Zions Bancorporation, National Association (ZION) 2026 Q2 法說會逐字稿

Greetings and welcome to the Zions Bancorp second-quarter earnings conference call.

(Operator Instructions) Please note that this conference is being recorded.

I'll now turn the call over to Dave Riches. Thank you, Dave. You may begin.

Thank you, Julian. Good evening, everyone. Welcome to our conference call to discuss Zions Bancorporation's second-quarter 2026 results.

My name is Dave Riches, Interim Director of Investor Relations.

Before we begin, I would like to remind you that, during this call, we will be making forward-looking statements. Actual results may differ materially.

We encourage you to review the forward-looking statements and non-GAAP disclosures in our press release and on slide 2 of today's presentation, which apply equally to statements made during this call.

A copy of the earnings release and the presentation are available at zionsbancorporation.com.

For our agenda today, Chairman and Chief Executive Officer Harris Simmons will provide opening remarks. Following Harris' comments, Chief Financial Officer Ryan Richards will review our financial results and outlook.

Also with us today are Scott McLean, President and Chief Operating Officer; and Derek Steward, Chief Credit Officer.

After our prepared remarks, we will hold a question-and-answer session. This call is scheduled for one hour.

I will now turn the time over to Harris Simmons.

Thanks very much, Dave. Good evening, everyone.

We were reasonably pleased with our financial results for the first quarter, which reflects meaningful year-over-year improvement and continued progress on a variety of strategic priorities.

Net earnings available to common was $452 million or $3.05 per share, including a couple of exceptional items, the first being a $215 million pre-tax gain on the liquidation of Visa Class B-1 shares and the other being an unrealized pre-tax gain on an SBIC investment, which, net of a success fee accrual, totaled $37 million.

Excluding such items, earnings per share totaled $1.74 compared to $1.58 in last year's first quarter.

Our capital markets division continues to be an important driver of fee income growth. Since launching the business in 2020, we've invested steadily in talent, technology, and product capabilities, expanding our presence across investment banking; sales and trading; and real-estate capital markets.

Last quarter, we announced an agreement with Basis Investment Group to acquire its Fannie Mae and Freddie Mac multi-family lending business line; related mortgage servicing rights; and an experienced team supporting those businesses.

We expect the transaction to close here in the third quarter. Upon closing, we believe the acquisition will enhance our ability to serve commercial real-estate clients across the western United States and beyond, while further strengthening our capital-markets franchise.

As this transaction is not closed yet, any revenue or other financial contribution from the business is not included in our current outlook or forecast.

Additionally, we expect the financial benefits of the acquisition to build gradually over time, as the platform is integrated and production volumes ramp up.

We also continue to invest in our consumer and small-business franchises. In the second quarter, we introduced an upgraded feature-rich deposit and payments account for small businesses, which we're marketing as the Business Beyond Account.

It's a companion offering to the Gold Account we launched for consumers last year. The Business Beyond Account is designed to support clients as they grow, from basic banking needs to more complex cash-flow management and money-movement capabilities.

We're pleased with the early results of the campaign. Between Gold and Business Beyond, we've opened over 10,000 accounts, so far, this year.

Going to the slides, slide 3 summarizes second-quarter results versus the prior quarter and last year's second quarter. As noted earlier, earnings per share was $3.05, when excluding net equity investment gains of $1.31 this year and $0.05 in last year's quarter.

Adjusted quarterly earnings per share grew 10% to $1.74 from $1.58 a year ago due to growth in customer-related non-interest income; modest loan growth and margin improvement; expense discipline; and solid credit performance.

The net interest margin was stable for the prior quarter of 3.27% and up 10 basis points from a year ago. When compared to the prior quarter, average loans grew 4.7% on an annualized basis, led by commercial lending.

Average customer deposits grew 4.0%. Credit losses were modest at 6 basis points annualized of average loans.

Slide 4 presents the recent history of our earnings performance, together with the impact of the provision for loan losses on quarterly results. Notable items in each of the recent quarters are also included on this slide.

As shown on slide 5, adjusted pre-provision net revenue was $332 million. It increased 10% from the prior quarter, reflecting improvement in both adjusted taxable equivalent revenue and adjusted non-interest expense, which, last quarter, included seasonal-compensation expense.

With that overview, I'll turn the call over to our Chief Financial Officer, Ryan Richards, to walk through the quarter in more detail and walk through our outlook. Ryan?

(inaudible) -- Harris. Good evening, everyone.

Getting on slide 6, you can see the five-quarter trend for net interest income and net interest margin. Taxable equivalent net interest income was $677 million, up $15 million or 2% from the prior quarter and up $29 million or 4% for the year-ago quarter.

Earning asset yields, cost of funding, and the net interest margin were all stable compared to the prior quarter.

Slide 7 provides additional detail on the drivers of net interest margin. The linked-quarter walk reflects minimal change.

Year over year, the 10 basis points improvement of margin primarily reflects lower cost of funding for deposits and borrowings. For the second quarter of 2027, our outlook for net interest income is moderately increasing.

The forward curve, as of June 30, assumed an interest rate increase over the next 12 months. If that plays out, net interest income growth could exceed this guide and result in NII growth in the upper-single digits.

Moving to non-interest income on slide 8, customer-related non-interest income was $182 million compared with $172 million in the prior quarter and $164 million a year ago.

Excluding net credit valuation adjustment, adjusted customer-related non-interest income was $108 million compared with $174 million in the prior quarter and up $17 million or 10% from the year-ago quarter. These results reflect broad-based growth across nearly all revenue streams.

