Zions Bancorporation, National Association Q4 2024 Earnings Call Transcript

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January 21, 2025
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Operator

Greetings, and welcome to the Zions Bancorp Q4 Earnings Conference Call. This time, all participants are in a listen only mode. A question and answer session will follow the formal presentation. As a reminder, this conference is being recorded. Pleasure to introduce our host, Shannon Drage.

Operator

Thank you. You may begin.

Shannon Drage
Shannon Drage
Senior Director of Investor Relations and Strategy at Zions Bancorporation

Thank you, Matt, and good evening. We welcome you to this conference call to discuss our 2024 Q4 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 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.

Shannon Drage
Shannon Drage
Senior Director of Investor Relations and Strategy at Zions Bancorporation

A copy of the earnings release as well as the presentation are available at zionsvincorporation.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 MacLean, 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.

Shannon Drage
Shannon Drage
Senior Director of Investor Relations and Strategy at Zions Bancorporation

This call is scheduled for 1 hour. I will now turn the time over to Harris Simmons.

Harris Simmons
Harris Simmons
Chairman & CEO at Zions Bancorporation

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 there have been no reported injuries or property loss among our people. We're grateful for the 1st responders and charitable organizations who are working to protect so many people and to assist them in getting back on their feet.

Harris Simmons
Harris Simmons
Chairman & CEO at Zions Bancorporation

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 3.

Harris Simmons
Harris Simmons
Chairman & CEO at Zions Bancorporation

We're pleased with the continued improvement in our financial performance relative to the prior year. 4th quarter adjusted pre provision net 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 $737,000,000 or $4.95 per share. For the 4th quarter, earnings were $200,000,000 or $1.34 per share. The net interest margin expanded for the 4th consecutive quarter primarily due to interest bearing liabilities repricing downward faster than earning asset yields.

Harris Simmons
Harris Simmons
Chairman & CEO at Zions Bancorporation

The margin was 3.05% for the quarter compared to 3 0.03% 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 Q4 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.

Harris Simmons
Harris Simmons
Chairman & CEO at Zions Bancorporation

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 $36,000,000 or 24 basis points annualized with 2 thirds of the net loss amount attributable to a single commercial and industrial credit. The level of classified balances increased by $777,000,000 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 that may occur over the next year will be very manageable.

Harris Simmons
Harris Simmons
Chairman & CEO at Zions Bancorporation

Moving to Slide 4, 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 $41,000,000 had a negative impact of $0.21 per share. Slide 5 provides a 5 quarter view of pre provision net revenue. On an adjusted basis, our 4th quarter results of $312,000,000 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.

Harris Simmons
Harris Simmons
Chairman & CEO at Zions Bancorporation

Our Capital Markets business experienced strong results and we continue 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. 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.

Harris Simmons
Harris Simmons
Chairman & CEO at Zions Bancorporation

Ryan?

Ryan Richards
Ryan Richards
CFO at Zions Bancorporation

Thank you, Harris, and good evening, everyone. I will begin with a discussion of the components and associated performance drivers and pre provision net revenue. Getting with net interest income and net interest margin on slide 6, you will see the 5 quarter trend for both measures, reflecting 4 consecutive quarters of improvement. During the quarter, the downward repricing of interest bearing liabilities outpaced the pressure on asset yields.

Ryan Richards
Ryan Richards
CFO at Zions Bancorporation

Net interest margin further benefited from a reduction of $1,400,000,000 in average short term borrowings. Additional details on changes in the net interest margin are included on Slide 7. 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 2 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.

Ryan Richards
Ryan Richards
CFO at Zions Bancorporation

Improved funding costs were somewhat offset by the declines in earning asset yields and a lesser contribution from non interest bearing sources of funds. 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 of deposits. Moving to non interest income and revenue on Slide 8, customer related non interest income was $173,000,000 for the quarter, an increase of 7.5% on a linked 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.

