Q3 2021 Zions Bancorporation NA Earnings Call

Yeah.

Ladies and gentlemen, thank you for standing by and welcome to the Zions Bancorporation third quarter 2021 earnings results webcast.

At this time all participants are in a listen only mode. After the speaker's presentation. There will be a question and answer session to ask a question. During the session you will need to press Star then one on your telephone.

Please be advised that today's conference is being recorded.

If you require any further assistance. Please press star then zero.

I would now like to turn the conference over to your host Mr. James Abbott you may begin.

Yes.

Thank you, it's Wanda and good evening, everyone. We welcome you to this conference call to discuss our 2021 third quarter earnings.

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 on slide two dealing with forward looking information and the presentation of non-GAAP measures.

Which applies equally to statements made during this call.

A copy of the earnings release as well as the slide deck are available at Zions Bancorporation.

For our agenda today, Chairman and Chief Executive Officer, Harry Simmons will provide operating remarks opening remarks.

Followed by comments from Scott Mclean, our President and Chief operating Officer.

Paul Burner, our Chief Financial Officer will conclude by providing additional detail on zions financial condition.

With US also today are Keith <unk>, our chief risk Officer, and Michael Morris, Our Chief Credit Officer.

We intend to limit the length of this call to one hour during the question and answer section of the call. We request that you limit your questions to one primary and one follow up question to enable other participants to ask questions.

That I will turn the time over to Harris.

Okay.

Thanks, very much James and we want to walk him all of you to our call.

Beginning on slide three.

The themes that are particularly applicable to zions, Oh recently as well we believe in the near term.

Horizon.

Listed here we were.

We are seeing a continuous continued strong deposit growth continued continued in the third quarter.

Disposition volume as well relative to many of our peers to be able to invest in securities to offer promotions on long products in core customer segments.

Yeah.

Secondly for more than a decade, we worked to position the company performed very well during an economic downturn. We were really pleased with the result, which you see in her.

Credit outcomes are again this quarter.

Third we along with most of the industry have experienced net attrition of loan balances excluding P.

P P P loans.

But over the last.

Quarter, we've started to see some new commercial loan growth and our strong deposit growth enabled us again to launch some promotional campaigns in June that resulted in favorable initial results.

These customers are coming from other banks and we've also seen new demand from existing customers.

All of it is accretive to net interest income relative to leaving the liquidity and money market accounts and all of it is helpful to our goal of generating positive operating leverage.

We're well positioned for rising interest rates, which is helped by strong deposit growth, but also reflects the careful deployment of liquidity during earlier more on certain points in time.

Does the outlook becomes more certain we have become begun to deploy the liquidity into higher yielding assets.

The final item on this slide refers to our ongoing significant investment in technology, which is designed to enable science to remain very competitive in the future both relative to the largest U S banks, and Fintech and with well established community banks.

Turning to slide four we are pleased with the results on most fronts.

Our campaigns are on owner occupied commercial loans as well as consumer home equity lines of credit resulted in strong growth in both categories, each increasing at an annualized rate exceeding 10% relative to the prior quarter.

Excluding PPP loans, our period end loans in total increased an annualized five 6%.

Deposit growth remained very strong up an annualized 9.3% moderately outpacing the growth in the industry, which includes all domestic commercial banks.

Over the prior year deposit growth was 16%, which compares to the industry's rate of 12%.

It is particularly notable that credit quality continued to improve again reporting net loan recoveries and a nearly 30% decline in special mentioned loans from the prior quarter.

These along with other factors led to a further release of loan loss reserves.

We indicated last quarter that we would continue to increase the size of the securities portfolio at a rate greater than what we did in 2020 and in the third quarter. We increased the size of the securities portfolio by nearly $2 $3 billion or 12% that's not annualized.

Relative to the prior quarter.

Diluted earnings per share decreased to $1 45 per share from $2 eight from the prior quarter.

There were two primary factors that accounted for the decline.

The change in the provision expense and the change in the gains and losses on securities.

Combined those two contributed about 70 676 cents per share less than the third quarter as compared to the second.

One way we are.

Perhaps some of you look at our earnings.

Two.

Look at adjusted pre provision net revenue, which excludes securities gains and losses.

Subtracting from that actual net charge offs.

On that basis, it was unchanged relative to the prior quarter at $290 million.

Turning to slide five.

At the top left is a chart of our recent earnings per share results.

The chart on the bottom left shows the per share amount for the provision for credit losses during that same period.

The provisions effect on earnings per share was quite variable throughout the pandemic and is a major factor in the linked quarter decline in earnings per share on the right side or some notable items that maybe of interest is as previously.

Previously noted unrealized losses from securities less a partial offset from a reduced success fee accruals in the us, but Spic's fund manager.

<unk> 12 per share as compared to unrealized gains of 25 per share in the prior quarter.

Most of the recent gains and losses on securities are attributable to an investment in small business investment.

Investment company funds.

One of the companies within the funds successfully completed an IPO in April which we described in our first quarter 10-Q with a strong unrealized gain in the second quarter, followed by a partial retracement in the third quarter.

On slide six we highlight the balance sheet profitability metrics.

Healthy results were attributable to items that I previously described.

As previously noted another significant highlight for the quarter was the credit quality of our loan portfolio portfolio as illustrated on slide seven.

Relative to the prior quarter, we saw further improvement in problem loans using the broadest definition of problem loans criticized and classified loans dropped more than 17%.

Although not all of them excuse me, although not shown relative to the prior quarter special mentioned loans declined 29%.

Classified loans declined 10%.

Many of you have seen our slide in the past showing our average net charge off ratio of relative to average non performing assets plus 90, plus days past due loans, which is an indicator of loss severity.

Charter this metric relative to our peers can be seen in the appendix.

During the five years ending 2020, our average annual loss severity was 15% all.

All the peer median was 32%.

Over the last 12 months that ratio for Zions is just 6%.

We experienced net credit recoveries on loans, which was also true of the prior quarter.

Perhaps one of the more interesting credit measures to highlight this quarter is that gross charge offs were very low $8 million or just seven basis points and annualized of average non PPP loans.

Shown in the chart on the bottom right one can see the volatility that provision contrasted with the relative stability of net charge offs.

This was mostly the result of changing economic forecasts.

Our capital position as depicted on slide eight we increased our share buyback to $325 million from third quarter and have indicated that ultimately.

We expect to target a common equity tier one ratio at a level of moderately above the peer median.

We expect to announce any capital actions for the fourth quarter in conjunction with our regularly scheduled board meeting this coming Friday.

Next Scott Mclean, our President and Chief operating officer is going to provide an update on the PPP program and our technology initiatives Scott.

Thank you harriss.

Turning to slide nine our third quarter adjusted.

Pre provision net revenue was 290 million net of the effects of the previously noted I P O.

P P and our borrowers are split into two portions the bottom portion represents what we think of it as generally recurring income while the top portion denotes the PNR we've received from PPP loans.

During the course of the Paycheck protection program, our performance are producing on a relative basis three times more than the industry average.

It will result in approximately 460 million and additional income to the company, which represents capital that ultimately benefits all shareholders.

Specific P. P. P P P related revenue.

380 million.

And there remains $83 million in capitalized income net of origination cost that will be recognized over time.

Although P. P. P related revenue will decline, we're enthusiastic about the longer term benefit of adding approximately 20000 small business customers and strengthening relationships with it with 57000 existing customers.

Turning to slide 10.

Reflect some of the highlights.

Our three X three times performance that I noted earlier regarding forget most we've received $7 9 billion of applications or nearly 80% of the total volume.

$6 7 billion, it's been approved for forgiveness by the SBA.

And $3 1 billion a P. P. P loans remain on our balance sheet at quarter end.

Turning to slide 11 this.

This slide illustrates the longer term benefit.

All of this activity specifically as a result of our outrage you see growing relationships with many of the 77000 P. P. P participating customers. These customers collectively have contributed approximately $6 billion of our deposit growth.

And new non PPP loan balances exceed 550 million to this collection of customers more specifically other P. P P.

'twenty 'twenty vintage.

Spring 2020, vintage 14000, new to bank customers.

Approximately 54% are now appear to be utilizing us as their primary for their primary operating accounts. This percentage as we've noted previously has been growing nicely each quarter and we are seeing similar growth trends with the P. P. P. 2021 vintage 5000, new to bank customers, which started earlier.

This year.

Turning to slide 12.

Called it in our Investor presentations we.

We provide a detailed slide of our major technology projects.

We wanted to just highlight too.

Many of you may recall in April FDIC Chair, Elena Mcwilliams was quoted as saying that her.

One concern for the banking industry was its reliance on aging core loan and deposit systems.

Where do we stand on this topic.

As of February 2019, you'll recall that we completed the replacement of our three legacy core loan systems and now have virtually all of our loans on our new modern core.

In 2023, we expect to complete the final phase of our core modernization journey with a conversion from our legacy deposits systems to our new enterprise core system.

To put this in perspective, a big four accounting firm recently reported that of the top 100 banks in the United States 93.

Remain on one or more older first generation cores.

Six are utilizing a modern core.

Hum on only a portion of their loan and deposit ecosystem.

And science is the only bank approaching the ability to utilize a modern core for the entire enterprise.

Interestingly you were starting to hear about some digital first core systems.

While these provide the most advanced architectural elements available.

And we're generally designed for digital only banks.

None of yet to be proven here's a whole lot of scale or complexity required by the largest banks.

So why does this matter.

At a high level implementation of one core solution across all lines of business all products in all geographies geographies.

<unk> reduces complexity enhances our resiliency and create the adaptability for a rapidly changing technology environment that lies ahead.

[laughter] more specifically.

The architecture is as noted on this slide parameter driven.

Meaning we can quickly turn off and on.

Or adjust features without reprogramming or testing for months at.

It utilizes one data model.

Huge advantage in the digital world.

And it is natively real time and ATI enabled this.

The characteristics and others will greatly reduce the time it takes to introduce new products and capabilities. As an example, our nucor was an important contributor to producing P. P P revenue exceeding $460 million.

Within a matter of days, we were able to introduce the P. P P product.

And then Kris the number of business related loans on our system from approximately 40000.

Over 95000.

With loan boarding occurring in minutes.

Most would agree this represents a significant early return on our core replacement investments.

As you talk to other banks, they will say that their older first generation core loan and deposit systems have been adapted.

Like real time utilize APR and synthesize doesn't have data models.

Well, we were doing that as well and our loan systems and continue to do that in our deposit system until we convert.

But all of these technologies.

All of these technology gymnastics.

That take place generally in what is referred to as middleware, absolutely introduce complexity risk and cost.

Regarding one additional highlight I'd like to note.

That our core systems seven day processing capability.

Most of the world outside of the United States operates on seven day processing when we implemented the loan portion of our new core we adopted seven day processing. However.

However, as the U S deposit market is still not adopted seven day processing.

We chose to convert back to five day process and getting in advance of our 'twenty to 'twenty three deposit conversion.

