Zions Bancorporation N.A.

Greetings. Welcome to the Zions Bank Corporation Q1 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 during the conference, please press star zero on your telephone keypad. Please note, this conference is being recorded. I will now turn the conference over to your host, James Abbott, Director of Investor Relations.

You may begin. Thank you, Kyle, and good evening. We welcome you to this conference call to discuss our 2022 first quarter earnings. I would like to remind you that during this call, we will be making forward-looking statements, although actual results may differ materially. We encourage you to review the disclaimer in the press release or the slide deck on slide two dealing with forward-looking information and the presentation of non-GAAP measures, which apply equally to statements made during this call. A copy of the earnings release, as well as the slide deck, are available at zionsbankcorporation.com. For our agenda today, Chairman and Chief Executive Officer Harris Simmons will provide opening remarks, followed by comments from Scott McClain, our President and Chief Operating Officer. Paul Burtis, our Chief Financial Officer, will conclude by providing additional detail on Zion's financial condition. With us also today is Keith Myle, our Chief Risk Officer, and Michael Morris, our Chief Credit Officer. We intend to limit the length of this call to one hour. During the question and answer section of the call, we request that you limit your question to one primary and one follow-up question to enable other participants to ask questions. I will now turn the time over to Harris.

Thanks very much, James. We want to welcome all of you to our call. Beginning on slide three, we're showing some themes that are particularly applicable to Zions in recent quarters. and some that are likely to be themes of the near-term horizon. Loans exclusive of PPP loans increased $1.2 billion during the quarter, maintaining the momentum that developed in the prior quarter. We saw strong growth in CNI and municipal loans. Owner-occupied loans also saw good growth, in part due to promotional campaigns. Overall, we're pleased with the loan growth in the first quarter and expect that moderate levels of loan growth will be sustainable through the remainder of the year. We've invested significantly in securities during the past two years. We believe the securities portfolio is, at least for the next few months, unlikely to increase significantly from here, although the size of the portfolio will ultimately be determined by loan growth and deposit flows. With the recent strength in loan growth, we expect that any near-term growth of deposits that might materialize in addition to some of the excess cash on our balance sheet would be invested in loans rather than in securities. As many of you know, we're well positioned for rising rates. The futures market is pricing in a Fed funds rate of approximately 3.5% by mid-23. We're an increase of about 3 percentage points We believe we have an exceptional deposit franchise, and given the interest rate environment expected by market participants, we expect that we'll begin to see much more of the value of these deposits emerge in our financial results in coming quarters. The final item on this slide refers to our ongoing significant investment in technology, which is designed to enable us to remain very competitive in the future. If you turn to slide four, we're generally pleased with the quarterly financial results which are summarized on this slide. In as much as we'll touch on these items in subsequent slides, I'm going to move on, but you might find this summary useful. We'll go to slide five. Diluted earnings per share was $1.27. Comparing the first quarter to the fourth quarter, the single most significant difference was in the provision for credit loss, which was a 28 cents per share positive variance. This can be seen on the bottom left chart. Our provision this quarter improved our earnings per share by 16 cents, whereas in the prior quarter, the provision reduced earnings per share by 12 cents. The other major factor that contributed to earnings was income from PPP loans, which was 12 cents per share in the first quarter. Finally, there were other items noted on the right side of the page that largely offset one another in terms of their impact on earnings per share. Turning to slide six, Our first quarter adjusted pre-provision net revenue was $241 million. The adjustments, which most notably eliminate the gain or loss on securities, are shown in the latter pages of the press release and of this slide deck. The PPNR bars are split into two portions. The bottom portion represents what we think of as generally recurring income, while the top portion denotes the revenue we've received from PPP loans, net of direct external professional services expenses associated with the forgiveness of these loans. These loans contributed $24 million to PPNR in the first quarter. As you can see, exclusive of PPP income, we experienced an increase in adjusted PPNR of 8% over the past year, and on a per share basis, it increased 17%. On slide seven, we've included a chart to help understand the sequential quarter change in PPNR. I've already noted the reduced income from PPP loans. We also experienced a decline in certain non-customer related fee income items, which was largely due to non-recurring gains on real property sales in the fourth quarter and reduced earnings on private equity investments and trading losses in the first quarter. The expense items shown in the middle of the chart are largely seasonal in nature, although we did increase our incentive compensation accruals to align with a revenue outlook that now includes the effect of expected rate increases. Non-PPP net interest income increased about $10 million, and finally, there was a $10 million charitable contribution in the prior period that weighed somewhat on that quarter. Turning to slide eight, Shifting away from the discussion on the financial results to a couple of highlights in our strategic plan, we are pleased to report continued strong progress with upgrading our online and mobile banking platforms to a single platform that has the same look and feel in both applications as well as functionality. We completed that for the consumer side of the business about a year ago, and we've been rolling out similar upgrades to our small business banking customers. Since year end, we've converted over 145,000 business customers to this new and highly competitive digital and online banking platform, with the remaining 25% of such customers to be converted to the new platform during May. The results of the upgrade are reflected in surveys we've done, which have been very positive. And in the mobile space, we've seen a much improved rating from customers as compared to our previous application. and also when compared to the applications for other large regional banks, which we've shown to you in prior presentations. Going to slide 9, a major strategic initiative for us is to organically grow our business customer base at a rate that exceeds the natural business formation rate. It's relatively easy to increase loan and deposit balances by increasing hold limits, lowering credit standards, or offering below market rates. for loans and above market yields for deposits. But to grow customers requires a lot of work, specifically in the service category. We've relied upon Greenwich Associates' research to help us understand the areas in which we perform well and areas that need improvement. This year we ranked second overall out of all the banks in the country in the middle market small business satisfaction with 27 excellence awards. Shown on this slide, Greenwich has provided us with additional detail behind some of the rankings. Across the top half of the page are a few select categories pertaining to survey responses from middle market business customers. And across the bottom half of the page are similar results from small business customers. Zion's score is denoted within each chart along with the average score of the peer group. Members of that peer group are listed elsewhere in this document and in our proxy filing. And also the average score of four major banks against whom we compete for business within our markets, notably JPMorgan Chase, Bank of America, Wells Fargo, and U.S. Bank. We're encouraged with such strength in these and many other categories. The net promoter score from Greenwich's surveys is, of course, a widely used barometer of customer experience and one that can be mapped to other industries. are strong showing as a reflection of our efforts to provide exceptional customer service, top-notch products and superior technology to enable faster and safer service and products. Additional detail is available on this topic in the appendix, slide 30. We expect that the strength of our reputation will continue to support our efforts regarding customer growth. Ultimately, this customer growth should translate into both granular and solvent increases in loan and deposit balances. And with that, I'm going to ask Scott McLean, our president and COO, to provide an update on loan growth, certain fee income initiatives, and our technology investments. Scott?