管理層發言
Greetings and welcome to Zions Bancorp Earnings Conference Call. Please note, this conference is being recorded. Now I will turn the conference over to Shannon Drage, Senior Director of Investor Relations. Thank you, and you may begin.
Thank you, Von, and good evening, everyone. Welcome to our conference call to discuss the third quarter earnings for 2025. 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. Please note that actual results may differ materially. We encourage you to review the disclaimer in the press release or Slide 2 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 zionsbancorporation.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 Steward, Chief Credit Officer; Chris Kyriakakis, Chief Risk Officer; and Rena Miller, Corporate General Counsel. After our prepared remarks, we will hold a question-and-answer session. This call is scheduled for 1 hour. I will now turn the time over to Harris Simmons.
Thanks very much, Shannon, and good evening, everyone. As you'll see on Slide 3, the third quarter reflected continued momentum in our core earnings. Relative to the prior quarter, net interest margin expanded by 11 basis points to 3.28%. Customer fees, excluding the net credit valuation adjustment, grew $10 million, and adjusted expenses declined $1 million. The efficiency ratio improved to 59.6%. Average loans and customer deposits increased by an annualized 2.1% and 3.1%, respectively, compared to the prior quarter. These trends, which resulted in positive operating leverage are encouraging. During the third quarter, we recorded a $49 million provision for credit loss. Net charge-offs in the quarter were $56 million or 37 basis points of loans on an annualized basis. As noted in our 8-K filed on Wednesday of last week, legal action has been initiated for the recovery of approximately $60 million and certain guarantors of 2 related C&I loans.
We charged off $50 million of the combined balances of the loans at the end of the quarter. Additionally, we have established a full reserve against the remaining $10 million. We view this as an isolated situation resulting from a particular couple of borrowers. We have no further exposure related to these borrowers or guarantors. I would note that excluding the impact of this matter, net charge-offs were minimal at 4 basis points annualized on average loans and credit quality generally improved for the quarter as well. Moving to Slide 4. Diluted earnings per share was $1.48 compared to $1.63 in the prior period and $1.37 in the year-ago period. This quarter's results include a $0.06 per share negative impact related to the net credit valuation adjustment. Earnings per share also reflects the adverse impact of the elevated credit provision discussed previously. Slide 5 provides a 5-quarter view of the pre-provision net revenue.
On an adjusted basis, our third quarter results of $352 million reflect an improvement of 11% compared to the prior quarter and 18% compared to the prior year period as revenue growth continued to outpace expense growth. With that high-level overview, I'll turn the time over to our Chief Financial Officer, Ryan Richards, for additional details related to our performance.
Thank you, Harris, and good evening, everyone. Beginning on Slide 6, you will see the 5-quarter trend for net interest income and net interest margin. Net interest income increased by $52 million or 8% relative to the third quarter 2024. We continue to see the benefit from fixed asset repricing and favorable shifts in the composition of average interest earning assets. Growth in average customer deposits in excess of loan growth also contributed to an improved mix in funding relative to the prior quarter. As a result, the net interest margin expanded for the seventh consecutive quarter to 3.28%. Our outlook for net interest income for the third quarter of 2026 is moderately increasing relative to the third quarter of 2025, supported by continued earnings asset remix, growth in loans and deposits, and fixed asset repricing. Our guidance assumes 225 basis point cuts to the Fed funds rate in October and December of this year, with additional 25 basis point cuts in March and July of 2026.
Slide 7 presents additional details on changes in the net interest margin. The linked quarter waterfall chart on the left outlines changes in both rate and volume for key components of the net interest margin. The net interest margin expanded by 11 basis points sequentially from favorable earning asset remix and fixed loan repricing as well as improvement in total funding costs. Moving to noninterest income and revenue on Slide 8. Presented on the left in the darker blue bars, customer-related noninterest income was $163 million for the quarter versus $164 million in the prior period and $158 million 1 year ago. This quarter's results include an $11 million impact from net credit valuation adjustment, primarily driven by an update in our valuation methodology in addition to changes in other market factors. Adjusted customer-related noninterest income, which excludes net CVA, was $174 million for the quarter, representing a 6% increase versus the second quarter and an 8% increase versus the year-ago quarter.
