Q2 2020 Zions Bancorporation NA Earnings Call
[music], ladies and gentlemen, thank you for standing by and welcome to Zions Bancorporation second quarter 2020 earnings.
Yep cast.
So I'm not getting plenty listen only mode. After the speaker presentation, there will be a question and answer session.
Ask the question doing this section you will need to press star one of your telephone.
To be allows it to they've thought.
If you acquire any further systems. Please press star then.
I'll now like the independence over to your own director of Investor Relations James Abbott. So please go ahead.
Thank you with deep and good evening, everyone. Welcome you to this conference call to discuss our 2022nd quarter earnings.
So I would be another day Harris Simmons, Chairman and Chief Executive Officer will provide a brief overview key strategic and financial performance.
Happy that Ed Tri be our Q.
I will review the condition of the loan.
The allowance for credit loss.
And the Reagan, which really engaging with our customers during this period of economic disruption.
After Ed's comments, Keith My our Chief Banking Officer will provide details regarding our participation in small business administration Paycheck protection program.
As well as progress made in the mortgage banking division.
But if our chief financial Officer will conclude by providing additional detail on zions financial condition.
Additionally executives with us on the broadcast today include Scott Mclean, President and Chief operating Officer, and Michael Moore, Chief Credit Officer.
I would I'd remind you that during this call will be making forward looking statements. Although actual results may differ materially.
Additionally, the earnings release, the related slide presentation, and this earnings call contain several references to non-GAAP measures.
We encourage you to review the disclaimer.
Well the slide deck on slide two given the forward looking information and the presentation with non-GAAP makers.
It's apply equally to the to the statements made during this call.
A copy of <unk> earnings release as well the supplemental slide that are available at the same thing Corporation dot com you'd be food flights during this call.
Then the limit the link this call. The one hour then the question and answer section of the call. We ask you to limit your questions to one primary one related follow up question to enable other participants to ask questions.
I'll now turn the time over ticket.
Yes.
Well, it's pretty much James.
Yes.
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Getting on slide three.
Well most seem to get them on a bunch of the Pandemics and we sold it might be.
Oh assessment there too.
It was strong in some areas.
Hi, So my comments here at the same addressable stuff.
I have a very.
Strongbox rooms for another couple themselves.
Yes, the battle, that's never been more.
Uh huh.
Experienced during the past remote sensing and then triple.
You can model only.
The institution.
Our industry sincerely watch list.
So quickly.
And do not appealed it all works control technology working from home.
So the little don't close to them the mountain.
Richard its business suit nonprofits supporting smelters.
I couldn't be we're proud of our team who delivered aided by them.
Yeah, So some wasn't here.
Good.
Great singular focus on certain both customers and prospects.
Oh one of life.
One of my favorite switched from about three months came from new customers.
Let me provide it.
PPP load up them.
This is Bob.
The first thing, but it's very local fluctuation.
With the going back so we try to us.
The goal for Sensata.
Yes.
<unk> expense, but most of it.
I'd like to be disappointed relationship.
Customers that's really.
I couldn't be more proud of bankers, who delivered great.
This past quarter.
And with substantially lower than last year, so moving people.
Well as a 20 million dollar charge associated with the termination of our pension plan.
Nevertheless, Justin pre provision net revenue.
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The capital ratios that demonstrates the strength.
We have one of the strongest levels of capital in a few more teaching the bonus.
Like many other banks were suspended share repurchase activity until we have improved visibility on earnings.
It is universe.
During the quarter eliminated solution within the mall.
8.6 million shares as compared to second quarter last year.
We're excited to have acquired more than 10 centers in small business customers. During the past three mountains keep model, providing more detail in a moment working very hard.
Kind of crude oil to design a base.
Lastly, all the technology to effectively from home mislead environment.
Activity, it's been moderately impacted which will be adult.
Or something like we believe the completion of of course systems replacement project, but it really not great mobile online.
Oh sure.
Well through the challenge for the month.
Slide four summary, several key financial performance.
Beginning with the overall.
Particularly for you to demonstrate the results.
Well, it's helping customers it seems that peak to peak zones.
[laughter] or just over 47000.
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More than a fifth.
Customer to the neighborhood bone.
Last killed with a nice to buy them.
So the make.
Required Willow lawn albums cells.
The maturity so.
But also.
Uh huh.
Oh, I'm, sorry, 10% to 15% of fees from the PCP program makes.
Do control that charitable foundation.
We've determined that the donating $30 million.
[laughter].
Although the total of about.
People did and $20 million.
He went kind of people.
Well, that's two slides you quick overview of over others slide five shows it's time to the bottom line.
For show themselves.
We reported earnings per share a pretty fortunate in some of the second quarter.
As noted on slide in the second quarter of 2012 to sort of several items and significant adversely affected your secure.
Notably the provision for credit losses.
Thank you termination expense.
Over the prior quarters also had some notable items such as seen on that side of it was higher.
Presentation materials.
Turning to slide six.
Justin <unk> building over $3 billion and the second quarter.
This is the just the probably moved from favorable impacts of the pension termination charge and the credit valuation allowance.
Customer interest rate swaps so.
Right totaling <unk>.
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Valuation.
No what it was $12 you can see the outside reasons for doing what is best on profitability trader.
[laughter].
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Yeah.
