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Edited Transcript of ZION earnings conference call or presentation 24-Apr-17 9:30pm GMT

Thomson Reuters StreetEvents

Q1 2017 Zions Bancorp Earnings Call

SALT LAKE CITY Apr 25, 2017 (Thomson StreetEvents) -- Edited Transcript of Zions Bancorp earnings conference call or presentation Monday, April 24, 2017 at 9:30:00pm GMT

TEXT version of Transcript

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Corporate Participants

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* Harris Henry Simmons

Zions Bancorporation - Chairman, CEO and Chairman of Zions First National Bank

* James R. Abbott

Zions Bancorporation - SVP of IR & External Communications

* Michael Morris

Zions Bancorporation - Chief Credit Officer and EVP

* Paul E. Burdiss

Zions Bancorporation - CFO and EVP

* Scott J. McLean

Zions Bancorporation - President and COO

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Conference Call Participants

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* Bradley Jason Milsaps

Sandler O'Neill + Partners, L.P., Research Division - MD of Equity Research

* Brian Klock

Keefe, Bruyette, & Woods, Inc., Research Division - MD

* David Eads

UBS Investment Bank, Research Division - Director and Equity Research Analyst

* David Patrick Rochester

Deutsche Bank AG, Research Division - Director

* Gary Peter Tenner

D.A. Davidson & Co., Research Division - SVP and Senior Research Analyst

* Geoffrey Elliott

Autonomous Research LLP - Partner, Regional and Trust Banks

* John G. Pancari

Evercore ISI, Research Division - Senior MD, Senior Equity Research Analyst and Fundamental Research Analyst

* Kenneth Allen Zerbe

Morgan Stanley, Research Division - Executive Director

* Kenneth Michael Usdin

Jefferies LLC, Research Division - MD and Senior Equity Research Analyst

* Marlin Lacey Mosby

Vining Sparks IBG, LP, Research Division - Director of Banking and Equity Strategies

* Robert Hutcheson Ramsey

FBR Capital Markets & Co., Research Division - VP and Analyst

* Scott Jean Valentin

Compass Point Research & Trading, LLC, Research Division - MD and Research Analyst

* Steven A. Alexopoulos

JP Morgan Chase & Co, Research Division - MD and Head of Mid-Cap and Small-Cap Banks

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Presentation

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Operator [1]

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Good day, ladies and gentlemen, and thank you for standing by. Welcome to Zions Bancorporation First Quarter 2017 Earnings Results Webcast. (Operator Instructions)

Now it's my pleasure to turn the call to your host, Director of Investor Relations, Mr. James Abbott.

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James R. Abbott, Zions Bancorporation - SVP of IR & External Communications [2]

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Good evening, everyone. Thank you, Carmen. We welcome you to this conference call to discuss our 2017 first quarter earnings.

To begin, we will hear prepared remarks from Harris Simmons, Chairman and Chief Executive Officer; and Paul Burdiss, Chief Financial Officer. We are also joined by Scott McLean, President and Chief Operating Officer; Ed Schreiber, Chief Risk Officer; Michael Morris, Chief Credit Officer; as well as other Zions executives who are available to address your questions during the question-and-answer section.

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 dealing with forward-looking information, which applies equally to statements made in this call. A copy of the full earnings release will -- as well as a supplemental slide deck, are available at zionsbancorporation.com.

We will be referring to the slides during this call. The earnings release, the related slide presentation and this earnings call contain several references to non-GAAP measures, including preprovision net revenue and the efficiency ratio, which are common industry terms used by investors and financial services analysts. Certain of these non-GAAP measures are key inputs into Zions' management compensation and are used in Zions' strategic goals that have been and may continue to be articulated to investors. Therefore, the use of such non-GAAP measures are believed by management to be of substantial interest to the consumers of these financial disclosures and are used prominently throughout the disclosures. A full reconciliation of the difference between such measures and GAAP financials is provided within the published documents, and participants are encouraged to carefully review this reconciliation.

We intend to limit the length of this call to 1 hour. During the question-and-answer section of the call, we ask you to limit your questions to one primary and one related follow-up question to enable all the participants to ask questions.

With that, I will now turn the time over to our Chairman and CEO, Harris Simmons.

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Harris Henry Simmons, Zions Bancorporation - Chairman, CEO and Chairman of Zions First National Bank [3]

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Thank you very much, James, and welcome to all of you today to our call to discuss our first quarter results. I'm going to go to the slides to the company -- the earnings release, on Slide 3 are some highlights for the quarter. I would characterize the quarter as healthy performance in terms of deposit growth and containment of the cost of deposits and credit performance, with the exception of one large loan that I'll discuss more in a few minutes. At the same time, we're not entirely satisfied with total loan growth, although we did outperform the industry relative to the December level. I'll cover the rest of the key indicators listed on this page as we move through the presentation.

On Slide 4, our adjusted preprovision net revenue reflects steady improvement, up 17% year-over-year, the result of both solid net interest income growth, which increased 8% over the first quarter a year ago, and expense controls that limited adjusted noninterest expense growth to 3.8%. Much of the improvement in the net interest income came from the growth of income from the securities portfolio as we worked to trim our asset sensitivity in exchange for more income today while simultaneously reducing risk.

Looking forward, we expect that interest income on loans will shoulder more of the burden of growth for 2017 and beyond. Year-over-year, GAAP noninterest expense increased 4.5% while adjusted noninterest expense increased a lesser 3.8%. I'm encouraged that salary and benefits, excluding severance, only increased about 1% over the year ago period. Outside of our direct control, we experienced a more than 70% increase in deposit insurance costs as the FDIC instituted a surcharge to rebuild the Deposit Insurance Fund.

Turning to Slide 5, we posted an efficiency ratio of 65.9% in the first quarter, declining 2.6 percentage points from 68.5% in the year ago period. Of note, because of seasonal factors in both revenue and expense, we believe it's more appropriate to compare the efficiency ratio to the year ago quarter. Our goal for 2017 is to achieve an efficiency ratio in the low 60s, while holding adjusted noninterest expense growth to between 2% and 3% from the 2016 actual result of $1,580,000,000.

I'd also note that we're achieving all of this while making some relatively substantial technology investments in new core systems and related projects. We'll continue to work hard beyond 2017 to identify additional opportunities to become more efficient.

Moving to Slide 6. Similar to the industry, we experienced soft loan growth in the first quarter. Although on a more encouraging note, we've already surpassed total first quarter loan growth in the first 3 weeks of the second quarter. One of the strengths this past quarter has been in the 1-4 family loan area, which experienced a 23% increase in originations over the prior year and is fairly heavily skewed to purchase activity rather than refinancing volume. During the first quarter of this year, we purchased $166 million of residential loans, which we may occasionally do if the opportunity presents itself and if it fits within our basic balance sheet management strategies.

