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Edited Transcript of ZION.OQ earnings conference call or presentation 22-Apr-19 9:30pm GMT

Q1 2019 Zions Bancorporation NA Earnings Call

Apr 23, 2019 (Thomson StreetEvents) -- Edited Transcript of Zions Bancorporation NA earnings conference call or presentation Monday, April 22, 2019 at 9:30:00pm GMT

TEXT version of Transcript

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Corporate Participants

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* Harris Henry Simmons

Zions Bancorporation, National Association - Chairman & CEO

* James R. Abbott

Zions Bancorporation, National Association - Senior VP of IR & External Communications

* Michael Morris

Zions Bancorporation, National Association - Executive VP & Chief Credit Officer

* Paul E. Burdiss

Zions Bancorporation, National Association - Executive VP & CFO

* Scott J. McLean

Zions Bancorporation, National Association - President, COO & Director

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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 D. Foran

Autonomous Research LLP - Partner & US Regional Banks

* Brocker Clinton Vandervliet

UBS Investment Bank, Research Division - Executive Director & Senior Banks Analyst of Mid Cap

* Christopher James Spahr

Wells Fargo Securities, LLC, Research Division - Senior Analyst

* David Patrick Rochester

Deutsche Bank AG, Research Division - Equity Research Analyst

* Erika Najarian

BofA Merrill Lynch, Research Division - MD and Head of US Banks Equity Research

* John G. Pancari

Evercore ISI Institutional Equities, Research Division - Senior MD & Senior Equity Research Analyst

* Kenneth Allen Zerbe

Morgan Stanley, Research Division - Executive Director

* Kenneth Michael Usdin

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

* Kevin James Barker

Piper Jaffray Companies, Research Division - Principal & Senior Research Analyst

* Lana Chan

BMO Capital Markets Equity Research - MD & Senior Equity Analyst

* Peter J. Winter

Wedbush Securities Inc., Research Division - MD of Equity Research

* Stephen M. Moss

B. Riley FBR, Inc., Research Division - 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 your patience. You've joined Zions Bancorporation's First Quarter 2019 Earnings Results Webcast. (Operator Instructions) As a reminder, this conference may be recorded. I would now like to turn the call over to your host, Director of Investor Relations, James Abbott. Sir, you may begin.

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James R. Abbott, Zions Bancorporation, National Association - Senior VP of IR & External Communications [2]

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Good evening, and thank you, Latif. We welcome you to this conference call to discuss our 2019 first quarter earnings.

For our agenda today, Harris Simmons, Chairman and Chief Executive Officer, will provide a brief overview of key strategic and financial performance; after which, Paul Burdiss, our Chief Financial Officer, will provide additional detail on Zions' financial condition, wrapping up with our financial outlook for the next 4 quarters. Additional executives with us in the room today include Scott McLean, President and Chief Operating Officer; Ed Schreiber, Chief Risk Officer; and Michael Morris, Chief Credit Officer.

Referencing Slide 2, 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 during this call. A copy of the full release -- earnings release as well as the supplemental slide deck are available at zionsbancorporation.com, and 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 the preprovision net revenue and the efficiency ratio, both of which are common industry terms used by investors and financial services analysts. The use of such non-GAAP measures are believed by management to be of substantial interest to the consumers of these financial 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. (Operator Instructions) With that, I will now turn the time over to Harris Simmons.

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Harris Henry Simmons, Zions Bancorporation, National Association - Chairman & CEO [3]

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Thank you very much, James, and we welcome all of you to our call today to discuss our first quarter results.

The results of the quarter were fundamentally quite favorable compared to the year ago results. Slide 3 is a summary of several of the key highlights for the quarter, which we'll address in detail in subsequent slides. On Slide 4, you can see the earnings per share results for the last several quarters. In the first quarter of 2019, we reported earnings per share of $1.04. By way of comparison in the first quarter last year, we reported $1.09, although there were a couple of items worth noting: first, we experienced a $47 million negative provision for loan losses a year ago. That amounted to $0.17 per share. Additionally, in the first quarter of last year, we recovered interest income on 4 large loans where the recovery per loan was more than $1 million. And those recoveries added $0.04 per share to the year ago results with no comparable large interest recoveries this year.

So excluding those 2 items in the year ago period, earnings per share would have increased 18%. To be fair, many of the larger banks, including Zions, had a modest tailwind related to the elimination of the FDIC insurance surcharge expense this quarter. In the year ago quarter, that surcharge amounted to about $0.02 per share whereas the surcharge didn't occur in the first quarter of 2019.

Turning to Slide 5. On the left side, you'll see adjusted preprovision net revenue or PPNR, which increased approximately 8% over the same period a year ago. The chart on the right is new. As you're aware, a new accounting standard for loan loss allowances, CECL, or current expected credit losses, is expected to go into place -- to take effect in the first quarter of 2020. Paul Burdiss will address that a bit more later in this call. But we are concerned, as we suspect many of you are, about the comparability of results arising from the new standard across banks.

In this chart, we're presenting a calculation that we've been using to measure the performance of our company in incentive compensation calculations for our employees for quite some time. It's preprovision net revenue less current period actual net charge-offs. We've expressed this pretax number here on a per share basis. Assisted by a strong 7% reduction in diluted shares and further improvement in net charge-offs, PPNR less net charge-offs per share increased 18% over the year ago period and 128% from the end of 2014.

Allow me to transition to a discussion of strategy for the next few moments. Just last week, we announced by way of a press release our successful implementation of what we call Release 2 of our FutureCore project. That's a project wherein we're replacing all of our core loan and deposit systems. This Release 2 milestone completes the conversion of our loan systems that are within the scope of the project. This is really a tremendous accomplishment. This required years of planning and intense work to execute it.

The modern technology that we're implementing will serve us for years to come and will allow us to more nimbly adapt digital offerings and to reliably serve our customers. As we said in the past but it's worth repeating, a major strategic initiative for the company is the development of technology that enables us to stay highly competitive with large national banks, small and emerging financial technology companies and community banks. We're simultaneously working to maintain our noninterest expense growth rate in the low single digits, made possible in part by continued simplification in automation.

On Slide 6, you can see some of the key technology investments we are making, approximately the number of customers, deposits or assets held by such customers and a rough time frame for completing those projects. The green checkmark -- the green checkmarks rather represents completed projects.

I'll conclude my prepared remarks with Slide 7, which is a list of our key objectives for 2019 and '20 and our commitment to shareholders. This has been updated to reflect some new initiatives that should set our course for the next several quarters. First, over the next several quarters, we expect to continue to deliver positive operating leverage, resulting in high single-digit PPNR growth through the actions listed on the page. This assumes no changes to interest rates by the Federal Open Market Committee.

