Zions Bancorporation, National Association (ZION) Q1 2026 Earnings Report, Transcript and Summary

Greetings, and welcome to Zions Bancorp's First Quarter Earnings Conference Call. [Operator Instructions]. Please note that this conference is being recorded. It is now my pleasure to turn the conference over to Andrea Christoffersen. Thank you. You may begin.

Thank you, Julian, and good evening, everyone. Welcome to our conference call to discuss Zions Bancorporation's First Quarter 2026 Results. My name is Andrea Christoffersen, Director of Investor Relations. Before we begin, I would like to remind you that during this 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 and on Slide 2 of today's presentation, which apply equally to statements made during this call. A copy of the earnings release and presentation are available at zionsbancorporation.com. For our agenda today, Chairman and Chief Executive Officer, Harris Simmons, will provide opening remarks. Following Harris' comments, Chief Financial Officer, Ryan Richards, will review our financial results and outlook. Also with us today are Scott McLean, President and Chief Operating Officer; Derek Steward, Chief Credit Officer; and Chris Kyriakakis, Chief Risk Officer. After our prepared remarks, we will hold a question-and-answer session. This call is scheduled for 1 hour. I will now turn the time over to Harris.

Thanks very much, Andrea, and good evening, everyone. We are reasonably pleased with our performance and financial results for the first quarter, which reflect meaningful year-over-year improvement and continued progress against our long-term strategic priorities. Our Capital Markets division continues to be an important driver of fee income growth. Since launching the business in 2020, we have invested heavily in talent, technology and product capabilities, expanding our presence across investment banking, sales and trading and real estate capital markets. In late March, we announced an agreement with Basis Investment Group to acquire their Fannie and Freddie lending programs. Related mortgage servicing rights and an experienced team supporting those platforms. Subject to regulatory and customary closing approvals, we expect this transaction will meaningfully enhance our ability to serve commercial real estate clients across the Western United States and beyond and to further strengthen our capital markets franchise. We continue to invest in our consumer and small business franchises. Following the launch of our new gold account consumer deposit product in the second half of 2025, we recently introduced its companion offering for small business customers, branded as "beyond the business." We began piloting the product in Colorado and Arizona late in the quarter, and it's expected to roll out more broadly across our affiliate banks later this quarter. This tiered checking solution is designed to support clients as they grow from basic banking needs to more complex cash flow and money movement capabilities. Our focus on small business is also reflected in continued momentum in SBA lending, where we now rank 11th nationally in SBA 7(a) loan approvals during the first half of the SBA's fiscal year. Shifting now to the financial results for the quarter, slide 3 presents certain first quarter results versus the prior quarter and prior year. First quarter results reflected typical seasonal expense patterns, while revenue and profitability improved meaningfully relative to the prior year period. Net earnings were $232 million or $1.56 per diluted share, up 37% from a year ago, driven by revenue growth, a lower provision for credit losses and a lower effective tax rate. Compared to the fourth quarter of 2025, earnings declined 11%, primarily reflecting lower revenue, including the impact of 2 fewer days in the period and significantly lower securities gains as well as seasonal compensation expenses. The net interest margin was 3.27%, down 4 basis points from the prior quarter, reflecting lower earning asset yields and the decline in average demand deposits partially offset by improved funding costs. Average loans grew 2.4% on an annualized basis, led by commercial lending. While average customer deposits showed a modest seasonal decline, period end customer deposits grew $1.3 billion or 1.8% from year-end. Credit losses were very modest at 3 basis points annualized of average loans. On Slide 4, diluted earnings per share were $1.56, down from $1.76 in the prior quarter and up from $1.13 a year ago. As a reminder, the year-ago quarter included an $0.11 per share headwind related to the revaluation of deferred tax assets due to newly enacted state tax legislation. There were no notable items in the first quarter with an impact greater than $0.05 per share. As shown on Slide 5, adjusted preprovision net revenue was $301 million, declined 9% from the prior quarter, reflecting some of the items noted earlier, including a slightly lower day count adjusted tax equivalent net interest income. Pre-provision net revenue increased 13% versus the year ago quarter on improved revenue and positive operating leverage. 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 to walk through our outlook. Ryan?