The point is that we were literally able to turn this global capability all over a weekend in August and can turn it back on when the U S adopt seven day processing.

This slide also conveys numerous other customer and employee facing benefits, which I'd be happy to expand on the Q&A.

Turning to slide 13, my last slide while we have been highly focused on our industry leading work regarding core modernization.

I wanted to highlight one of our numerous new customer facing capabilities.

Earlier in the year, we converted 610000 consumers to our new online mobile platform.

While time does not allow us to review all of the details of this new platform, we're gratified with the early acceptance.

Consumers as measured by ratings in the Apple.

Apple and Google App stores.

You can see that we are on par with the largest U S banks and our top tier with our peers. The rollout of this new online mobile system to approximately 150000 small business clients will occur in 2022.

And with this client base, we are already perceived to be on par with or superior to our global competitors.

With that I'll turn the remainder of the time over to Paul Burton, Our Chief Financial Officer.

Thank you Scott and good evening, everyone and thanks for joining us.

More than three quarters of our revenue is in the form of net interest income, which is significantly significantly influenced by loan and deposit growth and associated interest rates.

I'll begin my comments on slide 14, with a review of these results. Although the average total loans were down in the third quarter by three 7% when compared to the second quarter, we experienced average loan growth when excluding PPP loans and on a period end basis that growth was $661 million or $1.

4%.

The strongest linked quarter growth was in commercial construction at nearly $270 million. This is the result of increased construction activity on previously established lines of credit.

We reported strength in commercial and industrial loans, which increased more than $280 million or 2%. We ran promotions during the quarter on owner occupied and home equity loans, which increased $215 million and $107 million respectively.

Claims were reported in PPP loans down $1 $4 billion as Scott previously noted.

In term commercial real estate, which declined more than $220 million in.

In the third quarter, we reported a more modest decline in residential mortgage balances than we have in recent quarters down nearly $130 million.

With a strong held for investment pipeline of mortgages, we may see some further stabilization or possibly growth in residential mortgages in the near term.

One final note on loan growth.

Relative to periods prior to the pandemic revolving line of credit utilization has declined several percentage points.

Using the third quarter of 2019 as the benchmark corner.

Solving line utilization rate was 39, 5% as compared to 33, 7% in the third quarter of 2021.

Essentially from.

From the prior quarter.

Although revolving loan balances did increase from the prior quarter up about $200 million the lending commitments increased about $700 million.

As I've noted in the past deposits have been and remain the driver of balance sheet growth over the past several quarters and in the third quarter on the right side of this page.

Average deposits increased three 7% from the prior quarter relative to the year ago period average deposits increased 16% average noninterest bearing deposits increased four 9% over the prior quarter and 24%.

Compared to the prior year period.

Our noninterest bearing deposits make up one half of average total deposits.

The yield on average total loans increased slightly from the prior quarter, which is attributable to the six 7% yield on the PPP loan portfolio excluding.

Excluding PPP loans, the yield declined eight basis points to 359% from $3 six 7% deposit costs remain low our cost of total deposits fell to three basis points in the third quarter.

Moving to slide 15, we show our securities and money market investment portfolio over the last five quarters. The size of the period end securities portfolio increased by nearly $6 billion over the past year to $21 million, while money market investments increased more than seven 5 billion to $11 9 billion.

The combination of securities and money market investments.

Isn't to nearly 40% of total earning assets at period end, which compares to an average level in 2019 prior to the pandemic of 26%. We continue to exercise caution regarding duration extension risk by purchasing bonds with relatively short duration, both in the current and in an upward shock.

Rate shock scenario, the $3 $6 billion of security purchases for the quarter had an average yield of 153%.

Slide 16 is an overview of net interest income and the net interest margin. The chart on the left shows the recent five quarter trend for both the net interest margin in the white boxes has declined over the past year, reflecting the rise in excess liquidity as described on the prior page.

For the third quarter. This goes in excess liquidity as referenced in the chart on the right is the <unk>.

Strong growth in deposits has impacted the composition of earning assets from a larger concentration in lower yielding money market and securities investments the weighted average yield of our securities and money market investments as just 1.07% and with that concentration increasing by four percentage points in the quarter.

It weighed on the net interest margin.

In fact, I estimate that the increase in money market investments has accounted for 33 of the 45 basis point net interest margin compression over the past year.

Slide 17 shows information about our interest rate sensitivity.

Focusing on the upper left quadrant as a general statement our asset sensitivity has increased as deposits had been invested in short term money market assets. This increase in estimated rate sensitivity assumes incremental deposits have modestly shorter duration characteristics when compared to deposits on our balance sheet prior to the REIT.

Deposit surge, we are continuing to deploy deposit driven cash into securities, which helps to moderate the natural the natural asset sensitivity. However, with continued strong deposit growth and higher prepayment rates on mortgage loans and securities are estimated interest rate sensitivity with similar to the second.

Quarter level, such that and an interest rate environment that is shocked immediately 100 basis points higher than the current level. Our net interest income and the 12 month horizon is estimated to be higher by 12%.

As previously noted we may continue to add interest rate swaps, including forward, starting swaps, which would help to temper our natural asset sensitivity.

On slide 18 building on a good second quarter customer related fees increased an additional 9% in the third quarter to $151 million, notably activity based fees such as card fees merchant services in retail and business banking fees remained strong and have grown to the level of two years ago prior to the pandemic.

This improved improvement added to continued strength in loan related capital markets and wealth management revenues.

Noninterest expenses on slide 19 were essentially unchanged from the prior quarter at $429 million, adjusted noninterest expense increased 3% or $13 million to $432 million.

Linked quarter increase in adjusted noninterest expense was primarily due to employee compensation. The increase was associated with higher base salaries and profitability driven long and short term compensation.

Other noninterest expense includes a $4 million success fee reversal associated with the mark to market loss in our <unk> as compared to the $9 million success fee accrual recognized in the second quarter.

Slide 20 details our allowance for credit losses or ACL in the upper left we show the recent the declining trend in the ACL to $529 million at the end of the third quarter or 111% of non PPP loans.

The chart on the lower right side of this page shows the three broad categories that resulted in decline and a decline of $45 million more than 60% of the change was attributable to changes in the portfolio mix and competition.

Our updated outlook is.

As found on slide 21, and as a reminder, this is our outlook for financial performance in the third quarter of 2022 as compared to the actual resorts results reported for the third quarter of 2021 quarters in between are subject to normal seasonality and my comments are subject to our earlier reference to forward looking statements found on slide two.

<unk>.

Due to the degree of uncertainty on the timing of customers' submitting requests in the SBA improving those requests our outlook for loan growth exclude the PPP loans.

We are more optimistic about loan growth now than we were in July and as such we are increasing our outlook to moderately increasing from slightly to moderately increasing led by core C&I, including our promotional owner occupied loan product.

We expect net interest income also excluding PPP loan revenue kick.

Increase over the next year as compression of loan and securities yields will be more than offset by continued deployment of cash into term securities and a more favorable outlook for growth in non PPP loans.

The current quarter's customer related fees are the highest we have reported building on such a strong third quarter, we are reducing our outlook for customer related fees, one year from now to be stable to slightly increasing from moderately increasing.

We are adjusting our expectation for adjusted noninterest expense to be moderately increasing from slightly increasing we remain disciplined on expense control. However, increased visitor business activity emerging inflationary trends and continued investments in enabling technologies will place upward pressure on noninterest expense over the near.

Term.

And finally with respect to capital management, we remain comfortable that our philosophy of lower lower than average risk combined with stronger than median capital is the right formula for creating long term shareholder value.

Our capital measured by common equity tier one relative to risk weighted assets remains well above the peer median as we consider the balance between capital ratios and our risk profile. We believe that we have capacity for continued active capital management in the near to medium term. So long as the current macro economic and credit trends continue.

<unk> to be favorable.

This concludes our prepared remarks to Wanda. Please open the line for questions.

Yeah.

Thank you.

Ladies and gentlemen, you would need to press Star then one on your telephone.

John Your question press the pound key.

Again, its star one to ask a question please.

Please standby, while we compile the Q&A roster.

Our first question comes from the line up.

Upon <unk> with Bank of America. Your line is open.

Hey, good afternoon.

I was wondering Paul if you could just.

NII guide a little bit.

Help us understand in terms of.

What are you assuming and tell me how much cash you expect to deploy.

Into securities over the next 12 months.

Where do you see that liquidity levels going and.

Does the increasing imply 4% to 6% somewhat higher than the high single digit range. When you think about the.

The growth year over year.

Thanks.

Yes, sorry, I missed the second part of your question on 4% to 6% what was that what was that question. Yeah. I was just increasing does that imply mid single digits or high single digits and angles.

Oh, sorry, so so first let me talk about deposits because that's really the driver here right we have had.

Deposits across the industry are up I think we have.

<unk> been able to garner more than our fair share of deposits and as we are analyzing these deposits over time, what we're finding.

As you know a year ago I would've thought that these deposits were more transitory to viral word from the fed.

Proving to be what we're actually observing is that.

Many of these new deposit accounts are being used in an operating nature, which history tells us it means that they are more sticky than they otherwise would be so this is what's giving us confidence to be.

I don't want to say aggressive but certainly.

Buying more securities than we might otherwise would I E putting those deposit dollars.

To work so as we're thinking about our net interest income outlook next year and again remember this.

This excludes PPP loans right, so taking them out of the base and not considering them going forward.

We have increased confidence that loans loan growth will pick up and.

So we're going to use part of it part of the cash that way.

And as that cash continues to prove to be somewhat stable that is the deposits continue to prove to be somewhat stable. We will continue to deploy that.

In.

Investment Securities. We are asset sensitive position is such that we can afford to continue to add duration on the asset side for some time to come without really adversely impacting our risk profile. In fact, I would argue it kind of improves our risk profile as we reduce volatility.

It's those key factors. It's the continued deployment of securities and in growth in loans that we believe will ultimately drive growth in net interest income over the course of the next year excluding PPP.

That was helpful. And then does that imply mid single digits or high single digits and Iqos.

Well you know we have a tendency to not try to put dollars on it but generally speaking increasing would be.

Mid to above mid <unk>.

Got it.

Thanks for taking my question.

Yeah. Thank you. Thank you.

Our next question comes from the line of Dave Rochester with Compass point.

Your line is open.

Okay.

Yes.

Was just wondering on the liquidity front, what's the minimum cash level, you want to hold either as a balance or percent of assets just trying to figure out how much excess cash you think you have that you can deploy in the securities laws.

Yeah, so yeah, so Dave.

So.

It depends on what we're assuming for deposits right everything centered around those.

We eat it as we gain confidence in those deposits that amount of cash we need to hold for our what I would characterize it.

Our liquidity risk.

Go down and what we're seeing is that as I said the stability of that cash appears to be improving if you look back over time, you can see that it would not be uncommon at all for us to run with a sort of cash position I E. The money market investments line on our balance sheet of you know kind of $2 billion to $3 billion.

And in fact, a year ago, that's where it was.

So I wouldn't.

As we get as we gain confidence in the stability of those deposits I would expect.