Capital markets fees increased by $8 million, with higher real-estate, capital-markets, and investment-banking advisory fees.

We continue to see attractive opportunities in capital markets and have strong pipelines going into the third quarter.

Securities gains for the quarter included, as Harris alluded to before, a $44 million unrealized gain related to a single investment within our small-business investment-company portfolio.

Including the $7 million success fee-related investment that was recorded in other non-interest expense. The net unrealized gain was $37 million.

For the second quarter of 2027, our outlook for adjusted customer fee-related income is moderately increasing versus the second-quarter 2026 results of $181 million, with broad-based growth. Capital markets continue to contribute in an outsized way. We currently expect results towards the top end of that range.

Turning to slide 9, adjusted non-interest expense was $546 million. Expenses decreased versus the prior quarter, driven primarily by seasonal compensation.

Additionally, deposit and regulatory expense decreased $8 million, with $6 million of that related to a decrease to our FDIC special assessment.

Expenses were higher year over year, reflecting increased professional and outsourced services; higher incentive compensation; and increased technology costs. We will continue to manage prudently expenses, while investing to support growth.

Our second-quarter 2027 outlook for adjusted non-interest expense is moderately increasing versus the second quarter of 2026.

Based on second-quarter performance and full-year expectations, we continue to expect positive operating leverage for the full year of 2026 in the range of 100 basis points to 115 basis points.

Slide 10 presents trends in average loans and deposits. Average loans grew 4.7% annualized during the quarter, primarily within the commercial and industrial portfolio; and increased 2.3%, year over year.

Loan yields remained stable sequentially and declined year over year, as benchmark rate cuts in the latter part of 2025 were reflected in variable-rate repricing.

Average deposits increased $779 million from the prior quarter, driven by an increase in interest-bearing balances.

The cost of total deposits was flat at 1.48% sequentially and declined by 20 basis points year over year, benefiting from both repricing and a more favorable mix within interest-bearing deposits.

Slide 11 presents the five-quarter trend of our average and ending funding sources. Our total funding cost was stable at 1.69% compared with 1.68% in the prior quarter.

Period-end deposit balances were relatively stable compared to the prior quarter. Short-term borrowings increased $837 million linked quarter and declined $4.6 million versus the prior-year quarter.

Turning to slide 12, the investment securities portfolio continues to serve as an important source of on-balance sheet liquidity and a tool to balance interest rate risk through deep access to the repo markets.

During the quarter, principal and pre-payment-related cash flows from investment securities of $514 million were partially offset by the reinvestment of $297 million.

The continued paydown of lower-yielding mortgage-backed securities supports earning asset remix and/or reduction in wholesale funds. The estimated price sensitivity of the portfolio, inclusive of hedging activity, was 3.6 years.

Credit quality remains strong, as shown in slide 13. Net charge-offs were 6 basis points of average loans, annualized. The non-performing assets ratio was unchanged sequentially at 48 basis points. Classified and criticized balances both declined modestly during the quarter.

The allowance for credit losses ended the quarter at 1.13% and remains well-positioned, relative to our risk profile, with 227% coverage of non-accrual loans.

Slide 14 provides an overview of our $14.1 billion commercial real-estate portfolio, which represents approximately 22% of total loans. The portfolio remains granular and well-diversified by property type and geography, with conservative loan-to-value characteristics.

Credit metrics remain favorable, including low levels of non-accruals and delinquency. Our capital position remains strong, as shown on slide 15.

The common equity Tier 1 ratio improved to 11.8% during the quarter from strong earnings and the exceptional items referenced by Harris, partially offset by $75 million in common-share repurchases; common and preferred dividends paid; and growth- and risk-weighted assets.

We continue to expect net capital generation through earnings and improvement in AOCI, which resulted in a 22% increase in tangible book value per share versus the prior year.

Slide 16 summarizes the outlook we've discussed across loans, net interest income, fee income, and expenses. This outlook reflects our best estimate, based on current information; and is subject to risks and uncertainties discussed in our forward-looking statements.

This concludes our prepared remarks.

(Event Instructions)

Julian, please open the line for questions.

Thank you. With that, this is the question-and-answer session.

(Operator Instructions) One moment while we poll for questions.

John Pancari, Evercore ISI.

Good afternoon.

Hi, John.

Just, on the deposit side, I wanted to see if you can give us a little bit of color on what you're seeing in terms of deposit pricing. The deposit costs were relatively stable; down a bit in the quarter.

How would your -- how does this influence your outlook in terms of the competitive backdrop you're seeing? Maybe if you can comment, also, on the competitive side on the lending side, as well, with how loan spreads are shaping up?

Yeah. Thanks, John. I appreciate the question.

Having heard some of the other earlier [reports], I'm not sure our message is going to be very much different. It is a competitive environment on both sides of that equation. We're seeing that. You'll see that in, also, a little bit of the mix that's showing up on the positive side.

The average, holding on. But on a period-end basis, we saw a (inaudible) -- being off. We have seasonality in the second quarter so some of that can be expected.

But supplanting that with interest-bearing balances, it's competitive. Some of those targeted deposit campaigns are approaching closer to wholesale rates in places.

It really underscores the importance of us doubling back to our core strategic initiatives and following through all the things you've been hearing about us talk about in recent calls, coupled with the marketing dollars that come with that.

