Zions Bancorporation N.A. (NASDAQ:ZION) Q3 2026 Earnings Call

0:00 Please note this conference is being recorded. I will now turn the conference over to Jason Arbuckle. Thank you. You may begin.

0:08 Thank you, Cleo, and good evening, everyone. Welcome to our conference call to discuss Zion Bancorporation's third quarter 2026 results. My name is Jason Arbuckle, Senior Director of Investor Relations. And before we begin, I would like to remind you that during the call, we will make 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 on slide two of today's presentation, which apply equally to statements made during this call. A copy of the earnings released in the presentation are available at our website, zionsbancorporation.com. For our agenda today, Chairman and Chief Executive Officer Harris Simmons will provide opening remarks. Following Harris's comments, Chief Financial Officer Ryan Richards will review our financial results and outlook. and also with us today are Scott McLean, President and Chief Operating Officer, and Derek Stewart, Chief Credit Officer.

1:06 After our prepared remarks, we will hold a question and answer session. This call is scheduled for one hour and I will now turn the time over to Harris Simmons. Thanks very much, Jason, and good evening, everyone.

1:18 We're reasonably pleased with our financial results for the third quarter, which reflect meaningful year-over-year earnings improvement and continued progress on our strategic priorities. Going to the slides, Slide 3 summarizes second quarter results versus the prior quarter and last year's third quarter. Net earnings available to common was $262 million or $1.78 per share, an increase of 20% compared to $1.48 in last year's third quarter and an increase of 2% compared with $1.74 last quarter after adjusting for that quarter's large equity securities gains. The increase from a year ago was due to growth in net interest income and customer-related non-interest income, modest loan growth, and exceptional credit performance.

2:06 The net interest margin was 3.23%, down four basis points from the prior quarter and down five basis points from a year ago. When compared to the prior quarter, average loans grew 3.7% on an annualized basis, led by commercial lending. Average customer deposits grew 8.8% on an annualized basis. Credit losses were modest at two basis points, annualized of average loans. Slide four presents the recent history of 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 five, adjusted pre-provision net revenue was $338 million.

2:56 It increased 2% from the prior quarter, reflecting improvement in adjusted taxable equivalent revenue, which more than offset a modest increase in adjusted non-interest expense. Adjusted pre-provision revenue declined $14 million, or 4% from the prior year period, which represented a particularly strong comparison quarter. In addition, results for the current quarter included $4 million of expense associated with a recently acquired multi-family agency platform that was not included in our original forecast. Turning to slide six, our capital markets division continues to be an important driver of fee income growth. Since launching the business in 2020, we've nearly doubled the annual fee income contribution by investing steadily in talent, technology, and product capabilities.

3:48 including investment banking, commodities hedging, real estate capital markets, and multifamily agency capabilities, which I'll discuss in more detail on the next slide. Before moving on, I'll note that the $136 million fee income number shown for 2026 is annualized based on our performance through September 30th. Given the momentum we are seeing across the business, our expectations for the fourth quarter we anticipate before you review the results to come in somewhat above that level. Turning now to slide seven, I'd like to highlight the acquisition of Basis Investment Group's multifamily agency lending business, which closed during the third quarter. This acquisition represents an important step in building what we believe can be a highly differentiated multifamily franchise.

4:38 Our goal is straightforward. to provide clients with a single source of financing solutions across market rate, affordable, construction, bridge, agency, and CMBS products. With this acquisition, we are now one of only four banks in the country that combines direct access to both Fannie Mae Designated Underwriter Servicer and Freddie Mac's Optigo programs, together with originations to third-party CMBS conduit platforms. When combined with the broader capabilities of the bank, this creates a differentiated one-stop multifamily platform capable of serving clients throughout the life cycle of an asset. In addition to the talented team that joined us from basis, we've added seasoned lenders with deep experience in multifamily agency lending and servicing to help scale the platform.

5:31 We're excited about the opportunities this creates and the talent that we have assembled. This acquisition enhances our ability to serve commercial real estate clients, and in particular those in the Western United States, where we see a real market opportunity with population growth and housing affordability issues that drive demand for multifamily products. Included in the quarter were approximately $4 million of expenses associated with our newly acquired multifamily agency platform. including personnel and other integration-related costs and approximately $300,000 of revenue. We expect the financial benefits to build gradually over time as the platform is integrated and production ramps up. For 2027, we anticipate approximately $17 to $20 million of revenue and $12 to $13 million of expense, recognizing that we are in the early process of scaling the business.

6:29 Over the medium term, we expect the business to generate approximately $30 to $40 million of annual revenue. The pace of growth and ultimate revenue potential will be influenced by market conditions, including the interest rate environment. Moving to slide eight, we see wealth management as a compelling growth opportunity given our broad customer base and the size of wealth assets under management relative to the size of our banking franchise. We have seasoned affiliate and wealth leadership teams focused on continuing to enhance coordination between our banking and advisory businesses, which we believe positions us to deepen client relationships and capture additional growth opportunities. A key component of our strategy is a product we call Wealth Select, which is a new offering that expands our addressable market by allowing us to serve clients with approximately $100,000 to $1 million of investable assets through a scalable advisory model.

7:27 WealthSelect helps us engage clients earlier, deepen relationships over time, and create a pathway for those relationships to grow alongside their financial needs. Slide nine provides more information about what we refer to as our strategic six products. While each serves a different client segment and business need, they all share a common objective, which is strengthening sustainable growth through our branch footprint and core deposits Small Business Relationships and Fee Income. We continue to be encouraged by the early results. Example year today, September 30th, we've opened over 14,000 gold accounts for consumers, totaling approximately $275 million in new to bank deposits and 1,300 Business Beyond accounts bringing in about $120 million in new deposits.

