Zions Bancorporation, National Association (ZION) Earnings Call Transcript & Summary

Welcome to Zions Bancorporation's Annual Shareholder Meeting. Rules of conduct for the meeting are posted in the meeting site. [Operator Instructions] Shareholders wishing to vote, ask questions or offer comments must have logged into the virtual meeting with their shareholder control number and should follow the instructions on the meeting site. Your host is Chairman and Chief Executive Officer, Harris Simmons. Mr. Simmons, you may proceed.

Thanks very much, and thanks to all of you for joining the Zions Bancorporation 2021 Annual Meeting of Shareholders. The meeting will please come to order. I'm Harris Simmons, Chairman and CEO of the bank. Also participating is Thomas Laursen, General Counsel of the bank and Secretary of the meeting. Mr. Laursen, do you have the affidavits of the Notice of Meeting and mailing of the notices?

Yes, I do.

Thank you. The notice and the affidavits will be filed with the minutes. The meeting has been legally called, and a quorum is present. Our director nominees who are also participating virtually today are Maria Contreras-Sweet, Gary Crittenden, Suren Gupta, David Heaney, Claire Huang, Vivian Lee, Scott McLean, Edward Murphy, Steve Quinn, Aaron Skonnard and Barbara Yastine. Michael Medell and Brandon Byrd have been appointed inspectors of elections. Neither is a nominee for the office of director. I want to recognize Director David Heaney who is retiring today after 15 years on our Board. During his tenure, he served on every Board committee, including 15 years on the Risk Oversight Committee with 4 years as Chair of that committee. He's also served on the Board of Amegy Bank since 1990. We are really grateful for his many years of service and contributions to Zions Bancorporation. We wish David great happiness and good health in the years to come. I also want to welcome our newest Board member, nominee, Maria Contreras-Sweet. Maria is a former administrator of the U.S. Small Business Administration and experienced as the founding Executive Chairwoman of a community bank. Her strong understanding of banking, regulation and the financial services marketplace for extensive experience with small- and medium-sized businesses, and her promotion of workplace diversity and equity will bring a valuable perspective to the Board. I'd also like to note that since the last meeting, Jerry Atkin retired from the Board after 27 years of service. And I want to publicly thank Jerry for his dedication and the outstanding contributions he made to the bank. We elected Claire A. Huang to fill the vacancy left by Jerry's departure. Claire brings a wealth of experience in various marketing and customer-centric roles at some of the nation's most prestigious large financial services firms, and we're delighted to have Claire with us. The first item of business is the election of directors for a 1-year term. Shareholder Rena Miller will present each of the resolutions. Ms. Miller, would you please state your name and the fact of your stock ownership for the record.

Mr. Chairman, my name is Rena Miller. I'm a shareholder of record. I move the following resolution: resolved, that each of the following persons be nominated to serve as director of the bank for term [indiscernible]. Maria Contreras-Sweet, Gary L. Crittenden, Suren K. Gupta, Claire A. Huang, Vivian S. Lee, Scott J. McLean, Edward F. Murphy, Stephen D. Quinn, Harris H. Simmons, Aaron B. Skonnard and Barbara A. Yastine.

Thank you.

This is shareholder Jennifer Johnston. I second the motion.

Thank you very much. The Board recommends voting for these nominees, and we are not aware of any shareholders who have complied with the bank's procedures for making any additional nominations. Accordingly, the nominations are closed. The proposal is now open for discussion. Not aware of any. There being none, shareholders who have not yet voted on the nominees may do so by marking an appropriate entry after item #1 on the electronic ballot. [Voting]

Proposal 2 is to ratify the appointment of Ernst & Young LLP as the bank's independent auditors. Ms. Miller will present this resolution.

Mr. Chairman, I move the following resolution: resolved, to ratify the appointment of Ernst & Young LLP as the bank's independent auditors for fiscal 2021.

I second the motion.

Thank you. We have -- the motion has been seconded. The Board recommends a vote for this proposal. The proposal is now open for discussion. Ms. Johnston, are you aware of anyone who submitted questions or indicated a need for discussion?

No, there are currently no questions.