Notably, capital market fees, excluding net CVA, increased 25% compared to the prior year period, driven by higher loan syndications and customer swap fee revenue. We continue to see solid contributions and growth from our newer capital markets offerings, including real estate capital markets, securities underwriting and investment banking advisory fees. The chart on the right side of this page presents both total revenue and adjusted revenue for the most recent 5 quarters, which were impacted by the factors previously noted for net interest income and customer-related fee income. Our outlook for customer-related fee income in the third quarter of 2026 is moderately increasing relative to the third quarter of 2025. The growth is expected to be broad-based and driven by increased customer activity and new client acquisition. Capital markets continue to contribute in an outsized way. Slide 9 presents adjusted noninterest income in the lighter blue bars.
Adjusted expenses of $520 million decreased by $1 million versus the prior quarter and increased 4% versus the year-ago period, with the latter increase driven largely by technology and salary-related costs. Our outlook for adjusted noninterest expense for the third quarter of 2026 is moderately increasing relative to the third quarter of 2025. The expense outlook considers increased marketing-related costs, continued investments in revenue-generating businesses, and increased technology costs. We continue to expect future positive operating leverage. Slide 10 presents a 5-quarter trend in average loans and deposits. Average loans increased 2.1% annualized over the previous quarter and 3.6% over the year-ago period. Total loan yields increased by 5 basis points sequentially. Our outlook for period-end loan balances for the third quarter of 2026 is slightly to moderately increasing relative to the third quarter 2025 and assumes growth will be led by commercial loans.
Average deposit balances are presented on the right side of the slide. Relative to the prior quarter, total average deposits were relatively flat, including an 11.5% reduction in average broker deposits. Average noninterest-bearing deposits grew approximately $192 million or 0.8% compared to the prior quarter, partially as a result of the migration of a consumer interest-bearing product into a new noninterest-bearing product in mid-May at our Nevada affiliate, which is now being fully reflected in average balances. Near the end of September, our remaining affiliates completed the same migration of legacy interest-bearing deposits into the new noninterest-bearing accounts. The approximately $1 billion of migrated deposits from the remaining affiliates are reflected in period-end balances in the third quarter and will be fully represented in average balances in our fourth-quarter results. The cost of total deposits declined sequentially by 1 basis point to 1.67%.
Further opportunities to reduce deposit costs will depend on the timing and speed of short-term benchmark rate changes, growth in customer deposits and market competition and depositor behavior. Slide 11 provides additional details on funding sources and total funding cost trends. Presented on the left are period-end deposit balances, which grew by $1.1 billion versus the prior quarter. Total borrowings declined $1.8 billion during the quarter. Short-term FHLB advances decreased $2.3 billion, partially due to the issuance of a $500 million senior note in addition to customer deposit growth. On the right side, average balances for our key funding categories are shown with total funding costs. As seen on this chart, our total funding costs declined by 5 basis points during the quarter to 1.92%. Moving to Slide 12. Our investment portfolio exists primarily to be a storehouse of fund to absorb customer-driven balance sheet changes, allowing for deep liquidity through the repo market.
Presented here are securities and money market investment portfolios over the last 5 years. Maturities, principal amortizations and prepayment-related cash flows from our securities portfolio were $596 million in the quarter or $291 million when considered net of reinvestment. The paydown and reinvestment of lower-yielding securities continue to contribute to the favorable mix of our earning assets. The duration of our investment securities portfolio is estimated at 3.7 years. We begin our discussion of credit quality on Slide 13. Realized net charge-offs in the portfolio were $56 million this quarter or 37 basis points annualized, driven principally by the $50 million charge-offs that Harris described previously. Nonperforming assets remained relatively low at 0.54% of loans and other real estate owned compared to 0.51% in the prior quarter. Classified loan balances declined sequentially by $282 million driven by a $143 million reduction in commercial real estate and a $141 million reduction in C&I classified levels.
