Zions Bancorporation, National Association (NASDAQ:ZION) Q1 2025 Earnings Call Transcript

Zions Bancorporation, National Association (NASDAQ:ZION) Q1 2025 Earnings Call Transcript April 21, 2025

Zions Bancorporation, National Association beats earnings expectations. Reported EPS is $1.24, expectations were $1.2.

Operator: 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. [Operator Instructions] As a reminder, this conference is being recorded. It is now my pleasure to introduce, Shannon Drage. Thank you, Shannon. You may begin.

Shannon Drage: Thank you, Julian, and good evening, everyone. Welcome to our conference call to discuss the first quarter earnings for 2025. My name is Shannon Drage, Senior Director of Investor Relations. I would like to remind you that during this call, we will be making forward-looking statements. Please note that actual results may differ materially. 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-GAAP measures, which applies equally to statements made during this call. A copy of the earnings release as well as the presentation are available on zionsbancorporation.com. For our agenda today, Chairman and Chief Executive Officer, Harris Simmons will provide opening remarks.

Following Harris’ comments, Ryan Richards, our Chief Financial Officer will review our financial results. Also with us today are Scott McLean, President and Chief Operating Officer; Derek Steward, Chief Credit Officer; and Chris Kyriakakis, Chief Risk Officer. After our prepared remarks, we will hold a question-and-answer session. This call is scheduled for one hour. I will now turn the time over to Harris Simmons.

Harris Simmons: Thanks very much, Shannon, and good evening, everyone. We are generally pleased with our fundamental performance and the financial results for the first quarter, which reflects meaningful year-over-year improvement. Our ratio of non-performing assets to loans, leases and other real estate owned remained stable last quarter, though up somewhat from last year. Net loan charge-offs remained low. And our allowance for credit losses is well aligned with the current economic outlook. We feel well positioned for what could be a period of increased economic uncertainty. I suspect that we would all agree that prognostication about loan growth, unemployment, the path of interest rates and other drivers of the performance seems especially challenging at the present moment.

Consistent with our determination to build an AI-enabled culture, I asked ChatGPT for help in explaining the world we are now living in. I got this. Trump’s tariffs have caused quite a fuss with markets unsure who to trust. Will prices ascend, will trade wars extend or will growth just stall in the dust. That actually seemed to explain the times we are in pretty well, I thought. In our presentation materials and the remarks that Ryan will make, we are providing an outlook for the first quarter of 2026. While the outlook guidance always comes with disclaimers about the limitations of forward-looking statements, it’s worth emphasizing the particular difficulty right now for us and everybody else in this industry in forecasting results a year from now.

While this heightened uncertainty has led to notable market volatility, the reality is that managing risk and uncertainty is a core part of what we do and it doesn’t distract from our commitment to serving our customers and improving customers’ experiences with us. On that note, we are pleased to once again be recognized by Coalition Greenwich as one of the top 10 banks in the industry and garnering Best Bank Awards in a variety of categories, including being ranked third nationally and serving middle market clients, all as measured by the results of approximately 25,000 surveys conducted across the country. During a time of increased uncertainty for businesses and consumers will be paying a particular attention to staying close to clients and understanding their challenges and helping them in every way we prudently can in the months ahead.

We were pleased to welcome new customers to our California Bank & Trust affiliate following the acquisition of four branches in the Coachella Valley of California from FirstBank in Denver, Colorado in late March. This acquisition added approximately $630 million of deposits and $420 million in loans, which when added to our own existing business in that market gives us a meaningful share of what is really a very attractive market in Southern California. As pleased as we are with the new customers we are serving there, we are equally pleased with the quality of the employees who joined our team as a result of this acquisition. They are absolutely first rate, and we welcome them to our team. Shifting now to financial results for the quarter. Key metrics for the quarter are presented on Slide 3.

