Q2 2022 Zions Bancorporation NA Earnings Call
Greetings and welcome to the Zions Bank Corp, Q2 earnings Conference call. At this time all participants are in a listen only mode. A question and answer session will follow the formal presentation.
If anyone should require operator assistance during the conference. Please press star zero on your telephone keypad.
Please note that this conference is being recorded.
I will now turn the conference over to your host James Abbott Director of Investor Relations you may begin.
Thank you Kyle and good evening, we welcome you to this conference call to discuss our 2022 second 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.
The presentation of non-GAAP measures, which apply equally to the statements made during this call.
A copy of the earnings release as well as the slide deck are available at Zions Bancorporation Dot com.
For our agenda today, Chairman and Chief Executive Officer Harris Simmons will provide opening remarks, followed by a brief review of our financial results by Paul Burton, Our Chief Financial Officer.
With US also today is Scott Mclean, President and Chief operating Officer, Keith mile Chief Risk Officer, and Michael Morris Chief Credit Officer.
After our prepared remarks, we will and we anticipate to hold a 30 minute question and answer session. During the Q&A. We request that you limit your questions to one primary and one follow up question to enable other participants to ask questions I will now turn the time over to Harrison.
Thanks, very much James and welcome to all of you who are joining our call. This evening.
Beginning on slide three there are some things that are particularly applicable to zions in recent quarters as well as those that are likely to be prominent over the near term horizon.
First as Paul will discuss in greater detail, we're gonna take care. We think we're in a very good positioned for rising interest rates. The futures market is pricing in a fed funds target rate.
Oh, approximately 3.5% by the spring of next year or an increase of about a.
175 basis points.
Our earning assets generally reprice faster and have a higher correlation or beta to the movement in rates and do our liabilities. Despite a typical lag of a month's herself for variable rate loans at a longer lag for securities and longer duration launch.
We're already beginning to see significant benefits to asset yields due to recent rate hikes, while funding costs during the quarter remained low and well contained.
We also estimate the impact of borrowers cash flows under significantly higher interest rates. When we were underwriting loans and we expect that the portfolio will perform relatively well in a somewhat higher interest rate environment.
Exclusive of PPP loans, our period end loans increased one $7 billion or three 3% on annualized during the quarter.
We have achieved robust loan growth, while maintaining strong underwriting standards. For example, our gross in commercial real estate loans over the past year with just over half the rate of the growth for the industry as a whole.
In recent years, our risk selection, it's been very consistent and has resulted in one of the lowest ratios of net charge offs to loans in our peer group.
It appears there's a probability of a near term recession is more likely than not.
We would expect loan growth to slow from a recent double digit annualized rate.
Turning to deposits, we experienced deposit attrition in the most recent quarter as the impact of the Fed's monetary policy tightening started to become apparent.
Just over half of the 4% reduction in period end deposits came from accounts with first quarter balances of $50 million or more.
Constituting about 11% of our total deposit portfolio.
We continue to expect that the granularity of our deposit base will continue to provide us with ample and attractively priced liquidity and funding.
And we were starting from a position of strength, which is where the securities portfolio as it generated more than $900 million of cash flow during the quarter.
We're well prepared for a recession, having spent many years increasing.
Concentrations and generally safer loans, such as low loan to value jumbo residential mortgage loans and loans to municipalities.
While significantly limiting or reducing concentrations in high leveraged lending enterprise value lending land development certain other segments within commercial real estate to name a few.
And our capital is strong relative to the risk profile of our balance sheet.
Turning to slide four.
We're generally pleased with the quarterly financial results, which are summarized on this slide.
Circled in Green adjusted taxable equivalent revenue net of interest expense increased about 8% relative to the prior quarter.
And if they're found if excluding PPP income the increase was about 10%.
Adjusted pre provision net revenue increased 24% and if excluding P. P. P. It was a 31% increase.
Those gross rates are not annualized.
Our credit metrics are very clean and as previously noted loan growth was strong when adjusted for P. P. P forgiveness, while deposits experienced attrition following several quarters of outsized growth.
Noninterest expense came in higher than we'd like to see something Paul will discuss momentarily.
Moving to slide five diluted earnings per share was $1 29.
Comparing the second quarter to the first quarter. The single most significant difference within the provision for credit loss.
Which was a 37 cents per share of negative variance as can be seen on the bottom left chart as.
