Zions Bancorporation, National Association (ZION) Q3 2026 Earnings Call Transcript

Operator: Greetings. Welcome to Zions Bancorp Third Quarter Earnings Conference Call. At this time, participants are in a listen-only mode. A question-and-answer session will follow the formal presentation. Please note this conference is being recorded. I will now turn the conference over to Jason D. Arbuckle, Thank you. You may begin.

Jason D. Arbuckle: Thank you, Cleo, and good evening, everyone. Welcome to our conference call to discuss Bancorporation's third quarter 2026 results. My name is Jason D. 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 2 of today's presentation, which apply equally to statements made during this call. A copy of the earnings release and the presentation are available at our website, zionsbancorporation.com. For our agenda today, chairman and chief executive officer, Harris Henry Simmons, will provide opening remarks. Following Harris' 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 Steward, chief credit officer. After our prepared remarks, we will hold a question-and-answer session. This call is scheduled for 1 hour, and I will now turn the time over to Harris Henry Simmons.

Harris Henry Simmons: Thanks very much, Jason, and good evening, everyone. We are 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. The net interest margin was 3.23%, down 4 basis points from the prior quarter and down 5 basis points from a year ago. 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 2 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 6, our capital markets division continues to be an important driver of fee income growth. Since launching the business in 2020, we have 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, multifamily agency capabilities. Which I will discuss in more detail on the next slide. Before moving on, I will note that the $136 million fee income number shown for 2026 is annualized based on performance through September 30. Given the momentum we are seeing across the business, our expectations for the fourth quarter, and we anticipate the full year results to come in somewhat above that level. Turning now to slide 7, I would 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 1 of only 4 banks in the country that combines direct access to both Fannie Mae designated underwriter servicer and Freddie Mac Optigo programs, together with originations to third party CMBS conduit platforms. When combined with the broader capabilities of the bank, this creates a differentiated 1 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 have added seasoned lenders with deep experience in multifamily agency lending and servicing. To help scale the platform. We are 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 in expenses associated with our newly acquired multifamily agency platform. Including personnel and other integration related costs and approximately $300 thousand 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 million to $20 million of revenue and $12 million 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 $30 million 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 8, 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 WealthSelect, which is a new offering that expands our addressable market by allowing us to serve clients with $100 thousand to $1 million in investable assets through a scalable advisory model WealthSelect 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 6 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, year to date at September 30, we have opened over 14 thousand Gold accounts. For consumers totaling approximately $275 million in new to bank deposits. And 1.3 thousand Business Beyond accounts bringing in $120 million in new deposits. In addition, we currently rank No. 10 nationally in SBA 7a lending based on approval volume. No. 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 will 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?

Robert Ryan Richards: Thank you, Harris, and good evening, everyone. Beginning on slide 10, you can see the 5 quarter trends for net interest income and net interest margin. Taxable equivalent net interest income was $684 million, up $7 million or 1% from the prior quarter, 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 4 basis points from the prior quarter and 5 basis points from a year ago. Linked quarter decline was primarily driven by higher deposit costs, and growth in 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 balance. We use this excess funding to pay down short term FHLB 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 3 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 a higher rate environment. 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 rate curve as of September 30. Which assumes 3 rate increases occurring in December March and June respectively. The forecast assumes our cost of deposits to rise to around 2% from current levels of 1.59%. Which includes migration of some non interest bearing deposits into interest bearing products. If deposit pricing and mix 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 remains on pace for a strong fourth quarter. In wealth, we are seeing encouraging momentum and remain focused on executing our stride 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% 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 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 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 2026. Our initial outlook of 100 to 150 basis points of operating leverage did not contemplate the acquisition of the multifamily agency platform from 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 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 remain 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% and 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. Average deposits increased $1.7 billion from the prior quarter. driven by an increase in interest-bearing deposits. 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. Year over year the cost of deposits declined 8 basis points primarily due to lower interest rates. Slide 15 presents the 5 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 end 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 $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 $296 million The continued pay down 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 on Slide 17. Net charge offs were 2 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. 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 1 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 at AOCI increased $122 million reflecting declines in the fair value of AFS securities resulting from increased term interest rates. This mark to market impact was tempered by pay fixed receive 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 relate 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 what we have 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 1 primary and 1 follow-up question. To enable other participants to ask questions. Cleo, please open the line for questions.