Ryan Richards
Ryan Richards
CFO at Zions Bancorporation

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 $10,000,000 to $509,000,000 attributable to slight increases in compensation related accruals, legal services and occupancy. Reported expenses also at $509,000,000 increased by $7,000,000 compared to the prior quarter.

Ryan Richards
Ryan Richards
CFO at Zions Bancorporation

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 C and I loans continue to be the drivers for this increase.

Ryan Richards
Ryan Richards
CFO at Zions Bancorporation

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 end 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 4th quarter increased modestly.

Ryan Richards
Ryan Richards
CFO at Zions Bancorporation

As Harris mentioned earlier, we are pleased by the stability we continue to see in the level of non interest bearing deposits. Cost of total deposits shown in the white boxes declined by 21 basis points to 1.93%. Interest bearing deposits costs decreased by 32 basis points versus the prior quarter. On average, the rate on interest bearing deposits was 2.87 percent for the quarter compared to 3.19% in the prior period. Interest bearing deposits spot rate at December month end was 2.62 percent and the total deposit spot rate was 1.78%.

Ryan Richards
Ryan Richards
CFO at Zions Bancorporation

Deposit repricing has been disciplined and in line with our expectations, reflecting near 100 percent betas on higher cost deposits. Slide 11 includes a more comprehensive view of funding sources and total funding cost trends. Left side chart includes ending balance trends. Compared to the prior quarter, total deposits grew approximately $500,000,000 comprised of period end growth of $670,000,000 in customer deposits, offset by a $163,000,000 reduction in higher cost broker deposits. Period end non interest bearing demand deposits were relatively stable and represented approximately 32% of total deposits.

Ryan Richards
Ryan Richards
CFO at Zions Bancorporation

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 5 years. Maturities, principal amortization and prepayment related cash flows from our investment securities portfolio were $749,000,000 in the 4th quarter.

Ryan Richards
Ryan Richards
CFO at Zions Bancorporation

Net of reinvestment, cash flows for the quarter were $370,000,000 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 31, which assumes the Fed Funds target reaches 4.25 percent. Model net interest income in the Q4 of 2025 is expected to be 6.8% higher when compared with the Q4 of 2024. This includes the impact of both latent and emergent sensitivity that we have broken out in prior quarters.

Ryan Richards
Ryan Richards
CFO at Zions Bancorporation

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% 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.

Ryan Richards
Ryan Richards
CFO at Zions Bancorporation

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. Non performing assets decreased $70,000,000 in the quarter, while criticized and classified loan balances increased by $849,000,000 $777,000,000 respectively. The decline in non performing assets was driven largely by several successful resolutions at par together with a large charge off previously noted in the portfolio.

Ryan Richards
Ryan Richards
CFO at Zions Bancorporation

Increase in classified loans was primarily driven by commercial real estate, primarily in multifamily, industrial and office. Expected loss content and 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 borrower 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 2 34%.

Ryan Richards
Ryan Richards
CFO at Zions Bancorporation

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 $13,500,000,000 CRE portfolio, which represents 23% of total loan balances. The portfolio is granular and well diversified by property type and location with this growth carefully managed over a decade through disciplined concentration limits. Slide 16 provides a detailed view of the problem loans in our CRE portfolio.

Ryan Richards
Ryan Richards
CFO at Zions Bancorporation

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 $777,000,000 increase in total classified loans, dollars 609,000,000 was driven by commercial real estate, primarily

Ryan Richards
Ryan Richards
CFO at Zions Bancorporation

multifamily, industrial and office credits. The chart on the bottom left hand

Ryan Richards
Ryan Richards
CFO at Zions Bancorporation

side of the slide reflects the credits. The chart on the bottom left hand side of the slide reflects the LTV distribution of classified CRE loans, with more than 3 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 4th quarter to 10.9%.

