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

Good afternoon to those in Europe and good morning to those in the United States. Welcome to our Annual Americas Select franchise conference. I'm Jason Goldberg, and I cover the U.S. large-cap banks here at Barclays. Continuing with our string of banks this morning. Very pleased to have Zions Bancorp. Zions is a high-performing regional bank with a branch footprint in the western portion of the United States, leveraging a multi-branded approach, servicing customers in higher growth regions, with a particular emphasis and doing a really strong job in kind of the small business, middle market lending front. From the company, very pleased to have Scott McLean, who is the President. Scott was the -- ran Amegy, their Texas franchise for several years before becoming President and COO about 7 or so years ago. I'll leave it there and turn it over to Scott to take you through some prepared slides and then happy to do Q&A. If you do have questions, please feel free to email me at [email protected] just includes Zions in this subject. We sort of ask Scott, those as well.

Great, Jason, thank you so much. We appreciate you having us again in your conference, and we look forward to spending time with you today. If, James, if you'd go to the first slide. Great. Thank you. I think most of you all are very familiar with our company. We have a terrific footprint and we're experiencing a lot of in-migration during the pandemic from -- into almost all of our states from around the country. A lot of individuals moving into the footprint. And pretty confident that we'll continue to support the business in migration that has been happening in most of our states for decades, quite frankly. So it's an enviable footprint that should do well in the recovery. And while we serve all types of customers, our orientation is primarily to banking businesses, small and medium-sized businesses and the full gamut of industries. That is the real key driver to our company. About 2 years ago, to 3 years ago, we had in -- for about 2 months, 1 of the most well-known household name management consulting firms in the world. And after about a week, they sat down with us and they said, "Hey, a couple of things. We're just curious if you all realized. And they started with, did you realize that of all the banks we've looked at before, but your orientation to banking businesses, small and medium-sized businesses, we've never seen this sort of orientation in this sort of size relative to your company's size of this particular customer -- group of customer segments. They also said, did you realize that your deposit mix the relationship between your noninterest-bearing deposits and your total deposits is industry-leading as well as the cost of those deposits. And then finally, they said, did you realize that your customer satisfaction scores are outstanding relative to your primary competitors. And of course, we said to them, well, yes, no, we pretty much knew that. We've been saying that. We're kind of hopeful that you're going to come up with some other things to point out to us during this consulting engagement, which they did. It was a really terrific and powerful engagement. But they realized what I think most of our long-term investors have known about us for a long time that this orientation, our approach to banking on a local basis as we possibly can. The strength of these regional brands that we have, having decision-makers in every market all the way down to our branches, that, that's been really attractive to business owners. And consequently, we have this strong, strong franchise around banking, small and medium-sized businesses. And that is exactly what has produced our industry-leading deposit mix because we have this quite significant collection of small operating accounts for these small businesses. It's very stable. It has been for decades. And it is what contributes to our 45%-plus ratio of noninterest-bearing deposits to total deposits. And it's been that way again for decades. Prior to '08, '09, that ratio was less, but relative to our peers, it was still quite significant. And then customer satisfaction, we'll talk about here in just a moment. Let's go to the next slide, and it's one thing for me to say all this. It's another when our customers and other third parties say it. It's great to hear it from this consulting firm. But you see here on this slide the recognition that our affiliates receive in each of their markets as well as recognition we've received nationally. If you go to the next slide, James, we're on Slide 5 now. Greenwich research is arguably the most. There's sort of the gold standard for measuring customer satisfaction among businesses in the country, every major market with banks. What we've shown here, it's a lot of data, but the data is really quite significant. We've compared ourselves here to JPMorgan, BofA, Wells and U.S. Bank. The reason we picked those is because in almost every market that we operate in, some collection, some combination of those 4 banks represent anywhere from 50% to 65% of the deposit share in those markets. So this -- they represent almost 2/3 in many cases of where our potential customers sit, our prospects sit. And so it's important how our customer satisfaction rates relate to those banks. And so we've displayed here, Greenwich has a category called National Distinction, okay? It's awarded to very few banks in their survey, and it's excellent customer citations. Here, we're comparing ourselves to the average of those 4 banks, and then we show our closest competitor. And the top half is the middle market companies with revenues from $10 million to $500 million, the bottom half is small business, $1 million to $100 million -- $1 million to $10 million, excuse me, in gross annual revenue. The numbers are pretty much the same. I'm not going to go through everything on here, but I do want to point out just a couple of things. First of all, it's great when you're a leader in overall customer