Zions Bancorporation N.A (ZION) — Q4 2022 Earnings Call Transcript

Hey. Thank you, Joe, and good evening. We welcome you to this conference call to discuss our 2022 fourth quarter and full year 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 2, dealing with forward-looking information and the presentation of non-GAAP measures, which applies equally to statements made during this call. A copy of the earnings release as well as the slide deck are available at zionsbancorporation.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 Burdiss, our Chief Financial Officer. With us also today are Scott McLean, President and Chief Operating Officer; Keith Maio, Chief Risk Officer; and Michael Morris, Chief Credit Officer. After our prepared remarks, we will hold a question-and-answer session. During the Q&A session, we anticipate holding that to about 45 minutes in time. And we expect you to limit your questions to one primary and one follow-up related question. With that, I will now turn the time over to Harris Simmons.

Thanks very much, James, and we welcome all of you to our call this evening. Beginning on slide 3, you’ll see some themes that are particularly applicable to Zions in recent quarters as well as some that are likely to be prominent over the near-term horizon. First, our balance sheet, which is supported by what we think is a very high-quality deposit base, has benefited from rising rates, resulting in growth of net interest income, exclusive of the contribution from PPP loans of more than 40% over the year-ago quarter, and 30%, when including PPP income that had a substantial positive impact a year ago, but very little effect in the current quarter. Our deposit cost increased modestly from the prior quarter and remains among the lowest of banks within our peer group. Exclusive of PPP, period-end loans increased $1.8 billion or 3.4% on an annualized basis during the quarter. We’ve achieved strong loan growth while maintaining the same underwriting standards that have allowed Zions to outperform most of our peers in several key credit metrics over the past decade. We’ve restrained growth in categories that are more likely to experience higher loss rates in a recessionary environment. We continue to believe the effects of higher rates and likely a slowing economy will slow portfolio growth over the next few quarters to a rate that is moderately increasing for the full year 2023. The next theme is balance sheet flexibility. We have a loan-to-deposit ratio of 78%, whereas prior to the pandemic, we were running in the 85% to 90% range. We anticipate some further reduction in deposits combined with continued, albeit more moderate loan growth, moving us closer to our historical loan-to-deposit ratio range. As we’ve noted in prior earnings calls, our strong liquidity position coming into this cycle afforded us the luxury of being able to prioritize the quality of deposits over quantity. This is reflected in our total cost of deposits, which at 20 basis points this quarter is among the very best of our peers. We believe we’re prepared should a recession materialize. Our pre-provision net revenue equaled an annualized 2.5% of risk-weighted assets. The combination of our regulatory capital and our allowance for credit loss is strong relative to the risk profile of our balance sheet. We’d note that over the past decade, our net charge-off ratio, which has averaged a very modest 11 basis points over that period, has been 75% better than the industry average, reflecting the derisking of the balance sheet we’ve frequently spoken of. Turning to Slide 4, we are pleased with the quarterly financial results, which are summarized on this slide, showing a linked quarter comparison with the third quarter. Adjusted taxable-equivalent revenue net of interest expense increased about 8% relative to the prior quarter, and adjusted pre-provision net revenue increased 20%. Those growth rates are not annualized. Our credit quality is strong and loan growth was solid. We continued to experience deposit attrition as we’ve allowed our liquidity to come back into a more normal range. And Paul will spend some additional time on that item. One thing to note on this slide is that we have updated the calculation of tangible common equity to exclude the impact of accumulated other comprehensive income or AOCI. As you’re likely aware, GAAP accounting works to fair value through the equity account the portion of the securities portfolio held as available for sale, while not recognizing changes in the market value of other balance sheet items, including deposits. As a result, this accounting treatment doesn’t fully reflect the economics of the business. So, we’ll be showing return on tangible common equity and any other measures such as tangible book value per share that incorporate tangible common equity, as adjusted for the volatile impact of AOCI. This also reflects how we use such measures internally. For example, one of our incentive compensation arrangements or profit-sharing plan uses such a measure, and we’ve adjusted our calculations so it does not produce a payout based on unrealistically high profitability. Moving to Slide 5, diluted earnings per share was $1.84. Comparing the fourth quarter to the third quarter, the single most significant difference was the improvement in revenue, driven by the effect of interest rate changes on earning assets and continued strong performance from customer-related non-interest income. The provision for credit loss contributed a $0.14 per share positive variance compared to last quarter as can be seen on the bottom left chart. In both quarters, the allowance increased about 5 basis points relative to loans outstanding. But in the fourth quarter, we recognized net loan recoveries instead of net charge-offs. Turning to Slide 6, our third-quarter adjusted pre-provision net revenue was $420 million. The adjustments, which most notably eliminate the gain or loss on securities, are shown in the latter pages of the press release and the slide deck. Within the PPNR chart, the top portion of each column denotes the revenue we’ve received from PPP loans net of direct external professional services expense. These loans contributed only $2 million to PPNR in the fourth quarter. Exclusive of PPP income, we experienced an increase in adjusted PPNR of 71% over the year-ago period. With that high-level overview, I’m going to ask Paul Burdiss, our Chief Financial Officer, to provide additional detail related to our financial performance. Paul?

