can you can you friend the risk around that NII guide and how much is already locked in and how much do you need long growth to pick up in order to achieve that?
Speaker Change: Yeah, I mean, that's where we, you know, we provide a slide there and Ryan spoke to this latent and emergent kind of, you know, great sensitivity.
Speaker Change: So, you know, we think a, you know, reasonable amount of it is baked in and reflected in the yield curve.
and so our outlook is largely predicated on that and...
and on Lone Growth, it's... [inaudible]
Speaker Change: That there may be likely to be kind of tepid this year, 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 long growth. And you know, we're all talking about animal spirits and everything else.
Speaker Change: A lot of those animals are going in the caves, kind of hibernating, waiting to see what happens with drape policy I think. I just think it's a tough time for...
Speaker Change: For businesses to be making long term decisions, investment decisions about their businesses in the absence of understanding kind of where all this policy is going to take us.
Speaker Change: Thank you, and our next question comes from Jon Pancari with Evacore ISI. Please receive a question.
John Pancari: Good afternoon. One of the CSFs can give us a little bit more.
John Pancari: Collar on loan growth, what you're seeing in terms of demand, are you seeing any weakening in the pipeline to me, you know, erosion in the pipeline, just given the uncertainty that you discussed. [inaudible]
Harris Simmons: Harris, 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? [inaudible]
John Pancari: I'm going to ask our Chief Guided Officer, Derek Steward, also, maybe, why don't you offer a couple thoughts and all, okay?
Wallace Harris indicated, I think.
Derek Stewart: So the borrowers just basically with the uncertainty that's occurring on the CNI 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...
Derek Stewart: to invest in and want to grow. On the CRE side we're actually seeing increased activity.
Derek Stewart: That's an area that actually is coming back. Interest rates certainly will play a bearing there over the year, but that's what we're seeing so far.
Derek Stewart: Okay, all right, thank you, and then separately, I actually uncredit. [inaudible]
Derek Stewart: They increased for a few quarters in the row there, but we did see the 30 to 89 day past these increased pretty sharply. Can you give us just a little bit of an update what's
John Pancari: And what are you seeing on the credit front? Any signs of incremental weakening in CNI credit to take note and maybe discuss your confidence in the adequacy of the reserve here? Thanks.
Derek Stewart: Well, let me start with the reserve. We're very, this is Derek, by the way. We're very comfortable with the reserve in where we established that. And correct, we're happy to see the stabilization in the CRE classifieds. [inaudible]
Derek Stewart: and hope that assuming the economy holds that that will continue to improve throughout the year.
Derek Stewart: As far as C&I, you know, it's holding up, it's stable. We've seen a little migration here and there into, more into criticize than classified.
Something certainly that we're watching for. [inaudible]
Derek Stewart: over the coming months. That nothing has jumped out there regarding an industry or trends that we've identified within CNI book.
Derek Stewart: I might just add, you know, on the 30-89 days past due, I mean, it's increased, you know, 57,000 to 105 million, it's bounced around, it's 114 times back in June , so you can have kind of a single deal that might...
Derek Stewart: Reed, that kind of change. I think the most, I'll just tell you how I think about, you know,
Derek Stewart: We've had a run-up in classifieds. That's fundamentally a large part due to projects, particularly commercial real estate, which is roughly two thirds of the total classified number.
Derek Stewart: which haven't performed according to their original projections, but which have a lot of underlying strength in terms of the equity? [inaudible]
Derek Stewart: If you look at the non-accrual number of commercial real estate, it's $57.5 million.
Derek Stewart: which is about 3% of the classified number of close to $1.7 billion.
Derek Stewart: and the non accrual number is, I mean, that is a very small handful of deals.
Derek Stewart: where we actually think we've probably got some loss that could be experienced.
Derek Stewart: by definition, if we stop accruing interest, if we think we're not going to get our interest in principle back. So, I would, you know, for I,
Derek Stewart: I think about how well I sleep. I focus a lot more on the non-aggural number than I do in the classified number. I think it's become much less meaningful.
Derek Stewart: as some of the guidance and policy, regulatory policy has changed around that.
Derek Stewart: and that metric. And that's why you see this continued really strong performance, no charge off this quarter, like it's at a single basis point on average for over the last five years.
Derek Stewart: And so, you know, we think that that portfolio is very strong. I think, Derek, you'd probably agree that if we have, we have concerns. There's probably more around CMI and kind of, and particularly given the impacts of trade policy. Exactly, yeah, that's it.