satisfaction, that's a good thing. But more important than that, I think, is the -- in this top section for middle-market companies, a bank you can trust. Look at the difference, 73% for us, the peer average is 56%, next closest competitor, 63%. A bank that values long-term relationships, 69% compared to the average of 56% and closest competitor of 64%. If you parachuted in from Mars and you were going to start a bank, I'm pretty sure that 2 things that would be high on your list would be a bank -- we want to be a bank that others will trust, and we want to be a bank where our customers feel like we're interested in long-term relationships. This has everything to do with our people, in our markets. It's not our branding, it's not our electronic footprint. It's all about our bankers. And I would also note, if you go down into satisfaction with our bankers, the second line, overall customer -- again, I'm on the top half of this page, overall customer satisfaction with cash management specialists, 82% compared to 60% and 62% as the nearest competitor. These are our bankers that interact with our customers on the deposit side, positioning our nationally recognized treasury management capabilities. And isn't it terrific that in the area where so much of our franchise value is, our deposit franchise that our colleagues that deliver those services are thought of so well relative to their peers. Okay. Let's move on to the next slide. And I won't spend much time here. This, again, just kind of gets to the punching above our weight comment. If you look on the left-hand side of that, the only thing you can really measure financially and through the call reports is loans -- commercial loans between $100,000 and $1 million. It's generally a well-accepted proxy for your small business lending activities. It's not perfect, but it's a pretty good proxy. And what you can see on the left-hand side is that we have about $5 billion of these loans. And to put that in perspective, we're kind of 20% to 25% of the largest banks in the country, 20% to 25%, those banks are 35 to 40x our size. Okay? You can see that on the right, but you just kind of -- you got to wrap your head around that. 20% to 25% in absolute dollars, those banks are 35% to 40% our size. If you go to the next slide, this emphasis on banking small businesses was never more evident than when the Paycheck Protection Program, the SBA's PPP program came along last April, early in April. This was an important opportunity for us to demonstrate the power of this franchise of banking small businesses and our ability to put together technology from the customer interface, processing through decision-making, all the way to funding that was seamless, had never been put together before, was basically put together last April from scratch. And we combine that with 1,500 to 2,000 bankers, okay, on the front end of that process, talking to the customers on the front end. This allowed us to originate 47,000 loans in PPP 1.0, which was last spring and summer. And then we've added to that, with another 28,000, bringing us up to 75,000 in total. This performance was 3x. It was 3x our market share. We're about the 35th largest bank in the country, and we will finish between the 2 PPP programs, #9 or 10, plus or minus. And it was kind of a 3x performance relative to our peers. And this resulted in about $350 million of fees to originate these loans that will be recognized through net interest income. And when you factor in the interest rate we receive on these loans is probably about $400 million in total of revenue coming from this. That's a nice thing. The really important thing is we did the right thing for our customers. We did the right thing in our community, took a lot of hard work, and we're really proud of what our folks accomplished and received great customer satisfaction ratings throughout that process. And all I would really say about this is that if you're going to go into a pandemic in a historically low period of interest rates, you'd rather have $400 million of additional revenue than not. And the impact for us was about 3x what it was for any of our competitors. So it was quite significant. And I'll acknowledge that most investors and analysts are not going to give us credit for that all and out into the next 5 to 10 years. But I would suggest that if you go to the next slide, the real gift that we'll keep on giving here is that basically, if you look at the left-hand side, we had a really intimate relationship with 55,000 of our smallest business customers. We have basically 200,000 small businesses with revenues less than $10 million. And these 55,000 customers of that basically a subset, this gave us a really intimate moment with each one of those that we have been able to continue to build on. And then close to 19,000 new to bank customers, 19,000. It's an awesome number. We are laser focused. We have all of these in our contact management system. Our bankers are aggressively calling on our new to bank customers and our existing customers that took advantage of the PPP program. And we've had great success in selling thousands of new products to these customers and originating new loans. We've originated about $400 million in new loans to this collection of 75,000 customers, both new and existing. If you go to the next slide, just a bit about our strategy. And it's pretty simple. It really can be summarized in this chart. We have basically 4 primary growth markets. Now we do lots of things. We have 860,000 consumers. We have a big CRE business. We've got a great municipal finance business. We're in a lot of businesses, all of which are important to us. But these are the 4 primary growth markets that we're investing heavily in. One, on small business. We're doubling down on who we are. We are a Zebra. We like being a Zebra. We have no desire to be a Giraffe, okay? We are doubling down on small business. We're trying to take that up into commercial, which is the middle market. Some of our affiliates have a real strong orientation to the