Economic downturn strong capital position.
We actively manage their capital levels in 2002 of the minutes, but really this all committed whatever the downturn or something like shows relative and absolute happen.
Slide.
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That's true but sure.
We recognize that several of appears the lease terms it must be wages, mainly the launch.
Hi, this is not only strong relative regulatory minimums for the compares very favorably to our peers.
The combined with you at all for credit losses.
We really were very good place relative to the board at all.
For the time for now.
With that.
This terrible about Uh huh.
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Thank you Harris and good evening everyone.
As an overarching comment given the depth to the decline in GDP in the increase in employment.
Various credit quality is holding up well, we recognize that there are significant monetary and fiscal stimulus.
That is supporting the follow your credit, but we are nevertheless, pleased with the resiliency of so many of our pessimists as they have adjusted for their circumstances I've been able to maintain a much more stable level of profitability. Then we might have expected. Despite what has been in some cases large declines in revenue.
If it seems to direct your attention to Friday.
Because of the relatively minimal credit with what the PPP loan them because prior quarters would not be comparable.
We have presented the credit quality ratios, excluding PPP loans charge offs bumped up in the quarter to 25 basis points about two thirds of gross charge offs were attributable to to know that had been experiencing distress prior to the development of the pandemic, which then accelerated the decline in the value This company and.
And I also like highlight the time series on the chart helped put the recession in perspective. We've included the average those same credit they said in global financial crisis, 2008 to 2000 annoying and during the oil and gas downturn 2015 16.
Noted in the Texas went on to fill status reached 8.5% of loans, excluding PPP loans most of that filter granted on a 90 to 120 days ago and had been rolled off over the course of the past month or so accordingly, it's too early to provide much color on the payment performance of these loans tends to fill however, the volume.
Great. If there has been very modest it's also worth noting that the revolving credit line utilization has generally turning to pretend and 11.
Moving on to slide nine I want to reiterate the fact design is a generally experienced a much lower loss rate relative to nonaccrual loans and most of our peers like most other banks, we underwrite loans based on strong cash flow function that we typically secured alone. The collateral for example, real estate all the business and personal assets.
We also require personal guarantees on many of our loans and many borrowers have external sources of capital raise a data to support their investment during periods of difficult, particularly at the problem is considered to be transitory in recent weeks with before an in depth to be the fund if you're going to be to credits with executive officers and credit they just discussing the loans individually.
With the responsible line officers as we perform these reviews the portfolios in more than a dozen entry industries.
But we expected to have above average risk. During this recession, we did identify a bear variety of situations that doesn't reflecting initial signs of stress.
Downgraded a number of loans, where appropriate but on the head we came away from the exercise with confidence that the great majority of our claims came into this downturn with where financial strength and there are various equipping adjusted and doing what they need to do you get the distributor downturn.
Shown on slide 10 for selected list of industry, but in our estimation firewalls and this economic downturn.
For example, pandemic then they set a category the segments. We continue to find the slate since we initially developed in March the epic They Didnt biology includes industries.
Well, there was a significant level, 5% being the threshold criticize loans within excluding institute at Similarly high criticize weight tied to the pandemic with an example, being and then see like agriculture, which we've talked before in other announcement.
Which identify to you.
At the fed segment level. We then included categories, where the criticize level exceeded 10%.
So you can see nothing gaming included that upon further inspection to get the loans made in these segments were consistently everything even by are generally consistent standards beginning in casino industry will move from the school.
In total these indices accounted for about 4.2 billion total loan balances outstanding approximately 9% of loans will continue to refine our approach regarding our market will be key impact it into two and as noted there could be moving in or out of indices were elevated this exists.
Well the table in the bottom line, we'll see some key performance indicators of the president elevated with the failure, which is another portfolio that has elevated I either oil and gas that falls and the rest of our non PPP multiple you can see the I believe what seems to have a much higher to fail and PPP participation with windows that sort of.
Failure sensitive green highlight the deferral rate first category, which is about four times the level of the other categories can also seen substantial difference between elevated risk category and the other categories regarding PPP loan originated by selling.
Importantly.
The bottom Caroline highlighted the collateral coverage, which is going to key reasons like designs portfolio 10 ships, there lower levels of loss relative to non accrual of it as shown on the fly.
Elevated risk credits and 97% secured and unsecured by real estate immediately loan to value was 52% using the current loan balance for the most recent appraisal.
And only 3% although loan secured by real estate have alone devaluation in excess of 90%.
Slide 11 shows the same three groupings and time to.
The top chart shows the loan balances in columns with a weighted average whispering showed in the three line would have elevated risk, but from your experience. The change of 2.3 with grades in the last six months just as a reminder, on our risk rating scale, we have a one to 10 pass grade.
The oil and gas portfolio experienced a change of 1.3 this grades and the rest of portfolio experienced a change of about a half of what's driving it.
It's worth noting that the probably the fall between rate if not linear the probability of default rate channeling the last past screen and high grading range.
It's nothing more than a great nine for example.
The elevated risk that they had the weighted average with great. My 0.2, while the other portfolio has great of 7.0.
Well great shown here don't they reflect the loss given default estimations, although the combination of the too because that's what drives the allowance for credit loss estimate.
The top right chart shows the training classified and non accrual loans with classified ratio being a larger number and the non accrual ratio being a smaller number within bar.
