On Monday, Zions Bancorp (NASDAQ:ZION) discussed first-quarter financial results during its earnings call. The full transcript is provided below.
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Summary
Zions Bancorp reported a 37% year-over-year increase in net earnings to $232 million, or $1.56 per diluted share, driven by revenue growth and lower credit loss provisions.
The company announced a strategic acquisition agreement with Basis Investment Group to enhance its Fannie and Freddie lending programs, expected to bolster its capital markets franchise.
Zions Bancorp’s net interest margin stood at 3.27%, down slightly from the previous quarter, with future guidance indicating moderate increases in net interest income if rates remain stable.
Management highlighted ongoing investments in consumer and small business banking, with new product launches like the Gold Account and Business Beyond aimed at increasing deposit growth.
The company’s capital position remains strong, with a CET1 ratio of 11.5%, and potential benefits from the Basel III endgame proposal could provide additional capital relief.
Zions Bancorp is seeing increased loan activity, particularly in commercial and industrial sectors, and expects moderate loan growth despite some pricing pressures in commercial real estate lending.
The company is experiencing broad-based growth in fee income, especially in capital markets, and maintains a positive outlook for fee income and operating leverage for the full year 2026.
Full Transcript
OPERATOR
Greetings and welcome to Zions Bancorp’s First Quarter Earnings Conference call. At this time, all participants are in a listen only mode. A question and answer session will follow the formal presentation. If anyone should require operator assistance during the conference, please press Star 0 on your telephone keypad. Please note that this conference is being recorded. It is now my pleasure to turn the conference over to Andrea Christofferson. Thank you. You may begin.
Andrea Christofferson (Director of Investor Relations)
Thank you, Julian and good evening everyone. Welcome to our conference call to Discuss Zions Bancorp’s first quarter 2026 results. My name is Andrea Christofferson, Director of Investor Relations. Before we begin, I would like to remind you that during this call we will make forward looking statements. Actual results may differ materially. We encourage you to review the forward looking statements and non GAAP disclosures in our press release and on slide 2 of today’s presentation, which apply equally to statements made during this call. A copy of the earnings release and presentation are available@sciencebank corporation.com for our agenda today, Chairman and Chief Executive Officer Harris Simmons will provide opening remarks. Following Harris’s comments, Chief Financial Officer Ryan Richards will review our financial results and outlook. Also with us today are Scott McClain, President and Chief Operating Officer Derek Stewart, Chief Credit Officer and Chris Kyriakakis, 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.
Harris Simmons (Chairman and Chief Executive Officer)
Thanks very much Andrea and good evening everyone. We’re reasonably pleased with our performance and financial results for the first quarter which reflect meaningful year over year improvement and continued progress against our long term strategic priorities. Our Capital Markets division continues to be an important driver of fee income growth. Since launching the business in 2020, we’ve invested heavily in talent, technology and product capabilities, expanding our presence across investment banking, sales and trading and real estate capital markets. In late March, we announced an agreement with Basis Investment Group to acquire their Fannie and Freddie lending programs, related mortgage servicing rights, and an experienced team supporting those platforms subject to regulatory and customary closing approvals. We expect this transaction will meaningfully enhance our ability to serve commercial real estate clients across the Western United States and beyond and to further strengthen our capital markets franchise, we continue to invest in our consumer and small business franchises. Following the launch of our new Gold Account consumer Deposit product in the second half of 2025, we recently introduced its companion offering for small business customers branded as Beyond Business Account. We began piloting the product in Colorado and Arizona late in the quarter and it’s expected to roll out more broadly across our affiliate banks later this quarter. This tiered checking solution is designed to support clients as they grow from basic banking needs to more complex cash flow and money movement capabilities. Our focus on small business is also reflected in continued momentum in SBA lending, where we now rank 11th nationally in SBA 7 loan approvals during the first half of the SBA’s fiscal year Shifting now to the financial results for the quarter, Slide 3 presents certain first quarter results versus the prior quarter and prior year. First quarter results reflected typical seasonal expense patterns, while revenue and profitability improved meaningfully relative to the prior year period. Net earnings were $232 million, or $1.56 per diluted share, up 37% from a year ago, driven by revenue growth, a lower provision for credit losses and a lower effective tax rate compared to the fourth quarter of 2025. Earnings declined 11%, primarily reflecting lower revenue, including the impact of two fewer days in the period and significantly lower securities gains as well as seasonal compensation expenses. The net interest margin was 3.27%, down 4 basis points from the prior quarter, reflecting lower earning asset yields and a decline in average demand deposits partially offset by improved funding costs. Average loans grew 2.4% on an annualized basis, led by commercial lending, while average customer deposits showed a modest seasonal decline period. End Customer deposits grew $1.3 billion, or 1.8% from year end. Credit losses were very modest at three basis points annualized of average loans on slide four, diluted earnings per share were $1.56, down from $1.76% in the prior quarter and up from $1.13% a year ago. As a reminder, the year ago quarter included an 11 cent per share headwind related to the revaluation of deferred tax assets due to newly enacted state tax legislation. There were no notable items in the first quarter with an impact greater than $0.05 per share. As shown on Slide 5, adjusted pre provision net revenue was $301 million declined 9% from the prior quarter, reflecting some of the items noted earlier, including a slightly lower day count. Adjusted taxable equivalent net interest income pre Provision net revenue increased 13% versus the year ago quarter on improved revenue and positive operating leverage. With that overview, I’ll turn the call over to our Chief Financial Officer Ryan Richards to walk through the quarter in more detail and to walk through our outlook.