middle market, but all of them do not. And so we're moving upmarket, not to the corporate market, but just further into what most would describe as the middle market. Affluent is a terrific opportunity for us, about 15% of our consumers would be considered affluent. You'll see us talking more about that, measuring it, showing our success. Most of these affluent clients in fact are business owners. So it's great to be highly focused on improving the experience for this most important part of our customer base, our small business owners. And then capital markets is just an adjunct to doing more business in -- with our larger commercial clients. It's come along just very nicely, our Chief Financial Officer, Paul Burdiss, has done a marvelous job of taking this effort to a whole new level. And then you have basically 5 enablers. People, a very natural place to start. Here, what I would suggest to you is, if you read Harris Simmons shareholder letters in the last couple of 2 or 3 years, we have always talked about building out the capabilities of our bankers. And we are putting more authority into our branches as opposed to taking them away. Most of our competitors are taking authority out of their branches. We are putting authority into our branches. It's an important distinction, you'll hear us talk about it more. Technology, I'll talk about in a minute. Operational excellence, the continued pursuit of simplification in all that we do and the use of automation. Data and analytics, if you're going to survive in a digital world, data is absolutely key. And then risk management around everything we do, and I'll comment on that again in just a minute. That's, in a nutshell, our strategy. If you go to the next page, you'll see our kind of the current view of technology. I'm just going to point out 2 things. Future core, the bottom horizontal panel there, that's our -- it's been our long-term 8, 9-year pursuit of completely replacing our core loan and deposit systems. There is no other bank in the United States that has done this. There are others that have announced recently. It is a long road, and we will be the first to get there. There are a few other banks that have said they were doing it, but not nearly to the scope that we're -- that we've embarked on. At this point, as of February of 2019, we have all of our loans on our new modern core. Those were the first 2 releases to get all of our loans on our new modern core, which I would suggest, there's probably not another bank in the country that can say that they have all their loans on one data model in a modern core setting. So that is distinctive by itself. We will complete the deposit phase of this in early '23. And at that point, I would argue that we will have a 5- to 8-year head start on literally every other bank in the country. Why is this important? If you want to survive in a digital world, you have to be digital to the core. You have to have simplified data models. If you're going to move data from your core systems all the way out to your customer. And if you're going to do that 24 hours a day, 7 days a week and have it be correct 100% of the time. So that project has come a long way. It's nearing completion, and it is strategically distinctive for us. The other thing I'd point out, kind of about 5 rows down, you'll see small business online mobile banking replacement. This is a workhorse for us. This is our online and mobile system that supports about 625,000 of our 860,000 consumers, and it supports about 150,000 of our 230,000 business customers. It is a workhorse, okay? We just about have the consumer side of that rolled out. We'll roll out the small business side, the second half of this year. And then we'll have that completely behind us going -- as we go further into 2022. A lot to talk about on this slide, but those would be 2 things I'd point out. Now let's go to the next slide. I'm going to hit some of the financial details pretty quickly here. Most that have followed us for a long time know that June 1 of 2015, we announced a 3-year Performance Improvement Plan. We had dates, we had dollars, we had ratios, no one ever gives you all 3. We hit all 3. We hit every goal we set for 3 years. And that set us on this course to create peer-leading comparisons, very strong peer comparisons since 2014. And since 2014, our revenues are up about 29%, 30%. Revenues are up about 29%, 30%. Expenses are up about 4% to 5% in absolute dollars, big change in our stripes there. This slide, as you study it, the gray line is the most favorable quartile. The blue is the most unfavorable. You can see that we, on the left-hand side, got our revenue up near peer median, but as rates have come back down and our asset sensitivity, we fall on a bit below peer median on revenue growth, but we think as rates normalize, we'll be back to peer median or slightly better. In the expense category, though, we've led the league. As of this writing, we rank second among all our peers, depending on any quarter you pick in the past, we'd rank number 1, 2 or 3 during the 7-year period at different points. You can see the impact on PPNR. If you go to the next slide, the efficiency ratio has obviously been impacted by the rate environment, and so we're not happy with a 60% efficiency ratio. Long term, we have said that we believe we'll be in the mid-50s. I think any kind of normalization of interest rates will be that mid-50s is very achievable. Okay. If you go to the next slide, loan growth. I got a feel like Jason is going to ask me about loan growth, I'm just guessing. Maybe what I'll do is just wait for that. But basically, the PPP loan growth has been terrific. Our core loans, point-to-point, March of this year to March of last year, down about $2.9 billion, okay? That can be explained 100% by our utilization rates. We have about $13 million in -- we have about $30 million in revolving credit commitments and our utilization rates down about 10 points this year versus last year. It almost entirely explains the difference. Happy to talk about loan