8:24 In addition, we currently rank number 10 nationally in SBA 7a lending based on approval volume, number 9 in SBA 504 loans. While the near-term financial contribution is modest relative to the size of the bank, these products are helping us grow long-term relationships and creating opportunities to deliver additional banking, payments, lending, and wealth management solutions over time. 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?

9:02 Thank you, Harris, and good evening, everyone. Beginning on slide 10, you can see the five-quarter trends for net interest income, net interest margin. Taxable equivalent net interest income was $684 million, up $7 million or 1% from the prior quarter, and up $12 million or 2% from the year-ago quarter. Earning asset yields were relatively stable sequentially while our cost of funding increased, resulting in a decline in the net interest margin compared to the prior quarter. Slide 11 provides additional detail on the drivers of net interest margin, which decreased four basis points from the prior quarter and five basis points from a year ago. The linked quarter decline was primarily driven by higher deposit costs and growth and lower yielding assets.

9:54 As Harris noted in his opening remarks, deposit growth significantly outpaced loan growth during the quarter, with average customer deposits growing by 8.8% on an annualized basis. This compares with annualized loan growth of 3.7% during the quarter and a slight decrease in ending loan balances. We used this excess funding to pay down short-term FHLP borrowings, with the residual deployed into money market investments, which increased meaningfully during the quarter. Moving forward, these lower yielding money market balances, which are diluted to our net interest margin, will be utilized to fund loan growth and or reduce broker deposits as those balances mature.

10:42 The total cost of deposits increased 11 basis points to 1.59% during the quarter. This increase was driven in part by a recent change in how we present interest paid on cash collateral associated with our derivatives portfolio. Earlier this year, we began presenting derivatives and related cash collateral on a net basis. Beginning this quarter, we reflected the interest costs associated with the cash collateral held and the cost of deposits as opposed to short-term borrowings. This increased our reported cost of deposits by approximately three basis points. but had no impact on our overall cost of funds. As Harris noted in our earnings release, we expect our asset sensitive balance sheet to produce stronger net interest income in a higher rate environment.

11:30 For the third quarter of 2027, we anticipate net interest income to increase by approximately 8 to 12%. Our outlook is based on the forward curve as of September 30th, which assumes three rate increases occurring in December, March, and June, respectively. The forecast assumes our cost of deposits rise to around 2% from current levels of 1.59%, which includes migration of some noninterest-bearing deposits into interest-bearing products. If deposit pricing and mixed trends develop more favorably than we have assumed, there is potential for net interest income to exceed our guidance. Moving to noninterest income on slide 12.

12:17 customer-related non-interest income was 192 million compared with 182 million in the prior quarter and 163 million a year ago. Excluding the net credit valuation adjustment, adjusted credit customer-related non-interest income was 182 million compared with 181 million in the prior quarter and up 8 million or 5% from the year-ago quarter. As Harris mentioned earlier, Capital markets continue to deliver strong performance and remains on pace for a strong fourth quarter. In wealth, we are seeing encouraging momentum and remain focused on executing our strategy to drive growth and deepen client relationships. Looking ahead to the third quarter of 2027, we expect adjusted customer related fee income to grow six to nine percent relative to the third quarter 2026 results of 182 million.

13:15 We anticipate broad-based growth across our fee businesses, led by continued momentum in capital markets. Turning to slide 13, adjusted non-interest expense was $549 million, representing an increase of $3 million or 1% from the prior quarter. And as Harris mentioned earlier, included $4 million of expense related to the newly acquired multifamily agency platform. Technology, telecom, and information processing expense increased $4 million, driven by higher application software licensing and maintenance costs. Additionally, deposit and regulatory expense increased $5 million related to the decrease to our FDIC special assessment in the prior quarter.

14:03 Expenses were higher year-over-year, reflecting higher incentive compensation, increased professional and outsourced services, and higher technology costs. We will continue to manage expenses prudently while investing to support growth. For the third quarter of 2027, we expect adjusted non-interest expense to increase by approximately 4% to 6% relative to the third quarter of 2026. We also continue to expect positive operating leverage for the full year of 2026. Our initial outlook of 100 to 150 basis points of operating leverage did not contemplate the acquisition of the multifamily agency platform for basis. Including the impact of that acquisition, we now expect operating leverage of approximately 40 to 50 basis points.

14:55 Excluding the acquisition, operating leverage would approach the low end of our prior expectations of 100 to 150 basis points. Slide 14 presents trends in average loans and deposits. Average loans grew 3.7% annualized during the quarter, primarily within the commercial and industrial portfolio, and increased 2.7% year-over-year. Loan yields remained relatively stable sequentially and were down 28 basis points year-over-year, primarily reflecting lower interest rates. Looking ahead, we expect loan growth to be between 2% to 4% for the third quarter of 2027, compared with the third quarter of 2026. Our outlook reflects current pipeline activity, customer utilization trends, and the broader economic environment.

15:49 Given the expected path of interest rates, we are tempering our outlook for loan growth, particularly within commercial real estate. Average deposits increased $17 billion from the prior quarter. Thank you. Average deposits increased $1.7 billion from the prior quarter, driven largely by an increase in interest-bearing deposits. The cost of total deposits was 1.59%, an increase of 11 basis points sequentially, primarily reflecting deposit repricing and, to a lesser extent, a presentation change related to interest paid on cash collateral associated with our derivatives portfolio. Our deposit growth allowed us to reduce wholesale funding sources during the quarter. tempering the increase in total cost of funding.

16:36 Year over year, the cost of deposits declined eight basis points, primarily due to lower interest rates. Slide 15 presents the five quarter trend of our average and ending funding sources. Our total funding costs increased to 1.75% compared with 1.69% in the prior quarter. Period and deposit balances increased by 1.3 billion compared with the prior quarter. driven by a $1.8 billion increase in customer deposits, partially offset by a decrease of $448 million in broker deposits. Short-term borrowings decreased $376 million linked quarter and declined by $2.7 billion versus the prior year quarter. Turning to slide 16, the investment securities portfolio continues to serve as an important source of on-balance sheet liquidity and a tool to balance interest rate risk.