Same thing that you're seeing on the loan side. We are seeing a little bit of spread compression there. The earning asset yields hung on quarter over quarter, sequentially.

We had some good underlying things to help counteract some of that spread compression -- things that you would have heard us talk about in prior quarters. We still get some benefits there in terms of those terminated cash flows, swaps.

This quarter, we had about $8 million of headwind. That's going to continue to diminish through the remainder of 2026. For all of 2027, we'll only have $8 million remaining there.

The remix that we've been talking about for quarters on end continues. We do see continued upside in fixed-asset repricing. Some of that was a little bit masked this quarter by some of the compression and the spreads. But it still remains. We still see at least 1 basis points of earning asset yields playing through there.

We still have the securities coming in at a better front-book rate than back-book rates that still can contribute, we think, 1 basis points or better on investment security yields.

There's still some helpful things working on our behalf. The other thing that we saw play out this quarter is -- probably, our most important repricing benchmark is one-month SOFR. That was coming at the low end of a range that you could think about in the market.

That was a little bit softer on the loan side vis-à-vis without having a Fed funds rate decreases. It was harder to push that through on the deposit side.

All that equates to what came in this quarter as a very stable net interest margin. It has not been our practice to provide deposit or NIM guides in the future. But suffice to say, we do believe that there's some upside from here (inaudible) -- again, going back to our core strategic initiatives to drive deposit growth.

John. It's Scott. I would -- Ryan mentioned it a couple of times there but this marketing initiative we've had with these strategic six products, they are all focused on granular deposits.

The fact that we're doubling advertising in '26 compared to '24 with, I think, a better company-wide approach to product advertising -- we're still very early into that. But our whole branch, teams, and our business bankers, et cetera, are highly focused on these efforts to grow granular deposits.

On the larger side, the fact that we still have net average broker deposits, plus net overnight borrowings, of about $2.5 billion, we've got room to bring in larger deposits at rates that are meaningfully accretive to that overnight borrowing rate. I think we'll continue to see improvement there.

Those higher-priced deposits, they are clients. They are clients or prospective clients. We're not just buying money in the open market.

Okay. (multiple speakers) -- yeah. Go ahead, Scott.

Did you comment on loan pricing? You did. Okay.

On the spread compression.

Yeah.

Got it. And then, Ryan, you alluded to it (inaudible) -- really guide on the deposit growth or the margin. But I'm just trying to get a little bit more color on how we should think about the reliance on wholesale here or short-term borrowings.

I know you have the capacity to -- as you just mentioned, Scott -- but want to get a sense of how the funding picture may look here, as you continue to see some strengthening underlying trends, as you cited on the loan side what the funding side of the picture may look like as that plays out; if there's going to be a greater reliance we should expect on the wholesale side of things or is there a way to assume a pace of deposit growth that's reasonable here?

(inaudible) -- John. We certainly hope for that. We certainly expect that, based on all the things we're doing, initially and internally.

Hopefully, you heard. The guidance I provided was pretty constructive about how we're thinking about NII, when you're out.

It's always going to be beholden to our success in driving loan and deposit balances. But underlying that, we would be showing a decent amount of average deposit growth that would be implying that guide but without getting any of the specifics, which has not been our practice.

Yeah. I fully understand. Thank you so much, Ryan. I appreciate it.

Thank you.

David Smith, Truist Securities.

Hey. Good evening. Can you confirm that your year-ahead outlook for moderately increasing NII does not include a Fed hike?

No. It's part of it is part of our guidance. Sorry if I wasn't as clear about that. But so the implied [Board] rate at the time that struck the chalk line would have allowed for one rate increase.

Okay.

Yeah. That's right.

Okay. And then, so it would just be your report sensitivity to a 25 basis points shock of about 1%, if we're assuming more or fewer hikes in there?

Yeah. I'm glad that you called this out. That's an important point.

We do continue to screen [assets-sensitive], relative to our peers, recognizing that methodologies aren't necessarily common across all. But on that basis, --and it's day to day, week to week in terms of where the market is implying these rates.

But, yes, we still -- you'll see some of the sensitivity materials towards the back of our materials and (inaudible) -- on a parallel shift. We still internally think about things like latent emergence.

We would show a lift of about 3.2% above the latent sensitivity that would be implied by having one or more forward and rate increases in the curve.

Okay. And then, just following up on deposits, I hear you that you've got some initiatives in place to try to reignite that growth, if it remains competitive in the short-term, though.

Your loan-to-deposit ratio was up a couple of points from last quarter to 82%. I recognize that's not very high. But how high would you feel comfortable taking that ratio in the current environment, if it does take a little bit longer for the deposit growth to transpire?

Yeah. Good point. Good question.

We still have -- and I didn't mention this as much -- but in the past, we've talked about investment securities and how much we need to reinvest in those versus letting them roll off to other useful purposes.

I think we said, maybe, in the last call that we're getting closer. We're not there yet. We're probably still four or two away before we think about fully reinvesting investment securities.

That's just another way of saying, as it stands now, as we think about liquidity-stress tests and deposit behaviors; and how much contingent liquidity we need to hold, we do think we have sufficient -- with buffer.

We're sitting here at 82% loan to deposit. That suggests that there's probably a little bit more room to run in that ratio before we would start thinking about other things to do to support us (inaudible) -- stable funding sources.

All right. Thank you.

Thank you.

Manan Gosalia, Morgan Stanley.