Thank you, Harris, and good evening, everyone. Beginning on Slide 6, you can see the 5-quarter trend for net interest income and net interest margin. Taxable equivalent net interest income was $662 million, down $21 million or 3% from the prior quarter and up $38 million, or 6% from the year ago quarter. Earning asset yields fell faster than funding costs during the quarter, most notably in January, and loan repricing reflected the impact of the December rate cuts. Term deposit costs also moved lower, but with a lag over the quarter. Net interest margin was 3.27%, down 4 basis points linked quarter and up 17 basis points year-over-year. Slide 7 provides additional detail on the drivers of net interest margin. The linked quarter walks reflect the lower asset yields mentioned previously as well as a lower contribution from average demand deposit balances. These factors were partially offset by improved deposit costs. Year-over-year, the improvement in margin primarily reflects deposit and borrowing repricing and our continued focus on optimizing the balance sheet. For the first quarter of 2027, our outlook for net interest income is moderately increasing given the uncertain path of benchmark rates. The forward curve as of March 31 assumed no rate changes over the next 12 months. As that plays out, we estimate net interest income growth of about 7% to 8%, which would exceed our guide. Moving to noninterest income on Slide 8. Customer related noninterest income was $172 million compared to $177 million in the prior quarter and $158 million a year ago. Excluding net credit valuation adjustment, adjusted customer-related noninterest income was $174 million compared with $175 million in the prior quarter, and up $16 million or 10% from the year ago quarter. We are particularly pleased with the broad-based growth achieved during the quarter relative to the last year, which reflects higher residential mortgage loan sales activity and growth in retail and business banking, commercial account and wealth management fees. We continue to see attractive opportunities in capital markets and have strong pipelines going into the second quarter. For the first quarter of 2027, our outlook for adjusted customer-related fee income is moderately increasing versus the first quarter 2026 results of $174 million, with broad-based growth and capital markets continue to contribute in an outsized way. We currently expect results towards the top end of that range. Turning to Slide 9. Adjusted noninterest expense was $558 million. Expenses increased versus the prior quarter, driven primarily by seasonal compensation and were higher year-over-year, reflecting increased marketing, technology costs, professional and outsourced services, and higher incentive compensation. We will continue to manage expenses prudently, while investing to support growth. Our first quarter 2027 outlook for adjusted noninterest expense is moderately increasing versus the first quarter of 2026. Based on first quarter performance and full year expectations, we continue to expect positive operating leverage for full year 2026 in the range of 100 to 150 basis points. Slide 10 presents trends in average loans and deposits. Average loans grew 2.4% annualized during the quarter, primarily within the commercial and industrial portfolio and increased 2.5% year-over-year. Loan yields declined sequentially as benchmark rate cuts in the latter part of 2025 were reflected in variable rate repricing. Average deposits were modestly lower than the prior quarter by $540 million. Approximately 1/2 of the decline was due to average broker deposits while the remainder can be attributed to seasonal runoff across business operating accounts early in the quarter. Importantly, period-end customer deposits increased by $1.3 billion or 1.8% from year-end. The cost of total deposits declined sequentially, benefiting from both repricing and a more favorable mix within interest-bearing deposits. Slide 11 presents the 5-quarter trend of our average and ending funding sources. Our total funding costs declined 8 basis points linked quarter to 1.68%, largely as a result of the aforementioned deposit repricing. Period end customer deposits grew $1.3 billion and short-term borrowings declined significantly as we continue to replace higher cost wholesale funding with customer deposit growth and securities cash flows while also remixing into senior debt. Turning to Slide 12. The investment securities portfolio continues to serve as an important source of on-balance sheet liquidity and a tool to balance interest rate risk through deep access to the repo markets. During the quarter, principal and prepayment-related cash flows from investment securities of $493 million were partially offset by reinvestment of $299 million. The continued paydown of lower yielding mortgage-backed securities supports earning asset remix or reduction in wholesale funds. The estimated price sensitivity of the portfolio, inclusive of hedging activity was 3.7 years. Credit quality remained strong, as shown on Slide 13. Net charge-offs were 3 basis points annualized of average loans and the nonperforming assets ratio declined to 48 basis points. Classified and criticized balances also declined during the quarter. The allowance for credit losses ended the quarter at 1.16% and remains well positioned relative to our risk profile with a 239% coverage of nonaccrual loans. Slide 14 provides an overview of our $13.7 billion commercial real estate portfolio, which represents approximately 22% of total loans. The portfolio remains granular and well diversified by property type and geography with conservative loan-to-value characteristics. Credit metrics remain favorable, including low levels of nonaccruals and delinquencies. Our capital position remains strong, as shown on Slide 15. The Common Equity Tier 1 ratio was 11.5%, flat during the quarter as earnings growth was somewhat offset by the $77 million in common shares repurchased and dividends paid in addition to the growth in risk-weighted assets. We continue to expect net capital generation through earnings and continued improvement in AOCI. Tangible book value per share increased 19% versus the prior year, reflecting earnings generation and continued balance sheet normalization. Slide 16 summarizes the outlook we've discussed across loans, net interest income, fee income and expenses. This outlook reflects our best estimate based on current information and is subject to the risks and uncertainties discussed in our forward-looking statements.