And I should also add that there is an enormous amount of liquidity in our investment portfolio. So we are investing relatively short what that means is we've got about $400 million of cash flow every month.

We're continuing to reinvest so when we think about our cash position, it's not only cash on the balance sheet, but but the cash flow that's turning to the investment portfolio. So a long way of saying that.

If you if you look historically, we have run with a cash position that is much much lower than today and overtime I would expect to get back to something closer to that.

Yeah, Okay, and then just switching gears.

To the loans on the teaser rate products. Just curious you know where those rates are today, what they step up to.

In a year or so and then what's your appetite is for total production there how long do you think you're going to run those.

Details that'd be great. Thanks.

Yeah. Thank you Dave Scott between the the home equity line of credit program. We ran from June one to the end of August.

That rate was 90 basis points for the first year and then it converted to 299 to the extent they were new loans.

Out to 10 years.

Similarly on the owner occupied program that also started June one.

And if it's tentatively scheduled to conclude at the end of this year that that promotional rate was 90 basis point 90 basis points and it converts out to 10 years from there.

10 years at $2 99.

We will probably depending on what happens with the rate environment.

Have each of our affiliates on a cycling basis.

Keep that HELOC promotion alive, and likewise, if we get to the end of the year and the rate environment seems still very flat to stable.

May continue the owner occupied program for a bit longer as well.

Both have been we've been really pleased with the energy the bulk of generated in more than the loans that they produce.

It's given all of our bankers something really exciting to talk about there in a pretty challenging time.

So it's.

It's been a really good strategy for us.

Yeah.

Okay, great. Thanks for all the color appreciate it.

Thank you.

Our next question comes from the line of Peter Winter with wet Bush because securities. Your line is open.

Thanks, I wanted to ask just two questions on the asset sensitivity.

Can you just remind us what percentage of loans have floors and how many fed rate hikes, you need to go without those loans worse.

James do you still have that on the slide.

Off the top of my head I.

I think they may have done.

What percentage do you have it handy James yes.

Yeah, I'll get it by the end of the call Peter.

Six or $7 billion as I recall, but ultimately when you find the numbers really quickly.

Okay.

Only about it's only about 50 basis points or so in the money. So it's not a huge group.

And I guess my final thought on that would be is it a it is incorporated in our interest rate sensitivity outlook. So as we think about an up 100 scenario that is incorporated in that.

Got it.

And I'm, just wondering about the deposit betas.

I saw on the slide.

What you forecasted.

I'm, just wondering if deposit betas come in lower but.

I'm just wondering if theres any type of sensitivity analysis.

Just given how much growth you've had in non interest bearing deposits.

Yeah, well, we certainly do a lot of sensitivity analysis and I think we have some in that we publish quarterly in our 10-Q I think theres a couple of key assumptions in there one is that the duration of the deposits that we've recently put on is actually a little shorter than the duration of sort of what I might call the heritage portfolio.

Deposits.

That's one point and the other point is theres so much liquidity in the market that we believe that when rates start to rise.

We do not believe we will need to be very aggressive in raising rates.

Perhaps less than historically, perhaps.

That feeds into our asset sensitivity.

Alright.

On the question about loans with floors.

We have about 35 a barrel.

Plus or minus in variable rate loans.

And about 24 billion these numbers.

Oh not exactly at September 30, but about 24 billion have floors.

And.

The floors are generally.

Yeah.

Zero or rates.

Say 100 basis points higher than that.

Okay. Thanks, Scott Thanks for taking my questions.

Thank you.

Our next question comes from the line of Jim Jennifer Denver with Choice Securities. Your line is open.

Okay.

Thank you good evening.

A question on the loan loss reserve now down to 122 basis points to nine two conclude learn.

Just wondering given the economy should continue to improve in.

It sounds like you're pretty confident you learn losses, they're gonna stay pretty low how much lower could that go.

Hi, Jeff.

Oh go ahead.

Well it sounds like the game.

Limbo.

How low can you go.

Yeah.

I think that the very nature of Cecil.

Everything that we think.

About the future of that reserve is incorporated into it.

Got.

If we.

Because we saw a permanent.

I don't think that's what we're seeing right now in terms of credit quality.

With mentioned.

You mentioned gross charge offs coming in at seven basis points.

It's probably a sustainable.

But even there even where we should be.

But if we found that we were just.

The losses are not materializing, then it will continue I presume to come lower I don't think theres any.

There is no.

Sort of arbitrary.

Limit or threshold or anything of the sort I mean, we're just doing our best every quarter to try to understand what.

Future losses inherent in that portfolio can look like over the life of the underlying loans.

So I think as I said, its a tough question to answer right.

You know in theory I think.

It can come lower I am not sure I would really expect it again, just given the nature of the portfolio and the times we're in.

Yeah.

Thank you.

Question is on your lending pipeline could you just talk about the pipeline outside the promotion.

But you had during the quarter and what you're seeing in terms of demand right now.

Sure.

Hum.

About the categories.

Paul noted are our utilization rate.

And on revolving credits.

And I think it's reasonable to expect and that's just generally C&I credits, principally but it had some consumer and some CRA related to it.

And I think our general thought is over the next 12 months, we'll see revolving usage start to go up again I don't think we have to work through all those cash if you go back to the 2008 2009, the monetary easing ban that liquidity fundamentally stayed in the system and utilization rates.

You know, we're not we're not overly burdened by that so customers just got used to dealing with a higher level of liquidity secondly, I would say that.

Our municipal finance business is continuing to grow nicely we're seeing.

Increases in other C&I pipelines related to larger transactions syndications et cetera.

And CRE in general.

I wouldn't look for CRE to grow faster than our portfolio grows but CRE in general has been growing nicely and finally, one of the places where we've seen the most decreases in our.

Portfolio has been in one to four family mortgages and based on the mix of that portfolio that makes about pipeline excuse me.

We should start to see one to four family growing again, if you look back over the last five or six years before the pandemic one to four family mortgage products were generally about 20% to 25% of our growth and I don't think it's unreasonable to think that that will return as well.

Thanks Scott.

Thank you.

Our next question comes from the line of Ken Houston with Jefferies. Your line is open.

Hi, Thanks, good evening.

Just wanted to ask on.

On capital this quarter, you guys did that extra step up and still had room to grow loans and you've talked to us about trying to get your CET one ratio down over time.

Closer to peers and Directionally, So I guess, what's the tradeoff now if youre starting to see a little bit better loan growth with regards to how fast the pace of capital return could be in that kind of.

Waiting are hoping or expecting you know the loan growth to come back in terms of <unk> usage.

Well I'll start with that Ken.

The fact is we reported an estimated CET one a 10, 9%. This quarter I think you know that we compare we have a list of peers, which we publish and we compare our CET one to those appears and we remain.

Sort of significantly above that median peer level overtime.

As we have said, we expect to have lower than average risk and slightly better than median capitalization and therefore, we've got we've got some room to go on that ratio. So my point of my point. The thing that is that we can absolutely absorb.

Accelerating loan growth and continued share repurchases.

But as a reminder, as Harris noted that that that capital activity and subject to board approval.

Okay, and then Scott.

Another good update on the on future core and.

Timing I guess.

We're still waiting for that time period, when you get that double spend out of the way. So how much closer are we to starting to sunset. Some of the older stuff is there you're still expecting cost to go up so I'm just wondering.

Ins and outs in terms of the moderately increasing cost base that you're still expecting from here versus when do we really start to see some of those synergies from the platform. Thanks.

Yes, thank you for that question.

Similar to what we said during the third quarter and earlier in the year the future core related P&L costs.

We'll actually be kind of flat.

To down a little bit next year.

Should increase in 23 by about.

You know seven to 10 million $10 million over our current run rate just because that is the implementation year and you'll generally see expenses go up because of accounting treatment. There and then in 'twenty four it will drop about $10 million so to kind of put a fine point on your question.

I would however note.

Note that.

You know when you think about.

Overall technology spend and we've said this for a long time.

Yeah, I don't know that it's going to abate.

For many reasons.

The investments that all banks need to make in cyber protection. The investments you have to make to be cloud ready and utilize the benefits of cloud.

Investments you need to make around data et.

Et cetera.

And so.

So I don't know that that's where you'll see it where I think you'll see it will be in operational expenses.

And as we continue to see the benefits of the system it'll common operational expenses not necessarily in technology spend.

Got it thank you.

Thank you.

Our next question comes from the line of Steven Alexopoulos with Jpmorgan.

Your line is open.

Hi, everybody.

In terms of my first question Scott Scott responding to Jennifer's question. The one area that you didn't really touch on was energy, which I would imagine you could probably get good risk adjusted returns given most banks are still restricting exposure. There. It's a question to you do you guys have an appetite for energy lending here and are you seeing increased demand just given the surge in energy prices overall.

The answer is yes, and yes.

If I can say that without being politically sensitive.

Energy loans outstanding are about $1 9 billion right now.

You'll recall that we got down to about this level after the 2015 2016.

Energy price volatility period, and then we were able to grow back up to about $2 5 billion and now we've run back down to about $1 9 billion.

At these prices which were predictable.

For both oil and natural gas, we will start to see drill.

Drilling increase and you will see line utilization going up.

And there are far fewer players today.

<unk>.

And the market pricing has gone up on reserve based loans and credit quality structures have improved they went out bad before but they become more conservative as the number of banks globally, and particularly in the U S have shrunk by probably half, but will do energy financing today from.

25 to 30 down to sort of the mid teens.

We'll continue to see some midstream growth basically the portfolio is about 40%, 45% upstream reserve based loans, which is what we specialize in about assembler position of about 40% for midstream.

A smaller percentage around 15 for oilfield service, but Steven you're absolutely right, we will see growth there we anticipate it we're feeling it.

And I you know to.

So go back to two and a half billion or slightly higher it would not be an unreasonable expectation over the next year and a half.

Okay.

Really helpful color.

Separately, if I look at slide 13, Scott can you give more color on what customers responded to.

So favorably that drove the increase in the App store ratings. Thanks.

Yeah.

That's a great question.

When you look at it.

Well first of all our ratings were.

Not very favorable before so they may be reacting to hey, it's just there's a whole lot better, but but their ranking us off elaborate level as I said very very close to the global banks, which are clearly terrific and with regard and top tier for our peer banks and it really is the items noted.

Notice there but.

We had it we have a unified platform for online and mobile that may sound kind of simple, but a lockdown and it means that you have to constantly be synchronizing your online and mobile product. It's one plant now platform for us now.

The alert option, particularly our attractive when you think about fraud and the increase of fraud in our environment.

And I would also note that this is just the start for US we can now push.

We can now push upgrades new capability daily if we want.

That's a huge difference from where we were we can now push daily if we like and we have a really tight punch list of enhancements that we didnt make part of the initial offerings that will roll out over the next 12 months, which we think will do nothing but support these favorable ratings and possibly increase them.

Yeah.

Yeah, we looked at it's pretty high across all of the sub banks too.

Consistent there.

Thanks for all the color.