The stability of the other loans, which again represents 86% of the total non PTP loan portfolio is encouraging.
And the bottom left you can see these days and wait for both the elevated this portfolio and the other portfolio applying consumer number plates of up this quarter.
Three and a half four points both have fallen to levels that are actually less than the starting point, which appears to be at least partially attributable to the P.T. loan balances, although it's difficult to be precise here about the.
Finally.
The bottom right you can see the net charge off relative to these goods.
I'll now turn the time over to keep mile Our chief banking officer to provide further detail on the PPP loans and the mortgage banking Keith.
Thanks, Ed and by way of introduction I'd responsible for small business lending mortgage and wealth management among other responsibilities within the bank.
I'll begin on slide 12.
As far as noted earlier and it was quoted the earnings release, we're particularly pleased with the outcome of our efforts to play a role and providing much needed support to tens of thousands of small business loans.
The underground we won and round two we ranked at the might largest originator with TPP loans in the country.
Let me with a 37th largest financial institution on a country measured by the positives are kilroy PTP originations was 3.6 times our deposit market share.
The significant market share outperformance was a combination of very hard work on long hours by thousands of employees as well as superior technology.
We had our PTT customers beneficiaries of our efforts to quickly deploy great technology and parent with over 2000, great bankers.
It has noted but they ship heating. These efforts have provided substantial support to what now it's 47000 physicians.
Within our affiliates structure of the S.P.A.P.T. loan market share distribution is generally consistent with our deposit market share.
On the right hand side, it's important to note that 75% of these loans were less than $100000 and you can see some statistics on the production.
On the bottom you can see some of the statistics on that more than 10000 loans to new customers, one of which was highlighted by Harris answer there.
With respect to these new customers, we are working quickly and diligently to help solidify those relationships each of our affiliate banks is in the midst at a new client outreach campaign, which includes compelling offers.
Particularly timely with the introduction of Treasury so well.
Hey product set specifically designed for small business.
Okay, Thanks for being off but it by external marketing efforts in each of our markets and regular communication with these new clients regarding the forget this process.
But if we delivered an exceptional experience entertainment testimony, we would likely see a significant increase operating account deposit balances.
The only in the first inning of this retention effort, but we're optimistic about our chances.
Mortgage production this year has been considerably stronger than a year ago period.
Some of which is attributable to the decline of mortgage interest rates, but we've also made great strides and gaining market share.
Slide 13, several key successes related to the rollout of our ship mortgage.
We've reduced our turn times by 25%.
Moving our service levels and increasing our capacity to serve more customers.
Installations in the quarter exceeded $1 billion and more importantly, an increase of more than 70% from a year ago.
Loan sales income does increase nearly $10 million from a year ago period.
Our pricing is comparable to that of industry leaders were accomplishing these market share gains through service.
And we are maintaining strong underwriting criteria, the statistic of which we provided at investor days in the past.
Ultimately, we're expecting gains in market share that are coming as a result at the two factors I noted earlier excellent employees and superior technology.
That concludes my remarks, and I'll turn the time over the Paul Burdiss, our Chief Financial Officer.
Thank you Keith and good evening, everyone I'll begin on slide 14 did this discussion to net interest income and the net interest margin. The charting a left shows the trend in net interest income and the net interest margin and the net interest margin is in the wake boxes has fallen in the current quarter along with bench.
Interest rates after a period of relative to the.
Unfortunately.
Net interest income has improved by $15 million on a linked quarter basis, reflecting balance sheet growth attributable to our participation in the FDIC DPP lending program.
Notably the $5 billion TPP loans added in the second quarter on average.
Contributed nearly $40 million to net interest income.
The component of the 18 basis points net interest margin decline in second quarter compared to first quarter are contained in the chart to the right, earning asset yields were down 46 basis points in the linked quarter, reflecting falling benchmark interest rates, while it just starting first with the funds were down 44.
At this point, reflecting active deposit price management and less reliance on wholesale funding sources.
Our strong noninterest bearing deposits decision is worth less if rates fall and the contribution of these non interest bearing sources of funds, so 16 basis points in second quarter.
We will continue to work to whom spread on loans and lower our deposit pricing where possible.
Slide 15 highlight key components of net interest income loan and deposit growth and break them down by both rate and body.
The chart in the last shows average loans grew 12% over the period significantly affected by TPP loan book as depicted the thing might change.
Shifting to the chart on the right and funding average total deposits increased 16% over the prior year period, although much of this growth, particularly the linked quarter growth is attributable to PDP related deposit growth, we believe that perhaps $2 billion or more of the period end.
Possible can be attributed to non PDP related deposit activity.
Oh the growth in this low rate environment, it's consistent with past observation of customer behavior.
Turning to slide 16, our balance sheet sensitivity has increased at benchmark interest rates have fallen.
This increase sensitivity to changes in interest rates were driven by our deposit portfolio as opposed to David I seem to be lower interest rate environment and our customers are leaving money on deposit with US we are comfortable with the increasing rate sensitivity, because we believe business lower rate does limit.
On slide 17 customer related fees were stable from the prior year period and down from the prior quarter. He knows the strong growth in residential mortgage the this year.
