The operator introduces the Zions Bancorporation Q4 earnings conference call and reminds participants that the call is being recorded. Shannon Drage, Director of Investor Relations, then introduces the agenda and reminds listeners of the forward-looking statements and non-GAAP measures. Chairman and CEO Harris Simmons will provide opening remarks, followed by CFO Paul Burdiss who will review financial results. Other executives will also be present for the call. The call is scheduled for one hour and a new Chief Risk Officer, Chris Kyriakakis, is introduced.

Chris has taken over as Chief Audit Executive at Zions, replacing Keith Maio who retired after 32 years of service. The company has been proactive in managing their balance sheet and demonstrated their ability to handle interest rate and liquidity risks. In the fourth quarter, deposit costs have stabilized and the company plans to reduce their reliance on costly funding sources and focus on growing profitable customer relationships. They have also made changes to their mortgage-lending approach to improve profitability.

The company is focused on investing in the business and technology to improve customer experience while managing expenses. They have a track record of managing risk and credit performance. Financial highlights for the quarter and full year include an increase in loan balances and flat customer deposit balances. Net charge-offs were low and the common equity Tier 1 ratio was strong. Diluted earnings per share were down due to special assessments and lower non-interest income. Adjusted pre-provision net revenue was down from the previous quarter and the year-ago quarter due to increased cost of funds. The Chief Financial Officer will provide more detail on the components of pre-provision net revenue.

The majority of our revenue comes from our balance sheet through net interest income, which has remained consistent with the previous quarter due to the repricing of earning assets. Changes in the net interest margin are outlined on Slide 8, with a 14 basis point decrease in deposits offset by positive impacts from loan repricing and higher yields on money market and securities. Non-interest-bearing funding continues to contribute significantly to balance sheet profitability. Non-interest income from customers decreased by 4% compared to the previous quarter, primarily due to lower loan servicing fees. However, this was offset by improved commercial account fees, resulting in relatively consistent customer-related fees compared to the previous year.

In 2023, customer interest rate swap-related revenue in the capital markets was negatively affected by loan demand and the interest rate environment. However, investment in new product capabilities has led to growth in other sources of capital markets revenue. For 2024, the outlook for customer-related non-interest income is expected to moderately increase. Adjusted revenue decreased by 16% from the previous year and by 2% from the previous quarter. Adjusted non-interest expense remained flat, while reported expenses increased due to FDIC special assessment costs. The outlook for adjusted non-interest expense in 2024 is slightly higher than in 2023. Trends in average loans and deposits over the past year show a slight increase in loans and deposits, with an expectation for stable loans by the end of 2024. Average deposit balances increased slightly in the fourth quarter, but the cost of deposits also increased during this time.

The paragraph discusses the repricing beta for total deposits and interest-bearing deposits, as well as trends in funding sources and non-interest-bearing demand deposits. It also mentions the investment portfolio and its role in absorbing balance sheet changes. The investment portfolio is expected to decline in the near term, providing a source of funds for the balance sheet.

The duration of the investment portfolio has decreased compared to the previous year, helping to manage interest-rate risk. AOCI improved due to principal amortization and interest-rate swap maturities, and is expected to decline over the next eight quarters. The company's interest-rate sensitivity is shown to be dynamic and net interest income is expected to grow if short-term rates fall faster than long-term rates.

The bank expects stable to slightly increasing net interest income in the fourth quarter of 2024 compared to the same period in 2023, with a slight decrease for the full year. Risks and opportunities include loan growth, competition for deposits, and changes in interest rates. Credit quality remains strong, with a modest increase in non-performing assets and a decrease in net charge-offs. The commercial real estate portfolio represents 23% of total loans and has maintained disciplined growth over the past decade. The portfolio is expected to continue performing well, with a strong loss-absorbing capital position.

The CET1 ratio continued to grow in the third quarter and combined with the allowance for credit losses, shows a strong risk profile with low net charge-offs. The company expects to maintain solid regulatory capital while managing a below-average risk profile. The financial outlook for the full year of 2024 compared to 2023 was summarized on slide 21 of the presentation. The company requests that questions be limited to one primary and one follow-up question to allow for other participants to ask questions. The first question from John Pancari of Evercore was about the balance sheet commentary and loan growth guidance, and the company explained that their outlook is conservative due to softening demand, based on information from frontline relationship managers. The components of the portfolio are driven by market conditions.

The speaker discusses the potential impact of economic weakness on the bank's loan growth. They mention that commercial real estate loans may accumulate on the balance sheet while traditional C&I loans may decline. However, they also note that there was strong C&I growth last year and the economy may pick up towards the end of the year. The speaker also mentions a one-time close product that may slow down in growth. Overall, the bank is uncertain about loan growth but remains cautiously optimistic about the economy.

The speaker asks for the speaker's thoughts on deposit growth and the non-interest-bearing mix. The speaker responds by saying that there has been meaningful deposit growth and that they will carefully balance the need for funds and the rate they pay on those funds. They also mention that non-interest-bearing demand attrition has slowed but they cannot predict when it will end.

