Zions Bancorporation - Earnings Call - Q1 2025

Executive Summary

• Q1 2025 delivered solid core trends but modest headline misses vs consensus: diluted EPS $1.13 vs ~$1.18 consensus and revenue ~$0.777B vs ~$0.795B reported GAAP revenue; NIM expanded 5 bps q/q and 16 bps y/y to 3.10% as deposit costs declined 17 bps q/q (cost of deposits 1.76%). EPS consensus and revenue consensus values marked with an asterisk are from S&P Global; see disclaimer below.*
• Adjusted PPNR rose 10% y/y to $267M; efficiency ratio of 66.6% reflected seasonal compensation and higher regulatory assessments; customer-related fees normalized from Q4’s record but remained up y/y.
• Credit remained benign: NCOs 11 bps annualized; NPAs 0.51% of loans + OREO; ACL 1.24%; CRE nonaccruals stayed low; management flagged greater macro uncertainty tied to tariffs/trade policy.
• Outlook: Zions guided 1Q26 vs 1Q25 to slightly/moderately higher NII, customer fees, and adjusted OpEx with positive operating leverage; loans stable-to-slightly increasing; management reaffirmed positive op leverage (1–2%) on a rolling-year basis in Q&A.
• Capital/distribution: CET1 10.8%; dividend maintained at $0.43 (declared May 2); $41M of Q1 buybacks (0.8M shares).

What Went Well and What Went Wrong

What Went Well

• Deposit costs fell and NIM expanded for a fifth straight quarter (NIM 3.10%, +5 bps q/q, +16 bps y/y) as time deposits repriced down; total deposit spot rate ended March at 1.70% (interest-bearing 2.54%).
• Credit metrics remained strong: NCOs 0.11% annualized, NPAs 0.51%, CRE nonaccruals 0.43%; ACL steady at 1.24%.
• Strategic execution: closed Coachella Valley branch acquisition (~$630M deposits, ~$420M loans) and advanced loan-origination tech via nCino to speed decisioning and improve client experience.
  • Quote: “This reflects a 16 basis point increase in the net interest margin and a 10% increase in adjusted pre-provision net revenue” — Harris H. Simmons, CEO.
  • Quote: “We are determined to build an AI-enabled culture” and provided an outlook amid tariff uncertainty.

What Went Wrong

• Headline miss vs S&P Global consensus: EPS $1.13 vs ~$1.18; revenue ~$0.777B vs ~$0.795B GAAP; EPS impacted by a $0.11/share DTA revaluation charge from Utah tax law changes (expected to accrete back). EPS and revenue consensus values marked with an asterisk are from S&P Global; see disclaimer below.*
• Efficiency ratio worsened q/q (66.6% vs 62.0%) on seasonal comp, higher technology spend, and increased deposit insurance; customer-related fees fell 10% q/q from a record Q4, led by capital markets normalization.
• Classified loans elevated to 4.82% of loans (vs 1.66% a year ago), largely in CRE (industrial/office) and C&I; management emphasized low LTVs, strong sponsorship and low nonaccruals, but investors will monitor migration closely.

Transcript

Operator (participant)

Greetings and welcome to the Zions Bancorporation Q1 2025 Earnings Conference Call. At this time, all participants are in a listen-only mode. A question-and-answer session will follow the formal presentation. If anyone should require operator assistance, please press star zero on your telephone keypad. As a reminder, this conference is being recorded. It is now my pleasure to introduce Shannon Drage. Thank you, Shannon. You may begin.

Shannon Drage (Senior Director of Investor Relations)

Thank you, Julian. Good evening, everyone. Welcome to our conference call to discuss the first 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 two 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 on zionsbancorporation.com. For our agenda today, Chairman and Chief Executive Officer Harris Simmons will provide opening remarks. Following Harris's 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 Stewart, Chief Credit Officer, and Chris Kiriakakis, Chief Risk Officer. After our prepared remarks, we will hold a question-and-answer session. This call is scheduled for one hour. I will now turn the time over to Harris Simmons.

Harris Simmons (Chairman and CEO)

Thanks very much, Shannon, and good evening, everyone. We are generally pleased with our fundamental performance and the financial results for the first quarter, which reflect meaningful year-over-year improvement. Our ratio of non-performing assets to loans, leases, and other real estate owned remained stable last quarter, though up somewhat from last year. That loan charge-offs remained low, and our allowance for credit losses is well aligned with the current economic outlook. We feel well positioned for what could be a period of increased economic uncertainty. I suspect that we'd all agree that prognostication about loan growth, unemployment, the path of interest rates, and other drivers of performance seems especially challenging at the present moment. Consistent with our determination to build an AI-enabled culture, I asked ChatGPT for help in explaining the world we're now living in.

I got this: Trump's tariffs have caused quite a fuss, with markets unsure who to trust. Will prices ascend? Will trade wars extend? Or will growth just stall in the dust? That actually seemed to explain the times we're in pretty well, I thought. In our presentation materials and the remarks that Ryan will make, we're providing an outlook for the first quarter of 2026. While the outlook guidance always comes with disclaimers about the limitations of forward-looking statements, it's worth emphasizing the particular difficulty right now for us and everybody else in this industry in forecasting results a year from now. While this heightened uncertainty has led to notable market volatility, the reality is that managing risk and uncertainty is a core part of what we do, and it doesn't distract from our commitment to serving our customers and improving customers' experiences with us.