As we add as the loss reserve to reflect the increased probability of an economic slowdown.
The other major factor affecting earnings was interest income from PPP loans.
Which was seven cents per share this quarter down from 12 cents per share in the first quarter.
Other items that affected earnings per share are noted on the right side of the page.
Turning to slide six our second quarter adjusted pre provision net revenue was $300 million adjustments, which most notably eliminates a gain or loss on securities are shown in the later pages of the press release and the slide deck.
Within the P. P N. Our chart the top portion of each column denotes revenue. We've that we've received from PPP loans net of direct external professional services expense.
These loans contributed $15 million to P. P and are in the second quarter.
Exclusive of PPP income, we experienced an increase in adjusted P. P N R 28% over the year ago period.
With that high level overview, I'm going to ask Paul Burton, our Chief financial officer to provide additional detail related to our financial performance Paul.
Harriss, good evening, everyone and thank you for joining us.
Hi, Zions seem it looks like it looks like your alignment mute.
Yeah.
I'm going to start from the top.
Thank you everyone.
Good evening.
Slide seven a significant highlight for US this quarter was the strong performance in average and period end loan growth average non PPP loans increased $1 $5 billion or three 1% while period end non PPP loans increased $1 $7 billion or three 3% when compared to the first quarter.
Areas of strength included commercial and industrial residential mortgage owner occupied and home equity as can be seen in the appendix on slide 25.
The yield on average total loans increased 15 basis points from the prior quarter, which is primarily attributable to increases in interest rates average PPP loans declined $658 million to $801 million.
Excluding PPP loans, the yield improved 18 basis points to 361% from 343%, we expect loan balances to increase at a moderate rate of growth by the second quarter of 2023.
Deposit costs remained low shown on the right our cost of total deposits was stable at just three basis points in the second quarter, our average deposits declined $718 million or 0.9% linked quarter period end deposits declined $3 $3 billion or 4%.
A substantial portion of the runoff was attributable to large balance low activity accounts some of our customers experienced merger and acquisition related activity. While this activity is recurring the size of some of these transactions over the past several months caused a brief influx of large deposits and as expect.
We've seen much of that money move elsewhere.
Harris noted we have planned for and are prepared for deposit balance volatility as our customers emerge from the unusual pandemic period.
Moving to slide eight we show our securities and money market investment portfolios over the last five quarters.
Size of the securities portfolio remained flat over the previous quarter as we slowed new securities purchases money market investments declined to $3 $5 billion, reflecting the decline in period end deposits.
The combination of securities and money market investments is now 36% of total assets at period end, which remains above our pre pandemic average of 26%.
The $1 $3 billion of securities purchases in the quarter had an average yield of 291%, which is about 80 basis points higher than the prior quarters, yes.
We anticipate that securities balances will decline somewhat over the near term.
Over three quarters of our revenue is net interest income, which is significantly influenced by loan and deposit balances and associated interest rates.
Slide nine 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 while the net interest margin in the white boxes has trended down over the past year. It gained 27 basis points in the current quarter also shown is the estimated net interest.
Excluding the effect of PPP loans, which improved by about 30 basis points. The largest contributor to improved net interest income is rising rates combined with our asset sensitivity as expected, our earning assets are repricing faster than our deposits, resulting in improved net interest.
Over the past year the decline in PC related revenues has largely been replaced with a strategic repositioning of the securities portfolio.
Slide 10 provides information about our interest rate sensitivity the rapidly changing environment has made our traditional disclosures regarding interest rate sensitivity somewhat less useful. Therefore, we are introducing two new terms latent interest rate sensitivity and emergent interest rate sensitivity first I.
We'll describe latent sensitivity recent increases in interest rates have not yet been fully recognized in net interest income because the balance sheet does not reprice instantaneously like a coiled spring. We expect these rate changes which were in place at June 30th to work through our balance sheet.
And income statement over the near term, we expect this late and sensitivity to add approximately 15% to our net interest income in the second quarter of 2023, when compared to the second quarter of 2022, excluding PPP revenues.
Emergent sensitivity is a more traditional view of interest rate sensitivity as it describes changes in net interest income that are expected to occur as interest rates change after the disclosure date, which in this case at June 30th we would expect the forward path of interest rates as predicted by the yield curve at June 30th.
