Earnings call transcript Q2 2023

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Operator

Greetings, and welcome to Zions Bancorp Q2 Earnings Call. At this time, all participants are in a listen-only mode. A brief question-and-answer session will follow the formal presentation. [Operator Instructions] As a reminder, this conference is being recorded.

It is now my pleasure to introduce your host, Shannon Drage, Director of Investor Relations. Shannon. you, Thank

begin. You may

Shannon Drage

Alicia, this and quarter welcome you, evening. good call to to conference second you discuss Thank We our earnings. XXXX

Investor and decided replacement selected. of long-term him opportunity a well. many know, permanent is Relations, for the wish of James Shannon Interim name Drage, until As and we is Abbott, am pursue to you has My a I self-employment James Director our Director

copy making forward-looking would to with call, be I the our to measures, information we to during available differ equally the may that remind deck review of X or deck slide in the presentation you release, although this A during statements, are made materially. forward-looking like as well you the which dealing disclaimer slide on earnings as press encourage results applies of non-GAAP release zionsbancorporation.com. on actual will statements We the Slide call. and this

For remarks. Officer, our agenda today, will provide Executive Simmons, Harris Chairman and Chief opening

Harris' President we Following with session. Scott our Risk remarks, our are After will a Officer, hold scheduled Officer, today us results. Financial McLean, our Officer. Chief financial This Chief Keith review call Maio, Also Operating prepared and one Chief Paul question-and-answer is for will and comments, Burdiss, hour.

turn Harris I Simmons. the to now time over will

Harris Simmons

this very much, Thanks Shannon, and of you evening. we our call all to welcome

around across we of environment banking seems stabilized the industry the acceleration been that the the One has the during deposit saw disruption pleased first notable to industry We're the to have pricing. quarter. relative outcome

cost been the of remains. appears attrition While to higher have transitory, deposit deposits largely

applicable likely quarter well shown prominent the to we've as Slide those horizon. particularly on X, themes this are some as near-term that be over that Zions Beginning to are

up were the $X deposits billion quarter. Customer for

have loyalty are their grateful, confidence that us. not demonstrated and in our customers but surprised We

strategies, and sheet our continue funding our includes in hedging to changes interest mix rate in optimization, our portfolio. actively manage changes response We risk. rate to in balance interest This product

in challenging to to also committed a expenses managing more our We're relation revenue environment.

$XX related over the next million flattening second results Our severance a our objective of to reflect expense year. quarter expenses

compared than below Our criticized experienced higher particularly one-off our quarter, levels of the the but declined charge-offs $XX and and portfolio prior norms increased We first events in healthy, million and net reflective to remains trends. well to assets absorbing quarter. than historic rather Loss relative risk profile. of capital non-performing slightly

results costs compared we first the XXXX. to with Turning X, with summary of of X.X%. showing deposit moderate we've comparison has of Slide slowed deposits, of financial reported the growth. annualized of in points basis impact increased basis year-to-date linked XXXX Period-end broker total the quarter. to quarter points deposits X.X%. XXX was included Loan Including slide, growth pace the on the quarter XX to a for quarterly a deposit Circled a growth quarter first relative customer

Slide X. Diluted was $X.XX. to Moving share earnings per

piece was of from a largest on net of decline one-time to share As impact increased per $XX and impact on side, or the funding property. of accrued share aside, earnings per These equal costs the severance $X.XX deposit shown right contributor positive sale the gain on expense. other that Offsetting the we the in was an million items interest of income. the

to his further efforts These will moving customer sheet customer in products through deposits on-balance throughout products. discuss deposits sheet are We reflected the in cost from of in off-balance more pricing, and the comments. were this competitive growing deposits. successful maintaining higher quarter Paul including

and down factors quarter. to just the second Slide decline I've to X, turning And compared noted quarter slightly was adjusted year-ago pre-provision The attributable the revenue net quarter was our linked million. $XXX primary was to

to related Financial Chief going high overview, additional level Paul? our financial to Officer, performance. ask Paul our that Burdiss, to I'm detail With provide

Paul Burdiss

you, evening, Thank and Harris, good everyone.