This concludes our prepared remarks. [Operator Instructions] Julian, please open the line for questions.

[Operator Instructions] And our first question comes from the line of John Pancari from Evercore ISI.

On the -- just on the margin side, I know you -- your loan yield compressed about 14 basis points linked quarter. I think you had mentioned that it was largely a function of the rate cuts and variable rate repricing. I guess that linked quarter change, was that all the benchmark rate change? Any other impact to loan yields in the quarter? And maybe if you can give us your new money loan yields, just to give us an idea of where originations are coming on the books.

Thanks, John. Really appreciate that. Yes. So listen, I think you picked up on the main thrust of it. So we would have had some benchmark repricing and expectation of the rate cut that came in the middle of December, and some of that trailed thereafter. And where we remain just skewing a little bit more on the asset-sensitive side that, that was the biggest contributor. In terms of the repricing characteristics, of course, we've got the nice material in our appendix that I know you're familiar with, but I think maybe the question that you're getting at on front book versus back book for the loan portfolio is really the most meaningful part of that as we sort of think about trajectory moving forward is for those fixed rate loan portfolios, or things that have yet to reprice through. And there, we're seeing a 72 basis point spread on the front book vis-a-vis the back book.

Okay. All right. And then I guess, in terms of your positive operating leverage expectation of 100 to 150 basis points, that is -- that's for the year. And so what rate assumption does that imply? I know you mentioned if there's no rate changes consistent with the forward curve, your next 12-month NII outlook could come in at 7% to 8% above the range. Does that 100 to 150 basis points expectation imply the forward curve? And maybe if you can give us a little bit more detail in terms of that NII expectation.

Yes. Thank you for that, John. Listen, we -- in the past, we've brought a view of kind of latent emergent. It's less interesting this quarter since we -- there's not much to talk about in the forward curve in terms of rate changes that were implied at least as of the quarter end. So those are kind of right on top of each other. So we were able to firm up our guide for the full year. As you sort of think about the trajectory of that, where we normally guide on a 1-year, 4-quarter basis. We believe you'll see there is a much more powerful positive operating leverage, probably not unlike what we've seen this quarter relative to last quarter, where and Harris' quoted in his remarks, you will see positive operating leverage of 270 basis points. So we think that as our repricing plays through from the investment securities into loans, as we have less of those headwinds associated with our terminated swaps. Some of the other things play through, we do see really good prospects for 1 year fourth quarter. Later when we were with you, we were anticipating as part of our sensitivity in our guidance that we could have had great cuts. I think we were anticipating in June and September. And based upon the forward curve, those are now off the table. So that having no cuts is embedded into our full year positive operating leverage guide.

And our next question comes from the line of Manan Gosalia with Morgan Stanley.

