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

Greetings. Welcome to Zion's Bancorp third quarter earnings conference call. At this time, all participants are in a listen-only mode. A question-and-answer session will follow the formal presentation. If anyone should require operator assistance during the conference, please press star zero on your telephone keypad. Please note this conference is being recorded. I will now turn the conference over to Jason Arbuckle. Thank you. You may begin. Thank you, Cleo, and good evening, everyone. Welcome to our conference call to discuss Zion Bank Corporation'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-thinking 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, zionsbankcorporation.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. 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. 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 three 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 $0.74 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. 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 annualised basis. Credit losses were modest at two basis points, annualized of average loans. Slide 4 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 5, adjusted pre-provision net revenue was $338 million. 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 multifamily 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, 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 a performance through September 30th. Given the momentum we are seeing across the business, our expectations for the fourth quarter, we anticipate the full year 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. 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 multi-family agency lending and servicing to help scale the platform. 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 multi-family products included in the quarter were approximately four million dollars of expenses associated with our newly acquired multi- family agency platform including personnel and other integration related costs and approximately three hundred thousand dollars 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. 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 sizeof our banking franchise. We have seasoned affiliate 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 traditional 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. Wealth select helps us engage clients earlier, deepen relationships over time, and create a pathway for those relationships to grow alongside their financial needs. Slide 9 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. For example, 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. In addition, we currently rank number 10 nationally in SBA 7A lending based on approval volume, number nine in SBA's 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? Thank you, Harris, and good evening, everyone. Beginning on slide 10, you can see the five-quarter trend for net interest income and net interest margin. Taxable equivalent net interest was $684 million, up $7 million or 1% from the prior quarter, and up $12 million or 2% from a 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 margins, which decreased four basis points from the prior order and five basis points a year ago. The linked quarter decline was primarily driven by higher deposit costs and growth and lower yielding assets. 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 dilutive to our net interest margin, will be utilized to fund loan growth and or reduce broker deposits as those balances mature. 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. For the third quarter of 2027, we anticipate net interest income to increase by approximately 8 to 12 percent. 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 percent from current levels of 1.59 percent, which includes migration of some non-interest-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 non-interest income on slide 12. 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 remain 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 6 to 9 percent relative to the third quarter 2026 results of $182 million. 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. Expenses were higher year-over-year, reflecting higher incentive compensation, increased professional 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 four to six percent relative to the third quarter 2026. We also continue to expect positive operating leverage for the full year 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. Excluding the acquisition, operating leverage would approach the low end of our prior expectations of 100-150 basis points Slide 14 presents trends in average loans and deposits. Average loans grew 3.7 percent annualized during the quarter, primarily within the commercial and industrial portfolio, and increased 2.7% year-over-year. Loan yields remain relatively stable sequentially, and we're 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. Given the expected path of interest rates, we are tempering our outlook for loan growth, particularly within commercial real estate. Everage deposits increased $17 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. 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 percent compared with 1.69% in the prior quarter. Period and deposit balances increased by $1.3 billion compared with the prior order, 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. 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 and or a reduction in wholesale funds. The estimated price sensitivity of 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. and criticized balances declined 12% and 8%, respectively, during the quarter. 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 remained stable at 11.8% during the quarter, notwithstanding a $229 million increase in goodwill and intangible 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. 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 health and maturity, the related balance of which does not fluctuate with mark-to-market change. 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. 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 1 on your telephone keypad a confirmation tone will indicate your line is in the question queue you may press star 2 if you'd 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 please, while we poll for questions. Thank you. Your first question comes from Bernard Von Giziki with Deutsche Bank. Please proceed with your question. Hey, good afternoon. Just on the first question, on the NII Guide of up 8 to 12 percent, 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? Yeah, thank you, Bernard, for the question. Listen, I try to call out my prepared remarks that we are anticipating three rate hives 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-baring 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. 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 or investment securities and there we expect two to three basis points of earning asset pick up as well so think about sort of a you know five to seven basis point increase earning asset yield so that rate environment as we're thinking about it. Great. Thanks for that, Culler. Maybe just a 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 maybe when you could reach that. Is it still kind of a goal? Just any commentary you can add on that. thank you yeah thanks bernard uh listen we i think when we talked about uh the mid threes nims we always sort of conditioned in the past of the kind of rate environment that we would be in um you know there's tons of uncertainty in the future about how deposits behave we know that but we we do see scenarios that would allow us to operate in the mid-threes moving forward with this type of rate environments 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. Good afternoon. First, yeah, I commend you on providing the quantitative ranges 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 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. 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 CRI. There will 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 were getting a pretty outsized contribution from consumer loan growth. And given our guidance, which was 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 in driving down our broker deposits and our other short-term borrowings, and we certainly look for that to continue. Great, Ryan. Thank you. And then, if I could just hop over to capital, maybe you could 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 should we think about some change in that pace? 