Regarding borrower optimism, I would say that we're generally hearing more optimism across our entire customer base. Although much of this is anecdotal, one data point that bears noting would be our Nevada affiliates recently completed annual survey of small business customers. For the past 3 years, only about 40% of Nevada business owners felt the financial economy was headed in the right direction. In our 2017 survey, that number jumped to nearly 70%. Nevada businesses who plan to increase their employee base rose to 36% from 27% on last year's survey, and more businesses expect to apply for a loan over the next 12 months than in the past. Although that is just one of our markets, it has been one of the more challenged markets for the past decade, and we are optimistic about the future there and across our footprint.

Turning to deposit activity. Although we generally experienced volatility of deposit balances near quarter end, the average deposit balance was stable when compared to the December quarter and increased more than 5% of the year ago period.

Slide 7 depicts the credit quality metrics of our loan portfolio. We are encouraged with the decline in classified loans and general stability in nonperforming assets. Net charge-offs increased slightly as a result of a single loan that was charged off. During the quarter as described in the earnings release, one of our commercial loan customers experienced rapid deterioration in its financial condition when it became subject to a governmental investigation. That investigation resulted in the seizure of some of its assets. Because of the uncertainty of the situation, we charged off the entire balance of approximately $30 million. That amount equaled nearly 2/3 of our net charge-offs recognized in the first quarter.

We expect to pursue legal action to work towards a recovery, although no such recovery can be assured. At December 31, 2016, because of the financial condition of the company at that time, we had a very minimal allowance for credit loss on this particular relationship. And as a result of the events I just described, most of the provision for loan losses in the first quarter can be ascribed to this situation. Because of the nature of the situation, we cannot comment further on it.

Over the past couple of years, we've broken out credit quality metrics for oil and gas loans from nonoil and gas, and we still do that in the appendix for those of you who are still interested. However, we are getting fewer and fewer questions about the oil and gas portfolio. We are increasingly confident about the credit performance of the oil and gas portfolio.

Let me cite a few statistics. Our -- number one, our oil and gas companies were able to raise a combined $1.1 billion of equity during the first quarter, roughly double that of the prior quarter. Number two would be that, although still below the historical peak, the oil and gas rig count in the U.S. has increased more than 90% from the year ago level, which is a substantial benefit to our companies and particularly our service companies. Number three, several of our exploration and production companies are expecting the services companies to increase prices in 2017, and they're already seeing an increase in prices in certain subsectors of the services industry. And finally, our expectations for credit loss on oil and gas has improved materially in the past 3 months.

Excluding the charge-offs from oil and gas of $14 million and the one credit that became subject to the government investigation that I mentioned, our net charge-offs remained very, very low. Currently, we don't see any systemic or emerging theme that may cause problem loans or loan losses to increase. Finally, we remain disciplined on our concentration limits.

Turning to Slide 8. I'll highlight the improvement of 2 key profitability metrics: return on assets and return on average tangible common equity over the past few quarters. Return on assets increased to 88 basis points in the first quarter, up from 62 basis points a year ago. Average return on average tangible common equity increased to 8.8% from 5.6% a year ago. We're encouraged by the continued improvement and remain focused on achieving highly competitive returns on our balance sheet relative to peers.

With that overview, I'll turn the call over to Paul Burdiss to further review the financial results. Paul?

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Paul E. Burdiss, Zions Bancorporation - CFO and EVP [4]

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Thank you, Harris, and good evening, everyone. I'll begin on Slide 9. For the first quarter of 2017, Zions reported net earnings applicable to common shareholders of $129 million or $0.61 per share, up from $0.38 per share in the year ago period. There are some items within this quarter that are lumpy, including: securities gains and dividends, primarily from small business, investment company investments, adding to about $7 million in the quarter; severance expense of about $5 million; and income tax benefits that include onetime adjustments to state taxes of about $14 million, in addition to a $4 million benefit from the tax -- in the tax line related to the new stock-based compensation accounting guidance.

We've adjusted preprovision net revenue -- we've highlighted adjusted preprovision net revenue, which increased 17% from the year ago period, as Harris discussed earlier, although it dipped slightly from the prior quarter primarily due to seasonal factors. The last item highlighted on this page is the efficiency ratio, which has -- Harris has already discussed in detail.

Let me make a few comments about revenue first. About 3/4 of our revenue comes from net interest income, primarily driven by loan and securities growth, coupled with solid customer-related deposit funding.

Slide 10 depicts the recent trend in net interest income, which continued to demonstrate growth in the first quarter. On a year-over-year basis, net interest income was up 8%. I'll highlight the key volume drivers of this revenue item first and then discuss the rate component. The most significant factor in the year-over-year increase in net interest income is the $7 billion period-end balance and $6.2 billion average balance increase in investment securities.

If you'll turn to Slide 12, as we suggested at our January report, we continue to purchase high-quality liquid securities during the first quarter, increasing period-end securities portfolio by $2.1 billion and average securities by $2.5 billion versus the prior quarter. We continue to exercise caution with respect to duration extension risk. As discussed in previous reports, the mortgage-backed securities we are adding have a duration of about 4 years, with duration extension risk of about 0.5 year if rates were to rise 200 basis points.

The duration of the entire securities portfolio, including floating rate SBA securities, is about 3.2 years today. If rates were to rise 200 basis points across the curve, our models indicate that the duration of the portfolio would not change to any significant degree, which is attributable to our discipline in purchasing mortgage-backed securities with limited duration extension risk, and because the floating-rate Small Business Administration securities held in our portfolio are expected to prepay at a faster rate as the economy strengthens and rate rise, thus serving as a counterbalance to the mortgage-backed security prepayment risk.

We expect the growth rate of interest income from securities to decelerate as we move through 2017, although we expect the second quarter's growth to remain somewhat strong. As observed in the tables in the earnings release, the period-end securities balance is about $1.5 billion more than the first quarter average balance. So we should expect an increase in net interest income related to the investment portfolio in the second quarter. We expect relatively stable period-end securities balances over the near term.

The other major component of earning asset volume is, of course, the loan portfolio, and Slide 12 is a graphical representation of our loan growth by type relative to the year ago period. The size of the circles represent the relative size of the loan portfolios. We experienced 3% growth in non-oil and gas commercial industrial loans. Owner-occupied loans increased nearly 3% and have experienced an improving trend after being relatively stable during the past 2 years.