17:30 During the quarter, principal prepayment-related cash flows from investment securities of $631 million were partially offset by reinvestment of $296 million. The continued paydown of lower-yielding mortgage-backed securities supports earning asset remix and or a reduction in wholesale funds. The estimated price sensitivity of the portfolio, inclusive of hedging activity, was 3.4 years. Credit quality remains strong. as shown in slide 17. Net charge-offs were two basis points of average loans annualized, and the non-performing asset ratio was 50 basis points compared with 48 basis points from the last quarter. Classified and criticized balances declined 12% and 8% respectively during the quarter.

18:21 The allowance for credit losses ended the quarter at 1.11%, and remains well positioned relative to our risk profile with 207% coverage of non-accrual loans. Our capital position remains strong as shown on slide 18. The common equity tier one ratio remains stable at 11.8% during the quarter, notwithstanding a 229 million increase in goodwill and tangible assets arising from our newly acquired multifamily agency business. We expect continued strong capital generation through earnings and improvement in AOCI. Related improvements resulted in a 13% increase in tangible book value per share versus the prior year.

19:07 When compared with June 30, 2026, unrealized losses in AOCI increased by $122 million, reflecting declines in the fair value of AFS securities resulting from increased termed interest rates. This mark-to-market impact was tempered by pay-fix received floating interest rate swaps designated as hedges of our AFS securities to reduce volatility in our AOCI balance. It also bears noting that a significant portion of our unrealized losses recorded in AOCI relates to securities previously transferred from AFS to held to maturity, the related balance of which does not fluctuate with mark-to-market changes. Slide 19 summarizes the outlook we've discussed across loans, net interest income, fee income, and expenses. This outlook remains our best estimate based on current information and is subject to the risks and uncertainties discussed in our forward-looking statements.

20:07 This concludes our prepared remarks. As we move to the question and answer section of the call, we request that you limit your questions to one primary and one follow-up question to enable other participants to ask questions. Cleo, please open the line for questions. Thank you. We will now be conducting a question and answer session. If you would like to ask a question, please press star one on your telephone keypad. A confirmation tone will indicate your line is in the question queue. You may press star two if you would like to remove your question from the queue. For participants using speaker equipment, it may be necessary to pick up your handset before pressing the star keys. As a reminder, we ask that you please limit yourself to one question and one follow-up. One moment, please, while we poll for questions.

20:59 Thank you. Your first question comes from Bernard Von Giziki with Deutsche Bank. Please proceed with your question.

21:10 Hey, good afternoon. Just on the first question on the N.A. guide of up 8% to 12%, can you just break down some of those assumptions, like the deposit growth and mix, beta, and just the rate hikes assumed within that period of time?

21:26 Yeah, thank you, Bernard, for the question. Listen, I try to call out my prepared remarks that we are anticipating three rate hikes as part of that guidance, so December, March, and June. We certainly expect a larger contribution in terms of deposit growth coming from interest-bearing deposits. Expecting that interest-bearing deposit growth would be very modest in that type of rate environment. We also sort of observed or expected relative to the last rate hiking cycle when we were pretty much awash with deposits and perhaps could have been more patient We are now in a position that's a very competitive market. And so we're anticipating that it'll be a slightly different deposit repricing behavior than what we might have experienced in the last cycle.

22:13 And so our guidance that you might have heard in my prepared remarks, we've allowed for an increase in deposit costs to the extent about 40 basis points increase in deposit costs. That would imply sort of a beta in the upper 40s to low 50s is sort of the assumption that we're thinking of. as in prior quarters, the contributions that you would expect there, of course, variable rate repricing is given. Fixed rate loans is a significant contributor there. We see potential for three to four basis point on earning asset yields arising from the fixed rate loan repricing. And of course, the continued remix out of investment securities into loans, but also this notion that we continue to kind of reinvest a portion of our investment securities and there we expect two to three basis points of earning asset pick up as well. So think about sort of a five to seven basis point increase in earning asset yields in that rate environment as we're thinking about it.

23:14 Great, thanks for that, Collar. Maybe just to follow up, maybe just longer term, I know you guys have talked about this 350 NIM and I think inter-quarter, maybe you've dialed it back a little bit maybe with the timing, just thoughts on You know, maybe when you could reach that, is it still kind of a goal? Just any commentary you can add on that. Thank you.

23:35 Yeah, thanks, Bernard. Listen, we, I think when we talked about the mid threes NIMS, we always sort of conditioned in the past of the kind of rate environment that we would be in. You know, there's tons of uncertainty in the future about how deposits behave. We know that. But we do see scenarios that would allow us to operate in the mid threes moving forward with this type of rate environment. Of course, that's always dependent upon deposit growth, the rate paid on those deposits, the beta. But we think with some reasonably conservative assumptions that we can reach those mid-three levels in 2027. Great. Thanks for taking my questions. Go ahead. Your next question comes from John Picari with Evercore ISI. Please proceed with your question.

24:22 Good afternoon. First, yeah, I commend you on providing the quantitative images to the outlook and simplifying your NII outlook. I definitely think it is definitely helpful, so appreciate that. Just in terms of the implication to the margin, I know you didn't provide a margin outlook, but given the dynamics that you just walked through in terms of deposit costs dynamic and and some of the earning asset shifts. How do you view the trajectory of the margin, particularly as you see some of the growth on the asset side shifting away from CRE as you indicated?