with from net the both. income in net the or revenue, and overview through revenue margin. The second deposits, balance rising for funds, rate PPNR. trend begin including more left on our chart pricing. three-quarters the Over five-quarter Net the rates and net pay discussion shows sheet the as on and we quarter of interest reflected recent is bars white I'll in income environment the of interest our our net interest X impact of the of includes net pre-provision of boxes interest margin components a the income. Slide of competitive interest declined on the the cost the

Slide the changes X. on interest net are detail outlined Additional in margin on

the chart lower side in adverse key borrowing net quarter provided points approximately and of value by of interest basis impact XXX changes associated components levels, the of noninterest-bearing positive changes increased including impact slide, funds. deposits, and this was The we On a waterfall linked both loans, with rate of volume, in offset the partially left-hand outlining the the margin.

accelerated been has that the quarter competitive pricing, to deposit have depositor more As a noted we due on with prior in sensitivity. increasing second calls, tactic

success funds Our second serve growing move borrowed contributed significant contributor a profitability. as quarter, continue as the balance level to the we funds noninterest-bearing sheet reducing and to of deposits customer in through to sources of

yields, prior-year a asset in this the combined deposit interest basis XXX The right-hand and noninterest-bearing chart interest contributed quarter. offset net This funds shows costs. of earning borrowing net by value the additional Higher increase in nearly with margin on almost reflected increased comparison the basis rates entirely which the margin. was to an slide points XXX to were point

relative second with competition the yield growth, associated net outlook the XXXX. opportunities include slightly interest of of the is across rates income and XXXX Risks the outlook realized path Our deposits and of loan this interest for second for in curve. quarter decreasing quarter to stable to

Slide income of X% year. to Moving quarter and versus X. X% versus $XXX and the noninterest revenue on an income million, increase the was noninterest prior Customer-related prior

million noninterest quarter quarter have the over of XXXX, we the third funds which and the modified near $X overdraft practices of noted, our previously As year. has past we non-sufficient about by reduced per our fee beginning income

commercial quarter, $XX Compared and first due other customer fees, make allowed of syndications, management or loan in grew X%, treasury activity. account Improvement fees, the loss capital markets rate sales this to to interest derivative to fees the us including has up strengthened revenue. million,

Our of increasing second XXXX for is outlook the second for noninterest to quarter of moderately customer-related the relative income quarter XXXX.

revenue of our by The in in includes adjusted revenue chart right to quarter noted and ratio revenue on from grew pre-provision due the is calculation. revenue, this the previously. X% included year and side net is factors the X% a ago slide which used versus first the decreased efficiency Adjusted adjusted

decreased quarter to $XXX the bars prior on million. XX, X% from Adjusted noninterest expense, shown in the blue Slide

to flatten seasonal expense payroll typically lack seasonal our stock-based to The taxes, includes as the therefore, associated a retirement-eligible expenses first second for quarter such Reported expenses. compensation at decrease those in intent items million the with due employees reflects year. and next $XXX severance expenses includes million of the and over $XX quarter,

of compared quarter FDIC adjusted XXXX outlook the Our noninterest any of and for associated second second impact with excludes expense XXXX is assessment. special the when proposed in to quarter stable the

past trends deposits highlights over the year. in XX our loans average and Slide

you quarter. growth On can current left has the in side, loan moderated that see the

of quarter of second is will that quarter XXXX. the XXXX when in loans expectation to compared slightly Our second increase the

for to deposits, the were ending XX, quarters while first X% side to the average end had quarter. broker deposits, slightly, deposits second the of compared X%. deposits balances down And the grew quarter. for right Now on current deposits to Slide of total turning Customer quarter prior the grew declined several excluding

the business relationships to As growth while bank. also bringing customer noted previously, new deposit enabled our deep

from cost XX The white prior in increased of quarter deposits, quarter. points basis basis in the the shown during XXX the points boxes, to

As X.X% of and end the quarter, and in second deposits X.X%, the the quarter of total on similar the was measured was against XX%, On spot yield to interest-bearing the at deposits the quarter. fourth total repricing for deposit based the at the XX% the beta measure for the was cost deposits interest-bearing deposit realized second average XX%. of bringing deposits total quarter a XXXX, end for of deposit second rates basis, the XX% on was betas and interest-bearing deposits

I funds the XX contribution interest Slide demand trends. deposit that net volume has noninterest-bearing Earlier, shows noninterest-bearing the mentioned on margin.