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. 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. A bigger driver of capital absorption this quarter for us was the goodwill and the intangibles that we absorbed through the multifamily 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 have very, very good performance on a relative basis. If you think about the mark-to-market, we had about 50 percent or better offset with the hedging that we have 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. Thank you, your next question comes from Dave Rochester with Cantor Fitzgerald. Please proceed with your question. Hey, good afternoon guys. On the loan growth outlook, if you're reeling in your expectations for CRE loan growth within 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. 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 our approach there. I think just given 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 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. Just utilization was down for the quarter. Hey, Dave, this is Scott. I might add a little more color to that, too. I think Derek covered the CRE as well as just other topics related to pipeline. But, you know, 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 beta was. And I don't know why third quarters seemed to be soft. They were – third quarter last year was soft. third quarter in 23 was solved. 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 9 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, Amoegee 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, you know, five to 600 billion in quarterly growth, which isn't great. We'd like for it to grow better, but that's kind of three to four percent 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 I don't, we're not especially worried about that. It just happened to be a soft order for them. Otherwise, I think we would have seen growth more in line with, you know, five to 600 million for the quarter and their pipelines are just fine. There's nothing unusual about their pipelines at the moment. Got it. I thought that you had mentioned CRE is potentially slowing down in terms of growth going forward, and that's why you were a little bit lower on your loan growth expectations. Right. I mean, it's a low growth number. It's kind of a 1% to 3% 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. And can you just talk about just switching gears to wealth and wealth expansion that you're, you're trying, trying to drive here, you know, what's the penetration of wealth in your current customer base? And can he talk about any recent incentive changes or any new targets you have for hires or anything like that? that'll help, you know, drive greater growth in that line over the next year? Thanks. Sure. 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. 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 very 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 calling efforts with our private bankers, wealth bankers our commercial bankers and the energy level we have there right now is really positive. 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 one on your telephone keypad and a confirmation tone will indicate your line is in the queue. You may press star two to remove your question from the queue and 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. 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 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? Oh, listen, hopefully I understood that correctly, Chris, if not, just re-guide me here. But certainly, based upon how we guided 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, you know, 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. 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 the operating leverage there being a lower number. 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 the PPNR performance, and they're kind of eroding some of our potential for operating leverage in this quarter, we saw some increased incentive accruals. Our incentive accduals are sensitive to credit performance, so 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. 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 others. 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. Okay, thanks for all that color. And then just to follow up on capital, Ryan, I have you at just under 9% on the adjusted seats. Do you want 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? I don't think much. 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, you know, moving forward, we could have a more constructive operating environment for capital – capital actions, I should say. Great. Thank you very much. Your next question comes from Ryan Kenney with Morgan Stanley. proceed with your question. Hi, good afternoon. Can you walk through some of the dynamics that you're seeing on deposit competition? Is it intensifying significantly? Is there more on the retail side, more on the commercial side, any geography within your footprint where things are getting significantly more competitive? I don't think so. I think 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 neobanks and that kind of thing. Certainly that's out there something the whole industry will be watching in the next few years. I think it's a competitive a competitive deposit market, but it's manageable. I think we probably won't price competition on the asset side than on the liability side, but yeah, it's just competitive all over. 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? And could you see that dynamic going forward where deposits reprice ahead of future rate hikes i think i think a lot of i mean 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 customers that you know that we we chased away uh a few years ago and everybody was awash with liquidity and so uh bringing that back on our our goals 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. Hi. Thanks. Good afternoon. Ryan, I 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. Thanks, Ken. I'll speak to that maybe in broad strokes. And 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, you know, 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. And, so, we've, on the C6 side, really trying to think about the downside sensitivity should rates reverse in a minus 100, minus 200 rate environment and maybe take a little bit of 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. Yeah, the additional hedging, I mean, we've really been keeping our cash flow hedges which are the receive fixed uh 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 is uh you know if you have uh you have two years hedged uh you know two months from now it won't be a year and a half so two quarters from now so we've just been kind of rolling those on a continuous basis uh forward uh over time 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 receive fixed hedges. Right. Okay. All right. That's good. Thanks a lot, Ryan. Your next question comes from Timmer Braziller with UBS. proceed with your question. 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? Yeah, that's a great question. I'll get started to 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. 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, then paying away to a broker or some other wholesale funder. So that's sort of where we see this going on the funding side. So, Ryan, in terms of timing, I would just add that on the broker deposits, their certificates of deposit, they have an average maturity of about three months, which, you know, think about it, that 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 managed, 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 a payoff, but they'll, you Now, it will adjust very quickly. And, you Knew, we've already seen a lot of it. We've brought it down a lot so far this quarter as it's mature. It's versus June 30th of last year. It's down about $3 to $4 billion. It was at about our overnight, 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 to about $4 to $3 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. 