Thank you, Harris. Good evening, everyone. Thanks for joining us. On Slide 7, a significant highlight for us this quarter was the strong performance in average loan growth. Average non-PPP loans increased $1.9 billion, or 3.6% when compared to the third quarter. Areas of strength included commercial and industrial loans, residential mortgage, and term commercial real estate, as can be seen in the appendix on Slide 30. The yield on average total loans increased 64 basis points from the prior quarter, which is primarily attributable to increases in interest rates. Deposit costs increased during the quarter but remained low. Shown on the right, our cost of total deposits rose to 20 basis points in the fourth quarter from 10 basis points in the third quarter. Our average deposits declined $3.2 billion or 4.1% linked quarter. For deeper insight into deposit volume changes, please turn to Slide 8, where we break down our deposits by size. As shown here, most of our deposits come from relationships holding less than $10 million on our balance sheet. The 2022 decline in deposits came primarily from larger balance accounts. What is not shown on this page is the operational nature of our deposit accounts. We believe that deposit accounts, which are used frequently, accounts that record many inflows and outflows, are stickier and less rate sensitive than other deposits due to their operational nature. Likewise, deposits invested for yield, including many of the deposits over $10 million shown on this page are, by definition, more rate sensitive. Our operating account balances were relatively stable through 2022 with a slight decline in the fourth quarter compared to the third, which we believe reflects the rising value of deposits as interest rates have increased. The increase in benchmark rates and the widening differential in our deposit rates paid when compared to other investment products created an opportunity for us to have conversations with our more rate-sensitive customers to discuss off-balance sheet products designed for larger and/or less operational deposits. A net 47% of the full year 2022 deposit attrition moved into our off-balance sheet suite of products. This served to maintain a relationship with the customer while keeping deposit costs well managed. Looking ahead, the increasing value of deposits will lead us to adjust our deposit rates accordingly as rates remain the primary lever to attract funds that are less operational in nature. While this will impact our cost of funds, we are confident that the nature of our deposit portfolio, including the proportion of noninterest-bearing demand deposits to total deposits, will allow us to keep our overall cost of funds relatively low. Moving to Slide 9. We show our securities and money market investment portfolios over the last five quarters. The size of the securities portfolio declined slightly versus the previous quarter, but as a percent of earning assets, it remains about 9 percentage points more than it was immediately preceding the pandemic. The most significant change to the portfolio this quarter was the movement of bonds from the available-for-sale accounting classification to the held-to-maturity classification. The value of this movement was nearly $11 billion of fair value and $13 billion of amortized cost. This accounting reclassification effectively freezes $1.8 billion of an unrealized loss recorded in accumulated other comprehensive income, which will amortize over the remaining life of the bonds and which will limit the impact on reported accumulated other comprehensive income due to changes in interest rates. We anticipate that money market and investment securities balances combined will continue to decline over the near term, which will create a source of funds for the rest of the balance sheet. Our revenue is primarily balance sheet driven. This quarter, 82% of our revenue is from net interest income. Slide 10 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. Net interest income on the bars reflects the benefit of both loan growth and higher interest rates, while the net interest margin in the white boxes largely reflects the impact of the rising interest rate environment on earning yields, combined with our ability to contain funding costs. The right-hand chart on this page shows the linked quarter effect of certain items on the net interest margin. Overall, earning asset yields improved 64 basis points, while the cost of interest-bearing funds increased 61 basis points, reflecting a 3 basis point expansion in our interest rate spread. However, nearly half of our earning assets are funded with noninterest-bearing sources of funds. Therefore, the 3 basis-point expansion in interest rate spread is augmented by an increase of 26 basis points in the value of noninterest-bearing funds in the higher interest rate environment. These factors combine to produce a 29 basis-point expansion in the net interest margin in the fourth quarter when compared to the third quarter. Slide 11 provides information about our interest rate sensitivity. As a reminder, we have been using the terms latent interest rate sensitivity and emergent interest rate sensitivity to describe the effects on net interest income of rate changes that have occurred as well as those that have yet to occur as implied by the shape of the yield curve. Importantly, the balance sheet is assumed to remain unchanged in size in these descriptions. Regarding latent sensitivity, the in-place yield curve as of December 31st, which was notably more inverted than the curve at September 30th, will work through our net interest income over time. The difference from the prior period’s disclosures of latent sensitivity is the shape of the curve and the accelerated pull-through of net interest income growth, which was attributable in part to our lower-than-expected deposit and funding beta as we begin to increase our deposit rates to reflect the increased value of money and the limited rate movements we have reported so far, our modeling would now estimate a deposit beta of approximately 18% compared to the beta of 5% observed cycle to date. Therefore, given the modeled increase in interest expense and using a stable sized balance sheet, the latent sensitivity, interest rate risk measure, indicates a decline in net