Operator: Thank you. We will now be conducting a question-and-answer session. Before pressing the star keys. As a reminder, 1 moment please while we poll for questions. Your first question comes from Bernard Von Gizycki with Deutsche Bank. Please proceed with your question.

Bernard Von Gizycki: Hey, good afternoon. Just on the first question on the 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?

Robert Ryan Richards: Yes. Thank you, Bernard, for the question. Listen, I have tried to call out my prepared remarks that we are anticipating 3 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 the non interest bearing deposit growth would be very modest in that type of rate environment. We also sort of reserve 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, you know, in a position that is a very competitive market. So we are anticipating that it will 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 have 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. Sort of the assumption that we are thinking of. As in prior quarters the contributions you would expect there, of course, variable rate repricing of the given fixed-rate loans is a significant contributor there. We see potential for 3 to 4 basis point on earning asset yields arising from the fixed rate loan re pricing. 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 2 to 3 basis points of earning asset pick up as well. So think about sort of a 5 to 7 basis point increase in earning asset yields in that rate environment.

Bernard Von Gizycki: Great. Thanks for that color. Maybe just a follow-up Maybe just longer term, I know you guys have talked about this $3.50 NIM. I think intra quarter maybe you have dialed it back a little bit maybe with the timing. Just thoughts on maybe when you could reach that is still kind of a goal? Just any commentary you can add on that. Thank you.

Robert Ryan Richards: Yeah, thanks, Bernard. Listen, we think when we talked about the mid-3s NIMs, we always sort of conditioned in the past that kind of rate environment that we would be in. You know, there is 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. Course, that is 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 3 levels in 2027.

Bernard Von Gizycki: Great. Thanks for taking my questions.

Operator: Your next question comes from John Pancari with Evercore ISI. Please proceed with your question.

John Pancari: Good afternoon. First, I commend you on providing the quantitative ranges to the outlook and simplifying your NII outlook. Definitely think that is definitely helpful. So appreciate that. Just in terms of the implication for the margin, I know you did not provide a margin outlook. But given the dynamics that you just walked through, 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?

Robert Ryan Richards: Yes, great call out, John. And maybe we should have a moment of silence for moderately increasing. Let's celebrate those terms. Listen, I. You are right. I mean, we do expect some growth from CRE. 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, was a point in time where we were getting a pretty outsized contribution from consumer loan growth. And given our guidance, which is recently modest at 2% to 4% of loan growth, It really pointed to C and I owner occupied and then to a little bit lesser contribution from CRE. that is still typically a better outcome than consumer-like growth. So that coupled with the traditional things you have heard us talk about over time, the remix securities into loans the less of the headwind of those discontinued swaps. Are all contributors to, I think, a brighter prospect for NIM. And of course, you heard Harris talk about our underlying strategic 6 offerings. That we continue to grind away at and building that new relationships. That will also be very important as we continue to drive down our wholesale borrowing costs we have 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.

John Pancari: 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 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 cannot stay around the $75 million level or is there-- should we think about some change in that pace?

Robert Ryan Richards: Hey, John. With all those things, I think we are 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 would not be giving up on capital absorption and the potential even for potentially growing in that type of operating environment. But I do not wanna 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 the mark to market and the run up of the term rates was challenging for the industry. We actually fared pretty well on that 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 in HTM, we have 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 potential for a very positive operating environment, there may be room to do a little bit more.

John Pancari: Great. Thank you, Ryan.

Operator: Thank you. Your next question comes from David Rochester with Cantor Fitzgerald. Please proceed with your question.