Hi. Good afternoon. Can you give us a sense of the trajectory of deposit costs through the quarter? I know that the spot-deposit rates were up about 6 basis points or so quarter on quarter. But I recognize that there might be some seasonality in there, especially related to [NIB] deposits.

If you could just help us with how deposit costs evolved through the quarter and how competition evolved through the quarter?

Yeah. I think the competition is certainly there, Manan. The reference we have, it's in the (inaudible) -- type in the presentation on slide 10, about total cost-of-deposit spot rate at the end of the quarter at 1.49%.

You can get a little bit of feel for the direction of travel there. It's competitive. Again, I don't think our (inaudible) -- is any different than some of the earlier quarters.

Our success will be really driving through these core campaigns.

Got it. And then, maybe, if you can talk a little bit about loan growth and the drivers there. [C&I] growth was clearly good this quarter.

Any sense of how things are progressing, whether there's some acceleration there; and how we should think about the next year or so.

Thanks, Manan. This is Derek.

Yeah. We had good loan growth for the quarter, primarily driven by C&I. It was pretty diversified across segments in the commercial and industrial book.

One thing we did see is a decent increase in utilization on revolving lines of credit, just from some companies that were growing and having additional working capital needs -- that was a positive -- as well as just new originations, tied, primarily, middle market and some upper-middle market activity tied to some capital-markets syndication activity (inaudible - microphone inaccessible) -- that we're trying to really grow.

We did see a good growth in the term [CRE] book, as well. You'll see our construction mix is actually down as a percentage of CRE to 16%.

Some of that is just construction loans rolling into term but also new originations in our term book, which is an area that we think we have some opportunities to grow at this time.

Good. Thank you.

Thank you.

Bernard Von Gizycki, Deutsche Bank.

Hi. Good afternoon. Just wondering on expenses: I think you called out the credit-related expense rose $4 million due to the increased loan-related legal costs. Was this mostly due to the legal issues with Cantor fund? Any updates on this?

Yeah. Bernard, that's certainly a prominent component of that. That factors into that expense item.

Any thoughts on that continuing? Will there still be some, probably, spilling out in the second half? Maybe that's mostly in your guidance but just thoughts there.

I don't think we really have anything to offer at this point on that one, Bernard.

Okay. Maybe just the last follow-up; just, on fees: I think, Ryan, you mentioned the attractive opportunities in cap markets and the strong pipelines going into 3Q. Obviously, the real-estate cap markets, investment banking fees are strong.

Just thoughts on how that trends; and just anything on wealth management fees that was down slightly in the quarter -- just wondering what drove that. Thoughts on the second half, as well.

Sure. This is Scott.

It was a really solid quarter -- the recent quarters have been -- in fee income -- customer fee income. What's different from a year or two ago is that, a year or two ago, the growth was principally in capital markets. The rest of our major fee-income categories were growing a little bit but not much.

We're seeing broader growth now. Our largest source of fee income, about 30% of it comes from our treasury-management activities. They're up very nicely, year over year.

Similarly, some of our loan-related businesses, you're seeing increases in fees, shifting our mortgage business to held for sale from held for investment. We'll continue to see nice year-over-year mortgage-fee growth.

Wealth management, actually, was up over the June quarter of last year. We've had a couple of flat years. We're encouraged about what our teams are doing there.

As we've mentioned, Rebecca Robinson, who ran that business for us for many years, did a wonderful job of creating a strong foundation, improving our core profitability in that business. She has retired from the organization.

Mike Selfridge, we hired, who was the Chief Banking Officer at First Republic. He's now running our wealth business and I think just brings a great deal of experience, also, for this next phase of growth.

Wealth should become, again, a high-single-digit growth, low-double-digit growth business for us in revenue.

Great. Thank you.

Thank you.

Ben Gerlinger, Citi.

Hi. Good afternoon. I just want to unpack a little bit on deposits. I know you don't want to give a full guide to get that.

Since we only really see three line items, I was curious, is there any silos that were growing because everything gets lumped together? Like, is there pricing strategy or any individual silos that seem to be doing better than other, considering the net was down a little bit?

We've had an ongoing targeted deposit campaign that I alluded to a little bit before, which is inviting people to bank with us through whatever capacities; that rates are a little bit more generous -- but are still with clients, as Scott alluded to.

I think it's also important to say that Harris talked about this Business Beyond and some of the other things that we're doing.

We cited 10,000 new accounts. It takes a little while for all this to play through. But we're putting a lot of energy and resource behind these initiatives.

I'd say, most recent periods, the growth is probably coming from those -- more of those focused outreach efforts. There's some really nice underlying green shoots that are coming through our strategic efforts that we'll look for more growth, moving forward.

Yeah. I'd just add: These initiatives we have, it's a marathon, not a sprint. Over time, we keep these kinds of growth rates.

Going on, it -- over time, I expect it will be a meaningful contributor to really strengthening the consumer and small business part of the franchise.

Got you. That's helpful. And then, Ryan, I just want to double check: You said operating leverage of [100] to [150]. I feel like that is in line to what you said in 1Q. I just wanted to confirm that's -- is that gap or is that core? How should we deal with the Visa gain?

Oh. Yeah. We would not be including for the Visa gain for that purpose. And so, yeah, that was just reaffirming what was shared last quarter. But we still see it for the full year.

And then, if you think about the words I used in guiding things for 2Q '27, it would apply, I think, quite a bit better than that for the one-year forward quarter. But, again, we need (inaudible) -- deposits to pull through for that to stick.

Got you. Thank you.