On that note, we are pleased to once again be recognized by Coalition Greenwich as one of the Top 10 Banks in the industry in garnering Best Bank Awards in a variety of categories, including being ranked third nationally in serving middle-market clients. All is measured by the results of approximately 25,000 surveys conducted across the country. During a time of increased uncertainty for businesses and consumers, we'll be paying particular attention to staying close to clients and understanding their challenges and helping them in every way we prudently can in the months ahead. We were pleased to welcome new customers to our California Bank and Trust affiliate following the acquisition of four branches in the Coachella Valley of California from First Bank of Denver, Colorado, in late March.

This acquisition added approximately $630 million of deposits and $420 million in loans, which, when added to our own existing business in that market, gives us a meaningful share of what is really a very attractive market in Southern California. As pleased as we are with the new customers we're serving there, we're equally pleased with the quality of the employees who've joined our team as a result of this acquisition. They're absolutely first-rate, and we welcome them to our team. Shifting now to financial results for the quarter, key metrics for the quarter are presented on slide three. Net earnings for the quarter were $169 million or $1.13 per share, representing an 18% improvement compared to the same period last year.

Compared to the prior quarter, earnings declined due to the seasonality and share-based compensation and payroll taxes, a reduced day count, a decrease in non-interest income, and a higher effective tax rate, which I'll discuss in a moment. This was somewhat offset by reduced provision expense and reduced preferred dividend costs. The net interest margin increased for the fifth consecutive quarter to 3.10% compared to 3.05% in the previous quarter. Improvement during the quarter reflects the downward repricing of a significant portion of both customer and brokered term deposits and continued discipline in repricing across the other deposit categories, particularly in the highest-cost products. The average cost of interest-bearing deposits decreased by 26 basis points compared to the previous quarter and by 55 basis points versus the year-ago period.

First-quarter adjusted pre-provision net revenue, or PPNR, was $267 million, an increase of 10% from the $242 million achieved a year ago. Efficiency ratio was seasonally higher, though improved over last year's period. Deposits decreased both on an ending and average basis in the first quarter, including the impact of Coachella-related deposits added in late March. Non-interest-bearing deposits remained relatively stable at 33% of total deposits. Average loans experienced modest growth of 0.5% on a linked quarter basis. Net loan losses for the quarter were $16 million, or 11 basis points annualized, and included an $8 million charge-off of a single commercial and industrial loan. There were no charge-offs in the CRE portfolio, and the non-accrual ratio of CRE loans remained low at 43 basis points.

Incidentally, over the past five years, during which there have been CRE-related concerns about the Amazon effect on retail properties, the impact of increased work from home on office properties, and somewhat weaker performance in the multifamily segment of the industry, annual net charge-offs in our $13.6 billion CRE portfolio have averaged a mere one basis point, which by most any measure is really outstanding performance over a five-year period. Moving to slide four, diluted earnings per share again was $1.13 compared to $1.34 in the prior period and $0.96 in the year-ago period. This quarter's results include an $0.11 per share charge to income tax expense related to a required reevaluation of our deferred tax assets associated with accumulated other comprehensive income, all resulting from a beneficial Utah tax law change on securities portfolio income.

This one-time reevaluation will largely accrete back in income over the life of the related securities. The law change is beneficial because, apart from the timing difference of the deferred tax asset accounting treatment, the legislative change will serve to reduce tax on investment income in future periods. Slide five provides a five-quarter view of pre-provision net revenue. As previously noted, on an adjusted basis, our first-quarter results of $267 million reflect an improvement of 10% over the prior year period. 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. Ryan?

Ryan Richards (CFO)

Thank you, Harris, and good evening, everyone. Building on Harris's remarks, I will begin by deconstructing the components and drivers of pre-provision net revenue. Beginning on slide six, you will see the five-quarter trend for net interest income and net interest margin. As Harris noted, the net interest margin increased for the fifth consecutive quarter. Net interest income increased by $38 million relative to the first quarter of 2024 and declined by $3 million relative to the prior quarter, with the decrease driven by two fewer days. Slide seven presents additional details on changes in the net interest margin. The linked quarter waterfall chart on the left outlines the changes in both rate and volume for key components of the net interest margin. The net interest margin expanded by five basis points sequentially due primarily to lower cost of deposits.

Against the year-ago quarter, the right-hand chart on the slide presents the 16 basis point improvement in the margin, which also benefited from the improved cost of deposits as well as improved borrowing costs, reflecting both lower rates paid and a $570 million decrease in average borrowed funds year over year. Moving to non-interest income and revenue on slide eight, customer-related income was $158 million for the quarter, a decrease of 10% on a linked quarter basis and 4% increase versus the year-ago quarter. A reduction in capital markets fees versus the prior quarter's record performance was the primary driver for the sequential decline in customer-related fee income. While down from the prior quarter, the first quarter marked the third-best quarter for capital markets in our history.

