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.

Revenue Trends

Net Interest Income

Net interest income decreased 14% to $586 million. This was driven by higher funding costs that outpaced the benefit of higher earning asset yields.

Specifically:

• Interest income increased due to higher interest rates and a shift to higher-yielding assets
• Interest expense more than doubled due to higher rates paid on deposits and other borrowings

Noninterest Income

Noninterest income was flat at $151 million as higher capital markets revenue offset declines in other fee income sources.

Expense Trends

Noninterest Expense

Noninterest expense increased 3% to $526 million, driven by:

• Higher regulatory assessments related to FDIC special assessments
• Increased technology investments

These increases were partially offset by lower salary and benefit costs.

Credit Quality and Provision

Provision for Credit Losses

The provision for credit losses was $13 million compared to $45 million a year ago. This reflected improvement in economic forecasts but higher reserves for commercial real estate loans.

Net Charge-Offs

Net charge-offs remained low at 0.04% of average loans. However, nonperforming assets increased modestly from the prior quarter.

Balance Sheet Analysis

Loans

Total loans increased 1% from the prior quarter to $58.1 billion, driven by growth in residential mortgages and commercial real estate.

Investment Securities

The securities portfolio declined modestly as paydowns outpaced new investments. The duration of the portfolio was steady at 3.6 years.

Deposits and Borrowings

Total deposits decreased 1% while interest-bearing deposits increased. Short-term borrowings also declined as deposit funding increased.

Capital and Liquidity

Capital levels remained strong with a Common Equity Tier 1 ratio of 10.4%. The company has ample sources of liquidity including $39 billion of remaining borrowing capacity.

Business Segment Performance

Zions operates seven affiliate banks in select Western U.S. markets. The banks provide a diversified mix of commercial and retail banking services.

Commercial & Industrial Lending

Commercial and industrial loans represent Zions’ largest portfolio at 28% of total loans. Compared to a year ago:

• Average loan balances were flat
• Net charge-offs increased from a small net recovery to 0.05% of average loans
• Criticized loans increased modestly

Top industry exposures included retail trade, real estate, finance, healthcare, and public administration.

Commercial Real Estate Lending

Commercial real estate loans accounted for 23% of total loans. The portfolio is diversified across major property types, led by multifamily at 28%. Compared to a year ago:

• Average balances grew 5%
  
• Nonaccrual and net charge-off levels remained low
• Criticized loans increased, concentrated in office and retail properties

Consumer Lending

Consumer loans accounted for 24% of total loans. The portfolio is concentrated in residential mortgages and home equity lines. Compared to a year ago:

• Average balances grew 10% on mortgage growth
• Net charge-offs remained low
• Early stage delinquencies increased modestly

Financial Outlook

Net Interest Income

The net interest margin increased modestly from the prior quarter due to higher rates. Margin pressure may continue in coming quarters with deposit competition and asset repricing lags.

Provision for Credit Losses

The provision will depend on changes in loan volumes, portfolio credit quality trends, and the economic outlook. Some further reserve build is possible but should moderate over time.

Noninterest Income

Customer-related fee revenue faces headwinds from lower service charges and card fees due to habit changes. Mortgage and capital markets revenue will vary based on market conditions.

Noninterest Expense

Expense discipline is a key focus with technology investments continuing. Efficiency initiatives aim to keep noninterest expense growth below revenue growth over the medium term.

Credit Quality

Credit quality metrics remain strong but are showing some normalization from unsustainably low recession-era levels. Risks remain tilted to the upside due to economic uncertainty.

In summary, Zions reported lower earnings this quarter due to margin pressure and increased credit costs. Revenue growth was muted by the operating environment. The company maintains a solid franchise, healthy balance sheet, and diverse business mix. Financial performance should improve over time as higher interest rates and lending translate to revenue growth. The economic outlook has deteriorated modestly but remains supportive.