Zions Bancorporation (NASDAQ:ZION) Q3 2019 Earnings Conference Call - Final Transcript

Oct 21, 2019 • 05:30 pm ET


Zions Bancorporation (NASDAQ:ZION) Q3 2019 Earnings Conference Call - Final Transcript


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Harris H. Simmons

a temporary increase in non-interest expense in the fourth quarter as severance and other similar efficiency initiative-related charges are recognized. We believe this will enable us to achieve our previously stated outlook for non-interest expense for next year, which is to hold expenses to flat to down when compared to this year. Despite the efforts to reduce costs, we'll continue to invest in enabling technologies which will help to ensure our success in an increasingly competitive marketplace.

With that overview, I'll turn the time over to Paul Burdiss to review our financials in additional detail. Paul?

Paul Burdiss

Thank you, Harris, and good evening, everyone. I'll begin on Slide 8, which highlights two measures of profitability, return on assets and return on tangible common equity, both improved in the third quarter. And our long-term goal is continued improvement in balance sheet profitability.

On Slide 9, for the third quarter of 2019, Zions' net interest income was essentially flat to the prior-year period. Average earning assets increased just slightly more than 5% over that timeframe, and the yield on earning assets increased by 9 basis points. However, even though our average deposits increased to 3% over the past year, our cost of funds increased significantly due to the increase in short-term interest rates. This increase in our cost of funds more than offset the increase in the yield on earning assets.

Slide 10 breaks down net interest income by both rate and volume. You can see that our average loans grew 8% over the year ago period. Average loan growth in the third quarter was more modest up 4% annualized from the prior quarter. Over the prior-year period, the yield on loans increased 4 basis points. And relative to the prior quarter, the yield on loans declined 10 basis points. The reasons for this are the same as we provided in the last quarter.

First, the recent decline in short-term rates and, second, the turning of loans that is lower rates on new loans relative to maturing loans. That compression can be attributed to several factors, including competitive forces as well as a lower credit risk profile in the loan portfolio. I'll discuss the benefits of a lower risk profile in just a moment when I review our capital position.

Shifting to funding, average total deposits increased 3% over the prior year period. We are reporting a relatively strong 7% annualized growth rate when compared to the prior quarter. Achieving such strong -- such a strong rate of growth will likely be difficult to sustain, but we do not expect moderate deposit growth -- sorry, we do expect moderate deposit growth to accompany our loan growth. Our cost of total deposits increased just 1 basis point relative to the prior quarter, and I expect the total cost of deposits to decline in the fourth quarter relative to the third quarter due to ongoing efforts to better align deposit cost with lower market rates.

Slide 11 depicts the key net interest margin components. Our