Okay. Thank you. There being no further discussion, shareholders who have not yet voted or wish to change their vote on this proposal may do so by marking an appropriate entry after item #2 on the electronic ballot. [Voting]

The next item on the agenda is a vote on a nonbinding advisory basis to approve the 2020 compensation paid to the bank's executive officers named in the proxy statement. Ms. Miller will present this resolution.

I move the following resolution: resolved, that the shareholders hereby approve, on a nonbinding basis, the 2020 compensation of the named executive officers as disclosed in the proxy statement pursuant to the compensation disclosure rules of the SEC, including the compensation discussion and analysis, compensation tables and related material.

I second the motion.

Thank you. We have -- the motion has been made and seconded. The Board recommends a vote for this proposal. The proposal is now open for discussion. Ms. Johnston, are you aware of any submitted questions or any discussion that's showing on the screen?

No, there are no questions.

There being no further discussion, shareholders who have not yet voted or who wish to change their vote on this proposal may do so by marking an appropriate entry after item #3 on their electronic ballot. [Voting]

I now declare the polls closed. I'd like to give just a short report on the bank's activities during 2020, and I'll ask Lanta Stevens to advance slides when I call for that. This has been a most unusual year with most of our employees working from home and learning new ways to get things done as so many of us in the world have been doing this past year. But they've been supporting our customers in a very substantial way during an exceptionally challenging time. If you advance to Slide 3 there, Lanta. As most of you know, we operate as a collection of great community banks with local brands and management teams in 11 Western states. Our primary focus is commercial banking, and 2/3 of our revenues come from commercial customers. We have one of the strongest deposit franchises in the industry with nearly half of our total deposits consisting of noninterest-bearing demand deposits, which results in a very low cost of funds. Our total deposits grew an unprecedented 22% in 2020, and 28% over the 12 months ending March 31, which really spans the 12 months of the pandemic through the end of the first quarter. We had 38% growth in demand deposits last year. So these are really quite amazing results in terms of deposit growth. If you'll advance to Slide 4. 2020 net income decreased 34% due to the loss reserves we built in expectation of much higher loan losses due to the pandemic. Happily, loan losses in 2020 were very manageable at $105 million or 0.22% of loans and leases, excluding PPP loans. Higher than the prior 2 years, but still a very strong showing relative to peers, allowing for a reversal of those reserves as we enter 2021. So we're starting to bring those reserves back down, and that will come into earnings, and you saw that in the first quarter. For 2020, earnings per share were $3.02, down 27%, again, primarily due to the effect of higher levels of loss reserves as we anticipated problems from the pandemic. Expenses were well controlled, down 2.2% from the prior year. The very low interest rate environment weighed on income last year with the company's net interest margin decreasing from 3.54% in 2019 to 3.15% in 2020. If you'd go to the next slide there, Lanta. Our pretax preprovision net revenue before loan losses, which is really a measure of our operating income before credit losses, nevertheless, fared relatively strongly compared to peers when measured against risk-weighted assets. This is a measure of how much income we're generating relative to the risk we incur. And our loan losses relative to common equity and loss reserves was strong compared to peers. You see that on the right-hand side of the chart. If you go to the next slide. Our capital is very strong. We have what's called by regulators a common equity Tier 1 capital ratio, which is essentially common shareholders' equity relative to risk-weighted assets. It is among the very strongest in our peer group. The same is true, as shown on the right-hand side of this slide, when adding in loss reserves. Between our strong capital, strong liquidity and solid credit results, we have one of the strongest balance sheets in the regional bank segment of the banking industry. Go to the next slide. As shown on this next slide, when we do have loans that have troubles and in which we stop accruing interest, we consistently have lower loan losses than most of our peers. You can see that in the 5-year average losses to nonaccrual loans on the left side. You see the same thing on the -- a 15-year view of this on the right-hand side of this slide. This is due to the fact that much of our lending is secured, and when we have problems, that helps to mitigate the loss. If you go to the next slide. A major focus during 2020 was our participation in the federal government's Paycheck Protection Program or the PPP Program. This was a critical source of aid to the nation's small businesses, which was -- is a very important part of our client base. And as you can see, we way outpunched our weight. We're roughly the 44th largest bank in the nation when you include domestic subsidiaries of foreign banks. But we're the 10th largest PPP lender from the program's inception through 2 weeks ago. We've now delivered nearly 75,000 loans totaling just under $10 billion to small businesses to help them through the pandemic. And the income from these forgivable