Net earnings for the quarter were $169 million or $1.13 per share, representing an 18% improvement compared to the same period last year. Compared to the prior quarter, earnings declined due to the seasonality in share-based compensation and payroll taxes, a reduced headcount, a decrease in non-interest income at a higher effective tax rate, which I’ll discuss in a moment. This was somewhat offset by reduced provision expense and reduced preferred dividend costs. The net interest margin increased for the fifth consecutive quarter to 3.10% compared to 3.05% in the previous quarter. Improvement during the quarter reflects the downward repricing of a significant portion of both customer and brokered term deposits and continued discipline in repricing across the other deposit categories, particularly in the highest cost products.

The average cost of interest-bearing deposits decreased by 26 basis points compared to the previous quarter and by 55 basis points versus the year ago period. First quarter adjusted pre-provision net revenue, or PPNR, was $267 million, an increase of 10% from the $242 million achieved a year ago. Efficiency ratio was seasonally higher, though improved over last year’s period. Deposits decreased both on an ending and average basis in the first quarter, including the impact of Coachella-related deposits added in late March. Non-interest-bearing deposits remained relatively stable at 33% of total deposits. Average loans experienced modest growth of 0.5% on a linked-quarter basis. 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.

There were no charge-offs in the CRE portfolio and the non-accrual ratio of CRE loans remained low at 43 basis points. Incidentally, over the past five years, during which there have been CRE-related concerns about the Amazon effect on retail properties, the impact of increased work-from-home on office properties and somewhat weaker performance in the multifamily segment of the industry. Annual net charge-offs and our $13.6 billion CRE portfolio have averaged a mere 1 basis point, which by most any measure, is really outstanding performance over a five-year period. Moving to Slide 4. Diluted earnings per share, again, was $1.13 compared to $1.34 in the prior period and $0.96 in the year ago period. This quarter’s results include an $0.11 per share charge to income tax expense related to a required revaluation of our deferred tax assets associated with accumulated other comprehensive income, all resulting from a beneficial Utah tax law change on securities portfolio income.

This one-time revaluation will largely accrete back in the income over the life of the related securities. The law change is beneficial because apart from the timing difference of the deferred tax asset accounting treatment, the legislative change will serve to reduce the tax on investment income in future periods. Slide 5 provides a five-quarter view of pre-provision net revenue. As previously noted, on an adjusted basis, our first quarter results of $267 million reflect an improvement of 10% over the prior year period. With that high-level overview, I’ll turn the time over to our Chief Financial Officer, Ryan Richards, for additional details related to our performance. Ryan?

Ryan Richards: Thank you, Harris, and good evening, everyone. Building on Harris’ remarks, I will begin by deconstructing the components and drivers of pre-provision net revenue. Beginning on Slide 6, you will see the five quarter trend for net interest income and net interest margin. As Harris noted, the net interest margin increased for the fifth consecutive quarter. Net interest income increased by $38 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. Slide 7 presents additional details on changes in the net interest margin. The linked-quarter waterfall chart on the left outlines the changes in both rate and volume for key components of the net interest margin.

The net interest margin expanded by 5 basis points sequentially to primarily to lower cost of deposits. Against the year-ago quarter, the right hand chart on the slide presents the 16 basis point improvement in the margin, which also benefited from the improved cost of deposits as well as improved borrowing costs, reflecting both lower rates paid and a $570 million decrease in average borrow funds year-over-year. Moving to non-interest income and revenue on Slide 8. Customer-related income was $158 million for the quarter, a decrease of 10% on a linked-quarter basis and 4% increase versus the year-ago quarter. A reduction in capital market fees versus the prior quarter’s record performance was the primary driver for the sequential decline in customer-related fee income.

While down from the prior quarter, the first quarter marked the third best quarter for capital markets in our history. As indicated on Page 3 of the earnings release, effective this quarter, the capital markets fees income statement line item includes the fair value and non-hedged derivative income also referred to as credit valuation adjustment or CVA income. This income has historically been presented in non-customer related fees. Prior periods have been reclassified for comparability and CVA income or loss continues to be excluded from adjusted revenues used in PPNR and the efficiency ratio calculation. The chart on the right side of this page presents both total revenue and adjusted revenue for the most recent five quarters, which were impacted by the factors previously noted for net-interest income and customer-related fee income.