As we have discussed in previous calls and at investor presentations, we expect growth in commercial real estate to be moderate going forward and, in fact, CRE decline in both the first quarter of 2017 and in the prior quarters. The primary driver of the declines in our commitment -- the primary driver of the decline is our commitment to manage our portfolio concentration limits, as Harris mentioned earlier. We continued to experience a reduction in oil and gas loans of nearly $100 million in part due to merger activity, recapitalization and remargining activity and, to a modest extent, loan losses.

We achieved a 14% year-over-year growth in 1-4 family mortgage, including some loan purchases as previously described, and a 9% growth in home equity loans, which is consistent with our desire for stronger growth in these portfolios.

Looking ahead, we expect non-oil and gas commercial, industrial and residential mortgage loans to be the primary drivers of overall loan growth. We continue to expect a modest decline in the National Real Estate portfolio and in the oil and gas portfolio, although we expect the decline in 2017 for both portfolios to be less than that we experienced in 2016.

Turning to the REIT component of net interest income, which is on Slide 13, we break down key components of our net interest margin. The top line is loan yield, which increased 3 basis points from the prior quarter to 4.14%. There were a handful of items that limited the natural expansion of loan yields during the quarter, including reduced income from loans purchased from the FDIC and lower prepayment penalty income relative to the prior quarter.

On the bottom right portion of the page is a table of interest rate characteristics of the portfolio. You'll notice that about 40% of the portfolio, net of floors and swaps, flows with prime and 1 month LIBOR. As a reminder, the key drivers of our asset sensitivity are an immediate benefit from floating rate loans, some additional benefit from loans that reset later in the year and limited duration extension risk in the securities portfolio, largely funded by low-cost transaction-oriented client deposits.

The securities portfolio yield increased significantly this quarter. Most of the change is attributable to reduced premium amortization as compared to the prior quarter, due largely to higher interest rates. Our cost of deposits did not change relative to prior quarter. While we are monitoring the competitive landscape and will act accordingly, we currently expect deposit costs to remain fairly stable over the near term. Additionally, the change in the composition of average earning assets dampened the net interest margin expansion by a few basis points when compared to the prior quarter.

On Slide 14, there's an update to our interest rate sensitivity, which is not substantially different than the prior quarter but has been reduced a fair amount from the year ago period. Using the midpoint of the range shown, a 25 basis point increase across the yield curve after a year of seasoning would produce approximately $15 million of additional net interest income annually, all else equal, including the size and composition of the balance sheet. It will take a few quarters for the impact of the short-term rate increase to be substantially recognized based upon the information provided on the prior slide.

Turning to Slide 15 and noninterest income. Total noninterest income equaled $132 million, up from $117 million a year ago and up from $128 million in the prior quarter. The increase in the quarter was driven by an $8 million increase in net securities gains and an $8 million increase in dividends and other investment income, primarily due to increased market values of the company's Small Business Investment Company investments. These gains were partially offset by a decrease in fair value and nonhedged derivative income of $7 million, resulting from fair value adjustment.

Customer-related fee income declined slightly from the prior quarter due in part to a decline in lending activity, partially offset by an increase in credit card and interchange fees. As we continue to focus on fee income, we are still targeting mid-single-digit annual growth for the full year 2017.

Noninterest expense on Slide 16 increased 4.5% from the prior quarter and, if adjusted for items such as severance and other similar items, noninterest expense increased 3.8% from the year ago period. During the quarter, we experienced annual seasonal compensation related expenses as detailed on the slide, which explains most of the linked quarter variance. Also, as noted in the press release, we experienced a $3 million reduction in salary expense primarily related to loan origination. This was the result of an update in the estimation process associated with the consolidation of loan operations. This capitalized expense is expected to amortize over time through the net interest income. We are reaffirming our expectation that total adjusted noninterest expense will increase between 2% and 3% in 2017 when compared to the 2016 actual results.

On Slide 17 is a list of our key objectives for the remainder of 2017 and 2018 and our commitment to shareholders. We are fully committed to continuing to achieve positive operating leverage, with more than 17% year-over-year actual growth in preprovision net revenue, our efforts continue to make a noticeable difference. We remain committed to the substantial simplification of our operational processes. We also continue to work hard to upgrade our technology, which we expect will result in improved customer information infrastructure. When complete, this investment should simplify our back office, provide additional data on a real-time basis to our bankers and customers and better enable us to adopt enhanced digital capabilities.

Regarding the capital, with which shareholders have entrusted us, we are targeting much more substantial returns on capital than what can be seen today, and we are tracking towards those goals as discussed earlier. Regarding returns of capital, we are pleased to have made progress in returning more capital to shareholders in the past year. Of note, we have repurchased nearly 4 million shares or nearly 2% of shares outstanding since June 30, 2016. Although it is premature to give specific guidance on our expectations for the Horizontal Capital Review process for 2017, the results of our internal stress testing indicate that we continue to have an opportunity to optimize our capital position in order to become more reflective of the company's manageable risks. Finally, we are absolutely committed to our history of doing business with a local community bank approach.

Finally, Slide 18 depicts our outlook for the next 12 months relative to the most recent quarter. We are maintaining our outlook for loan growth at moderately increasing, which is to be interpreted as an annual growth rate in the mid-single digits. We expect net interest income to increase moderately over the next 12 months. This represents a deceleration from our prior outlook simply because we have largely completed the purchases of investment securities as I've mentioned earlier. No additional rate hikes are assumed in this outlook, although we do expect some further benefit from the March increase in the federal funds target rate. Additional increases in short-term rates are expected to improve net interest income.

Turning to the provision for credit losses, we posted a net provision for both funded loans and unfunded commitments of $18 million in the first quarter due to the isolated charge-off -- largely due to the isolated charge-off discussed earlier, and partially offset by a decrease in the provision related to oil and gas portfolio. We are increasingly optimistic that the credit deterioration we experienced from the oil and gas portfolio has turned the corner.

We expect that customer-related fees, which are defined in our press release and exclude dividend income and securities gains and losses, to increase moderately from the level reported in the first quarter. We currently expect adjusted noninterest expenses to increase in 2017 between 2% and 3% relative to the 2016 reported results.

Excluding adjustments for state taxes and the new accounting guidance for stock-based compensation discussed earlier, we expect our effective tax rate to remain in the 34% to 35% range for 2017, barring any meaningful changes in the tax code. We expect preferred dividends to be approximately $37 million in 2017. And as mentioned in my remarks earlier, we do anticipate redeeming $144 million of high-cost preferred equity in the first half of 2017.

Diluted shares, assuming that share price remains near current levels for the quarter, may decline 1% to 2% in the second quarter from the first quarter due to both the share repurchases and a reduced impact from the outstanding warrants that we described in detail in the January report. Please see the appendix of the slides for further sensitivity on the warrant effect.