growth more. We've had outstanding deposit growth. Businesses, in general, have found a way to create liquidity during this time. And you can see that in our deposit growth, which has kind of spills over into the next slide. Slide 14, Slide 14, 15 and 16. These slides are available on our website, and I know they'll be available here as well. I won't go into a lot of detail, happy to take questions on this. But our net interest margin, like the rest of industry is largely influenced by the dramatic increase in deposits and liquidity, and that's had a dampening impact on the net interest margin. Our asset sensitivity has increased during this period of time. We think that's not a bad thing and happy to talk about that as we move into Q&A. If you move through Slide 14, 15 and 16, and again, happy to take questions on those, I would comment on our fee income. Our fee income increased from about $525 million customer fees last year to $555 million. But a lot of moving parts. And I think it's important to note that between our card revenue, our NSF revenue and the fees we receive from our partners where we move customer balances into their sweep deposit relationships, these are big investment vendors. Our balances are still the same, but the rate we're receiving is much less. It's about $30 million of softness we've had there. I don't know that NSF revenue will come back quite as strong as it was before, but we believe our card revenue will and these 12b-1 fees we receive will. But it's about $30 million of softness. Offsetting that has been a growth in our mortgage business. Our mortgage fees in 2019 were $17 million in '20. They were $55 million. And we may not be able to repeat $55 million, but we're sure not going to go all the way back to $17 million. So we've seen really nice growth in mortgage that we think will stay with us as these kind of pandemic vulnerable fees of about $30 million, we hope will improve as well. Okay. Let's go to -- yes, credit quality. Thank you, James. Boy, just a great story here. Classified and nonperforming assets have certainly flattened the last couple of quarters for the industry and for us. Net charge-offs have been far less than we would have anticipated. And our COVID-related portfolios that we report on actively have performed better. So that's kind of the fundamentals. I think if you go to the next slide, Slide 18, you'll see that our trends relative to peers of adverse credits, nonperforming assets, really over this 7-year period of time, are performing better than peers that kind of spiked there in '16 was related to the oil and gas commodity. 2015 and '16, that was the oil and gas commodity volatility. But generally speaking, the relationship on the left has held for many, many years. And our loss exposure on the right continues to compare very favorably. If you go to Slide 19. You'll see the -- one of the top stories in the industry is about the allowance for credit losses. Where will it go? We had a release in the first quarter and happy to talk about that. It's so dictated by the CECL protocols, which are pretty difficult to explain, pretty difficult to understand but don't always track to the way people have historically thought about the relationship with problem assets, net charge-offs and the reserves. Okay. Rounding third here, a couple of slides, Slide 20, basically look at our net charge-offs relative to loss-absorbing capital. And then really, what we drive ourselves on because the provisioning and the loan loss reserve with CECL is going to be pretty volatile. So we really look hard at our PPNR less net charge-offs as opposed to less provision. And as being a good long-term measure, you can see that on the right side. And then you get a little bit different perspective on Page 21 about our loss-absorbing capital. I'm going to guess, Jason, we'll have a question on this front. So I'll leave that for him. And then you'll -- you'll see our guidance on Slide 22. What I'd close with, before going to Q&A, is just simply that we feel great about our footprint. As I mentioned, there's a lot of in-migration. There always has been. There's good business growth. A lot of technology companies are moving into our footprint. A lot of basic industries are moving into our footprint for a wide range of reasons. And we think our strategy has never been more focused or deliberate around banking businesses, which is kind of the fundamental of what we do. And then doing well, everything else that kind of resonates from that strategy. Customer satisfaction ratings, you can never take them for granted. You earn them every single day with every single customer. We're just so deeply appreciative of the ratings we receive on that front. There is a pent-up demand of business customers to change banks. This has been measured by some of the big survey companies. And Jason, you've probably seen it, but there is a pent-up demand of small and medium-sized businesses to change banks. Why? Because they didn't like how they were treated during the pandemic, and they didn't like their PPP experience, okay? And we certainly could be a victim of some of that, but we think we're going to be much more a recipient of it. Credit quality, I think for really quite a long time, people have thought has Zions really gotten the risk management thing together. Have they really changed their stripes on risk management. And we've been saying this for a decade, and it's taken a downturn, I think, to demonstrate. I think you're going to see that will be a positive outlier when it comes to all of our risk metrics as we come through this downturn. And then finally, we've talked a lot about technology over the last decade. We've been highly committed to our path there. We think it is a long-term differentiator. We think it's hard for investors to understand but we think the reality of that will be more easily visible in the years to come and will be a growing part of our story. Jason, with that, I so much appreciate the opportunity to be with you, and I'll turn it to you.