Second, we have continued to take steps to dampen potential volatility in our earnings both with regard to credit as well as interest rate risk. We have talked extensively in the past about how our credit risk profile has changed. Furthermore, we are actively adjusting our interest rate risk profile to move towards a more neutral stance as Paul will discuss in more detail later.

Next, we expect further growth in earnings and improvement in our profitability. There's been some discussion by industry observers, some of whom think the banking industry is at -- is approaching peak earnings. I won't comment on the industry, but we don't think that Zions is at peak earnings. We also believe we have some further room to optimize our capital ratios as supported by our internal stress tests. The decision on the magnitude, timing and form of capital return is a Board-level decision, and we'll update you on any of those decisions as appropriate.

Finally, as noted in my 2018 letter to shareholders that was recently published on our website, we are intending to invest materially in enhancing the branch experience, not with coffee and doughnuts but with highly trained bankers who can solve problems that small businesses experience. This approach is supported by research, which has consistently found that small businesses continue to bank at conveniently located branch and access to an account officer as the top 2 features for which they look when they're considering a bank.

So with that overview, I'm going to turn the time over to Paul Burdiss to review our financial statement in more detail. Paul?

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Paul E. Burdiss, Zions Bancorporation, National Association - Executive VP & CFO [4]

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Thank you, Harris, and good evening everyone. Thank you for joining us. I'll begin on Slide 8. This highlights 2 measures of profitability: return on assets and return on tangible common equity. As Harris noted in his comments, pertaining to our earnings per share, there were some notable items in the year ago period namely, the negative provision for credit losses and interest recoveries on loans previously charged off. These served to elevate the profitability ratios as well. Excluding these 2 items, the return on assets in the year ago quarter would have been approximately 1.17%, and return on tangible common equity would have been approximately 12.5%.

We are generally pleased with the recent trends in balance sheet profitability. Although the rate of improvement has slowed from the successes achieved in 2015 through 2017, we expect positive operating leverage to combine with solid credit performance and continued strong capital returns to result in further expansion of balance sheet profitability.

On Slide 9, for the first quarter of 2019, Zions' net interest income increased 6% from the prior year period, up $34 million to $576 million. Excluding the interest recoveries recognized in the first quarter of 2018 that were detailed earlier in this presentation, net interest income increased about 8.5%. We did experience a moderate benefit from the higher interest rate environment, which I will discuss later in more detail, but much of the growth in net interest income is attributable to balance sheet growth.

Breaking down the net interest income by both rate and volume. On Slide 10, you can see our average loan growth of 5% relative to year ago period. Although not listed on the slide, the period-end growth in the first quarter relative to the fourth quarter was an annualized 7.6%.

Shifting the discussion to deposits. Given the recent increases in short-term interest rates, we are pleased with the performance of our deposit portfolio. Average deposits increased 4% from the year ago period. Importantly, average noninterest-bearing deposits were relatively stable, decreasing only 0.8% from the year ago period. Relative to the prior quarter, average noninterest-bearing deposits declined about 4% and period-end noninterest-bearing deposits declined a more tempered 1.6%. We believe that some, but likely not all, of the decline in noninterest-bearing deposits is explained by seasonality.

The most valuable deposits are those which are generated through strong relationship banking, and the strength of our banking relationships is demonstrated through continued growth in deposit balances combined with a relatively modest increase in deposit costs. Our cumulative increase in the cost of total deposits since the third quarter of 2015, as immediately preceding the first-rate hike by the Federal Reserve, has been only 33 basis points or a deposit repricing beta relative to the federal funds rate of about 15%. When compared to the prior quarter, our deposit costs increased 8 basis points or about a 36% of the change in the fed funds rate, which is fairly similar to what we saw in the previous quarter.

Examining loan growth a bit closer, Slide 11 depicts year-over-year period-end loan growth by portfolio type with the size of the circles representing the relative size of the portfolio. For nearly all loan categories, we are reporting solid and consistent growth. You will also find our current growth outlook for each loan portfolio type on Slide 11.

Slide 12 breaks down key rate and cost components of our net interest margin. The top line is the loan yield, which increased to 4.93%, up 14 basis points from the prior quarter and 52 basis points from the year ago quarter when adjusted for the aforementioned interest recoveries. That improvement is consistent with a portfolio that has nearly 50% of loans indexed to either prime or short-term LIBOR. Relative to the prior quarter, the yield on securities increased 11 basis points to 2.57%. A primary factor driving the increase in securities yield is new securities being added in the 3% area during the quarter and premium amortization remaining stable relative to the prior quarter, which was modestly accretive to the yield of the overall investment portfolio.

With the recent decline in yields at the 5-year point of the curve, we expect security reinvestments to be slightly less accretive going forward. Cash flow from the portfolio, the investment portfolio, continues to be about $200 million per month. This is important because even as rates have moved higher, cash flow from the portfolio remains comparable to levels we experienced several quarters ago. This demonstrates some level of success in our efforts to limit duration extension risk in the securities portfolio.

The cost of total funds, which includes all deposits and borrowed funds, increased 13 basis points from the prior quarter while the cost of interest-bearing funds increased by 17 basis points over the same period. When compared to the prior year, these increases are 34 basis points for total funds and 54 basis points for interest-bearing funds, respectively. This differential in the cost of total borrowed funds versus interest-bearing funds demonstrates the value of noninterest-bearing demand deposits in a higher interest rate environment.

These elements combined to result in a net interest margin of 3.68% for the quarter, which increased 1 basis point from the prior quarter. Year-over-year, if excluding the 7 basis points of interest recoveries from the prior period, the net interest margin expanded 19 basis points, resulting in a net interest margin beta of approximately 20% over the prior year. As noted previously, one of the more substantial drivers of this margin expansion is the increasing value of noninterest-bearing deposits in a higher rate environment. Because of the nature of our deposits being operating accounts for businesses and households, we expect our noninterest-bearing deposits to remain a competitive advantage.

I will also highlight that the spread on average interest-earning assets shown on Page 15 of the earnings release, if adjusted for the previously discussed 7 basis points in interest recoveries recognized in the prior year period, has decreased by 3 basis points from the prior period. The difference between the slight net interest spread compression and the net interest margin expansion is due to the contribution from noninterest-bearing sources of funds.