Ryan Richards
Ryan Richards
CFO at Zions Bancorporation

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 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 Q4 of 2024, we redeemed 374,000,000 of preferred stock with coupons exceeding 9% and called 88,000,000 of subordinated debt, the latter of which have begun to phase out of Tier 2 capital. These issuances were replaced with $500,000,000 of lower cost subordinated notes that will positively impact earnings per share starting in the Q1 of 2025 by $0.02 to $0.03 per share. Slide 18 summarizes the financial outlook provided over the course of this presentation.

Ryan Richards
Ryan Richards
CFO at Zions Bancorporation

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 2024. With this outlook, we expect to see positive operating leverage and improved efficiency as revenue growth outpaces funding and expense pressures.

Shannon Drage
Shannon Drage
Senior Director of Investor Relations and Strategy at Zions Bancorporation

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 questions. Matt, will you please open the line for questions?

Operator

First question here is from Menin Consolier from Morgan Stanley. Please go ahead.

Manan Gosalia
Manan Gosalia
Analyst at Morgan Stanley

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? I'm assuming there's still some benefit that's going to come with a lag, but at the same time, there's fewer rate cuts in the forward curve, which might impact how much more you can do. So if you can just run through some of that?

Ryan Richards
Ryan Richards
CFO at Zions Bancorporation

Yes. Lisa, thanks for the observation. I think it's fair to say that so far, we've been pleased with the response, the pricing response and very much in line with what we've discussed on previous calls about how we anticipated interest bearing deposits to behave. And as you also note, there is a lag factor associated with different types of time deposits and broker deposits. So we've been in an athletic posture each time that the Fed has been in a position to reduce rates that will remain true.

Ryan Richards
Ryan Richards
CFO at Zions Bancorporation

And so I think as we move forward with the prospect of another potential 25 basis point rate decrease during 2025. Right

Ryan Richards
Ryan Richards
CFO at Zions Bancorporation

now,

Ryan Richards
Ryan Richards
CFO at Zions Bancorporation

I wouldn't think of any other reason to expect other than in line performance with what we've seen thus far. Predicting beyond that, it would be really difficult to do at this point.

Manan Gosalia
Manan Gosalia
Analyst at Morgan Stanley

Got it. And for my follow-up, do you have 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?

Ryan Richards
Ryan Richards
CFO at Zions Bancorporation

It is something that we certainly are cognizant of and I know that we periodically get the question about when might we take more additional capital actions and view of still uncertainty that is in the environment about where the Basel III in game rules reside. And even without that, there's sort of an increasing, I think expectation that we'd be managing our capital inclusive of AOCI. So we do include in our appendix slide sort of the path that we see today with $2,400,000,000 in AOCI losses in the past 1 year hence, about where that goes. And we certainly do think internally about what our excluding AOCI capital levels are with an expectation of continuing to grow capital, so that over time that we are more sort of at median peer capital levels. So those are things that we do monitor and that we are comfortable with the glide path or any realistic expectation about when Basel III in game could be applicable for us.

Manan Gosalia
Manan Gosalia
Analyst at Morgan Stanley

So is it fair to say that, if there is more volatility in the long end of the curve that it would only really impact when you think about buybacks as opposed to impacting how you grow your loan book?

Harris Simmons
Harris Simmons
Chairman & CEO at Zions Bancorporation

I think that's probably the case. I mean I think you'll see back in the appendix the projections with respect to how AOCI runs off. And it's if you look at it's kind of a proxy for this. If you look at tangible book value has been improving pretty rapidly. I think around 20%, 21% something over the last 12 months.

Harris Simmons
Harris Simmons
Chairman & CEO at Zions Bancorporation

And so we expect that we don't know the final outline of what the rules are going to look like, the transition period kind of how regulators will reengage with this. I think we'd certainly expect that AOCI will come back into capital. That's probably one thing that will survive, but the timing of it is not entirely clear. But in the meantime, I think we're on a pretty good glide path to getting to the point where this will solve itself without having to do anything in the way of capital actions. It will probably continue to retard our buyback activity until we can see this with more clarity.

