Zions Bancorporation,NA (ZION) 2024 Q2 Earnings Call Summary

Optimistic Highlights

• Successful Core System Conversion: The completion of the major conversion to a new core operating system for loans and deposits, enhancing operational efficiency and customer service.
• Net Interest Margin Expansion: Improvement in net interest margin by 4 basis points on a linked-quarter basis and 6 basis points year-over-year, driven by asset repricing outpacing funding cost increases.
• Loan Demand and Growth: While loan growth was measured, demand has increased, with a focus on small-business lending through streamlined SBA programs.
• Digital Product Capabilities: Recognition of the bank's digital product capabilities as superior to major competitors, with significant investments in digital front-end modernization.
• Strong Credit Quality: Low net charge-offs at 10 basis points annualized, with an improved economic outlook slightly offset by incremental reserves for C&I, indicating manageable future losses.

Pessimistic Highlights

• Increase in Classified Loan Balances: A notable increase in classified loan balances, particularly in the C&I portfolio, though expected to be manageable.
• Sluggish Fee Income Growth: Fee income growth has been somewhat sluggish in the first half of the year, attributed to reduced loan activity and flat wealth management fees.
• Pressure from Higher Rates: Higher interest rates have tempered loan growth and impacted customer sentiment, especially among small-business and middle-market customers.

Company Outlook

• Loan Growth Expectations: Anticipated stable to slightly increasing loan growth, with a focus on small-business lending and capital markets expansion.
• Deposit Trends: Noninterest-bearing deposit trends showed modest decrease, with expectations of stability even if interest rates decrease.
• Net Interest Income: Projected to be slightly to moderately increasing in the second quarter of 2025 compared to the second quarter of 2024, influenced by loan growth, deposit competition, and interest rate paths.

Q & A Highlights

• Q: Can you discuss noninterest-bearing deposit trends and expectations with potential rate cuts? (Manan Gosalia, Morgan Stanley)

  A: Noninterest-bearing deposits showed a very modest decrease, with improved stability expected. The bank has adjusted models to anticipate less migration of these deposits into higher-cost products. (Ryan Richards)

• Q: How do you view the trajectory of loan growth? (Manan Gosalia, Morgan Stanley)

  A: Loan growth is expected to be stable, influenced by economic conditions and specific bank initiatives like streamlined SBA programs. (Harris Simmons)

• Q: Could you provide more detail on the increase in classified loans? (John Pancari, Evercore ISI)

  A: The increase was primarily in the C&I portfolio, with no single industry trend identified. Classified and criticized loans increased, particularly in multifamily, but losses are expected to be manageable. (Scott McLean)

• Q: Can you discuss the fixed asset repricing opportunity and its impact on NII? (John Pancari, Evercore ISI)

  A: The bank expects continued improvement in net interest income as earning asset yields have been repricing more favorably than funding costs. (Ryan Richards)

• Q: Can you provide insights into the technology-related costs and benefits of the new core system? (Steven Alexopoulos, JPMorgan)

  A: Technology-related costs are expected to decrease next year, with the new core system enhancing operational efficiency, employee experience, and customer service. (Harris Simmons)

• Q: How does the bank view its capital position and potential actions? (Chris McGratty, KBW)

  A: The bank is building capital and monitoring regulatory developments, with a focus on organic growth through earnings and improving AOCI. (Harris Simmons)

• Q: Can you comment on the health of small businesses within your C&I portfolio? (Brandon King, Truist Securities)

  A: Small business credit quality remains strong, with conservative borrowing behavior observed among most small business customers. (Harris Simmons)