David Rochester: Hey, good afternoon guys. On the loan growth outlook, with you are reeling in your expectations for CRE loan growth within that, which 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 are 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, you know, everything And then if you could talk about the total pipeline today, if that is improved at all versus last quarter and utilization trends that you mentioned. As well, that would be great.

Derek Steward: Thanks, Dave. This is Derek. And on the to the commercial real estate side as far as growth there, pipeline is actually pretty good right now. It is competitive. But we are we are 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. As far as the rest of the portfolio, pipeline's been good in the C and I. 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 number of other just general business activity seemed just utilization was down for the quarter.

Scott McLean: 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 and I growth was down. And we tracked pretty close to what data was. And I do not know why third quarter seem to be soft. They were third quarter last year was soft, third quarter 23 was soft. I do not I know if it is summer vacation or what it is, but there is something about third quarter going on. If you look at Slide 25, just another way to kind of think about what is happening Basically, what you can see there is we are basically no growth for the quarter. You can see that negative $9 million over there in the bottom right hand corner. And we kind of fundamentally need about $500 million to $600 million to hit kind of a good solid 3% to 4% growth rate And basically, it is happening at Amagi. Amagi is was down $293 million for the quarter. And as opposed to being up $150 million to $200 million kind of the difference between $500 million to $600 million in quarterly growth, which is not great. We would like for it grow better, but that is kind of 3% to 4% growth. And to put that in additional perspective, if you look at Slide 2026, where you see the year over year growth 3Q 26 versus 3Q 25 you will see that Amagy those first 2 lines, C and I excluding oil and gas and owner occupied, it produced over half of the C and I and owner occupied growth year over year. So they have been outperforming all of our other affiliates for some time in terms of C and I growth, including owner occupied. They just happened to have a soft quarter. And so I do not. We are not especially worried about that. It just happened to be a soft quarter for them. Otherwise, I think we would have seen growth more in line with $5 to $600 million for the quarter. And their pipelines are just fine. there is nothing unusual about their pipelines, let's call it.

David Rochester: Got it. I thought that you would. Had mentioned CRE is potentially slowing down in terms of growth going forward, and that is why you were a little lower on your loan growth expectation. Is that Right.

Scott McLean: I mean, it is a low growth number. it is a kind of a 1% to 3% sort of growth number is what we are trying to achieve,. Anything slightly less than the growth rate of the overall portfolio. So that is a moderately consistent message for us over time.

David Rochester: And can you just talk about just switching gears to wealth and wealth expansion that you are trying to drive here. what is the penetration of wealth in your current customer base And can you talk about any recent incentive changes or any new targets you have hires or anything like that will help, you know, drive greater growth in that line. Over the next year? Thanks.

Scott McLean: 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 have had in wealth fees that total about $8 million plus or minus right now. there is been 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 sort of adjusted to it. And so that is the incentive comp side. The answer to your first question of what is our penetration and what is 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 did not eat our homework papers, but they. 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 1, and we just never did. So we are 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.

David Rochester: Great. it is good to hear. Thanks for all the color.

Operator: To 1 question and 1 follow-up. Your next question comes from Christopher McGratty with KBW. Please proceed with your question.

Christopher McGratty: Great, thanks. I will echo the praise for the new guide. Thank you for doing that. On the operating leverage, a question on operating leverage. Is there anything in the crystal ball that would say that some degree of operating leverage next year would not 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 should not continue?

Robert Ryan Richards: Oh, listen. I hopefully, I understood that correctly, Christopher, if not, just reguide me here. But certainly, based upon how we guided to the third quarter 27. We see very positive prospects for operating leverage Some of our assumptions and models would point to 6 points or better in that quarter And we do not typically go too far afield for that, but even for the full year 2027, seeing the prospects for a pretty positive spread there. If that is if that is where you are going, then that is probably the color. If you are looking at something else, please let me know.