25:06 Yeah, great call out, John, and maybe we should have a moment of silence for moderately increasing. Let's take a moment to celebrate those terms. Listen, you're right. I mean, we do expect some growth from CRE. There'll probably be a little bit more pressure from the rate environment. But if you think about even not going back that far in time, there was a point in time where we're getting a pretty outsized contribution from consumer loan growth. And given our guidance, which is recently modest at 2% to 4% of loan growth, we really pointed to C&I, owner-occupied, and then to a little bit lesser contribution from CRE. That's still typically a better outcome than consumer-like growth. So that coupled with the traditional things you've heard us talk about over time, the remix out of securities into loans, the less of the headwind of those discontinued swaps are all contributors to, I think, a brighter prospect for them. And of course, you heard Harris talk about our underlying strategic six offerings that we continue to grind away at and building that new relationship. That will also be very, very important as we continue to drive down our wholesale borrowing costs. We've been very, very successful year over year and driving down our broker deposits and our other short-term borrowings.

26:18 And we certainly look for that to continue.

26:22 Great, Ryan. Thank you. And then if I could just hop over to capital, maybe you could just give a little more color just around how we should think about the pace of buybacks for the coming quarters and not just maybe fourth quarter, but as you look at next year. Any reason to think that despite the volatility in the rate backdrop that you can't stay around the 75 level, million dollar level, or is there, should we think about some change in that pace?

26:51 Hey, John, with all such things, I think, you know, we're subject to regulatory approvals and where the board wants us to go. But listen, with the kind of rate environment that I just described, provided that, you know, it holds, that can translate, as you can see in our guide, to some pretty positive outcomes for us. So I wouldn't be giving up on capital absorption and the potential even for it to potentially grow in that type of operating environment. But I don't want to prejudge outcomes with our regulators and the board. But I think that we see scenarios where we could actually increase our capital absorption moving forward. If you think about our results this quarter, certainly in the mark to market and the run up of the term rates was challenging for the industry. We actually fared pretty well on that basis.

27:36 A bigger driver of capital absorption this quarter for us was the goodwill and the intangibles that we absorbed through the multi-family agency business. When setting that aside, with the hedges we have in place and the fact that a very large portion of our AOCI is sort of frozen from the transfer into HTM, we had very, very good performance on a relative basis. If you think about the mark-to-market, we had about 50% or better offset with the hedges that we have in place that we call out in the appendix of our materials. So I think with that extra level of protection and a potential for a very positive operating environment, there may be room to do a little bit more.

28:15 Great. Thank you, Ryan. Thank you. Your next question comes from Dave Rochester with Cantor Fitzgerald. Please proceed with your question.

28:27 Hey, good afternoon, guys. Dave. On the loan growth outlook, if you're reeling in your expectations for CRE loan growth within that, which it sounds like is a driver for it slowing, is that just a function of greater competitive pressures? Or is it less activity given higher rates that you're expecting? Or are you becoming somewhat concerned about credit in that area given your rate and economic outlook? Or is it a little bit of everything? And if you could talk about the total pipeline today, if that's improved at all versus last quarter and utilization trends that you mentioned as well, that'd be great.

29:11 Thanks, Dave. This is Derek. And to the commercial real estate side, as far as growth there, pipeline's actually pretty good right now. It is competitive. but we're being very disciplined in our underwriting as well as risk selection as far as our approach there. I think just given the competitive environment, given some of the supply demand issues that are going on in our market, as well as just the increase in interest rates, it could have an impact on the CRE growth. But as you look in the last quarter, we actually had Pretty good growth in CRE. Actually, it was able to offset a number of payoffs that we had that exited from our classified book.

30:02 As far as the rest of the portfolio, pipeline's been good in the CNI. I think this quarter, just at the period end, we had a little decrease in utilization. Second quarter was actually strong utilization. and just saw a little decline in some capital call usage and a number of other just general business activities seemed just utilization was down

30:29 a quarter. Hey Dave, this is Scott. I might add a little more color to that too. I think Eric covered the CRA as well as just other topics related to pipeline. But 3Q, if you just look at H8 data, total loan growth was down. and C&I Growth was down and we tracked pretty close to what H8 data was. And I don't know why third quarters seem to be soft. They were, third quarter last year was soft, third quarter in 23 was soft. I don't know if it's summer vacation or what it is, but there is something about the third quarter going on. If you look at slide 25, just another way to kind of think about what's happening basically what you can see there is you know we're basically no growth for the quarter you can see that negative nine million over there in the bottom right hand corner and you know we kind of fundamentally need about 500 million to you know 500 to 600 million to hit a kind of a good solid three to four percent growth rate and basically it's happening at Amogee you know Amogee is was down 293 million for the quarter and as opposed to being up $150 to $200 million, that's kind of the difference between $500 to $600 million in quarterly growth, which isn't great.

31:52 We'd like for it to grow better, but that's kind of 3% to 4% growth. And to put that in additional perspective, if you look at slide 26 where you see the year-over-year growth, 3Q26 versus 3Q25, You'll see that Amogee, those first two lines, CNI excluding oil and gas and owner-occupied, it produced over half of the CNI and owner-occupied growth year over year. So they've been outperforming all of our other affiliates for some time in terms of CNI growth, including owner-occupied. They just happen to have a soft quarter. And so we're not especially... and many more.

33:07 Right. I mean, it's a low growth number. It's a kind of a one to three percent sort of growth number is what we're trying to achieve. Anything slightly less than the growth rate of the overall portfolio. So that's a moderately consistent message for us over time.

33:23 And can you just talk about just switching gears to wealth and wealth expansion that you're you're trying to drive here? You know, what's the penetration of of wealth in your current customer base? and can you talk about any recent incentive changes or any new targets you have for hires or anything like that that'll help drive greater growth in that line over the next year?

33:49 Thanks. Taking incentive comp first, we made some incentive comp adjustments 12 to 18 months, 12 to 24 months ago that quite frankly created some churn in our bankers. And we sort of thought that might happen. And so this kind of no growth period that we've had in wealth fees that total about 58 million plus or minus right now, we've kind of had a no growth phase. We think the incentive comp elements both for our wealth colleagues and our private banking colleagues around the company are aligned better now and that everybody's sort of adjusted to it.