The C and I portfolio is what?
Speaker Change: What I would be concerned with versus the CRE portfolio, CRE portfolio really, you see also in the change in the class pides, the multifamily is actually performing and starting to reduce. I would expect that to continue to reduce with the lease up that's occurring. [inaudible]
Speaker Change: I've seen a little little increase in industrial and office, just at leasing in the industrial book is taking a little longer. Pretty much the same story as multi-family over the last several quarters. I would expect over time that those will get leased up and start producing as well.
Speaker Change: Thank you, and our next question comes from Bernard Van Gizycki with Deutsche Bank. Please
Speaker Change: Yeah, hi, good afternoon. Just wanted to follow up if the revenue environment comes in weaker than expected. Are there any expenses that can be pulled back or investments slowed to kind of like size the expense base to maintain that positive up X outlook? Thank you.
Speaker Change: Well, we'll absolutely be working at that. I mean, we've been pulling a lot of levers, our head count is down roughly three percent or something like that from last year. And so that's something we're always working at.
Um...
Speaker Change: So the answer is yes, it will be a real focus if revenues drift down.
Speaker Change: 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, etc.
Speaker Change: We've noted, for example, we said in prior quarters that...
Speaker Change: We expect to wrap up some marketing spend. I think that becomes actually...
Speaker Change: I think that's going to help protect the downside in terms of growth, but it's just an opportunity as others tighten. I think we've had the benefit of really good credit quality.
Speaker Change: and my hope and expectation is that that will place us in a really good place to be able to bring business on.
Speaker Change: that others might be trying to back out of, we're not going to do it foolishly, we're not going to take, you know, going to take on problems, but
Speaker Change: But we are going to stay focused on continuing to build business through all of this.
I would just add to that, Scott, I'm claiming that... [inaudible]
Speaker Change: As we've said for years, that rarely has there been one or two key expense initiatives.
Speaker Change: There's just this portfolio of opportunities that exist in a company our size.
Speaker Change: and particularly a company that is still pretty much evolved from our legacy.
Highly customized...
at any point in time we've got. [inaudible]
Speaker Change: Couple of dozen to 30 active expense opportunities that we're pursuing, none of which by themselves, you know, caused one to just go wild, but collectively it allows us to, you know, dampen at the expense growth.
I appreciate that. Maybe just a follow-up.
Speaker Change: on the customer-related fee income. Obviously, you know, the cat market seems to be the biggest swing on the outlook given the recent uncertainty, you know, versus last quarter, it seems to be maybe kind of a size contributor. Just maybe on the other parts in customer-of-the-income, can you just walk us through, you know, any expectations there, anything to be mindful of, whether it's a little bit lower or better.
Speaker Change: Yeah, certainly. Our customer fees were about 160 million in the first quarter. And yes, that was down from 171 million. But if you look at the four or five quarters leading up to that, we had been sort of in the 150 million, $155 million range. So 160...
Speaker Change: compared to the last five quarters or so prior to that fourth quarter. You know, 160 is a good number, and I think
that the capital markets run rate.
Speaker Change: So, at 160, it's a good solid number. You know, the other major components, capital of [inaudible]
1020 Mayanish of our total customer fees of...
$135 million, I'm sorry, $635 million.
Speaker Change: Treasury Management is the largest contributor to that's the basic operating services we provide to companies. That is the largest contributor at about $190 million. So it's a workhorse for us.
Speaker Change: And we're actually seeing some stabilization in our retail and business service charges as well as CARD. CARD is about $100 million revenue business for us.
Speaker Change: and we think the first quarter didn't show a lot of growth in our mortgage related fees, but the way we've...
Transition of that business.
to more of a health for sale business. [inaudible]
Speaker Change: It will be more p-oriented and less loans that we keep on our balance sheet.
Speaker Change: and so we think we didn't fully see the growth in that that we expect to see going forward. And then our wealth business, we've talked about a good bit.
is definitely a growth business for us. And, um,
Speaker Change: It's about a $60 million revenue business a year, and we think we're to realize a collection point there.
Those are some of the relative sizes. [inaudible]
but most of our fee income groups. [inaudible]
Speaker Change: to see mid-single-digit growth would not be inconsistent with what we've done for the last 10 or 12 years and with kind of a special opportunity with capital markets, wealth, and maybe on the mortgage feed side in the coming months.
Speaker Change: and keeping an eye on the performance of the financial markets and what bearing that has on our wealth business for the years in another area that we're watching.