This concludes our prepared remarks. Carmen, would you please open the line for questions? Thank you.

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Questions and Answers

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Operator [1]

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(Operator Instructions) And our first question is from the line of Brad Milsaps with Sandler O'Neill.

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Bradley Jason Milsaps, Sandler O'Neill + Partners, L.P., Research Division - MD of Equity Research [2]

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Paul, just wanted to ask a question about the balance sheet and maybe specifically the bond portfolio. On the overall size of it, what's kind of your biggest driver there? Is it the rate environment? Or do you look at it as a percentage of earning assets? It looked like this quarter, you've maybe added some leverage through some borrowings maybe to support the bond portfolio. Just curious, would you continue to do that if rates move further in your favor, or kind of what your thinking would be around kind of a larger bond book?

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Paul E. Burdiss, Zions Bancorporation - CFO and EVP [3]

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The size of the portfolio -- as we've discussed previously, the size of the portfolio has really been -- and the increasing size of the portfolio has been based upon our need due to the change in liquidity rules and other things to maintain a permanent store of liquidity on the balance sheet. That's kind of the primary. Secondary is the management of interest rate risk, as you alluded to, and sort of converting possible income into certain income in the current period. So all those items have conspired to increase the size of the portfolio. And as I said in my prepared remarks, we do not expect, Brad, for the securities portfolio to increase really from the March 31 levels.

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Bradley Jason Milsaps, Sandler O'Neill + Partners, L.P., Research Division - MD of Equity Research [4]

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Okay, great. And then just one follow-up, maybe for Scott. I know all the energy metrics -- they're moving the right way. But I did notice the ratio of noncurrent NPLs in the energy book slipped from maybe 86% to -- down to 73%. Do you read anything into that? Anything to be concerned about there? Is that just kind of getting down to the -- maybe the worst NPL that you got in that book? Or any other trends you're seeing there that we should be concerned about?

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Scott J. McLean, Zions Bancorporation - President and COO [5]

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Thank you, Brad. Specifically, no, I'm not worried about the decline in that ratio. It's actually still higher than that ratio for our entire portfolio. So it was unusually high to start with, unusually favorable to start with, and the decline is not something we're concerned about. As Harris noted, and Paul as well, the fundamental conditions in the industry are improving, you can see that externally in the first quarter earnings releases of Schlumberger and Halliburton. Access to capital is really good both through public markets, sales, private equity firm interaction. And so we're going to continue to watch the portfolio very closely, but all the trends are really positive with the exception of the one, the statistical trend you noted and the fact that NPAs were up slightly. But we're seeing good, solid improvement.

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Operator [6]

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And our next question is from the line of Geoffrey Elliott with Autonomous Research.

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Geoffrey Elliott, Autonomous Research LLP - Partner, Regional and Trust Banks [7]

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On the reduction in asset sensitivity, can you give us a sense of how much further you'd like to continue bringing that down?

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Paul E. Burdiss, Zions Bancorporation - CFO and EVP [8]

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Yes, Geoff, this is Paul. I'll take that. We have managed that down over time. And I think, again, over time, we will continue to see that decline. Although I'll say that the pace is a little undefined, and we'll be opportunistic based on what we see as kind of the shape of the curve and sort of the relative value of. As mentioned, the securities portfolio isn't really going to grow from here, and so any incremental management of our balance sheet positioning, our interest rate risk positioning, will really be managed through the swaps portfolio. And as you know, the curve is relatively flat today, but not to say that we won't continue to manage that down. But ultimately, that's going to be an ALCO discussion item and we haven't really provided a whole lot of guidance on the pace of continued reductions and asset sensitivity.

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Geoffrey Elliott, Autonomous Research LLP - Partner, Regional and Trust Banks [9]

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And then just to follow up on that. Last quarter, you talked about moving away from the fast and slow disclosures to something more consistent with what most peers are giving, just a kind of single number and then sensitivities around that. Where have you gotten to with that process?

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Paul E. Burdiss, Zions Bancorporation - CFO and EVP [10]

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Yes, Geoff, thank you for remembering that and for that question. We are -- as you would imagine, any change like that requires a lot of model redevelopment, and that requires a lot of data analytics and a lot of validation and other items. And so we have worked through that process almost entirely at this point, and so I would expect to see that no later than the next quarterly disclosure.

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Operator [11]

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And our next question is from the line of Marty Mosby with Vining Sparks.

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Marlin Lacey Mosby, Vining Sparks IBG, LP, Research Division - Director of Banking and Equity Strategies [12]

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I just want to do a little bit of a ticking in time, because you do have a lot of pieces that you've kind of threw in there. It seems like to me when you start off with the $0.61, then you take the security gains and the severance, they kind of offset each other. And then you start looking at the tax adjustments versus the bigger charge-off and you get a little bit of a net pull down of a couple of pennies. And then you start to add back the seasonal expenses as that starts to roll forward. So when I'm looking at it and you're looking at the efficiency ratio improving from first quarter to second quarter, while you could look at the security gains and the tax adjustment isolated from the other pieces and think, well, maybe, you need to round down in earnings. Really, when you kind of look into these moving pieces, you can see a step-up even from the reported number as you move into the second quarter. And just wanted to kind of get a feel for how you see those moving pieces all come together like that.

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Paul E. Burdiss, Zions Bancorporation - CFO and EVP [13]

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I'll start and I'll look at my compatriots to kind of add some color, Marty, this is Paul. The -- first of all, as you know, there's a lot of focus on GAAP reporting, and so we just want to ensure that our investors understand the GAAP financials which is what we reported. As you said, there are a lot of moving parts. And for me personally, it would be, I think, hard for me to provide sort of a near-term quarterly outlook. As you know, our outlook is really more of kind of a 12-month nature. We try to provide all the pieces that will allow our investors to kind of look through and sort of decide what's important and what's not important on a quarter-to-quarter basis. And so I don't know that we could give a whole lot more guidance in addition to that.

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Marlin Lacey Mosby, Vining Sparks IBG, LP, Research Division - Director of Banking and Equity Strategies [14]

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It just feels like that as you look at the reported number, if you do have kind of take into account all those pieces that we talked about, that there is the opportunity to step up from here as further efficiencies and seasonality comes out in the next couple of quarters. Because that efficiency ratio was 65% and you're low -- going to the low 60s, that's a pretty big step-up in profitability just there.