We expect the commercial real estate classified balances will continue to decline going forward through payoffs and upgrades. During the third quarter, we recorded a $49 million provision for credit losses, which, when combined with net charge-offs, reduced the allowance for credit losses by $7 million relative to the prior quarter. The reduction reflects lower reserves associated with commercial real estate portfolio specific risks. The allowance for credit losses as a percentage of loans remained stable at 1.2%, and the loan loss allowance coverage with respect to nonaccruals was 213%. Slide 14 provides an overview of the $13.5 billion commercial real estate portfolio, which represents 22% of total loan balances. Notably, this portfolio continues to maintain low levels of nonaccruals and delinquencies. The portfolio is granular and well diversified by property type and location, with this growth carefully managed for over a decade through disciplined concentration limits.
As it continues to be of interest, we have included additional details on certain commercial real estate portfolios in the appendix of this presentation. Our loss-absorbing capital is shown on Slide 15. The Common Equity Tier 1 ratio this quarter was 11.3%. This, when combined with the allowance for credit losses, compares well to our risk profile. We expect our common equity from both a regulatory and GAAP perspective to remain stable, and that AOCI improvement will continue through unrealized loss accretion in the securities portfolio as individual securities pay down and mature. Importantly, our organic earnings growth, when coupled with AOCI unrealized loss accretion, has enabled us to grow tangible book value per share by 17% versus the prior year period. Slide 16 summarizes the financial outlook provided over the course of our prepared remarks for the third quarter of 2026 as compared to the third quarter of 2025.
Our outlook represents our best estimate of financial performance based on current information, and we expect to continue to produce positive operating leverage as revenue growth outpaces noninterest expense growth.
This concludes our prepared remarks. Additionally, if you have questions regarding the events mentioned in our 8-K and the public complaints filed last Wednesday, please note that while litigation is ongoing, our comments on these matters will be restricted to what is already available in those filings. Von, could you please open the line for questions?
分析師問答
Our first question comes from Manan Gosalia from Morgan Stanley Investments.
I wanted to start on the announcement in the 8-K. I guess you noted that the charge this quarter is an isolated incident. Can you talk about what gives you conviction that this is isolated? Maybe walk us through your internal review process since this came to light. How many loans have you reviewed? Are there any lumpy exposures to real estate funds within your NDFI book that you've come across? Any color there would be helpful.
This is Derek. Just as far as what we've reviewed, we've gone through the portfolio, and we think it's an isolated incident. As we've gone through it, we haven't found similar loans or other issues, so we're very confident that this is an isolated incident.
I think it’s important to note that our credit history over the years demonstrates that we manage credit effectively. There have been some unusual circumstances this time that are not typically seen. We will continue to evaluate the situation with an external party to ensure we learn from this experience and identify areas for improvement. Overall, our diligence in extending credit and monitoring collateral is evident.
Got it. Maybe if you can expand on that and take us through your NDFI exposure, as we look to the call report disclosure, I think that's about 4% of loans. It seems to be pretty spread out among subcategories. Are there any lumpier exposures or any high-risk categories there that you'd point out?
Sure. Thank you for the question. For transparency, this is Derek again. We included details about our NDFI exposure in the appendix on Slide 36. It represents about 3% of our total loans. As shown on the slide, the growth in this area has been quite minimal over the past several years. The components within this exposure fall under a broad regulatory definition, covering many different segments. The majority consists of equipment leasing transactions, such as construction equipment and trucks. Additionally, there are capital call lines and subscription lines, among other types. This portfolio is well diversified across various lending segments. We've been involved in this business for a long time, and while we don't plan to grow it significantly, we do have a lot of experience in this area.
Our next question comes from Dave Rochester from Cantor.