Thank you.
John Arfstrom, John Arfstrom, John Arfstrom, John Arfstrom,
Speaker Change: and our next question comes from Peter Winter with D.A. Davidson. Please receive your question.
Good afternoon. You guys in February announced a 40 million
Speaker Change: Aside from the focus on organic growth, what is the body constraint, not to be more aggressive with bybacks is that CET-1 inclusive of AOCI?
Speaker Change: Thank you, Peter. I think you said that right. We now have a pattern here, at least coming into this year, falling from last year.
Speaker Change: I'm trying to sort of normalize for the share-based compensation payments that tend to go out in the first quarter of the year and try to neutralize that in terms of this impact.
Speaker Change: But in terms of how we think about capital more broadly, you know, not knowing exactly what comes from here on the regulatory side but I think understanding more clearly how the market sort of views banks.
Speaker Change: It tends to be more on an X-A-O-C-I perspective. And so when we adjust our C-T-1 ratio with that X-A-O-C-I, we still think there's room to build to kind of get back to where we want to be around to your median or better. Okay.
Okay, thanks, Brian , and then-
Could I just ask, also, just
Speaker Change: with regards to the Rowling Hope Month guidance, not to get nitpicky, but can you just remind us what the percentage ranges would be in terms of slightly increasing, modeling, increasing, etc. Just slowly realizing there's a lot of uncertainty, but just what those nuances are. [inaudible]
Speaker Change: and a hard fast rule for the definitions for those terms, I think.
Harris Simmons: They reflect kind of qualitatively how we're thinking about things. I think that's right. I think some of the expressions we might use for slightly would be like low single digits, moderately being mid single digits. But the bounds of that air, so you're right, it depends on the amount of uncertainty that's in the environment, the time it out, why those bounds can. Okay, you're right.
Speaker Change: All right, and our next question comes from Ben Gerlinger with City. Please receive it with your question.
Speaker Change: Hey, guys, I appreciate the time. I apologize if this is a duper kick, so off-collection in there for a minute, but what do you think about?
Speaker Change: Department of Pricing, overall 4Q going into 1Q, Department of Pricing trends, and then pretty strong.
Speaker Change: Or in your favor, I guess you could say, but here's if you can show any more color on either March margin or any margin pricing itself, just kind of think about how we should think about to use starting off for it.
Speaker Change: Yeah, listen, thank you for the observation and I think so far through the cycle. We've seen the kind of response and deposit pricing that I think we would have signaled in hope for. I shared in my prepare remarks a spot rate for the end of March and that's probably by as far as we've gone in terms of what we've offered up for a point time kind of how we're doing outside of our broader one year forward guidance.
Speaker Change: But that's Byray was 0.7% if you didn't catch it, my prepared remarks.
Speaker Change: Jackson, okay, that's helpful. And then I'm from looking at the pilot pricing trends in general.
Speaker Change: Do you think you could lower the further from here without cuts? Let's say the Fed is entirely on hold, or is it more so dependent upon kind of action at the Fed itself?
Speaker Change: Another excellent question. We do believe that there's a bit more room there because of the latency and the pricing down of turned deposits that hasn't played all the way through.
Speaker Change: So even without additional rate cuts we believe that there's still a little bit of room for maneuver, but there is a practical limit of course as you know that we want to 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.
Speaker Change: and the work competitive on the rate paid, and historically we've done really well on that front. Thank you very much.
Speaker Change: One of our next questions comes from Ken Usdin with Autonomous Research. Please receive your question.
Ken Usden: Thanks a lot, guys. One follow-up on the liability side. You still have a bunch of FHLPs, and it looks like brokerage. I think you still have some brokerage inside time, and in the other borrowings. How much?
Ken Usden: Lee Wei and Levers, you still have also to reduce funding on the lower right side of the balance, you'd especially if Long Growth doesn't pan out as as hoped.
Ken Usden: Yeah, that's kind of, we sort of think of that short-term borrowing and the brokerage's all kind of one big unit.
Ken Usden: Hopefully not too big. We like to have that shrinking over time. And as you know, it's just so beholden.
Ken Usden: to what we see in the deposit or reaction and price function.
How successful we are in growing that base. [inaudible]
Ken Usden: 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, how common, while allowing for that $1.7 billion of migration, you know, from non-experient to time deposits.