Thank you yeah, it's basically an average I don't think its a weighted average I think it's just an arithmetic average, but it gets a little artistic because you can imagine.

Yes.

Yes.

Thank you.

Our next question comes from the line of John <unk> with Evercore. Your line is open.

Good afternoon guys.

Yeah.

On the calling effort.

The calling on the promotion.

I have heard around that.

E M D.

Our commercial real estate are there.

Similar promotions or a similar sales push.

Given the success of the promotions that you can focus on another products and other small business work on other parts of C&I and then or could you also is there any consideration around you mentioned that syndicated lending it's been picking up have you been evaluating your hold levels in that from just looking at different ways that you can catch.

<unk> on some of this improvement in demand that you are mentioning.

Just a quick I'll just give you a quick answer I'd say that's go ahead sorry.

Yeah.

John I'd say that.

Don't think we're.

We're not going to allow us to.

Get into our thinking about hold.

Limits, let me start there I mean, that's just that's really an important kind of risk management consideration not.

Not one that we're gonna let revenue drive.

I'm comfortable with where our limits are but I.

I don't want to conflate.

Uh huh.

How do we use this liquidity too.

To.

Justify taking on a lot more risk I think the.

Yes.

We may find ourselves looking at other opportunities.

So how we.

Used promotional pricing.

I think you know.

A big consideration is just.

Systemically, how we can.

Support.

Product, where we introduced pricing.

And.

Some are simply easier because of the nature of Uh huh.

Of our fixed rate.

Term deal, where you know that it's going to be outstanding for a period of time you can have a teaser rate for the first portion, but no you are pretty confident that youre going to get a.

The sizable annuity in the out years.

That's not always true with some other loan types, which can be.

Shorter term in nature.

A little more challenging to manage in terms of making sure that ultimately this is kind of.

Provide some some really solid benefit for us.

Alright, I appreciate the comment something we should think about that.

I think I think the couple of products that we focus on are probably the right ones.

At the time.

Okay.

Got it that's helpful and then separately Paris.

You've been discussing your capital Optionality.

I just wanted to get your updated thoughts around M&A.

We've seen a number of your bank peers complete deals and theirs.

A bit of a race here and there to gain scale and then you know what.

It's clearly a.

Highly competitive space. So curious if your thoughts there as you look at potential M&A, either bank or non bank as well. Thanks.

Yes, I think I think our thinking hasn't really changed relative to bank M&A.

I don't think that you can win.

When this race by just getting larger.

L B.

Or is it better better is better.

Absolutely the way we think about this.

There could be deals that makes sense.

You also probably don't.

We continue to be.

I think pretty cautious about any activity given the all the internal focus we have on.

Getting this future core project behind us.

As we emerge from that.

I think we'll have certainly an opportunity to do things.

That would be appealing to us.

The customers.

And that will.

Provide some capabilities that might be.

You know incrementally enticing too.

The sellers, but.

At the end of the day.

We just want to get through that project.

Our mines and then look at the economics of what's out there and if it makes sense to say.

Particularly end market.

Consolidation that.

The proofs incrementally economics.

Something we'd certainly look at.

But it's not a it's not going to be a driver of our team.

<unk> is not something that's kind of front burner for us.

Got it alright, Thanks Harris I appreciate the color.

Thanks.

Thank you.

Our next question comes from the line of Gary Tenner with D. A Davidson your line is open.

Hi, Gary.

Yes, sorry can you hear me now.

Yes, we got to let it go ahead, hi, I apologize.

So my first question was just a quick one on PPP it looks like about a third of the remaining balances have forgiveness applications already in could you kind of ballpark where you.

The year end.

Level could be.

Given that Theres still some.

Sizeable amount of fees to be collected.

During the fourth quarter next year.

Hey, Gary This is Ty it's pretty speculative I believe it's not only it's not up to us right because the clients need to submit for it and then the SBA needs to act on it so.

My expectation is largely that P. P. P loans, it's going to have sort of probably a half life aspect to it but I'd say the vast majority of our loans are going to be gone by the middle of next year is my personal estimate, but again, it's pretty speculative.

Okay great.

Then.

Scott if I heard your answer to the question on rate sensitivity in Florida correctly. It was $35 billion in variable rate loans 24 of which have floors and did you say that the floors are generally in the money by less than 100 basis points or was that a different.

Figure.

James made the comment about in in the money.

And what I failed to say was.

The the LIBOR floors are generally at 1%.

Some as low as zero the prime floor.

Alright, three in a quarter to 4%, but that was the guidance and.

I think Jack you made a comment about what was in the money.

Can I clarify that just a little bit Scott.

Number of loans with floors in the money is $5 6 billion.

The average in the money money we call it.

Just over 50 basis points, it's about 60 basis points as Scott correctly pointed out we have a lot of loans with floors that are kind of out of the money.

Your question is really about the in the money floors, and it's about $5 $6 billion and about 60 basis points.

Okay, great guys. Thank you thank.

Thank you.

Thank you. Our next question comes from the line of Chris Mcgratty with VW. Your line is open.

Oh, great. Thanks for the question.

Just want to make sure I understand the Remixing strategy that has the potential to unfold.

I guess the question is what is the kind of the level of securities to earning assets that you would anticipate.

Somebody comes out of cash.

How does it flow into the loans versus securities I guess is the question proportionately.

Well look I want to grow and I think we all want to grow loans, you know first and foremost and we're all very very focused on that and so that loan growth is going to be the driver and thats our anchor right.

Everything around that is how we how we invest our deposits into earning assets and so first and foremost as loans.

And then second priority would be securities and again, its relatively relatively short term so to the extent these deposits stay sticky.

The answer is going to be first will fund the loans and then sort of whatever is leftover, leaving a kind of a storehouse of cash for immediate liquidity.

Over time be invested into longer term securities I hope that helps its a little and I know, it's not precise but that's the thought process and so as you're thinking about the balance sheet and modeling. It I would encourage you use that sort of thought process.

Okay. That's helpful and maybe I could just ask one in terms of the guidance I just want.

Make sure I understand the outlook.

Could you just.

Maybe provide a key or kind of a.

A little bit more guidance on each of the.

The outlook.

Increasing increasing I know.

I tend to give specifics, but just kind of stack rank and kind of ranges it would be helpful for us. Thanks.

Well I think James typically does that he's got a whole lexicon rubik's cube that we used to interpret them, but on the.

As it relates to our outlook.

We are being.

Intentional around not applying specific percentages around these numbers if we wanted to fly percentages, we would just put them out there right.

And so the language is intended to convey.

Relative measures from slight to moderate to increasing without being overly specific on.

The percentage changes.

Okay great.

It is likely.

So any of the tariffs.

I say.

Especially because we are likely to be wrong.

I mean this is this is a.

This is an outlook, it's not a crystal ball and.

There are so many factors that can influence all of this.

Hi.

I know everybody's looking for precision.

Youre looking at the wrong quarter should come to us.

Yeah.

Yes.

Thank you.

Thank you.

Our next question comes from the line of Tim Coffey with Janney. Your line is open.

Great. Thank you I just wanted to.

Last question about the liquidity that you've gotten the balance sheet.

Relative to your size you've operated at kind of.

Levels of liquidity in previous years, and if I look back to 2015 again on a relative basis.

You were able to bring that liquidity down about four to six quarters.

And given the comments on today's conference call regarding the deposit stickiness the opportunities for loan growth across the franchise.

I'm wondering do you think the allocation of liquidity could occur faster this time.

Well, yes, so if we go back in time.

You may recall, we had about round numbers in 2000 at the beginning of 2015 about $8 billion of cash equivalents and Youre right over the ensuing kind of six ish to eight ish quarters, we brought that down and you think about the pace with which we are buying today than we were.

Buying not only are we reinvesting all of that cash flow and remember.

Our portfolio is putting off cash flow of about $400 million a month, we're adding $1 billion to $2 billion a quarter. So there is a natural I would say limit in terms of how much.

Positioning we want to be in any given quarter because that quarter that vintage of purchases is defined by the rate environment in that quarter.

And so we're trying to be measured as we were then we're trying to be measured in the deployment of the liquidity.

Perhaps we could accelerate it a little bit, but just like we said back then.

We don't want to take a very large position in.

And the rate environment in any given quarter, which is why we're sort of legging into the position as opposed to putting all of our chips on rent if you will.

Great.

That was my question. Thank you very much.

Thank you.

Thank you, ladies and gentlemen, due to the interest of time. Our final question comes from the line of Brock Vandervliet with UBS.

Alright.

Thanks for the question. This is an advantage being at the end of the call I just going back to the question to before in terms of an answer key around.

The descriptive I think a number of us are kind of struggling with.

Specifically NII and expense guidance and just worried I'm worried whether I'm a little ahead of my skis on our numbers and I was just looking for you know.

I guess, one on NII just clarification, so you shouldn't be growing off of the 499 number.

That is ex PPP.

And.

Low.

I'm thinking low single digit kind of.

Expenses kind of growth on that.

Yeah, Brian This is James.

What we've tried to convey in the past is like slightly increasing as kind of low single digits, and then moderately increasing mid single digits.

We've never had to use a high like a rapid growth sort of situation.

At least not in a while but.

So just increasing would be would be pretty healthy robust growth in net interest income, which is fundamentally driven by pretty strong securities growth was Paul just discussed and the improved outlook on loan growth.

And.

Somewhat.

But maybe a little bit of offset on price on the.

Loans as the loans as the front book back book.

Dynamic plays out but it's.

A little hard to gauge because that's the competitive environment situation.

Okay that helps a little bit.

Yeah. It is it does James and unexpected.

Guiding off of $4 32, the adjusted total and that's moderately increasing.

Yeah.

It's correct that again it is actually.

That pertains to kind of this this this recognition that there is inflationary pressures in the environment and also.

The technology expenditure that Scott referenced earlier in the call.

Got it okay alright. Thank you that's helpful.

But if I could I would say not the color code on that page 21.

I don't think it's a stretch to say increasing is a bigger number than moderately increasing which is a bigger number than stable or slightly increasing right. So that's sort of the nomenclature in the way to think about this and and.

And therefore, you can see net interest income is showing up clearly in the increasing count and that is because.

Again, excluding PPP, we see the opportunity to invest continue to grow the size of the portfolio and increasing confidence about the one the loan outlook.

Key drivers and then on top of all of that while we're not expecting any increases in short term rates in 2022. It is an opportunity for zions Bancorp.

Due to the again deposit driven asset sensitivity on our balance sheet.

Okay.

Okay. Thank you.

Thank you.

I would now like to turn the call back over to Mr. James Abbott for closing remarks.

And thank you very much I appreciate that thank you all for joining US today. If you do have any additional questions. Please contact me at either my email or phone number listed on our website and look forward to connecting with you throughout the coming months and thank you again for your interest in Zions Bancorporation with that this concludes our call.

Ladies and gentlemen, this concludes today's conference call. Thank you for your participation you may now disconnect.