Our outlook for customer-related fee income for the first quarter of 2026 is slightly to moderately increasing relative to the first quarter of 2025 and contemplates lower capital markets growth than anticipated in the prior quarter given current economic uncertainty. Slide 9 presents adjusted non-interest expense in the lighter blue bars. Adjusted expenses increased by $24 million versus the prior quarter to $533 million. This is largely attributable to first quarter seasonality related to share-based compensation and payroll taxes. Deposit insurance and regulatory expense also increased $5 million during the quarter, due in large part to increase assessment and view of classified asset [bounded] and recent periods as well as activity in the fourth quarter of 2024.

Reported GAAP expenses at $538 million increased by $29 million compared to the prior quarter. Our outlook for adjusted non-interest expense for the first quarter of 2026 is slightly to moderately increasing relative to the first quarter of 2025. Slide 10 presents five quarter trends in our average loans and deposits. Average loans increased 0.5% over the previous quarter and 3% over the year-ago period. Total loans declined by 8 basis points sequentially, total loans yield, I should say, declined by 8 basis points sequentially. 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 tariff impacts.

Growth is expected to be led by commercial loans offset somewhat by managed declines in mortgages and commercial real estate exposures as payoffs are expected to outpace new originations. 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 outflows in early January. This decline was only slightly offset by the $78 million impact of full-quarter average deposit balances from the Coachella Valley branch acquisitions in late March that Harris alluded to earlier. Average non-interest-bearing deposits declined approximately $600 million or 2.4% compared to the prior quarter. The cost of deposits declined by 17 basis points to 1.76%. On average, the rate on interest-bearing deposits was 2.61% for the quarter compared to 2.87% in the prior period.

The interest-bearing deposit spot rate at March month end was 2.54%, and the total deposit spot rate was 1.7%. Slide 11 provides additional details on funding sources and total funding cost trends. Presented on the left are ending deposit balances, which decreased by $531 million versus the prior quarter including a $319 million decrease in interest-bearing deposits that was partially offset by an $88 million increase in non-interest-bearing demand deposits. As noted by Harris, the four acquired Coachella Valley branches added approximately $630 million in period-end deposits. On the right side, average balances for our key funding categories are shown along with the total funding cost. As seen on this chart, our total funding costs declined by 11 basis points during the quarter and include a full quarter impact of the fourth quarter subordinated note issuance of last year, which increased quarterly debt expense, but was more than offset in earnings by the reduction in preferred dividends.

Moving to Slide 12. Our investment portfolio exists primarily to be a storehouse of funds to absorb customer-driven balance sheet changes, allowing for deep liquidity through the repo market. Here, we present our securities and money market investment portfolios over the last five quarters. Maturities, principal amortization and prepayment-related cash flows from our securities portfolio were $743 million in the quarter or $265 million when considered net of reinvestment. The paydown and reinvestment of lower-yielding security continues to contribute to the favorable remix of our earning assets as well as a means to manage down our wholesale funding costs. The duration of our investment securities portfolio, which is a measure of price sensitivity to changes in interest rates, is estimated at four years.

While we have provided standard parallel interest rate shock sensitivity measures on Slide 28 in the appendix of this presentation, we present on Slide 13, our view of net interest income sensitivity, assuming rates follow the implied path as of March 31, which assumes the Fed funds target reaches 3.75% by the first quarter of 2026. As expectations on the rate path continue to evolve, we have brought back our more dynamic view of latent and emergent interest rate sensitivity. As a reminder, this slide presents a model view of rate sensitivity based on static balance sheet assumptions, while allowing for some additional migration of non-interest-bearing deposits into higher cost time deposits. This view does not include expected balance sheet changes, pricing strategies and other strategic opportunities that will be included in the net interest income guidance.