On the deposit cost side, deposit costs, I guess, they came down quarter-on-quarter, but they were pretty flat relative to the spot rate as of December 31. And it looks like the spot rate as of March 31 has moved lower again. So can you just help us connect the dots on the trajectory there? Maybe give us an update on deposit pricing and competition and also what you're expecting in terms of CD rolls coming up?

And I'll try to unpack that in a few places and invite my colleagues to jump in as well. Listen, I think -- and I've seen the questions coming in other calls in this earnings cycle about where deposit costs go if rates kind of stay static here for the remainder of the year. There's still some trailing activities, some repricing down on term deposits, thinking about customer time deposits that yet to play through. So that would definitely be an element of this. You will have heard us talking increasingly quarter-over-quarter. And when you catch us at conferences about some of our strategic initiatives. We think that those are going to be really valuable to us and driving deposit balances as well. So you heard Harris talk about in his prepared remarks, the gold account, the business beyond, there's a lot that we've talked about with SBA lending that brings deposits with us. We think that's useful. There's some other work we've been doing around wholesale deposits with customers relative to other sources of wholesale funding that we think can defray deposit costs moving forward. So while we don't have explicit deposit guidance, then we don't explicitly guide towards deposit costs. All of that would be embedded into our , I believe, to be very constructive for your NII guidance. I think there's a deposit proposition comment on that too.

Yes. Manan, this is Scott McLean. And I would just add to that, that this deposit campaign we've had going on to bring some of our off-balance sheet deposits back on balance sheet. We've had anywhere from $7 billion to $12 billion in off-balance sheet deposits and it's really just a client decision as to where they want to sit. But we've been successful at bringing more of those back on balance sheet at rates that are attractive, they're accretive versus broker deposits and overnight cost of borrowings. At various points in time, we focused on that. And so we've been very successful at bringing those deposits back on. And all of it is I would say 25 to 30, 35 basis points accretive to brokered deposits. You'll see us continue to do that. And in terms of deposit costs in general, it's I'm not sure I've ever seen a time when it wasn't real competitive other than maybe 2020 and 2021. So -- but we -- all of these -- almost all of this, our relationship deposits that we're bringing on, and it's not just coming from off balance sheet. Quite a bit is coming from new clients or existing clients that we didn't have their deposits to begin with.

Got it. I appreciate the color there. And then maybe on the buyback side, buybacks were up this quarter, but the CET1 ratio is still relatively flat as you accrete more capital through earnings. So maybe if you can talk about the level of buybacks that you think you can do for the rest of the year, especially as you narrow the gap with peers in that CET1 including AOCI ratio?

Manan, thank you. I think you said that very well because our nominal CET1 ratio has been kind of hanging in there and as we said before, we see the path for AOCI coming in is becoming unreasonably predictably over time and something that's really contributed to our kind of outperformance on tangible book value add year-over-year. So I think those all things are encouraging. We've also taken note of the Basel III end game proposal. As others have noted in this earnings cycle. There are some good things in that proposal for us and others, in terms of what it would imply about RWA moving forward. So I never like to get in front of our Board, Head of our Board. It's usually a pretty poor practice for management. But it looks like that we could be in a position to talk about share repurchases moving forward responsibly as our Board will allow and as regulators sign off. As Harris mentioned during his remarks, we're really, really excited about the acquisition of the multifamily agency program that's still pending, it's pending regulatory approvals. Should that see all the way through as we expect, not knowing the time line for all that, not trying to predict any of that, that would be a source of consuming capital. But there's some other things that are happening in the environment, including things like these exchanges that could be considered by our team as well. So that's a long-winded way of saying, I think the prospect of share repurchases are still on the table, subject to Board approval.

And our next question comes from the line of Dave Rochester from Cantor Fitzgerald.

On the guidance, I know we shifted back to the 1 year ahead quarter-over-quarter look, but I was curious how you feel about the annual guide for '26 you gave last time. It seems like given everything that you're saying together, you would still feel pretty good about that and maybe with a little bit of upside. Is that fair?

Yes. Dave, I think it's a reasonable observation, particularly given my earlier comments here about having those two rate cuts off the table that we would have been talking about last quarter. So definitely -- I mean, we don't make a practice of doing this all the way through the year, but firming up that the things that we talked about last quarter were better.