Areas of weakness included retail fees, largely due to wage not sufficient funds to be as we work to support our customers in this difficult environment and declines in card related revenue and loan syndication fees due to reduced business activity well activity appeared to improve as we approach we ended the second.
Quarter, the economic environment remains too uncertain to predict stabilization in the front.
As shown on slide 18, the decline in non interest expense reflects our ongoing efforts to reduce expenses and streamline operations as previously disclosed.
Non interest expense in the second quarter included non recurring expenses incurred in conjunction with the termination of our defined benefit pension plan.
This 28 million dollar expense included $17 million previously reported in accumulated other comprehensive income.
Adjusted non interest expense was down $21 million or 5% to $402 million some $423 million in year preparing the most notable reduction versus the prior year period, we're in salaries and employee benefits due in large part to the reduction of positions the mountain of both.
Quarter of last year, and lower travel entertainment and other related items.
Slide 19 highlights the components of the allowance for credit losses, this quarter, which has gone from one 1.8% of long a january 1st% to 1.88% up loans at June Thirtyth, excluding do risk weighted PPP loans from the denominator.
The provision for credit losses of $168 million net of $31 million net charge offs increased the allowance for credit losses to $914 million as you can see on the bottom absurd.
The 74% increasingly allows for credit losses. Since January 1st reflects continued economic weakness due to the impact of the cobot 19 pandemic and ongoing stress in energy prices well estimating the life of loan credit losses in this uncertain economic environment and therefore, the allowed for credit losses.
We considered a wide variety of economic scenarios incorporated our own stress test results and utilize refreshed bone grades.
And then good information has improved from the end of the first quarter when economic weakness was developing very quickly in.
In the day last week for the quarter and as a result, we had to estimate the impact I like one grade migration due to these deteriorating environment.
In summary, the second quarter, it's highly unusual as we dealt with operational and credit concerns well migrating nearly our entire workforce to working from home.
20% of our workforce pitched it.
Help 47000 small businesses obtain much needed funding to the FDA Paycheck protection program.
We were able to maintain some growth in pre provision net revenue, which was helped by expense control achieved through our organizational realignment undertaken late last year.
Improved revenues supported an increase in our provision for credit losses as the environment for credit became more uncertain and the resulting allow for credit losses, when combined with our solid capital position.
With a strong balance sheet built to weather this uncertain time.
Finally, the expiration of common stock warrants issued 10 years ago dampen volatility in our diluted shares outstanding at the literature declined 5% from the first quarter.
That concludes our prepared remarks for Keith Please open the line the question.
Thank you Sir.
As a reminder to ask the question you will need to press star one in your telephone to withdraw your question plastic pound cake. They stand off while we compile so many roster.
First question comes from a lot of Dave Rochester Compass point.
Line is open.
Hey, good afternoon guys.
We just wondering if you could talk about.
Some of the bigger assumptions you baked into your cease the calculation this quarter any details there would be great and if you believe retarded overweighed drops the acceleration of pandemic <unk> footprint went back to read for economic backdrop for the potential for a year with Dolby you.
That'd be great.
Oh. This is Paul I can follow with that and then as Michael although they want to join them to add to it.
Broadly speaking.
I said in my prepared remarks.
We used result from our internal stress testing to inform those involved and importantly, we use the refresh loan grading. So these included unemployment rate that.
That went into the double digits and I'd say a fairly extended.
A period of weakness.
But maybe you can imagine the models are just not built for environment like this.
The data set.
But due to create the model that can create that doesn't include a macroeconomic factors. If we're seeing today. So there was there was also up some qualitative assessment.
Applied to the allowance, possibly other Michael I think that well.
Well no covered it well Paul when things that I went out this is Michael.
The within the quality.
So.
Identified and.
Associated with our deferred loans.
Well, we didnt have.
And insight into the activity levels.
Customer.
So that was one more elements and called <unk>.
Great and then just in terms of how you sort of integrated any kind of outlook on puppies Dennis.
Was there any kind of additional moved away from that perspective, just in terms of 100 probabilities of they'll do you take recovery or.
No that's not even remotely your basis.
Well the other thing I would add a is that we I think you probably heard assai certainly hurt at just say, we conducted a lot of Indepth reviews of our club.
Particularly the first part of our credit portfolio and that was real time information in terms of that sort of the stress and the oh the credit worthy nasty, if you will their ability to withstand loss.
Revenues of our customer then all of that very detailed information was incorporated into that allows papa.
UK grouping.
Okay.
Thanks next question comes in alignment, Ken Zerbe Morgan Stanley Your line is open.
Great. Thanks, I guess he's just the first question can you just walk us through how you guys get to 3.1 forward loan yield on the TPP lunch I guess I was just looking for something.
A little lower like in maybe the two two and half percent range. So this does seem a little bit higher.
Sure. This is Paul I can give you the kind of a broad framework or how it works and you know.
He is associated with the loans.
Our capitalized against the loans and then amortize over the expected life below.
Also incorporated into that are sort of the direct.
Expenses incurred in the production of below that under FC drew 10, or I'm, sorry, if anyone has a other lifepoint has but all these things are capitalizing and amortized over the life and so we need to look at because we don't have any assumptions around.
Forgive me if they've been here, we looked at the contractual terms of alone.
Our contractual terms happened to be a six month interest only period, followed by 18 months of amortization.