Wanted to start on your NII guide. How much fixed rate asset repricing are you factoring into that NII guide outlook? Can you possibly go through the balances that you're expecting to roll for loans and securities and what that yield pickup is and then what your expectations for longer-term interest rates are as part of that? That would be great.
Thank you, Dave. I appreciate your question and I'm glad to provide some insight. I want to highlight our slightly to moderately increasing guidance on loan growth. You may have noticed the trend we've established for security performance over the past several quarters. We certainly see the potential for our securities strategy to extend into loans. On the fixed asset side, if everything continues as anticipated, we expect a potential increase of 2 to 3 basis points in earning asset yields, which is reflected in our guidance.
Got you. So in terms of the amount of loans, fixed rate loans and fixed rate securities that you're expecting over the next year, do you happen to have a rough dollar amount to those?
It varies because it's not just the traditional fixed rate items. There are also some products that behave like fixed rates. For example, 5/1, 7/1, and 10-year adjustable-rate mortgages are included in that mix. So, it encompasses a combination of elements from commercial real estate, commercial and industrial loans, and mortgages that function similarly to fixed rate loans, which are part of what we refer to as fixed rate asset repricing.
Okay. And then just as a follow-up on capital, last quarter, you mentioned you weren't that comfortable with the buyback yet. Can you give us your updated thoughts now that capital ratios are a little bit higher and maybe you have some more clarity on portfolio and growth?
Yes. Thank you, David. I hope we're aligned here. We've been discussing the inclusion of AOCI when assessing our total capital levels in relation to our peers. Looking at this quarter and our peers, particularly considering AOCI, there seems to be a tendency for a central range around 10%, roughly 12 months away from when we would start evaluating those levels, incorporating AOCI based on current projections. At that point, we’d likely be more actively comparing ourselves with peers.
Our next question comes from Ken Usdin from Autonomous Research.
I would like to ask about the guidance. You have indicated a moderate outlook. However, in your prepared remarks, you mentioned that you are still discussing operating leverage for the year ahead. What is the target you are aiming for regarding the extent of operating leverage that you believe can be achieved as you look forward?
That's again. Very fair question. Listen, I first want to just reiterate what Harris said. He emphasized in his spoken comments and also in his quote about the strength of our core earnings this quarter. I think showing up with 5 points of operating leverage was an indication of some of the good things that have been happening at the bank. We're still really refining how we think about how the numbers are coming together for next year. We see enough to know that there's going to be a positive operating leverage. Where exactly that lands is not perfectly clear yet, but we know it's there. So I'll probably stop short of giving you a hard number or a hardened range at this point, but we're happy to return to it once we've landed our full year process for 2026. But I understand you struggle with the guide. Go ahead, Ken.
My second question just from last quarter, you were talking about a 3.50% net interest margin over time, 3.28% this quarter. And then kind of commentary might have changed a little bit after you had said that. I just wanted to kind of ask you to come back on that commentary that you gave and help us think about what the right zone is for your kind of long-term net interest margin thinking.
I believe I initially put forward that idea. Typically, when discussing projections, it’s important to mention either a number or a date, but not both. That’s likely where we would expect to end up. I did not mean to imply that this would happen in the current quarter or next year. I anticipate continued improvement in the net interest margin as we focus on effective pricing on the asset side of our balance sheet. Some of this improvement will arise from repricing within the securities portfolio. The figure I mentioned seems to be in line with where we realistically expect to be, aligned with our historical trends. I hope that clarifies things, but I am not suggesting this will occur within the next 12 months.
And I think the pacing of that is a little bit harder in a lower rate environment. But listen, I think just...
All right. So not doable, but we'll see what the timing is.
Yes. So I think, to Harris' point, I think it's really pulling through on some of the core initiatives that we have at play to drive through deposit growth but have yet to play out fully.
Our next question comes from Ben Gerlinger from Citigroup.