alternatives, more therefore value deposits the the to have interest-bearing Although significantly. deposit contribution increased volumes into move remaining has been interest and customers margin declining the of net as the

additional information including a XX on provides deposits, by Slide stratification FDIC status. insurance

a falling As reported the we throughout the uninsured XXXX and notable left historical in deposits the increase and has levels. chart previously been level of reported, shows, back toward XXXX deposits on has uninsured been

stayed of both deposits insured broker ratio deposits in total growth at deposits to balances quarter, included insured XX%. the deposits. deposit and The consistent During reciprocal second the

XX%, are I'm or historical up the is the XX%. at sorry, end To deposits Our excluding are total XXXX. up on total loan-to-deposit deposits, ratio context, broker side -- of XX% deposits since put this XX% in right

size absorb last was our XX, five balance sheet it be portfolio versus securities investment The pandemic. a but and primarily funds ready Moving portfolios our larger immediately the On exists quarters. storehouse to investment of remains to client-driven previous percent a Slide the the show this we assets, market to of slide, earning declined as the investment over quarter, money than portfolio it preceding changes. of

which to expected. flow, securities as will money in turn will million With and the of in this investment be Principal we source the behave $XXX sheet. predictable near cash that portfolio of to second over continues anticipate decline balance the portfolio combined were funds term, the cash prepayment-related over rest This somewhat continue quarter. and a market flows for balances

shorter period, and investments This to inherent X.X the to ago. to and be versus mismatch portfolio and required between The investment duration estimated estimated to rate of deposits. X.X is currently helps be prior-year portfolio durations to years about asset the With balance years, liability loan estimated larger one to duration. manage a fixed-term at duration years deposit bring X.X the year years interest X.X are loans duration compared slightly

Slide XX bars asset deposit reduced light with emerging rate our our model showing actual suggests results assumptions. sensitivity. on duration. we page In labeled duration interest adjusted actively our managing of of recent as liability asset to to provides the A which the this are comparison about sensitivity, are we change, behavior deposit this information

During of added. rate were swaps received-fixed canceled swaps second billion interest the rate $X.X were quarter, interest billion $X.X of pay-fixed and

the interest on this detail impact we've included expected on right are have to rates net income. and side slide, implied of the On current

the changes and the implied have shape those have sensitivity describe to but as interest repricing be that the expected net been financial interest instruments interest yield of well we occur curve. as fully as income rate of using have reminder, the effects a emergent to on the terms yet rate in to As by sensitivity occurred reflected latent of rate

XX past in assets line composition the size assume with descriptions. assumed These months. is Importantly, behavior behavior or these estimates in earning are unchanged also realized to deposit in remain deposit over

as net Regarding curve sensitivity, will interest work over time. income the latent through in-place yield our June of XX

funding Assuming would a to history, the cost interest XXXX quarter to second beta approximately compared expect recent net quarter on XXXX. of the of second when X% we based in decline income

XXXX indicates when compared an of measure Regarding materializes, estimate XX, the to emergent addition the second the quarter -- in improvement sensitivity, approximately of income the in forward forward in if XXXX. second the of latent quarter interest X% rates June sensitivity to interest sensitivity XXXX path emergent curve net of

is As net XXXX our for of the of XXXX relative the to second outlook slightly stable previously, decreasing. second noted quarter income interest for quarter to

shown capital Our on position is Slide XX. loss-absorbing

the XX.X%. position This ratio to level of very loan continued grow in with bank's the for when low profile. risk The CETX compares with to second Our the aligned to credit ongoing combined losses charge-offs. net well a capital quarter allowance is

environment macroeconomic the remains quarter. third As expect would in repurchases not share uncertain, we the

of below-average maintain to risk expect strong profile. We regulatory a capital managing to levels while

idiosyncratic issues, slightly loan feel credit reflected quarter. remains the in associated inventory with were improving do the were supply change We assets low. stress with the otherwise stable the customer losses credit struggled XX, that with in levels portfolio, build these charge-offs emerging Loan during X measures strong in quality basis of Slide loan quarter. have loans borrowers classified On Net chain points which not in delays remaining are and demand. non-performing and of and for quarter indicative