With those assumptions in mind, the latent sensitivity is estimated to be 8.9%, which assumes no future rate cuts, but reflects the net interest income path based on past rate movements that have not yet been fully realized in revenues. When combined with the emergent sensitivity, which includes the incremental impact of the future rate changes included in the forward curve, the implied net interest income in the first quarter of 2026 is modeled to be 4.6% higher when compared to the first quarter of 2025. We also provide 100 basis point shocks to the rates implied by the forward path which suggests a sensitivity arrangement between 2.1% and 6.6%. Our outlook for net interest income for the first quarter of 2026 is slightly to moderately increasing relative to the first quarter of 2025.

The sensitivity associated with this guidance includes risks and opportunities, including realized loan growth, competition for deposits and depositor behavior, the path of interest rates across the yield curve and the unknown future impacts of the imposition of tariffs and resulting market volatility. We begin our discussion of credit quality on Slide 14. Realized losses in the portfolio continue to be very manageable at $16 million this quarter or 11 basis points annualized. We continue to benefit from significant borrower equity, strong sponsor support and continued operating cash flows. Non-performing assets and classified loan balances increased quarter-over-quarter by $9 million and $21 million, respectively. The allowance for credit losses was relatively stable versus prior quarters at 1.24%, and the loan loss allowance coverage with respect to non-accrual loans was 229%.

We are well reserved for our portfolio and our ACL reflects our expectation of tariffs and their effects as of quarter end. Slide 15 provides an overview of the $13.6 billion CRE portfolio, which represents 23% of total loan balances. Notably, this portfolio continues to remain at low levels of non-accruals and delinquencies. The portfolio is granular and well diversified by property type and location with this growth carefully managed for over a decade through disciplined concentration limits. Slide 16 provides a detail view of the problem loans in our CRE portfolio. The chart on the right-hand side provides a breakout of which sub-portfolios drove changes and criticized and classified assets during the quarter. Of the $21 million increase in total classified loans, $26 million was driven by commercial real estate, primarily industrial and office credits, offset by improvement in multifamily classified balances as a result of full repayments on several credits.

The chart on the bottom left-hand side of the slide reflects the LTV distribution of classified CRE loans, with more than two-thirds of those classified loans having LTVs less than 60% when examined by either recent appraisal or index adjusted values. Overall, we continue to expect the CRE portfolio to perform well with limited losses based on the current economic outlook, the type of problems being experienced by borrowers, relatively low loan-to-value ratios and continued sponsor support. Our loss-absorbing capital is shown on Slide 17. The common equity Tier 1 ratio this quarter was 10.8%. This, when combined with the allowance for credit losses, compares well to our risk profile as reflected in top quartile performance and loan losses. We expect our common equity from both the regulatory and GAAP perspective to increase organically through earnings and that AOCI improvement will continue through unrealized loss accretion in the securities portfolio at individual securities pay down to mature, as shown on Slide 22 of the appendix.

Slide 18 summarizes our financial outlook for the first quarter of 2026 as compared to the first quarter of 2025. As Harris mentioned in his opening remarks, while there is always a degree of imprecision in our outlook, there is more than the usual level of uncertainty as we, along with all of you await clarity around trade policy and tariff outcomes with attendance impacts on the economy. Our outlook includes somewhat wider ranges as a result and represent our best estimate of financial performance based on current information. We continue to expect positive operating leverage and improved efficiency as revenue growth outpaces expense pressures.

Shannon Drage: 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?

Q&A Session

Operator: Absolutely. Thank you. We’ll be conducting a question-and-answer session. [Operator Instructions] And our first question comes from Manan Gosalia with Morgan Stanley. Please proceed with your question.

Manan Gosalia: Hi. Good afternoon. Harris, I totally hear you on the opening Limerick. It is fairly difficult to prognostic ADR. But I was hoping you could give us some more color on what you’re hearing on the ground from clients, what are you seeing from middle market and small business customers over the past few weeks in terms of sentiment?