Yes. Yes. Sounds good. Maybe just as a follow-up on the loan outlook. I was wondering how things were shaping up in 2Q at this point. How does the pipeline look overall heading into the quarter versus where you started at the beginning of the last quarter? And what are you seeing on the C&I front that has you excited? And maybe if you could talk about a little bit of a pullback on the consumer side, that would be great.

Sure. Thanks, Dave. This is Derek. The pipelines looking healthy actually at this point. We're seeing lots of activity in small business, middle market, corporate banking syndications. Just general C&I, we're just seeing lots of activity. Another thing that's coming back is we're seeing increased CRE activity. We're cautious there, but we are seeing increased activity as some of the markets have reached more stabilization. And so I think we'll continue to see growth coming from those areas.

So probably pricing pressure on CRE. I mean, I hear our people talking about the you're seeing as much pricing pressure in CRE as they've seen for some time.

I would -- Dave, I would just add also, and I made this comment at the RBC conference back in early March that I think investors increasingly really need to peel back the onion on the type of loan growth that banks are producing. The NBFI kind of issue that has sprung up has just -- I mean, there are massive differences in bank's reliance on NBFI growth. It should be a good asset class for many, many reasons, managed responsibly, as you know, for us, as we report, it's about $2 billion of our portfolio outstandings and has not grown in 5 years. And you can see that our peers and banks smaller and larger are pretty much gulping down these loans just as there has been a difference in CRE growth. And so I think what investors if they'll really peel back the onion will find that if they're worried about NBFI, if they're worried about rapid CRE growth, if they're worried about personal unsecured lending, that's not us. So again, I think it just requires a little more investigation of the topic.

And our next question comes from the line of Bernard Von Gizycki with Deutsche Bank.

I know we're talking about deposit balances earlier. You had a nice pickup in the noninterest-bearing deposits of about $1.3 billion versus 4Q. I believe the migration of the legacy gold accounts was done last quarter. But Harris, you mentioned the rolling out of the companion offering for small business customers beyond the business. Just what drove the sequential increase? And any color you can share on customer acquisitions on the goal and the beyond the business accounts for the quarter?

Yes. So first of all, I have -- I'm dyslexic with this product. It's actually a business beyond is what we feel the product is called. And I can't read my own words here on the front page. But the business beyond, this product suite, it's too new to have had any impact in the first quarter and won't have much in the second. We rolled it out in Arizona and Colorado beginning on March '26. But the early reaction to it with a very limited sample of -- it's the first really new product offering we've had for small businesses for quite some time, and it's been really well received. And so I'm excited about the prospects for it. But we'll be rolling it out across the rest of the organization in -- later in May. And it will be kind of in the third and fourth quarter before we start to understand what the impact might be. On the Gold Account, the first quarter, I mean we -- again, we started rolling this out in the second half of last year and really the full impact started to come kind of in the fourth quarter. We've -- in terms of new account activity, we opened about 4,000 new accounts in the first quarter. And I'm hopeful that we'll see that kind of ramp up to kind of 20,000 new accounts for the year. What we're seeing is over time, the total relationship balances are somewhere around $100,000. And it's not immediate, but it's kind of -- we're seeing accounts build up to that. And so anyway, we think that this is a really great opportunity for us, and we have a lot of energy, and we'll be devoting a lot of marketing to it. So it's still early innings, but I'm hopeful that, that will really contribute to not only a well-priced deposit base, but one that's granular and really sturdy with the kinds of customers that we can do a lot of business with.

Great. And just on capital markets fees, the $28 million, slightly higher year-over-year, but down $9 million versus a strong 4Q. Just anything to call out during the quarter and Ryan, I think you called out the strong pipelines in capital markets going into 2Q. So if you could just unpack the quarter and trends you're seeing right now?