As indicated on page three of the earnings release, affected this quarter, the capital markets fees income statement line item includes the fair value and non-hedged derivative income, also referred to as credit valuation adjustment or CVA income. This income has historically been presented in non-customer-related fees. Prior periods have been reclassified for comparability, and CVA income or loss continues to be excluded from adjusted revenues used in PP&R and the efficiency ratio calculation. The chart on the right side of this page presents both total revenue and adjusted revenue for the most recent five 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 for the first quarter of 2026 is slightly to moderately increasing relative to the first quarter of 2025 and contemplates lower capital markets growth than anticipated in the prior quarter given current economic uncertainty. Slide nine presents adjusted non-interest expense in the lighter blue bars. Adjusted expense increased by $24 million versus the prior quarter to $533 million. This is largely attributable to first-quarter seasonality related to share-based compensation and payroll taxes. Deposit insurance and regulatory expense also increased $5 million during the quarter, due in large part to increased assessments in view of classified asset balances in recent periods as well as activity in the fourth quarter of 2024. Reported GAAP expenses at $538 million increased by $29 million compared to the prior quarter.

Our outlook for adjusted non-interest expense for the quarter or for the first quarter of 2026 is slightly to moderately increasing relative to the first quarter of 2025. Slide 10 presents five-quarter trends in our average loans and deposits. Average loans increased 0.5% over the previous quarter and 3% over the year-ago period. Total yields, I should say, declined by eight basis points sequentially. Our outlook for period-end loan balances for the first quarter of 2026 is stable to slightly increasing relative to the first quarter of 2025 and assumes growth will be slower in the near term as customers await clarity on tariff impacts. 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.

Average deposit balances are presented on the right side of the slide. Relative to the prior quarter, total average deposits declined 1.9% due to seasonal outflows in early January. This decline was only slightly offset by the $78 million impact of full quarter average deposit balances from the Coachella Valley branch acquisitions in late March that Harris alluded to earlier. Average non-interest-bearing deposits declined approximately $600 million or 2.4% compared to the prior quarter. The cost of deposits declined by 17 basis points to 1.76%. On average, the rate on interest-bearing deposits was 2.61% for the quarter compared to 2.87% in the prior period. The interest-bearing deposit spot rate at March month end was 2.54%, and the total deposit spot rate was 1.7%. Slide 11 provides additional details on funding sources and total funding cost trends.

Presented on the left are ending deposit balances, which decreased by $531 million versus the prior quarter, including a $619 million decrease in interest-bearing deposits that was partially offset by an $88 million increase in non-interest-bearing demand deposits. As noted by Harris, the four acquired Coachella Valley branches added approximately $630 million in period-end deposits. On the right side, average balances for our key funding categories are shown along with the total funding cost. As seen on this chart, our total funding cost declined by 11 basis points during the quarter and includes a full quarter impact of the fourth quarter subordinate note issuance of last year, which increased quarterly debt expense but was more than offset in earnings by the reduction in preferred dividends.

Moving to slide 12, our investment portfolio exists primarily to be a storehouse of funds to absorb customer-driven balance sheet changes, allowing for deep liquidity through the repo market. Here we present our securities and money market investment portfolios over the last five quarters. Maturities, principal amortization, and prepayment-related cash flows from our securities portfolio were $743 million in this quarter, or $265 million when considered net of reinvestment. The paydown and reinvestment of lower-yielding security 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 our investment securities portfolio, which is a measure of price sensitivity to changes in interest rates, is estimated at four years.

While we have 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 rates follow the implied path as of March 31, which assumes the Fed Funds target reaches 3.75% by the first quarter of 2026. As expectations on the rate path continue to evolve, we have brought back our more dynamic view of latent and emergent interest rate sensitivity. 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 opportunities that will be included in the net interest income guidance.

With those assumptions in mind, the latent sensitivity is estimated to be 8.9%, which assumes no future rate cuts but reflects the net interest income path based on past rate movements that have not yet been fully realized in revenues. When combined with the emergent sensitivity, which includes the incremental impact of the future rate changes included in the forward curve, the implied net interest income in the first quarter of 2026 is modeled to be 2.6% excuse me, 4.6% higher when compared to the first quarter of 2025. We also provide 100 basis point shocks to the rates implied by the forecast, which suggests a sensitivity range between 2.1% and 6.6%. Our outlook for net interest income for the first quarter of 2026 is slightly to moderately increasing relative to the first quarter of 2025.

The sensitivity associated with this guidance includes risks and opportunities, including realized loan growth, competition for deposits and depositor behavior, the path of interest rates across the yield curve, and the unknown future impacts of the imposition of tariffs and resulting market volatility. We begin our discussion of credit quality on slide 14. Realized losses in the portfolio continue to be very manageable at $16 million this quarter, or 11 basis points annualized. We continue to benefit from significant borrower equity, strong sponsor support, and continued operating cash flows. Non-performing assets and classified loan balances increased quarter-over-quarter by $9 million and $21 million, respectively. The allowance for credit losses was relatively stable versus prior quarters at 1.24%, and the loan loss allowance coverage with respect to non-accrual loans was 229%.

We are well reserved for our portfolio, and our ACL reflects our expectation of tariffs and their effects as of quarter end. Slide 15 provides an overview of the $13.6 billion CRE portfolio, which represents 23% of total loan balances. Notably, this portfolio continues to maintain low levels of non-accruals and delinquencies. The portfolio is granular and well diversified by property type and location, with its growth carefully managed for over a decade through discipline concentration limits. Slide 16 provides a detailed view of the problem loans in our CRE portfolio. The chart on the right-hand side provides a breakout of which sub-portfolios drove changes and criticized and classified assets during the quarter.