Harris Simmons
Harris Simmons
Chairman & CEO at Zions Bancorporation

That's how I think about it.

Manan Gosalia
Manan Gosalia
Analyst at Morgan Stanley

Great. Thank you.

Operator

Our next question is from Bernard Van Schuchat from Deutsche Bank. Please go ahead.

Bernard Von Gizycki
Bernard Von Gizycki
Analyst at Deutsche Bank

Hey, guys. Good evening. I just wonder if you could just unpack a little bit more about the rate sensitivity, the model of net interest income that you have from Page 13. The implied path of the 6.8% versus the 1.4% at ninethirty, obviously the difference in the Fed funds and then the big increase in the deposit beta from 58% from 36%. Just wondering if you could just walk through any of the assumptions that kind of update the previous quarter?

Ryan Richards
Ryan Richards
CFO at Zions Bancorporation

Yes. Listen, I think speaking to that deposit beta assumption that you quoted there on the interest bearing deposits, that's very much in line with what we've been seeing. So that's in sync. I think one of the things that you've seen from us over time, as we've grown more comfortable with the level of non interest bearing deposits and the behaviors there, is that the implied assumption about the continued migration from non interest bearing into interest bearing has been tightened over time. And I think that's also allowed us to be a little bit more constructive about how we see NII sensitivity at 1 year, still benefiting from some fixed asset repricing that is still playing through the system.

Ryan Richards
Ryan Richards
CFO at Zions Bancorporation

And some of the latency and the repricing of time deposits with down rates still seeing a benefit from that. So with a more stable and we hope and anticipate growing deposit base, supplanting wholesale fund sources, I think all that lends to a more constructive outlook.

Bernard Von Gizycki
Bernard Von Gizycki
Analyst at Deutsche Bank

Great. And then I know you guys have talked in the past about getting the NIM back to mid-three percent. Just based on like the model assumptions here, I think that's been discussed over maybe over a couple of years. Just any idea, is that something to think about for 2026? Anything you can kind of give us for timing and any expectations on how we should think about that, like kind of longer term NIM outlook?

Ryan Richards
Ryan Richards
CFO at Zions Bancorporation

Yes. Listen, thank you for the question. We don't manage to a NIM outcome per se, but it's certainly true that with a more naturally sloped yield curve that we can stand to do better than what we've been experiencing before. So as we sort of look at where we've been in the not too distant past when things were more constructed that way, having something in the mid-3s doesn't seem like it's out of reach. And so we think there's potential to get back to those levels, but the timing of when that occurs is yet to be seen.

Operator

Chris McGratty from KBW. Please go ahead.

Christopher Mcgratty
Managing Director, Head of U.S. Bank Research at Keefe, Bruyette & Woods (KBW)

Great, thanks. Ryan, just on the balance sheet, some movement between liquidity and the bond portfolio in the quarter. Could you help us within your guide for NII, help on just total earning asset levels? Will you continue to use the bond portfolios as a source of funds? How should we be thinking about the earning assets in the next year?

Christopher Mcgratty
Managing Director, Head of U.S. Bank Research at Keefe, Bruyette & Woods (KBW)

Thanks.

Ryan Richards
Ryan Richards
CFO at Zions Bancorporation

Yes, it's a good call out, Chris. I mean, I think if you look at the related slide we have in terms of investment securities, money market, kind of a share of total earning assets, that's securities, money market, kind of a share of total earning assets. That stayed pretty tried and true with maybe just a touchdown. But as you point out, year over year, we've seen that nice runoff in investment securities portfolio. And as I noted in my prepared remarks, we're going to use those cash flows to sort of pay down more expensive wholesale cost funding or invest in the loan growth.