forecast. losses of X for economic X.XX% credit weaker is a the result allowance a prior quarter point as The basis increase loans, a over of somewhat

we office on portfolio beginning the CRE including of of topic total we loan As presentation included this this X% office or XX% of portfolio, XX% of detail is commercial CRE represents the the balances. total of XX. estate interest, have total know with real in portfolio our Page the a appendix CRE, around representing

trends. and to were for lower and classified in There rates criticized current on portfolio the perform well to were Credit the based we this remained portfolio quality total CRE measures across when The expect compared portfolio to CRE outlook. no strong. continue the quarter industry CRE credit office stable with metrics economic portfolio the losses

course summarizes Slide this XX financial of outlook over the presentation. the provided

best for the XXXX. reminder, second The in quarter As the current normal performance subject of the between the to a this outlook as results represents reported XXXX for compared our second in estimate quarters actual seasonality. of are quarter financial to

Shannon Drage

remarks. This concludes our prepared

to your primary you request please and limit questions. questions. question-and-answer the call, for participants to enable other we that we move ask As question one of section one line Alicia, questions follow-up to to open the the

Operator

Thank you.

be question-and-answer you. Thank session. will a We conducting Instructions] now [Operator

with Stanley. Our first Morgan question your with Manan Please proceed Gosalia comes from question.

Manan Gosalia

our balances At average and to conference of Thanks at quarter. month, start And approaching rates afternoon. the know on your it I trends some bit NIM you you the deposit mentioned saw had that last during X.XX% better I good was questions. for my quarter. about in X.XX%. on on deposit that a came the Hi, for little wanted taking

on I of hoping mentioned, wondering, June? the that So, sounded was of sort could And give based you the like there. some color was of that some in improving a you spot I is it of rates rate but more that change function

Paul Burdiss

informing net your as see interest Yes, trends this to of to the Page point see in what our the forgive well see margin you presentation to -- I'm of I And income you -- you I appendix number. there flattening providing could, find In noninterest-bearing which as presentation I deposits. we're is those of demand there net is If -- think could page might think our the I a question, then trying is our the what appendix Paul. there outlook. and on XX, in trends, me, interest you

Manan Gosalia

this severance it. expense costs some on side, then, And quarter. the maybe Got you had

the what If cuts costs in non-core room funding the more extent could that you and cuts ongoing much businesses? deposit on of expand expense And or expense for benefit further to of is there saves from cost some through how ongoing the those cuts? on pressure is returns, either

Paul Burdiss

expense it's Sure. specific program excluding year current that reluctant expense noninterest a to create special quantify assessment. now, This I'll level the the Paul. associated am response. because roughly a consistent program. the the of larger is with I is a which from much part with quarter, to And FDIC start the larger severance, meant is with

we're the So, to the the occur. as might relates possible the it of or whether those thing changes not further to there's think manage to room to extent to have environment that kind through changes, I going extent that's

Manan Gosalia

you. Thank Great.

Paul Burdiss

Thank you.

Operator

Thank you.

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

John Pancari

afternoon. Good

Paul Burdiss

John, good afternoon.

John Pancari

I do decline noninterest-bearing mix? as on below around, the quarter Where Thanks. in it's of XX% noninterest-bearing levels. on I pre-pandemic that know quarter. balances shy that the you see Just I guess, know terms now right deposit just out it's of the end-of-period the of mix, second bottoming balances X% this already after in

Paul Burdiss

-- ratio, with sorry, course, success of are as -- has And yes, the the interest-bearing I'm having it two we is the I issue that deposits. -- numbers. noted, interest-bearing growing Well, mix deposits

If provide And interest also we to sort of in here, context spike very total kind has because it's a again hard "bottom" of rates continue so, deposits, large probably a to see pressure effect. of that of macroeconomic to but it's there. from to sort environment taken were specific the up ratio, would the

into our we incorporates of additional interest for What is a going where interest-bearing. versus to noninterest-bearing be migration sort I and now think from best net though can income of DDA our in some outlook, out say today that year is estimate,

in was implied that all beta I that's referring of so to. sort those figures And

perspective, I And interest time. on the so, an net deposit and how keep thing the from think eye costs to of total my income is behavior affecting over that's

sort So, we that lose -- much under we've year. over next assumptions, $XX the of wouldn't My know, billion baseline demand over lost, the we over nearly that as our you deposits year. is expectation last of wouldn't

Harris Simmons

of rates. lot a further Absent increase in

Paul Burdiss

Yes.