Harris Simmons: Yes, thanks. I think it’s still – I think we’ve got a lot of businesses in this country that are kind of trying to grapple with really what this is going to mean, whether it’s a grand kind of negotiation, I think that the administration is trying to conduct. And a question as to how far they’ll actually allow the economy to get into the ditch before they start to perhaps pull back. I was talking to one owner of a business recently. He noted that most – all of their manufacturing is done in China and Vietnam, said the only silver lining is all of my competitors are in the same boat. And so I think it’s really hard to gauge how long and how deep the impact could be. But if this goes on for a prolonged period, I personally think it’s going to be – has the potential to be reasonably impactful and really tough for a lot of businesses, small business and large businesses.

I don’t think it is going to distinguish between the size of the business, it’s really all about where their inputs are coming from. And we’ve moved so much of our manufacturing base to other places, and particularly Asia in the last 20 or 30 years that the idea that you can bring that back quickly is kind of far fetched in my mind. So I think it’s still early to know. I think the equity markets are certainly reflecting a lot of concern about it. And that would extend to smaller businesses as well. I think it’s going to have an impact on their willingness to build inventories to not knowing kind of what the price point is that consumers are going to be willing to buy a product that where the costs are increasing pretty significantly and where you could see increased unemployment is a byproduct of all of this.

So anyway, I think we’re signaling every way possible that I just don’t know that anybody can credibly say that they understand what the impact is going to be. We haven’t really been here before. Some people likened this to the Smoot-Hawley tariffs 1930. My belief is it’s really poor analogy because the world was much less interconnected in 1930 it is today. And so I don’t think we have any history that gives us much of a guide personally. So that’s my own take on it.

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

Harris Simmons: Yes. I mean that’s where we provide a slide there, and Ryan spoke to this latent and emergent kind of rate sensitivity. So we think a reasonable amount of it is baked in and reflected in the yield curve. And so our outlook is largely predicated on that. And on loan growth, that maybe likely to be kind of tepid this year. I think if you’d asked us three months ago, we’d have said, we thought it was going to be a pretty good year in terms of loan growth. We’re all talking about animal spirits, everything else. A lot of those animals have gone into the caves kind of hibernating, waiting to see what happens with trade policy, I think. I just think it’s a tough time for business to be making long-term decisions, investment decisions about the businesses in the absence of understanding kind of where all this policy is going to take us.

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

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

Harris Simmons: Yes. I’m going to ask our Chief Credit Officer, Derek Steward, to also maybe – why don’t you offer a couple of thoughts on it?

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

John Pancari: Okay. All right. Thank you. And then separately, actually on credit, it’s good to see stability in the classified assets after the increase for a few quarters in a row there. But we did see the 30 to 89 day past dues increase pretty sharply. Can you give us just a little bit of an update what drove that? And what are you seeing on the credit front? Any signs of incremental weakening in C&I credit to take note and maybe discuss your confidence in the adequacy of the reserve here? Thanks.

Derek Steward: Well, let me start with the reserve. This is Derek, by the way. We’re very comfortable with the reserve and where we have established that. Correct, we’re happy to see the stabilization in the CRE classifieds and hope that assuming the economy holds that, that will continue to improve throughout the year. As far as C&I, it’s holding up. It’s stable. We’ve seen a little migration here and there into – more into criticized than classified. It’s something certainly that we’re watching for over the coming months. But that nothing has jumped out there regarding an industry or trends that we’ve identified within the C&I book.

Harris Simmons: I might just add, on the 30 to 89 days past due, I mean, it’s increased to $57 million or $105 million. It’s bounced around it’s [$114 million] back in June. So you can have kind of a single deal that might create that kind of change. I think the most – I’ll just tell you how I think about. We’ve had a run-up in classifieds. That’s fundamentally due in a large part due to projects, particularly commercial real estate, which is roughly two-thirds of the total classified number which haven’t performed according to their original projections, but which have a lot of underlying strength in terms of the equity, the sponsorship, et cetera. And if you look at the non-accrual number for commercial real estate, it’s $57.5 million, which is about 3% of the classified number of – close to $1.7 billion.

