Zions Bancorporation N.A.

Thank you Matt and good evening. We welcome you to this conference call to discuss our 2024 fourth quarter and full year earnings. 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, although actual results may differ materially. We encourage you to review the disclaimer in the press release or slide two 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 at zionsbankcorporation.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 Stewart, Chief Credit Officer, and Chris Kiriakakis, 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.

Thanks very much, Shannon, and good evening, everyone. I'd like to start off our call by acknowledging the devastating wildfires which started in Southern California earlier this month and continue to impact so many people. Our focus continues to be on the safety and well-being of our colleagues, customers, and their families. We've been fortunate that there have been no reported injuries or property loss among our people. We're grateful for the first responders and charitable organizations who are working to protect so many people and to assist them in getting back on their feet. As it relates to anticipated credit losses related to damage from the wildfires, we have a very limited amount of residential exposure in the burn zones. Due to insurance in place, we anticipate any losses or credit impacts to be minimal. We have programs in place to work with borrowers who may need payment restructuring due to the fires. Based on past experience with similar natural disasters, we expect any losses to be very low. Shifting now to performance, key metrics for the year and the quarter are presented on slide three. We're pleased with the continued improvement in our financial performance relative to the prior year. Fourth quarter adjusted pre-provision revenue, which excludes most notably the impact of the FDIC special assessment for the 2023 bank failures, increased 19% relative to the prior year quarter. Net earnings for the year were $737 million or $4.95 per share. For the fourth quarter, earnings were $200 million, or $1.34 per share. The net interest margin expanded for the fourth consecutive quarter, primarily due to interest-bearing liabilities repricing downward faster than earning asset yields. The margin was 3.05% for the quarter compared to 3.03% in the prior quarter, and against its trough of 2.91% in the year-ago quarter. Our efficiency ratio improved to 62%. As Ryan will highlight later, our guidance for 2025 anticipates continued improvement in these profitability measures and positive operating leverage for the year. Customer deposits increased on both an ending and average basis in the fourth quarter and the full year. We continue to see relative stability in non-interest-bearing demand deposits, which on average grew slightly over the prior quarter. Average loan growth was modest at 1.1% on a linked quarter basis and 3.2% for the full year. Net loan losses were higher in the quarter at $36 million or 24 basis points annualized, with two-thirds of the net loss amount attributable to a single commercial and industrial credit. The level of classified balances increased by $777 million, primarily in commercial real estate. At the same time, the levels of non-accrual loans in the portfolio remain low and, in fact, decreased by 18% during the quarter due to significant equity and strong guarantor support in the portfolio. We believe we are at or nearing the peak for CRE classified balances, and we continue to expect that any realized losses that may occur over the next year will be very manageable. Moving to slide four, Diluted earnings per share was $1.34 compared to $1.37 in the prior period and $0.78 in the prior year quarter. Provision for credit losses this quarter of $41 million had a negative impact of $0.21 per share. Slide 5 provides a five-quarter view of pre-provision net revenue. On an adjusted basis, our fourth quarter results of $312 million reflect an improvement of 4% on a linked quarter basis, and as previously noted, a 19% improvement over the prior year period. Adjusted revenue growth outpaced expenses as funding cost pressures abated somewhat. Our capital markets business experienced strong results, and we continued to maintain expense discipline despite inflationary pressure. Looking to the next year, we're optimistic that our performance will reflect sustained growth, continued improvement in our net interest margin, and increased profitability. 