34:40 And so that's the incentive comp side. The answer to your first question of what's our penetration and what's the outlook, our penetration is really low and the outlook is really positive. Any data I would give you, you would say, boy, your penetration is really low, guys. Come on now. And part of that is because the dog didn't need our homework papers, but we just have never had a large trust business that we acquired. And most of our peers either acquired large trust businesses somewhere in their past or they grew one, and we just never did. So we're kind of starting from behind, but we think the... The calling efforts with our private bankers, wealth bankers, our commercial bankers, and the energy level we have there right now is really positive.

35:36 Great. It's good to hear. Thanks to all the caller. Thank you. As a reminder, if you would like to ask a question, please press star 1 on your telephone keypad, and a confirmation tone will indicate your line is in the queue. You may press star 2 to remove your question from the queue. We please ask that you limit yourself to one question and one follow-up. Your next question comes from Chris McGrady with KBW. Please proceed with your question.

36:09 Oh, great. Thanks. I'll echo the new guy. Thank you for doing that. On the operating leverage, I guess a question on operating leverage. Is there anything in the crystal ball that would say that some degree of operating leverage next year wouldn't be possible as well? And I hear you on the small impact from the deal, but I guess from the NII momentum and the expenses that you may need to invest in the company, any reason why operating leverage shouldn't continue?

36:40 Oh, listen, hopefully I understood that correctly, Chris, if not, just re-guide me here. But certainly, based upon how we guide it to the third quarter of 2027, we see very positive prospects for operating leverage. Some of our assumptions and models would point to six points or better out that quarter. And we don't typically go too far afield for that, but even for the full year of 2027, we're seeing the prospects for a pretty positive spread there. So if that's where you're going, then that's probably the color. If you're looking at something else, please let me know.

37:14 I think the other thing Ryan was talking about was our full year operating leverage in 26. Yes. And he was commenting about we were guiding to 100 and 150. We've talked about that all year for 2026. The third quarter has obviously been a little soft here. We actually saw it coming. But we still think for the fourth quarter, I won't repeat what he said, but that's what he was talking about in terms of leverage. The operating leverage there being a lower number.

37:46 I think it's a great call out, Scott. Thank you for course correcting. I mean, if we look at the adjusted PPNR, we had this quarter relative to what, as Harris noted, a very strong third quarter of 2025. I would just gently remind everybody that that was actually shaping up to be a very, very strong quarter for us. And on PPNR it was, but we had the credit matter that presented that quarter that kind of was kind of dour tone for that quarter. But underlying that, you know, in a year-over-year basis, certainly a contributor to our softer, just PPNR performance there, you know, kind of eroding some of our potential for operating leverage in this quarter, we saw some increased incentive accruals. Our incentive accruals are sensitive to credit performance, and we've had really truly outstanding credit performance this year. So while the core performance is a little bit softer against a strong comp, The credit has been excellent. And there's been some other things that showed up in the third quarter of 2025 that were different on the non-interest fee income side, non-customer related. There was a pretty sizable difference in terms of our S plate, securities gains and losses, period over period.

38:59 That was about a $15 million delta. And then in the prior year quarter, we also had higher dividends and other income, FHLP dividends and other matters So it would be understandable if people sort of looked at our full year and said, hey, tough quarter for operating leverage, tough PPNR versus a strong comp. Can you still get there for the full year? And we do see, as I guided, once you adjust for basis not having been our run rate, we think we can get close to the lower end of our prior guide of 100 to 150 basis points. You know, if some things were to break our way, could we fit our way within there? Possibly. But we'll just see how the quarter shapes up.

39:43 Okay, thanks for all that color. And then just to follow up on capital, Ryan, I have you just under 9% on the adjusted C2. I just wanted to confirm that one. And then any change in uses of capital? You talked about the basis deal, the fee income momentum, depository acquisitions, I guess would be the question from there. Any change in appetite?

40:06 I would agree with your assessment. I think we would show ourselves on a market capital basis being just shy of 9% as well. So I don't think anything that you would hear from this management team would change about how we would think about capital deployment other than just what I've said already that moving forward we could have a more constructive operating environment for capital actions, I should say. Great. Thank you very much. Your next question comes from Ryan Kenney with Morgan Stanley. Please proceed with your question.

40:44 Hi, good afternoon. Can you walk through some of the dynamics that you're seeing on deposit competition? Is it intensifying significantly? Is it more on the retail side, more on the commercial side? Any geography within your footprint where things are getting significantly more competitive?

41:02 I don't think so. I think it's, I mean, it's It's just a very, across the board, it's a competitive environment out there. I don't think we're seeing a lot of impact from, you know, kind of neobanics and that kind of thing. And certainly that's out there, something that the whole industry will be watching here for the next few years. But, no, I think it's... It sounds like the spot rate for interest-bearing deposits was up only a couple of basis points versus the average. So given that the rate hike came in September, does that mean that clients were asking for higher rates throughout the quarter?

42:02 Could you see that dynamic going forward where deposits reprice ahead of future rate hikes?

42:08 I think a lot of the deposit growth was in kind of higher cost deposits. We've moved a lot of money back on the balance sheet from customers that we chased away a few years ago when everybody was awash with liquidity. And so bringing that back on, our goal, as we said before, was really just bringing down our total cost of funding. And so You know, a lot of the growth was higher cost deposits, but certainly lower costs than our marginal cost of funding. That's kind of what you saw this quarter. Thank you. Your next question comes from Ken Houston with Autonomous Research. Please proceed with your question.