interest income of about 1% in the fourth quarter of 2023 when compared to the fourth quarter of 2022. Regarding emergent sensitivity, if the December 31, 2022 forward path of interest rates were to materialize and using a stable sized balance sheet, the emergent sensitivity measure indicates a decline in net interest income of about 2% in the fourth quarter of 2023 when compared to the fourth quarter of 2022. Again, this change in outlook can be traced to strong recent net interest income performance and the inverted interest rate curve. With respect to traditional interest rate risk disclosures, our estimated interest rate sensitivity to a 100 basis-point parallel interest rate shock using a same-sized balance sheet has declined by about 2 percentage points from the third quarter and about 10 percentage points from the beginning of the year. As rates have risen and downside risk to net interest income has increased, we’ve been moderating our asset sensitivity primarily through interest rate swaps while generally maintaining customer operating deposit balances and allowing certain rate-sensitive deposits to decline. The reported change in interest rate sensitivity this quarter largely reflects the recent decline in deposits and a higher net interest income denominator. As a reminder, this traditional interest rate risk disclosure represents a parallel and instantaneous shock, while the latent and emergent views reflect the prevailing yield curve at December 31st. Our outlook for net interest income for the full year of 2023 relative to the full year 2022 is increasing. While there will be seasonality along the way with fewer days in the first half of the year, for example, we expect that by the fourth quarter of 2023, including the latent and emergent sensitivity as well as an expected increase in loans, net interest income will be modestly higher than that reported in the fourth quarter of 2022. Moving on to noninterest income and total revenue on Slide 12. Customer-related noninterest income was $153 million, a decrease of 2% versus the prior quarter, and an increase of 1% over the prior year. As we noted last quarter, we modified our non-sufficient funds and overdraft fee practices near the beginning of the third quarter, which has reduced our noninterest income by about $3 million per quarter. Improvement in treasury management fees has allowed us to make up the loss of that revenue. Our outlook for customer-related noninterest income for the 2023 full year is moderately increasing relative to the full year 2022 results. On the right side of the slide, revenue, which is the sum of net interest income and customer-related noninterest income, is shown. Revenue grew by 24% from a year ago and when excluding PPP income, it grew by 32% over the same period. Noninterest expense on Slide 13 decreased 2% from the prior quarter to $471 million. The reduction is primarily due to a net decrease of certain incentive compensation items within salaries and benefits. The total of the remaining expense categories remained relatively flat to the third quarter. We continue to feel the influence of inflation and expect to continue to hire additional staff to support growth. We reiterate our outlook for adjusted noninterest expense to increase moderately for the full year of 2023 relative to the full year of 2022. Another highlight for the quarter was the continued strong credit quality across the loan portfolio, as illustrated on Slide 14. Relative to the prior quarter, we saw continued improvement in the balance of criticized and classified loans. Recoveries from balances previously charged off led to a net recovery of 2 basis points of average non-PPP loans in the fourth quarter compared to a loss of 21 basis points in the prior quarter. Notably, our nonperforming asset ratio and classified loan ratio continue to improve and are at very healthy levels. Slide 15 details the recent trend in our allowance for credit losses or ACL over the past several quarters. At the end of the fourth quarter, the ACL was $636 million, a $46 million increase from the third quarter. The linked quarter ACL increase can be ascribed to loan growth and weakening economic forecast. The reserve ratio to total loans was up 5 basis points from the prior quarter to 1.15% of non-PPP loans. Our ACL will continue to reflect the size and composition of our loan portfolio and evolving macroeconomic forecast. Our loss-absorbing capital position is shown on Slide 16. We believe that our capital position is aligned with the balance sheet and operating risk of the Bank. The CET1 ratio grew slightly in the fourth quarter to 9.7%. Although the CET1 ratio remained relatively flat, I’d like to point out the significant amount of earnings retained over the past year. The balance of common equity Tier 1 in capital grew by over $400 million or 7% in 2022. However, risk-weighted assets during the year grew by $7.5 billion or 13%, primarily driven by loan growth. We repurchased $50 million of common stock in the fourth quarter and $200 million for the year. 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 first quarter in conjunction with our regularly scheduled Board meetings this coming Friday. Our goal continues to be to maintain a CET1 capital ratio slightly above the peer median while managing to a below-average risk profile. Slide 17 summarizes the financial outlook provided over the course of this presentation. This outlook represents our best current estimate for the financial performance in full year 2023 as compared to actual results reported for the full year 2022. This is a change from our historical approach where we traditionally provide an outlook for a single quarter one year out. We plan to return to that approach when reporting financial performance over the remainder of the year. This concludes our prepared remarks. Joe, would you please open the line for questions? Yes, this is Paul. I’ll start by saying that our deposit beta so far through the cycle is approximately 5%. We expect that our deposit beta will need to be closer to 18% over the next year to align with our modeled results. Therefore, our outlook includes an expectation of increasing deposit pricing. This may or may not materialize, reflecting the uncertainty inherent in any forward-looking assessment.