So just kind of sticking with everyone's favorite slide of 26 of the latent, emergent and implied. It seems like the implication has come down quite a bit quarter-over-quarter. Obviously, some of that is your margin went up, so you recognize it, which is good. And then the Fed fund is lower by 50 bps on the outlook. I think there's 2 measurements kind of point to point a little apples-and-oranges comparison. The implied seems to suggest like minimal improvement. But is it maybe a fact of you kind of casting over and you might see margin compression as you kind of recognize the full 100 basis points? Or is it more just kind of giving you an optics view? I guess there's a lot of scenario analysis of deposit betas and everything within that, too. So just kind of curious, considering the implied is roughly 1/3 of where it was.
Yes, thank you for the question. And I think I caught most of that. It was coming through just a little bit faint, but I think that the rest of it is talk us through kind of where things are landing at the 1.4% based upon the implied forward based upon maybe the change period-over-period. I would just try to reinforce, as I tried to every chance, illustrative to show the various interest rate dynamics that we've highlighted in times gone by. And certainly, in a down rate environment, included in my prior response, building upon Harris' is it does make it a little tougher from a net interest income basis, but even with the backdrop of this sensitivity, we layered on top of that was a slightly to moderately increasing loan growth prospects. And the fact that there are some assumptions underlying this sensitivity that can be seen as being relatively conservative, I'll let you judge whether it is or it is not, including things like migration from noninterest-bearing deposits elsewhere, including the assumption that securities are 100% reinvested in securities when, in fact, we've shown that we've actually had opportunities to reinvest at least half of those gross cash flows in other gainful places.
Got you. That's helpful. And then in terms of capital, there's been some M&A in kind of your footprint or footprint adjacent, you could say. When you look at the opportunity set in front of you and you now have better capital footholds, if you were to do M&A, could you kind of target the potential size you might look at and maybe dilution impact that you might be willing to stretch to, if M&A is on the table at all at this point?
There are various factors that influence our decisions regarding potential opportunities. Generally, smaller deals that enhance our presence in markets where we are already established are of primary interest. I won’t delve into specific metrics that might inform a deal, as each one has its unique context. However, I am quite mindful of the issue of dilution and want to ensure that any deal we consider aligns strategically. We are open to exploring opportunities, but there is no urgency to pursue anything at this time.
Our next question comes from Matthew Clark from Piper Sandler.
Just back to the 8-K. Can you just maybe step back and give us some more color on how things unfolded, when maybe you first discovered that there was a problem and whether or not those 2 credits were adversely rated previously or not and then just how you monitor collateral just in general, just with the collateral kind of moving around in this case?
Yes, this is Derek again. During the quarter, we began a review after discovering certain facts, as stated in our 8-K. It took some time for us to analyze the situation. Once we identified our findings, we believed it was important for transparency to share what we had uncovered.
I think it's the processes. I mean we have a lot of people around here that are looking at collateral and loan documentation, et cetera, et cetera. I think historically, they did a great job. This is obviously one that was not something that came across the radar screen as early as we would have wished and so one of the reasons that we're doing an outside review. But again, I think historically, we've got a pretty good track record monitoring and...
Understood. Okay. And then just the other question for me just sort of on the loan growth outlook. It looks like you slightly raised the loan growth guide. It looks like it's going to be predominantly driven by commercial, but there was some runoff in C&I. Can you maybe just speak to the runoff in C&I and maybe the related pipeline and how you expect to kind of restore that growth?
Yes, this is Scott McLean. Our loan growth has been around 3% for the past 7 quarters, starting from the first quarter of '24. Throughout this period, there have been significant concerns about commercial real estate and the economy. Tariffs have also been part of the discussion. During this time, we plan to be cautious with our lending practices. As a result, we expect to maintain our current growth levels. On the positive side, we are actively enhancing our strategies. Our call programs are stronger than ever, and we have increased our SBA lending activities, ranking as the 14th largest originator of SBA 7(a) loans by September 30, which marks the end of the SBA's fiscal year. We are also launching new products for consumers and small businesses and have revamped our marketing strategies to be more strategic. We are taking an offensive approach, and as the economy improves, I anticipate our portfolio will continue to achieve moderate single-digit loan growth, a trend we've maintained for many years.