Of the $21 million increase in total classified loans, $26 million was driven by commercial real estate, primarily industrial and office credits, offset by improvement in multifamily classified balances as a result of full repayments on several credits. The chart on the bottom left-hand side of this slide reflects the LTV distribution of classified CRE loans, with more than two-thirds of those classified loans having LTVs less than 60% when examined by either recent appraisal or index-adjusted values. Overall, we continue to expect the CRE portfolio to perform well with limited losses based on the current economic outlook, the type of problems being experienced by borrowers, relatively low loan-to-value ratios, and continued sponsor support. Our loss-absorbing capital is shown on slide 17. Common Equity Tier 1 ratio this quarter was 10.8%.

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 to 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, as shown on slide 22 of the appendix. Slide 18 summarizes our financial outlook for the first quarter of 2026 as compared to the first quarter of 2025. As Harris mentioned in his opening remarks, while there is always a degree of imprecision in our outlook, there is more than the usual level of uncertainty as we, along with all of you, await clarity around trade policy and tariff outcomes with attendant impacts on the economy.

Our outlook includes somewhat wider ranges as a result and represents our best estimate of financial performance based on current information. We continue to expect positive operating leverage and improved efficiency as revenue growth outpaces expense pressures.

Shannon Drage (Senior Director of Investor Relations)

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

Operator (participant)

Absolutely. Thank you. We'll be conducting a question-and-answer session. If you'd like to ask a question, please press star one on your telephone keypad. A confirmation tone will indicate your line is in the question queue. You may press star two to remove yourself from the queue. For participants using speaker equipment, it may be necessary to pick up a handset before pressing the star keys.

One moment while we poll for questions. Our first question comes from Manan Gosalia with Morgan Stanley. Please proceed with your question.

Manan Gosalia (Head of US Midcaps Banks Research)

Hi, good afternoon. Harris, I totally hear you on the opening Limerick. It is fairly difficult to prognostic ADR. I was hoping you could give us some more color on what you're hearing on the ground from clients, what you're seeing from middle market and small business customers over the past few weeks in terms of sentiment.

Harris Simmons (Chairman and CEO)

Yeah, thanks. I think it's still, I think we've got a lot of businesses in this country that are kind of trying to grapple with really what this is going to mean, whether it's a grand kind of negotiation, I think, that the administration is trying to conduct.

The question is to how far they'll actually allow the economy to get into the ditch before they start to perhaps pull back. I was talking to the owner of a business recently. He noted that most all of their manufacturing is done in China and Vietnam. He said, "The only silver lining is all of my competitors are in the same boat." I think it's really hard to gauge how long, how deep the impact could be. If this goes on for a prolonged period, I personally think it has the potential to be reasonably impactful and really tough for a lot of businesses, small business and large businesses. I don't think it's going to distinguish between the size of the business. It's really all about where their inputs are coming from.

We have moved so much of our manufacturing base to other places, and particularly Asia, in the last 20 or 30 years that the idea that you can bring that back quickly is kind of far-fetched in my mind. I think it is still early to know. I think the equity markets are certainly reflecting a lot of concern about it. That would extend to smaller businesses as well. I think it is going to have an impact on their willingness to build inventories, to not knowing kind of what the price point is that consumers are going to be willing to buy product where their costs are increasing pretty significantly and where you could see increased unemployment as a byproduct of all of this.

Anyway, I think we're signaling every way possible, but I just don't know that anybody can credibly say that they understand what the impacts are going to be. We haven't really been here before. Some people have likened this to the Smoot-Hawley tariffs in 1930. My belief is it's a really poor analogy because the world was much less interconnected in 1930 than it is today. I don't think we have any history that gives us much of a guide, personally. That's my own take on it.

Manan Gosalia (Head of US Midcaps Banks Research)

I appreciate that. Maybe as a follow-up to that, in terms of your net interest income guide is slightly to moderately increasing, how much of that risk is baked in?

Can you frame the risk around that NII guide and how much is already locked in, and how much do you need loan growth to pick up in order to achieve that?

Harris Simmons (Chairman and CEO)

Yeah, I mean, that's where we provide a slide there in Ryan's book to this latent and emergent kind of rate sensitivity. We think a reasonable amount of it is baked in and reflected in the yield curve. Our outlook is largely predicated on that and on loan growth that may be likely to be kind of tepid this year. I think if you'd asked us three months ago, we'd have said we thought it was going to be a pretty good year in terms of loan growth. We're all talking about animal spirits and everything else.

A lot of those animals are going into the caves, kind of hibernating, waiting to see what happens with trade policy, I think. I just think it's a tough time for businesses to be making long-term decisions, investment decisions about their businesses in the absence of understanding kind of where all this policy is going to take us.

Operator (participant)

Thank you. Our next question comes from John Pancari with Evercore ISI. Please proceed with your question.

John Pancari (Senior Managing Director)

Good afternoon. Wanted to see if you can give us a little bit more color on loan growth, what you're seeing in terms of demand. Are you seeing any weakening in the pipeline, any erosion in the pipeline, just given the uncertainty that you discussed, Harris? Are you seeing any areas of strength at all?

I know you kind of just alluded to it, but what do you think brings back some of the appetite to draw down here?