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? Thank you, Harris, and good evening, everyone. I will begin with a discussion of the components and associated performance drivers of pre-provision net revenue. Beginning with net interest income and net interest margin on slide six, you will see the five-quarter trend for both measures, reflecting four consecutive quarters of improvement. During the quarter, the downward repricing of interest-bearing liabilities outpaced the pressure on asset yields. Net interest margin further benefited from a reduction of $1.4 billion in average short-term borrowings. Additional details on changes in the net interest margin are included on slide seven. On the left-hand side of this page, we provided a linked quarter waterfall chart outlining the key changes and key components of the net interest margin, incorporating changes in both rate and volume. The net interest margin expanded by two basis points sequentially due primarily to the lower cost of funding. This is reflected in the 23 basis point and 12 basis point margin improvements in the waterfall attributable to deposits and borrowings, respectively. Improved funding costs were somewhat offset by the declines in earning asset yields and a lesser contribution from noninterest-bearing sources of funds. The right-hand chart on this slide shows a 14 basis point improvement in the net interest margin versus the prior year quarter, also benefiting from the improved cost deposits. Moving to noninterest income and revenue on slide 8, customer-related noninterest income was $173 million for the quarter. an increase of 7.5% on a lead quarter basis, and 15% versus the year-ago quarter. We are pleased with the record performance of customer fees for the quarter and full year, driven in large part by capital markets as we continue to realize growth from our strategic investments. Capital markets were up 36% for the full year compared to 2023. Commercial account fees were also a key contributor to increased fee revenue for the quarter and the full year. As shown on the chart on the right side of this page, both total revenue and adjusted revenue increased from the prior quarter and prior year periods due to the factors previously noted for net interest income and customer-related fee income. Our outlook for customer-related fee income for the full year of 2025 is moderately increasing relative to the full year 2024. Adjusted non-interest expense, shown in the lighter blue bars on slide 9, increased $10 million to $509 million, attributable to slight increases in compensation-related accruals, legal services, and occupancy. Reported expenses, also at $509 million, increased by $7 million compared to the prior quarter. Our outlook for adjusted non-interest expense for full year 2025 is slightly to moderately increasing relative to the full year 2024. Included in this outlook is the expectation that we will increase marketing spend incur expenses related to the branch acquisition in California, and other investments in revenue-generating businesses. Slide 10 highlights trends in our average loans and deposits over the year. On the left side, you can see that average loans increased just over 1% for the quarter. Consumer mortgages and CNI loans continue to be the drivers for this increase. Total loan yields declined by 23 basis points, largely in response to the reductions in short-term benchmark rates, with some partial offsets from fixed loan repricing and loan swaps. Our frontline bankers have noted increased client optimism, particularly from our commercial and small business customers. Our outlook for period and loans balances for full year 2025 is slightly increasing relative to full year 2024. 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. Turning to deposits on the right side of the page, average deposit balances for the fourth quarter increased modestly. As Harris mentioned earlier, we are pleased by the stability we continue to see in the level of noninterest-bearing deposits. Cost of total deposits, shown in the white boxes, declined by 21 basis points to 1.93%. Interest-bearing deposits cost decreased by 32 basis points versus the prior quarter. On average, the rate on interest-bearing deposits was 2.87% for the quarter compared to 3.19% in the prior period. Interest-bearing deposits spot rate at December month end was 2.62% and the total deposit spot rate was 1.78%. Deposit repricing has been disciplined and aligned with our expectations, reflecting near 100% betas on higher cost deposits. Slide 11 includes a more comprehensive view of funding sources and total funding cost trends. The left side chart includes ending balance trends. Compared to the prior quarter, Total deposits grew approximately 500 million comprised of period and growth of 670 million in customer deposits, offset by a $163 million reduction in higher cost broker deposits. Period and non-interest bearing demand deposits were relatively stable and represented approximately 32% of total deposits. On the right side, average balances for our key funding categories are shown along with the total cost of funding. As seen on this chart, The total funding cost declined by 24 basis points during the quarter. Moving to slide 12, our investment portfolio exists primarily to be a storehouse of funds to absorb customer-driven balance sheet changes. Here we present our securities and money market investment portfolios over the last five years. Maturities, principal amortization, and prepayment-related cash flows from our investment securities portfolio were $749 million in the fourth quarter. Nets of reinvestment cash flows for the quarter were $370 million. The pay down and reinvestment of lower yielding securities 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 the investment portfolio, which is a measure of price sensitivity to changes in interest rates, is estimated at 3.4 years. While we 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 interest rates follow the path implied as of December 31st, which assumes the Fed Fund's target reaches 4.25%. Modeled net interest income in the fourth quarter of 2025 is expected to be 6.8% higher when compared with the fourth quarter of 2024. This includes the impact of both latent and emergent sensitivity that we have broken out in prior quarters. As expectations on the rate path continue to evolve, we also provide 100 basis point shocks to the rates implied by the forward path, which suggests a sensitivity range between 4% and 9.4%. 