Sentiment Analysis of the earnings transcript to help figure out if there are any bullish or bearish sentiments that could be gathered from it. We're doing ML and AI based analysis on the earnings call to get some more insights.
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| So going into the slides, financial performance for the quarter was marked by sustained stabilization of our net interest margin as well as significant customer deposit growth, both of which have been very encouraging |
| As our continued conversations with our customers have paid off in the form of an increased deposits on the balance sheet, deposit growth has been very good over the last two quarters |
| As one of the West's most prominent pioneer institutions, we look forward to a great future, building on this history and demonstrating a continued commitment to the values that have served us so well over these many years |
| But I do expect Zions to be able to maintain a very solid loan-to-deposit ratio and continue to see deposit growth, probably at least into the next quarter |
| It's very diverse and a portfolio that's performed well for us over the years |
| Moving to Slide 16, credit quality remains strong, classified loan levels remaining stable and low |
| Capital levels remain healthy, particularly relative to our risk profile |
| Our success in continuing to grow customer deposits contributed to the reduced level of brokered deposits and borrowed funds as we moved through the third quarter, and non-interest bearing sources of funds continued to serve as a significant contributor to balance sheet profitability |
| Credit quality measures for the total CRE portfolio remain relatively strong, though non-performing assets increased in the quarter to 2.3% of the office portfolio |
| I'm very pleased that Michael will continue with us in a role focused on affordable housing and related projects where I know he'll add a great deal of value |
| We expect to maintain strong levels of regulatory capital while managing to a below average risk profile |
| I would like to think that this is a bank that's been built the right way, steadily and prudently over many decades, with a persistent focus on developing deep roots in the communities we serve and helping customers develop their own strong financial foundations |
| We are seeing some other banks that are below the $100 billion Basal III threshold that they are able to -- acknowledging they are able to step-up and gain some share as some of the bigger banks are all busy with their RWA diets and balance sheet optimization |
| Moving to Slide 5, diluted earnings per share was up $0.02 over the second quarter to $1.13 on net income of $168 million as lower expenses offset slightly lower revenue |
| We've had a pretty dynamic and proactive response to changing conditions and this has contributed to the stabilization of the net interest margin and net interest income |
| The CET1 ratio continued to grow in the third quarter to 10.2% |
| Overall, we continue to expect the CRE portfolio to perform well with limited losses based on the current economic outlook |
| As noted previously, our outlook for net interest income for the third quarter of 2024 relative to the third quarter of 2023 is stable as we expect balance sheet composition changes to be accretive to net interest income |
| Michael's close and very capable associate over the past decade, Derek Steward, has assumed the Chief Credit Officer role and as Shannon noted, he's with us on the call today, and we welcome Derek into this really important position in the company |
| I think, what you have seen though over the last couple of quarters is substantial deposit growth |
| If I heard you correctly, I think you said it was 5 basis points to 10 basis points a quarter, positive to the earning asset yield over the next couple |
| Customer deposits grew $3 billion during the quarter and resulted in reduced reliance on both short-term borrowings and brokered deposits |
| Ending customer deposits, which exclude brokered deposits, grew 5% in the third quarter |
| We continue to see deposit growth coming from both existing and new customers |
| I'm hopeful that we can do a little bit better than this |
| I mean, there were really -- we put in some really great risk management things that continue to be in place |
| We recognized $14 million in net charge offs during the quarter, which is in line with the prior quarter, loss absorbing capital increase with common equity Tier 1 capital up 7% compared to the prior year |
| My expectation, therefore, is that the improvement in earning assets will keep pace with the change in funding costs such that, my expectation is that the net interest margin will be -- would not decline much from here, consistent with the outlook we provided in the second quarter |
| Average deposit balances for the third quarter increased 9%, while ending balances grew 1% compared to the end of the second quarter |
| Principal and pre-payment related cash flows were over $800 million in the third quarter |
| Statement |
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| Adjusted revenue decreased 8% from a year ago and decreased by 3% versus the second quarter due to the factors noted previously and a $13 million gain on the sale of property recognized in the second quarter |
| But we're also -- we also just note that during the third quarter, it was pretty weak |
| This was more than offset by increased deposit and borrowing costs, which when combined with the increased value of non-interest bearing funding, adversely impacted the net interest margin by 189 basis points |
| Turning to Slide 6, our third quarter adjusted pre-provision net revenue was $272 million, down from $296 million |
| Overall, the net interest margin declined by 31 basis points versus the prior year quarter |
| But when I speak to sort of taking longer than expected, what I'm speaking about is the inflation headwinds |
| And I think, it's symptomatic of the fact that the inflation occurred last year, things were doing this year and going into '24 quite a bit of pressure on those kind of baseline technology vendors |
| Assuming a funding cost beta based on recent history, we would expect net interest income to decline approximately 2% in the third quarter of 2024 when compared to the third quarter of 2023 |
| Loan losses in the quarter were associated with borrowers that have struggled with idiosyncratic supply chain issues, $3 million in losses on two office loans and other small losses distributed throughout the portfolio |
| Period end loans were flat to the prior quarter as we observed softening loan demand in the third quarter |
| And then lastly, I know the -- you had indicated -- I think Paul, you indicated in the prepared remarks, the expense objectives have taken longer than originally planned to execute |
| Moving to non-interest income and revenue on Slide 9, customer related non-interest income was $157 million, a decrease of 3% versus the prior quarter due to strong capital market fees in the second quarter |
| And during that conversion period, just because the way the accounting works, our P&L impact will get worse by about $10 million to $15 million |
| That's a little more difficult to predict |
| When we look at the NII monthly data that you provided earlier in September versus what you have here for the full quarter, it looks like NII declined in September |
| As mentioned, we recognized $3 million in losses on two office loans in the quarter across the CRE office portfolio |
| But I would just say to Harris' comment, I think our loan flatness right now is more indicative of just the customer base and being cautious and compared to where they were 2, 3, 4 quarters ago when we were seeing historic loan growth coming out of the pandemic |
| So that incremental $3.5 billion, the credit spread on that relative to the cost of funding, with any other wholesale source, home loan, larger deposits, et cetera, is going to create some drag, I think |
| And they just had leasing lease rollover issues and they were actually value-add properties where they weren't able to re-tenant as fast as the sponsor was hoping for |
| The linked quarter decline was attributable to lower non-interest revenue while adjusted non-interest expenses were flat |
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