Trade Policy, Loan Growth, and Deposit Pricing: Unpacking Contradictions from the Q1 2025 Earnings Call

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Financial Performance and Risk Management:
- Zions Bancorp reported net earnings of $169 million in Q1 2025, representing an 18% improvement compared to the same period last year, though earnings declined compared to the prior quarter.
- The net interest margin increased for the fifth consecutive quarter to 3.10%. This was driven by the downward repricing of customer and brokered term deposits and discipline in repricing other deposit categories.
- The allowance for credit losses remained aligned with the current economic outlook, with non-performing assets to loans ratios stable, reflecting the bank's cautious approach to risk management amid economic uncertainties.

Deposit and Loan Growth:
- Deposits decreased both on an ending and average basis in Q1, including the impact of acquired Coachella-related deposits. Non-interest-bearing deposits remained stable at 33% of total deposits.
- Average loans experienced 0.5% growth on a linked-quarter basis, with loan growth expected to be led by commercial loans, offset by managed declines in mortgages and commercial real estate exposures.
- The decrease in deposits was partly attributed to seasonal outflows, while loan growth was influenced by the acquisition of Coachella Valley branches, contributing approximately $630 million in deposits and $420 million in loans.

Credit Quality and Classified Assets:
- Net loan losses for the quarter were $16 million, with no charge-offs in the CRE portfolio, and the non-accrual ratio of CRE loans remained low at 43 basis points.
- The CRE portfolio performed well, with annual net charge-offs averaging a mere 1 basis point over the past five years, despite concerns of the Amazon effect and increased work-from-home trends.
- The focus on borrower equity and sponsor support was highlighted as a key factor in maintaining strong credit quality, particularly in the CRE segment.

Capital Management and Outlook:
- The company's common equity Tier 1 ratio was 10.8%, reflecting strong capitalization and risk management measures. Zions plans to build its CET1 ratio further, potentially through earnings and AOCI improvement.
- The outlook for customer-related fee income expects a slight to moderate increase in Q2 2025 compared to Q1, with lower capital markets growth anticipated due to economic uncertainty.
- Revenue guidance remains uncertain due to trade policy impacts, but Zions emphasizes its commitment to managing risk and maintaining positive operating leverage.