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 in terms of that nii guide yeah listen i think it has to be yes all of it it's both it's it's those funding mix it's its assets mix sorry um 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 stronger price response on a positive 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. Please proceed with your question. Hi, good afternoon. I can drill down on the funding a little bit more. Could you help us size the impact of the uh on the deposit cost of bringing that off balance sheet funding back on the balance sheet okay it'll uh deposit deposit costs will increase but as harris was noting cost of funding will decrease all things being equal thank you thank you and for the impact on the third quarter specifically though you know I actually is it relates to sequential orders the amount and off balance sheet deposits didn't change appreciably it was pretty across but there was plenty of evidence of us inviting and other net new balances that we do or 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 a good number for you now uh but that that's pretty much i'd say over the last see 12 to 18 months uh we've attracted uh certainly north of three billion of client deposits there are focused deposit efforts that are created to total cost of funding okay it would be otherwise judged to be higher cost deposits right um and then you had mentioned competition being stronger on on the loan side than on the deposit side right now would you characterize that as more just on on on yield and cost or more on um like covenant dynamics or or some of both right now in terms of where where you're not interested in um in stepping down to where the competition is it's uh it's some of this is derek dude um yeah i mean we're we're seeing uh 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. Is there any change in that assumed in the outlook for deposit growth next year or pretty consistent to where competition levels sit today? 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 the 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. All right. Thank you. Your next question comes from David Chiavarni with Jefferies. Please proceed with your question. 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 million to $40 million contribution over the medium term? This, 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. Yeah, median term. And interest rates certainly can have an impact. But, you know, the production of multifamily in the country, 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. 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 notice to note in this quarter's capital markets revenue is 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&As. 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. 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's it really is a nice value add for us from a client base that needs it so yeah no i i agree i think that multi-family acquisition is uh differentiating which uh is a Nice segue into my kind of follow-up on the capital question as it relates to m&a um in terms of refresh thoughts are other whether non-bank or whole bank m& a you know what What are your current thoughts there? Pretty much unchanged. I mean, you know, it would be very opportunistic. It's kind of likely to be something. I mean like 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 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 fit well and, you Now, probably a little on the smaller side. And particularly the valuation. Look, we just we need to we need to see some better valuation before we start thinking about becoming very aggressive. But But anyway, I think that's been kind of a consistent theme. Very helpful. Thank you. Your next question comes from Janet Lee with TD Cohen. Please proceed with your question. Hello. You talked about the deposit data 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 positive growth would be coming from interest-bearing, obviously, but just wanted to see if there's any thoughts there. Yeah, thanks for the question, Janet. Listen, I think it would be reasonable to assume that interest-bearing deposits would take a larger share moving forward in that higher-rate environment. We're doing a lot of great things. We'll continue to do a lot great things, building out the granular strategies that Harris discussed, and that's something you do over many months and years and the most valuable part of our franchise. But pressing forward, I don't think those non-interest-beary balances are going to be harder to come by. So I could anticipate potentially a little bit of a slightly different mix there. 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 NII guide for the third quarter of next year, year-over-year? And we do see very healthy NIMs. We don't provide NIM 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. 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-digit annualized level to persist in 4Q and beyond? If I look at slide 9, the products you outlined, it just seems like the momentum you have should continue. 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 littlebit, 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. 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 a lot of, and probably not, but it's a law 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 prefer towards our gold sweet balances and these are higher cost deposits the most important part is we just keep grinding away at what you reference to 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 yeah I mean I you know if we could see three-quarter percent to a point you know one percent growth uh our total deposits coming from uh these things that we're really focusing on the small business consumer non-interest bearing kinds of accounts uh or low interest grant kinds of account it's not just about deposit growth it's about the quality of the deposits the cost of the deposits to stickiness of 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 sprint. We'll be talking about this 10 years from now. Oh, it's just really the kind of foundation we're trying to create under everything else that goes on, corporate deposits and everything else. 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. so 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 yeah i mean a very reasonable question uh you know i 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 and 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 dollars of expenses beyond that it'll just depend on the pacing of how much uh we add in talent and further capability fair enough thank you and echoing the comments on the updated guidance presentation thank you for that that's so popular your next question comes from john arfstrom with rbc capital markets please proceed with your question hey thanks for squeezing me in um just one two quick ones uh on basis uh the smaller revenue number for the quarter um i think i understand it you just close the deal but do you expect contributions from the revenue side to step up as soon as the fourth quarter? Yeah. I mean, I, like, we're still kind of setting the table there, but I'd expect better fourth quarter revenues than we had in the third quarter. Closed, closed kind of the end of July. And, you know, it was a little bit there in a pipeline, but I mean it's just building. That's, so I, I don't think we've thought a lot about what the fourth quarter is going to look like. We've thought more about what next year's going to look like, that's where we said kind of 17 to 20 we think is kind of the target. But I don' think we have anything we'd say about the fourth quarters yet. Yeah, it was just a small number, Harris, and I didn't know if it was the acquisition or there was some other reason behind that. Yeah. 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? You know, there have been questions around those markets because of new regional bank entrance there. And just confirming you aren't seeing anything new impacting your ability to grow in Texas. Just it's such a growth. The only thing we're seeing new is that 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 as corporates 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. They've always been on those banks, but we're especially focused on it right now. And, and there will be competition for people, too. So there's a negative side of this, but we've, you know, we've seen that for decades with folks parachuting into Texas. Yeah. So more positive than negative from your point of view? Absolutely. No, I'm sorry. The bottom line is yes, more positive. Yeah, 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. Great. Thank you, Cleo, and thank you all for joining today and participating. We appreciate your interest in Zions Bank Corporation. 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.