Ryan Richards
Ryan Richards
CFO at Zions Bancorporation

So I think if you look moving forward, you probably would have also heard from my prepared remarks we're starting to do a little bit more in the reinvesting of those cash flows that are being kicked off from the investment securities portfolio. So perhaps tapering a little bit in terms of the runoff on the security side, But with the prospects that we shared with you of slightly increasing loan growth, we think there'll be opportunities to deploy that in organic ways to support our compliance our customers growth objectives.

Christopher Mcgratty
Managing Director, Head of U.S. Bank Research at Keefe, Bruyette & Woods (KBW)

Okay, great. Thanks, Ryan. And Harris, any comments about inorganic growth? Obviously, the regulatory world is shifting in real time, but any thoughts about you have the branch deal that's going to close. Any other thoughts about potential M and A?

Harris Simmons
Harris Simmons
Chairman & CEO at Zions Bancorporation

Well, I think that as first, I take it just a step back and say, if you look at our pre provision net revenue over the last several quarters, I mean, it was ramping up really nicely until Silicon Valley and Signature Bank hit the wall and that did a lot of damage. We've been kind of clawing our way back is the way I think about it. We're making steady progress and getting back into a position where we have the currency, the

Harris Simmons
Harris Simmons
Chairman & CEO at Zions Bancorporation

profitability to do something more

Harris Simmons
Harris Simmons
Chairman & CEO at Zions Bancorporation

is certainly top of mind. You know, deals deals that strategically made sense to us. We have for a long time systems conversions were front and center for us getting through a lot of kind of internal renovation. And that is now really behind us. And in that respect, I think we're in pretty good shape.

Harris Simmons
Harris Simmons
Chairman & CEO at Zions Bancorporation

I think in terms of being prepared for anything that would come with sort of crossing $100,000,000,000 threshold if that is still a thing in the new regulatory environment that has dawned upon us this week. I think we're in good shape that way. So I'd say it is possible with anything that otherwise pencils out well, makes strategic sense, but it's not something that's kind of front and center for us.

Christopher Mcgratty
Managing Director, Head of U.S. Bank Research at Keefe, Bruyette & Woods (KBW)

Thank you very much.

Operator

From Matthew Clark from Piper Sandler. Please go ahead.

Matthew Clark
Matthew Clark
Managing Director & Senior Research Analyst at Piper Sandler Companies

Hey, good afternoon, everyone. Just first on the C and I credit, where you realize some charge offs. Can you just give us a sense for the type of business that is or was and kind of what exactly happened there?

Derek Steward
Derek Steward
Executive VP & Chief Credit Officer at Zions Bancorporation

Sure. This is Derek. Thanks for the question. It actually was a long time client of the bank, 10 or 15 year client of the bank in the retail space. It was a very unique customer actually.

Derek Steward
Derek Steward
Executive VP & Chief Credit Officer at Zions Bancorporation

And we had banked the company for a long time. It was purchased by a private equity company that I think between pushing to grow a little faster along with some management challenges just created challenges for the company that led to the loss. It's pretty unique business and really nothing else like it in our portfolio and that was what the situation was.

Matthew Clark
Matthew Clark
Managing Director & Senior Research Analyst at Piper Sandler Companies

Okay. Thank you. And then shifting gears to customer fees, capital markets up nicely. Can you give us a sense for the pipeline there? And do you think you can kind of build off that 4th quarter number given the change in environment or do you feel like we'll step back seasonally?

Scott McLean
Scott McLean
President and COO at Zions Bancorporation

Yes. Thank you. This is Scott McLean and I appreciate the question. We've been talking about building this business over the last couple of years and our enthusiasm for it, we've really been adding the product capabilities, the risk structure, the technology structure. And in the Q4, we just saw a really nice increase in just some of the basic products, loan syndications, interest rate products and our real estate capital markets business, which we've been saying for the last year and a half, we've been building out and the markets have haven't been overly friendly up until the last 6 months or so.