Harris Simmons (Chairman and CEO)

Yeah, I am going to ask our Chief Credit Officer, Derek Steward, to also maybe, why do you not offer a couple of thoughts, and I will.

Derek Steward (Chief Credit Officer)

Okay. As Harris indicated, I think the borrowers just basically with the uncertainty that is occurring on the C&I side, it certainly has been slower as they are looking for just which way things are going to go for the year. I think there are a lot of people that are willing to invest and want to grow. On the CRE side, we are actually seeing increased activity. That is an area that actually is coming back. Interest rates certainly will play a bearing there over the year. That is what we are seeing so far.

John Pancari (Senior Managing Director)

Okay. All right. Thank you.

Separately, actually on credit, it's good to see stability in the classified assets after the increase for a few quarters in a row there. We did see the 30 to 89-day past dues increase pretty sharply. Can you give us just a little bit of an update? What drove that? What are you seeing on the credit front? Any signs of incremental weakening in C&I credit to take note and maybe discuss your confidence in the adequacy of the reserve here?

Derek Steward (Chief Credit Officer)

Thanks. Okay. Let me start with the reserve. This is Derek, by the way. We're very comfortable with the reserve and where we established that. Correct, we're happy to see the stabilization in the CRE classifieds and hope that, assuming the economy holds, that will continue to improve throughout the year. As far as C&I, it's holding up. It's stable.

We've seen a little migration here and there more into criticized than classified. It's something certainly that we're watching for over the coming months. Nothing has jumped out there regarding an industry or trends that we've identified within the C&I book.

Harris Simmons (Chairman and CEO)

I might just add, on the 30-89-day past due, I mean, it's increased $57 million to $105 million. It's bounced around. It was $114 million back in June. You can have kind of a single deal that might create that kind of change. I think the most I'll just tell you how I think about it, we've had a run-up in classifieds. That's fundamentally due in large part to projects, particularly commercial real estate, which is roughly two-thirds of the total classified number, which haven't performed according to their original projections, but which have a lot of underlying strength in terms of the equity, the sponsorship, etc.

If you look at the non-accrual number for commercial real estate, it's $57.5 million, which is about 3% of the classified number of close to $1.7 billion. The non-accrual number is, I mean, that is a very small handful of deals where we actually think we've probably got some loss that could be experienced. By definition, we stop accruing interest if we think we're not going to get our interest and principal back. When I think about how well I sleep, I focus a lot more on the non-accrual number than I do the classified number. I think it's become much less meaningful as some of the guidance and regulatory policy has changed around that metric. It's why you see this continued really strong performance. No charge-offs this quarter. I just had a single basis point on average over the last five years.

We think that that portfolio is very strong. I think, Derek, you'd probably agree that if we have concerns, it's probably more around C&I and kind of. And particularly given the impacts of trade policy.

Derek Steward (Chief Credit Officer)

Exactly. Yeah. The C&I portfolio is what I would be concerned with versus the CRE portfolio. CRE portfolio, really, you see also in the change in the classifieds, the multifamily is actually performing and starting to reduce. I would expect that to continue to reduce with the lease-up that's occurring. We see a little increase in industrial and office, just as leasing in the industrial book is taking a little longer. Pretty much the same story as multifamily over the last several quarters. I would expect over time that those will get leased up and start reducing as well.

Operator (participant)

Thank you. Our next question comes from Bernard von Gizycki with Deutsche Bank.

Please proceed with your question.

Bernard von Gizycki (Equity Research Analyst)

Hey, hi. Good afternoon. Just wanted to follow up. If the revenue environment comes in weaker than expected, are there any expenses that can be pulled back or investments slowed to kind of right-size the expense base to maintain that positive OpEx outlook?

Harris Simmons (Chairman and CEO)

Absolutely. We'll be working at that. I mean, we've been pulling a lot of levers. Our headcount's down about, it's down roughly 3% or something like that from last year. And so that's something we're always working at. The answer is yes. It'll be a real focus if revenues drift down. At the same time, I think we're pretty determined to run this place for the long run. We want to be careful that we're not cutting in places that actually create further problems in terms of growth as we recover from this uncertainty, etc.

We've noted, for example, we said in prior quarters that we expect to ramp up some marketing spend. I think that actually times like these are some of the best times to actually bring new business on. I mean, when there's uncertainty, we're going to have a real focus on keeping our people close to customers through all of this. I think that's going to help protect the downside in terms of growth. Also, it's just an opportunity as others tighten. I think we've had the benefit of really good credit quality. My hope and expectation is that that will place us in a really good place to be able to bring business on that others might be trying to back out of. We're not going to do it foolishly. We're not going to only take on problems.

We are going to stay focused on continuing to build the business through all of this.

Scott McLean (President and COO)

I would just add to that, this is Scott McLean, that as we've said for years, rarely has there been one or two key expense initiatives. There's just this portfolio of opportunities that exist in a company our size, and particularly a company that is still pretty much evolved from our legacy, highly customized approach to processes in each of our seven affiliates. We've come a long way there. There's still a good bit of ways to go in every part of the bank.

Again, without calling it a process or a program, at any point in time, we've got a couple of dozen to 30 active expense opportunities that we're pursuing, none of which by themselves cause one to just go, "Wow." Collectively, it allows us to dampen the expense growth.

