Zions Bancorporation N.A.

Greetings and welcome to the Zions Bank Corp Q2 Earnings Conference Call. At this time, all participants are in a listen-only mode. A brief 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. As a reminder, this conference is being recorded. It is now my pleasure to introduce your host, Sanij Raids, Senior Director of Investor Relations. Thank you, Shannon. You may begin.

Thank you, Alicia, and good evening. We welcome you to this conference call to discuss our 2024 second quarter earnings. 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, although 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 at zionsbankcorporation.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 McClain, President and Chief Operating 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, and I will now turn the time over to Harris Simmons.

Thanks very much, Shannon. We welcome all of you to our call this evening. Before we get into the results for the quarter, I'm really pleased to note that earlier this month we completed the final major conversion to our new core operating system for loans and deposits. Recall that working in conjunction with our partner, Tata Consultancy Services, we previously transitioned virtually all consumer, commercial, and construction loans onto the TCS banks core platform before completing our deposits conversions now in 2024. The remarkable success we've had with these conversions is really a testament to the skills and dedication of our colleagues. We really want to express our gratitude to the hundreds of people who worked so tirelessly over a period of years really to make it all happen. This modernization journey has created a catalyst for driving simplification and consistency throughout our company. as noted on slide three. So how does this really create value for the company going forward? Well, as industry observers are aware, virtually the entire legacy U.S. banking industry operates on 40- to 50-year-old core loan and deposit systems, along with significantly reducing that risk of operating on an antiquated system with dwindling vendor support in many cases. Our system operates on one data model for loans and deposits. It facilitates fraud detection and error correction in real time, is API enabled and cloud deployable, it supports critical omnichannel functionality like account opening, and it improves consistency of customer attribute data across major applications. Our employees report that the new system is intuitive, it's faster, eliminates the need to toggle between multiple applications, It offers more data at their fingertips, it's much easier to learn, reduces training time, and all of this results in a better experience for our customers. In addition to this major foundational investment, we've also, over the last three years, replaced nearly the entire digital front end, including replacing our consumer online and mobile banking system, upgrading treasury internet banking, which is utilized by a large percentage of our business customers, and creating a digital mortgage and small business application process that took us from 100% paper-based applications to more than 90% electronic over the course of 12 to 18 months. Going forward, we'll certainly find many ways to optimize the investments in our new core, and we're freeing up capacity to continue to invest in evolving technologies that give us other competitive advantages. As noted on slide 35, the 2023 coalition Greenwich data shows that our customers rank our digital product capabilities higher than our major bank competitors. Looking at financial results for the quarter, the numbers generally came in as expected. Net interest margin expanded by four basis points on a linked quarter basis and improved six basis points against the year-ago quarter as asset repricing outpaced the cost of funding increases. We anticipate this trend would persist in a steady rate environment while the timing of rate decreases in both the behavior and pricing of deposits will impact net interest income in a falling rate environment. Maintaining pricing discipline while continuing to focus on granular deposit gathering will be important regardless of the rate environment. While loan demand has increased, loan growth continued to be measured. Higher rates of tempered growth while also reducing the amount of pay downs in the commercial and consumer real estate portfolios. The expected path of benchmark rates and the current political environment are top of mind for customers, particularly our small business and middle market customers. As I mentioned last quarter, we've been particularly successful with a streamlined SBA program aimed at serving smaller businesses with targeted campaigns during the quarter, and we expect to continue our focus on that. This campaign, as well as other customer initiatives, are aimed at bringing new customer relationships to the bank and building our granular deposit base. While fee income growth has been somewhat sluggish during the first half of the year, we remain confident in our ability to grow fee income as we look toward the second half of 2024 and into 2025. Expansion of capital markets represents a key opportunity for us and more of our bankers are delivering these capabilities to clients. Adjusted expenses in the current period were up 2% compared to the second quarter of 2023. We continue to pursue means to control costs while supporting investments to grow the business. Net charge-offs remain low at just 10 basis points annualized as a percentage of average loans for the quarter, and 8 basis points over the last 12 months. This contrasts to an increase in classified loan balances of $298 million, over three-quarters of which was in the CNI portfolio. The decline in the allowance for credit losses compared to last quarter reflects an improved economic outlook, slightly offset by incremental reserves for CNI. We believe realized losses over the next few quarters will be very manageable and are already reflected in our reserves. Starting on slide four, we've included key financial performance highlights. We reported net earnings of $190 million for the quarter. Our period end loan balance increased one half of 1%, while average balance has increased just under 1% for the quarter, led by growth in one to four family residential loans. Customer deposit balances declined just under 1% in the quarter on a period-end basis, reflecting normal seasonality, while our ratio of non-interest-bearing demand deposits to total deposits was flat to last quarter at 34%. Our common equity Tier 1 ratio was 10.6% compared to 10.4% in the first quarter and 10% a year ago. As I noted in my quote in the earnings release, we've seen strong accretion to tangible book value, which has increased 20.1% year over year. Moving to slide five, diluted earnings per share of $1.28 was up 32 cents from the prior quarter. Current quarter results reflect a seven cent positive impact from the sale of our enterprise retirement solutions business and the sale of a bank owned property in Nevada. Turning to slide 6, our second quarter adjusted pre-provision net revenue was $278 million, up from $242 million in the first quarter. The length quarter increase was attributable to improved revenue, including growth in net interest income and the gains in non-interest income I mentioned previously, in addition to a slight decline in adjusted non-interest expense, largely due to seasonality of compensation expense in the first quarter. As compared to the year-ago quarter, adjusted PPNR was down due to slightly lower adjusted revenue combined with higher adjusted expenses. Generally, this quarter reflects positive trends with respect to higher revenue, well-managed expenses, and very satisfactory risk outcomes. These results are supported by our investments in technology, products, and services which bring value to our customers. For that high-level overview, I'm going to ask Ryan Richards, our Chief Financial Officer, to provide some additional detail related to our financial performance. Ryan?