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Ladies and gentlemen, thank you for standing by and welcome to the Zions Bancorporation third quarter 2021 earnings results webcast.

At this time all participants are in a listen only mode. After the speaker's presentation. There will be a question and answer session to ask a question. During this session you will need to press Star then one on your telephone please.

Please be advised that today's conference is being recorded.

If he was quite any further assistance. Please press star then zero.

Now I'd like to turn the conference over to your host Mr. James Abbott you may begin.

Thank you, it's Wanda and good evening, everyone. We welcome you to this conference call to discuss our 2021 third quarter earnings.

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 on slide two dealing with forward looking information and the presentation of non-GAAP measures, which.

We used to quite equally the statements made during this call.

A copy of the earnings release as well as the slide deck are available at Zions Bancorporation.

For our agenda today, Chairman and Chief Executive Officer, Harry Simmons will provide operating remarks opening remarks.

Followed by comments from Scott Mclean, our President and Chief operating Officer.

Paul Burton, our Chief Financial Officer will conclude by providing additional detail on <unk> financial condition.

With US also today are Keith mile, Our Chief risk Officer, and Michael Morris, Our Chief Credit Officer.

We intend to limit the length of this call to one hour during the question and answer section of the call. We request that you limit your questions to one primary and one follow up question to enable other participants to ask questions with that I will turn the time over to Harris.

Okay.

Thanks, very much James and we want to welcome all of you to our call.

Yeah.

Beginning on slide three.

The things that are particularly applicable to zions, Oh recently as well as we believe in the near term horizon horizon.

They're listed here we were.

We are seeing a continuous continued strong deposit growth continued continued in the third quarter.

Its positions irons, well relative to many of our peers to be able to invest in securities to offer promotions on long products and core customer segments.

Yes.

Finally for more than a decade, we worked to position. The company has performed very well during an economic downturn. We are really pleased with the result, which you see in our.

Credit outcomes.

Again this quarter.

Third we along with most of the industry have experienced net attrition of loan balances excluding.

P P P loans.

But over the last quarter.

Quarter, we've started to see some new commercial loan growth and our strong deposit growth enabled us again to launch some promotional campaigns in June that resulted in favorable initial results.

These customers are coming from other banks and we've also seen new demand from existing customers.

All of it is accretive to net interest income relative just leaving liquidity in money market accounts and all of it is helpful to our goal of generating positive operating leverage.

We're well positioned for rising interest rates, which is helped by strong deposit growth, but also reflects the careful deployment of liquidity during earlier more on certain points in time.

Does the outlook becomes more certain we have become begun to deploy the liquidity into higher yielding assets.

Yeah.

The final item on this slide refers to our ongoing significant investment in technology, which is designed to enable science to remain very competitive in the future both relative to the largest U S banks, and Fintech and with well established community banks.

Turning to slide four we are pleased with the results on most fronts.

Our campaigns are on.

Owner occupied commercial loans as well as consumer home equity lines of credit resulted in strong growth in both categories, each increasing at an annualized rate exceeding 10% relative to the prior quarter.

Excluding PPP loans, our period end loans in total increased an annualized five 6%.

Deposit growth remained very strong up an annualized 9.3% moderately outpacing the growth in the industry, which includes all domestic commercial banks.

Over the prior year deposit growth was 16%, which compares to the industry's rate of 12%.

It is particularly notable that credit quality continued to improve again reporting net loan recoveries and a nearly 30% decline in special mentioned loans from the prior quarter.

These along with other factors led to a further release of loan loss reserves.

We indicated last quarter that we would continue to increase the size of the securities portfolio at a rate greater than what we did in 2020 and in the third quarter. We increased the size of the securities portfolio by nearly $2 $3 billion or 12%.

That's not annualized.

Relative to the prior quarter.

Diluted earnings per share decreased to $1 45 per share from $2 eight from the prior quarter.

There were two primary factors that accounted for the decline.

The change in the provision expense and the change in the gains and losses on securities.

Combined those two contributed about 70 676 cents per share less than the third quarter as compared to the second.

One way we are.

Perhaps some of you look at our earnings.

You look at adjusted pre provision net revenue, which excludes securities gains and losses and subtracting from that actual net charge offs.

On that basis, it was unchanged relative to the prior quarter at $290 million.

Turning to slide five.

The top left is a chart of our recent earnings per share results.

The chart on the bottom left shows the per share amount for the provision for credit losses during that same period.

The provisions effect on earnings per share was quite variable throughout the pandemic and is a major factor in the linked quarter decline in earnings per share on the right side or some notable items that maybe of interest as it was previously.

Previously noted unrealized losses from securities less a partial offset from a reduced success fee accruals in the export Spic's Fund manager.

<unk> 12 per share as compared to unrealized gains of 25 per share in the prior quarter.

Most of the recent gains and losses on securities are attributable to an investment in small business investment.

Investment company funds.

One of the companies within the funds successfully completed an IPO in April which we described in our first quarter 10-Q, with a strong unrealized gains in the second quarter, followed by a partial retracement in the third quarter.

On slide six we highlight the balance sheet profitability metrics.

The healthy results were attributable to items that I previously described.

As previously noted another significant highlight for the quarter was the credit quality of the loan portfolio portfolio as illustrated on slide seven.

Relative to the prior quarter, we saw further improvement in problem loans using the broadest definition of problem loans criticized and classified loans dropped more than 17%.

Although not all of them excuse me all of them are shown relative to the prior quarter special mentioned loans declined 29% and classified loans declined 10%.

Many of you have seen our slide in the past showing our average net charge off ratio of relative to average non performing assets plus 90, plus days past due loans, which is an indicator of loss severity.

The chart on this metric relative to our peers can be seen in the appendix.

During the five years ending 2020, our average annual loss severity was 15%.

While the peer median was 32%.

Over the last 12 months that ratio for Zions is just 6%.

We reached net credit recoveries on loans, which also it was also true of the prior quarter.

Perhaps one of the more interesting credit measures to highlight this quarter is that gross chart charge offs were very low $8 million or just seven basis points and annualized of average non PPP loans.

Shown in the chart on the bottom right one can see the volatility in the provision contrasted with the relative stability of net charge offs.

This was mostly the result of changing economic forecasts.

Our capital position as depicted on slide eight we increased our share buyback to $325 million from third quarter and have indicated that ultimately.

We expect to target a common equity tier one ratio at a level of moderately above the peer median.

We expect to announce any capital actions for the fourth quarter in conjunction with our regularly scheduled board meeting this coming Friday.

Next stomach cleaner President and Chief operating officer is going to provide an update on the PPP program at our technology initiatives Scott.

Thank you harriss.

Turning to slide nine our third quarter adjusted.

Pre provision net revenue was 290 million net of the effects of the previously noted IPO.

The P P and our borrowers are split into two portions the bottom portion represents what we think of it as generally recurring income while the top portion denotes the PNR we've received from PPP loans.

During the course of the Paycheck protection program or performance of producing on a relative basis three times more than the industry average.

Will result in approximately 460 million and additional income to the company, which represents capital that ultimately benefits all shareholders.

To be specific P. P. P. P P related revenue.

Cause equaled 380 million and there remains $83 million in capitalized income net of origination cost that will be recognized over time.

Although P. P. P related revenue will decline, we're enthusiastic about the longer term benefit.

Adding approximately 20000 small business customers and strengthening relationships with it with 57000 existing customers.

Turning to slide 10.

Reflect some of the highlights from our three X three times performance that I noted earlier regarding forget most we've received $7 9 billion of applications or nearly 80% of the total volume.

$6 7 billion, it's been approved for forgiveness by the SBA.

3.1 billion or a P. P. P loans remain on our balance sheet at quarter end.

Turning to slide 11.

This slide illustrates the longer term benefit.

All of this activity specifically as a result of our outrage you say growing relationships with many of the 77000 P. P. P participating customers. These customers collectively have contributed approximately $6 billion.

Our deposit growth.

And new non P. P T loan balances exceed 550 million to this collection of customers more specifically of the P. P. P.

'twenty 'twenty vintage the spring 2020, vintage 14000, new to bank customers.

Approximately 54% are now appear to be utilizing us as their primary for their primary operating accounts. This percentage as we've noted previously has been growing nicely each quarter and we are seeing similar growth trends with the P. P. P. 2021 vintage 5000 data bank customers, which started earlier.

This year.

Turning to slide 12.

Call them in our Investor presentations we.

We provide a detailed slide of our major technology projects.

Hey, we want to just highlight too.

Many of you may recall in April FDIC Chair, Elena Mcwilliams was quoted as saying that her.

One concern for the banking industry was its reliance on aging core loan and deposit systems.

So where do we stand on this topic.

The February 2019, you'll recall that we completed the replacement of our three legacy core loan systems and now have virtually all of our loans on RNA modern core in.

In 2023, we expect to complete the final phase of our core modernization journey.

The conversion from our legacy deposit systems to our new enterprise core system.

To put this in perspective, a big four accounting firm recently reported that of the top 100 banks in the United States 93 remain on one or more older first generation cores.

Six are utilizing a modern core.

On only a portion of their loan and deposit ecosystem.

And diodes is the only bank approaching the ability to utilize a modern core for the entire enterprise.

Interestingly you were starting to hear about some digital first core systems. While these provide the most advanced architectural elements available.

And we're generally designed for digital only banks, none of yet to be proven usable on a scale or complexity required by the largest banks.

So why does this matter at a high level implementation of one core solution across all lines of business.

All products in all geographies geographies greatly.

Greatly reduces complexity enhances our resiliency and create the adaptability for a rapidly changing technology environment that lies ahead.

More specifically the.

The architecture is as noted on this slide parameter driven.

Meaning we can quickly turn off and on.

Or adjust features without reprogramming or testing for months.

Utilizes one data model.

A huge advantage in the digital world and it is natively real time and API enabled.

This collection of characteristics and others will greatly reduce the time it takes to introduce new products.

Capabilities as an example, our nucor was an important contributor to producing P. P P revenue exceeding $460 million.

Within a matter of days, we were able to introduce the P. P P product.

And it creates the number of business related loans on our system from approximately 40000 to over 95000.

With longboard boarding occurring in minutes.

Most would agree this represents a significant early return on our core replacement investments.

As you talk to other banks, they will say that their older first generation core loan and deposit systems have been adapted to mimic real time utilize API and synthesize doesn't have data models.

Well, we were doing that as well and our loan systems and continue to do that in our deposit system until we convert.

But all of these technologies.

All of these technology gymnastics.

That take place generally in what is referred to as middleware, absolutely introduce complexity risk and cost.

Regarding one additional highlight I'd like to note.

That our core systems seven day processing capability.

Most of the world outside of the United States operates on seven day processing when we implemented the loan portion of our new core we adopted seven day processing. However.

However, as the U S deposit market is still not adopted seven day processing.

We chose to convert back to five day process and getting in advance of our 'twenty to 'twenty three deposit conversion.

The point is that we were literally able to turn this global capability all over a weekend in August and can turn it back on when the U S adopt seven day processing.