In response to your question, Matthew, regarding the decline in C&I during the quarter, although we saw an increase on an average basis in spot loans, there was a sequential decline. This situation is somewhat masked by strong loan production that was counterbalanced by paydowns and payoffs. Specifically, in the C&I area, we did observe some activity that led to reduced balances for NDFIs in health care and pharmaceuticals. However, we also experienced reductions in other sectors, such as commercial real estate, multi-family, office, and some in consumer loans. We have included a slide in our appendix that details where loan reductions occurred across our affiliates and categories for your reference.
Our next question comes from John Pancari from Evercore ISI.
On the credit front, I know you mentioned the third-party review here a couple of times. Can you elaborate there a little bit? What exactly is the third-party review looking at? How comprehensive is it? And are your collateral assessments, are they purely done in-house? Or do you also outsource your collateral assessment? And maybe how frequently is that done?
Sure. I can discuss the review. We have a long history of low credit losses compared to the industry, and when events like this occur, we will take the necessary steps to review our policies and procedures to identify what we can learn. It is prudent for us to do so. Regarding collateral, we primarily monitor it internally. Our team does an excellent job every day in managing collateral, and we have rarely encountered issues like those associated with these loans. Occasionally, we conduct field exams or audits of customers, but in most situations, we handle the monitoring in-house.
Okay. And regarding credit, I remember that after the financial crisis, you centralized your credit decision-making as you streamlined your charters. Is your credit decision-making still centralized, or are there still aspects of underwriting and monitoring being handled at the individual banks?
So this is Derek again. One of the strengths of our model is that we aim for local decision-making at the affiliates, which is fundamental to our operations. This process is centrally monitored, with second-line oversight and controls in place. Depending on the size and type of the loan, some decisions may escalate to the corporate level, but we strive to maintain local decision-making where the affiliates have the best understanding of their customers.
I would just add that all of our credit executives report to Derek. When he refers to local, it means they report to Derek and are situated in each of our affiliate locations, working closely with the team there. They are not distant but are part of what we call the second line of defense. They report directly to our Chief Credit Officer, and depending on the size of the loan, Derek, as Chief Credit Officer, gets involved once the loans reach a certain threshold.
Our next question comes from Peter Winter from D.A. Davidson.
Scott, I wanted to follow up on the loans. And just wondering if you could talk about how loan demand has changed over the last 90 days and what you're seeing in terms of loan spreads.
Yes. Loan spreads have improved slightly, depending on the category. However, when discussing loan conditions over the last quarter, we don't view it in quite the same way. Looking back over the past year, it aligns with what I described, and Ryan mentioned some charge-offs and loan payoffs from the last portion of the quarter that slightly impacted loan growth. However, if you examine production, it has increased in most months this year compared to 2024. We typically observe strong loan growth in the fourth quarter, as we did last year. Therefore, we anticipate a differentiated period for loan growth, and we are ready and taking the right steps to achieve faster loan growth when the opportunity arises.
As interest rates have decreased slightly, we have noticed an increase in refinances in both commercial real estate and owner-occupied portfolios, which has created some challenges. While this is a contributing factor, we have seen an improvement in our pipeline and construction loans, although it takes time for those balances to accumulate as the equity is invested first. There is a lag effect, but we expect those balances to rebuild. However, the payoffs are occurring more quickly than the new balances are being added.
This now concludes our question-and-answer session. I would like to turn the floor back over to Shannon Drage for closing comments.
All right. Thank you, Von, and thank you all for joining us today. We appreciate your interest in Zions Bancorporation. If you do have additional questions, please contact us at the e-mail or phone number listed on our website. We look forward to connecting with you throughout the coming months, and this concludes our call.
Ladies and gentlemen, thank you for your participation. This does conclude today's teleconference. Please disconnect your lines, and have a wonderful day.