43:02 Hi, thanks. Good afternoon. Ryan, just wanted to ask you a question on the swap ads. Presuming that slide 27 with the simulated repricing of earning assets and loans reflects the ads from this quarter and then just related, do you have any additional purchases in the future built into the 3Q27 outlook on top of what you already bought in the third quarter? Thanks.

43:28 Thanks, Ken. I'll speak to that maybe in broad strokes. So we've got Matt Tyler here in the room, our corporate treasurer, and he could probably drill down maybe another level before I take it. But I think that the message, the big picture message that we're trying to convey with our hedging activity is we're sensitive to both earnings sensitivity and sort of tangible common equity or EVE sensitivity. That's why you see both sides of these hedges What you've been seeing, and I think what you're alluding to on the sort of receive-fix side, is we do tend to measure on a relative basis as being more asset sensitive than others. I've said it before, I'll say it again, these are not common methodologies of measuring things. But we do want to be also thoughtful and perhaps prudent, and what goes up sometimes goes down. And so while that asset sensitivity is serving us well, we think, in this type of rate environment, things can always reverse.

44:24 and so we've on their C6 side really trying to think about the downside sensitivity should rates reverse and minus 100 minus 200 rate environment and maybe take a little bit of the edge off of how we would measure there. So we did add some hedges during the quarter. I think you would have seen reference to that in that related slide to that end. and a little bit more modest activity as we think about that TCE protection on the paid fixed. And Matt, I invite you to add anything you want.

44:57 Yeah, the additional hedging, I mean, we've really been keeping our cash flow hedges, which are the received fixed, shorter maturities, kind of under two years. So, you know, we're kind of just rolling those out as time goes on, which has been most of the activity, you know, has continued. You know, if you have, you know, two years hedged, you know, two months from now, it won't be a year and a half. So, I mean, two quarters from now. So, we've just been kind of rolling those on a continuous basis forward over time.

45:27 So, I think maybe coming full circle, could there be more hedging activity built into that guidance? Certainly, if we were to persist in adding those short-term or C6 hedges. Right.

45:40 Okay. All right, that's good. Thanks a lot, Ryan. Your next question comes from Timmer Braziller with UBS. Please proceed with your question.

45:57 Hi, good afternoon. Maybe just starting on the funding side, I'm just wondering what's the remaining portion either on wholesale or broker that you're still looking to reduce going forward? Maybe another way of asking that is how close are we to having asset growth be more closely aligned with deposit growth?

46:19 Yeah, that's a great, great question. I'll get started and invite other members of the team here to jump in. What you called out is a really important part of our story. Our success year over year in paying down broker deposits, paying down wholesale borrowing sources, having this really positive deposit growth story this quarter enabled us to pay down our FHLB borrowings almost straight away. Where it was a little more tricky is there's, of course, a term structure to broker deposits. And so it takes a little bit more time for those to run off. We show, I believe, in the fourth quarter, we have about $2.2 billion worth of maturity broker deposits. and we already said that we're sort of overbuilt on our money market position that could be redeployed. So I do think as part of as we think about this moving forward is to continue to pay down those sources of funding that aren't with clients.

47:08 This is kind of what Harris was talking about. We would rather be reaching out to our clients and serving them and even these higher cost products when they bring net new balances to us than paying away to a broker or some other wholesale funder. So that's sort of where we see this going on the funding side.

47:29 So Ryan, in terms of timing, I would just add that on the brokered deposits, their certificates of deposit, they have an average maturity of about three months, which, you know, think about it, half of it's going to roll off within three months. And we're bringing that down as we manage We watch it all the time as we manage, you know, funding coming in from deposits. It just isn't instantaneous like if we had borrowings from the home loan, for example, which would be its payoff. But, you know, it will adjust very quickly. And, you know, we've already seen a lot of it. We've brought it down a lot so far this quarter as it's matured.

48:13 It's versus June 30th of last year. It's down about $3 to $4 billion. Our broker deposits and overnight borrowings net of money market investments was about $6.5 billion. Then if you adjust for long-term debt we've issued, et cetera, it's down about $3 to $4 billion. And it's been very intentional. It's not been serendipitous. And we still have about a little over $7 billion in client funds off balance sheet. and almost 100% guarantee when we bring them back on, the cost is accretive to our overnight cost of funding, which Harris was mentioning earlier.

49:02 Okay, thanks for that. And then maybe I can take another shot at John Pancari's question. So appreciate the color on deposits. so getting to call it 2% a year from now so 40 basis points higher let's call it 10 basis points a quarter and then average earning assets are going up call it five to seven basis points a quarter it would imply I think that you need margin expansion in order to get to your NII guidance is there is the the bulk of that increase from just funding mix asset mix I guess How are you thinking about margin over the course of the next 12 months in terms of that NII guide?

49:46 Yeah, listen, I think it has to be, yes, all of it. It's both. It's both funding mix. It's assets mix. Sorry. Yeah, asset mix. And it's our sensitivity to that rising rate environment. It's the driving the net new relationships through these very granular things that Harris described. and all those things combined with that sensitivity to three future rate hikes sets up pretty well for us if it all pulls through at that level. And again, reiterating that we recognize that that's a pretty, that's a stronger price response on deposits than what we would experience previously. And we hope that there's some conservatism in that, but we'll see. Great. Thank you. Your next question comes from David Smith with Truist Securities.

50:37 Please proceed with your question.

50:40 Hi, good afternoon. Good afternoon. To drill down on the funding a little bit more, could you help us size the impact on the deposit costs of bringing that off-balance sheet funding back on the balance sheet?

51:03 Deposit costs will increase, but as Harris was noting, cost of funding will decrease, all things being equal.

51:11 Thank you. And for the impact on the third quarter specifically, though?