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Scott J. McLean, Zions Bancorporation - President and COO [15]

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And so we've -- Marty, this is Scott. We would anticipate though, as has been indicated, that we're going to -- we're staying on track with our efficiency ratio objective in the low 60s and expense growth in the 2% to 3% range. So there's a lot of -- there are so many moving parts. And I think, we highlighted very specifically the expense difference between the first quarter and the fourth quarter of last year, a lot of that is very onetime oriented. The other -- there are other changes too in areas like fee income, where we had some what I would describe as sort of onetime events in the first quarter of last year and then there's seasonality that you pick up in the first quarter or 2. And so there are a lot of moving parts. And I think our messaging would be that we feel -- continue to feel confident about the projections that we've given -- the guidance that we've given about efficiency ratio and expenses.

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Marlin Lacey Mosby, Vining Sparks IBG, LP, Research Division - Director of Banking and Equity Strategies [16]

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And then, Paul, you mentioned that securities portfolio was starting to kind of stabilize. Will you -- when we talked before, you've talked kind of now transitioning to a little bit more use of interest rate swaps as a balancing factor in a sense of asset sensitivity. So do you feel like you're going to start transitioning there and start adding a little bit more in the swap book as you move forward?

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Paul E. Burdiss, Zions Bancorporation - CFO and EVP [17]

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Well -- yes, Marty, clearly, as I said, the securities portfolio we just don't expect to grow from here. So to the extent the asset liability management committee here continues to manage our interest sensitivity down -- and my expectation is that will happen, but I'm kind of one of many votes. But my expectation is that over time, we will continue to manage our asset sensitivity down. And swaps are the next tool in the toolbox after we've exhausted the use of the securities portfolio. So kind of a squishy answer to your question, Marty, because we haven't provided a lot of guidance on that topic specifically. But I think generally, the direction that you laid out is correct and the direction that we've discussed previously is correct. And that this once the securities portfolio has been sort of fully bought out, we will look to the next tool in the toolbox, which is interest rate swaps, as we think about continuing to manage down our interest sensitivity.

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Marlin Lacey Mosby, Vining Sparks IBG, LP, Research Division - Director of Banking and Equity Strategies [18]

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And just the impact of restructuring doesn't end with the portfolio, you have another tool that you'll be able to start using.

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Paul E. Burdiss, Zions Bancorporation - CFO and EVP [19]

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Yes. Thanks, Marty.

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Operator [20]

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And our next question is from the line of Dave Rochester with Deutsche Bank.

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David Patrick Rochester, Deutsche Bank AG, Research Division - Director [21]

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Could you guys give some of the numbers behind the factors that put downward pressure on the loan yield this quarter? You mentioned the lower accretion, the lower prepays, et cetera. Any numbers you could give there?

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Paul E. Burdiss, Zions Bancorporation - CFO and EVP [22]

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Well, what I can say is there's a lot of little things that kind of add up to something significant. There's the kind of the headwind of reduced kind of FDIC-related contribution that was probably a couple of basis points. We had kind of nonaccrual related items, interest reversals that were also a couple of basis points. Maybe 1 on that -- 1 to 2 prepayments are maybe a basis point. So it's all a bunch of little things, Dave, that kind of add up into that headwind that I tried to describe, which is why didn't break it out more eloquently in my prepared remarks because it's a -- there's a bunch of dogs and cats in there.

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David Patrick Rochester, Deutsche Bank AG, Research Division - Director [23]

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Right. No, I appreciate the color. I'm just trying to get at basically where the loan yield could go from here with the March rate hike. It sounds like that can move decently higher versus the change that you saw in the first quarter. So just any thoughts there.

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Paul E. Burdiss, Zions Bancorporation - CFO and EVP [24]

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Yes, Dave, that's why we've tried to provide -- we've got some new color as you know, as I'm sure you've noted, from Slide 13 of our earnings slides, we're being a lot more specific around sort of the index and the timing of reprice. So you can kind of take a look at that. The other thing I'll notice is -- or I'll note that we've got some swaps and floors in there. The swaps portfolio, relatively modest. I think it's $1.4 billion. We've also got some caps in there. A lot of those caps are actually at 100 basis points on LIBOR. So the next rate move, we expect most of those caps to no longer be in the money. So there's several factors that, to your point, we expect with the next rate move to continue to be additive to net interest income. And certainly as it relates to the March move, we have yet to see that fully priced through here in first quarter.

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David Patrick Rochester, Deutsche Bank AG, Research Division - Director [25]

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And Paul, where are your new loan yields post the March hike in your securities reinvestment rates? Can you just talk about those?

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Paul E. Burdiss, Zions Bancorporation - CFO and EVP [26]

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The new -- securities reinvestment's probably 2.25-ish, which hasn't changed a lot because the yield curve, as you know, it stayed fairly flat even if the short rates have come up. New loan yields are on the floating rate stuff will be a little bit higher. The fixed-rate stuff is just not going to change a lot because, as you know, the fixed rate part of the curve just hasn't changed much.

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James R. Abbott, Zions Bancorporation - SVP of IR & External Communications [27]

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Yes, Dave, this is...

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David Patrick Rochester, Deutsche Bank AG, Research Division - Director [28]

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Would you say the new loan yields are -- oh, go ahead. Sorry.

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James R. Abbott, Zions Bancorporation - SVP of IR & External Communications [29]

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This is James. I'll just added a little bit. The coupon of the portfolio of the loan production during the quarter was just a touch under 4% for the quarter, and that's up about 15 basis points from the prior quarter. That's obviously not the production we had in the very last week of December -- I'm sorry, the very last week of March. But it is -- those give you some sense as to where we were for the quarter on average.

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David Patrick Rochester, Deutsche Bank AG, Research Division - Director [30]

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Would you say that -- just given the production today, that's above where book yield is on the loan side, James?

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James R. Abbott, Zions Bancorporation - SVP of IR & External Communications [31]

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Yes, it is -- well, the whole book yield is moving up because of the variable rate nature of the book. So yes, it's...

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Paul E. Burdiss, Zions Bancorporation - CFO and EVP [32]

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But loan -- the average loan yield is 4.14% in the quarter, right?

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James R. Abbott, Zions Bancorporation - SVP of IR & External Communications [33]

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Yes.

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Paul E. Burdiss, Zions Bancorporation - CFO and EVP [34]

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And so the other thing to consider, Dave, is the kind of the composition of the portfolio, what's growing and what's not. So residential mortgages, for example, have a lower overall rate than the total portfolio yield. So -- and we are growing that. So I think there are several factors to consider just thinking about trying to look forward to loan yields.

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Operator [35]

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And our next question comes from the line of John Pancari with Evercore.

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John G. Pancari, Evercore ISI, Research Division - Senior MD, Senior Equity Research Analyst and Fundamental Research Analyst [36]

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Back to the margin. On the loan yield, again, the -- I know you mentioned, Paul, the 40% of your loans float with prime or LIBOR, and when -- inclusive of your floors and everything. If you did, ex the floors and swaps, what is that variable rate percentage? And then separately, just wanted to see if you can kind of give us more of an overall thought process around where your margin -- what type of trajectory you could expect this -- through the end of the year?