Got it. Okay. And maybe on the rate-sensitive deposits. Last quarter, you mentioned there’s about $5 billion or so of those deposits that could flow out. Can you give us an update on those numbers? And maybe what portion of the deposit decline this quarter was attributable to those rate-sensitive deposits?

I would say it’s very hard for me to ascribe specifically sort of the categorization of deposits. The point that I was trying to make last quarter was that it did feel like given where rates were on our balance sheet versus market rates, there was a sort of increasing pressure we could see on rate sensitive deposits. We clearly saw some of that flow in the fourth quarter, but it would be very difficult for me to specifically ascribe how much of that related to that specific comment.

I guess, maybe just Paul, following up on the deposit beta guidance 18% implies about 90 basis points to 1% for total cost of deposits at a 5.5% Fed fund. And I’m just wondering, when you think about acceleration in deposit costs, have you seen that over the last few weeks or months? I’m just trying to handicap, is that guidance over conservative, or is there a risk to the upside in terms of where things might go if the Fed ends up holding on to rates for much longer at those levels. So, I would appreciate any color in terms of what you’ve seen around deposit pricing over the last few weeks or last few months?

Sure. So, I’ll start with that and ask Harris or Scott to join in. Where we’ve seen the pressure is not necessarily on the rate; it’s been in the volume, which kind of implies that there’s a rate element attached to that. The 18%, to be clear, while it’s a very precise number, as implied, that’s sort of a modeled number based on our experience. And it’s intended to capture sort of our best estimate of where deposit rates could be. But to your point, this is kind of a day-by-day challenge. We’re constantly managing the balance between the rate paid and maintenance of the very valuable deposit franchise on the balance sheet. So, I would love to be able to tell you that it was very conservative or otherwise, but frankly, it’s based on history and based on our models, it’s our best estimate of where we think deposit rates are expected to go.

I would add that in my view, if the Fed slows down the rate of interest rate increases, that would be beneficial and likely allow us to catch up. However, I believe it will be a bit easier to manage without the aggressive hikes we've experienced in the past few quarters.

Got it. And I have another question about the rates on Slide 28 which outlines the swap maturities. Do you have any plans for additional measures to protect the company in the event of rate cuts, and what is the thought process behind that?

Yes. So, our strategic ALCO, we meet regularly to discuss our interest rate risk positioning and the use of swaps in managing that. I would say over the course of the last couple of quarters, our interest rate sensitivity has been driven more by deposits than by things that we’re doing in the derivatives market. So, right now, we’re pretty close to balance from an interest rate risk perspective. So, looking ahead, I think it will be a function of loan and deposit growth. That is what will be the key driver of our swap strategy.

On your outlook for NII, you mentioned that the change in your perspective is influenced by both the yield curve shape and NII growth pull-through. Could you clarify how much of the change is due to the curve's shape compared to the NII growth pull-through?