And the non-accrual number is – I mean, that is a very small handful of deals where we actually think we’ve probably got some loss that could be experienced. By definition, if we stop accruing interest, if we think we’re not going to get our interest and principal back. So I would – when I think about how well I sleep, I focus a lot more on the non-accrual number, but I do a classified number. I think it’s become much less meaningful as some of the guidance policy, the regulatory policy has changed around that metric. But that’s why you see this continued really strong performance, no charge-offs this quarter. Like I said, single basis point on average over the last five years. And so we think that, that portfolio is very strong. I think Derek you’d probably agree that if we have concerns, it’s probably more around C&I and kind of particularly given the impacts of trade policy.

Derek Steward: Exactly. The C&I portfolio is what I would be concerned with versus the CRE portfolio. CRE portfolio really, you see also in the change in the classifieds, the multifamily is actually performing and starting to reduce. I would expect that to continue to reduce with the lease-up that’s occurring. So a little increase in industrial and office just as leasing in the industrial book is taking a little longer, pretty much the same story as multifamily over the last several quarters. I would expect over time that those will get leased up and start reducing as well.

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

Bernard von Gizycki: Yes. 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 investment slowed to kind of rightsize the expense base to maintain that positive OpEx outlook?

Harris Simmons: Well, absolutely, we’ll be working at that. I mean we’ve been pulling a lot of levers. Our headcount is down about – it’s down roughly 3% or something like that from last year. And so that’s something we’re always working at. So the answer is yes, it will be a real focus if revenues drift down. But at the same time, I think we’re pretty determined to run this place for the long run. We want to be careful that we’re not cutting in places that actually create further problems in terms of growth as we come you know recover from this uncertainty, et cetera. We’ve noted, for example, we said in prior quarters that we expect to ramp up some marketing spend. I think that becomes – actually times like these are some of the best times to actually bring new business on.

I mean when there’s uncertainty, we’re going to have a real focus on keeping our people close to customers through all of this. And I think that’s going to help protect the downside in terms of growth, but also it’s just an opportunity as others tighten. I think we’ve had the benefit of really good credit quality. And my hope and expectation is that will place us in a really good place to be able to bring business on that others might be trying to back out of. We’re not going to do it foolishly. We’re not going to take – going to take on problems. But we are going to stay focused on continuing to build the business through all of this.

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

Bernard von Gizycki: I appreciate that. Maybe just a follow-up on the customer-related fee income. Obviously, the cap market seems to be the biggest swing on the outlook given the recent uncertainty versus last quarter, it seems to be maybe a kind of an outsized contributor. Just maybe on the other parts in customer fee income. Can you just walk us through any expectations there? Anything to be mindful of, whether it’s a little bit lower or better?

Scott McLean: Yes, certainly. This is Scott. So 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 to $155 million range. So $160 million compared to the last five quarters or so prior to that fourth quarter, $160 million is a good number. And I think that the capital markets run rate consistently is probably more in the range of what we did for the first quarter this year. And we certainly hope we have some nice positive spikes. So at $160 million, it’s a good solid number. The other major components capital markets is about $120 million – it’s $110 million, $120 million-ish of our total customer fees of $135 million – sorry, $635 million.

Treasury management is the largest contributor to – that’s the basic operating services we provide to companies. That is the largest contributor about $190 million. So it’s a workhorse for us. And we’re actually seeing some stabilization in our retail and business service charges as well as card. Card is about a $100 million revenue business for us. And we think the first quarter didn’t show a lot of growth in our mortgage-related fees, but the way we’ve transitioned that business to more of a held-for-sale business. It will be more fee-oriented and less loans that we keep on our balance sheet. And so we think we didn’t fully see the growth in that that we expect to see going forward. And then our wealth business, we’ve talked about a good bid.