And if you sort of capital either fees and amortize as defined in the loan documents, that's where we come up with a 3.14%.
Importantly, and itself in a press release.
As forgiveness does come about all these loans are repaid early.
I would recognize more fee income in those quarters.
As all of that capitalize net in net fee income gets recognized in the quarter of either forgiveness overpayment and so my expectation is we will see some volatility in that one.
Sure no totally I think it. Thank you for that explanation I think we all generally I understand the concept of it I guess to get a 3.14 and I'm asking a little more for specifics you have to 1% you've loan yield, but then even assuming your your average PPP fees were 4%, which would be two per cent per.
Yeah sure that would only put your average loan yield of 3%.
And then that you already said your your your average loan size was bigger than the average loan for the industry and certainly 4% would be at the higher rents are video the bank. We cover the money season, so we'd have to be something less than 3%. So.
Not trying to depict the details, but unless your average fee 5% on your loans.
It really hard to get to that 3.14 that makes like it didn't make sense and the other actually except for a couple of hours with some people putting this to me because I would where my head was where here's what the month ago. The answer though it is not.
Lie in the feed Numerators like cancer lies in the did I hear because the weighted average like below is much shorter than 24 month, because the amortization.
And then we felt that the ends up getting amortize over for the period and so it ends up being higher than the math laid out the yield ends up being higher than that.
And weekend, maybe James can kind of put together.
A numerical double that.
Perfect. That's very helpful. I do appreciate it and then sorry My second question for you.
It's one of your slightly smaller bank gears, just sold the large block of their oil and gas loans to a non bank what would it take for Zions considered doing something similar just given size your portfolio and sort of a challenging outlook for the energy industry.
Well I'll start out they were very comfortable with energy portfolio that Scott Yasmin turned over to you to take that.
Sure, Yes, the Scott.
Yes, yes, if you really dig into what their portfolio what there.
And their desire to actually.
That's very different a very different set of circumstances our portfolio. So the short answer is.
But it really awful lot of similar we're not thinking about.
Selling off what portion of our portfolio.
The risk.
They their exposures were pretty different than ours.
And they had a more regionalized portfolio as well I don't I'm not an expert on.
You have.
But.
When you look at the Mark against it.
It is a whole lot popping up and it's just a very different products.
Understood I just wanted to check. Thank you so much <unk> Pauls definitely follow up with James on the calculation of the PPPC. So thank you.
Great.
Thank you. My next question comes with a line of John Pancari of Evercore ISI. Your line is open.
Good afternoon.
On the loan loss reserve I know it the reserve totals about no.
0.8% X.P.P.T. loans.
So I guess, how are you thinking about the potential for incremental reserve additions here just given the backdrop. It is this.
Do you think the reserve should or should peak at this level.
Got it and you know what under in seasonal land, if there's anything that we know with respect to losses.
I would have had to incorporate it and this particular oh cycle, that's a long cycle. So the things that would add.
To the allowance from here are a deterioration of the credit card portfolio more than we believe will already occur.
And or deterioration of the economic environment more than we have a forecast so beyond that it's hard for me to say sort of what direction has other tonight I feel confident that based on what we know today.
This is our best estimate for the life of loan loss.
Okay got it and and then separately.
And also on the credit side.
Classified loans they know they were up sharply during the quarter about a 600 million or so there could be 19.
Sensitive areas can you just elaborate a little bit more on what specific areas through the the spike there. Thanks.
Sure Michael if you look good.
Sure.
Michael I'll take that.
The big big drivers or sort of obvious hospitality.
So.
Some commercial airline modest commercial airlines.
Dental drove it.
Initially.
At the beginning of kind of the Cecil process started to see dentistry recover.
Quite quickly.
Retail in itself driver.
Casinos.
Revolvers as well.
Some of the industries the the bigger contributors.
Okay, alright, thanks, if I could ask one more.
I guess Paul back you just on the reserve again.
Based on your comment if there is no change in the economic backdrop, but the charge offs continued to come in and why is it. Therefore next quarter fair to assume that we've seen almost reserve releases.
Or reduction in the reserve ratio.
Yeah, well as a if but everything progressive in accordance with our expectation.
John then I think that's probably a fair assessment right because we expect adverse credit migration, we expect charge off that's all baked into that 914 million dollar number it's really the variations in that forecast.
There are going to create.
Changes in the in the overall alone.
Yes got it thanks.
I think.
Thank you. Our next question comes from a line of Jennifer Demba Suntrust. Your line is open.
Thank you good evening.
[laughter] net charge offs were driven by.
Wondering what industry there.
What kind of severity trends you saw.
But my things like that.
Sure.
One of the industry's words.
Was bigger and recreation.
Somewhat of a mutual credit.
The other.
We had a couple of others that were a little more modest one was a contractor and electrical contractor.
And in other words of small tech complete.
It depends quite bullish no.
This is Sam will take on <unk>.
The two largest.
So then.
You.
I mentioned.
And the other is or isn't region.
And do more kind of severity cell phone that's credit that's too crazy.
On the leasing on regulation, we saw.
Some pretty significant recovery, but.
It was a credit that was already trouble drilling program.
Yeah.
The remarkable work.
I'm not mistaken jobs for <unk>.
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Huh.
So.
That's about it seems pretty high loss.
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The retail.
