Financial Data and Key Metrics Changes - For Q2 2025, the company reported net earnings of $50.6 million or $0.36 per share, marking the 193rd consecutive quarter of profitability [5][6] - The return on average tangible common equity was 14.08% and return on average assets was 1.34% for Q2 2025 [5] - Net interest income for Q2 2025 was $111.6 million, slightly up from $110.4 million in Q1 2025 and $110.8 million in Q2 2024 [15][16] - Non-interest income was $14.7 million in Q2 2025, down from $16.2 million in Q1 2025 [24] Business Line Data and Key Metrics Changes - Total loans as of June 30, 2025, were $8.36 billion, a decline of $5 million from Q1 2025 and a decrease of $178 million or 2.1% from December 31, 2024 [11][12] - Commercial real estate and single-family loans increased by $27 million and $19 million respectively from Q1 2025 [12] - Non-interest expense was $57 million in Q2 2025, down from $59.1 million in Q1 2025 [25][26] Market Data and Key Metrics Changes - Total deposits and customer repurchase agreements totaled $12.4 billion as of June 30, 2025, an increase of $123 million from March 31, 2025 [8][9] - Non-interest bearing deposits grew by $63 million compared to Q1 2025 and were $157 million or 2.2% higher than the end of Q2 2024 [10] Company Strategy and Development Direction - The company continues to focus on banking small to medium-sized businesses and their owners through all economic cycles [92] - The management indicated a potential shift in acquisition strategy to consider opportunities outside California, reflecting a strategic decision to expand geographic reach [80][81] Management's Comments on Operating Environment and Future Outlook - The economic forecast indicates lower GDP growth, higher unemployment, and declining commercial real estate prices, with real GDP expected to remain below 1% until 2026 [18][19] - Management expressed confidence in the loan pipelines and anticipated that originations could outpace payoffs in the latter half of the year [63] Other Important Information - The company authorized a new $10 million share repurchase plan in November, with 1.28 million shares repurchased at an average price of $17.3 [22] - The efficiency ratio improved to 45.6% in Q2 2025 compared to 46.9% in Q1 2025 [8][27] Q&A Session Summary Question: Can you quantify the prepay income this quarter versus last? - Management noted that prepayment penalties were down, impacting overall loan yields, and indicated that without these factors, yields would have been up about five basis points [31][32] Question: What is the outlook for the competitive environment? - Management described the competition as intense, particularly from regional banks, and indicated that they would remain disciplined in underwriting while focusing on the right relationships [52][64] Question: How is the specialty banking group contributing to deposit trends? - The specialty banking group had a good year, contributing positively to deposit trends, although they are cautious about high earnings credit rates [66][69] Question: Are there any plans for M&A activity? - Management confirmed ongoing conversations regarding M&A, with expectations for reasonable pricing and potential announcements by the end of the year [70][71]

Summary of the Conference Call Company and Industry Overview - The conference call involved Zion, a bank focused on serving small and medium-sized businesses across various states in the U.S. [4][10] - The discussion highlighted the impact of tariffs and economic uncertainty on customer sentiment, particularly among small and medium-sized enterprises (SMEs) [4][5]. Key Points and Arguments Customer Sentiment and Economic Environment - Customer sentiment remains uncertain due to ongoing tariff threats, affecting approximately 65% to 70% of Zion's revenue from SMEs [4][5]. - SMEs are likely to increase inventory and shift supply chains back to the U.S. as a precaution against tariffs, which could positively influence loan growth [6][8]. - Large companies are hesitant to commit to long-term capital investments due to economic volatility and uncertainty [7][8]. Loan Growth and Business Strategy - Zion's loan growth is currently moderate, with a focus on commercial lending, which constitutes about 50% of the loan portfolio [16][17]. - The bank aims to increase its Small Business Administration (SBA) lending, targeting 1,500 loans this year, up from 700, with a goal of reaching 3,000 loans in the next 12 to 18 months [18][19][20]. - The bank's strategy includes deepening relationships with existing customers, as 70% of small businesses do not currently borrow from banks [23][25]. Competition and Market Position - Zion faces competition from both regional and large banks, as well as private credit providers. However, the bank is confident in its ability to compete based on strong customer relationships and service [33][36][40]. - The bank's competitive advantage lies in its relationship management, which is supported by high customer satisfaction scores from Greenwich Research [46][47]. Deposit and Interest Income Management - Zion has experienced five consecutive quarters of net interest margin (NIM) expansion, attributed to a strong deposit franchise and effective management of deposit costs [50][51]. - The bank's cost of deposits is among the lowest in the industry, with a significant portion being non-interest-bearing