Thank you.

David Chiaverini, Jefferies.

Hi. Thanks for taking the question. Wanted to start on NII guidance clarification here. The moderately increasing. that includes one hike; and, if we get two hikes is when we'd get to upper-single digits. Is that the right way to think about it?

No. I think with the one hike is what we had embedded in our guidance and with probably some pull forward. It was probably between one and two hikes -- is how we were seeing the forward curve at a point in time.

But if you saw two rate hikes coming through, then it would be better on an emergent basis. It would be even more constructive than what we were talking about.

Okay. Moderately increasing is one to two hikes. And then, two to three is when we get to -- I heard you mention upper-single digits?

No.

I just want to (multiple speakers) --?

It's one full hike. Yeah. It's one full hike. But, sometimes, the market tends to peek ahead and anticipate what could be coming.

I would just think about one full hike. If we get two full hikes, it will be more constructive than what I spoke about in my script.

Got it. Thank you for that. And then, a follow-up on the positive operating leverage. The 100 to 150 is 2026, core.

If we pencil out 12 months forward -- since, the other items, you're giving 12-month forward -- how should we think about positive operating leverage over the next 12 months?

Yeah. I don't really have that statistic in front of me, right now, David. But what I was trying to point you to is, if you just think about that one (technical difficulty) -- year's quarter-- a 12-month advance quarter -- that's where we provide our guides to steer the market.

We said loan growth, moderate; looks good. We said fee income. We just came off of a really nice year-over-year performance.

I think (inaudible) -- quoted in the script of 11% growth. We think we can be at the upper end of our guide; moderately there.

And then, for NII, with that forward curve we just talked about, we said upper-single digits (inaudible) -- think about a true moderate for expense growth gets you to a place that's pretty healthy, relative to what we're talking about on a full-year basis here.

Very helpful. Thank you.

Thank you.

Chris McGratty, KBW.

Oh. Great. Thanks. Ryan, just bigger picture on the margin discussion, NII: We've heard a lot of discussion this quarter from your peers about NII being more important than margin. Managing to a margin is more of an output.

I know you guys have walked back that [3.5] NIM that you previously talked about. But, conceptually, what's more important to the bank over the next 6 to 12 months? The NII growth or, maybe, you lean it into growth a little bit and you have a little bit more pressure on the margin?

Yeah. Listen, I think it always comes back. There are various components. Margin's interesting. But NII is ultimately where the juice is in terms of profitability.

I know the commentary in the marketplace. I get it. When you certainly saw in our performance, with loan growth outpacing deposit growth, that could potentially constrain your margin.

But I think there's a lot to like in our loan guide, coupled with the way that the rate curve is being constructive at a time when we are asset-sensitive.

I would say, for me, at least -- you might ask a different member of management team, they might reach a different conclusion. But, for me, it comes back to NII.

We hear that, too, from investors. They just say, we want to see you grow -- and grow responsibly. I think that that will show up in the NII print, moving forward.

Okay. Maybe just on the ACL: Your credit numbers are fantastic but, just, your ACL, approaching one. How should we, as outsiders, think about willingness to bring that down, either maybe relative to CECL Day 1 or mix shifts? But that [106] number, how do we think about that?

Sure. This is Derek. Our ACL, we feel we're very well reserved at this point. It's all just going to depend on what the forecasts -- the economic forecasts -- look like.

If economy continued -- improves, then we have room to move it (technical difficulty) -- if it deteriorates, then we move it up.

It just really depends on where the economy's headed in the forecast. But, at this point, we feel like we're very well reserved.

You think about having coverage for six years of gross charge-offs, it feels pretty good, given the tenor of our portfolio.

We also know that the weather changes in the economy. These ratios are pretty sensitive. There's a lot of leverage in those numbers.

I think we're well reserved. But I don't think it's out of line with where we ought to be.

Thanks for that. And then, just, Ryan, on the tax rate, could you just help us about the outlook for the tax rate?

Sorry. On the tax rate?

Yeah.

Was that the question? Yeah. Nothing unusual. We had a little bit going on in the first quarter that was a bit of a good guide to normalize. But, otherwise, it's business as usual, from an effective tax-rate perspective. Nothing to call out.

Great. Thank you.

Thank you.

Ken Usdin, Autonomous Research.

Hey. Good afternoon. Ryan, I'm sorry to come back on this one more time but I think there's still a little confusion out there.

Can you just make sure we understand that the main guide to focus on for NII is, with one hike included, you think you can do upper-single digit year over year to 2Q '27 NII growth? Is that the main thing?

Because people are still comparing it to the moderately that's on the slide. If you could just square that, I think that would be helpful. Thank you.

Yeah. You nailed it, Ken. Listen, sometimes, the words get in the way. That's why we try to come over the top with some additional narrative.

We don't really have a great word for the better part of moderately increasing and substantially overachieve. We could say increasing but then, people are, what are you talking about? That's why I just try to provide a little extra color to help you see where we're going here.

Okay. Thank you for just restating that. I appreciate it.

Second question, just on capital: You had the nice Visa gain. I think you're around what looks like 9.2% with AOCI.

I know it's a Board decision. They usually make that announcement separately. But $75 million, in terms of capital return, is that the type of return we can expect, going forward? Do you think you're at the point where you're at that comfort zone with AOCI that we can start to see an increase from here? Thanks.

I think -- it's Harris -- well, if the economy continues to cooperate; when our plan plays out as we expect, I would expect that we'll incrementally continue to increase the capital repatriation to our owners.