Thanks, Scott. Informative as always, there's a few areas that you promised us you will expand upon in Q&A. So I did take note, so I'm going to make sure to follow-up. And as you might have guessed, I will start with loan growth. The industry data H8 data has been -- continued to be sluggish yet with the banks we talk to, there continues to be some optimism on improvement in the second half. I think some have shown more evidence than others. That is actually going to occur. Really talk to just how you see kind of quarter loan growth playing out maybe both in the second quarter? And then kind of the back half of the year as maybe some of these reopenings take hold.

Yes. A couple of comments, not in descending order of importance. But having been in this business 43 years. One thing I would just -- one thing I've learned and observed is when your loan portfolio is actually declining, it never turns on a dime. It just doesn't. And you have -- it takes a strong a strong effort to get it to bottom out and then start to grow again. But when it does, you can create long periods of growth. And so these commentary that somehow we're going to have it be and loans are going to take off like a rocket ship. I -- just hadn't been my experience for 43 years. Do I think loan growth will reemerge? Absolutely. But if the industry may see a continued softness this quarter. They may see it in the third quarter. But there's no doubt in my mind that loan growth will return. And the reason is that these historically low utilization rates for us and for the industry. They -- as small businesses for us, as they rebuild inventory and receivables, those are large dollar flows to rebuild inventory and receivables, okay? The question is how much of the liquidity that's in the system today has to be absorbed before they borrow. All I would suggest is that in '08 and '09, when there was monetary easing, there were huge increases in liquidity in the economy and in the banking industry. And guess what, we didn't have to take all that down before companies started borrowing again. It just kind of stayed in the economy, it stayed in the banking system largely. And I think that could very well happen again here. But these utilization rates will absolutely go up, and they'll be different than what we see in normal times because you're building -- companies have reduced their receivables and inventory by, I don't know, 20%, 30%, 40%, 50%. Well, these are large dollar amounts. So I think utilization will be a key. Secondly, our 1- to 4-family mortgage business has been largely a held for sale business over the last year because that's kind of where the market was. We're seeing our held for investment loans starting to grow again like they did throughout most of the previous decade. And that's how we were able to grow our 1- to 4-family business. I think we'll see growth there. And then I do think that just our normal commercial business and consumer businesses will return to growth. It just -- we're just in such a great footprint, very vibrant markets. And people are -- I think people are looking forward to spending again and seeing kind of a bright light ahead.