Hurt Robinson and away because it was secured mostly by properly.
You know, though.
Valuations during carbon.
They.
Sorry.
Thank you.
Thank you next question comes on line of Peter Winter, but the Securities. Your line is open. Please go ahead.
But even.
Excluding the most.
For the industry. This kid's, what's your feeling from.
It's small business customers about today's business environment.
Maybe I hope that it's a nurse.
Yeah.
Tickets.
I think obviously.
Sure.
Business is oh.
That's a small businesses business as well Oh I absurd.
Experiencing things they wouldn't have vicki.
<unk>.
And there's a lot.
The stress.
Got a smaller businesses.
But it's all over the board in terms of.
How they're going to get through this.
<unk>.
We only right.
We fundamentally a.
The.
We underwrite to stress test.
Okay.
Second way out if you though.
And.
As we've done a lot of <unk>.
At this point.
We're also seeing quite a lot of.
Strengths and a lot of businesses. It came into this with strong balance sheets.
<unk> you have to consider the fact that we came into this which it won't just.
On the heels of the longest expansion of receiving a lifetimes.
And that will put a lot of businesses and put it still in shape.
We've reviewed hundreds of credits.
I think.
The safely they.
Yes.
Came out of its reviews.
Was it for me personally I was.
Probably.
Really pleased with.
But how much sites, which.
And that puts a lot going ahead.
For the only gonna see someone she loves it.
Losses will be.
Commensurate with the Jewish groups.
Like the minimum over the over the course system next few quarters.
Quick things get worse well, yes.
It's too pandemic.
Uh huh.
Continues this.
So there is.
Sure, it's creative infections or the king beats too.
The loan need additional shutdowns.
Hi, I could see things get worse I do think that.
Most states what we're seeing this up soon and then sections.
A lot of businesses were figuring out how to get back to business.
Places I don't I suspect.
You know places picture there still is well I think people worried masks.
There are big.
They have to be done.
For the next several months to.
Well business too.
Carried out in this country, but I do think that most businesses can't remember this is.
Pretty strong.
Oh position, we see a lot of cash.
Certainly reflected in deposits.
So a lot of.
Dosage from PT people deposit <unk> into the deposit accounts.
And then.
I expect that they'll get sent them but.
Again, as a source of strength through a lot of each business. So.
All.
However in better shape.
Yes would be the case should explain what we're gonna be pulling through this year.
I would just got I'd, just add to that that I think.
Other downturns other downturns.
The banks are generally shock absorber.
In this case.
I mean, we all know Preston go score but.
I think what we're saying, particularly with lot of industries.
Suppliers are providing longer terms.
Chuck you know every landlords.
Biting flexibility everybody realizes that they have to help out.
In terms of extending payments are deferring payments and et cetera, et cetera, just to keep the process go. So I don't think we've ever seen another.
A downturn where.
You have this much support coming from this many directions to support.
Small and medium sized businesses.
I might as well so just to add one other one for the shot at it.
Sequentially noted that there wasn't a substantial.
Recent classified loans lot of that coming as we went through.
Industry after industry.
He was on a lot of ER.
It's interesting to me is that as we went through those reviews nonaccrual numbers.
Really changed that much of it certainly they're up to their product commensurately classified <unk>.
Yeah. This is the fact.
Yes.
Businesses are going to experiencing some stress.
But we also sensors.
But.
Probably help us get through it provides the basis.
Which we'll be able to work with their customers that's rose.
I think that's good news.
Yeah in Paris this is that Peter.
My apologies if you have any other problems.
No.
Hi, Peter just said the thing as you've seen us to support our history unless oil and gas downturn, we were very conservative than initially addressing the issues in the downgraded credits as we saw on so we follow the same methodology and hence all those deep reviews dividend.
Each of the segments and you can still even through the ships were proactive in trying to be realistic about then.
Okay, that's very much.
Thank you. Your next question comes from block.
Bend every year.
Yes. Your line is open.
Great. Thanks very much.
Let's turn to the energy.
Paul.
Just curious.
Determination process.
[noise] balances going.
The next year.
These borrowers.
[noise] discussion about.
Performance.
[noise] 45 or 50.
To make money.
Cash.
Thanks.
Sure a block of Scott I'll take that.
And start where we have about 70 plus.
Borrowing base Redeterminations, but we do.
And we see most part completed our spring Redetermination, we have a few left to complete.
Based on the White whichever comes.
And generally speaking those borrowing bases because of the price volatility in the first part you're generally speaking borrowing bases are down about 15%.
Now remember that our you know our average advance rate going into the quarter was kind of 50% to 60% against Oh, what a borrower could bar so.
And in most cases, but out of its 72.
We had about.
Oh, seven to seven eight or nine.
Called deficiencies, which means that the amount outstanding is greater than.
What borrowing base would allow the borrower has two quarters.
During their borrowing back in line.
With the borrowing base and we believe with those efficiencies. It's not unusual we've got other periods of time back 15, 16, Todd Brice were not unusual to have.
Seven to 10 deficiencies or 10% in your portfolio sufficiency and knowing these companies as we do we believe but virtually all up.
Uh huh in an appropriate way and so.
In terms of our upstream portfolio, we had an increase in classified.
Generally principally the Prince classify it came from in energy was what just due to the volatile pricing and Oh, you more <unk> than we normally have.