Yes. This is Scott. I'd be happy to do that. we had a -- it was a tough quarter to compare against last year because of a really large M&A transaction fee that we reported on. So we were delighted with the quarter as it ended and really all of the businesses continue to show good opportunity. In the first quarter, we saw real strength with our syndications and our interest rate hedging businesses and also with a new commodity hedging, oil and gas hedging practice that we started in the third, fourth quarter of last year. We think it has the potential to generate, I don't know, $7 million to $10 million a year in revenue, and we're just getting started there. But it's -- basically, that business is positioned against about 80 of our energy reserve-based lending clients. We've already had about 30 of those, 35 transact with us on this interest rate -- this oil and gas hedging activity. And so I think between syndications interest rate hedging, our foreign exchange business, commodity hedging. Our real estate capital markets business, it was a soft quarter for them. And -- but the second quarter that can kind of ebb and flow, they're still very confident they're going to have a real solid second, third and fourth quarter. In our M&A business, again, which is sporadic, we've invested quite a bit in new colleagues there and deal flow looks good. So we -- it's been a high-growth business for us. We've made a lot of investments there, and we don't anticipate it will disappoint this year.

And our next question comes from the line of David Chiaverini with Jefferies LLC.

Wanted to go back to -- you alluded to the Basel III end game benefit of a -- it sounded like a modest net benefit. But are you able to quantify what that benefit could be for Zions?

Thanks for the question, David. I'm happy to provide some color there. Listen, we're still working all the way through the process, but our scoping on the standardized approach would suggest some RWA relief as others have reported. Right now, we would size that between 9% to 10% of RWA relief, would I contribute all else being equal, about 93 basis points to common equity Tier 1. We are still studying the ERBA just to understand the puts and takes there with the risk sensitivity compared to the operational risk RWA. So probably more to be said there in future quarters. As you know, we've been sort of talking capital, both nominally and including AOCI and by formalizing AOCI into the standard moving forward, albeit with a pretty lengthy phase-in. Of course, that cuts the other way, but we've already been operating as though AOCI is something that we're cognizant of in setting our capital glide path. So hopefully, that helps.

Yes, very helpful. And then you alluded to pricing pressure on the CRE side, could you talk about the C&I pricing environment?

Sure. This is Derek again. Yes. I mean we're -- while the activity levels are healthy and it certainly is a competitive market out there today. So we're seeing some price competition. But it's not significant, but it's something that we're definitely very aware of.

And our next question comes from the line of David Smith with Truist Securities.

Can you please talk a little bit about where you're spending the most time managing credit today? Obviously, it was a really strong quarter with just 3 basis points of net charge-offs and criticized, nonaccruals, pretty much all the forward indicators all trending down versus the fourth quarter. But to the extent that you're seeing problem or areas of concern in the portfolio, where those might be and what trends you're seeing specifically for those subportfolios.

Yes. Thanks for the question. Overall, we're seeing -- continuing to see improvement in commercial real estate and as you can see from the number of criticized and classified and nonaccruals continue to decrease there. If anything, we're focused on the commercial and industrial space, it's over -- actually, year-over-year, our criticized and classifieds have improved there, saw a slight increase this quarter. But that's the area where we're -- our attention -- where we're paying the most attention. We are not seeing a lot of impact from tariffs or from the events in the Middle East at this point, but watching really just focused on some just increases to expenses in certain areas such as restaurants and consumer-focused businesses that seems to be what we're watching the most these days.

Do you have a sense of how long oil prices might have to be elevated before that plays through more broadly with some of your industrial client base?

Yes. It's a great question. The forward curve on oil right now is going out a year at a little higher level, but it starts to drop actually pretty fast. And by next year, it's back to a lower level. So we'll just have to watch and see where the curve goes.

And our next question comes from the line of Ken Usdin with Autonomous Research.

Ryan, can I just ask a follow up on the NII comments. When you mentioned the 7% to 8% growth with no rate cuts, were you referring to the full year 2026 commentary? Or were you referring to the 1Q '27 over 1Q '26?

Yes. For our NII guide, that's the shorter view is how we guide that. So certainly at the upper end of moderately increasing and we think the ability to overachieve if rates hang in for us.