This slide also conveys numerous other customer and employee facing benefits, which I'd be happy to expand on the Q&A.

Turning to slide 13, my last slide while we have been.

Really focused on our industry, leading work regarding core modernization.

I wanted to highlight one of our numerous new customer facing capabilities.

Earlier in the year, we converted 610000 consumers to our new online mobile platform.

While time does not allow us to review all of the details of this new platform, we're gratified with the early acceptance.

Consumers as measured by ratings in the Apple.

Apple and Google App stores.

You can see that we are on par with the largest U S banks and our top tier with our peers. The rollout of this new online mobile system to approximately 150000 small business clients will occur in 2022.

And with their client base, we are already perceived to be on par with or superior to our global competitors.

With that I'll turn the remainder of the time over to Paul Burton, Our Chief Financial Officer.

Thank you Scott and good evening, everyone and thanks for joining us.

More than three quarters of our revenue is in the form of net interest income, which is significantly significantly influenced by loan and deposit growth and associated interest rates.

I'll begin my comments on slide 14, with a review of these results. Although the average total loans were down in the third quarter by three 7% when compared to the second quarter, we experienced average loan growth when excluding PPP loans and on a period end basis that growth was $661 million or one point.

4%.

The strongest linked quarter growth was in commercial construction at nearly $270 million. This is the result of increased construction activity and previously established lines of credit.

We have appointed strength in commercial and industrial loans, which increased more than $280 million or 2%. We ran promotions during the quarter on owner occupied and home equity loans, which increased $215 million and $107 million respectively.

Claims were reported in PPP loans down $1 $4 billion that Scott previously noted.

In term commercial real estate, which declined more than $220 million in.

In the third quarter, we reported a more modest decline in residential mortgage balances than we have in recent quarters down nearly $130 million.

With a strong held for investment pipeline of mortgages, we may see some further stabilization or possibly growth in residential mortgages in the near term.

One final note on loan growth.

Relative to periods prior to the pandemic revolving line of credit utilization has declined several percentage points using.

Using the third quarter of 2019 as the benchmark corner all revolving line utilization rate was 39, 5% as compared to 33, 7% in the third quarter of 2021, which was essentially.

From the prior quarter.

Although revolving loan balances did increase from the prior quarter up about $200 million, but lending commitments increased about $700 million.

As I've noted in the past deposits have been and remain the driver of balance sheet growth over the past several quarters and in the third quarter on the right side of this page.

Average deposits increased three 7% from the prior quarter relative to the year ago period average deposits increased 16% average noninterest bearing deposits increased four 9% over the prior quarter and 24% compared to the prior year period.

Noninterest bearing deposits make up one half of average total deposits.

The yield on average total loans increased slightly from the prior quarter, which is attributable to the six 7% yield.

The PPP loan portfolio.

Excluding PPP loans, the yield declined eight basis points to 359% from $3 six 7% deposit costs remain low our cost of total deposits fell to three basis points in the third quarter.

Moving to slide 15, we show our securities and money market investment portfolios over the last five quarters. The size of the period end securities portfolio increased by nearly $6 billion over the past year to $21 million, while money market investments increased more than seven 5 billion to $11 9 billion.

The combination of securities and money market investments has risen to nearly 40% of total earning assets at period end, which compares to an average level in 2019 prior to the pandemic of 26%. We continue to exercise caution regarding duration extension risk by purchasing bonds with relatively short.

Duration, both in the current and in an upward shock rate shock scenario, the $3 $6 billion of security purchases for the quarter had an average yield of 153%.

Slide 16 is an overview of net interest income and the net interest margin. The chart on the left shows the recent five quarter trend for both the net interest margin in the white boxes has declined over the past year, reflecting the rise in excess liquidity as described on the prior page.

For the third quarter. This caused an excess liquidity as referenced in the chart on the right as the strong growth in deposits has impacted the composition of earning assets and a larger concentration in lower yielding money market and securities investments the weighted average yield of our securities and money market investments as just 1.07%.

And with that concentration increasing by four percentage points in the quarter and weighed on the net interest margin.

I estimate that the increase in money market investments has accounted for 33 of the 45 basis point net interest margin compression over the past year.

Slide 17 shows information about our interest rate sensitivity.

Focusing me focusing on the upper left quadrant as a general statement our asset sensitivity has increased as deposits have been invested in short term money market assets. This increase in estimated rate sensitivity assumes incremental deposits have modestly shorter duration characteristics when compared to deposits on our balance sheet prior to the <unk>.

Recent deposit surge, we are continuing to deploy deposit driven cash into securities, which helps to moderate the natural the natural asset sensitivity. However, with continued strong deposit growth and higher prepayment rates on mortgage loans and securities are estimated interest rate sensitivity was similar to the SEC.

Quarter level, such that and an interest rate environment that is shocked immediately 100 basis points higher than the current level. Our net interest income as a 12 month horizon is estimated to be higher by 12%.

As previously noted we may continue to add interest rate swaps, including forward, starting swaps, which would help to temper our natural asset sensitivity.

On slide 18 building on a good second quarter customer related fees increased an additional 9% in the third quarter to $151 million, notably activity based fees such as card fees merchant services in retail and business banking fees remained strong and have grown to the level of two years ago prior to the ban.

This improved improvement added to continued strength in loan related capital markets and wealth management revenues.

Noninterest expenses on slide 19 were essentially unchanged from the prior quarter at $429 million, adjusted noninterest expense increased 3% or $13 million to $432 million.

Linked quarter increase in adjusted noninterest expense was primarily due to employee compensation. The increase was associated with higher base salaries and profitability driven long and short term compensation.

Other noninterest expense includes a $4 million success fee reversal associated with the mark to market loss in our S. E T as compared to the $9 million success fee accrual recognized in the second quarter.

Slide 20 details our allowance for credit losses or ACL in the upper left we show the recent the declining trend in the ACL to $529 million at the end of the third quarter or $1, one 1% of non PPP loans. The chart on the lower right side of this page shows the three broad cat.

Corey that resulted in a client and a decline of $45 million more than 60% of the change was attributable to changes in the portfolio mix and competition.

Our updated outlook is.

As found on slide 21, and as a reminder, this is our outlook for financial performance in the third quarter of 2022 as compared to the actual resorts results reported for the third quarter of 2021 quarters in between are subject to normal seasonality and my comments are subject to our earlier reference to forward looking statements found on slide two.

No.

Due to the degree of uncertainty on the timing of customers' submitting requests and U S b and improving those requests our outlook for loan growth excludes PPP loans.

We are more optimistic about loan growth now than we were in July and as such we are increasing our outlook to moderately increasing from slightly to moderately increasing led by core C&I, including our promotional owner occupied loan product.

We expect net interest income also excluding PPP loan revenue increase.

Increase over the next year as compression of loan and securities yields will be more than offset by continued deployment of cash into term securities and are more favorable outlook for growth in non PPP loans.

The current quarter's customer related fees are the highest we have reported building on such a strong third quarter, we are reducing our outlook for customer related fees, one year from now to be stable to slightly increasing from moderately increasing.

We are adjusting our expectation for adjusted noninterest expense to be moderately increasing from slightly increasing we remain disciplined on expense control. However, increased visitor business activity emerging inflationary trends and continued investments in enabling technologies will place upward pressure on noninterest expense over the near.

Term.

And finally with respect to capital management, we remain comfortable that our philosophy.

A lower than average risk combined with stronger than median capital is the right formula for creating long term shareholder value.

Our capital measured by comment that common equity tier one relative to risk weighted assets remains well above the peer median as we consider the balance between capital ratios and our risk profile. We believe that we have capacity for continued active capital management in the near to medium term so long as the current macro economic and credit trends.

Continue to be favorable.

This concludes our prepared remarks to Wanda. Please open the line for questions.

Thank you.

Ladies and gentlemen, you would need to press Star then one on your telephone.

Joel Your question press the pound key.

Again, its star one to ask a question please.

Please standby, while we compile the Q&A roster.

Our first question comes from the line of Eva.

Upon a water with bank of America. Your line is open.

Hey, good afternoon.

I was wondering Paul if you could just.

NII guide a little bit.

Help us understand in terms of.

What are you assuming and tell me how much cash you expect to deploy.

Into securities over the next 12 months.

Do you see that liquidity levels going and.

Does the increasing imply 4% to 6% somewhat higher than the high single digit range. When you think about the growth year over year.

Yes.

Yes, sorry, I missed the second part of your question on 4% to 6% what was that what was that question. Yeah. I was just increasing does that imply mid single digits or high single digits and angles.

Oh, sorry, so so first let me talk about deposits because that's really the driver here right we have had.

Deposits across the industry are up I think we have.

<unk> been able to garner more than our fair share of deposits and as we are analyzing these deposits over time, what we're finding.

As you know a year ago I would've thought that these deposits were more transitory to borrow from the fed.

They are proving to be what we're actually observing it.

Many of these new deposit accounts are being used and then operating nature, which history tells us it means that they are more sticky than they otherwise would be so this is what's giving us confidence to be.

I don't want to say aggressive, but certainly buying more securities than we might otherwise would I E putting those deposit dollars.

To work so as we're thinking about our net interest income outlook next year and again remember this.

This excludes PPP loans right, so taking them out of the base and not considering them going forward.

But we have increased confidence that loans loan growth will pick up and.

So we're gonna use parallel like part of the cash that way.

And as that cash continues to prove to be somewhat stable that is the deposits continue to prove to be somewhat stable. We will continue to deploy that.

In it.

In investment Securities. We are asset sensitive position is such that we can afford to continue to add duration on the asset side for some time to come without really adversely impacting.

Our risk profile in fact, I would argue it kind of improves our risk profile as we reduce volatility.

So it's those key factors. It's the continued deployment of securities and in growth in loans that we believe will ultimately drive growth in net interest income over the course of the next year excluding PPP.

That was helpful.

Does that imply mid single digits or high single digits and I.

Good.

Well, we have a tendency to not try to put dollars on it but generally speaking increasing would be.

Mid to above mid <unk>.

Got it.

Thanks for taking my question.

Yes. Thank you. Thank you.

Our next question comes from the line of Dave Rochester with Conference. Your line is open.

Hey, guys.

Was just wondering on the liquidity front, what that minimum cash level, you want to hold either as a balance or a percent of assets just trying to figure out how much excess cash you think you have that you can deploy in the securities laws.

Yeah, so yeah, so Dave.

So.

It depends on what we're assuming for deposits right everything.

At around those.

As we eat as we gain confidence in those deposits that amount of cash we need to hold for our what I would characterize it.

Our liquidity risk.

Go down and what we're seeing is that as I said the stability of that cash appears to be improving if you look back over time, you can see that it would not be uncommon at all for us to run with a sort of cash position I E. The money market investments line on our balance sheet of kind of $2 billion to $3 billion.

And in fact, a year ago, that's where it was.

So I wouldn't.

As we get as we gain confidence in the stability of those deposits I would expect and I should also add that there is an enormous amount of liquidity in our investment portfolio. So we are investing relatively short what that means is that we've got about $400 million of cash flow every month.