Ryan Richards (Chief Financial Officer)
Ryan thank you Harris and good evening everyone. Beginning on slide 6, you can see the 5 quarter trend for net interest income and net interest margin. Taxable equivalent net interest income was 662 million, down 21 million or 3% from the prior quarter and up 38 million or 6% from the year ago quarter. Earning asset yields fell faster than funding costs during the quarter, most notably in January and loan repricing reflected the impact of the December rate cuts. Current deposit costs also moved lower but with a lag over the quarter. Net interest margin was 3.27%, down 4 basis points linked quarter and up 17 basis points year over year. Slide 7, provides additional detail on the drivers of net interest margin. The linked quarter walks reflect the lower asset yields mentioned previously as well as a lower contribution from average demand deposit balances. These factors were partially offset by improved deposit costs year over year. The improvement in margin primarily reflects deposit and borrowing repricing and our continued focus on optimizing the balance sheet. For the first quarter of 2027, our outlook for net interest income is moderately increasing. Given the uncertain path of benchmark rates. The forward curve as of March 31st assumed no rate changes over the next 12 months. If that plays out, we estimate net interest income growth of about 7 to 8% which would exceed our guide. Moving to non interest income on slide 8, customer related non interest income was 172 million compared to 177 million in the prior quarter and 158 million a year ago. Excluding net credit valuation adjustment, adjusted customer related non interest income was 174 million compared with 175 million in the prior quarter and up 16 million or 10% from the year ago quarter. We are particularly pleased with the broad based growth achieved during the quarter relative to the last year which reflects higher residential mortgage loan sales activity and growth in retail and business banking, commercial account and wealth management fees. We continue to see attractive opportunities in capital markets and have strong pipelines going into the second quarter. For the first quarter of 2027, our outlook for adjusted customer related fee income is moderately increasing versus the first quarter 2026 results of 174 million. With broad based growth and capital markets continue to contribute in an outsized way, we currently expect results towards the top end of that range. Turning to Slide 9,, adjusted on interest expense was 558 million. Expenses increased versus the prior quarter driven primarily by seasonal compensation and were higher year over year reflecting increased marketing technology costs, professional and outsourced services and higher incentive compensation. We will continue to manage expenses prudently while investing to Support growth. Our first quarter 2027 outlook for adjusted non interest expense is moderately increasing versus the first quarter of 2026 based on first quarter performance and full year expectations. We continue to Expect positive operating leverage for a full year 2026 in the range of 100 to 150 basis points. Slide 10, presents trends in average loans and deposits. Average loans grew 2.4% annualized during the quarter primarily within the commercial and industrial portfolio and increased 2.5% year over year. Loan yields declined sequentially as benchmark rate cuts in the latter part of 2025 were reflected in variable rate repricing. Average deposits were modestly lower than the prior quarter by 540 million. Approximately 1/2 of the decline was due to average broker deposits while the remainder can be attributed to seasonal runoff across business operating accounts early in the quarter. Importantly, period end customer deposits increased by 1.3 billion or 1.8% from year end. The cost of total deposits declined sequentially, benefiting from both repricing and a more favorable mix within interest bearing deposits. Slide 11, presents the five quarter trend of our average and ending funding sources. Our Total funding costs declined 8 basis points linked quarter to 1.68% largely as a result of the aforementioned deposit repricing. Period. End customer deposits grew 1.3 billion and short term borrowings declined significantly as we continue to replace higher cost wholesale funding with customer positive growth and securities cash flows while also remixing into senior debt. Turning to Slide 12,, the investment securities portfolio continues to serve as an important source of on balance sheet liquidity and a tool to balance interest rate risk through deep access to the repo markets. During the quarter, principal and prepayment related cash flows from investment securities of 493 million were partially offset by reinvestment of 299 million. The continued paydown of lower yielding mortgage backed securities supports earning asset remix or reduction in wholesale funds. The estimated price sensitivity of the portfolio inclusive of hedging activity was 3.7 years. Credit quality remains strong as shown in slide 13. Net charge offs were 3 basis points annualized of average loans and the non performing assets ratio declined to 48 basis points. Classified and criticized balances also declined during the quarter. The allowance for credit losses ended the quarter at 1.16% and remains well positioned relative to our risk profile with a 239% coverage of non accrual loans. Slide 14, provides an overview of our $13.7 billion commercial real estate portfolio which represents approximately 22% of total loans. The portfolio remains granular and well diversified by property type and geography with conservative loan to value characteristics. Credit metrics remain favorable including low levels of non accruals and delinquencies. Our capital position remains strong as shown on slide 15. The Common Equity Tier 1 ratio was 11.5% flat during the quarter as earnings growth was somewhat offset by the 77 million in common shares, repurchase and dividends paid. In addition to the growth in risk weighted assets, we continue to expect net capital generation through earnings and continued improvement in AOCI. Tangible book value per share increased 19% versus the prior year reflecting earnings generation and continued balance sheet normalization. Slide 16, summarizes the outlook we discussed across loans, net interest income, fee income and expenses. This outlook reflects our best estimate based on current information and is subject to the risks and uncertainties discussed in our forward looking statements.