Ken Usden: But not knowing exactly what that looks like and how we can defray those short-term borrowings together with Barbara CDs and also with the pattern we have in the pay down our investment securities portfolio having about one half of that or more that rolls out for those based on those cash flows that are not reinvested.
Ken Usden: 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.
Ken Usden: But as you saw, we've had some success here recently and bringing down those brokerage CDs a little bit.
Ken Usden: and there's been some work done by our Treasury team, trying to change the pattern. There's been a little bit of lumpiness and maturities that we've been trying to stage out and make it more radical through the course of a quarter. So as we continue to work that down and with deposit growth, we expect better outcomes there.
Okay.
Speaker Change: You talk about the managed declines in Sierra 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? Yeah, that's true.
Ken Usden: 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? [inaudible]
Yeah, it kind of cut off, I, I, well...
Ken Usden: Let me just start on the one-to-four family. One of the reasons that's continued to grow is it's...
Ken Usden: If construction loans funding up into the term loans under a program, we call it the one time Closed Program that we've had with the customers. That's kind of approaching.
Ken Usden: A point where we would expect that that starts to not play the kind of role it's played in the past.
Speaker Change: CRE, maybe a state of CRE piece. Yeah, exactly. On CRE, I mean, as we continue to work with our customers on some of the classifieds, depending on where the interest rates go, one avenue is
Speaker Change: So, we do expect some true refinance out some to sell properties as well. A lot of the theory actually started as construction loans and that's why you see it growing. These are construction loans funding up that reduce new originations that we wouldn't expect to. [inaudible] We're going to have a lot of money.
and Marshall Real Estate.
Harris Simmons: And for what it's worth of the alone growth that Harris noted in his remarks that were attributable to the first bank acquisition, the majority of those loans that we acquired were one of four family resi, so that's what was happening in the most recent period that was probably driving some of that.
Speaker Change: Thank you, and our next question comes from Anthony Elian with J.P. Morton. Please proceed with your question.
Anthony Alleyne: Hi everyone, one on long growth was was any growth in the quarter you saw due to pull forward late in one queue particularly if I noticed that period and balances were a few million a few hundred million dollars higher than the average number
Anthony Alleyne: Yeah, I think that's what you're seeing there is the very end of March or towards the very end of March, is when we executed, officially closed on the Coachella for branch acquisitions was brought up our spot for a period end that would not as there wasn't very much in the average for the quarter, I think that's what you're seeing in the numbers.
Anthony Alleyne: Okay, and then my follow-up on credit quality, could you talk more about any low-import photos or specific bars you're watching now that may have outsized exposure to tariff supply chain, and maybe if you can size them up for us, thank you.
Anthony Alleyne: We're watching the ones that you would be concerned with tariffs on things manufacturing, machinery, and equipment, trucking and transportation.
Anthony Alleyne: Consumer Products and Retail, sizing all that up. I'm not sure the exact amount of all of those components. I think the one that we're watching closest is trucking and transportation. Trucking work would be less than 500 million.
Spud, it's an area that we're watching. And, um...
Those are the segments that we're focused on primarily today.
Speaker Change: Thank you, and our next question comes from Chris McBrady with KBW. Please proceed with your question.
Chris McGrady: Great. Thanks. Harris, your comments about the animal spirits reversing. I'm interested in your thought. Is the damage done for the year, meaning the sentiment is turned so negative that businesses are kind of penciled down for the remainder or kindness?
Speaker Change: If we're having this conversation in three months, could this be significantly a better tone in terms of optimism?
I, the cleanest can change, A.
Speaker Change: Listen, just my own opinions, kind of your questions, kind of how... [inaudible]
Speaker Change: To what extent you have an administration that's been itself into a corner with what they're trying to do with trade policy?
Speaker Change: You know, if I, you know, part of my thesis is that you're actually going to see a lot of pressure from the Congress, from Republicans in the Congress.
Speaker Change: 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.
I was at lunch today with...
member of Congress, who is Republican, who is...
Speaker Change: You know, clearly, it's a very, very fun center and at least his mind, I think that's probably true of a whole bunch of them. And so how, you know, how this plays out, I think it's...
Speaker Change: It's going to be fascinating. I don't know how it's going to play out, but I don't think it's too late to...
Speaker Change: You know, if the one thing the one thing that Donald Trump is pretty good at is is pivoting and you know he's he's you know I'd like to think it could change and
Speaker Change: as they get more feedback from markets, from constituents, members of Congress, etc.
I wouldn't think this is necessarily a foregone conclusion.