I don't expect anything very sudden or dramatic. But I think the current pace of buybacks is certainly sustainable. Probably, you'll see some increase.

I would expect to probably see some increase in that over the coming year, as well as with the dividends -- all consistent with the forecast we're giving you a year out here.

Yeah. Ken, the numbers we see when -- we always want to look around and see where peers are at -- and, on a reported basis, looking pretty healthy at this level.

Harris talked about closing of a transaction here at the third quarter. That'll absorb some of the capital on the way. But we still think we're going to be sitting in a place that will be a little bit better than what we see in our peer median.

On a reported basis, it looks like there's some capacity. To your point, the AOCI has been coming in well and reasonably predictably. We see the glide path for that to keep coming in, while still being able to manage the amount of reported CET1, which allows for the opportunity that Harris alluded to.

Okay. Thanks a lot.

Thank you.

Peter Winter, DA Davidson.

Thanks. Good evening. I just wanted to follow up on this AOCI because, Scott, at a recent conference, you talked about how the capital is building with the AOCI accretion, giving you more capital available for acquisitions.

Can you or Harris just provide an update on your thoughts about bank M&A?

Yeah. I will. I think it's irresponsible of any management to say we're just not going to do it. But, that said, it's not something that we wake up every morning saying, what can we buy?

I think anything we do is likely to be opportunistic. It's going to be highly likely to be in markets we're serving, where the economics are easier through consolidation; where they have a good deposit base; where it's just additive strategically to us.

But I would rather suspect. There was a period in our history -- if you go back 25-plus years -- that we were doing a lot of deals. The math worked.

I think we've been going through a period of repair. It's been going on now for some years. It's not just capital. It was really strengthening the foundation of this place, with systems, with people, with risk management. There's a lot that's been going on.

I think we're in a very different place. We're getting back to a place where our capital is really strong. We need to demonstrate to owners that we have the financial returns that justify our being out in the market doing deals before we can be competitive doing deals -- maybe more to the point.

But we're not -- I wouldn't say that that's not going to happen. But it's not something that we are particularly focused on. There's a lot of just organic opportunity for us. That's where our real focus is.

You were commenting on a comment I made at one investor conference in June. But I made the same one in March. That was really two things. Harris just noted it.

But what I said was that Harris and I don't -- the first call we make to each other on a Monday morning is not to talk about M&A. That's just not a call we make. We're talking about how to grow the company; and projects that are going on; and initiatives, et cetera.

When opportunities present, we're not an overly bureaucratic shop. We can get folks together quickly to make a quick assessment. We see most deals that are going on in our markets; not every deal but most.

The other comment was that the math isn't that difficult. As Ryan said, the AOCI accretion has been very predictable for multiple years now. And so it's not hard to look out to this quarter in 27 or this quarter in '28.

CET1 is already very favorable to peers. CET1, including AOCI, is no longer a story; and, in fact, is above peers by, probably, a predictable margin.

You can just make your own assessment of, okay, well, they're not going to stay way above peers. We've always said we want to be above peer median but not way above.

You can almost talk yourself into whatever level of buybacks or other capital usage you want to think about. That's what I said.

Got it. I appreciate that. And then, just one housekeeping item. Derek, you mentioned that line utilization increase.

I was just wondering if you can give what the number was this quarter versus last quarter; and, maybe, how much 1 percentage point equals in terms of loan growth.

Oh, boy, I don't have all those numbers at the top of my head versus last quarter. But, just ballpark, it was a decent amount of the increase -- I'd say, 40% to 50% of the increase -- from the utilization.

Got it. (multiple speakers) --

Just broad strokes: close to an increase of 2% utilization quarter over quarter, with varying dimensions across sub-portfolios: C&I, CRE, and consumer.

Got it. Thank you.

Thank you.

Dave Rochester, Cantor.

Hey. Good afternoon, guys. I just wanted to go back to the NII guide one more time, in case we end up beating it to death.

Can you just state what the NII guide is without rate hikes, 2Q to 2Q? (multiple speakers) -- is that moderately increasing or 4% to 6%?

That's a good way of putting that. Listen, as we look at sensitivity, which is different than forward guidance, even without a rate increase, I believe we would still be moderately increasing, to give you some indications about how we're seeing it, when you layer over the top of our sensitivity what we're seeing in loan growth.

Okay. Great. All right. Thank you. Just to follow up: On the deposit side, are you guys still focused on pulling some of the off-balance sheet deposits back on-balance sheet?

Can you just give us an update how much you have there; what the funding advantage is versus wholesale; and if you're baking any of that into the guide? That'd be great. Thanks.

Sure, Dave. This is Scott. We have about $6.5 billion, $7 billion in off-balance sheet deposits. These are clients that we've asked to move off-balance sheet at other points in times, like 2020, 2021, et cetera.

That number was as high as $12 billion. We've moved some of that back on-balance sheet.

Generally speaking, when we bring those deposits back on-balance sheet, it is definitely accretive to net overnight borrowing rates. But that's not the only place these higher-priced deposits are coming from.

Generally speaking, when we bring deposits into this wholesale deposit campaign we've been focused on, they're coming in anywhere from 30 basis points to 40 basis points, accretive to our overnight borrowing.

We currently have about $2.5 billion average broker deposits, plus net overnight borrowings.

Okay. Great. The idea is, just replace those, over time. (multiple speakers) --

With deposits that are accretive. It makes no sense to do it, if it's not accretive to our overnight borrowings.