Scott McLean: I think the other thing, yeah, I think the other thing Ryan was talking about was our full year operating leverage in 2026. Yes. And he was commenting about how we were guiding to a 100 and 150. We have talked about that all year for 2026. The third quarter has obviously been a little soft here. We actually saw it coming. And but we still think for the fourth quarter, I will not repeat what he said, but that is what he was talking about. In terms of the operating leverage there being a lower

Robert Ryan Richards: I think it is a great call, Scott. Thank you for course correcting. I mean, if we look at the adjusted PPNR, you know, that we had this quarter relative to what Harris noted, very strong third quarter of 25. Would just gently remind everybody that was actually shaping up to be a very, very strong quarter for us. And on PPNR, it was. And. But we had the credit matter that presented that quarter that kind of was kind of dour tone for that quarter,. But underlying that in a year over year basis, certainly a contributor to our softer adjusted PPNR performance in 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 have 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 is been some other things that showed up in the third quarter 25 that were different on the non interest fee income side, noncustomer related. There was a pretty sizable difference in terms of our estimated securities gains and losses period over period. That was about a $15 million delta. And then in the prior year quarter, we also had hired dividends and other income FHLB 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 If some things were to break our way, could we fit our way within there? Possibly. But we will just see how the quarter shapes up.

Christopher McGratty: Okay. And then just a follow-up on capital. Ryan, I have you just under 9% on the adjusted CET1. I just wanted to confirm that 1. And then any change in uses of capital? You talked about the Basis deal, the fee income momentum, depository acquisitions, I guess, would be a question from there. Any change in appetite?

Robert Ryan Richards: I think 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 do not think anything that you would hear from this management team would change about how we would think about Castle deployment. Other than just what I have said already that you know, moving forward, we could have a more constructive operating environment. For capital. Capital actions, I should say.

Christopher McGratty: Great. Thank you very much.

Operator: Your next question comes from Ryan Kenny with Morgan Stanley. Please proceed with your question.

Ryan Kenny: Hi, good afternoon. Could you walk through some of the dynamics that you are 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?

Harris Henry Simmons: I do not think so. I think it is, I mean, it is it is it is just a very. I think across the board, it is a competitive environment out there. I do not think we are seeing a lot of impact from you know, kinda neobanks and that kind of thing. And then certainly, that is out there something if that is. it is all the whole industry would be watching here for the next few years. But no, I think it. it is it is a competitive deposit market, but it is it is manageable. I think the we have probably will not price competition on the asset side than on the liability side. But, well, yeah, it is just competitive all over.

Ryan Kenny: 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?

Harris Henry Simmons: I think I think a lot of. I mean, lot of the deposit growth was in kinda higher cost deposits. We have moved a lot of money back on the balance sheet, customers that, you know, that we chased away a few years ago when everybody was awash with liquidity. And so bringing that back on, I goal, as we said before, was really just bringing down our total cost of funding. And so you know, it is. A lot of the growth was higher cost deposits, but certainly lower cost than our marginal cost of funding. That was kind of what you saw this quarter.

Ryan Kenny: Thank you.

Operator: Your next question comes from Kenneth Usdin with Autonomous Research. Please proceed with your question.

Kenneth Usdin: 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 3 2027 outlook on top of what you already bought in the third quarter? Thanks.

Robert Ryan Richards: Thanks, Kenneth. Listen, I will speak to that maybe in broad strokes. So we have got Matthew Tyler here in the room, our corporate treasurer, and you could probably drill down maybe another level before I take it. But you know, I think that the message. The big the big picture message that trying to convey with our hedging activity is, you know, we are sensitive to both earnings sensitivity and of tangible common equity or EVE sensitivity. that is why you see both sides of these hedges. What you have been seeing and I think what you are alluding to on the sort of receive fixed side, is we do tend to measure on a relative basis as being more assets sensitive than others. I said it before, I will 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 have on their c 6 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 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 pay fix. And, Matthew, I invite you to add anything you can want about. Yeah. The additional hedging, I mean, we have really been keeping our cash flow hedges which are the received fixed shorter maturities kind of under 2 years. So we are kind of just rolling those out as time goes on, which has been most of the activity. You know, it is you know if you have you know 2 years hedged you know months from now, will not be a year and a half. So. And 2 quarters from now. So we have just been kind of rolling those on a continuous basis forward 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 or see fixed hedges.