The speaker, Dave Rochester from Compass Point, asks a question about the company's net interest income (NII) and deposit betas. The speaker asks about the assumptions for deposit betas and the impact of potential rate cuts. The company's representative, Paul Burdiss, explains that their assumptions are based on the forward curve and that they have a balanced portfolio of both low and high interest-rate deposits. He also mentions that they have the ability to reprice higher beta deposits quickly. Dave Rochester then asks about the off-balance sheet sweep deposits and whether they can be used to pay down higher cost on-balance sheet deposits.

During a conference call, Paul Burdiss, Scott McLean, and Dave Rochester discuss the growth of off-balance sheet deposits, which reached $7.3 billion. Burdiss believes these deposits are very rate-sensitive and can be pulled onto the balance sheet with the right rate. However, he also feels confident in the current mix of rates and volume in their deposit portfolio. Manan Gosalia asks about the potential impact of future rate cuts on the deposit portfolio, to which Burdiss responds that it is difficult to predict but the first few rate cuts may have a more positive impact than later ones.

The speaker responds to a question about the decrease in reserves and ACL ratio, stating that they use an outside resource for macroeconomic forecasts and that credit migration is consistent with prior estimates. They also mention that the change in allowance is based on a slightly better macroeconomic forecast. The speaker then responds to a question about earning asset yields, stating that they expect them to increase throughout the year, with a flow-through of 5-10 basis points per quarter. They also mention that it's hard to predict beyond a couple of quarters.

The speaker discusses the amortization of swaps and their impact on earning asset yields for the next few quarters. They also mention the potential for loan growth and reducing reliance on wholesale funding, but express caution in light of current market conditions.

The speaker discusses how line utilization has increased and how it is difficult to compare their outlook to others. They also mention that interest rates are not historically high and that loan growth may be impacted by slowing growth in the residential portfolio. They also mention that their economic outlook has improved slightly and they are paying attention to regulatory rules before resuming share buybacks.

The speaker discusses the uncertainty surrounding the proposed capital rules and their potential impact on the bank's category status. They also mention their cautious approach to share repurchases and the need to be conservative on the capital front. Another speaker adds that they have not experienced a challenging credit cycle in a while and it is important to be careful with capital given the current uncertainty. A question is asked about the bank's net interest margin and the speaker acknowledges the difficulty in predicting it but mentions their stable net interest income and declining earning assets, which may lead to a modest improvement in the margin.

The speaker is discussing the ideal interest rate environment for Zions and their hedging program to manage their balance sheet. They are aiming for a balanced position and are agnostic to the ultimate path and curve shape of interest rates. They have also hedged against a spike in rates and feel confident in their ability to adjust deposit pricing if rates were to decrease. The speaker also mentions that a decrease in rates would benefit borrowers and that a 3% short-end and 5% long-end rate would be ideal for the company. The next question is about the use of liquidity to pay for loan growth and other expenses.

A question was asked about the company's cash position and money market investments, to which the response was that they expect to have around $2 billion in cash. They also stated that most of their higher-cost deposits are not indexed and that they have bankers who are actively managing those rates. The next question was about customer-related fee income, specifically in wealth management, which has seen a slight decrease. The company provided an update on flows and how these fees are recognized.

Paul Burdiss discusses the slight dip in revenue for the company, which is likely due to rounding. He notes that the wealth management group has remained consistent despite market volatility. When asked about the timing of fees and deposits, he explains that they are recognized in the same quarter and promises to follow up with the spot rate on deposits. Brody Preston asks for clarification on the NII guidance and the deposit beta, and Paul responds that the NII is expected to be stable to slightly increasing and the deposit beta on the way down is likely around 40-45%.

The speaker discusses the high beta of their products and hopes to maintain a similar beta during a downturn. They also mention terminating swaps to balance asset and deposit durations, which has been impacted by changing depositor behavior. The impact of this on net interest income is factored into their outlook.

During a conversation between Paul Burdiss and Jon Arfstrom, Derek Steward addresses concerns about criticized and classified trends in the company's portfolio. He explains that while the office portfolio is facing some challenges, it is a small portion of the overall loans. The multifamily portfolio is seeing an increase in criticized loans due to delayed construction, higher interest rates, and slower lease-up velocity. The company did not have any new non-accruals in the office portfolio this quarter. When asked about the zero provision in the quarter, Scott McLean offers perspective, stating that the allowance could absorb 19 years of losses based on the company's recent performance.

The speaker explains that the allowance for losses is based on forecasting the life of the portfolio and not a concern despite increased levels of criticized loans. They also mention that the equity going into deals has increased, providing more cushion for potential losses. The current levels of criticized loans and non-performing assets are low compared to historical experience, and the speaker is comfortable with the provision. The provision going forward will depend on the economic outlook and credit migration.

The speaker discusses the performance of the company's credit migration path and the positive impact it has on the allowance for credit loss. They also mention the difficulty in predicting future provisions due to the accounting standard. The speaker concludes by expressing their comfort with the quality of the portfolio and invites further questions from listeners.

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This summary was generated with AI and may contain some inaccuracies.