That we're continuing to reinvest so when we think about our cash position, it's not only cash on the balance sheet, but but the cash flow that's turning to the investment portfolio. So a long way of saying that.

If you if you look historically, we have run with a cash position that is much much lower than today and overtime I would expect to get back to something closer to that.

Okay.

Then just switching gears.

The loans on the teaser rate products I'm, just curious you know where those rates are today, what they step up to a year or so and then what's your appetite is for total production. There how long do you think you're going to run those.

He tells me would be great. Thanks.

Thank you Dave This is Scott Mclean.

The home equity line of credit program, we ran from June one to the end of August.

And that rate was 90 basis points for the first year and then it converted to $2 99 to the extent there were new loans.

Out to 10 years.

And similarly on the owner occupied program that also started June one.

And if it's tentatively scheduled to conclude at the end of this year that that promotional rate was 90 basis points 90 basis points and it converts.

10 years from there another nine years at $2 99.

We will probably depending on what happens with the rate environment.

Have each of our affiliates on the cycling basis.

Keep that HELOC promotion alive.

Likewise, if we get to the end of the year and the rate environment seems still very flat to stable.

We may continue the owner occupied program for a bit longer as well.

Both have been we've been really pleased with the energy.

Both are generated in more of the loans that they produce it's given all of our bankers something really exciting to talk about getting a pretty challenging time.

And so it's.

It's been a really good strategy for us.

Yeah.

Great. Thanks for all the color appreciate it.

Thank you.

Our next question comes from the line of Peter Winter with wet Bush because securities. Your line is open.

Thanks, I wanted to ask just a few.

Questions on the asset sensitivity.

Can you just remind us what percentage of loans have floors and how many fed rate hikes, you need to go above those loans worse.

James do we still have that on the slide.

Off the top of my head I.

I think they may have done the exact.

What percentage do you have it handy James yes.

I'll get it by the end of the call Peter It's <unk>.

Six or $7 billion as I recall, but ultimately when you find the number really quickly.

Okay.

Only about it it's only about 50 basis points or so in the money. So it's not a huge group.

And I guess my final thought on that would be is it a it is incorporated in our interest rate sensitivity in the outlook. So as we think about an up 100 scenario that is incorporated in that.

Got it.

And I'm, just wondering about the deposit betas.

I saw on the slide.

You forecasted.

Just wondering if deposit betas come in lower but.

I'm just wondering if theres any type of sensitivity analysis.

Just given how much growth you've had in non interest bearing deposits.

Yeah, well, we certainly do a lot of sensitivity analysis and I think we have some in that we publish quarterly in our 10-Q I think theres a couple of key assumptions in there one is that the duration of the deposits that we've recently put on is actually a little shorter than the duration of sort of the what I might call the heritage portfolio.

Deposits.

That's one point and the other point is theres so much liquidity in the market that we believe that when rates start to rise. We do not believe we will need to be very aggressive in raising rates.

Perhaps less than historically, perhaps.

And that feeds into our asset sensitivity.

Alright.

On the question about loans with floors.

We have about 35 billion.

Plus or minus in variable rate loans.

And about 24 billion these numbers.

We're not exactly at September 30, but about 24 billion have floors.

And the floors are generally.

Zero or rates.

Say 100 basis points higher than that.

Okay. Thanks, Scott Thanks for taking my questions.

Thank you.

Our next question comes from the line of Jim Jennifer Denver with Choice Securities. Your line is open.

Sure.

Okay.

Thank you good evening.

Yeah.

A question on the loan loss reserve now down to 122 basis points.

None.

<unk>.

Just wondering given the economy should continue to improve in.

It sounds like you're pretty confident you learn losses, they're gonna stay pretty low how much lower could that go.

Uh huh.

Hi, Jeff.

Oh go ahead.

Well it sounds like the game.

Limbo.

How low can you go.

I think that the very nature of Cecil.

Everything that we think.

The future of that reserve is incorporated into it.

But I.

If we.

Because we saw a permanent.

I don't think that the what we're seeing right now in terms of credit quality.

You.

You mentioned gross charge offs coming in at seven basis points.

It's probably a sustainable.

Or even or even where we should be.

But if we found that we were just.

The losses are not materializing, then it will continue I presume to come lower I don't think theres any.

There's no.

Sort of arbitrary.

Limit or threshold or anything of the sort I mean, we're just doing our best every quarter to try to understand what future.

Future losses inherent in that portfolio can look like over the life of the underlying loans.

So I think as I said, its a tough question to answer right.

You know in theory.

It can come lower I am not sure I would really expect it.

Just given the nature of the portfolio and the times we're in.

Thank you.

Question is on your lending pipeline could you just talk about the pipeline outside the promotion.

But you had during the quarter and what you're seeing in terms of demand right now.

Sure.

Got you.

As you think about the categories.

Paul noted are our utilization rate.

And on revolving credits.

And I think it's reasonable to expect and that's just generally C&I credits, principally but it has some consumer and some CRA related to it.

And I think our general thought is over the next 12 months, we'll see revolving usage start to go up again I don't think we have to work through all those cash if you go back to the 2008 2009, the monetary easing down that liquidity fundamentally stayed in the system and utilization rates.

We're not overly burdened by that so customers just got used to dealing with a higher level of liquidity secondly, I would say that.

Our our municipal finance business is continuing to grow nicely we're seeing.

Increases in other C&I pipelines related to larger transactions syndications et cetera.

<unk>.

And CRE in general.

I wouldn't look for CRE to grow faster than our portfolio grows but CRE in general has been growing nicely and finally, one of the places where we've seen the most decreases in our.

Portfolio has been in one to four family mortgages.

And based on the mix of that portfolio that makes about pipeline excuse me.

We should start to see one to four family growing again, if you look back over the last five or six years before the pandemic one to four family mortgage products were generally about 20% to 25% of our growth and I don't think it's unreasonable to think that that will return as well.

Thanks Scott.

Thank you.

Our next question comes from the line of Ken Houston with Jefferies. Your line is open.

Alright, thanks, good evening.

I just wanted to ask on <unk>.

On capital this quarter, you guys did that extra step up and still had room to grow loans and you've talked to us about trying to get your CET one ratio down over time.

<unk>.

No closer to peers and Directionally. So I guess, what's the tradeoff now if you're starting to see a little bit better loan growth with regards to how fast the pace of capital return could be in that kind of.

Waiting or hoping or expecting you know the loan growth to come back in terms of you know our to be way usage.

Well I'll start with that Ken.

The fact is we reported an estimated CET one at 10, 9%. This quarter I think you know that we compare we have a list of peers, which we published when we compare our CET one to those of peers and we remain.

Significantly above that median peer level overtime.

As we have said.

We expect to have lower than average risk and slightly better than median capitalization and therefore, we've got we've got some room to go on that ratio. So.

The point of my point of saying that is that we can absolutely absorb.

Accelerating loan growth and continued share repurchases.

But as a reminder, as Harris noted that that that capital activity is subject to board approval.

Yes.

Okay, and then Scott you know.

Another good update on the future.

Future core and the timing and I guess you know.

We're still waiting for that time period, when you get that double spend out of the way. So how much closer are we to starting to sunset. Some of the older stuff is there are you still expecting cost to go up so I'm just wondering.

And Alex in terms of the moderately increasing cost base that you're still expecting from here versus when do we really start to see some of those synergies from the platform. Thanks.

Yes. Thank you for that question pretty similar to what we said during the third quarter and earlier in the year the future core related P&L costs.

We'll actually be kind of flat.

Down a little bit next year.

The increase in 23 by about a $7 million to $10 million $10 million over our current run rate just because that is the implementation year end, you'll generally see expenses go up because of accounting treatment. There and then in 'twenty four it'll drop about $10 million, so to kind of put a fine point on your.

<unk>.

I would however.

Note that.

You know when you think about.

Overall technology spend and we've said this for a long time.

Yeah, I don't know that it's going to abate.

For many reasons.

The investments that all banks need to make in cyber protection. The investments you have to make to be cloud ready and utilize the benefits of cloud.

The investments you need to make around data et cetera.

And.

So I don't know that that's where you'll see it where I think you'll see it will be in operational expenses.

And as we continue to see the benefits of the system it'll common operational expenses not necessarily in technology spend.

Got it thank you.

Thank you.

Our next question comes from the line of Steven Alexopoulos with Jpmorgan. Your line is open.

Hi, everybody.

In terms of my first question Scott Scott responding to Jennifer's question. The one area that you didn't really touch on was energy, which I'd imagine you could probably get good risk adjusted returns given most banks are still restricting exposure. There. It's a question do you do you guys have an appetite for energy lending here and are you seeing increased demand just given the surge in energy prices overall.

The answer is yes, and yes.

If I can say that without being politically insensitive.

They are energy loans outstanding are about $1 9 billion right now.

You'll recall that we got down to about this level after the 2015 2016.

Energy price volatility period, and then we.

We were able to grow back up to about $2 5 billion and now we've run back down to about $1 9 billion.

At these prices which were predictable.

For both oil and natural gas, we will start to see drill.

Drilling increase and you will see line utilization going up.

And there are far fewer players today.

<unk>.

And the market pricing has gone up on reserve based loans and credit quality structures have improved they went out bad before but they become more conservative as the number of banks globally and particularly in the U S has shrunk by probably half, but will do energy financing today from.

25 to 30 down to sort of the mid teens.

We'll continue to see some midstream growth basically the portfolio is about 40%.

45% upstream reserve based loans, which is what we specialize in about assembler position about 40% for midstream.

A smaller percentage around 15 for oilfield service, but Steven you're absolutely right. We will see growth there we anticipate it we're feeling it and.

You know to go back to two and a half billion or slightly higher would not be an unreasonable expectation over the next year and a half.

Okay.

Really helpful color.

Separately, if I look at slide 13, Scott can you give more color on what customers responded to.

So favorably that drove the increase in the App store ratings. Thanks.

Yeah, you know what.

It's a great question.

When you look at it.

Well first of all our ratings were.

Not very favorable before so they may be reacting to hey, it's just there's a whole lot better.

But but their ranking us elaborate level as I said very very close to the global bags, which are clearly terrific in this regard and top tier for our peer banks and it really is the items noted there but.

We have a unified platform for online and mobile that may sound kind of simple.

A lockdown.

And it means that you have to constantly be synchronizing your online and mobile product. It's one plant now platform for us now.

The alerts option, particularly our attractive when you think about fraud and the increase of fraud in our environment.

And I would also note that this is just the start for US we can now push.

We can now pushing upgrades new capabilities.

Really if we want.

Okay. That's a huge difference from where we were we can now push daily if we like and we have a really tough.

Hi, <unk>.

The enhancements that we didnt make part of the initial offering that we'll roll out over the next 12 months, which we think will do nothing but support these favorable ratings and possibly increase them.

Okay.

Yeah, we looked at it's pretty high across all of the sub banks to pretty consistent there. Thanks for all the color.

Thank you yeah, Yeah, it's basically an average I don't know.