Slide 13 typically reside in the appendix but I wanted to highlight in my prepared remarks because somewhat investor interest in the hedging we are doing to protect against a decline in short-term interest rates. As we announced 3 months ago, we've begun to moderate our asset sensitivity position as the recent trend of increasing short-term rates matures.

You'll see that we added $3 billion of interest rate floors and $700 million of interest rate swaps during the quarter. As with other balance sheet composition changes taken -- undertaken over the past several years such as capital distributions and moving cash into investment securities, we expect to change our interest rate positioning at a measured pace.

Finally, we expect that as short-term interest rates remain relatively stable, the net interest margin should be likewise relatively stable, driven by factors such as longer maturity loan repricing and securities portfolio, cash flow reinvestment. The key risk to this outlook remains deposit flows and pricing.

Next, a brief review of noninterest income on Slide 14. Noninterest income and specifically, customer-related fees remains a focus for us and we are -- and we experienced growth in loan fees, fees earned from sales of interest rate swaps, which help our customers manage their interest rate risk, letters of credit and wealth management services. However, those income -- that income was offset by declines in some categories of deposit fees, including the effect of higher earnings credit rates on commercial customer deposit balances. Additionally, we experienced a modest decline in service charges on certain retail and small business products.

Before we discuss noninterest expense, which is on Slide 15, I would like to note a key change in the presentation of our financial results. This quarter and going forward, we have moved the provision for unfunded lending commitments, which previously was reported as noninterest expense, up closer to net interest income to be right next to the allowance for loan losses, thus presenting a combined allowance for credit losses and netting that against net interest income. As a result, the provision for unfunded lending commitments is no longer in our noninterest expense line.

Noting that, noninterest expenses increased to $430 million from $419 million in the year ago quarter. As depicted on this slide, we reported an increase in compensation, much of which is due to increased profitability and very good credit quality. Also in the first quarter of 2019, we increased some key benefits to employees which are detailed more thoroughly in Harris' letter to shareholders and all of which are designed to appropriately reward our team for significantly improved financial performance.

Notably, it is worth mentioning that FDIC insurance premiums are down when compared to last year as the FDIC's surcharge for large banks has been eliminated. This results in a roughly $6 million reduction for Zions, which I discussed in last quarter's call. Looking forward on noninterest expense, we are reiterating our expectation for slight growth, which can be interpreted as growth in the low single-digit percentage rate change -- range.

Turning to Slide 16. The efficiency ratio was 60.2% compared to the year ago period of 61.3%. The efficiency ratio calculations have some seasonality to them in that there are more days of interest income in the second half of the year than the first and, of course, the seasonal expense increased in the first quarter of each year related to payroll taxes and stock-based compensation. We remain committed to continued improvement in our efficiency ratio in 2019.

Regarding credit quality, as seen on Slide 17, we continue to report improvement in most of our credit indicators, including a strong decline from the year ago figures in classified loans, nonperforming assets and the net charge-off picture even as the gross charge-off picture, as seen on Page 13 of earnings release, is quite strong. Compared to the prior quarter, we reported a slight bump-up in classified loans attributable to one credit, but outside of that, we continue to experience improvement in oil and gas classifieds and general stability in the other categories. Nonperforming assets plus 90 days past due improved by 7% versus the prior quarter and net charge-off for the quarter was 0. The allowance for loan losses ratio as a percentage of loans was largely stable with the prior quarter with most of the provision attributable to increase in loans.

Looking ahead, we are on schedule to be compliant with the new current expected credit loss accounting standard, also known as CECL, which will be effective at this time next year. Based upon our modeling, we expect more volatility in the credit loss estimate and less comparability among banks when this new standard becomes effective. This is expected to -- this expected decrease in financial performance transparency will be impacted by, among other items, varying expectations for macroeconomic trends over the near term and loan portfolio composition differences, including expected loan lives. Zions will be in a position to disclose more in the coming quarters, including estimated financial impacts from the adoption of CECL.

Finally, on Slide 19 (sic) [Slide 18], we depict our financial outlook for the next 12 months relative to the first quarter of 2019. We increased our outlook for loan growth somewhat to moderately increasing given the recent strength in net loan additions. Otherwise, there are no significant changes to our outlook from that which was and has been reported throughout the first quarter of 2019.

This concludes our prepared remarks. Latif, 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) Our first question comes from the line of Ken Zerbe of Morgan Stanley.

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Kenneth Allen Zerbe, Morgan Stanley, Research Division - Executive Director [2]

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Was just hoping to actually stay on the loan growth topic. Paul, I know you just, at the very end of your prepared remarks mentioned, sounds like the improved outlook was due to sort of what you've already seen. But I was hoping you could actually talk about what you're seeing in 2Q in terms of loan growth. And I also want to make sure I just understand. Your outlook is moderately increasing, which is better than what it was before and that applies for the next 12 months. It seems that your loan growth outlook should be kind of better than on an already higher first quarter balance. Is that the right way of thinking about it?

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Paul E. Burdiss, Zions Bancorporation, National Association - Executive VP & CFO [3]

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Well, I'll start and I'll ask Scott and maybe Harris to chime in. First of all, with respect to the second quarter, it's so early in the quarter. It's really hard for us to make any meaningful commentary on that topic. But as you point out, we have, through the language that we're using, we've tried to telegraph a, I would say, kind of a slight increase or improvement in our loan growth outlook relative to what we saw in the prior quarter. And as I said in my prepared remarks, that's largely because of the kind of the engagement and the strength that we're seeing in net loan portfolio addition. Scott, would you like to add to that?

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Scott J. McLean, Zions Bancorporation, National Association - President, COO & Director [4]

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Yes. Ken, I'd just add that if you look at Slide 22 and basically our year-over-year growth rates running kind of mid-5s, the first quarter annualized is a bit faster. We've been guiding towards mid-single-digit loan growth for 3, 4 years now. And sometimes, it's going to be kind of 3.5% to 4% and sometimes, it may get up to 6% to 7%, but I think it's still very much in the band that we've talked about. And the growth that we're seeing really is very consistent with the last -- the previous 2 quarters and the last 3 or 4 years. Basically 40%, 50% of it's coming from C&I. We're seeing some CRE growth but the CRE portfolio is still really hasn't grown much if you go back 15 to 18 months. And then really solid growth from 1- to 4-family that generally makes up about 20%, 25% of our growth rate. We're also seeing really nice growth across all our affiliates, depending on the quarter, but I would say more consistent growth coming from our 4 smaller affiliates than we've seen historically. So just good balanced growth. You can see here that I guess, 2 other sub-portfolios. Municipal has been growing nicely over the last 2 years as a result of the strategic initiative we've had there and should continue to grow. Again, it's really a nice yielding loan type and really high credit quality, where ancillary business is starting to flow from it. And our energy portfolio, recall that it went from about $3 billion in outstandings down to about $2 billion, a little less than $2 billion. We're now back up about $300 million, and we're very happy with that loan growth. The energy portfolio is about $2.3 billion and the mix has shifted significantly. Oilfield services was about 45% at the peak. It's now about 22%. And our energy services term loans, which is where we had the greatest loss rate, are now less than $400 million. So it's a really good mix shift there and most of our new fundings are going into reserve-based and midstream.