Scott McLean
Scott McLean
President and COO at Zions Bancorporation

But we're starting to see a more regular flow there and it produced meaningful revenue in the Q4. But we've said, as you know, the investment capital markets type businesses are lumpy, but we've spent a lot on the infrastructure here. We've got the people. We have very active calling programs with our commercial bankers, very pinpointed to capital markets opportunities, current and longer term. I think all that that shoe leather should benefit us in the years to come.

Scott McLean
Scott McLean
President and COO at Zions Bancorporation

And then we're also seeing we're seeing some certainly some continuation of just our basic products, things like treasury management, merchant services, our corporate trust business, which we don't talk about very often. It has a very large market share and albeit a shrinking market, but a significant position is just a nice business for us. So we should see continued progress we think because of all the hard work we've put into capital markets.

Harris Simmons
Harris Simmons
Chairman & CEO at Zions Bancorporation

And they start into the year with a solid pipeline. I think that's the other thing I would add. So I think everything is there for it to continue to grow nicely.

Matthew Clark
Matthew Clark
Managing Director & Senior Research Analyst at Piper Sandler Companies

Great. Thanks for the color.

Operator

Next question is from Christopher Star from Wells Fargo. Please go ahead.

Chris Starr
Chris Starr
Executive Director at Wells Fargo

Hi, good afternoon. So this question is kind of related to the just obviously the election and post election and just the kind of the change in attitude. And I see there's a big pop in energy, oil and gas growth, Slide 24, especially when you compare it to the prior quarter. Just is there how much do you think that is might be election related? Is there more momentum to that?

Chris Starr
Chris Starr
Executive Director at Wells Fargo

And what other areas could might grow both commercial loan performance like it should be a little bit higher than moderate for the year?

Scott McLean
Scott McLean
President and COO at Zions Bancorporation

Sure.

Scott McLean
Scott McLean
President and COO at Zions Bancorporation

This is Scott. I'll take that. Our energy portfolio, outstandings were at about $3,000,000,000 4, 5 years ago. They trended down during the 2020 downturn price volatility. We've been around $2,000,000,000 And basically we saw $100,000,000 increase in that portfolio from a little bit below $2,000,000,000 to a little bit above.

Scott McLean
Scott McLean
President and COO at Zions Bancorporation

And I think we have good opportunities there. Pricing and credit structure has never been better as many banks have exited the market and we're a long time player with a long time reputation. So, I we continue to hope it will be a nice source of C and I growth going forward. In terms of loan growth in general, we were up about $2,100,000,000 average loans year over year, about a 3.5% increase. And our general sense is to your political comment that small business, medium sized business owners, they're just a little more optimistic.

Scott McLean
Scott McLean
President and COO at Zions Bancorporation

I think there's a sense that regulatory issues that confront small and medium sized businesses could abate, maybe not much, but some. And so I think we're a little more optimistic about C and I lending. I don't we don't think our 1 to 4 family originations that go on the balance sheet will be as strong in the coming year. So that'll be a little bit of a drag, but we think C and I for the reasons you said and others has an opportunity to grow.

Chris Starr
Chris Starr
Executive Director at Wells Fargo

And then for my follow-up, this is for Harris. So Harris, you spent some time talking about regulation in the 2023 annual report, calling out Basel III in that long term debt proposal. I mean, obviously, you kind of talked about that just now, but what other areas of, I will call it, just common approach do you think might benefit for banks your size? Thank you.

Harris Simmons
Harris Simmons
Chairman & CEO at Zions Bancorporation

Well, I think

Harris Simmons
Harris Simmons
Chairman & CEO at Zions Bancorporation

sometimes the death from a 1,000 cuts is effective as having your head taken off. And the number and diversity of things coming out of the CFPB, some of which I think have been just beyond the mark. You're seeing that in the legal challenges, etcetera, that have been made with respect to a lot of these things. The amount of time and energy that goes into things like that just internally trying to prepare for the kind of climate disclosure regime that was coming at the industry. And I think a lot of things like that probably will get would just fade into the background for a while at least, maybe not permanently.