Kenneth Usdin: Right. Okay. Alright. that is good. Thanks a lot, Ryan.

Operator: Your next question comes from Timur Braziler with UBS. Please proceed with your question.

Timur Braziler: Maybe just starting on the funding side, I am just wondering what is the remaining portion either on wholesale or broker that you are still 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?

Robert Ryan Richards: Yeah. Looks like great. Great question. I will 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 whole 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 is, 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 of broker deposits And we already said that we are sort of overbuild 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 are not 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 that new balances to us then paying away to a broker or some other wholesale funder. So that is sort of where we have we see this going on the funding side.

Harris Henry Simmons: So Ryan in terms of timing I would just add that on the brokered deposits there certificates of deposit. They have average maturity of about 3 months, which think about it half of its going to roll off within 3 months. And we are bringing that down as we manage We watch it all the time as we manage, you know, funding coming in from deposits. It just is not instantaneous like if we had borrowings from the homeowner, for example, which would be a payoff. But they will. You know, it will just very quickly.

Scott McLean: And, you know, we have already seen a lot of it We have brought it down a lot so far this quarter as it is mature. it is versus June thirtieth of last year. it is down about $3 billion 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 have issued, etcetera, it is down about $3 billion to $4 billion and it is been very intentional. it is not been serendipitous. And we still have about a little over $7 billion in client funds off balance sheet And almost 100% guaranteed when we bring them back on, there, the cost is accretive to our overnight cost of funding, Harris was mentioning earlier. Okay.

Timur Braziler: Thanks for that. And then maybe I can take another shot at 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, 5 to 7 basis points a quarter. I would imply, I think, that you need margin expansion in order to your NII guidance Is there is 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?

Robert Ryan Richards: Yeah. Listen. I think it has to be yes, all of it. it is both it is it is both funding mix it is it is assets mix. Sorry. Yeah. Asset mix. And it is our sensitivity of that rising rate environment. The driving the net new relationships through these very granular things that Harris described. And all those things combined with that sensitivity to 3 future rate hikes sets up pretty well for us if it all pulls through at that level. And again reiterating that we recognize that is a pretty that is a stronger price response on deposits than what we would experience previously, and we hope that there is some conservatism in that. But we will see.

Timur Braziler: Great. You.

Operator: Your next question comes from David Smith with Truist Securities. Please proceed with your question.

David Smith: Hi, good afternoon. Afternoon. Just drill down on the funding a little bit more. Could you help us size the impact of on the deposit cost of bringing that off balance sheet funding back on the balance sheet?

Robert Ryan Richards: Okay. It will deposit costs will increase. But as Harris was noting, cost of funding will decrease, all things being equal.

David Smith: Thank you. And for the impact on the third quarter specifically though?

Robert Ryan Richards: You know, I. it is Actually, as it relates to sequential quarters, the amount and off balance sheet deposits did not 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 the way that exactly how Scott and Harris have described. Quantifying that impact, I do not think I have a good number for you now. But that. that is pretty much, I would say, over the last say, 12 to 18 months, we have attracted certainly north of $3 billion of client deposits There are focused deposit efforts that are accretive to total cost of funding.

David Smith: Okay. It would be otherwise just to be higher cost deposits. 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, like covenant dynamics or some of both right now in terms of where you are not interested in stepping down to where the competition is?

Derek Steward: it is some of both. This is Derek. Yeah, I mean, we are we are seeing primarily pricing but I would say unstructured covenants, etcetera. But, again, we are maintaining our discipline there on the structural side. And maintaining our underwriting and just the risk selection. And we are, you know, again, having good luck at still winning our fair share. it is just a more competitive environment, I would say, today.

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

Robert Ryan Richards: Yes. I think I guess an open question that is 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 have had this higher for longer rate environment and the prospect of a rate hike, will there be a stronger price sensitivity on the up upside? And so we have allowed for some of that sort of the guidance that we provided in the deposit beta that I would have communicated earlier on this call.