Yeah. Sounds good. All right. Thanks, guys.

Anthony Elian, JP Morgan.

Thank you. Just following up directly on that previous question: On the deposit initiatives, right, how quickly could you see those efforts make their way into deposits to ultimately reignite growth in total deposits, customer deposits, which has held flat the past couple of quarters?

It's been doing it for the last nine months.

Yeah. So far, you've brought in (multiple speakers) --

[3.5 billion].

-- 3.5 billion But it's maybe the inverse of a fat guy losing weight.

Whoa. Whoa. Whoa. Come on now. Who are we talking about?

I'm not talking about Scott. No. The first few pounds are easier than the last few. It's not straight line.

You get to a point of diminishing returns where you've picked through, you've talked to customers, and some of what's left off balance sheet's going to be a little stickier than it was, originally.

All apologies to anybody overweight.

Yeah.

Just offended.

Apology taken.

None taken. Thanks, Harris. And then, my follow-on (multiple speakers) --

Okay.

Look, loans are still expected to moderately increase over the next year. But given that the company's funding costs are below those of peers, many banks, including you guys, are talking about the level of deposit competition remaining intense, with no signs of slowing down.

If I put it bluntly, I'm just struggling to see how you would not see a surge in funding costs in the coming quarters to support your loan growth outlook and, ultimately, get you into that upper-single digits range for NII.

On this, I would say that our loan growth has been really disciplined. It's been muted by the fact that we've not been gulping down NDFI loans for the last five years.

It's been muted by the fact that the peer median of CRE growth is about 60% higher than our growth. The upper quartile, the most -- fastest-growing peer banks are growing at about 2x our CRE growth.

We can grow loans faster. But we're choosing to be very disciplined about concentration management. We're not growing unsecured at a rapid rate, which investors hate, when you go into a recession.

And so I think, with the loan growth projection that we have, we have a very solid opportunity to keep funding costs, which is a significant competitive advantage for us -- very much intact.

We have over -- about three decades, our cost of deposits, relative to peers.

Yeah. Listen, I think all agreed with what Scott said. Certainly, there's pressure, right? I don't know if I would say surge.

But we're seeing it in the marketplace. And so there is going to be some pressure on funding costs. As Scott alluded to, we've been very successful in managing that, over time.

Thank you.

Janet Lee, TD Cowen.

Good afternoon. On your NII-- sorry about this NII question again -- growth assumptions of 4%- to 6%-ish in a no-rate-hike or upper-single digits in a rate-hike assumption, are you assuming your NIB deposits stay in that 34% of total range?

It sounded like you were attributing some seasonality to a second-quarter decline. Just wanted to see what is baked in to your baseline.

yeah. Thank you. Thank you, Janet. I think, just broadly speaking, as we work with our businesses, we do see some degree of seasonality that presents from time to time in the second quarter.

Typically, when we work with our bankers, our affiliates, and our businesses, it usually is a stronger second half of the year. That would certainly be factored into how we think about projecting into the future.

That would be part and parcel to our guidance. Does that get the part of what you're asking?

I think some of the non-interest bearing deposits and the proportion that that (multiple speakers) --

Oh.

-- is of total.

Yeah. Listen, I think, if you look at more recent trends, interest bearing's been growing faster than the non-interest bearing. I personally expect that to continue in the near term and, maybe, longer term. I don't know. We'll see.

Again, it really comes back to the things that we're prioritizing as a management team and as an institution. There's a reason why we talk about these targeted focus campaigns on the wholesale side.

But the real franchise will be made on those granular deposits and the efforts that we're making on retooling our commercial-deposit accounts, our small-business deposit accounts; and getting at those granular relationships that we are building, over time.

It does take a little bit of time to play through. As Harris said, it's a marathon, not a sprint. That's really where I'm going to be training my eyes in the coming quarters and years -- is how successful are we in advancing the ball there.

Got it. Appreciate all the color. Just, on the securities-portfolio size, that's been grinding down for a few quarters and for some years.

How should we think about the trajectory of the security portfolio, going forward? Thanks.

Yeah. Thanks, Janet. I do think we're getting closer to the time where it'll (inaudible) -- or it's not at (inaudible) -- where we'll need to start reinvesting 100% of those securities cash flows.

But, again, I think we're still a quarter or two out. We're always thinking about our funding structure and (technical difficulty) -- approach it from a rating-agency perspective or how the regulators think about stable funding.

You've seen that we've been in the capital markets. I wouldn't rule that out in the future. We see what the market bears.

But, notwithstanding that, I think we probably have a quarter or two where there's still some cash flow that we can reinvest to other things that are not securities, whether that be continued loan growth or paying down some of these wholesale funding sources. There's still some movement there.

Thank you.

You're welcome.

Thank you.

Rahul Sharma, [BioChem] Limited.

(technical difficulty) --

I think a Biochem question would be most welcome at this time.

I think we had a BioChem incident there.

Shall we go to the next one?

Let's move on.

Sounds good.

Christopher Spahr, Wells Fargo.

Hi. Good evening. The technology expense comment, was that related to the trend -- like, a quarter over quarter or a year over year -- just because it's been elevated the last few quarters?

It's a little bit of both. I think that, if you look at our narrative that's in the earnings release, that's typically a year-over-year observation, where we talk about the increase in technology costs.

But I think it's just with the world we're living in now, where things are -- the investments we're making to stay current, it's a continuing trend.