Would add an additional 8% to net interest income in the second quarter of 2023, when compared to the second quarter of 2022.
Both measures assume that earning assets will remain flat and that nonspecific maturity deposits will move the entry price in accordance with our interest rate risk modeling assumptions in other words and for example loan growth would be expected to add to net interest income beyond latent and emergent sensitivity estimates.
Which only consider changes due to rates.
With respect to our traditional interest rate risk disclosures are estimated interest rate sensitivity to a 100 basis point parallel interest rate shock has declined by about two percentage points from the first quarter. This change reflects the recent decline in deposits and increase in our interest rate swaps portfolio and a higher net interest.
Income denominator in.
In summary, we expect latent and emergent interest rate sensitivity combined with continued loan growth and manageable changes in deposit volumes and pricing to meaningfully increase net interest income over the coming year.
Moving on to noninterest income on slide 11 customer related non interest income was $154 million, an increase of 2% over the prior quarter and 11% over the prior year.
As has been noted we have modified our overdraft and non sufficient funds practices beginning in the third quarter. We expect these changes will reduce our noninterest income by about $5 million per quarter from the second quarter run rate.
Including this reduction our outlook for customer related noninterest income in the second quarter of 2023 remain stable when compared.
To the current quarter.
Noninterest expense on slide 12 was flat to the prior quarter at $464 million, while certain seasonal first quarter items, such as share based compensation reverted to lower levels that reduction was offset by increased base salaries higher base salary expense reflects the inflation.
Pressures of the tight labor market and an increase in staff as we invest for future growth.
Incentive compensation and profit sharing accruals increased in the current quarter as our expectations have again been reset towards expanded full year P PNR and EPS growth relative to recent expectations.
Our outlook for adjusted noninterest expense is to moderately increase in the second quarter of 2023 compared to the second quarter of 2022.
Another significant highlight for the quarter was the continued excellent credit quality of our loan portfolio as illustrated on slide 13 relative to the prior quarter. We saw continued improvement in problem loan using the broadest definition of problem loans, the balance of criticized and classified loans dropped 7% and classify.
Loans were down 12%.
Of course net charge offs to average loans is the most important measure of credit quality, we had only seven basis points of annualized net charge offs relative to average non PPP loans in the second quarter and a loss rate was only five basis points in the prior quarter shown.
As shown in the chart on the bottom right. One can see the volatility of the provision for credit loss contrasted with the stability of reported net charge offs.
Slide 14 details the recent trend in our allowance for credit losses or ACL over the past several quarters at the end of the second quarter, the ACL was $546 million or 1.05% of non PPP loans.
The economic scenarios that we used to build our quantitative ACL were stable relative to the prior quarter. However in our qualitative assessment, we increased the probability of recession. This change in outlook was the primary driver of the increase in the ACL to loan ratio.
Our loss absorbing capital position is shown on slide 15, we believe that our capital position is generally well aligned with the balance sheet and operating risk of the bank. The CET. One ratio is now nine 9%. Our stated goal continues to be that the CET one capital ratio will remain at or.
Slightly above the peer median which we believe this positions us well for unforeseen internal or external.
We repurchased $50 million of common stock in the second quarter as a reminder, share repurchase and dividend decisions are made by our board of directors and as such we expect to announce any capital actions for the second quarter.
For the third quarter in conjunction with our regularly scheduled board meeting this coming Friday.
Right.
The chart on the right side of the page 15 shows recent annualized net charge offs as a percentage of risk weighted assets. We are intentionally match the scale on both charts. So that you can see the order of magnitude of losses incurred during this time frame relative to the capital set aside for expected losses.
As for credit losses, and the capital set aside for unexpected losses in the form of common equity.
Given the relatively low level of losses, we feel our capital position is appropriately strong relative to our risk profile.
Slide 16 summarizes the financial outlook provided over the course of this presentation, which I, which I will not repeat other than to point out that our outlook for net interest and net interest income refers to slide 10 for a more detailed discussion as a reminder, this outlook represents our best current estimate for the financial performance.
Formats in the second quarter of 2023 as compared to the actual results reported for the second quarter of 2022.
And between our subject to normal seasonality. This concludes our prepared remarks Kyle Please open the line for questions.
Thank you at this time, we'll be conducting a question and answer session. If you'd like to ask a question. Please press star one on your telephone keypad a.
A confirmation tone will indicate your line is in the question queue.