Scott McLean

just is think were shows, is year rates, worth as depicts. XX, worth ago I also. in on they Clearly become pointed Hey, than more of demand The Paul a period very Slide declining but out, they're always, just Scott. has John, that's a it the focus this rising that slide noninterest-bearing deposits And lower, slide that more but favorable what and influence. DDA

now, we've always relationship environments, type the competitive The peers is existed -- And that for deposits, two than total other a that of -- slide different that, of we the that and of through in at also to say terms Slide you're that's not to decades about, of because talking accounts deposits, materially our our and function back noninterest-bearing our over movement. DDA, would in had businesses they mix clearly which operating in thing competitive decades in don't decades, that appendix, advantage will deposits versus when of two rate look granular is strategy which the total many with have change small, sensitive I you of a two interest our are deck, mix more our advantage anticipate rate XX. through us, interest as it's banking are of the terms

John Pancari

in no secondly, to I Thanks, quarter. return. know indicated the buy just third on Scott. that. Appreciate you real the Great. capital Then intention stock back

could Just market give here? an the could change shares back in bring update, us Thanks. it for your what that? What

Paul Burdiss

going. that, the around uncertainty the prudent in it's where I environment to to think around there. rules and start the capital including organically. continue uncertainty I'll build are think given And lot we environment There's a regulatory of capital just

the us of possible then risk more clearer, rules extent the becomes active. profile a the see we near-term with be could as you more become clearer, environment much little capital And wouldn't balance stands, our it's sort very that regulatory As goal so personal position to my the is my of expectation it the macroeconomic the sort that I market. that to noted, is of be there's that organization. that But in is expectation more uncertainty capital active

John Pancari

questions. for my taking Great. Thanks

Paul Burdiss

Thanks, John. Okay.

Operator

you. Thank

Our next question Please comes proceed from question. with Steven your Alexopoulos JPMorgan. with

Steven Alexopoulos

funds Hi, what's everybody. customer to have broker to of one, the so returning broker growth balance deposits, then looking here? the start, started two, replace some with sheet, wanted those lower and cost opportunity how at, customer I the of to deposits deposits

Scott McLean

the on reciprocal three. were This that of XX, starting broker think for that Steve, investors thank Really quick can I the what priced deposits, a in the question. marketplace. pulling in through period. you commercial are for higher bank, demonstrate demonstrate we X And ability period, bank deposits. utilize about into draw to was when a short-term I to over think comfort did really that Scott. time change March, and utilize March March, or our events also quarter on products is April, March should was we to the then, second it suite The important which all can But and we levers three jolt tried and any lever the all

to shock as six you other what months. will the next our and have CDs. pretty think CDs confident go as success that's think continue noted system, customer I with what that. And to see down, over is progress absent sweep particularly, you'll the building big deposits, that seeing, we'll and And brokered We're some you'll Paul good see deposits, in noted, both I

Paul Burdiss

Yes.

a are brokered those CDs The I'll sort note of laddered other format. thing a in is

months. they've about kind So six an average maturity got of of

So customer them as able Scott to there's we're to an grow deposits. opportunity, replace said, as

Scott McLean

pay their didn't the about to start rates us, is Steven, point, we in interest-bearing for important deposits growth and another think that. for talking liquidity the we just customers our I

than do environment, deposits, quarter recommending more were to funds, If deposits. market about they sheet interest And our rate their you were zero money $XX we move off-balance with pay the back we we're the to pushing billion that that them because We to deposits going recommended we'd off sheet. banking balance go clients, that XXXX, industry. entered they in customer

talking it started March actively our wasn't into in clients like about that. second on-balance to the February our quarter So, sheet rates, when we more and and

time speaking, become were, trend think to them their talked For customers that will our the they pricing as bring continue our liquidity, we we that and first more -- have deposits. about happy we and aggressive to sheet back about short-term generally on-balance

Steven Alexopoulos

materially and think key NIM right, yields, of could this that, loan I XXX far away maybe brokered follow-up staring about start how from those, repricing opportunity troughing? there, quarter, so your only if I'm if were bps, we at deposit So, on we that. X.XX%, interest-bearing that's are some the replacing And costs to part the increased some ability your of