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Kenneth Allen Zerbe, Morgan Stanley, Research Division - Executive Director [5]

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Okay. And then just my related follow-up, can you just talk a little bit about your outlook for deposit price increases now that the Fed as far as we've done raising rates?

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Paul E. Burdiss, Zions Bancorporation, National Association - Executive VP & CFO [6]

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Yes. Ken, I'll start with that and allow again Scott or Harris to jump in. We're really excited about the performance of our portfolio over the course of this rate cycle. That being said, we have seen a modest acceleration in that deposit repricing over the last couple of quarters. My expectation is with the flatness of the curve and with the Fed appearing to be sort of on pause maybe indefinitely here as it relates to rate increases, the further we get away from the event of Fed tightenings, my expectation is that the pressure that we've been seeing on deposit pricing will begin to abate over the next couple of quarters.

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Operator [7]

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Our next question comes from the line of Dave Rochester of Deutsche Bank.

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David Patrick Rochester, Deutsche Bank AG, Research Division - Equity Research Analyst [8]

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Just on the outlook slide, you guys have mentioned here your efforts to reduce payoff activity. Was just wondering what steps you guys are taking on that front if that was what helped the growth this quarter versus maybe a pickup in origination activity?

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Scott J. McLean, Zions Bancorporation, National Association - President, COO & Director [9]

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Yes. Dave, this is Scott McLean. We did see a higher success rate in retaining CRE term loans and -- as opposed to them being refinanced into the secondary market. And so -- and it -- Michael, you may recall the number, but I think it was a $300 million to $400 million sort of benefit during the quarter. And so nice progress, and we really haven't seen that kind of progress on that front, but we got a little more aggressive in marketing to those more earlier in the renewal process.

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David Patrick Rochester, Deutsche Bank AG, Research Division - Equity Research Analyst [10]

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Okay. Great. That's great color. And then I know you said it's early in 2Q, but are you continuing to see momentum in the loan pipeline heading into 2Q at this point? Just given what you're seeing so far, that's sort of locked in to close?

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Scott J. McLean, Zions Bancorporation, National Association - President, COO & Director [11]

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Again, it's too early to comment. But we've really, since the third quarter of last year, late second quarter of last year, all the way through the end of the year and through the first quarter, we're just seeing good balanced growth and we anticipate that to continue.

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Operator [12]

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Our next question comes from the line of Ken Usdin of Jefferies.

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Kenneth Michael Usdin, Jefferies LLC, Research Division - MD and Senior Equity Research Analyst [13]

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Paul, wondering if you can talk a little bit more about the hedging strategies that you discussed in the deck and earlier. So how much way through your plan hedging program are you? And can you talk a little bit about whether you're either benefiting from putting on those hedges now or have to amortize a little bit across and is that baked into your outlook?

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Paul E. Burdiss, Zions Bancorporation, National Association - Executive VP & CFO [14]

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Yes. Ken, I'll start with the second part. With the flatness of the curve, there's clearly no benefit to putting hedges on today. In fact, it's a modest, very modest, immaterial, which is why I didn't say it. You've kind of a modest reduction in net interest income. But with respect to the program itself, we do not have a -- the ALCO, that is, the asset liability management committee, doesn't have a specific target in mind other than the expectation is we will, in the near term at least, continue to work down that interest sensitivity. And specifically as I said in the call, we are particularly concerned with falling interest rates. And when you consider the behavior of our deposit pricing over the course of the last couple of years, you can see we're in a declining rates, the deposits could floor out pretty quickly. Our concern, of course, is that we become very asset sensitive in a falling rate environment, which is why you saw, in addition to the swaps, why you saw us put $3 billion of rate floors on because effectively, that would be offsetting the impact of the deposit pricing in a falling rate environment. So I would say we're kind of trying to be a little more specific. And to your question, I'd say we're still pretty early on in the hedging process with a lot more to come.

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Kenneth Michael Usdin, Jefferies LLC, Research Division - MD and Senior Equity Research Analyst [15]

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Okay. And a follow-up on the mix of the balance sheet. You mentioned the outlook slightly declining securities portfolio balances. Up 'til now, you've been funding -- using the deposit growth to fund both loans and securities. Are you now at the point where you'll remix a little bit more on the asset side, just funding loan growth more incrementally with securities rather than necessarily paying up for more deposit growth? Just wanted to understand your thinking about that.

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Paul E. Burdiss, Zions Bancorporation, National Association - Executive VP & CFO [16]

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Sure. Our securities portfolio exists, as I've discussed previously, first to manage liquidity and second, to manage interest rate risk. And so our priority is ensuring that we have an investment securities portfolio that is adequate to maintain liquidity on the balance sheet. But all that being said, obviously, there is a cost to liquidity and so we're measuring or monitoring that very closely. As loan growth has really begun to exceed deposit growth, we're going back and looking at our investment portfolio and really ensuring that it is of the appropriate size. And so my expectation certainly is that the portfolio will not grow from here and, in fact, will likely, on either an absolute or relative basis, will decline a little bit.

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Operator [17]

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Our next question comes from John Pancari of Evercore.

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John G. Pancari, Evercore ISI Institutional Equities, Research Division - Senior MD & Senior Equity Research Analyst [18]

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On the margin side, I know that you had indicated for your expectation for net interest income to be moderately increasing. Given that outlook, I mean can you talk about how that plays out in terms of the margin trajectory from here? I believe you have previously expected some stability here on out but clearly, you've got the swap impact and the impact of the curve. So wanted to get an idea how you're thinking about the trajectory of the margin from here.