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Paul E. Burdiss, Zions Bancorporation - CFO and EVP [37]

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Sure. I'll start with the first question. Again, referring to Slide 13, you can see, John, we've tried to break out. So for example, all prime and 1-month LIBOR floating rate loans are about 47 -- or 47% of the portfolio. We show the effect of hedges and floors there. That's what gets you down to the 41%, or about 40% as I said in my remarks. So that 47% I think is the number that you're looking for, which is sort of a 30-day reprice. When you add up all the pieces though and kind of go down the list, you've got 2- to 3-month LIBOR, 6- to 12-month LIBOR, kind of all those pieces together, you can see there's kind of a 66% that's tied to those shorter-term indices.

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John G. Pancari, Evercore ISI, Research Division - Senior MD, Senior Equity Research Analyst and Fundamental Research Analyst [38]

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Okay. And how did that gross number change quarter-to-quarter, that 46% number?

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Paul E. Burdiss, Zions Bancorporation - CFO and EVP [39]

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It hasn't really changed a lot. I think, what we have disclosed in the past, John, which is why we try to provide some incremental disclosure this quarter, is more of the sort of what floats under a year, and that gets to that kind of 60% to 66% sort of number. That's the number that we've talked about. Because for a long time rates just weren't changing, so it's kind of an academic exercise. Now that the target rate is changing with a little more frequency, we thought it important for an investor to understand kind of where the key points were in the portfolio as it relates to interest sensitivity, which is why we've provided this incremental breakout. So the short answer is that hasn't really changed, but we're just trying to provide a little more detail to be a little more transparent as it relates to the floating rate nature of the portfolio.

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John G. Pancari, Evercore ISI, Research Division - Senior MD, Senior Equity Research Analyst and Fundamental Research Analyst [40]

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Okay. And then just to follow up on credit, the charge-off, I know you couldn't talk too much more about it. But could you just give us what sector, what industry it is? And then separately, the inflows into nonaccruals looked relatively elevated, given that NPAs are up despite the big charge-off. And what drove that?

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Harris Henry Simmons, Zions Bancorporation - Chairman, CEO and Chairman of Zions First National Bank [41]

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That's a -- it's a health care-related credit. I don't know if, Michael, you want to say anything more about it.

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Michael Morris, Zions Bancorporation - Chief Credit Officer and EVP [42]

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Well, no. All I'd say is that it's an isolated event. It's nonsystemic, we believe. And we don't believe that it represents or is reflective of any other adverse trend in health care, if that's helpful. And then on the NPAs, slight uptick in NPAs for the quarter, some positive things already in the works this quarter. So no real concern around that uptick and no real specific industry to point to.

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John G. Pancari, Evercore ISI, Research Division - Senior MD, Senior Equity Research Analyst and Fundamental Research Analyst [43]

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I mean, it was though a little bit more of an uptick when you consider the big charge-off there, right?

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Harris Henry Simmons, Zions Bancorporation - Chairman, CEO and Chairman of Zions First National Bank [44]

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Yes, although it wasn't nonperforming in the end of December.

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James R. Abbott, Zions Bancorporation - SVP of IR & External Communications [45]

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It was a performing loan at December, John.

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Operator [46]

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And our next question comes from the line of Steven Alexopoulos with JPMorgan.

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Steven A. Alexopoulos, JP Morgan Chase & Co, Research Division - MD and Head of Mid-Cap and Small-Cap Banks [47]

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I wanted to ask on expenses. If we look at the $411 million of adjusted expenses in the quarter and we think about the run rate for the second quarter, Paul, if I look at 3 items you're calling out on Slide 16, so the $7 million of stock-based comp, $6 million of payroll taxes and then $4 million contribution to the 401(k), can you walk through how much of each of those should come out of the run rate in 2Q?

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Paul E. Burdiss, Zions Bancorporation - CFO and EVP [48]

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Well, the way I think about it is this, and this is kind of one way to think about it. But these are sort of annual expenses, and so you've got sort of a full year's effect has all -- have all shown up in the first quarter, effectively. So these items, the reason we call them out specifically is that these are not items that we would expect to show up again in the second quarter.

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Harris Henry Simmons, Zions Bancorporation - Chairman, CEO and Chairman of Zions First National Bank [49]

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And I think the math of it is, basically, if you take 3/4 of that number and subtract it from $411 million, it gets you to where the run rate probably should be, right?

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Steven A. Alexopoulos, JP Morgan Chase & Co, Research Division - MD and Head of Mid-Cap and Small-Cap Banks [50]

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Got it. Okay. And then just one follow-up. Many banks here are calling out a need to ramp their tech spend. And you guys have obviously invested very heavily in technology over the past few years. Are you, in your mind, ahead of the curve? Or do you also need to ramp your spending in tech here, if you think about digital and some of those kind of things?

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Scott J. McLean, Zions Bancorporation - President and COO [51]

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I think we believe we're ahead of the curve, because we're trying to address our core loan and deposit systems, which were literally almost every other bank in the United States are 25 to 30-year old systems. And it is a many-year project to address both of those. And the primary pressure driving that is that obviously the pace of technology change, but the onset of the digital -- just the digital requirements of customers and everybody that we interact with. And so you fundamentally cannot take 20- to 30-year-old core loan and deposit systems and adapt them to a digital world. You just -- the money you would spend on middleware would be astounding. So we're trying to address the core problem. Cyber security is also another key driver of this. And I think the industry as a whole is driving hard in terms of technology spend around cyber. But almost all banks have put off this investment in core, and we are well into that process right now.

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Operator [52]

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And our next question comes from the line of Ken Usdin with Jefferies.

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Kenneth Michael Usdin, Jefferies LLC, Research Division - MD and Senior Equity Research Analyst [53]

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Guys, just wondering if you could just talk a little bit about deposit pricing. It was obviously very stable, and you didn't really have any change this quarter. But any competitive dynamics or just notable sense of change in your client base?

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Paul E. Burdiss, Zions Bancorporation - CFO and EVP [54]

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Ken, it's Paul. I'll start, and I'll ask anyone else to sort of join it. I was at a conference -- I spoke at a conference here in the last quarter and we talked a lot about deposit pricing and kind of how the -- my opinion is that the liquidity coverage rules are kind of defining deposit value right now. And I think they are -- we are starting to see that impact deposit pricing. So I'll just remind everyone on the call that our portfolio, deposit portfolio, looks a lot different. It's very granular. It is commercially oriented. It is very sort of client-based and deep relationship-based deposits. And so we are not seeing and I'm not hearing pressure on those deposits yet. So we're keeping an eye on it. And we've got our ear to the rail if you think about that. But in fact, so far, we're just not feeling a lot of pressure on deposit pricing.