David Smith: Alright. Thank you.

Operator: Your next question comes from David Chiaverini with Jefferies. Please proceed with your question.

David Chiaverini: 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 business you acquired as it relates to that $30 million to $40 million contribution over the medium term?

Scott McLean: This is Scott. I will start with it. Related to the Basis business, the $30 million to $40 million was several years out. I cannot remember from the script. it is 2029. Yeah. Medium term. Yeah. Medium term. And interest rates certainly can have an impact. But the production of multifamily across the country is there is just real vibrance to it still and so. But you are right. Interest rates can have an impact on it. It is a flow business for most people. The production builders that are doing this, they build and sell. Derek may have more color on that, but it is not a it is 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 $30 million-ish revenue business just on interest rate hedging for our clients. That as rates continue to go up, that could actually be impacted some, although we have not seen too much weakness there. 1 of the things to note is in this the. And to note in this quarter's capital markets revenue is it included almost no investment banking M&A advisory work, and that is a practice we started about 18 months ago. And our franchise is really very fertile grounds for small and medium sized business M&A. And we have a very nice pipeline there. it is just very lumpy. So we are very optimistic about that M&A business going forward. And then our garden variety syndications foreign exchange, the bond underwriting that we do etcetera, we think moving along at a pretty nice rate.

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

David Chiaverini: No. I agree. I think that multifamily acquisition is differentiating, is a nice segue into my follow-up on the capital question. As it relates to M&A, In terms of refresh thoughts, are other non bank or whole-bank M&A, what are your current thoughts there?

Harris Henry Simmons: Pretty much unchanged. I mean, I would be very opportunistic. I think it is likely to be something. I mean, like this multifamily agency platform, I mean it. We have we have long had a really solid commercial real estate business here. And we also know they are kind of at the limit to what you can do with the balance sheet with regional bank without creating concerns. And so I mean, it was a really nice fit. And you know, we have been looking for some time. We would actually looked a couple of other opportunities and had not made it So we are really pleased to have this it is a. it is just a really nice strategic fit for us. But, you know, over time, we will look back on this 10 years from now and say, a, you know, what a fabulous thing that was. Think that is, you know, that is kind of what we are looking for. Things that just fit well and, you know, probably a little on the smaller side. And particularly the valuation, we have 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 is that is been kind of consistent theme.

David Chiaverini: Very helpful. Thank you.

Operator: Your next question comes from Janet Lee with TD Cowen. Please proceed with your question.

Janet Lee: Hello. You have 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 1, are you guys 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 is any thoughts there.

Robert Ryan Richards: Yes. 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 and that higher rate environment. We are doing a lot of great things. We will continue to do a lot of great things. Building out the granular strategies that Harris discussed that is 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, you know, are gonna be hard to come by. So I could anticipate potentially a little bit of a slightly different mix there.

Janet Lee: Got it. And sorry to be beat on the dead horse, but I just wanna 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-3.50 level in 2027. Is that what you are assuming in your NII guide for the third quarter? Of next year over year?

Robert Ryan Richards: Listen. We do see very healthy NIMs. We do not provide them 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 if we do see the rate hikes that we that we see in our forecast, with the type of deposit behavior we described, We think it is it is realizable to be operating at that level.

Janet Lee: Got it. Thank you.

Operator: Your next question comes from Anthony Elian with JPMorgan. Please proceed with your question.

Anthony Elian: Thank you. Ryan, I know you do not 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 9, the products you outlined, it just seems like the momentum you have should continue.

Robert Ryan Richards: Yeah. Listen. Thanks for the question. I mean, know, if you look across the past 2 quarters, it is 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, you know, loan growth around 4%, customer deposit growth of about 5% when talking about ending balances Yeah that is that is pretty solid. Right? it is and if you think about the growth for our market that probably tells you we are getting the growth in our market We are probably not reaching for it. Going forward, does it persist at an 8.8% average annualized growth? I am not sure. it is you know it is a lot of and probably not but it is a lot of the same type of deposit gathering that Harris alluded to before. there is a lot of the growth came from money market balances or 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 is where I think we will be having a chance to delight shareholders over a longer period of time.

