Zions Bancorp Third Quarter Earnings Conference Call - ZIONS BANCORPORATION NATIONAL ASSOCIATION

Explicit Guidance:

• Net Interest Income (Q3 2027): Anticipated to increase 8–12% year-over-year compared to Q3 2026 ($684M), assuming three rate hikes (Dec 2026, Mar 2027, Jun 2027) and a cost of deposits rise to ~2% from current 1.59% (approx. 40 bps increase).
• Fee Income (Q3 2027): Adjusted customer-related non-interest income expected to grow 6–9% year-over-year from Q3 2026 ($182M).
• Operating Expense (Q3 2027): Adjusted non-interest expense projected to increase 4–6% year-over-year.
• Loan Growth (Q3 2027): Expected annualized growth of 2–4%.
• Full Year 2026 Operating Leverage: Revised to 40–50 basis points (down from prior 100–150 bps) due to multifamily agency acquisition; excluding acquisition impact, leverage would approach the prior low-end expectation of 100–150 bps.
• Multifamily Agency Platform (Basis Acquisition):
  • FY2027 Revenue: $17–20 million.
  • FY2027 Expense: $12–13 million.
  • Medium-Term Revenue: Approximately $30–40 million annually.
• Net Interest Margin (Long-term): Potential to reach mid-3s (3.50% range) in 2027 under assumed rate environments.
• Capital Deployment: No specific buyback guidance, but potential to increase capital absorption (buybacks) in 2027 if operating environment and regulatory approvals remain favorable.

Business-Segment Outlook:

• Commercial Real Estate (CRE): Growth expected to be tempered by competitive environment and higher interest rates; loan growth likely to be 1–3%, lower than the overall portfolio average. Pipeline remains "pretty good" with disciplined underwriting.
• Capital Markets: Momentum continues; 2026 annualized fee income ($136M) expected to finish somewhat above that level due to Q4 momentum. M&A pipeline considered "very fertile" for middle-market clients.
• Multifamily Agency: Acquisition of Basis Investment Group expected to scale gradually; financial benefits will build as integration and production ramp up.
• Wealth Management: "Wealth Select" product expanding addressable market to clients with $100k–$1M investable assets; penetration remains low, presenting significant long-term growth opportunity.
• Strategic Six Products: Continued growth in "gold accounts" ($275M new deposits) and "business beyond accounts" ($120M new deposits) expected to deepen client relationships and drive cross-selling in lending/wealth management.

Market and Competitive Outlook:

• Deposit Competition: Environment remains competitive across retail and commercial; management anticipates higher price sensitivity on deposits (beta in upper 40s to low 50s) compared to previous rate hiking cycles.
• Loan Competition: Pricing competition noted on both assets and liabilities, with structure/covenant dynamics remaining competitive; maintaining discipline on underwriting and risk selection.
• Texas Market: Viewed as an opportunity due to disruption from regional bank acquisitions (e.g., Comerica, Cadence); focused calling programs active.
• Deposit Mix: Anticipated shift toward interest-bearing deposits in the higher-rate environment; reliance on non-interest-bearing deposits may diminish.

Macro / Industry Outlook:

• Interest Rates: Guidance assumes three rate increases in late 2026/early 2027; asset-sensitive balance sheet expected to benefit from this environment.
• Economic Environment: Management is "tempering" loan growth outlook due to broader economic conditions and rate impacts on commercial real estate activity.
• FX/Regulation: No specific forward guidance on FX or new regulation; regulatory approval required for any increased capital absorption.

Strategic Initiatives:

• Basis Acquisition Integration: Scaling the multifamily agency platform with added talent; financial impact modeled as early-stage with gradual ramp-up.
• Wealth Select Rollout: Expanding scalable advisory model to engage smaller clients earlier in their lifecycle.
• Funding Optimization: Continued effort to reduce broker deposits ($2.2B maturing in Q4) and wholesale funding; redeploying excess money market balances into loans or deposit paydowns as deposits mature.
• Hedging Strategy: Active rolling of short-term receive-fixed hedges (under 2 years) to maintain cash flow protection and TCE/EVE stability; potential for additional hedging if rate environment persists.

Risks and Headwinds to Outlook:

• Market Conditions: Multifamily agency revenue potential and CRE loan growth are explicitly influenced by the interest rate environment and market conditions.
• Deposit Repricing: Risk that deposit costs rise faster than anticipated (beta assumptions) could compress net interest margin despite rate hikes.
• Credit Quality: While current performance is strong, credit loss provisions remain a variable; credit losses were modest (2 bps) but sensitive to economic shifts.
• Integration Risk: Early-stage integration of the Basis platform carries execution risk regarding expense management and revenue ramp-up.
• Valuation: M&A activity remains opportunistic; lack of attractive valuations may delay future acquisitions.

Management Tone on the Future:

• Confidence: Cautiously optimistic regarding NII growth and capital markets momentum; confident in the strategic "six products" for long-term deposit stickiness.
• Hedges: Explicit acknowledgment of uncertainty in deposit behavior and rate timing; guidance includes conservative assumptions regarding deposit repricing (upside bias allowed).
• Modesty: Management emphasizes "marathon" over "sprint" for wealth and deposit growth; avoids over-promising on short-term wealth fee growth following recent incentive comp adjustments.
• Transparency: Willing to adjust guidance (e.g., operating leverage) based on actual performance and acquisition impacts.

Miscellaneous:

• Accounting Change: Reported cost of deposits increased by ~3 bps due to net presentation of derivatives and cash collateral interest costs; no impact on overall cost of funds.
• Capital Position: CET1 ratio stable at 11.8% despite $229M goodwill increase from Basis acquisition; tangible book value up 13% YoY.
• Q4 Expectations: Full year 2026 fee income expected to exceed the $136M annualized run rate; multifamily agency Q4 revenue expected to improve on Q3.