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Kenneth Michael Usdin, Jefferies LLC, Research Division - MD and Senior Equity Research Analyst [55]

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Okay. And then secondly, just wondering in terms of funding the securities purchases, you had a big increase in the short-term borrowings, which you said you might use. But the cost of those borrowings actually went up a good amount off of a low base. Now that you're approaching more of a level set for the investment portfolio, do those borrowings level out, because you're kind of paying a little bit more incrementally for the borrowings than you're getting, at least in this quarter, incrementally on the securities?

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Paul E. Burdiss, Zions Bancorporation - CFO and EVP [56]

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I don't think we're paying more on the borrowings than we're earnings on the securities. The securities are yielding over 2% and the borrowings are around, I think, around 80, if I remember it correctly. I can pull it out if you wanted to (inaudible).

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Kenneth Michael Usdin, Jefferies LLC, Research Division - MD and Senior Equity Research Analyst [57]

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I'm talking about sequentially. I'm talking about the delta, sorry. The delta between the 2. Not -- you're right. Of course, there's a margin on them. But I meant the delta between your securities was up 20 basis points but the borrowings were up 35%.

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Paul E. Burdiss, Zions Bancorporation - CFO and EVP [58]

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I'm sorry, I misunderstood your question.

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Kenneth Michael Usdin, Jefferies LLC, Research Division - MD and Senior Equity Research Analyst [59]

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No problem.

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Paul E. Burdiss, Zions Bancorporation - CFO and EVP [60]

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Yes. So in order to really affect interest sensitivity, we basically need to invest long and borrow short, and that's kind of what you're seeing there. I mean, that's ultimately sort of the driver of the interest sensitivity change. And ultimately, the net value -- or the net volume we have associated with those -- that incremental funding is just going to be heavily dependent on kind of loan and deposit growth. And that, as you know, is sort of the balancing mechanism as is the investment portfolio. So as we move through time, as everyone has heard me say previously, deposits really drive the value of a banking franchise and so deposit -- incrementally, deposit growth is going to largely drive the incremental need for funding clearly as we think about loan growth increasing throughout the rest of the year. And so the [ loan ] deposit growth, that short-term funds will be affected. But I'll also remind you that we can also manage the investment portfolio as sort of a balancing factor also.

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Operator [61]

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And our next question comes from the line of Ken Zerbe with Morgan Stanley.

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Kenneth Allen Zerbe, Morgan Stanley, Research Division - Executive Director [62]

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Actually, I have sort of a similar question. Just on that $2.9 billion of short-term borrowings. So Paul, are you saying that this -- that ultimately this gets replaced with core deposits as it grows? Or is this like just an intentional strategy to add, whatever it was, $2-plus billion worth of short-term borrowings and maintain it on your balance sheet to make sure that your asset sensitivity stays low?

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Paul E. Burdiss, Zions Bancorporation - CFO and EVP [63]

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I will characterize this is an intentional strategy. As a bank, as you know, it is completely normal to be in sort of a net borrower position. And so we kind of -- over time, we've had so many deposits that we haven't had that line item on our balance sheet in quite some time. I'm frankly very comfortable with the level of kind of the incremental wholesale borrowing of $3 billion on our balance sheet. I think it is totally normal, and I'm completely comfortable with it. So I would characterize it as clearly intentional.

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Kenneth Allen Zerbe, Morgan Stanley, Research Division - Executive Director [64]

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Got it. Okay. And then just a follow-up. On the noncustomer-related fees, so the $17 million that you got this quarter, that I guess combined number has just been all over the place. Is there any right number that we should think about going forward? Or is any part of that sustainable or recurring? Or is it all just insanely volatile?

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Paul E. Burdiss, Zions Bancorporation - CFO and EVP [65]

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There's a lot that's out there. There is volatility in that. As I laid out -- what I tried to do in my prepared remarks were to talk about kind of some of the key items that were impacting that. And at the very beginning of my prepared remarks, you may recall I said securities gains and dividends, this is largely driven by the Small Business Investment Company investments, we're about -- added about $7 million this quarter.

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James R. Abbott, Zions Bancorporation - SVP of IR & External Communications [66]

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And I would just add, Ken, this is James, that it basically -- one of the major sources of volatility over the last several quarters, I think 3 quarters now, has been a singular investment, which is actually a publicly traded company at this point. And so it's not level 3 accounting. It is observed prices in the market. And it is an investment that we've been involved in for years. And so that's -- unfortunately, the stock market is volatile from time to time, and it's just -- we've just -- you've just seen the result of that.

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Paul E. Burdiss, Zions Bancorporation - CFO and EVP [67]

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And I'll just say, since James brought it up, it is a publicly traded investment and it's not our practice to kind of hold on to those for extended period of time. So we are -- this is, again, out our SBIC portfolio. It blossomed into a publicly traded company, which is a great outcome. And now we are kind of disposing of that investment as quickly as we can.

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Operator [68]

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And our next question comes from the line of David Eads with UBS.

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David Eads, UBS Investment Bank, Research Division - Director and Equity Research Analyst [69]

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There's been a ton of questions about kind of the nitty-gritty on NIM and NII. And maybe just kind of circling back, I guess the overarching theme that you guys are talking about is sort of mid-single-digit-ish NII growth for the 4 quarters ending 1Q '18 versus 4Q quarter -- 4 quarters ending 1Q '17, correct? And when I -- I guess when I look at the details there, 1Q '17 was up about 8.5% year-over-year. It looks like there's a couple of tailwinds sequentially for NII in 2Q from the balance sheet growth [ with ] securities, at the average securities coming on, and then some benefit from loan yield. So I guess the bottom line, is there opportunities for that mid-single-digit guide to be conservative? Or are there headwinds that we should be aware of? Or is there anything we're missing there?

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Paul E. Burdiss, Zions Bancorporation - CFO and EVP [70]

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I think the key tailwind or key opportunity there is increased -- or increased short-term interest rates. So to the extent that that, as I said in that outlook, really don't have any assumed additional tightenings -- Fed tightenings in there. So that's clearly an opportunity. The other kind of opportunity and headwind I think is -- or potential headwind is loan growth. And ultimately, we've got a loan growth outlook here that accompanies that net interest income outlook, and we fully intend to achieve the loan growth. And if it's better than we are expecting, then that could be helpful. And vice versa. Scott, I don't know if you want to add to that?