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Paul E. Burdiss, Zions Bancorporation, National Association - Executive VP & CFO [19]

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Sure. On the interest rate hedging, as I said, we're really not seeing a benefit. Certainly not seeing a benefit, but we're really not seeing a detraction from the margin either at least in the current environment. Now all that being said, in my prepared remarks, I mentioned net interest margin stability as we see some kind of repricing in the loan portfolio and especially in the securities portfolio. But the key to that outlook is deposit pricing and deposit flows. And so long as we can continue to maintain appropriate share of noninterest-bearing demand deposits and so long as the interest-bearing portion of the deposits remains consistent, priced consistently with our expectations and importantly, as long as we don't get like seriously out of whack in the balance of loan growth and deposit growth, kind of all of those are implied assumptions in that margin stability. And there's probably more risk to the downside than the upside in the current environment.

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John G. Pancari, Evercore ISI Institutional Equities, Research Division - Senior MD & Senior Equity Research Analyst [20]

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Got it. Okay. That's helpful...

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Paul E. Burdiss, Zions Bancorporation, National Association - Executive VP & CFO [21]

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But all that being said, if I -- sorry, John if I could, all that being said, we are really focused on growth in net interest income and growth in revenue. And so we don't specifically manage to the margin as you know. We're far more concerned with revenue growth than the margin, which is a kind of an indication of relative profitability.

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John G. Pancari, Evercore ISI Institutional Equities, Research Division - Senior MD & Senior Equity Research Analyst [22]

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Got it. Okay. And then separately on the expense side. The efficiency ratio I know you indicated you expect the continued improvement and positive operating leverage as well. Can you talk about how you think about it for full year '19? Could it still come in below the -- are you still expecting below 60% range? And then long term, I know you'd indicated mid-50s. Is that still a fair assumption? And what do you think about the timing until when you can get into that mid-50% range?

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Paul E. Burdiss, Zions Bancorporation, National Association - Executive VP & CFO [23]

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Sure. Well, in 2018, as you know, we did report an efficiency ratio that was below 60%. And in my prepared remarks, I mentioned that we are expecting continued improvement. So you glue those pieces together and you can see that our expectation is for an efficiency ratio that's below 60% in 2018. I absolutely think that it's achievable to get into the mid-50s. I don't -- we don't have nor we put out kind of a time frame associated with that, but we're really focused on, as we think about our plans and our forecasts, we're really focused on positive operating leverage and the degree to which we can increase that leverage absolutely affects the time line that we will be able to achieve that efficiency ratio outcome.

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Operator [24]

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Our next question comes from 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 [25]

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Scott, I was curious if you could maybe offer a little more color on the loan growth specifically in Texas? It looks like that was your really big driver this quarter. I know you talked a little bit about the CRE but just any additional color for Texas specifically? And what are the chances that you can kind of keep that type of growth rolling in that market?

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Scott J. McLean, Zions Bancorporation, National Association - President, COO & Director [26]

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Absolutely, Brad. So keeping that kind of loan growth at that pace would be unrealistic and uncharacteristic with how Amegy has grown historically. So I would just hit that really quickly. And it's about the less than $600 million of growth during the quarter and basically, if you look back at Amegy for the last 12 months, there was very -- last 12 to 15 months, there was very little growth in Texas. Texas was still coming out of the energy downturn in kind of the malaise, the post-Harvey malaise, which was the fall of 2017. All of that is -- all of those clouds have cleared off. And so Houston, which is where about 70% of the loan growth in Texas comes from, really is performing quite well. And Amegy is benefiting too from its many years of investment in Dallas-Fort Worth and San Antonio and Austin. 30% of growth is coming from those markets now and those economies are doing well. So if you just kind of step back, C&I growth during the quarter was about $300 million, about 1/3 of it was energy, 1/3 was municipal. And then they had a couple of larger transactions, really 4 to be precise, that could have, quite frankly, closed in the fourth quarter, and for a collection of unrelated reasons, ended up closing in the first quarter. So there's a little bit of a timing thing there. And the CRE growth that you see in Texas, you can see all of this on Slide 22, about $170 million of growth, it's mainly coming through construction loans that were originated about a year ago. And from a historical context standpoint, the CRE portfolio in Texas is still about what it was in December of '16, almost 3 years ago. So it looks like a lot of growth in 1 period, but over an extended period of time, is equivalent to where that portfolio has been.

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Bradley Jason Milsaps, Sandler O'Neill + Partners, L.P., Research Division - MD of Equity Research [27]

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Great. That's helpful. And just as my follow-up, Paul, the decline in DDA was pretty consistent with what you guys typically see in the first quarter. Anything in your mind that those dollars wouldn't come back in the fold as you see kind of progress through '19, given where rates are now? Just kind of curious -- any thoughts on the DDA as you kind of move back to the seasonally stronger quarters for you guys?

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Paul E. Burdiss, Zions Bancorporation, National Association - Executive VP & CFO [28]

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Yes. Sure. I would say that the DDA decline was probably a little bit more than what would be expected from just seasonality. So our ALM models would indicate that, over time, we would expect to see a little less DDA and a little more interest-bearing deposits. So it's really hard for me, based on this 1 quarter, to discern a trend. I would only say that, look, versus last year and certainly over the last several years, our DDA has continued to be strong. It's well over 40% of our total deposits. And so based on that experience, I'm expecting continued strength there.

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Operator [29]

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Our next question comes from the line of Erika Najarian of Bank of America.

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Erika Najarian, BofA Merrill Lynch, Research Division - MD and Head of US Banks Equity Research [30]

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I just wanted to go back to the statement during prepared remarks about Zions' earnings haven't peaked. And I just wanted to unpack that a little bit and sort of expand that beyond the 12-months look. When you gave us guide for revenues and expenses, I think that clearly, the curve outlook keeps changing. And I'm wondering if your statement is supported by business growth that you're seeing or your ability to change your expense base relative to the revenue outlook.

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Paul E. Burdiss, Zions Bancorporation, National Association - Executive VP & CFO [31]

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Well, I'll start with that and invite Harris and Scott to join in. As I said, we are -- this is Paul, we are really focused on positive operating leverage. So to the extent our revenues exceed expenses in terms of growth, we will absolutely continue to see improved profitability. And so your question was, do we have the ability to sort of change our expenses relative to revenues? I think we've demonstrated that over the last 3 or 4 years. We have absolutely, while making a massive investment in the business, have been continuing to report controlled expenses and expense growth that is lower than revenue growth. And so our expectation that, that has been a tightly managed process here and my expectation is we'll be able -- continue to be able to achieve that.

