ZIONS BANCORPORATION, NATIONAL ASSOCIATION /UT/ Q4 FY2024 earnings call

• Acknowledged the impact of Southern California wildfires, with limited residential exposure and minimal anticipated credit losses. - Highlighted continued improvement in financial performance, including net interest margin expansion for four consecutive quarters, efficiency ratio improvement to 62%, and growth in customer deposits. - Mentioned average loan growth, with consumer mortgages and C&I loans driving increases. - Capital Markets business experienced strong results, with customer-related fee income record-breaking. - Expense discipline maintained despite inflationary pressures. - Believed CRE classified balances near peak, with manageable realized losses expected.

For the 2024 fourth quarter and full year, key financial highlights include: Adjusted pre-provision net revenue increased 19% in the fourth quarter relative to the prior year quarter. Net earnings for the year were $737 million or $4.95 per share, and for the fourth quarter, earnings were $200 million or $1.34 per share. The net interest margin expanded to 3.05% in the fourth quarter, up from 3.03% in the prior quarter and 2.91% in the year-ago quarter. Customer deposits increased on both ending and average basis in the fourth quarter and full year. Average loan growth was 1.1% on a linked quarter basis and 3.2% for the full year. Net loan losses were $36 million in the quarter, with two-thirds attributable to a single commercial and industrial credit. Classified balances in commercial real estate increased by $777 million, but non-accrual loans decreased by 18% during the quarter. Revenue contribution: Net interest income and non-interest income components contributed to pre-provision net revenue, with customer-related non-interest income up 7.5% QoQ and 15% YoY.

• Anticipates continued improvement in profitability measures and positive operating leverage in 2025. - Sustained growth, net interest margin improvement, and increased profitability expected. - Net interest income outlook: moderately increasing. - Loan growth outlook: slightly increasing, led by commercial loans. - Customer-related fee income outlook: moderately increasing. - Adjusted non-interest expense outlook: slightly to moderately increasing, with investments in revenue-generating businesses.

• Wildfire credit losses minimal but monitored. - CRE classified balances near peak, with potential for realized losses though manageable. - Economic uncertainties impacting loan performance. - Interest rate volatility affecting capital ratios and net interest income sensitivity. - Regulatory changes and their potential impact on operations and growth.

Q: It looks like deposit betas on a spot basis are running close to 60% already. Can you talk about how you expect that to progress from here?

A: Ryan Richards said they've been pleased with deposit pricing response, with a lag factor for different deposits. Anticipate in-line performance with previous calls for potential 25 basis point rate decrease in 2025, but predicting beyond that is difficult.

Q: Where your CET1 ratio is including AOCI for the quarter? And is that something you need to manage to especially given the volatility that we're seeing in the long end of the curve?

A: Ryan Richards said they're cognizant of it, monitoring capital inclusive of AOCI, with an expectation to grow capital to median peer levels.

Q: Can you just unpack a little bit more about the rate sensitivity, the model net interest income that you have from Page 13?

A: Ryan Richards said deposit beta assumption is in line, with tightened assumptions on non-interest-bearing deposits migrating to interest-bearing, benefiting net interest income sensitivity.

Q: Any idea on when you might get the NIM back to mid-3%?

A: Ryan Richards said they don't manage to a NIM outcome per se, but mid-3% NIM is not out of reach with a more naturally sloped yield curve, timing yet to be seen.

Q: Any comments about inorganic growth?

A: Harris Simmons said they're in a position to do strategic M&A if it makes sense, with systems conversions behind them and being prepared for regulatory changes.

Q: Can you give us a sense for the type of business that was in the C&I credit where you realized some charge-offs?

A: Derek Steward said it was a long-time retail client purchased by private equity, with growth push and management challenges leading to loss.

Q: Can you give us a sense for the pipeline in customer fees, especially capital markets?

A: Scott McLean said they've invested in capital markets infrastructure, with a solid pipeline and continued progress expected in customer fees.

Q: How much is the pop in energy, oil and gas growth related to election? Any other areas for commercial loan growth?

A: Scott McLean said energy portfolio increased due to good opportunities, and C&I lending expected to grow as small and medium-sized business owners are more optimistic.

Q: For your loan growth guide of slightly increasing, is that more half weighted in 2025 or do you expect the level of loan growth you've seen in the past couple of quarters to continue?

A: Harris Simmons said he expects pretty steady growth through the year.

Q: Can you provide more color on the increase in classified loans?

A: Derek Steward said it was granular, with $609 million from CRE, $254 million from multifamily, $242 million from industrial, due to construction delays, lease-up issues, etc., but expected to work through over time.