Financial Performance Overview

Zions Bancorporation is a regional bank holding company headquartered in Salt Lake City, Utah. In the first quarter of 2024, Zions reported net income applicable to common shareholders of $143 million, or $0.96 per diluted share. This compares to net income of $198 million, or $1.33 per diluted share, in the first quarter of 2023.

The decline in earnings was driven by lower net interest income, higher provision for credit losses, and higher noninterest expense. These negative factors were partially offset by higher noninterest income.

Net Interest Income Down Due to Higher Funding Costs

Net interest income decreased 14% to $586 million. This was driven by higher funding costs, which more than offset higher earning asset yields.

Specifically:

• Interest expense increased 94% due to higher interest rates and a shift from noninterest-bearing to interest-bearing deposits
• Interest income increased 15%, reflecting higher interest rates and a favorable mix shift to higher-yielding assets
• Average interest-earning assets decreased 3%, driven by declines in securities and money market investments
• Average interest-bearing liabilities increased 12%, driven by growth in interest-bearing deposits

The net interest margin declined to 2.94% from 3.33% last year.

Credit Quality Remains Strong

• The provision for credit losses increased to $13 million from $45 million last year
• Net loan charge-offs remained low at 0.04% of average loans
• Nonperforming assets increased modestly to 0.44% of loans from 0.31% last year
• The allowance for credit losses increased to 1.27% of total loans, providing substantial loss absorption protection

Noninterest Income Flat; Noninterest Expense Up Modestly

• Noninterest income was flat at $156 million
• An increase in capital markets revenue was offset by a decline in loan-related fees
• Noninterest expense increased 3% to $526 million
• The increase was largely due to higher regulatory assessments

Strong Capital and Liquidity Positions Maintained

• All regulatory capital ratios exceeded “well-capitalized” levels
• The company has ample sources of liquidity, with available liquidity covering 130% of uninsured deposits

In summary, Zions’ first quarter earnings reflected pressure from the higher interest rate environment, but underlying business performance remains solid. Credit quality is excellent, capital levels are strong, and liquidity is robust. The company is well-positioned to navigate challenges and take advantage of opportunities in 2024.

Revenue and Profit Trends

Lower Net Interest Income Driven by Higher Rates

As shown in the table below, net interest income has trended lower over the past five quarters, decreasing 14% year-over-year in the first quarter of 2024. This decline has been driven by a sharp rise in funding costs, stemming from higher interest rates and a shift in the deposit mix from noninterest-bearing to interest-bearing.

The net interest margin has compressed from a peak of 3.45% in the first quarter of 2023 to 2.94% in the most recent quarter. While earning asset yields have increased in tandem with higher rates, the overall impact has been a decline in net interest income and margin.

Quarter	Net Interest Income ($M)	Net Interest Margin
Q1 2023	$679	3.33%
Q2 2023	$640	3.25%
Q3 2023	$612	3.11%
Q4 2023	$603	2.91%
Q1 2024	$586	2.94%

Noninterest Income Supported by Capital Markets Fees

Noninterest income has held relatively steady over the past year in the $155-160 million range. An increase in capital markets fees has helped offset declines in other fee categories.

Noninterest income was equal to 21% of net revenue in the first quarter of 2024, playing an important supplementary role to net interest income.

Quarter	Noninterest Income ($M)	% of Net Revenue
Q1 2023	$160	19%
Q2 2023	$158	20%
Q3 2023	$156	20%
Q4 2023	$155	20%
Q1 2024	$156	21%

Noninterest Expense Up Modestly

Noninterest expense increased 3% year-over-year in the first quarter of 2024. Most expense categories were well controlled, with the exception of higher regulatory assessments.

The efficiency ratio deteriorated to 67.9% from 59.9% last year, primarily reflecting the 14% decrease in net interest income.

Quarter	Noninterest Expense ($M)	Efficiency Ratio
Q1 2023	$512	59.9%
Q2 2023	$525	63.5%
Q3 2023	$521	64.0%
Q4 2023	$514	63.4%
Q1 2024	$526	67.9%

Financial Strengths and Risks

Key Strengths

Excellent Credit Quality - Net charge-offs remained low at 0.04% of average loans in the first quarter of 2024. Criticized and classified loans increased modestly but remain at very manageable levels. The allowance for credit losses stands at a healthy 1.27% of total loans.

Strong Capital Levels - All regulatory capital ratios were comfortably above the thresholds for “well-capitalized” status. The tangible common equity ratio was 5.0% as of March 31, 2024.

Robust Liquidity - Diverse sources of liquidity exceeded 130% of uninsured deposits at the end of the first quarter. The investment portfolio can readily be used as a source of contingent funding.

Key Risks

Net Interest Income Pressure - The higher interest rate environment and intense deposit competition have put significant pressure on net interest income. Balance sheet positioning provides only partial mitigation of this headwind.

Economic Conditions - A potential recession or sustained period of low growth would negatively impact customers’ ability to repay loans. Real estate values could also be vulnerable in these scenarios.

Cybersecurity - Like all financial institutions, Zions faces elevated cybersecurity risks requiring substantial investment in talent, tools, and controls. A successful large-scale attack could be highly disruptive and costly.

Outlook

Zions expects full year 2024 net interest income to be flat to down modestly compared to 2023, reflecting asset sensitivity to declining interest rates in the forward curve.

Noninterest income is projected to grow in the low single digits, driven by capital markets and wealth management fees.

Operating expenses are likely to increase approximately 3% for technology investments and inflationary pressure on salaries.

Credit costs are forecast to normalize closer to long-run historical loss rates after remaining unusually low during the pandemic period.

If the economy enters recession, financial performance would come under greater pressure. However, Zions’ strong capital and liquidity positions should provide resilience in navigating through challenges.

With its solid regional banking franchise across the Western U.S., Zions is well-positioned to deliver steady performance over the long term. The company remains focused on driving sustainable, profitable growth while maintaining its commitment to strong risk management.