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Harris Henry Simmons, Zions Bancorporation, National Association - Chairman & CEO [32]

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Yes. I'd just add that I think if we look at the economy and the markets we operate in, we're just not seeing any real signs of slowdown. The one maybe exception to that would be just construction trade's really tight. That's Denver the other day and they -- there's a fair amount of discussion about the impact that's having just kind of slowing things down. I'm not sure that, that's a -- that's maybe kind of a high-class problem because I think it's probably acting as a governor on kind of growth that can get you in trouble, too. But it's -- fundamentally the economy is -- across the Western United States is pretty strong. I also think that we have the benefit of not having probably quite as much pressure on funding loan growth that some others do. We have a pretty good liquidity situation, and I think that gives us a little more room probably to see some loan growth without having it create too much pressure on the deposit side. So I'd just add those to the mix, and we're going to keep very focused on the expense side. I do think that -- I mean, the fee income piece of the puzzle, looking across the industry, that's clearly proving to be a challenge across the whole regional sector. And we're no exception but I think we -- remember, let's have -- we probably have a little less drag that's going to come from consumer fee income, deposit fee income on the consumer side because it's just not as big a piece of our picture. I think that's, in my mind, one of the great challenges the industry generally has. And so we probably -- I'm a little more optimistic in terms of what we can do on the fee income side than I might otherwise be. So we add it all up and we think -- and we also think that credit quality is just really good and it's hard to -- you can't stay at 0 in terms of net charge-offs for forever, but we've been there now for about -- for a year, and we just don't see a lot of change in that picture. So we think -- I think that the provision drag is going to be pretty modest here for the next 2 or 3 quarters.

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Erika Najarian, BofA Merrill Lynch, Research Division - MD and Head of US Banks Equity Research [33]

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Got it. I mean my follow-up question is on the concept of not much pressure on funding loan growth. On the other side of that, as we think about the securities reinvestment, Paul, could you give us a sense on the reinvestment strategy and also the yield that you're looking at right now in terms of reinvestment?

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Paul E. Burdiss, Zions Bancorporation, National Association - Executive VP & CFO [34]

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Yes. Well, we have been really disciplined as we've talked about a lot over the last couple of years and quarters. I think we've been really disciplined in where we are investing along the curve. We have an investment portfolio that is relatively short. We don't have any 30-year paper in there. It's a maximum 15-year final maturity with respect to the MBS that we hold. And that's continuing. And so the going-on yields of the portfolio in the first quarter were kind of in the 3% range. It's probably a little south of that now, given sort of what's happened with respect to the curve. But as I mentioned on the call, the fact that the cash flow within the portfolio has been really consistent here for the last several or many quarters is indicative of the, I would say, the way we're managing the duration extension risk. And because the duration is relatively short and because of the cash flows have been -- proven to be predictable, we will continue to reinvest at the prevailing rate, which we think is important as we're thinking about tightly managing that portfolio and being able to extract liquidity out of it, if need be, but also kind of reinvesting at the prevailing rate.

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Operator [35]

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Our next question comes from Peter Winter of Wedbush Securities.

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Peter J. Winter, Wedbush Securities Inc., Research Division - MD of Equity Research [36]

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Could I ask -- just given your prior comments about the economy and credit, you have increased the share buyback last couple of quarters. And I'm just wondering given a positive outlook, would you continue to look to accelerate the buybacks?

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Harris Henry Simmons, Zions Bancorporation, National Association - Chairman & CEO [37]

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Well, obviously, the extent we have stronger loan growth, that could actually change our thinking somewhat. But it's -- as we said in our remarks, it's really a Board decision and it's one that we are going to always be very careful about getting out over our skis until we have that conversation with the Board. So I mean, I think we have -- we said that we think that we still have some room to optimize our capital ratios. But kind of the timing and that is something we just look at every quarter. So I'm not going to speculate further.

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Peter J. Winter, Wedbush Securities Inc., Research Division - MD of Equity Research [38]

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Okay. And then Paul, just my question to you. You're certainly a little bit more positive on the outlook on deposit costs, just given the flattening yield curve and the Fed on hold. I'm just wondering if you could be a little bit more specific what you're looking for in terms of deposit increase on the interest-bearing deposits both in the second quarter and kind of second half of the year, why you would think it would slow even more.

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Paul E. Burdiss, Zions Bancorporation, National Association - Executive VP & CFO [39]

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I appreciate your question. However, it's really hard for me to be a lot more specific than I have been. As I've noted in the past, we've had some modest increases in what I'll call sort of the Board rates. But really where we are managing tightly the deposit pricing is largely through exception pricing. And so it's really -- as we've seen over the last kind of year, 6 months to a year, where we've really seen a lot of pressure is in the larger average balance sort of deposits. That's where we've seen a lot more deposit beta, if you will. Most of our deposits, particularly DDA, are operating accounts, very, very granular, very, very small sort of deposit -- average deposit size. And so it's hard to put a specific basis point expectation, which I think is what you're asking for. But what I can really say qualitatively is that where we've seen pressure is in these very large deposit or balances. And fortunately on a relative basis, we just don't have a lot of those. The vast majority of our deposit composition is from relationship-based operating accounts.

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Scott J. McLean, Zions Bancorporation, National Association - President, COO & Director [40]

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I would just add to that, Peter, this is Scott, that we do have a moderately sized bucket of customer deposits that are off-balance sheet, they are being swept into overnight money market funds. And we may see some growth in our own interest-bearing liabilities that just comes from moving instead of paying the FHLB or broker deposits, you may see those balances come down and what we think of as wholesale deposits coming up because to the extent we can move those client balances back on balance sheet at rates that are less than, and we can, less than what we're paying broker deposits or the FHLB, you'll see us do that.

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Operator [41]

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Our next question comes from the line of Kevin Barker of Piper Jaffray.

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Kevin James Barker, Piper Jaffray Companies, Research Division - Principal & Senior Research Analyst [42]

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Just a follow-up again on deposits. I mean where do you feel you could -- do you feel comfortable with loan-to-deposit ratio getting into the mid- to high 90s if that were to occur? And what type of environment do you expect that to occur if it did?

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Paul E. Burdiss, Zions Bancorporation, National Association - Executive VP & CFO [43]

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I'll start with that and ask Scott and Harris to join in if they feel like it. I would absolutely be comfortable of a loan-to-deposit ratio in that high 90s. I think loan-to-deposit ratio is an indication of 2 things, I think, liquidity and profitability. We can absolutely manage the loan-to-deposit ratio lower by going out and buying money. But that's -- so loan-to-deposit ratio, I think, again, historically has been viewed as a measure of profitability, but I think it's a little flawed because it doesn't necessarily consider the sort of the nature of the deposits you're bringing in. And likewise as a measure of liquidity, it's also, I would argue, not particularly useful because we can manage liquidity through term funding that is not deposit-based. So looking at just the ratio, could I get comfortable with a loan-to-deposit ratio in the 90s, mid-90s? Yes, I absolutely could. The most important thing for us is managing and maintaining profitability and liquidity, and we have been doing that and will continue to do that.