Got it. I guess one of the banks that presented earlier this morning, talked about as low -- loan growth comes back, there is a concern that you'd see some increased competition and they had to be more diligent on deposit costs. Given your deposit costs or you've been -- done such a good job there, not much room there. But just maybe talk to concerns in terms of just competition on the lending side.

Yes. I don't mean to be flip, but it's always been competitive. In our markets, small business, medium-sized businesses, there's always -- whenever a company is looking for proposals or we get them to look for proposals, there's 3 to 5 banks easily that are proposing. So I just don't -- it's just always been there. We are pretty hardened on competing. We like to compete. We love to compete. We love taking business from other banks. That's what's not been there over the last year. It's a big part of the story for us from a loan growth standpoint is because usually, probably 40% of our loan growth comes from prospects, moving to us from other banks. That just didn't happen during the pandemic for a lot of obvious reasons. And so I think it will continue to be competitive when the global banks come into our markets, which they are increasingly, that's fine. We already deal with them. And I -- you don't have to -- if you go back to that Greenwich slide, you can see how customers feel about our bankers and about how we do business. And they can pretty much differentiate that we are serious about being local, serious about being in the market and I think that will serve us well in the future. Not worried about competing.

I guess, if I kind of take the Greenwich slide and then marry it with like kind of the PPP opportunity slide, as you kind of look out, how much of an opportunity do you think it is? Or maybe what proportion of your loan growth or maybe help size the potential of taking these PPP customers that you clearly helped out in the time they need. They made it through the pandemic, and now they kind of get to regulated operating, how do you kind of size that opportunity? And kind of what stages are we in of kind of realizing that?

Yes. So of the -- let me talk about PPP 1.0. That was the 47,000 loans we made, 33,000 to existing customers, 14,000 to new customers, new to bank customers. PPP 2.0 is a little too new to rate, but it's going to play out the same as 1.0 did. The 33,000 that were existing customers, they represented about $7.9 billion in deposits and about $3.7 billion in loans, okay? They were important customers, but they were small customers, okay? And we've already generated over $300 million in new loans. So that's kind of about 10% growth on that base in less than a year. These are customers that don't always borrow. When you look at the 200,000 small businesses that have revenues less than $10 million that bank with us, 75% don't borrow. They don't borrow. This is a subset where there was greater borrowing, but a lot of them had not borrowed before. And now we've had this experience of lending to them. And so it's a big step forward with now 50,000-plus of these small businesses, okay? And the 14,000 new to bank, we got another about 4,500 and PPP 2.0, so 18,000. We are laser-focused on watching them transfer their operating accounts, measuring that, cross-selling our -- all of our products, and they've borrowed about $100 million already, which is, for us, is a significant number if you think. Well, how long would have taken us to get 18,000 new customers in any other environment? It'd take a while. And they never start out borrowing. It generally starts out with a depository relationship. So I do think we're going to keep reporting on this, but I think it's going to be an important part of our story long term.

Got it. For those on the line, there's about, call it, 5, 6, 7 minutes left, so feel free to e-mail questions to [email protected]. Just please put Zions in subject, so I catch it in my inbox. Scott, you kind of went rather quickly to the net interest income margin, the deposit sides. Can you just expand a bit -- I know these questions are for Scott, but we got you so I got to ask. Just in terms of what you're seeing just in terms of deposit growth, what are you doing with those deposits? Clearly, excess deposits have been weighing on the NIM. But the rate environment is maybe a little bit better today than we thought at the start of the year. And just talk to kind of maybe kind of your near-term outlook for those drivers?

Yes. Basically, we've got about $8 billion to $10 billion depending on the day that is very short term. We didn't set out to do that. It's just what's happened in the market. And clearly, the yields that are available to us are stronger than they were 6 months ago. I happen to believe. And -- but I may be one of the most well noted economists from the State of Oklahoma. So I certainly have some experience. But it's hard to imagine that we're not going to see an increase in interest rates, short-term interest rates sooner than what is being said publicly. Maybe we won't, but it just feel -- there is inflation all across our franchise, okay? It's in commodity prices of all types, it's in groceries. It's in wages, certainly, unlike any other time we've seen in the last 15 years, okay? And that's just anecdotal, but it's real. And so we're trying not to go all in on 15, 20-year, 30-year rates right now because we think there is going to be a slope up here. But we will not wait forever, okay? We are -- we would rather take fixed rate exposure to our customers than to market instruments because when you do it with your customers, you -- there's generally other business that comes with it, okay? So we're looking hard at our owner-occupied portfolio at our HELOC portfolio. We have really low utilization rates in our HELOC portfolio, and owner-occupied is always a terrific product. We're looking hard at how to be more aggressive with rates there as opposed to going into the open markets and buying securities. So you'll see us do that. Likewise, with our 1- to 4-family mortgage, those that we hold on our balance sheet. We'll probably lean in a bit there. But it will be kind of a balanced approach over time.

Got it. You also said I may want to ask about your losses on the capital side, which I do, but I guess, first off, a CET1 ratio over 11%. I know you get a little bit of buyback in Q1. You announced a little bit bigger buyback in Q2, but still well above kind of your peer group. Maybe talk to kind of the outlook for capital management, what's holding you back from kind of bringing it down? And if you were to bring it down kind of the -- is a share buyback and how you think about it?