But oh there.
Other than that or.
Oh, just fine on the upstream side and in terms of hedging.
You know, we're now sitting with about.
81% of or.
For the remainder of the year as heads.
In the low fiftys about 70% of gas production.
Hedged in the low sixes.
I'm sorry.
Out of a bit too.
And about 50% of oil and changed and 21 and 60% of gas so.
And principally those numbers have gone up just simply because production has come down the amount of financial hedges and stayed about the same but the amount of productions.
So the hedging environment.
The hedging statistics continue to look.
Look pretty good and their strength in thinking about the credit exposure on upstream portfolio.
Last question I think was about just general profitability and what I would.
Just Barry a high.
By the yield by area cetera, but generally speaking.
Probably 70% of the.
Exploration that's been done in the last five but seven eight years.
His shale and tight sands.
Type exploration and generally need you know $45 a barrel to be profitable that kind of exploration.
And so.
That's why you're saying.
Hey.
Rig count that at all time lows, because they're not going to drill.
That's right, Yeah and Oh.
And the sales and tight sands. However, those borrowers have a larger percentage of what is considered conventional exploration there lifting costs or about 10 to $15, depending on the yield and so you've got half price down $20.
Before.
You know historical reserves, but kind of.
On an economic.
And and having said that again.
The result of that as you're not going to see nearly as much exploration capex budgets are being cut way back rig count would be really love and remember that on all of this.
Shale type.
Exploration.
Flying curves are about three years.
And so production will come down significantly and I will start to have a good impact on the amount of supply that's available trouble.
Be supportive of higher prices.
This is Michael I, just had one thing one comments over the long form.
But really started to grant recalls.
Delinquencies on 60 minutes past.
On the whole book.
Okay.
That's great color.
It sounds like upsides.
Et cetera.
The price.
Come on it.
Thank you Hey, Hey, Scott. This is just one other supplement to Scott's comments like every other company you have a price step and then we started doing their redetermination, we adjusted the price deck like to be more conservative Scotch numbers with regards in the determination and how many have that deficiency balance.
It's actually based on a more consider the price decks in light of that we still fell in line with our normal fallout, even with having a more conservative price that participants I bought.
Thank you.
Thank you. Our next question can come in line of Steven Alexopoulos. So they P. Morgan. Please go ahead.
Hi, everybody.
The P.P.P. program, new customers, you're acquiring are they all in footprint and what's your sense as to why they're going to you versus their primary bank.
I keep getting better.
Should be happy to I don't have the exact number handy as to what are in footprint there substantially in footprint and we believe.
Some anecdotal conversations with a number of them that what we spend the beneficiary is frankly stress with their existing bank stress getting their P.P.P. long Don.
I think you'd be TPP experienced with all over the map with different banks I take our experience that customer sat as I mentioned earlier was.
There's a good experience it was digitally based and so we ended up being just the beneficiary up a lot of customers that couldn't get it done at their existing institution.
Okay.
It's helpful. There for follow up as you talk to these customers on the P.B. food program.
And your assumptions they get forgiven, but what's your sense at this point in terms of what does ultimately get forgiven. Thanks.
Yeah, I'll start with that because we've started the forget this process not to be sta, but internally through our own a website our portal with some customers and again, there's there's a very diverse group I think the majority of the customers were seeing applying for forgiveness are going to get we're expecting certainly template forgiveness.
And on the other said are expecting born the 50% range, but we've been talking internally will look clearly as we get details about statistics and if we have enough about base asking for forget this will still have better information.
Right now what kind of thinking it's going to be in that 10% to 15% of total balances remaining.
But don't get forgiving.
Just don't get forget it quite steep.
Okay, all right now.
I'll just reinforce that that's somewhat speculative opening keith setting up really or anything on that.
Got it appreciate the color.
Hi.
[laughter] disease gains again, we just want to switch over to be lightning ran as we call. It you ended the call here so with <unk>. We can yeah keep each question from here on out to just one question.
Question for after the call if the if that's needed I'll be available after the call, but it's going to one question, we'll keep our answers kinda quick.
Thank you Sir our next question comes from Gary Tenner D.A. Davidson Your line is open.
Thanks, Good afternoon.
Hi, Good question about the seem high portfolio, obviously, you know well thanks to.
Throw down for the fourth quarter and repayments in the second quarter, but you're fully then.
I see in our portfolio kind of read through even the year end one year ago bubble about sentence. You know so wanted to talk about I'd have a downward pressure on that.
Oh, the Scott I'm happy to take that yeah, We're we're down about it.
Sure.
The first quarter.
Obviously, you see an eye and will it be it the total loans actually.
And Oh.
So you guys.
Part of it and.
A lot line usage.
Just last which you would expect and the volume of request so it.
You know.
It's pretty much what you would think of and I.
But this kind of environment would never experience or a pandemic everybody's looking back they are paying interest there not borrowing.
Decreasing leverage they're not moving forward with new activities.
And everybody's going to wait and see mode. So.
We've also seen decline.
And the application rates that we have all of our critical products and our small business products and and we believe that all come back in time, but it all of it.
It's too.
Just lower total.
Outstandings for the portfolio, let's see how I kinda, leading the way on.
I'll just add real quickly Oh.
Other federal quickly that because of the.