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Kevin James Barker, Piper Jaffray Companies, Research Division - Principal & Senior Research Analyst [44]

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Okay. And then just follow-up on expenses. Core expenses were up just under 5% on a year-over-year basis. Do you expect that the growth to -- it seems like it's going to slow, given your guidance. Can you just give us an idea of the cadence of the year-over-year growth as we move through 2019?

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Paul E. Burdiss, Zions Bancorporation, National Association - Executive VP & CFO [45]

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Well, as you look at seasonality of expenses, you always see an uptick in the first quarter or historically you have because you've got payroll taxes and you've got stock-based compensation for retirement-eligible employees. And there are things like that, that happen in the first quarter that don't repeat. And so you really need to take that sort of increase in the first quarter and spread it out over the course of the year. That being said, we have a detailed budget and forecast that we believe would support the outlook, which is noninterest expense in that low single-digit range.

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Operator [46]

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Our next question comes from Lana Chan of BMO Capital Markets.

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Lana Chan, BMO Capital Markets Equity Research - MD & Senior Equity Analyst [47]

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Paul, can you just give us any color in terms of just with the last answer in the personnel-related seasonal expenses this quarter, how much was added? How much it should come out in the second quarter?

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Paul E. Burdiss, Zions Bancorporation, National Association - Executive VP & CFO [48]

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Well, I would encourage you to kind of look at, if you could just look at -- I think we have enough disclosure in the financials to sort of look at the trend in compensation expense and where you would -- you can see that sort of bump-up. I mean, it's in the range of -- it's kind of between $5 million and $10 million, but I think you can probably call that out if you look at the trend in that incentive -- or in that compensation expense line.

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Lana Chan, BMO Capital Markets Equity Research - MD & Senior Equity Analyst [49]

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Okay. And then on customer-related fees, I think you guys talked about some softness on retail and small business service charges. Is that seasonal? Or is that more of an ongoing factor for fees going forward? I just wanted to -- the $120 million of customer-related fees, I want to see if we expect any recovery in that going into the second quarter?

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Scott J. McLean, Zions Bancorporation, National Association - President, COO & Director [50]

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Yes. Lana, this is Scott. That particular item, retail and small business service charges has been weak for 5 years. It is for the industry. It has been for us. We have 1 year where it increased, and I think it was 2017. And then in '18, latter half '18 and into '19, we're seeing some continued softness there. So it -- I wouldn't think of it as seasonal, and I wouldn't think of it as an unusual trend. It's actually a trend we've been watching for and trying to counter for some time.

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James R. Abbott, Zions Bancorporation, National Association - Senior VP of IR & External Communications [51]

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Yes. I think one of the -- Lana, one of the things -- this is James. One of the things that's consistently down is the nonsufficient funds fees. And I think as we -- as the credit quality of our customers gets better and better and technology allows customers to see their balances in a real-time fashion and provides customers tools to be able to manage that type of thing, that's one of the natural fallouts of that is that we see a little less of that fee for example.

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Operator [52]

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Our next question comes from Steve Moss of B. Riley.

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Stephen M. Moss, B. Riley FBR, Inc., Research Division - Analyst [53]

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I was wondering if we could get a little further into the leads on the hedging transactions. In particular, wondering what the average term of both the rates of the swaps and the floors are and what is the rate on the floors.

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Paul E. Burdiss, Zions Bancorporation, National Association - Executive VP & CFO [54]

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Yes. These are, by and large, 3-year sort of arrangements. The rate floor is about 100 basis points out of the money, so they're kind of around 1.5.

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Stephen M. Moss, B. Riley FBR, Inc., Research Division - Analyst [55]

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Okay. And then my second question, just wondering here what was the driver of the uptick in 30-day, 90-day delinquencies quarter-over-quarter?

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Paul E. Burdiss, Zions Bancorporation, National Association - Executive VP & CFO [56]

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Do you know what that was, Michael? Sorry, we'll have to -- I don't think it was big obviously, and so I think that was probably noise in there...

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Michael Morris, Zions Bancorporation, National Association - Executive VP & Chief Credit Officer [57]

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It was just noise or timing. There wasn't anything material.

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Paul E. Burdiss, Zions Bancorporation, National Association - Executive VP & CFO [58]

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But if there's something material or specific in there, we can certainly get back with that.

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Operator [59]

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Our next question comes from Steven Alexopoulos of JPMorgan.

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Steven A. Alexopoulos, JP Morgan Chase & Co, Research Division - MD and Head of Mid-Cap and Small-Cap Banks [60]

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I'd like to follow up on the offsets to potentially higher deposit costs, which are underlying the stable NIM assumption. The security yields, the new ones are definitely a lever, but how much above the current loan portfolio yield are new loans coming into the book?

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Paul E. Burdiss, Zions Bancorporation, National Association - Executive VP & CFO [61]

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Well, it gets to a loan mix which is we've been talking about for some time and that's important. So it's not just a matter of the new loans coming on and the rate of the new loans but the composition of loan portfolio. We've seen better growth, for example, in commercial real estate and some construction. Those generally have better yields than, for example, residential mortgage. So it's a combination of those things in addition to the shape of the curve, which I think is kind of what you're describing.

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Scott J. McLean, Zions Bancorporation, National Association - President, COO & Director [62]

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I would just add, Steven, that our loan officers do report there's continued pricing pressure. So from quarter-to-quarter, year-over-year, a few basis points on at least the major food groups, if you will. So it's -- although the yield on new production is higher than the overall portfolio yield, some of the new loans that are coming on are being refinanced or refinancings of existing -- and because of the improvement in credit quality and other factors, we are seeing some price competition. So there is a little bit of yield compressions, if you will, every quarter from that factor.

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Steven A. Alexopoulos, JP Morgan Chase & Co, Research Division - MD and Head of Mid-Cap and Small-Cap Banks [63]

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Okay. That's helpful. And then I had a follow-up for Harris. You said in your opening comments that you're investing in the branch experience, I think you said more than just coffee and doughnuts. What are you planning and will we see this impact expense growth?