Bernard von Gizycki (Equity Research Analyst)

I appreciate that.

Maybe just a follow-up on the customer-related fee income. Obviously, the cap market seems to be the biggest swing on the outlook given the recent uncertainty versus last quarter. It seems to be maybe kind of an outsized contributor. Just maybe on the other parts in customer fee income, can you just walk us through any expectations there, anything to be mindful of, whether it's a little bit lower or better?

Scott McLean (President and COO)

Yeah, certainly. This is Scott. Our customer fees were about $160 million in the first quarter. Yes, that was down from $171 million.

If you look at the four or five quarters leading up to that, we had been sort of in the $150 million-$155 million range. $160 million compared to the last five quarters or so prior to that fourth quarter, $160 million is a good number. I think that the capital markets run rate consistently is probably more in the range of what we did for the first quarter this year. We certainly hope we have some nice positive spikes. At $160 million, it is a good solid number. The other major components, capital markets, it is about $120 million. It is $110 million-$120 million-ish of our total customer fees of $135 million. I am sorry, $635 million. Treasury management is the largest contributor to that. That is the basic operating services we provide to companies. That is the largest contributor at about $190 million. It is a workhorse for us.

We're actually seeing some stabilization in our retail and business service charges as well as card. Card is about a $100 million revenue business for us. We think the first quarter didn't show a lot of growth in our mortgage-related fees. The way we've transitioned that business to more of a held-for-sale business, it will be more fee-oriented and less loans that we keep on our balance sheet. We think we didn't fully see the growth that we expect to see going forward. Our wealth business, we've talked about a good bit, is definitely a growth business for us. It's about a $60 million revenue business a year. We think we're at a real nice inflection point there. Those are some of the relative sizes.

Most of our fee income groups to see mid-single-digit growth would not be inconsistent with what we've done for the last 10 or 12 years and with kind of a special opportunity with capital markets, wealth, and maybe on the mortgage fee side in the coming months.

Ryan Richards (CFO)

Keeping an eye on the performance of the financial markets and what bearing that has on our wealth business for this year is another area that we're watching.

Operator (participant)

Yep. Our next question comes from Peter Winter with D.A. Davidson. Please proceed with your question.

Peter Winter (Senior Research Analyst)

Good afternoon. You guys in February announced a $40 million share repurchase for the year. I was just wondering, given the pressure in the stock price, is there any thought of upsizing that buyback?

Aside from the focus on organic growth, kind of what is the binding constraint not to be more aggressive with buybacks? Is it CET1 inclusive of AOCI?

Ryan Richards (CFO)

Yeah. Thank you, Peter. I think you said that right. We now had a pattern here, at least coming into this year, falling from last year of trying to sort of normalize for the share-based compensation payments that tend to go out in the first quarter of the year and try to neutralize that in terms of its impact. In terms of how we think about capital more broadly, not knowing exactly what comes from here on the regulatory side, I think understanding more acutely how the market sort of views banks, it tends to be more on an ex-AOCI perspective.

When we adjust our CET1 ratio with that ex-AOCI, we still think there's room to build to kind of get back to where we want to be around peer median or better.

Peter Winter (Senior Research Analyst)

Okay. Thanks, Ryan. I would like to ask also, just with regards to the rolling 12-month guidance, not to get nitpicky, but can you just remind us what the percentage ranges would be in terms of slightly increasing, moderately increasing, etc., just fully realizing there's a lot of uncertainty, but just what those nuances are?

Harris Simmons (Chairman and CEO)

We would if we knew. Surely, we do not have actually even internally a hard and fast rule for the definitions for those terms. I think they reflect kind of qualitatively how we're thinking about things. Is that what you?

Ryan Richards (CFO)

I think that's right.

I think some of the expressions we might use for slightly would be like low single digits, moderately being mid-single digits. The balance of that error, so you're right, it depends on the amount of uncertainty that's in the environment at the time and how wide those bounds get.

Operator (participant)

All right. Our next question comes from Ben Gerlinger with Citi. Please proceed with your question.

Ben Gerlinger (VP of Equity Research)

Hey, guys. I appreciate the time. I apologize if this is a duplicate because I lost connection there for a minute. When you think about deposit pricing, overall, 4Q going into 1Q, deposit pricing trends have been pretty strong or in your favor, I guess you could say. I was curious if you could shed any more color on either margin or any of the March pricing itself, just trying to think about how we should think about Q2 starting off point.

Ryan Richards (CFO)

Yeah. I would say thank you for the observation. I think so far through the cycle, we've seen the kind of response to deposit pricing that I think we would have signaled and hoped for. I shared in my prepared remarks a spot rate for the end of March. That's probably about as far as we've gone in terms of what we've offered up for a point in time, kind of how we're doing outside of our broader one-year forward guidance. That spot rate was 1.7% if you didn't catch it in my prepared remarks.

Ben Gerlinger (VP of Equity Research)

Gotcha. Okay. That's helpful. From looking at the public pricing trends in general, do you think you could lower them further from here without cuts? Let's say the Fed is entirely on hold, or is it more so dependent upon kind of action of the Fed itself?

Ryan Richards (CFO)

Yeah.