You May press star two if you'd like to remove your question from the queue for.
For participants using speaker equipment, it may be necessary to pick up your handset before pressing the star keys.
One moment, please while we poll for questions.
Our first question is from Ken Houston with Jefferies. Please proceed with your question.
Thanks, guys good afternoon.
Just one follow up on the NII side and Paul I wanted to ask you you mentioned moderately increasing loan growth and manageable changes in deposit volumes.
The likelihood that the securities portfolio shrink so when we think about that increment on top of the emergent and Leigh Ann Layton why could that be it a net add to.
To that end and by <unk> 23, how do we just think about the netting factors are kind of all else ex rates. Thanks.
If I understand your question correctly and please feel free to follow up if I have not you should absolutely consider the latent and emergent as two different measures, which should be added together.
Within the as I tried to say within the latent.
Sensitivity measure there was an assumption that the balance sheet is kind of flat.
But deposits continue to churn in accordance with all of our assumptions. So all of those interest rate risk pieces are in there and these are meant to be rate only.
Sort of estimates.
Right.
Yes, I'm sorry go ahead, yeah, no. So I'll refrain excepting the 15, plus the eight as the base.
Then as all other everything else around mix and loan growth net additive to that base.
A D a.
The largest part is going to be related to loan growth and as we stated in our outlook. We expect loans to continue to grow so yes, I would expect that to add to the to that base rate measure.
Okay, and then can you just give us an update on just.
The deposit betas barely moved at all I'm, just how you're thinking of that moving forward any changes to your original forecast, which I know you've talked about in the past in the upper teens, yes, there's not a change to our original forecast, although I will say I think for us and for the industry given the change in rates that we've seen in probably the change.
And rates will continue to see this week and I'm you know over the course of the next couple of quarters. My expectation is that we're going to really start to see deposit rate movement across the industry and I think youre going to see again in my opinion a separation in banks.
As it relates to their ability to hold those rates lower we have not changed we.
We have not changed our outlook for deposit beta, but it has been noted previously it might be a little bit lumpy and I think we're going to start to see those changes.
Got it okay. Thanks, Paul Thanks.
Our next question is from Dave Rochester with Compass point. Please proceed with your question.
Hey, good afternoon guys.
It is back on the NII guide definitely appreciated the new quantification there on your outlook that was great to see.
But Paul when you mentioned the deposits continuing to churn is the thought that you'll still get some measure of net growth.
Through the end of this year or over the next year is that baked into your guidance, but when you say churn or is it more like flat to down I would say, it's closer to flat to down and my expectation is that it's going to be.
As Harris noted in his opening remarks, you know 50% of the deposit outflows. We saw in the quarter were deposits that were over $50 million and while I wouldn't compare our deposit portfolio to anyone's as it relates to the nature and granularity that portfolio. We clearly do have some large depositors who are going to be more rate sensitive.
And so managing those carefully will be important for us over the next six months, but my expectation.
Would be that we may continue to lose some of those larger dollar deposits.
And then just as a quick follow up are you thinking that you can just use securities and cash liquidity on the balance sheet to fund that loan growth from here or do you think you'll have to tap wholesale.
Sources going forward.
That's a little bit of a trickier and somewhat speculative question. My expectation is that you know we have been generating about $1 billion of Hum.
Our principal and prepayment amortization on the securities portfolio that will continue for the next several quarters. So it's a it's a ready source of cash for US part of the reason I said that I expected. It in my prepared remarks that I expected the securities portfolio to be declining a little bit from here was in fact to our planning.
Planning for funding loan growth between both securities portfolio and cash reduction.
Alright, great. Thanks, guys.
Thank you.
Our next question is from John Penn carry with Evercore ISI. Please proceed with your question.
Good afternoon.
On your <unk>.
They are on your deposit color that you just mentioned in terms of the flat to down and to the extent that there is incremental declines should be back intuitive the incremental declines in the back half.
I think what you saw this quarter because of the lumpier deposits instead.
Were M&A related and drove down the downward move.
I'd say, that's that's quite possible Jai in our in our interest rate risk modeling I'll note that we.
Yeah, we we do assume that there is you know as I said churn in the portfolio, we assume that demand deposit sort of runaway to a relatively smaller extent or move to interest bearing and that's all figured into those deposit beta figures. So.