51:17 You know, actually, as it relates to sequential quarters, the amount in off-balance sheet deposits didn't change appreciably. It was pretty across, but there was plenty of evidence of us inviting in Other net new balances that we knew were away from us to come in in the way that exactly how Scott and Harris have described. Quantifying that impact, I don't think I have a good number for you now, but that's pretty much I'd say over the last 12 to 18 months, we've attracted certainly north of $3 billion of client deposits that are focused deposit efforts that are accretive to total cost of funding. would be otherwise judged to be higher cost deposits.

52:02 Right. And then you had mentioned competition being stronger on the loan side than on the deposit side right now. Would you characterize that as more just on yield and cost or more on covenant dynamics or some of both right now in terms of where you're not interested in stepping down to where the competition is?

52:27 It's some of both. This is Derek, David. Yeah, I mean, we're seeing primarily pricing competition, but I would say on structure, covenants, etc. But again, we're maintaining our discipline there on the structural side and maintaining our underwriting and just the risk selection. And we're, you know, again, having Good luck at still winning our fair share. It's just a more competitive environment, I'd say, today.

53:00 Is there any change in that assumed in the outlook for deposit growth next year or pretty consistent to where competition levels sit today?

53:10 Yeah, I don't think, you know, it's an open question that's been discussed, I think, by analysts and others about the amount of sensitivity that people report versus the actual sensitivity that people will actually experience. because we've had this higher for longer rate environment and the prospect of rate hikes, will there be a stronger price sensitivity on the upside? And so we've allowed for some of that and sort of the guidance that we provided in the deposit beta that I would have communicated earlier on this call.

53:40 All right. Thank you. Your next question comes from David Chiaverni with Jefferies. Please proceed with your question.

53:54 Hi, thanks for taking the questions. I wanted to first start on the capital markets outlook and the pipeline. It sounds positive. Also curious as to what extent could higher rates impact or be a headwind to the new multifamily businesses you acquired as it relates to that 30 to 40 million contribution over the medium term?

54:19 This is Scott. I'll start with it. Related to the basis business, the 30 to 40 million was several years out. I can't remember the script. It's 29. Yeah, medium term. And interest rates certainly can have an impact. But, you know, the production of multifamily across, you know, in the country is there's just a real vibrance to it still. But you're right, interest rates can have an impact on it. It is a flow business for most people. So the production builders that are doing this, they build and sell. Derek may have more color on that, but it's not a hold and then get lucky on rates kind of thing.

55:10 And then the interest rate business, the interest rate hedging business that we have, which is about a $30 million-ish revenue business just on interest rate hedging for our clients. As rates continue to go up, that could actually be impacted some, although we haven't seen too much weaknesses there. One of the things to note in this quarter's Capital Markets Revenue. It included almost no investment banking or M&A advisory work. And that's a practice we started about 18 months ago. And our franchise is really very fertile grounds for small and medium-sized business M&A.

56:02 And we have a very nice pipeline there. It's just very lumpy. So we're very optimistic about that M&A business going forward. And then our garden variety syndications, foreign exchange, the bond underwriting that we do, et cetera, is, you know, we think moving along at a pretty nice rate.

56:28 I just thought, I mean, higher rates would be a little bit of a headwind, but I think we also have the tailwind of really – have a lot of ground to plow here. I mean, we're seeing a lot of interest from middle market kinds of clients. We've had long relationships with the investment banking point, for example. We think that can turn into a really nice business across the West. And so capital markets businesses by their nature are kind of lumpy. and we get that, but we think it really is a nice value add for us from a client base that needs it.

57:11 Yeah, no, I agree. I think that multifamily acquisition is differentiating, which is a nice segue into my kind of follow-up on the capital question as it relates to M&A. In terms of refreshed thoughts, are other whether non-bank or whole bank, M&A, you know, what are your current thoughts there?

57:33 Pretty much unchanged. I mean, you know, I'd be very opportunistic. It's kind of likely to be something. I mean, I guess this multifamily agency platform, I mean, we've long had a really solid commercial real estate business here, and We also know there kind of is a limit to what you can do with a balance sheet with a regional bank and without creating concerns. And so, I mean, it was a really nice fit. And we'd been looking for some time. We'd actually looked at a couple of other opportunities and hadn't made it. So we're really pleased to have this. It's just a really nice strategic fit for us. But, you know, over time, we'll look back on this 10 years from now and say, you know, what a fabulous thing that was. I think that's, you know, that's kind of what we're looking for are things that just hit well and, you know, probably a little on the smaller side and particularly the valuation.

58:36 Look, we just, we need to, we need to see some better valuation before we start thinking about becoming very aggressive. But anyway, I think that's been kind of consistent theme.

58:51 Very helpful. Thank you. Your next question comes from Janet Lee with TD Cohen. Please proceed with your question.

59:05 Hello. You talked about the deposit beta in the upper 40s to low 50s. Just given the different launching point for where we are in the rising rate cycle versus the last one, Are you assuming that the NIB mix can stay relatively stable-ish from here in the low to mid-30s? Or I know that you said a lot of the deposit growth will be coming from interest-bearing, obviously, but just wanted to see if there's any thoughts there.

59:38 Yeah, thanks for the question, Janet. Listen, I think it would be reasonable to assume that interest-bearing deposits would take a larger share of moving forward and that Higher rate environment. We're doing a lot of great things. We'll continue to do a lot of great things. Building out the granular strategies that Harris discussed. And that's something you do over many months and years and most valuable part of our franchise. But pressing forward, I think those non-interest bearing balances are going to be harder to come by. So I could anticipate potentially a little bit of a slightly different mix there.

1:00:12 Got it. And Sorry to beat on the dead horse, but I just want to make sure that I heard it correctly. I believe you said to Bernard's question earlier that your net interest margin could reach that mid 350 level in 2027. Is that what you're assuming in your N.A.I. guide for the third quarter of next year, year over year?

