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% compared to the prior quarter [5] - 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% [5] - Diluted earnings per share was $1.48, down from $1.63 in the prior period, impacted by a $0.06 per share negative effect from net credit valuation adjustment [7] - The provision for credit loss was recorded at $49 million, with net charge-offs of $56 million or 37 basis points of loans on an annualized basis [6][21] Business Line Data and Key Metrics Changes - Net interest income increased by $52 million or 8% compared to Q3 2024, benefiting from fixed asset repricing and favorable shifts in the composition of average interest-earning assets [9] - Customer-related non-interest income was $163 million for the quarter, slightly down from $164 million in the prior period, but adjusted customer-related non-interest income increased by 6% compared to the second quarter [12][13] - Average loans decreased by 2.1% annualized over the previous quarter, while average non-interest-bearing deposits grew by approximately $192 million or 0.8% compared to the prior quarter [15][16] Market Data and Key Metrics Changes - Total borrowings declined by $1.8 billion during the quarter, with short-term FHLB advances decreasing by $2.3 billion [19] - The cost of total deposits declined sequentially by one basis point to 1.67% [18] - Non-performing assets remained low at 0.54% of loans and other real estate owned, compared to 0.51% in the prior quarter [21] Company Strategy and Development Direction - The company expects to continue producing positive operating leverage as revenue growth outpaces non-interest expense growth [24] - The outlook for net interest income for 2026 is moderately increasing relative to 2025, supported by continued earnings asset remix and growth in loans and deposits [11] - The company is focused on maintaining a strong credit quality and has established a full reserve against certain loans, viewing recent charge-offs as isolated incidents [6][30] Management's Comments on Operating Environment and Future Outlook - Management expressed confidence in the credit quality and indicated that the recent charge-offs were isolated incidents, with no further exposure related to the borrowers involved [30][31] - The company anticipates moderate loan growth driven by commercial loans, despite some recent reductions in C&I classified levels [15][76] - Management noted that the current economic environment presents both challenges and opportunities, with a focus on strategic investments in revenue-generating businesses [14][93] Other Important Information - The common equity Tier one ratio was reported at 11.3%, indicating a strong capital position [23] - The company has been actively pursuing new products and marketing strategies to enhance loan growth and customer acquisition [73][93] Q&A Session Summary Question: Can you talk about the isolated incident related to the charge-offs? - Management confirmed that the charge-offs were an isolated incident and that a thorough review of the portfolio did not reveal similar issues [29][30] Question: What is the outlook for net interest income? - The company expects a slight to moderate increase in net interest income, factoring in fixed asset repricing and loan growth [11][39] Question: How is loan demand changing? - Loan spreads have improved slightly, and while there has been some runoff in C&I, production remains strong [88][90] Question: What is the company's risk appetite following recent events? - Management stated that the risk appetite remains unchanged and that they will continue to underwrite loans as they have historically [107] Question: How does the company view the NDFI portfolio? - Management believes that concerns regarding the NDFI portfolio are somewhat overblown, emphasizing the safety of certain categories within it [120]