So as we think about interest sensitivity our expectation for those changes in the deposit portfolio are already in there.
But the most sensitive deposits I would expect.
Not entirely but perhaps have largely exited.
For greener pastures.
Got it okay. Thanks, Paul and then separately on the capital front I know you.
Left the door open to buybacks in your guidance in your commentary you bought back any.
Shares in the second quarter can you maybe give us a little bit of color in terms of your outlook and your expectations here, given where capital ratios lie and is it likely that we could see an increase in the pace of buybacks from where you're at now.
I wouldn't be willing to say that ultimately that's going to be up to the board I do note that.
The CET, one ratio was down a little bit even though.
Our earnings were quite strong in the quarter. So as noted we continue.
We expect our earnings to continue to increase.
And by the buyback ends up being a little bit of a shock absorber as we think about.
Capital growth through earnings and.
And loan growth Harris would you add anything to that.
Just just to say that I mean.
Our first preference always would be too.
Use capital to support quality loan growth.
So.
It will all hinge on that I mean, I think you can see that our.
Is that P P and harvest going to be pretty strong here over the next few quarters.
And so to the extent that loan growths can.
Yeah, you know emerges.
We'll consume capital I think that's it that's a fabulous thing if it doesn't.
I expect that we'll be looking at.
Larger amounts of buybacks.
Got it thanks Harriss.
Yeah.
Our next question is from Peter Winter with Wedbush Securities. Please proceed with your question.
Thanks.
Can you give an update how much is left in terms of adding swaps to manage the balance sheet sensitivity and where you'd like to bring that asset sensitivity down too.
Yeah. This is Paul.
Our asset sensitivity through a combination of bally.
Balance sheet changes, including the swap portfolio additions and our denominator, becoming larger that as our net interest income is just becoming larger.
And some deposit outflows our net interest income sensitivity has actually fallen.
Quite a bit I think that there are probably are ultimately.
Ultimately be an alco decision, but over time I think we could continue to add to that our swaps portfolio to make our make our asset sensitivity.
Hum sort of less than it is today, although I think we're getting closer to you certainly from where we were a year ago, we're getting much closer today to where our target sensitivity would be.
Okay.
And then just just on credit obviously credit is very strong but are you starting to see any type of stress on the commercial borrowers, maybe having trouble passing off price increases with the inflation pressures to their customers.
This is Michael Morris Chief Credit Officer, all I'll respond to that we are not seeing a lot of stress with our clients passing through to their core customers yeah.
Most have been able to pass it on.
And those that haven't had a lot of liquidity to cover what might be a little bit of a settlement period there.
So have not detected or seen any forward indicators that would suggest stress there.
Great. Thank you.
Okay.
Our next question is from Abraham Pune wallet with Bank of America. Please proceed with your question.
Okay.
Hey, good afternoon, just wanted to follow up in terms of how does your I think you mentioned.
But the near term probability put a recession seems more likely than not just following up to your previous response give us a sense of how how is that didnt, forming just in incrementals credits that youre, putting on the balance sheet and how do we think about reserve build and provisioning from here.
No I mean, the first thing I'd say is it's not creating any.
Major pivot.
I think over over the last decade really we've been doing a lot of things to do.
As I also noted too.
To reshuffle, the deck, a little bit in terms of greater.
Greater exposure to municipal credits a lot of these most of these are our smaller deals the average size of about $3 million. A these are.
These are you know that since it's an asset class, it's fared really well through thick and thin for decades for us as.
As well as jumbo mortgages and.
You know that.
The quality of those is is it's just spectacular.
We've got about.
78% of our jumbo mortgage portfolio.
Has FICO scores.
750, or greater about 2% or less than 650, just to give you a kind of thing.
A couple of indicators.
Back when we were doing it kind of in the CCAR days, when we were considered a shift and doing the fed was actually doing tests on that portfolio.
That was we were actually Ferring in their models is one of the very best in the industry. So.
I mean, we so we've we've made some changes over time that I think makes it a lot stronger we're fundamentally a I mean.
We underwrite the cash flow and then we.
Suspenders part of it as collateral.
And it's one of the things that's kept our losses low for you know really over the last decade.
One of the things we noted while I think one of the slides maybe in the appendix we.
Losses.
Relative to non accrual loans are a very conservative side of the industry I mean.
So we we think that we come in to whatever work.
Heading into.