1:00:37 Listen, we do see very healthy NEMs. We don't provide NEM guides. It certainly has been our practice because of all the variables that go into it. But as a general matter, just restating what I mentioned before, it really is beholden to the operating environment. And if we do see the rate hikes that we see in our forecast with the type of deposit behavior we described, we think it's realizable to be operating at that level. Got it. Thank you. Your next question comes from Anthony Ellion with JP Morgan. Please proceed with your question.

1:01:21 Thank you. Ryan, I know you don't guide on deposits, but any more color you can give us on what drove the strength in deposits in 3Q and really trying to get at the degree to which you expect this high single digits annualized level to persist in 4Q and beyond. If I look at slide nine, the products you outlined, it just seems like the momentum you have should continue.

1:01:44 Yeah, listen, thanks for the question. I mean, you know, if you look across the past two quarters, it's been a little uneven, right? So the last quarter we showed up with really, really healthy loan growth. Utilization picked up really, really positive, but we fell a little bit flat on deposits. This quarter we showed up with really strong deposit growth and not a whole lot of period-end loans to show for. So it is useful to kind of step back, zoom out a little bit, and kind of think of longer time horizons. If I think back a year-over-year period, you think about loan growth around 4%, customer deposit growth about 5% when talking about ending balances, that's pretty solid, right? And if you think about the growth for our market, that probably tells you we're getting the growth in our market.

1:02:34 We're probably not reaching for it. So going forward, does it persist at an 8.8% average annualized growth? I'm not sure. It's, you know, it's a lot of, and probably not, but it's a lot of the same type of deposit gathering that Harris alluded to before. There's a lot of the growth came from money market balances. There was what we refer to as our gold suite balances. and these are higher cost deposits. The most important part is we just keep grinding away at what you referenced in that slide at those more granular deposit gathering strategies. That's where I think we'll be having a chance to delight shareholders over a longer period of time.

1:03:12 Yeah, I mean, you know, if we could see three-quarter percent to a point, you know, 1% growth, our total deposits coming from these things that we're really focusing on, the small business, consumer, Non-interest-bearing kinds of accounts or low-interest-bearing kinds of accounts. It's not just about deposit growth. It's about the quality of the deposits, the cost of the deposits, the stickiness of the deposits. Over time, that really makes a difference. But it takes, I mean, it's like tell people around here, this is a marathon. This isn't a sprint. We'll be talking about this 10 years from now, I hope. It's just really the kind of foundation we're trying to create under everything else that goes on. Corporate Deposits, everything else.

1:03:58 So I hope that's helpful, but that's where a lot of our focus is, but it's a longer term kind of thing. Some of this will be watching paint dry a little bit.

1:04:12 Yep, that's fair. Thank you for that. And then on basis, you pointed to $30 to $40 million of annual revenue over the medium term. What's the level of expense you expect from that business in the medium term? I think you pointed, Ryan, to 12 to 13 million of expense in 27. Thank you.

1:04:29 Yeah, I mean, very reasonable question. You know, I think we just want to be careful not to get too far over our skis. It's pretty early on here. We closed the deal at the end of July. We certainly want to have some experience. So we did quote all those numbers you cited. And we said we expect this to scale over time. That requires investments to continue to build out the talent against a very good backdrop of talent as is now. So probably would hold off or a little bit more experience before we guide more deeply into the expense, how that grows through 2027 through 2028. We did say for full year 2027, $12 to $13 million of expenses. Beyond that, it'll just depend on the pacing of how much we add in talent and further capability.

1:05:18 Fair enough. Thank you. And echoing the comments on the updated guidance presentation. Thank you for that.

1:05:24 That's so popular. Your next question comes from John Arfstrom with RBC Capital Markets. Please proceed with your question.

1:05:36 Hey, thanks for squeezing me in. Just one, two quick ones. On basis, the smaller revenue number for the quarter, I think I understand it, you just closed the deal, but do you expect contributions from the revenue side to step up as soon as the fourth quarter?

1:06:00 Yeah, I mean, look, we're still kind of setting the table there, but I'd expect better fourth quarter revenue than we had in the third quarter. It closed kind of the end of July, and it was a little bit there in a pipeline, but I mean, it's just building. So I Yeah, I totally get it. Yeah. Yeah.

1:06:45 Scott, just one for you. You mentioned slide 25, the Amogee loan trends earlier in the call. This has come up. Is it any more or less competitive in Texas? There have been questions around those markets because of new regional bank entrants there. And just confirming you aren't seeing anything new impacting your ability to grow in Texas. It's such a growth.

1:07:09 The only thing we're seeing new is that the... The disruption there because of these acquisitions, the acquisition of Comerica, clearly the acquisition of Cadence, the acquisition of Veritex, a few other small, that is all opportunity for us. I've said this for several quarters, and it's opportunity, and it's not just because I'm saying it and it's corporate speak. If we had our fellows from Texas on the phone, they would not speak with granularity that we can't talk about on a call like this, but that's what we hear internally. And there is disruption. We've already seen it. And so our calling programs are highly focused on those.

1:07:56 They've always been on those banks, but we're especially focused on it right now. and there will be competition for people too. So there's a negative side of this, but we've seen that for decades with folks parachuting into Texas.

1:08:15 So more positive than negative from your point of view?

1:08:18 Absolutely. No, I'm sorry. The bottom line is yes, more positive.

1:08:22 Okay. All right. Thank you. This now concludes our question and answer session. I would like to turn the floor back over to Jason Arbuckle for closing comments.

1:08:36 Great. Thank you, Cleo, and thank you all for joining today and participating. We appreciate your interest in Zions Bancorporation. If you have additional questions, please reach out to the investor relations team at the email and phone numbers provided on our website. We look forward to connecting with you throughout the coming months. This concludes our call. Ladies and gentlemen, thank you for your participation. This does conclude today's teleconference. Please disconnect your lines and have a wonderful day.