I'll just add, there's been a lot of it. We talked in prior quarters. There's been a lot of pressure coming in terms of just vendor price increases, software maintenance, et cetera.

I'd like to think that, maybe, one of the bright spots coming out of AI for a lot of folks is maybe that gets tempered a little bit. I think, in some respects, the vendors may start to feel the pinch of that and maybe lose some of the pricing leverage they've had.

On the other hand, everybody's going to be spending more on AI. The question is how quickly we actually see meaningful results from it. But I think the one thing that's sure is that more and more technology is going to be applied to this industry.

Got it. And so about one-fourth of your expenses, if you look at the technology spend disclosures in the Q, which are very helpful -- one-fourth of the total expenses are tech-related.

Where do you see that going? Are you spending more? Is it going to go towards [30], temporarily? Is it going to just increase with the natural growth rate of expenses? Could it go lower, over time? Thank you.

This is Scott. I don't think the trend will change significantly. We're continuing to invest across the board in technology in all ways.

But, as Harris noted, there are definitely elements of the business that we see from providers that is changing. They have clearly had the upper hand in the last two or three years.

But you can see a world where that becomes more controllable, where they're searching for revenue and not searching for pure price increases.

And then, the open question becomes, where does the token math go eventually, over time?

Right.

If people are pivoting to more AI, large language models, there is a lot more that is showing up in various CFO forums about ROI from token math. That will probably be the new battleground, over time.

I think one other trend you will see is that all of our peers generally report that they have used outsourcing to the extent of 10% to 15% of their [FTE] base. We were probably lagging considerably on that front in maybe around 3%. But we have been moving that number up. using it as a lever.

But the point I want to make is that what is happening with outsourcing, broad-based, is that AI is replacing the need for having to outsource at all.

As we are able to bring that outsource total down, we are bringing down 100% dollars, as opposed to when you go to an outsourcer.

I think there is going to be a real expense opportunity there, as companies replace outsourcing with AI. You hear this from AI outsourcing vendors. That is why many of their stocks are being hurt in the market, right now.

Okay.

Next question.

Jon Arfstrom, RBC Capital Markets.

Hey. Thanks, everyone. Scott or Ryan, anything you would call out in the capital-markets revenue line this quarter? Do you feel like that's granular-, repeatable-type number?

And then, maybe Harris, anything you can share with us in terms of maybe sizing the agency acquisition?

I'll take the easier part of that and just say that, no, I think the different, major capital-markets product groups that we have, we've invested in several of them significantly in recent years, both in colleagues; and in risk and technology structure.

I think we've got a long runway on growing those businesses. I'm not worried about -- and I don't think our teams are worried about -- having to repeat the revenue level that we have.

I think they can see a nice upward trajectory. We'll see the benefit of many of our products hitting on all cylinders at the same time, as opposed to just one. Harris?

Yeah. With respect to the Basis Investment (technical difficulty) -- acquisition, I think, contractually, we are not able to talk about or make any projections about that until we close the deal.

And so I expect that this time next quarter, certainly, we'll be able to talk about that. I can't today.

Okay. Fair enough.

If I can just double up because I think those are really important and what Scott said is valuable: If you think about this history here and the investments that Harris talked about at the beginning part of this call; if you think about what the bread and butter has been for our capital-markets business, historically, risk management through swaps, FX, loans indications.

The neat part of the story this quarter is we're talking about a whole another set of complementary skill sets in real-estate capital markets, investment-banking advisory fees. Harris talked about what's coming on the multi-family side.

It makes the business, overall, more durable. It's still going to be lumpy. We know that. But it makes it a little bit less lumpy, when you have that many businesses to draw upon.

I think that's really, really encouraging. It's something I hope doesn't get lost in this, when we're seeing lots of other people showing really strong capital-markets results this quarter. It's really nice to have that part of our narrative, as well.

Okay. Just one thing, maybe, to end the call. It's an NII question but maybe not. But, Harris or, really, any of you, do you think the Fed should hike or needs to hike rates? Do you guys have a preference or a bias on rates?

Far be it from me to -- I will say, I think that the new Fed Chair -- just me speaking -- but I think Kevin Warsh brings -- I tend to be a fan.

I think the Fed, over the last 20 years, has painted themselves into corners with their own forward guidance. I'm talking to a group of folks who love forward guidance. I understand that.

But one of the problems with it is it creates pressure to do something, sometimes, that -- things that are unnatural. I think it takes away degrees of freedom.

I tend to think that, at heart, Kevin Warsh is what he says he is and that is focused, first and foremost, on inflation. I think he's closer to a Milton Friedman kind of a guy than anybody we've seen there for the last couple of decades.

As long as we have inflation that's sticky, I think the pressure is going to be probably upward on rates. I just think that's who he is.

I think he's trying to be careful not to paint himself into a corner. I really think it's going to be a Fed that, under his leadership, is going to be very responsive to what's happening with inflation and pretty transparent about it.

Okay. Fair enough. Thank you.

Thank you. With that, I will pass the floor back over to Dave Riches for any closing comments.

Thank you, Julian. Thank you to all for joining us today. We appreciate your interest in Zions Bancorporation.

If you have additional questions, please feel free to contact us at the e-mail or phone number listed on our website or on the release.

We look forward to connecting with you throughout the coming months. This concludes our call.

Thank you, ladies and gentlemen. We thank you for your participation.

You may disconnect your lines at this time. Have a wonderful rest of your day.