Focus of our portfolio being widely small big ones related and the confluence of the P.T. Love program with the portfolio I I think that also had an impact them on though.
Thank you next question comes from Brian for.
Thomas Your line is open.
Hey, how are you.
He said likely not affected some nominal seven.
Yeah.
On the T.V., I guess, maybe something that some people who might be.
Oh my.
That's an acquisition.
<unk>.
When we bought holders and when I look around perfect that's yet.
Yeah.
So the positive and stuff.
And then I've got another group that's <unk>.
And now [laughter] good bye.
The between you and I've only.
Mm, probably more like 520 million.
[laughter] kind of Matt.
Absolutely and other ones, who exactly happening.
Are going to overlap.
[laughter].
And I guess, the Guy, who who people haven't Tonight.
I would do claim and I didn't see even wall with <unk>.
It doesn't have anything anymore.
Think about that people too and I mean, maybe.
Well I'll start with that and in fact, my Uh Huh.
Yes for the group had a joint <unk> I really.
When you think about where our average customer life or death, the pilots of our customers are small business customers right and so I really don't thank you Ken.
You can separate the P.T. loan program from our loan portfolio.
I understand that the special program and we are clearly separating it because we think its informative for investors, but we have not separating it because we think it is.
Sort of unrelated to the rest, but in fact, it's highly related to the rest of the book So in my mind at least.
Yes, the fact that we.
Have been able to help our communities and help so many of our customers and bringing in a lot of new customers along the way.
Yeah, We think about positive story for our foundation for the community that mature.
I would just Scott I'd, just after that to the.
As part of that whatever your assumptions are about what will look like.
You know the PPP loans have been forget about and that that story is over and hopefully the pandemic is starting to move into the air or whatever your assumptions are about that basically our borrowers.
Our gonna have a lot less liquidity than they had going into it they're gonna be more prone to borrow a line usage.
Robert Blake goes up and I think you're going to see a lot of people that post.
Investing and things or borrowing for personal reasons or business reasons.
Once they see more clarity you're liable to see Joe.
I don't know six to nine month period.
Kind of heightened activity. So there's some assumption about growth one has to make when you come out of it as well.
Thank you.
Thank you next question comes antenna system of Jefferies. Your line is open.
Hey, Thanks, guys I was wondering if you could just elaborate a little bit more on the the infrastructure.
Ways in terms of the attack implementations, what does that mean, both operationally and what does it mean in terms of expense control in the direction of costs. Thanks.
Yes, I can't discuss.
You know future cores are big core replacement project finished the first two phase three phases on that as you know the third phase is ER positive things, which.
Is scheduled for kind of 2022, we don't think the delay is a significant either from a time standpoint, or a p., an l. standpoint, it could certainly cost a bit more.
But the the relative cost.
The relative higher cost.
We believe will be mater small.
Yeah again in the context of what we're saying basically our partner.
Yes, and be a right.
That they had a lot of challenges that everybody in that country in around the world.
But they have been doing marketable job.
And we're committed to our team is committed to delivering our original times.
They have to spend a little bit more to make up for this period, yet and that's that's what here just trying to reference and the period that get extended by a quarter or to also but data that would have a.
A real material impact on what we're doing we don't believe.
The other project as our online and mobile placement.
It it it but certainly it's being impacted by Kobe, but also just the complexity of the project and online and mobile systems work well today.
There's no real customer <unk> issue associated with.
The project being extended.
If it requires another six to nine months to complete.
Let's see if this is James if we can just take one more question, we're already over time, a little bit and you want to one let people get reading. So we'll go ahead take one more question follow ups offline.
Yes, Sir.
Next question comes from except Magarian with Bank of America real answer.
Hey, I just made it. Thank you. This question is for Harris, So you never give steps to ask.
We should have a fashion.
For Diane.
I have to levels that are higher than Perry.
And as you've demonstrated in the results today Hmm either your P.T. now I, apparently colleen they're even as you know reserve seems to be higher then no water and watching your cumulative loss I've gone came on so I'd be thinking about dying on.
Getting through that crayfish profitable.
Thinking about the other side, it's 10.2% so a proper capital not Oh.
And you know at one point my point being.
It's it's proper to move quite ticked up here at bands.
Well I don't know I.
Uh huh.
Good question, but I'm not sure what's a good time, but the answer [laughter], but the real go alone.
But in six months.
And.
Yes.
It's really kind of Nathan <unk>.
Nobody really.
Uh huh.
That's really.
We would your.
But the fact that it came into it with stronger capital fields, Craig and.
And so I expect it will want to kind of maintain that posture currently.
The relative to what that means maybe it will go through time.
That said.
Hi, its its its way premature.
Speculated civil it would take capital budget once we're through this.
<unk>.
Yeah. Thank you.
Okay. Thank you very much for hosting the call today and thank all of the better somehow superjet summer holiday. If you have additional questions. Please contact me James Abbott EPD email address affirming the listed on our website.
For the connecting with you throughout this throughout the coming months, Yeah. Typically we do this in person in conferences, but we'll be doing things victory for awhile.
Let me again, we appreciate thank you for your interest in Zions Bancorporation, but that does conclude the call for today.
<unk>.
Ladies and gentlemen. This concludes today's conference. Thank you participating you may now disconnect.
[music].