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Scott J. McLean, Zions Bancorporation - President and COO [71]

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No, I agree with both those points. And loan growth is really a key for us. We've said we're going to keep the investment portfolio pretty stable at this point. And we started out a little soft on the loan growth side. But as you look at Slide 12, as Paul noted when he talked about it, the fundamental areas of loan generation for us are growing and have the potential to grow at a faster rate. And we will hit the bottom of the oil and gas declines and National Real Estate declines. So that will taper at some point.

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David Eads, UBS Investment Bank, Research Division - Director and Equity Research Analyst [72]

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All right. And then maybe on that loan growth point, it looks like the -- in the energy book, the unfunded commitments went up. I think you mentioned it was related to the midstream part of the portfolio. I just wanted to kind of get your updated thoughts on potentially taking on more energy loans, whether it be kind of focused in the E&P and midstream space or maybe a little bit more broad.

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Scott J. McLean, Zions Bancorporation - President and COO [73]

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No, we're -- good question. We will definitely see the portfolio grow again. We've been a long-standing leader in energy lending in the country, and we'll continue to be that. The growth will primarily come on the reserve base side and on midstream. And on the reserve base side as well as in the services sector, you're going to see revolvers being utilized again. And so we think that'll have a positive impact. As well as there is new underwriting going on, both in the midstream and in the reserve base side.

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Operator [74]

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And our next question is from the line of Bob Ramsey with FBR.

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Robert Hutcheson Ramsey, FBR Capital Markets & Co., Research Division - VP and Analyst [75]

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Just given the positive commentary around energy trends, is it your expectation and as you go through the redetermination process that loan upgrades are likely, which could result in additional reserve releases?

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Scott J. McLean, Zions Bancorporation - President and COO [76]

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Well, we're just starting in -- this is Scott. We're just starting into the spring redeterminations. And I think it's going to be kind of a flattish experience to the fall redetermination. And I think more important than the redeterminations, I think, the financial results of our reserve base borrowers is improving at a steady pace. And you're seeing drilling pick up as a result of the -- you see the rig count increasing. And so I think the fundamentals in reserve base lending are going to improve. And you won't -- you'll see that benefit in the reserve base side, and you will absolutely see it in the services sector. And so as it relates to the reserve, we'll just have to watch charge-offs and the general credit parameters. But as we've said previously, that reserve will continue to come down. Assuming characteristics -- the industry characteristics stay as they are today or improve.

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James R. Abbott, Zions Bancorporation - SVP of IR & External Communications [77]

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I mean, I just -- Bob, I'll just jump on is, this is James, one of the interesting factoids that I've found as I've looked through some statistics this quarter on the services portfolio is that the rapid pace at which the services companies are returning to positive EBITDA and positive free cash flow. It's -- not to overstate it a little bit, but 10 to 15 percentage points of the portfolio per quarter, not annualized, is how fast they're coming back into profitability. So it is a nice trend. And certainly that's one of the trends that's causing the capital markets to be very interested in supplying capital to these companies.

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Scott J. McLean, Zions Bancorporation - President and COO [78]

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I think the other thing that's important to note is that, generally, the outstandings on the services side are term loans. And those term loans generally we're amortizing on a 3- to 5-year basis. Today, we have about $630 million in energy services outstandings. 15 months ago, that number was a bit over $1 billion. So the exposure is coming down rapidly, and we'll continue to decline just through natural amortization of the credits that we had.

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Operator [79]

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And our next question -- go ahead.

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James R. Abbott, Zions Bancorporation - SVP of IR & External Communications [80]

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Carmen, this is James. We're going to probably shift over to the lightning round here, so just one question and we'll try to avoid the follow-up and we'll try to keep our answers quote -- or quick, rather, and we'll move quickly through the last 2, 3 minutes.

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Operator [81]

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And our next question is from the line of Scott Valentin with Compass Point.

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Scott Jean Valentin, Compass Point Research & Trading, LLC, Research Division - MD and Research Analyst [82]

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Just, Harris, you mentioned growth accelerated. I think you said that quarter-to-date, you've already outgrown percentage-wise all the first quarter. Just wondering where you're seeing that growth come in, if it's C&I or other parts of the portfolio.

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Harris Henry Simmons, Zions Bancorporation - Chairman, CEO and Chairman of Zions First National Bank [83]

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Quarter-to-date, it's been C&I and it's been consumer primarily. A little bit of commercial real estate, but pretty much it's been primarily commercial and then some consumer.

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Operator [84]

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And our next question is from the line of Gary Tenner with D.A. Davidson.

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Gary Peter Tenner, D.A. Davidson & Co., Research Division - SVP and Senior Research Analyst [85]

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Scott actually, just the question I was going to ask, but while I'm on the line here. Just one more question on the health care loan, can you confirm whether or not it was a shared national credit?

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Michael Morris, Zions Bancorporation - Chief Credit Officer and EVP [86]

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It was not a shared national credit.

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Operator [87]

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And our final question is from the line of Brian Klock with KBW.

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Brian Klock, Keefe, Bruyette, & Woods, Inc., Research Division - MD [88]

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So I guess, the last thing with guidance and NII. Paul, I guess, can you just remind us then with the new balance sheet where we are if we get a Fed hike that maybe comes in June? I guess, what's the next 25 basis point hike impact on your net interest income?

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Paul E. Burdiss, Zions Bancorporation - CFO and EVP [89]

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We estimate -- in accordance with the slide there, we estimate that we're -- if you take the midpoint between the fast and the slow, we estimate that to be worth about $15 million.

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James R. Abbott, Zions Bancorporation - SVP of IR & External Communications [90]

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And Brian, I'd just add. That is a 1 year -- so that shocks rates up, but then it -- and then takes a year for it to season before that effect happens. So it'll be less than that if you just looked at the quarterly effect from the 1-month lag to (inaudible)

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Paul E. Burdiss, Zions Bancorporation - CFO and EVP [91]

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The full year effect is about $15 million.

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James R. Abbott, Zions Bancorporation - SVP of IR & External Communications [92]

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The full year effect is $15 million.

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Paul E. Burdiss, Zions Bancorporation - CFO and EVP [93]

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Yes.

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Operator [94]

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And ladies and gentlemen, this concludes our Q&A session for today. I will turn the call back to management for final remarks.

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James R. Abbott, Zions Bancorporation - SVP of IR & External Communications [95]

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Okay. Thank you very much for joining the call today. We appreciate your time and your interest in Zions. We look forward to taking any follow-up questions through the normal channels. I'll be available throughout this afternoon and this evening and throughout the day tomorrow. And we'll see you at a conference hopefully sometime soon.

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Operator [96]

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Ladies and gentlemen, thank you for your participation in today's conference. This concludes the program, and you may all disconnect. Have a wonderful day.