Andrea Christofferson (Director of Investor Relations)
This concludes our prepared remarks as we move to the question and answer section of the call. We request that you limit your questions to one primary and one follow up question to enable other participants to ask their questions. Julian, please open the line for questions.
OPERATOR
Thank you. And once again, if you would like to ask a question, please press Star one on your telephone keypad. A confirmation tone will indicate that your line is in the question queue. You may press Star two to remove yourself from the queue. For any participants using speaker equipment, it may be necessary to pick up the handset before pressing the star keys. One moment while you pull for questions. And our first question comes from the line of John Pam Carey from Evercore isi. Please proceed with your question.
John Pam Carey (Equity Analyst)
Afternoon. On the just on the margin side I know you your loan Yield compressed about 14 basis points linked quarter. I think you had mentioned that it was largely a function of the rate cuts and variable rate repricing. I guess that linked quarter change was that all the benchmark rate change. Any other impact to loan yields in the quarter and maybe if you can give us your new-money loan yields just to give us an idea where originations are coming on the books.
Ryan Richards (Chief Financial Officer)
Hey, thanks John, really appreciate that. Yeah, so listen, I think you picked up on the main thrust of it. So we would have had some benchmark repricing and expectation of the rate cut that came in the middle of December and some that trailed thereafter and where we remained skewing a little bit more on the asset sensitive side that that was the biggest contributor in terms of the repricing characteristics. Of course we’ve got the nice materials in our appendix that I know you’re familiar with, but I think maybe the question that you’re getting at on front book versus back book for the loan portfolio is really the most meaningful part of that as we sort of think about trajectory moving forward is for those fixed rate loan portfolios, the things that have yet to reprice through. And there we’re seeing a 72 basis point spread on the front book vis-à-vis the back book.
John Pam Carey (Equity Analyst)
Okay. All right. And then I guess in terms of your positive operating leverage expectation of 100, 150 basis points, that’s for the year. And so what rate assumption does that imply? I know you mentioned if there’s no rate changes consistent with the forward curve, the next 12 month Net Interest Income (NII) outlook could come in at 7 to 8% above the range. Does that 100, 150 basis points expectation imply the forward curve? And maybe if you can give us a little bit more detail in terms of that NII expectation.
Ryan Richards (Chief Financial Officer)
Yeah, thank you for that, John. Listen, in the past we’ve brought a view of kind of latent and emergent effects. It’s less interesting this quarter since we there’s not much to talk about in the forward curve in terms of rates changes that were implied at least at the quarter end. So those are kind of right on top of each other. So we were able to firm up our guide for the full year. As you sort of think about the trajectory of that, where we normally guide on a one year four quarter basis, we believe you’ll see there’s a much more powerful positive operating leverage, probably not unlike what we’ve seen this quarter relative to last quarter where and Harris is quoting in his remarks, you will see positive operating leverage of 270 basis points. So we think that as our repricing plays through from the investment securities into loans, as we have less those headwinds associated with our terminated swaps, some of the other things play through. We do see really good prospects for one year, fourth quarter last year when we were with you, we were anticipating as part of our sensitivity and our guidance that we could have had rate cuts. I think we were anticipating in June and September. And based upon the forward curve, those are now off the table so that having no cuts is embedded into our full year positive operating leverage guidance. Got it.
John Pam Carey (Equity Analyst)
All right, thanks Ryan. Appreciate it.
OPERATOR
Thank you. And our next question comes from the line of Manon Gosalia with Morgan Stanley. Please proceed with your question.
Manon Gosalia (Equity Analyst)
Hi, good afternoon. On the deposit cost side, deposit costs, I guess they came down quarter on quarter, but they were pretty flat relative to the spot rate as of December 31st. And it looks like the spot rate as of March 31st has moved lower again. So can you just help us connect the dots on the trajectory there? Maybe give us an update on deposit pricing and competition and also what you’re expecting in terms of CD rollovers coming up, hey, thank you for that. And we’ll try to unpack that in places and invite my colleagues to jump in as well. Listen, I think I’ve seen the questions come in other calls in this earnings cycle about where deposit costs go if rates kind of stay static here for the remainder of the year. There’s still some trailing activity, some repricing down on term deposits, thinking about customer time deposits that have yet to play through. So, you know, that would definitely be an element of this. You will have heard us talking increasingly quarter over quarter and when you catch us at conferences about …
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