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Harris Henry Simmons, Zions Bancorporation, National Association - Chairman & CEO [64]

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I don't think you'll see that materially impact expense growth but we are being very -- we are very focused on trying to take the people we have in our -- particularly in our branches and give them opportunities to develop additional skills and with that, a little bit of additional authority and we hope to, over time, to increase the tenure of the people we have there. It's tough to say you're a relationship bank but you don't work to do the kinds of things that actually create relationships, which includes just having the same people there for a long period of time and having them trained and qualified to deal with particularly the smaller -- kind of the small to small-mid-sized kinds of businesses that frequent branches a lot and particularly in our franchise. And so that's kind of what we're determined to do, and I don't -- it's not going to be something that happens overnight. But I absolutely believe that it's going to be an investment that will yield returns greater than any cost we put into it both in terms of morale and in terms of just creating the kind of sticky relationships that we hope we'd have out in our branches. And I'd also say it's something that we don't think many larger banks are very focused on. I mean branches have become sort of this necessary inconvenience for a lot of folks. And we think about it a little differently, I think.

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Operator [65]

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Our next question comes from Christopher Spahr of Wells Fargo.

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Christopher James Spahr, Wells Fargo Securities, LLC, Research Division - Senior Analyst [66]

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Just a question on the capital authorization. When should we expect there to be a Board meeting? Or is it reasonable to expect the Board meeting that we can have from today or towards the end of next week?

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James R. Abbott, Zions Bancorporation, National Association - Senior VP of IR & External Communications [67]

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That's reasonable.

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Christopher James Spahr, Wells Fargo Securities, LLC, Research Division - Senior Analyst [68]

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And then the pace of buybacks, it has picked up the last couple of quarters. Would it be reasonable to think of the pace of buyback, could it actually increase again further? Or are you kind of content with the pace that you've set for the first quarter?

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Harris Henry Simmons, Zions Bancorporation, National Association - Chairman & CEO [69]

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We'll just -- we'll be announcing something, I expect, by the end of next week, and I'll let it wait until then.

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Operator [70]

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Our next question comes from Brock Vandervliet of UBS.

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Brocker Clinton Vandervliet, UBS Investment Bank, Research Division - Executive Director & Senior Banks Analyst of Mid Cap [71]

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So just within the commercial real estate portfolio, I know you mentioned the construction and development now is showing some growth from draws that have been in place for a while. But the term category seem to be up pretty consistently the last 4 quarters. Is that indicative of your greater comfort and confidence in that segment or better pricing or a bit of both?

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Michael Morris, Zions Bancorporation, National Association - Executive VP & Chief Credit Officer [72]

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This is Michael Morris, I'll respond to that. The C&D growth really is for our premier clients, so most of the C&D growth that you see would not be new to bank clients. And the CRE term growth would just be a factor of either renewing or as had been mentioned earlier, moving from construction to term loans that are already on the books, and some acquisition of new loans, some new term CRE facilities here and there but not indicative of a major trend or a marketing strategy. It's business as usual and everything is well within our risk management framework in terms of concentration limits and underwriting.

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Brocker Clinton Vandervliet, UBS Investment Bank, Research Division - Executive Director & Senior Banks Analyst of Mid Cap [73]

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Got it. Okay. And separately, on the provision line, I see the guidance of modest provisioning and that's been consistently lower than I would have expected, given the recoveries and things. Any further color you would give in terms of the provision, the remainder of the year or the cadence of it that we should kind of be thinking about?

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Paul E. Burdiss, Zions Bancorporation, National Association - Executive VP & CFO [74]

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Yes. I'm going to start. This is Paul. Obviously, there are a lot of accounting rules kind of most importantly that we need to think about. This is the largest estimate on our balance sheet. And so we need to build it sort of loan by loan up every quarter, which is what we do. And so our comments are really around expectations of kind of underlying credit trends. And we have not seen -- we have seen continued improvement in credit trends over the course of the last several years. Maybe the pace of improvement has slowed a little, but the sort of underlying trend of continuing improvement feels like it will continue for the foreseeable future. So the expectation is that we'll continue to provide for loan growth and that's really what's reflected in the outlook.

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Operator [75]

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Our next question comes from Brian Foran of Autonomous.

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Brian D. Foran, Autonomous Research LLP - Partner & US Regional Banks [76]

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Paul, I just want to clarify. I think earlier, you were talking about deposits as a key swing factor to NIM and you mentioned there was more downward pressures than upward -- or downward risk than upward right now. Was that downward risk you're seeing for the NIM, there's more downward risk or just for the deposit commentary?

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Paul E. Burdiss, Zions Bancorporation, National Association - Executive VP & CFO [77]

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Yes. That commentary was really -- that sort of come out over the Q&A of the call. I think that the opportunity for upside on interest rates on loan securities is probably a little more limited, given sort of the shape of the curve and what we're experiencing there. So the upside is a little more limited whereas the downside on the deposit side, that is the risk of an increase in deposit rates exceeds the risk of increases in the loan yields. And that sort of that balance is all I was trying to capture with that commentary.

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Brian D. Foran, Autonomous Research LLP - Partner & US Regional Banks [78]

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Got it. And then Harris, I guess that you had made a comment that credit costs don't stay at 0 forever, but they could for the next couple of quarters or near 0 anyway. As someone who has seen a few cycles, I mean, what are the kind of key things you're watching right now to try to gauge? What are you looking for to kind of see the turn coming if and when it eventually does?

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Harris Henry Simmons, Zions Bancorporation, National Association - Chairman & CEO [79]

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It's just -- it's watching nonperforming asset trends, nonaccruals, criticize classified trends, and we had a little bit of bump-up from one deal that's going to resolve itself this past quarter. I think fundamentally, we're just not seeing any sort of emerging storm clouds in terms of something that would cause us to think that these gross charge-offs can change very materially. Recoveries will get -- it will -- I mean that obviously kind of plays itself out and you have less to pick through as you get further away from the energy event of 3 years ago, et cetera. But the -- fundamentally, if we look at gross charge-offs, they've been in very good shape, and I don't really see that changing at least as far out as we can really reasonably see, which is probably the next couple of quarters or something like that.

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Operator [80]

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At this time, I'd like to turn the call back over to James Abbott for any closing remarks. Sir?

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James R. Abbott, Zions Bancorporation, National Association - Senior VP of IR & External Communications [81]

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Thank you, everyone, for joining on the first quarter 2019 earnings call. We appreciate your time. I will be around this evening for further follow-up questions if you have them and throughout the rest of the week, of course. And again, we appreciate your attendance today and thank you. We'll see you at the next earnings call or the conference. Thank you so much.

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Operator [82]

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Thank you. Ladies and gentlemen, this concludes today's conference. Thank you for your participation and have a wonderful day. You may disconnect your lines at this time.