I’ll characterize it this way. If you go back a couple of quarters, we were showing latent and emergent sensitivity of about 15% and 8% for a 23% total. That was a one-year outlook on changes in net interest income related to rate. Then, we provided an update in the third quarter. If you analyze that, you’ll find that the net interest income we just reported came in much faster than those models predicted 3 to 6 months ago. So, what we’re stating is that the pull-through has been stronger than expected. Some of that is due to loan growth, but a lot of it has been related to deposit pricing. We need to remain consistent with our modeling, which is why we have a forward-looking view that incorporates more aggressive deposit rates. Based on recent experience, this means we’ve been able to capture much of the value of the rate increases more quickly than anticipated. Another aspect is that the shape of the curve has changed dramatically in the past 3 to 6 months. Six months ago, we were looking at a positively shaped curve, but now the yield curve has inverted after about two years. Currently, we see much less expectation of rate increases along with a more pronounced decline at the back end. All these factors are influencing our view on net interest income.

Okay, great. And then, separately, also on the rate front, the noninterest-bearing deposit mix sitting around 50% of total deposits currently, where do you see that trending? And then, separately, if you could just discuss any other actions that you can foresee that perhaps lessen your asset sensitivity as you’re starting to factor in Fed cuts in the back half of this year?

Our proportion of noninterest-bearing to total deposits at just over 50% is, in my opinion, kind of remarkably high, given the rapid change in interest rates and historical levels. So, it would be very difficult for me to predict that that would increase. That is to say that we would be growing noninterest-bearing deposits faster than interest-bearing deposits. But nonetheless, striking that right balance between the rate we’re paying on interest-bearing funds and the ability to maintain those operating noninterest-bearing deposits is kind of a key part of what we do every day. The stickiness, as I tried to describe in my prepared remarks around those DDA, those operating counts really has to do with the granularity and the operating nature of those accounts. And so, we have a long history, a decade-long history of a very solid proportion of noninterest-bearing deposits to total deposits. And I think that will continue, but it’s based on the nature of the accounts, the nature of the customers we have.

Obviously, the deposits are going to drive the size of the balance sheet. But if you look back, Paul, securities pre-COVID were around a little over 20% of earning assets. Is that kind of where we’re going to get to when the unwind of COVID fully plays out in your opinion?

The main indicator of liquidity that we focus on is liquidity stress testing. Similar to our capital stress testing models, we also have liquidity stress testing models. Embedded in these models are assumptions about deposit behaviors, draw-downs on commitments, and other factors that can influence liquidity. So, to answer your question, which is quite complex and likely deserves a simpler response, the ratio of investment securities as a source of on-balance sheet liquidity compared to total assets is expected to return to the level it was at before the pandemic, assuming all else remains constant.

Okay, great. And then I noticed more disclosure in the back on the office portfolio, which is great. Maybe just help us with how you’re thinking about where risk in the portfolio lies in ‘23, the highest risk if you were just kind of 1, 2, and 3. Thanks.

I think we’ll turn that over to Michael Morris, our Chief Credit Officer.

Thanks for the question, Chris. The biggest, I guess, issue that we have are what we call repositioned assets where we’re waiting for some lease up; the assets were bought cheaply. And that absorption hasn’t followed through COVID. So, that’s a segment of office that we’re watching. We’re also thinking about it. Strategically, we’re looking down the road. We’re asking how will office be positioned? And will there be less office but more space? We’re looking at all kinds of variations of what office will look like. We have a pretty substantial suburban office mix, which has held up well. Central Business District office isn’t something we’re big into. You won’t see us in trophy buildings around the West and inside of our footprint. But we’re very cautious around the asset class right now.

Okay, great. And maybe just on the tax rate. Any thoughts going into ‘23?

On the effective tax rate?

Yes, that’s right.

I don't see a big change from what we reported for the full year 2022.

Thanks. So credit has been outstanding. I was just wondering how are you thinking about net charge-offs in ‘23? And then, secondly, if we’re at the appropriate ACL ratio, just assuming no change in the economy.

Well, I’m going to start with it. On the allowance for credit losses, we believe we have reached the appropriate level after recently certifying it. The process we follow is quite thorough, and we believe it accurately represents the current risk.

On the net charge-off front, this is Michael. If you examine historical run rates from the last couple of years, we've been quite fortunate. How long this fortunate situation will last is uncertain. However, I believe we have the right credit infrastructure in place to effectively manage net charge-offs. We achieve good recoveries and have a strong back office special asset group that actively pursues charge-off loans. Still, it’s difficult to maintain net charge-offs at such low levels, especially considering the potential for a milder recession ahead.