Speaker Change: That's why one of the reasons I think that it's so hard to predict what happens here from now.
Speaker Change: Okay. Thank you. And then I guess I follow up is just more of a clarification on the operating leverage.
Speaker Change: 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?
Speaker Change: Yeah, thank you for that. I'm sorry if I wasn't clear. In terms of how we talk about, of course, I think folks here are familiar with our approach of going.
Speaker Change: 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 1-2% range based upon what we're seeing right now.
Speaker Change: And great, then our next question comes from Jon Arfstrom with RBC Capital Markets. Please receive with your question.
Thanks, good afternoon, everyone.
John Armstrong: Hey, just back on loans, we've talked about a lot during the call but do you expect to grow loans in the second quarter or is the evidence?
Speaker Change: Piling up to the point where you expect a pullback in balances. Thank you very much.
Speaker Change: I think we expect to see someone else in the second quarter.
Speaker Change: Again, we haven't seen, it's not like we've seen kind of a quick blast pullback, you know, we just...
Speaker Change: I can be an idler, at least the kind of wheels I see coming through the pipeline looks like, you know, things are...
Things are still...
Speaker Change: There's still a lot of business being done. Yeah, this is Derek. I would expect that we'll continue to grow loans even through this.
Speaker Change: Yeah, that's very helpful. Even with the discussion that I had on CRE, potentially reducing, depending on where rates go, I think with, you know, some of that can be offset as we continue new
and I've gone, I think, you know, we've...
Speaker Change: You know, it's not robust growth, but it's growth. And so, you know, I think what we're saying is yeah, we probably can...
Speaker Change: We continue that kind of modern growth that's sort of going on. It's very different than the, you know, five or six quarters that preceded all that, where we had some of the largest quarters of long growth in our history.
Speaker Change: Yeah, that's helpful. We're just going to my apically focused on the negative. And I just wanted to clarify for that.
Speaker Change: that have happened already that would benefit Zions. I'm thinking about category 4, maybe that could be eased. Just curious where your heads are on in terms of the regulatory outlook and what may have happened already.
Speaker Change: Yeah, I mean, I'd start by saying as we said previously, the whole $100 billion threshold category four kind of thing.
Speaker Change: It really has not been keeping us awake at night. We built so much of the machinery for that.
Back post-Dodd Frank before the 2018 legislation that...
Speaker Change: that, you know, we've maintained it, still use it, et cetera. And I think we're reasonably good shape, whatever happens. But I do think that...
I mean, I'm quite encouraged by... [inaudible]
Speaker Change: What I'm seeing in terms of this administration's selection so far for-
to run these agencies. [inaudible]
Speaker Change: And if you read what Mickey Bowman said, I'll settle out of the tone for it. I mean, clearly they're going to focus on kind of tapering. If you go, go talk to Frank Schill.
Speaker Change: Chair of the House Financial Service Committee, he's very focused on making sure that we don't suffocate this industry. And then Scott Besson is indicated he's going to take a...
and a stronger role in policy making...
Speaker Change: 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 he's gone into private credit.
Speaker Change: He would say that, you know, 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 the point of being productive.
and so I think it's going to be a much... [inaudible]
more sort of thoughtful
Thank you. Thank you. Thank you.
Speaker Change: Let's make sure to focus on basics. You know, let's focus on...
Thanks.
Speaker Change: You know, politically correct or not. I'd say, I mean, all the focus that was being shown, you know, climate change. We just don't see it in our portfolio. We've been through some kind of severe events in our history, Hurricane Harvey. [inaudible] We've been through a lot of times
Speaker Change: Drouts and loud fires, and it doesn't show up in low losses. So let's not spend a lot of energy on stuff, it just doesn't matter. And let's get better at the things that do. I think that's the kind of...
Speaker Change: Regulations. We're going to see out of this administration. And I think that's a...
Speaker Change: That's a welcome thing. I don't think any of anybody in this industry is looking for weak regulation. We're looking for sensible regulation that's focused on real risk and
Speaker Change: That's where I think they'll be and that's where we'd be comfortable having them.
Speaker Change: Thank you. And with that, there are no further questions at this time. I would like to turn the floor back to Shannon Drage for closing remarks.
Shannon Drage: 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 email or phone number listed on our website. We look forward to connecting with you throughout the coming months. This concludes our call.
Shannon Drage: Thank you. This does conclude today's teleconference. We thank you for your participation. You made this connection lines at this time.
This concludes the pullback affairs.