loans was a material benefit to our performance last year. About $3 billion of these loans have now been forgiven by the SBA, and we expect that most of the rest of these loans will be forgiven by the end of 2021. But the positive financial impact for us and for our customers will continue throughout 2021. The next slide. We were one of the few large banks in the nation that proactively sought to help even those businesses who weren't our clients, and the process we've made, about 1/4 of these loans to businesses who are new to the bank. We've been working aggressively to turn these new relationships into long-term relationships, having so far sold over 5,000 additional products to new PPP clients from last year, while also strengthening our relationships with existing clients to whom we've also been able to market new products and services. I want to salute the more than 2,000 bankers who pitched in to make this such a success for us, those who helped with automation, who dealt with clients, every one of these 75,000-plus loans had a banker involved talking to the customer and helping them through the process. And we had exceptionally strong reviews from many, many businesses as a result of this very human approach to helping them apply for these loans and then with forgiveness. And we appreciate all the work that they've done in helping our clients through a very challenging time. If you go to the next slide. This kind of performance is one of the reasons we get very high marks from our customers in a variety of surveys, both locally and nationally, for the way they take care of customers. Greenwich Associates surveys thousands of middle market and small businesses each year regarding their banking relationships. Zions is one of only 11 banks nationally to have averaged 10 or more of their excellence citations in various categories since the survey's inception a dozen years ago. And you can see other just indications of the kind of -- the high regard that many of our customers hold us in, in each of our markets. If you go to the next slide. As you know, in addition to the pandemic, 2020 was also a time of real reflection about the importance of diversity in our society. We spend a great deal of time listening to our employees and considering how we could better respond to the need for increased equity and inclusion and diversity in the way we do business. It resulted in a series of initiatives that we call everyone counts and consists of 3 primary objectives. First, the workforce. We're doing a lot to increase the diversity in our workforce with a special focus on making sure that women and minorities are receiving the opportunities and experiences that will allow us to continue to strengthen their numbers in our senior officer ranks over time. Over half of our current year's recruits into our banker development program, for instance, were women, and 40% were racially diverse. This is a program where we prepare young bankers for engaging careers with a bank and to move into more senior roles. We've partnered with a number of great local organizations to help source talent, and I'm very enthusiastic about the quality and commitment of many of these young bankers. Secondly, we're focused on the workplace. We want to make sure that this is a really welcoming place to work. Among the things that we've done is established -- we've established business resource groups, as we call them, throughout the company where employees with a diversity of backgrounds can find support, can build networks, share ideas and receive mothering from seasoned bankers and meet with people who reflect their own backgrounds and find strength in that. I truly believe that this is a welcoming an environment for bankers in this company for bankers with very diverse backgrounds as you'll find in the industry. Then finally, we're focused on the marketplace. And I try to emphasize that the most profound impact, I think we're likely to have on those who may have been traditionally underrepresented in our economy, is by doing what we come to work every day to do, is by serving our customers. And especially focusing on helping minorities, women and veterans who have started a business to access capital so they can build great sustainable businesses that create jobs, opportunity and wealth in their communities. We've made an investment in Unity National Bank in Houston, a minority-owned financial institution, and have donated many hours of counseling and coaching to help them succeed in serving primarily -- a customer base that is primarily black-owned businesses and individuals in Houston and Atlanta. We've also partnered with our regulators to create a special-purpose credit program, with somewhat more generous credit terms focused on these current and prospective clients, women, minority, veteran-owned businesses. We'll be launching this in May, and we're very excited about the leadership. We believe we can demonstrate in serving this market segment throughout the Western United States. And we've established a supplier diversity program with the intent to make it easier for minority, women and veteran-owned businesses to sell their services to us. The next slide. We serve a variety of client segments that we have a particular focus on strengthening our market share with small and middle market businesses, affluent customers. And yes, many of these affluent customers are the owners of some of these businesses. And on building capabilities and delivering capital markets products to our customers. So these are some of our current areas of really strong focus. We find that there are a set of several capabilities