Harris Henry Simmons: Yeah. Mean, I, you know, if we could see 0.75% to 1% you know, 1% growth Our total cost is coming from these things that we are really focusing on, the small business consumer non interest bearing kinds of accounts or low interest bearing kinds of accounts, You know, it is not just about deposit growth, it is 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 is like people around here, this is a marathon, this is not a sprint, We will be talking about this 10 years from now. I hope I guess it is just really kind of the kind of foundation we are trying to create under everything else that goes on. Corporate deposits, everything else. So I hope that is helpful, but that is that is where a lot of our focus is, but it is a longer term kind of some of this will be watching paint dry a little bit. So Yep.

Anthony Elian: that is fair. Thank you for that. And then on basis, you pointed to $30 million of annual revenue over the medium term. what is the level of expense you expect from that business in the medium term? I think you pointed Ryan, to $12 million to $13 million of expense in 27. Thank you.

Robert Ryan Richards: Yeah. I mean, very reasonable question. I think we just want to be careful not to get too far over our skis it is pretty early on here. We closed the deal at the end of July. We certainly wanna 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 account talent as is now. So probably would hold off or a little bit more experience before we could guide more deeply into the expense how that grows through 2027 through 2028. We did say for full year 2027,, $12 million to $13 million of expenses Beyond that it will just depend on the pacing of how much we add in talent and further capability.

Anthony Elian: Fair enough. Thank you. And echoing the comments on the updated guidance presentation. Thank you for that.

Robert Ryan Richards: that is so popular.

Operator: Your next question comes from Jon Arfstrom with RBC Capital Markets. Please proceed with your question.

Jon Arfstrom: Hey, thanks for squeezing me in. Just 2 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?

Harris Henry Simmons: Yeah. I mean, I look, we are still kind of setting the table there. But I would expect better fourth quarter revenue than we had in the third quarter closed. Closed kind of the end of July, And it was a little bit there in the pipeline, but I mean, it is just building. I that is so I do not think we have thought a lot about what the fourth quarter is gonna look like. We thought more about what next year is likely to look like. that is where we said kind of 2017 to 2020. We think it is kind of a target. But I do not think we have anything we would say about the fourth quarter yet.

Jon Arfstrom: Yes. Just did it was just a small number, Harris. I did not know if it was Yeah. Yeah. Position or there was some other reason behind that.

Harris Henry Simmons: Yeah. Okay.

Jon Arfstrom: Scott, just 1 for you. You mentioned Slide 25, the Amagi 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 entrance there. And just confirming you are not seeing anything new impacting your ability to grow in Texas. Just it is such a growth.

Scott McLean: The only thing we are 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 have said this for several quarters, and it just, it is opportunity, and it is not just I am saying it and it is corporate speak. If we had our fellows from Texas on the phone, they would not speak with granularity that we cannot talk about on a call like this, but that is what we hear internally and there is disruption. We have already seen it. And so our calling programs are highly focused on those. They. They have always been on those banks, but we are especially focused on it right now. And there will be competition for people too. So there is a negative side of this, but we have you know, we have seen that for decades with folks parachuting into Texas. Yeah.

Jon Arfstrom: So more positive than negative from your point of view?

Scott McLean: Absolutely.

Jon Arfstrom: No. I am sorry. The bottom line is yes. More positive. Okay. All right. Thank you.

Operator: This now concludes our question-and-answer session. I would like to turn the floor back over to Jason D. Arbuckle for closing comments.

Jason D. Arbuckle: 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. Look forward to connecting with you throughout the coming months. This concludes our call.

Operator: Ladies and gentlemen, thank you for your participation. This does conclude today's teleconference. Please disconnect your lines, and have a wonderful day.