Paul Burdiss

I question. Sorry, just to want clarify the

Scott McLean

troughing. a From

Paul Burdiss

I Thank you. Troughing, that missed. was the word

what billion tepid interest investment to is continue might this you in kind you down, is generally consider down. of I assets, pay consider going quarter, decreasing paydowns net my of flat portfolio, to are be the slightly flat describe Combined when our we kind to loan So, had which an again, which context outlook, speaking, of And growth. to with earning income. $X that is nearly as going expectation to of somewhat

And so, close and the getting event, my point barring edge pretty in together, of interest when we're those lower a numerator put net assets view, things a think earning close margin -- the unforeseen I getting getting actually some as to we're we're of -- I as again, pretty the the think, environment. I think to current two denominator, revenue you

net close In average. at end the the margin was interest fact, to the very quarterly quarter spot of the

Steven Alexopoulos

Okay.

Harris Simmons

interest-bearing the X.XX% was deposits of cost the mean, I Also, quarter. during

If you X.XX%. deposits, it the broker exclude was

additional on bring to money your we to back average. I -- down mean bringing that more we're room customer margin costing certainly mean, So, bit. a little at what But back point, it's I than there's bring the on, additional is to the the extent

Steven Alexopoulos

for Okay. taking questions. my Thanks

Scott McLean

Thanks, Steven.

Operator

you. Thank

question. proceed McGratty Please Our question Chris with from comes next with KBW. your

Nick Moutafakis

Nick is for actually this Chris. Moutafakis Hi, on

interest-bearing us assumptions? back guys on could to deposit remind the going -- costs, you beta of your Just IBD total

Paul Burdiss

correct? risk modeling. the we about in our asking that that I interest think Is rate assumptions you're use

Nick Moutafakis

Correct. Yes.

Paul Burdiss

Yes.

I we've page point back note -- to sets the of and outcome. a have we modeled the that page got but around two specifically around the in slide you front again the me, could in I rate page bars have of there. deck interest don't risk if So, I'll

second of betas, reasons. is models our calling exceeded which slide is bars of sort deck. we've have assumptions, a because for on set observed expectations of the Page It's XX The lot on what of adjusted we're deposit what based the

then, So, I important think interest considering as to beta the income you're beta, are is looking incorporating sort on most most view is that thinking ahead, since very outlook net current -- we've of think about which to most the of important of our that the realized effectively since that the the the realized beginning I the betas the sort beginning measures of close consider XXXX. XXXX. And we've

Nick Moutafakis

if beta? it's Slide that beta really higher mix interest-bearing, look shift really a the or there, the versus only to like on XX -- increased is I at it's standard also shift adjusted dynamic from just just is So, noninterest further

Paul Burdiss

rate I'm change incorporated when Yes, yes, our there noninterest-bearing beta, -- some interest-bearing incorporated incorporated from is deposits, of only to say -- in the deposits. from noninterest-bearing I beta, deposits sorry in -- interest-bearing in in not that's shift but

combination repricing speed. shift So mix of sort it's and a of

Nick Moutafakis

off securities book maybe the just then, And just quarterly. Okay. paydowns coming

I not it's could deck me slide you that? in know here. If don't with help or out the if

Paul Burdiss

between the paydowns kind over $XXX quarters. net the in in range current the just quarter, it script over were said were over said Well, of -- I And paydowns $XXX I million in course slide is script, the any deck. several the of actually in just and billion $X million the --

Nick Moutafakis

Great. Thanks.

Paul Burdiss

Thank Okay. you.

Operator

at Thank to for would closing this over you. back to time. I further are comments. Shannon There turn no questions the like floor

Shannon Drage

for you and Thank us you, all thank Alicia, joining to today.

please e-mail connecting Thank contact you the concludes number on in phone your forward for have We interest our you the or Bancorporation. to at look additional throughout our website months. coming Zions call. This listed you questions, If us with

Operator

This today's concludes teleconference.

at this time. Thank your You you may for disconnect participation. your lines

Zions Bancorporation, National Association (ZION) 19 Jul 232023 Q2 Earnings call transcript