It’s definitely a growth business for us. It’s about a $60 million revenue business a year. And we think we’re in a real nice inflection point there. So those are some of the relative sizes, but most of our fee income groups 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 fee side in the coming months.

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

Operator: And our next question comes from Peter Winter with D.A. Davidson. Please proceed with your question.

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

Ryan Richards: Yes. Thank you, Peter. I think you said that right. We’ve now had a pattern here, at least coming into this year falling from last year of trying to sort of normalize for the share-based compensation payments that tend to go out in the first quarter of the year and try to neutralize that in terms of its impact. But in terms of how we think about capital more broadly, not knowing exactly what comes from here on the regulatory side. But I think understanding more acutely how the market sort of views banks, it tends to be more on an ex AOCI perspective. And so when we adjust our CET1 ratio with that ex AOCI, we still think there’s room to build to kind of get back to where we want to be around peer median or better.

Peter Winter: Okay. Thanks, Ryan. And then if I just ask also just with regards to the rolling 12-month guidance, not to get nitpicky, but can you just remind us what the percentage ranges would be in terms of slightly increasing, moderately increasing, et cetera, just fully realizing there’s a lot of uncertainty, but just what those nuances are?

Harris Simmons: We would, if we knew. We don’t – truly, we don’t have actually even internally a hard fast rule for the definitions for those terms. I think they reflect kind of qualitatively how we’re thinking about things. Is that…

Ryan Richards: 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 balance of that, Harris, you’re right, it depends on the amount of uncertainty that’s in the environment at the time and outlay those balance…

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

Benjamin Gerlinger: Hey, guys. I appreciate your time. I apologize if this is a duplicate because I lost connection in there for a minute. But when you think about deposit pricing, overall, 4Q going into 1Q deposit pricing trends have been pretty strong or in your favor, I guess, you would say. Just curious if you can shed any more color on either March margin or any March pricing itself? Just trying to think about how we should think about 2Q starting off point?

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

Benjamin Gerlinger: Got you. Okay. That’s helpful. And then from looking at deposit pricing trends in general, do you think you could lower further from here without cuts, let’s say the Fed is entirely on hold? Or is it more so dependent on the kind of action of the Fed itself?

Ryan Richards: Yes. Another excellent question. We do believe that there’s a bit more room there because of the latency and the pricing down of turn deposits that hasn’t played all the way through. So even with that 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 maximize the experience for our clients outside of rate paid and make sure that we meet them wherever they need us to be and that we’re competitive on the rate paid. And historically, we’ve done really well on that front.

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

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

Ryan Richards: Yes. Thanks, Ken. I mean we sort of think of that short-term borrowing and the brokered all kind of one big unit, hopefully not too big. We’d like to have that shrinking over time. And as you know, it’s just so beholden to what we see in the depositor reaction and the price function and how successful we are in growing that base. So we haven’t spent, it’s really, really hard to predict. So we haven’t spent a lot of time giving guidance on that dimension. But we sort of roll it all up into our overall NII outcome. And while allowing for that $1.7 billion of migration from non-interest-bearing to time deposits, but not knowing exactly what that looks like and how we can defray those short-term borrowings together with brokered CDs. And also with the pattern that we have in the paydown of our investment securities portfolio, having about one half of that or more that rolls out based on those gross cash flows that are not reinvested.

So there’s a lot of puts and takes in that, that makes it really, really hard to kind of predict the future on that one element. But as you saw, we’ve had some success here recently in bringing down those brokered CDs a little bit. And there’s been some work done by our treasury team are 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 ratable through the course of the quarter. So as we continue to work that down and with deposit growth, we expect to have better outcomes there.

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

Harris Simmons: Yes, it kind of cut off. Let me just start on the one to four family, one of the reasons that’s continued to grow its construction loans funding up into term loans under a program, we call it the one-time close program that we’ve had with customers. That’s probably kind of approaching a point where we would expect that, that starts to not play the kind of role it’s played in the past. I think CRE – maybe speak to the CRE piece.