No, another excellent question. We do believe that there's a bit more room there because of the latency and the pricing down of term deposits that hasn't played all the way through. Even without additional rate cuts, we believe that there's still a little bit of room for maneuver. There is a practical limit, of course, as you know, that we want to maximize the experience for our clients outside of rate paid and make sure that we meet them wherever they need us to be and that we're competitive on the rate paid. Historically, we've done really well on that front.

Operator (participant)

Our next question comes from Ken Usdin with Autonomous Research. Please proceed with your question.

Ken Usdin (Managing Director)

Hey, thanks a lot, guys. One follow-up on the liability side.

You still have a bunch of FHLBs and looks like brokered, I think you still have some brokered inside time and in the other borrowings. How much leeway and leverage do you still have also to reduce funding on the lower right side of the balance sheet, especially if loan growth doesn't pan out as hoped?

Ryan Richards (CFO)

Yeah. Thanks, Ken. I mean, we sort of think of that short-term borrowing and the brokered, it's all kind of one big unit. Hopefully, not too big. We'd like to have that shrinking over time. As you know, it's just so beholden to what we see in the depositor reaction and the price function and how successful we are in growing that base. We haven't spent, it's really, really hard to predict. We haven't spent a lot of time giving guidance on that dimension.

We sort of roll it all up into our overall NII outcome. While allowing for that $1.7 billion of migration from non-experience to time deposits, but not knowing exactly what that looks like and how we can defray those short-term borrowings together with broker CDs. Also, with the pattern that we have in the pay down of our investment securities portfolio, having about one half of that or more that rolls out based on those growth cash flows that are not reinvested. There are a lot of puts and takes in that that makes it really, really hard to kind of predict the future on that one element. As you saw, we've had some success here recently in bringing down those broker CDs a little bit. There has been some work done by our treasury team of trying to change the pattern.

There's been a little bit of lumpiness in maturities that we've been trying to stage out and make it more ratable through the course of a quarter. As we continue to work that down and with deposit growth, we expect to have better outcomes there.

Ken Usdin (Managing Director)

Okay. Follow-up on, you talk about the managed declines in CRE and mortgage and the loan balance outlook. I've noticed that those two categories have actually continued to grow. Can you just kind of walk us through what's going to change and when in terms of, is it a retention thing or are you going to slow originations in those two?

Harris Simmons (Chairman and CEO)

It kind of cut off. Let me just start.

On the 1-to-4 family, one of the reasons that's continued to grow is it's construction loans funding up into term loans under a program that we call it the one-time close program that we've had with customers. That's kind of approaching a point where we would expect that that starts to not play the kind of role it's played in the past. I think CRE, maybe speak to the CRE piece.

Ryan Richards (CFO)

Yeah, exactly. On the CRE, I mean, as we continue to work with our customers on some of the classifieds, I mean, depending on where the interest rates go, one avenue is refinance. So we do expect some to refinance out, some to sell properties as well. A lot of the CRE actually started as construction loans. And that's why you see it growing. These are construction loans funding up that would reduce new originations.

I wouldn't expect to backfill all of that. You'll just see, depending on where rates go, you may see some decline in the real estate, commercial real estate.

Scott McLean (President and COO)

For what it's worth, of the loan growth that Harris noted in his remarks that were attributable to the FirstBank acquisition, the majority of those loans that we acquired were 1-to-4 family resi. That's what was happening in the most recent period that was probably driving some of that.

Operator (participant)

Thank you. Our next question comes from Anthony Elian with J.P. Morgan. Please proceed with your question.

Anthony Elian (Equity Research Analyst)

Hi everyone. One on loan growth. Was any growth in the quarter you saw due to pull forward late in 1Q, particularly if I noticed that period end balances were a few hundred million dollars higher than the average number?

Harris Simmons (Chairman and CEO)

Yeah.

I think that's what you're seeing there is that at the very end of March or towards the very end of March is when we executed, officially closed on the Coachella 4 branch acquisitions, which brought up our spot for period end. That would not have, there wasn't very much in the average for the quarter. I think that's what you're seeing in the numbers.

Anthony Elian (Equity Research Analyst)

Okay. My follow-up on credit quality. Could you talk more about any loan portfolios or specific borrowers you're watching now that may have outsized exposure to tariffs, supply chain? Maybe if you can size them up for us. Thank you.

Derek Steward (Chief Credit Officer)

We're watching the ones that you would be concerned with tariffs on, things like manufacturing, machinery and equipment, trucking and transportation, consumer products and retail. Sizing all that up, I'm not sure the exact amount of all of those components.

I think the one that we're watching closest is trucking and transportation. Trucking book would be less than $500 million. It is an area that we're watching. Those are the segments that we're focused on primarily today.

Operator (participant)

Thank you. Our next question comes from Chris McBurney with KBW. Please proceed with your question.

Chris McGratty (Managing Director)

Great. Thanks. Harris, your comments about the animal spirits reversing. I'm interested in your thoughts. Is the damage done for the year, meaning the sentiment is turned so negative that businesses are kind of penciled down for the remainder? If we're having this conversation in three months, could this be significantly a better tone in terms of optimism?

Harris Simmons (Chairman and CEO)

I think things can change.