This is Scott McLean. I’ll just add to that, that I think the other thing, you just have to look at where do you think risk is really going to come from in a decline. And we’ve said pretty consistently that it’s probably going to come in consumer unsecured. We don’t have hardly any consumer unsecured. It’s probably going to come in construction loan portfolios, and our construction portfolio is about 20% of total CRE. The rest of our CRE is term, which is those are stabilized cash flows with low loan-to-values. Third place might come in land portfolios. We have very little land. So, I think those are areas. Leveraged finance is another area that gets brought up. That’s not really disclosed, although we think Moody’s is going to do a report on that sometime in the first half of the year. And we think, as we did last time, they did one, will probably compare favorable to our regional bank peers. So, it’s kind of like where do you think it’s going to come and do we have that? And the answers are we’re positioned pretty conservatively.

Got it. And then, Paul, if I could just ask about maybe the outlook for deposit growth this year, or maybe do you think it would stabilize in the second half of this year?

Yes. As I mentioned, the primary factor for deposits in this environment is the interest rate. It's quite challenging to forecast deposit balances since they largely rely on customer behavior, but I do anticipate that we will find a better balance between rates and volumes over the next year. When we evaluate the alternative cost of funds, our total cost of deposits at 20 basis points is excellent. Additionally, as Harris noted in his opening comments, we possess significant flexibility within our balance sheet, and we believe there are various strategies we can implement to enhance our deposit growth profile.

I wanted to bring together all the kind of pieces of NII. And your outlook is still talking about a 4Q ‘23 to 4Q ‘22 slight increase. And I’m just wondering, Paul, what’s the power through point, right? You’re talking about betas increasing, you’re taking out more borrowings, securities are coming down. So, we’ve got the loan growth. And I guess maybe it’s front book repricing. Can you help us kind of understand what are the positives that offset some of the things that you’ve spoken to already that would get that NII up on a year-over-year basis looking out to 4Q ‘23?

Yes. A couple of key items would be the leverage in our deposit base and our ability to maintain a favorable cost of interest-bearing funds, while also keeping a substantial amount of noninterest-bearing deposits. As mentioned, most of our net interest margin expansion this quarter is linked to the stability and value of those noninterest-bearing deposits. It's crucial for us to retain those, as well as achieve loan growth, which we have discussed. There is significant uncertainty in the economic landscape. The inversion of the yield curve is not beneficial for us or for many banks. If rates stabilize, the inversion diminishes, and we see healthy deposit growth while maintaining both volume and rates on our deposits, those factors would be incrementally helpful.

The prefunding point makes the most sense to me. Can you talk about loan betas and loan repricing? How does that play out from here? Also, how does this relate to your comments on deposit beta? Thank you.

Well, we just have a page in here. I don’t know if we still have it, James, back in the appendix. There’s about a little less than half of our loans ex-swaps were priced within the first three months and then after that, you see some repricing out along the curve. And so, to the extent that rates stabilize, you’ll see that rate repricing continue to occur. But, as we think about deposit beta, I think oftentimes people are really thinking about the short end part of the curve and the short end part of that repricing. And as I said, it’s kind of between 40% and 50% of our loans will reprice within three months of a change in the base rate.

Slide 27, for those of you on the call and have access to the slide deck, is that schedule that Paul was referencing. And there is a lag, as we’ve talked about historically that, that lag. If you look at what the yield is on loans in the fourth quarter of ‘22 versus the average benchmark rates in the third quarter of ‘22, you’re going to get about a 45% loan yield beta, and that’s the difference between just measuring it on the current quarter versus the current quarter. The problem with doing is it takes a little bit of time for the loans to catch up to what’s happened with the benchmark rate, if that’s helpful.

Yes, great. Can I ask one more question about expenses? You mentioned being moderately off from a better year-end result. Does that represent a change from your recent comments on the expected growth rate for your expense outlook in 2023? Thanks.

I wouldn’t call that a pivot. I think that the really difficult inflationary environment and the environment for compensation has kind of changed the trajectory of noninterest expense. But we’ve been talking about that for several quarters. And so, I wouldn’t characterize that as a difference. What I will say is that the factors that are driving that are also driving interest rates to be significantly higher. And on a net basis, when we think about the funds or the revenue that drops to the bottom line, there’s positive operating leverage in that environment for us.

Thank you, Joe, and thank you to all of you for joining us today. If you have any additional questions, please contact us at the email or phone number listed on our website. And we look forward to connecting with you throughout the coming months. Finally, thank you for your interest in Zions Bancorporation. And this does conclude our call today.