Business Context and Reporting Period
Company: Zions Bancorporation, National Association
Filing Type: Form 10-Q (Unaudited)
Reporting Period: Quarter ended March 31, 2025
Overview: Zions Bancorporation operates as a bank headquartered in Salt Lake City, Utah, providing banking products and services across 11 Western and Southwestern states through seven affiliate banks. In late March 2025, the company acquired four FirstBank Coachella Valley, California branches, adding approximately $420 million in loans and $630 million in deposits.
Key Financial Metrics
| Metric | Q1 2025 | Q1 2024 | Change |
|---|---|---|---|
| Net Earnings (Common) | $169 million | $143 million | +18.2% |
| Diluted EPS | $1.13 | $0.96 | +17.7% |
| Net Interest Income | $624 million | $586 million | +6.5% |
| Net Interest Margin | 3.10% | 2.94% | +16 bps |
| Noninterest Income | $171 million | $156 million | +9.6% |
| Noninterest Expense | $538 million | $526 million | +2.3% |
| Provision for Credit Losses | $18 million | $13 million | +38.5% |
| Efficiency Ratio (Non-GAAP) | 66.6% | 67.9% | -130 bps |
| Total Assets | $87.99 billion | $87.06 billion | +1.1% |
| Total Loans & Leases | $59.94 billion | $58.11 billion | +3.2% |
| Total Deposits | $75.69 billion | $76.22 billion | -0.7% |
| Allowance for Credit Losses (ACL) | $743 million | $736 million | +1.0% |
| ACL to Loans Ratio | 1.24% | 1.27% | -3 bps |
| Nonperforming Assets | $307 million | $254 million | +20.9% |
| Classified Loans | $2.89 billion | $0.97 billion | +198% |
| CET1 Capital Ratio | 10.8% | 10.4% | +40 bps |
Material Changes vs. Prior Period
- Earnings Growth: Net earnings applicable to common shareholders increased $26 million year-over-year, driven by higher net interest income and noninterest income, partially offset by increased expenses and a higher provision for credit losses.
- Tax Impact: Diluted EPS was negatively impacted by $0.11 per share due to a $16 million increase in income tax expense. This resulted from newly enacted Utah state tax legislation requiring a revaluation of deferred tax assets related to unrealized losses in accumulated other comprehensive income (AOCI).
- Net Interest Margin Expansion: NIM improved to 3.10% from 2.94% as lower funding costs outpaced the repricing of interest-earning assets. The cost of deposits decreased 30 basis points.
- Credit Quality Deterioration: Classified loans surged to $2.89 billion (4.82% of total loans) from $0.97 billion (1.66%) in Q1 2024. This increase was primarily in multifamily and industrial commercial real estate (CRE) portfolios, driven by a shift in risk grading emphasis toward current cash flows and weaker performance in 2021-2023 construction loan vintages.
- Charge-offs: Net loan and lease charge-offs rose to $16 million (0.11% annualized) from $6 million (0.04%) in the prior year quarter.
- Expense Management: Noninterest expense increased $12 million, primarily due to higher salaries, benefits, and technology costs. This was partially offset by a $12 million decrease in deposit insurance and regulatory expense, largely due to a one-time FDIC special assessment accrual in the prior year.
Guidance, Outlook, and Risks
- Outlook: Management expects the Utah tax legislation to reduce future tax expenses related to investment securities and trading income. The company anticipates accretion of approximately $14 million of the current quarter's additional tax expense back into income over the life of the respective securities.
- Interest Rate Sensitivity: The bank remains "asset-sensitive." Latent interest rate sensitivity is modeled to increase net interest income by approximately 8.9% in Q1 2026 compared to Q1 2025. Emergent sensitivity, based on the forward curve, is modeled to reduce net interest income by 4.3% from the latent level.
- Capital Management: The company repurchased 0.8 million common shares for $41 million in Q1 2025. Preferred stock dividends decreased to $1 million from $10 million due to the redemption of Series G, I, and J preferred stock in Q4 2024.
- Risk Factors:
- Credit Risk: Continued monitoring of CRE portfolios, specifically multifamily and industrial sectors, where borrowers have missed projections due to longer lease-up periods and higher interest rates.
- Regulatory Risk: Potential impacts from proposed Basel III Endgame rules and long-term debt requirements for banks with over $100 billion in assets.
- Market Risk: Exposure to interest rate fluctuations and the fair value of investment securities, with $1.46 billion in gross unrealized losses on AFS securities as of March 31, 2025.
Investor Verification Checklist
- Tax Legislation Impact: Verify the long-term accretion schedule and future tax benefits associated with the Utah state tax law change affecting deferred tax assets.
- CRE Risk Grading: Review the specific criteria changes in risk grading that led to the 198% increase in classified loans, particularly in multifamily and industrial CRE.
- Construction Loan Vintages: Assess the exposure and performance of 2021, 2022, and 2023 construction loan vintages cited as a contributor to credit deterioration.
- Deposit Stability: Monitor the shift from noninterest-bearing to interest-bearing deposits and its impact on future net interest margin sustainability.
- Unrealized Losses: Confirm the bank's intent and ability to hold AFS securities with unrealized losses to maturity, given the $1.46 billion gross unrealized loss position.