deposits [51][52]. - The bank anticipates further reductions in deposit costs as time deposits roll over and stabilize [55][56]. Fee Income and Growth Opportunities - Zion's fee income is diversified, with treasury management services contributing about 30% of total fees. The bank expects moderate growth in this area [61][62]. - The capital markets business has shown significant growth, with revenues increasing from $70 million to $107 million, indicating strong potential for future revenue generation [64][66]. Credit Quality and Risk Management - Zion has maintained a low net charge-off ratio of about 10 basis points, significantly better than many peers, due to strong underwriting practices [68][69]. - The bank's commercial real estate (CRE) portfolio has shown resilience, with negligible losses despite rising classified loans [71][73]. Capital Management - Zion is focused on maintaining a strong Common Equity Tier 1 (CET1) ratio, with transparency regarding the impact of accumulated other comprehensive income (AOCI) on capital [75][76]. - The bank is well-positioned to meet regulatory requirements and maintain capital buffers [77][79]. Additional Important Insights - The bank's modernization efforts, including a core transformation project, have allowed bankers to focus more on client relationships rather than internal systems [28][30]. - Zion's proactive marketing strategy aims to enhance its small business initiatives and overall fee income growth [32][66]. This summary encapsulates the key insights and strategic directions discussed during the conference call, providing a comprehensive overview of Zion's current position and future outlook in the banking industry.

Financial Data and Key Metrics Changes - The first quarter earnings were 35% higher than the first quarter of the previous year, with net income reported at $7.8 million compared to $5.8 million in Q1 2024 [6][22]. - Net interest margin increased by 30 basis points compared to the fourth quarter of 2024, with five consecutive quarters of increases in net interest income [24]. - The cost of deposits decreased by 38 basis points this quarter compared to Q4 2024 [24]. Business Line Data and Key Metrics Changes - The loan portfolio was relatively flat at just over $3 billion, with approximately $100 million in payoffs from asset sales and refinance activity [14]. - The refinance activity replaced lower-yielding assets with new quality assets, split evenly between C&I business and commercial real estate transactions [15]. - There was no credit loss expense recorded in the first quarter, indicating strong credit quality [23]. Market Data and Key Metrics Changes - Deposit gathering efforts continue to be emphasized, although deposits decreased slightly due to ordinary cash flow fluctuations rather than loss of relationships [16]. - The Minnesota banks reported cautious customer behavior due to economic uncertainty, but there was success in attracting high-value retail deposits [18][20]. Company Strategy and Development Direction - The company focuses on building comprehensive banking relationships rather than just lending, emphasizing the importance of service and relationship management [44]. - The strategy includes targeting C&I prospects with significant deposit balances and high-value retail deposits [20]. - The company aims to maintain strong credit quality through conservative underwriting practices and a commitment to customer relationships [12]. Management's Comments on Operating Environment and Future Outlook - Management expressed confidence in the loan pipeline, indicating that opportunities exceed planned payoffs [34]. - Concerns were raised about economic uncertainty, tariffs, and potential supply chain issues affecting customers [11][40]. - The company remains committed to its conservative philosophy and expects its credit portfolio to remain strong despite economic challenges [12]. Other Important Information - A dividend of $0.25 per share was declared, payable on May 21 to shareholders of record as of May 7 [7]. - There were no significant one-time items in noninterest income or expense this quarter, and occupancy expenses reflect new building costs [26]. Q&A Session Summary Question: Is there more room to bring deposit costs down? - Management indicated that deposit costs are likely to remain static until market conditions change [29]. Question: What rates were new loans added at compared to those rolling off? - New loans were added at rates starting with six or seven, compared to previous loans starting with three or four [32]. Question: Will growth accelerate in the second quarter? - Management noted that while there are planned payoffs, they expect opportunities to exceed these payoffs [34]. Question: What is the outlook on expenses for the second quarter? - Management expects the first quarter performance to be indicative of future performance, with no significant items anticipated [36]. Question: What is the impact of tariffs on credit metrics? - Concerns were raised about potential cost increases and supply chain issues due to tariffs, but the customer base is considered seasoned and capable of weathering such challenges [40]. Question: How does the company retain core deposits despite low rates? - The company utilizes relationship-based pricing strategies for its commercial deposit base, allowing for negotiation on rates [50].