In a in a really.
And really a very strong position.
Obviously, we don't know what the future holds how deep or how long any recession might be I tend to think parenthetically that because of the strength of the labor market.
And job openings relative to available labor in some of the Democrats graphic changes we're.
We're seeing that this is not likely to be a.
Yeah.
I really challenging kind of.
Recession.
The feds got their work cut out, but I do know that there's a higher interest rate thing that's going on.
More than pay for any problems we have.
So I know that's a that's a little of the iPhone.
Round, the map kind of view of kind of how I'm thinking about a recession.
Scott Mclean I'd, just add to that that our exposure to consumer unsecured whether it's card or or just personal unsecured loans is very low relative to peers.
And we go into this if we do go into a recession with.
Virtually no land exposure are very different than that.
Period.
And our leveraged portfolio.
Typical portfolio you'd look at the there aren't good industry comparables on that there haven't been lately, but there probably will be sooner than later.
And the last time they were done we generally.
You know we're on the favorable side in terms of exposure.
I'll add one other just quick.
Quick final thought about it in that as we say.
The one one product it might give people a little bit of pause we've had some growth in home equity.
Lines of credits.
But almost half of those saying about 47% of that portfolio are first lien deals.
And the credit metrics I mentioned with respect to the jumbo.
<unk> look very similar with respect to these first lien home equity credit lines and the ones that are second lien.
Also thinking about very conservatively so.
You know again I think we're in pretty good shape in that entire consumer portfolio.
Yeah.
Got it and just take that.
Back to your E C. L O reserves at the end of the quarter does it assume.
Just give us a sense of what that assumes in terms of downside versus base case scenario around the macro outlook and whether or not it actually assumes that a recession in your base case.
Well I'll start with that this is Paul.
Our reserve is set with both quantitative and qualitative measures and we utilized the Moody's macroeconomic forecasts as the basis.
For our modeled outcomes that served to build our reserve and so in that.
What we have done.
As I tried to say in my.
In my prepared remarks was that we have put more emphasis.
On the probability of recession that is to say that in.
In that outcome that a recession is more probable than not relative to the base case and that is that's.
Serving as the basis for that allowance for credit loss.
Got it thank you.
Our next question is from Jennifer Denver with the Truest Securities. Please proceed with your question.
Yeah.
Hi, good afternoon.
Two questions first with deposit growth being more challenging now or are you changing your strategy in terms of deposit gathering.
Racing incentives to employees or anything like that.
I will if I could start our loan to deposit ratio of 66%, So I'm not particularly concerned about the level of deposits relative to the balance sheet I will say that historically, we've had a practice of pricing more repricing more on an exception basis than not and so while we will see some rate increases my expectation as the primary tool for <unk>.
Aging deposit rates will continue to be exception pricing.
I I would just add to that Jennifer.
You know the we've reported the granularity of our deposit base.
Many times in the past and it relates directly to our orientation to banking small and medium sized businesses and we've seen in other periods of rising rates.
You saw it in 16, and 17, but but even going back to other periods that that.
The those deposits the granular nature of them cause I'm not.
To to move at a rate that you might see in other banks.
And it's simply because those small businesses.
The owners of those companies that are more focused on the top line revenue then they are trying to make an extra 10 basis points on their free cash.
Yeah.
Yeah.
Thank you.
Also on fee income you said, you're expecting kind of flattish customer fees over the next 12 months, what what do you think will be the best path for the.
Insufficient funds in overdraft fees are going to lease.
Yeah, that's a great question, Jennifer and and you know, we're just year over year, we're just seeing really good growth in our customer fees across the entire range.
And so.
My basic answer would be I, our expectation is that that it's going to be good solid mid single digit.
Balanced growth.
You know it used to be I mean capital markets I think will be a.
A solid a dollar and percentage increase performer. This is areas like syndications swaps.
Foreign exchange is there and.
Some other businesses, we're investing in from a capital market standpoint, our wealth business continues to grow at a nice high single digit low double digit rate.
And and our commercial account because these are basic treasury management fees. Notwithstanding this accounting change we made.
<unk>, we made in the first quarter or is growing at a nice mid single digit rate. So we're.
We're pretty optimistic about customer fees.
And in general.
Thanks, so much.
Thank you.
Our next question is from Chris Mcgratty with K B W. Please proceed with your question.