It's a weighted average I think it's just an arithmetic average, but it gets a little artistic as you can imagine.

Thank you.

Our next question comes from the line of Jonathan <unk> with Evercore.

Your line is open.

Yeah.

Good afternoon guys.

On the calling effort.

On the calling on the promotion effort around the home equity M D.

Commercial real estate are there similar promotions or a similar sales push that.

Given the success of the promotions that you can focus on and other products and other small business or.

On the other parts of C&I, and then or could you also is there any consideration around you mentioned that syndicated lending has been picking up have you been evaluating your hold levels in that from just looking at different ways that you can capitalize on some of this improvement in demand that you are mentioning.

Just a quick I'll just give you a quick answer.

Go ahead sorry.

I'm John.

Say that.

I don't think.

We're not going to allow us to.

Get into our thinking about hold.

Limits, let me start there I think that's just a that's really an important kind of risk management consideration not.

Not one that we're gonna let revenue.

Drive.

I'm comfortable with where our limits are but I.

I don't want to conflate.

Yeah.

You know how we use this liquidity too.

To.

Justify taking on a lot more risk I think the.

Yes.

We may find ourselves looking at other opportunities.

So how are we.

Used promotional pricing.

I think you know.

A big consideration is just.

Systemically, how we can.

Support.

Product, where we introduced pricing.

And.

Some are simply easier because of the nature of.

Uh huh.

Of the fixed rate.

Or a term deal where you know that it's going to be outstanding for a period of time you can have a teaser rate for the first portion, but no you are pretty confident that youre going to get a.

The sizable annuity in the out years.

Not always true with some other loan types, which can be.

Shorter term in nature.

Yeah.

A little more challenging to manage in terms of making sure that ultimately this is kind of.

It provides some some really solid benefit for us.

So anyway I appreciate the comment something we should think about that.

I think I think the couple of products that we focus on are probably the right ones.

Rest of the time.

Okay.

Got it that's helpful and then separately Paris.

You've been discussing your capital Optionality and I just wanted to see if we can get your updated thoughts around M&A and what.

We've seen a number of your bank peers complete deals and there's been a bit of a kind of race here to gain scale and then whats clearly.

Highly competitive space. So curious your thoughts there is as you look at potential M&A, either bank or non bank as well. Thanks.

Yes, I think I think our thinking hasnt really changed relative to bank M&A.

Hi.

I don't think that you can.

This race by just getting larger.

Bigger isn't better better is better.

Absolutely the way we think about this.

There could be deals that make sense for a lot of deals probably don't.

We continue to be.

Think pretty cautious about any activity given the all the internal focus we have on.

Getting this future core project behind us.

As we emerge from that I think I think we'll have.

Certainly an opportunity to do things.

That would be appealing to us.

To customers.

And it will.

Provide some capabilities that might be.

You know incrementally enticing too.

Sellers, but.

That's the end of the day.

We just want to get through that project.

For our mines and then look at the economics of what's out there and if it makes sense.

Particularly end market.

Consolidation.

Improves incrementally economics, that's something we'd certainly look at.

But it's not a it's not going to be a driver of our it's not.

Strategically, it's not something that's kind of front burner for us.

Got it alright, Thanks Harris I appreciate the color.

Thanks.

Thank you.

Our next question comes from the line of Gary Tenner with D. A Davidson your line is open.

Hi, Gary.

Yeah.

Yes, sorry can you hear me now.

Yes, we got the go ahead, hi, I apologize.

So my first question just a quick one on PPP it looks like about a third of the remaining balances have forgiveness applications already in Covid.

Could you kind of ballpark.

Or do you think the year end.

It could be.

Given that there's still a sizable amount of fees to be collected.

Slipping from the fourth quarter next year.

Hey, Gary This is Todd it's pretty speculative I mean, we've.

It's not only it's not up to us right because the clients need to submit for it and then the SBA needs to act on it so.

My expectation is largely that PPP loans, it's gonna have sort of probably a half life aspect to it but I'd say the vast majority.

Of our loans are going to be gone by the middle of next year is my personal estimate, but again that's pretty speculative.

Okay, Great and then.

Scott if I heard your answer to the question on rate sensitivity in Florida correctly. It was $35 billion in variable rate loans 24 of which have floors and did you say that the floors are generally in the money by less than 100 basis points or was that a different.

Different figure.

James made the comment about in in the money.

And and what our failed to say was.

The the LIBOR floors are generally at 1%.

Some as low as zero the prime floor.

Alright, two way on a quarter to 4%, but that was the guidance and.

I think Jack you made a comment about what was in the money.

Can I clarify that just a little bit Scott.

The number of <unk> with.

With floors in the money is $5 $6 billion.

The average in the money money we call it.

Just over 50 basis points, it's about 60 basis points and Scott correctly pointed out we have a lot of loans with floors that are kind of out of the money.

Your question is really about the in the money floors, and it's about $5 $6 billion and about 60 basis points.

Okay, great guys. Thank you thank.

Thank you.

Thank you. Our next question comes from the line of Chris Mcgratty with VW. Your line is open.

Oh, great. Thanks for the question.

Just want to make sure I understand the Remixing strategy that has the potential going forward.

I guess the question is what is the kind of the level of securities to earning assets that you would anticipate.

The money comes out of cash.

How does it flow into the loans versus securities I guess is the question proportionately.

Well look I want to grow and I think we all want to grow loans first and foremost and we're all very very focused on that and so that loan growth is going to be the driver and that's our anchor right.

Everything around that is how we do how we invest our deposits into earning assets and so first and foremost is loans.

And then second priority would be securities and again, its relatively relatively short term so to the extent these deposits stay sticky.

The answer is going to be first of all fund the loans and then sort of whatever is leftover, leaving a kind of a store house of cash for immediate liquidity will over time be invested into longer term securities I hope that helps a little and I know, it's not precise but that's the thought process and so as you're thinking.

About the balance sheet and modeling it I would encourage you to use that sort of thought process.

Okay. That's helpful and maybe I could just ask one in terms of the guidance I just want make sure I understand the outlook.

Could you just.

Maybe provide a key or kind of a.

A little bit more guidance on each of the.

The outlook.

Increasing and increasing.

I tend to give specifics, but just kind of stack rank and kind of ranges it would be helpful for us. Thanks.

Well I think James typically does that he's got a whole lexicon rubik's cube that we use to interpret them.

As it relates to our outlook.

We're being.

Intentional around not applying specific percentages around these numbers if we wanted to fly percentages, we would just put them out there right.

And so.

The language is intended to convey.

Relative measures from slight to moderate to increasing.

Without being overly specific on the percentage changes.

Okay, great. Thanks, Yeah.

Likely.

[laughter].

Paris.

I say, especially because we're likely to be wrong.

I mean this is this is a.

This is an outlook, it's not a crystal ball and.

There are so many factors that can influence all of this.

So hi.

I know everybody's looking for precision.

Youre looking at on the wrong quarter should come into us.

Okay.

Yeah.

Thank you.

Thank you.

Our next question comes from the line of Tim Coffey with Janney. Your line is open great.

Great. Thank you I just wanted to talk about.

As Christian about the liquidity that you've gotten the balance sheet.

Relative to your size you've operated at kind of the higher levels of liquidity in previous years, and if I look back to 2015 again on a relative basis.

You were able to bring that liquidity down about four to six quarters.

And given the comments on today's conference call regarding the deposit stickiness the opportunities for loan growth across the franchise I'm wondering do you think the allocation of liquidity could occur faster this time.

Well, yes, so if we go back in time.

You may recall, we had about round numbers in 2000 at the beginning of 2015 about $8 billion of cash equivalents and Youre right over the ensuing kind of six ish to eight ish quarters, we brought that down and you think about the pace with which we are buying today I mean were by.

Not only are we reinvesting all of that cash flow and remember.

Portfolio is putting off cash flow of about $400 million a month, we're adding $1 billion to $2 billion a quarter. So there there is a natural I would say limit in terms of how much.

Positioning we want to be in any given quarter because that quarter that vintage of purchases is defined by the rate environment.

In that quarter.

So we're trying to be measured as we were then we're trying to be measured in the deployment of the liquidity.

Perhaps we could accelerate it a little bit, but just like we said back then.

We don't want to take a very large position.

And the rate environment in any given quarter, which is why.

We're sort of legging into the position as opposed to putting all of our chips on rent if you will.

Right.

That was my question. Thank you very much.

Thank you.

Ladies and gentlemen, due to the interest of time. Our final question comes from the line of Brock Vandervliet with UBS. Your line is open.

Alright. Thanks for the question. This is an advantage being at the end of the call I just going back to the question to before in terms of an answer key around.

The descriptive I think a number of us are kind of struggling with.

Specifically NII and expense Guy.

Guidance.

I'm just worried I'm worried whether I'm a little ahead of my skis on numbers and I'm just looking for.

One on NII just clarification, so you shouldn't be growing off of the $4 99 number.

That is ex PPP.

And.

Low.

I'm thinking low single digit kind of.

Expenses kind of growth on that.

Yeah, Brian This is James what we've tried to convey in the past is like slightly increasing as kind of low single digits, and then moderately increasing mid single digits.

We've never had to use a high you know like a rapid growth sort of situation.

At least not in a while but.

So just increasing would be would be pretty healthy robust growth in net interest income, which is fundamentally driven by pretty strong securities growth, which Paul just discussed and the improved outlook on loan growth.

Somewhat.

But maybe a little bit of offset on price on the loans.

Loans as the loans as the front book back book.

Dynamic plays out but it's.

A little hard to gauge because that's the competitive environment situation.

Okay that helps a little bit.

Yes. It is it does James and unexpected.

Guiding off of 432, the adjusted total and Thats moderately increasing.

Correct that again and as I speak.

That pertains to kind of this this this recognition that there is inflationary pressures in the environment and also.

The technologies expenditure that Scott referenced earlier in the call.

Got it okay alright. Thank you that's helpful.

But if I could I would say not.

The color code on that page 21.

I think it's a stretch to say increasing is a bigger number than moderately increasing which is a bigger number than stable or slightly increasing right. So that's sort of the nomenclature in the way to think about this and and.

And therefore, you can see net interest income is showing up clearly in the increasing Tam and that is because.

Again, excluding PPP, we see the opportunity to invest continue to grow the size of the portfolio and increasing confidence about the one the loan outlook.

Key drivers and then on top of all of that while we're not expecting any increases in short term rates in 2022. It is an opportunity for zions Bancorp.

Due to the again deposit driven asset sensitivity on our balance sheet.

Okay. Thank you.

Thank you.

I would now like to turn the call back over to Mr. James Abbott for closing remarks.

And thank you very much I. Appreciate that's wanted to thank you all for joining US today. If you do have any additional questions. Please contact me at either by email or phone number listed on our website. We look forward to connecting with you throughout the coming months and thank you again for your interest in Zions Bancorporation with that this concludes our call.

Ladies and gentlemen, this concludes today's conference call. Thank you for your participation you may now disconnect.