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 factors included in full-year net interest income guidance. Our outlook for net interest income for full-year 2025 is moderately increasing relative to the full year 2024. The sensitivity associated with this guidance includes risks and opportunities including realized loan growth, competition for deposits and deposit behavior, and the path of interest rates across the yield curve. When combined with our outlook for customer-related fee income and non-interest expense, we anticipate continued positive operating leverage moving forward into 2025. We begin our discussion of credit quality on slide 14. Harris previously noted that realized losses in the portfolio continue to be quite manageable with annualized net charge-offs to 24 basis points of loans in the quarter and just 10 basis points over the last 12 months, with the jump in losses this quarter attributable to a single commercial credit. On-performing assets decreased $70 million in the quarter, while criticized and classified loan balances increased by $849 million and $777 million, respectively. The decline in on-performing assets was driven largely by several successful resolutions at par, together with the large charge-off previously noted in the portfolio. The increase in classified loans was primarily driven by commercial real estate, primarily in multifamily, industrial, and office. The expected loss content in classified loans remains low due to significant borrower equity, strong sponsor support, and continued borrower cash flows despite the pressure on those cash flows. Recent reductions in short-term benchmark interest rates should benefit borrow operating costs and slow unfavorable grade migration, while the increase in term rates may result in criticized balances staying higher for longer due to less favorable refinance opportunities. The allowance for credit losses was stable versus the prior quarter at 1.25% and the loan loss allowance coverage compared with non-accrual loans improved to 234%. For reference in our appendix, we've included a trend for ACL, non-accrual, and classified loans. As a reminder, classified loans primarily reflect a measure of probability of default. While the CECL methodology used to set the reserve is a forward-looking measure of expected loss, which also encompasses loss given default. Slide 15 provides an overview of the $13.5 billion CRE portfolio, which represents 23% of total loan balances. The portfolio is granular and well diversified by property type and location, with its growth carefully managed over a decade through discipline concentration limits. Slide 16 provides a detailed view of the problem loans in our CRE portfolio. The chart on the right-hand side provides a breakout of which sub-portfolios drove increases in criticized and classified assets during the quarter. Of the $777 million increase in total classified loans, $609 million was driven by commercial real estate, primarily multifamily, industrial, and office credits. The chart on the bottom left-hand side of the slide reflects the LTV distribution of classified CRE loans, with more than three-quarters of the portfolio having loans to value less than 60% when examined by either most recent appraisal or index adjusted values. Overall, we continue to expect the CRE portfolio to perform reasonably well with limited losses. based on the current economic outlook, the types of problems being experienced by the 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 grew in the fourth quarter to 10.9%. 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 a regulatory and GAAP perspective to increase organically through earnings and that AOCI improvement will continue through unrealized loss accretion in the securities portfolio as individual securities pay down and mature. Of note, in the fourth quarter of 2024, we redeemed $374 million of preferred stock with coupons exceeding 9% and called $88 million of subordinated debt, the latter of which had begun to phase out of Tier 2 capital. These issuances were replaced with $500 million of lower-cost subordinated notes that will positively impact earnings per share starting in the first quarter of 2025 by 2 to 3 cents per share. Slide 18 summarizes the financial outlook provided over the course of this presentation. As a reminder, this outlook represents our best estimate for the financial performance for the full year of 2025 as compared to the full year of 2024. With this outlook, we expect to see positive operating leverage and improved efficiency as revenue growth outpaces funding and expense pressures.