Listen, just my own opinion is kind of the question is kind of to what extent you have an administration that's been itself into a corner with what they're trying to do with trade policy. Part of my thesis is that you're actually going to see a lot of pressure from the Congress, from Republicans in the Congress who have to be thinking about the midterms and what this all looks like, the impact of what's happening today on what the world looks like for them a year from now. I was at lunch today with a member of Congress who was Republican who was clearly very, very front and center in at least his mind. I think that's probably true of a whole bunch of them. How this plays out, I think, is going to be fascinating.

I don't know how it's going to play out. I don't think it's too late to, if the one thing that Donald Trump is pretty good at is pivoting and saying he's, so I'd like to think it could change. As they get more feedback from the markets, from constituents, members of Congress, etc., I wouldn't think this is necessarily a foregone conclusion. That's why one of the reasons I think that it's so hard to predict what happens a year from now.

Chris McGratty (Managing Director)

Okay. Thank you. I guess my follow-up is just more of a clarification on the operating leverage, full-year operating leverage. I guess, was there a recommitment to full-year operating leverage that I heard in your prepared remarks regardless of the revenue environment?

Ryan Richards (CFO)

Yeah. Thank you for that. I'm sorry if I wasn't clear. Yeah.

In terms of how we talk about, of course, I think folks here are familiar with our approach of going one year's quarter forward. On that basis, yes, I did affirm right now that our expectation is positive operating leverage. We expect it to be somewhere in the 1%-2% range based upon what we're seeing right now.

Operator (participant)

Great. Our next question comes from John Armstrong with RBC Capital Markets. Please proceed with your question.

Jon Arfstrom (Managing Director)

Thanks. Good afternoon, everyone. Good afternoon. Hey. Just back on loans, we've talked about it a lot during the call, but do you expect to grow loans in the second quarter, or is the evidence piling up to the point where you expect a pullback in balances?

Harris Simmons (Chairman and CEO)

Yeah. I think we expect to see some loan growth in the second quarter.

We have not seen, it is not like we have seen kind of a whiplash pullback. Just at least the deals I see coming through the pipeline, it looks like things are still, there is still a lot of business being done.

Derek Steward (Chief Credit Officer)

Yeah. This is Derek here. I would expect that we will continue to grow loans even through this.

Jon Arfstrom (Managing Director)

Okay. Yeah. That is helpful.

Derek Steward (Chief Credit Officer)

Even with the discussion that I had on CRE potentially reducing depending on where rates go, I think some of that can be offset as we continue new originations.

Harris Simmons (Chairman and CEO)

And John, I think we have, if you just look back over the last four or five quarters, and we have been growing at about the same kind of year-over-year growth rate, the same kind of linked quarter growth rate. It is not robust growth, but it is growth.

I think what we're saying is, yeah, we probably can continue that kind of moderate growth that's sort of going on. It's very different than the five or six quarters that preceded all that where we had some of the largest quarters of loan growth in our history.

Jon Arfstrom (Managing Director)

Okay. Yeah. That's helpful. We just kind of myopically focused on the negative. I just wanted to clarify that. Harris, have you seen anything in terms of the regulatory outlook or maybe changes that have happened already that would benefit Zions? I'm thinking about category 4. Maybe that could be eased. Just curious where your head's at in terms of the regulatory outlook and what may have happened already.

Harris Simmons (Chairman and CEO)

Yeah.

I mean, I'd start by saying, as we said previously, the whole $100 billion threshold, category 4 kind of thing really has not been keeping us awake at night. We'd built so much of the machinery for that back post-Dodd-Frank before the 2018 legislation that we've maintained it, still use it, etc. I think we're in reasonably good shape whatever happens. I do think that I mean, I'm quite encouraged by what I'm seeing in terms of this administration's selection so far to run these agencies. If you read what Miki Bowman said, that'll set a lot of the tone for it. I mean, clearly, they're going to focus on kind of tapering.

If you go talk to French Hill, the Chair of the House Financial Service Committee, he's very focused on making sure that we just that we're not going to that we don't suffocate this industry. Scott Bessant has indicated he's going to take a stronger role in policy making for the financial sector. He's clearly concerned that we don't suffocate the banking industry. I think he's concerned about how much has gone into private credit. He would say that he doesn't think that's a problem per se, except that it probably is indicative of the fact that we've tightened the screws on banking in a way that's maybe gone beyond the point of being productive. I think it's going to be a much more sort of thoughtful let's make sure to focus on basics, less focus on things politically correct or not.

I mean, all the focus that was being shown to climate change, we just don't see it in our portfolio. We've been through some kind of severe events in our history, Hurricane Harvey, and droughts and wildfires. It doesn't show up in loan losses. Let's not spend a lot of energy on stuff that just doesn't matter. Let's get better at the things that do. I think that's the kind of regulation we're going to see out of this administration. I think that's a welcome thing. I don't think anybody in this industry is looking for weak regulation. We're looking for sensible regulation that's focused on real risk. That's where I think they'll be. That's where we'd be comfortable having them.

Operator (participant)

Thank you. With that, there are no further questions at this time.

Ryan Richards (CFO)

I would like to turn the floor back to Shannon Drage for closing remarks.

Thank you, Julian. Thank you all for joining us today. We appreciate your interest in Zions Bancorporation. If you have additional questions, please contact us at the email or phone number listed on our website. We look forward to connecting with you throughout the coming months. This concludes our call. Thank you. This does conclude today's teleconference. We thank you for your participation. You may disconnect your lines at this time. This concludes the call.