Ryan Richards: Exactly. On the 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 refinanced. So we do expect some to refinance out, some to sell properties as well. A lot of the CRE actually started as construction loans. And that’s why you see it growing. These are construction loans funding up that would reduce new originations, I wouldn’t expect to backfill all of that. And so you’ll just see – depending on where rates go, you may see some decline in the commercial real estate.

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

Operator: Thank you. And our next question comes from Anthony Elian with JPMorgan. Please proceed with your question.

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

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

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

Derek Steward: We’re watching ones that you would be concerned with tariffs on things manufacturing, machinery and equipment, trucking and transportation, 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 book would be less than $500 million. But it’s an area that we’re watching. And those are the segments that we’re focused on primarily today.

Operator: Thank you. And our next question comes from Chris McGratty with KBW. Please proceed with your question.

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

Harris Simmons: I think things can change. Listen, just my own opinion, it’s kind of – your question is kind of how – to what extent you have an administration that spend itself into a corner is what they’re trying to do with trade policy. I’ll say part of my thesis is that you’re actually going to see a lot of pressure from the Congress – from Republicans in the Congress who have to be thinking about the midterm and what this all looks like, the impact of what’s happening today on what the world looks like for them a year from now. And so I was at lunch today with a member of Congress, who was a Republican who was clearly very, very front centered and at least his mind. I think that’s probably true of a whole bunch of them.

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

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

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

Operator: Great. Then our next question comes from Jon Arfstrom with RBC Capital Markets. Please proceed with your question.

Jon Arfstrom: Thanks. Good afternoon, everyone. Just back on loans. We’ve talked about it a lot during the call, but do you expect to grow loans in the second quarter? Or is the evidence piling up to the point where you expect to pull back in balances?

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

Derek Steward: Yes. This is Derek here. I would expect that we’ll continue to grow loans even through this…

Jon Arfstrom: Yes. That’s helpful.

Derek Steward: Even with the discussion that I had on CRE, potentially reducing depending on where rates go, I think some of that can be offset as we continue new originations.

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

Jon Arfstrom: Yes, that’s helpful. We’re just kind of myopically focused on the negative. And I just wanted to clarify that. Harris, have you seen anything in terms of the regulatory outlook or maybe changes sort of happen already that would benefit Zions? I’m thinking about category 4, maybe that could be eased. Just curious where your head is at on in terms of the regulatory outlook and what may have happened already?

Harris Simmons: Yes. I mean I’d start by saying, as we said previously, the whole $100 billion threshold category 4 kind of thing 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 we’ve maintained it, still use it, et cetera. And I think we’re in reasonably good shape whatever happens. But I do think that – I mean, I’m quite encouraged by what I’m seeing in terms of this administration’s selection so far for – to run these agencies. And if you read what Miki Bowman said, I’ll set a lot of the tone for it. I mean, clearly, going to focus on kind of tapering if you go talk to French Hill, the Chair of the House Financial Services Committee.

He’s very focused on making sure that we just – we don’t suffocate this industry. And then Scott Bessent has indicated he’s going to take play a stronger role in policy making for the financial sector, and he’s clearly concerned that we don’t suffocate the banking industry. I think he’s concerned about how much has gone into private credit. He would say that doesn’t think that’s a problem per se, except that it probably is indicative of the fact that we’ve tightened 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 more sort of thoughtful – let’s make sure to focus on basics – less focus on things politically correct or not. I say, I mean, all the focus that was being shown 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 and droughts and wildfires and it doesn’t show up in loan losses. And so let’s not spend a lot of energy on stuff that just doesn’t matter. And let’s get better at the things that do. I think that’s the kind of regulation, we’re going to see out of this administration. And I think that’s – that’s a welcome thing. I don’t think anybody in this industry is looking for weak regulation. We’re looking for sensible regulation. It’s focused on real risk. And that’s where I think they’ll be, and that’s where we’d be comfortable having them.

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

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

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