Zions Bancorporation(ZION) - 2025 Q3 - Earnings Call Transcript

Financial Data and Key Metrics Changes - The third quarter reflected continued momentum in core earnings with net interest margin expanding by 11 basis points to 3.28% [4] - Customer fees, excluding net credit valuation adjustment, grew by $10 million, while adjusted expenses declined by $1 million, leading to an improved efficiency ratio of 59.6% [4] - Average loans and customer deposits increased by annualized rates of 2.1% and 3.1% respectively compared to the prior quarter [4] - Diluted earnings per share was $1.48 compared to $1.63 in the prior period and $1.37 in the year-ago period [5][6] - Adjusted non-interest income was $174 million for the quarter, representing a 6% increase versus the second quarter and an 8% increase versus the year-ago quarter [10] Business Line Data and Key Metrics Changes - Net interest income increased by $52 million, or 8%, relative to the third quarter of 2024, benefiting from fixed asset repricing and favorable shifts in the composition of average interest-earning assets [7][8] - Customer-related non-interest income was $163 million for the quarter, slightly down from $164 million in the prior period but up from $158 million one year ago [10] - Capital market fees, excluding net CVA, increased by 25% compared to the prior year period, driven by higher loan syndications and customer swap fee revenue [10] Market Data and Key Metrics Changes - Average loans increased by 2.1% annualized over the previous quarter and 3.6% over the year-ago period [12] - Average non-interest-bearing deposits grew approximately $192 million, or 0.8% compared to the prior quarter [13] - Total borrowings declined by $1.8 billion during the quarter, with short-term FHLB advances decreasing by $2.3 billion [14] Company Strategy and Development Direction - The company expects to continue producing positive operating leverage as revenue growth outpaces non-interest expense growth [19] - The outlook for customer-related fee income in the third quarter of 2026 is moderately increasing relative to the third quarter of 2025, driven by increased customer activity and new client acquisitions [11] - The company is focused on maintaining a strong capital position and is open to M&A opportunities, particularly smaller deals that enhance market density [50][51] Management's Comments on Operating Environment and Future Outlook - Management expressed confidence that the recent credit issues are isolated incidents and emphasized the strength of their credit history [22][24] - The company anticipates continued loan growth driven by commercial loans, despite some recent paydowns and payoffs [56][59] - Management noted that the current regulatory environment is shifting towards a focus on solid regulation, which they view positively [72][74] Other Important Information - The company recorded a $49 million provision for credit loss, with net charge-offs in the quarter at $56 million, or 37 basis points of loans on an annualized basis [4][16] - The allowance for credit losses as a percentage of loans remains stable at 1.2% [17] - The common equity tier one ratio this quarter was 11.3%, indicating a strong capital position [18] Q&A Session Summary Question: Can you talk about the isolated incident regarding the charge this quarter? - Management reviewed the portfolio and believes it is an isolated incident, with no similar loans found [22][23] Question: How much fixed-rate asset repricing is factored into the NII guide outlook? - The guidance includes expectations for fixed-rate loans and securities, with potential yield increases embedded [27][28] Question: What is the outlook for operating leverage? - Management expects positive operating leverage but did not provide a specific range at this time [34][35] Question: How has loan demand changed over the last 90 days? - Loan spreads have improved slightly, and production has been up in most months this year compared to 2024 [65][66] Question: What is the company's current risk appetite? - The company will continue its historical underwriting practices, and the recent credit issues will not impact loan growth [80][81]