If you take some historical context here, Jason, you'll remember that at our peak, we were at about -- CET1 ratio about 12.2%, okay? And our peers at that time, were at about 10.6%, okay, this was 4, 5 years ago. And at that time, we said, okay, we're going to bring our CET1 ratio down and closer to peers, but favorable to peers, okay, better than -- higher than peers. Because we wanted for the next downturn to go into it with higher than peer average capital. We're glad we did, okay? Nobody has questioned our capital when there have been some questions about others capital early on. So I think what you'll see is that because charge-offs didn't materialize, and provisions haven't continued to go up, our CET1 ratio is -- we got it down into the low 10s. It's now gone to 11.2%. And what we've said is like we did before, we'll try to bring it back down, closer to peer average but above peer average and that's our goal. And it will principally be through buybacks. We're going to keep our dividend payout ratio kind of comfortably around 30%. We're not going to push on that lever too hard. And -- but we have opportunity with buybacks and the Board will make that decision on a quarterly basis. And -- but like we said before, when we were 12.2%, and we brought it down to about 10.2%. Now we're 11.2%. We'll try to perform similarly with that expectation.

I guess, against that backdrop, you talked about moving to these new common platforms and kind of being ahead of the game there. Maybe talk to just -- does that allow you to be a better acquirer? Zions obviously did the Amegy deal and done some deals over its history, but not necessarily recently, but you have seen a pickup in interconsultation of late. What do you think Zions role will be?

Well, we see virtually every deal that happens. So we're watching, and we have a chance to look. But generally speaking, if you're looking at banks between $2 billion or $3 billion in size and $30 billion, you'll see some pretty unusual metrics around heavy CRE exposure, 50%, 60% CRE exposure or deposit mixes that are out of balance, very low DBA, high interest-bearing. And we're trying to be really disciplined not to change those fundamentals about our company. Those are important fundamentals. We brought CRE down. Our deposit franchise has been intact for decades. And I think you'll see us be really disciplined around not changing those stripes materially. But I will say that we certainly could do acquisitions today. We don't have to wait for the end of our future core project. But to the extent we don't see anything that's really interesting, we'll be in an awesome position in 2023 because we're much stronger financially, and we think our currency will be better. And we're certainly battle-tested with our regulators in terms of being a preferred acquirer from their perspective.

We're out of time, but I would not be doing my job if I cannot ask about credit quality. So I know all the metrics have been great. But as you kind of look through the portfolio, I guess, on the commercial side, any kind of areas of emerging concern that aren't obvious and you maybe could touch on energy against within that.

Yes. If you go back to Slide 17, James, if you want to -- well, actually, Jason is up. So we don't need to go to the slides. Yes, I would just say that, knock on wood, we've just been pleased with how everything has sort of flattened out. Our oil and gas portfolio, you asked about that, it's about $1.9 billion in outstandings, excluding about $300 million of PPP loans to those clients. That market is fully recovering. And the thing about that market is that the number of banks competing in the energy industry is about 1/3 to 1/2 of what it was before. So credit underwriting, upstream, midstream, and services, which we really aren't doing much of. But credit underwriting has never been more favorable to banks, pricing has never been more favorable to banks. And I don't think you'll see more banks get back into that -- those industries. I think we're seeing that they are capital starved in the public markets. And again, about half 1/2 to 2/3 of the banks have left that market. So we will stay in it. We've been in it forever. We're an important player. And we think it will be a nice area for modest, very conservatively structured and priced business. Our COVID portfolios, which we have a lot of data on, performing really well, and I think PPP has had a lot to do with that. And we're seeing people go back to restaurants and bars, travel is picking up. And we note the size of our retail CRE portfolio and our hotel-motel exposure, they're modest. Low loan to values and those portfolios are performing pretty well. So we're just not seeing the loss emergence. And some of that is because of PPP, but it's also -- you know this, it's also because of our history as a secured lender. Our losses, loss severity on problem loans is sort of top quartile for our peers, has been for a very long extended period of time. And I think that's holding us up well here also. So I think we'll see continued improvement there. And -- but it's a little early to say, well, the pandemic is totally behind us.

Great. Well, I think that's a perfect spot to leave it. So Scott, thank you for joining us today, and we look forward to doing this live next year.

Great. Jason, always good to be with you. Thank you so much.

Thank you. Appreciate it.

Bye-bye.