that cut across market segments, capabilities we call enablers that facilitate that success. They include continuous improvement in risk management, the development of our human resources, investments in technology, a focus on operational excellence and strengthening our skill set with respect to data analytics. These are all areas of focus for us as we build the company in the months and years to come. Next slide. Technology is playing an increasingly important role in our business. We broke ground this past year on a new 400,000-square-foot technology campus in Midvale, Utah. We've taken what was once an EPA Superfund site, the former Sharon Mill -- Sharon Steel Mill site, and we're building what will be one of the most environmentally compatible buildings in our industry, what we expect will be a platinum lead building that will generate most of its own power. It will reduce our related occupancy costs by more than 20% relative to our current spending and provide a great new home for about 2,000 of our technology and operations colleagues. Next slide. A large number of the people who will work in this facility are also doing something equally as groundbreaking and leading edge in our industry. They're replacing our core loan and deposit systems with a modern integrated core banking system. FDIC Chairman, Jelena McWilliams, recently noted that this is one of the great challenges in our industry. And we believe we're about 8 years ahead of our peers in tackling this challenge of modernizing our banking systems. In the next 24 months, we expect to wrap up what will have been a full decade of work on this very complicated and comprehensive project. And I appreciate the great work done by all of our bankers who are working on this important project. Next slide. We have an ambitious road map of investment in digital capabilities, and we're delivering at a rapid pace. This weekend, we'll be upgrading the mobile and online capabilities of our customers in Texas and Nevada, following similar upgrades in California and Arizona in recent weeks, with others to follow in the next few weeks. In doing so, we'll have one of the most modern customer interfaces in the industry. We've also made huge strides in automating our mortgage banking experience, new account opening, small business lending, treasury management and a number of other capabilities that matter to our clients. Go to the next slide. And there's more to come on the horizon. We believe we'll have highly competitive technology, and it will be combined with an investment in training our bankers that will create strong relationships with customers facilitated by strong technology. And this slide simply gives you a little bit of an idea as to some of the projects that we have underway and that we expect to deliver in the next several quarters and the next couple of years. If you go to the final slide, 17. As we look forward to the rest of this year, we believe the economy, which has been so impacted by the pandemic by low interest rates and by this massive liquidity showing up as all these deposits on our balance sheet, will remain a challenging environment for banking in many ways. We expect loan growth to be relatively modest over the coming year with revenues relatively flat or up only modestly. We'll continue to focus on expense control. And we expect credit to be very manageable. Our strong capital position should enable us to return increasing amounts of capital to our shareholders in the form of dividends and share buybacks as the economy continues to improve. And just this morning, our Board improved -- approved, in addition to our regular quarterly dividend, the repurchase of $100 million of our stock in the current quarter. We appreciate your support, and I appreciate the many great people I work with. This has been an extraordinary year, one in which we've also done some extraordinary things. I look forward to better and stronger years ahead. And I want to thank all of you as investors in our business for your support and all of our great people here at the bank for the superb work that they do. And that's the end of my presentation. The meeting is now open for shareholder questions and discussion. And I'll ask Jennifer Johnston to determine whether there are any questions that we can answer.

There have been no questions submitted.

Okay. Thank you very much. We're always available to answer your questions, should you have them at any time. We certainly invite that, and be happy to try to explain what we're trying to accomplish with all of these initiatives we have underway. I will ask the secretary to give the results of voting as contained in the report of the inspectors of election. And Mr. Laursen, do you have that? Tom, are you there? Here we go.

Each of the nominees for director has been elected a director for a 1-year term. The votes in favor range from approximately 89% to 99% of the votes cast. Proposal 2, the resolution to ratify Ernst & Young, has been approved by approximately 97% of votes cast and has passed. Proposal 3, the resolution to approve, on a nonbinding basis, the compensation paid to the bank's executive officers, has received approximately 95% of the votes cast and has been approved.

Thank you very much, Mr. Laursen. The -- there being no further business, the annual meeting is now concluded, and a motion for adjournment is in order.

I move the meeting be adjourned.

I second the motion.

Thank you very much. The meeting is adjourned, and we thank you all for participating today, and wish you a very -- a better summer than we all had last year as we all get back to normal. Thanks so much.