Zions Bancorporation, N.A. (NASDAQ:ZION) has demonstrated resilience in the face of a dynamic economic environment, delivering solid financial results for the second quarter of 2024. The bank's net earnings for the quarter stood at $190 million, contributing to an annual net income of $680 million. Total revenue for the year reached $4.628 billion, with a robust annual operating cash flow of $903 million and free cash flow of $790 million.

Financials

The company's performance in the second quarter was marked by an expansion in net interest margin, which increased by 4 basis points on a linked-quarter basis and 6 basis points compared to the year-ago quarter. This improvement was driven by asset repricing outpacing the rise in funding costs. Zions' management anticipates this trend to persist in a steady rate environment, while the timing of rate decreases and deposit pricing dynamics will impact net interest income in a falling rate scenario.

Loan growth, though measured, continued to show positive momentum, with period-end loans increasing 0.5% and average loans rising just under 1% during the quarter. The growth was primarily driven by the 1-4 family residential mortgage portfolio. Customer deposit balances, on the other hand, declined slightly by under 1% on a period-end basis, reflecting normal seasonality. The bank's ratio of noninterest-bearing demand deposits to total deposits remained flat at 34% compared to the previous quarter.

Zions' common equity Tier-1 ratio stood at 10.6% at the end of the second quarter, up from 10.4% in the first quarter and 10% a year ago. The bank's tangible book value per share has increased by a remarkable 20.1% year-over-year, showcasing the strong accretion to shareholders' equity.

Business Overview

In terms of the bank's geographic footprint, Zions operates primarily in the Western and Southwestern United States, with a presence in 11 states. The bank's largest markets by average loans are Texas, California, and Utah, accounting for 23%, 25%, and 15% of the total loan portfolio, respectively.

Zions' revenue is diversified, with net interest income comprising approximately 80% of total net revenue. The bank's noninterest income is generated from various sources, including commercial account fees, card fees, retail and business banking fees, capital markets fees, and wealth management fees. While customer-related noninterest income remained relatively flat in the second quarter, the bank remains optimistic about its ability to grow fee income, particularly through the expansion of its capital markets capabilities.

The bank's adjusted noninterest expense decreased by $5 million in the second quarter, primarily due to seasonal declines in compensation expense, partially offset by higher technology and marketing-related costs. Zions' management expects adjusted noninterest expense for the second quarter of 2025 to be slightly increasing compared to the same period in 2024, with risks and opportunities associated with technology costs, vendor contractual increases, and employment costs.

Credit Quality

Credit quality remained strong, with annualized net charge-offs at 10 basis points of loans in the second quarter. However, the bank did observe an increase in nonperforming assets and classified and criticized loan balances during the period. Zions' management believes that ultimate realized loan losses will be very manageable over the remainder of the year, with the allowance for credit losses at 1.24% of total loans and leases.

Outlook

Zions' interest rate sensitivity analysis indicates that the bank's net interest income in the second quarter of 2025 is expected to be slightly to moderately increasing compared to the same period in 2024. This outlook is based on the bank's dynamic view of latent and emergent interest rate sensitivity, which incorporates the current implied forward curve and management's expectations for balance sheet changes and deposit pricing.

Technology Investments

The bank's recently completed core system conversion, which involved the replacement of its legacy loan and deposit platforms, is expected to provide various benefits, including improved customer and employee experiences, enhanced fraud detection and error correction capabilities, and increased operational efficiency. Zions' management believes this foundational investment will create a catalyst for driving simplification and consistency throughout the organization, positioning the bank for future growth and innovation.

Conclusion

Overall, Zions Bancorporation, N.A. has demonstrated resilience and adaptability in the face of a changing economic landscape. The bank's solid financial performance, strong capital position, and strategic investments in technology and customer-centric initiatives position it well to navigate the evolving industry dynamics and continue delivering value to its shareholders.