Harris Simmons
Harris Simmons
Chairman & CEO at Zions Bancorporation

But I see what Travis Hill, the agenda he laid out yesterday, it's just very sensible. It's meat and potatoes. It's sort of back to basics. And I think for many banks, our own included, we've done a lot in the back to basics kind of categories of just building risk infrastructure commensurate with our ability to grow larger and so just being able to focus outwardly, message that I have to our own people as I'm making kind of the circuit recently is that we've been very inwardly focused. I think we have, I think the industry has in a lot of respects over the last decade.

Harris Simmons
Harris Simmons
Chairman & CEO at Zions Bancorporation

And I think the message coming out of the new administration and the people coming into the agencies is that we want to save and a sound industry, but one that facilitates growth. And that's why I find myself optimistic that we're going to see more growth. I think it's going to be a really conducive environment for it. And I think there are worries tariffs, things like that certainly could derail growth in the economy. But clearly the crowd in control wants to see growth.

Harris Simmons
Harris Simmons
Chairman & CEO at Zions Bancorporation

It's very growth oriented message that we're seeing coming from these people. So I'm very hopeful.

Chris Starr
Chris Starr
Executive Director at Wells Fargo

Thank you.

Operator

Next question is from Anthony Eleon from JPMorgan. Please go ahead.

Anthony Elian
Anthony Elian
Equity Research Analyst at JP Morgan

Hi, everyone. For your loan growth guide of slightly increasing, is that more back half weighted in 2025? Or do you expect the level of loan growth you've seen in the past couple of quarters to continue in the first half of this year?

Harris Simmons
Harris Simmons
Chairman & CEO at Zions Bancorporation

It's through the year. It's not so strong that it's going to matter a lot whether it's back half weighted or not. I expect we'll just see pretty steady growth through the year personally.

Anthony Elian
Anthony Elian
Equity Research Analyst at JP Morgan

Thank you. And then for my follow-up, could you just provide more color on the increase in classified loans? I know you called out multifamily, industrial and office, but was that broad based across your footprint and any large credits that drove the increase this quarter? Thank you.

Derek Steward
Derek Steward
Executive VP & Chief Credit Officer at Zions Bancorporation

Well, Dan, this is Derek. To answer the second question, it was pretty granular with the downgrades and the increase in classifieds. There was not a large just one large credit that increased it. It also was distributed across our footprint in the geographies. As stated in the slide, dollars 609,000,000 were from was from CRE and two fifty $1,000,000 was from multifamily with $242,000,000 from industrial.

Derek Steward
Derek Steward
Executive VP & Chief Credit Officer at Zions Bancorporation

So that really drove it. And the story for industrial and multifamily is exactly what we said last quarter. It's construction delays that are occurring. There are slower lease up performance to plan issues, increased costs and just increases in expenses as well. We combine that with the interest rate increase and we're seeing moves to classified.

Derek Steward
Derek Steward
Executive VP & Chief Credit Officer at Zions Bancorporation

At the same time, it does seem like it's a matter of timing and most of these credits will work their way through. It just take a little longer to reach stabilization and performance. And given our loan values, we expect that they'll just perform and either be able to be upgraded through progress or refinanced out over time.

Anthony Elian
Anthony Elian
Equity Research Analyst at JP Morgan

Thank you.

Operator

This concludes the question and answer session. I'd like to turn the floor back to management for any closing comments.

Shannon Drage
Shannon Drage
Senior Director of Investor Relations and Strategy at Zions Bancorporation

Thank you, Matt, and thank you to all for joining us today. If you 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 appreciate your interest in Zions Bank Corporation. This concludes our call.

Operator

This concludes today's teleconference. You may disconnect your lines at this time. Thank you again for your participation.

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Earnings Conference Call
Zions Bancorporation, National Association Q4 2024
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