Oh, great. Thanks for the question.
Harris I think in your prepared remarks, you said you were.
A little disappointed with the expenses in the quarter.
I'm wondering youre not alone first off and I guess, maybe potentially it's about how to offset some of these inflationary pressures.
Well what I.
Just a couple of thoughts about it one is.
A portion of it is is accruing toward what we expect we're gonna be.
Wanting and needing to do with respect to incentive compensation, given what we think will be a stronger second half of the year.
And so we've we have to crude oils there we.
Yeah, Scott just mentioned capital markets as it is a segment that we expect to see.
I actually think well see some really nice growth over time, I mean, it's hard to understand entirely how you know if we could get into a mild recession.
How that may slow things up or what in fact that will have to we were we were absolutely building a.
A much stronger team there we've had some really good hires and so that's we're making investments there has been a.
Very notably.
So I expect that over time.
We.
You know, where we were in the last kind of earnings of completing.
There's big Technology project.
Called future quarter, replacing all of our core loan and deposit systems.
And.
That I think will help to flatten things out a little bit in that area. We'll have a we'll have the amortization of capitalized cost of this last major.
Release, or a piece of this that will come into play.
Sometimes.
It's kind of mid next year.
But we'll also some of the some of the period expenses, we've been incurring should start to come down and I think that that's going to probably.
<unk> be helpful. Beyond that it's just it's a it's a tough as you all know I E. You're seeing it in your firms as well, it's it's a it's Jim.
It's a tough environment, where you have to play.
The strong defense to.
To make sure you're holding onto the people you want to hold onto.
And.
So I think that's going to probably start to get a little easier as we get down the road a quarter or two you know if the fed does its thing right.
Hi.
I think that he is going to probably make life, a little easier that way, but.
Costs are going to be a challenge across the industry. That's the good news is that we're going to have the revenues due to more than compensate for it.
Yeah.
Yes.
Okay.
Yeah.
Paolo if we lost you.
So Chris is that complete your question.
Okay. Thank you.
Thanks, Chris.
Our next question is from Gary Tenner with D. A Davidson. Please proceed with your question.
Thanks, Good afternoon.
I wanted to just ask about the swaps I I don't know if I missed this I apologize if I did but he talked about the amount that you added in the quarter and then as you think forward are you know.
Do you have any.
Thoughts on additional adds to get your rate sensitivity down to any particular <unk>.
Thinking about the other side of this rate cycle.
Yes. This is Paul I'll start so I would point you to rather than focus on maybe what we've just.
And I would point you to page 24 of the slide deck accompanying todays earnings release, where I think we provided some pretty good disclosures on the notional amount of.
Of outstanding swaps.
And then the associated fixed rate.
Specifically and maybe going back to the prior question as it relates to our our interest rate sensitivity. If we were to get down into sort of mid single digit asset sensitivity for a 200 basis point rate change.
At June 30 that would be another $5 billion as an example are.
Of interest rates swaps to be clear I'm, not predicting that but what I am saying, that's the sort of scale.
We would require to get our asset sensitivity down for 200 basis point shock down into that mid single digit range.
Thanks, Paul I appreciate that and then second question I had was in terms of you know the.
Loan kind of promo rates specials youre running for a while you've totally through those right now given kind of the changing rate and essentially economic environment or are you still running any of that throughout your franchise.
The programs, we announced last and.
In the second quarter of last year have terminated now we're always are cycling through.
Hum.
Promotional pricing for our consumer and small business lending, but the magnitude we were doing before now.
<unk> discontinued.
And I'll note right. So it was.
Sorry, just quickly that the the.
I provided for that latent sensitivity that fully incorporates the exploration of all of these sort of.
Our promotional rates are over the course of the next.
Several quarters. They were it was one year promotional rate and just depending on when they funded it.
Roll off this year and early next year.
Okay. Thanks, I appreciate the color.
Thank you.
Gary.
We have reached the end of the question and answer session and I will now turn the call over to James Abbott for closing remarks.
Thank you Kyle and thank you all all of you who joined the call today, we really appreciate your questions. If you have additional questions. Please contact me through email or phone listed on our website and we'll be connecting with us in the next couple of months until we see you again next quarter. Thank.
Thank you again for your interest in Zions Bancorporation.
This concludes today's conference and you may disconnect. Your lines at this time. Thank you for your participation.
[music].