Okay. Got it. And then I just wanted to make sure because it was a little bit back and forth between talking about like the full year versus the standard guide. So it's on the standard guide. Okay. And then on the -- as you go forward, the earning asset base has been pretty steady for the last couple of quarters. And as you kind of have reworked the mix of the balance sheet from here, do we start to see more AEA growth? Or is the benefit that you get from NII going to come more from the margin expansion from here?

It's a very fair question, Ken, because you're right. I mean, if you look year-over-year, average earning assets are kind of hanging in around the same levels. And so the loan growth that we're seeing has sort of been offset by the average investment securities and money market funds. Listen, one of the things that we're probably getting closer to, I talked about in my prepared remarks, the reinvestment that's occurring for investment securities, where we've still been allowing a decent amount of that to flow over to paying for loans or paying down wholesale funding. We're getting close to the point in time when we would think about reinvesting fully, just to make sure we keep the same comfortable headroom on our liquidity measures and the like. But if you see in our guide, we certainly expect for loans to build from here. And you all, I think, are very attuned to where we expect to see that. One of the things that maybe it could be potentially a little bit lost in the message this quarter is we had a really nice loan fee result. You'll see that and that was on the back of some of the things that we said we were going to do. Part of our strategy was saying, hey, going forward, we want to do more held-for-sale activity around residential mortgage loans. And that showed up in this quarter. So we had a pool in excess of $500 million that we sold out of the book that would have otherwise been part of our story for loan growth. Another thing that we haven't yet featured on this call, but would be in the earnings release, is we did roll out an accounting change this quarter moving forward on the netting of derivative assets and derivative liabilities and cash collateral things associated with that. And that would also have sort of a knock-on effect on some netting down of some loan balances to the tune of about $100 million difference. So I acknowledge that our loan growth looks modest. But there were some other pieces in there that were they in our base results would have looked like a stronger loan growth story. So moving forward, it's going to be both, long-winded answer. It's definitely going to be a margin expansion and growth in average earning assets.

I'd just add that the consumer book, the 1 to 4 family residential jumbo arms, I'd expect that, that will remain flat to kind of drifting down over time. We're just trying to remove some of the risk in a world where higher rates may be the norm and so some of the convexity risk there. So really trying to focus more on a held for sale and turning that activity into more fee-based activity. So that will be a little bit of a drag, but we think that we'll see moderate loan growth despite that.

And our next question comes from the line of Peter Winter with the D.A. Davidson.

I was wondering, with the outlook of fee income coming in at the upper end of your range and you continue to make these investments, which are clearly working. Would you expect expenses to also come in at the upper end of that range of moderately increasing?

And I'm sure the others will have something to say here but my spoken remarks, I purposely kind of guided towards the upper end of the range and NII and fee income. I'm glad you picked up on that. I didn't do that for expense so we'll see. But from where I sit here today, I think it's a reasonable guide just as it is. I wouldn't guide on the operator or the lower end. I just leave the degrees of freedom within that.

I would just add that most of the broad-based growth we're seeing in fees now is -- I mean, capital markets, we clearly have invested a lot. The others we're not having to -- the incremental investment is not that significant. We're just -- I think we're seeing a lot of our sales practices flowing through. I think we're seeing our call programs are stronger. And we're just -- this is the best broad-based growth we've seen in a long time.

I just thought with the growth in the fee income, also maybe higher incentive comp as well. That's why I was thinking about it.

Well, that's true. That's true, and you can see that a little bit in the first quarter.

But it's in the context of a $2.1 billion expense number. So it's not going to move it materially.

Okay. And then just if I can ask a separate question but with these growth initiatives under way, is there anything tangible that you can point to that the investments that you made in the FutureCore to modernize the core systems. Has that been additive to your growth or helping attract more customers, just given -- we're seeing some nice organic growth from you guys. And I'm just wondering if the FutureCore is playing into that?

Yes, although it's -- I think it's hard to quantify exactly, but it's helping us just get things done faster. I mean customers don't choose a bank because of your core systems, especially the lending side. They're looking for execution and price and relationship, et cetera. But it's giving us -- I mean, I go back in time. We did an exceptional job during old PPP thing and that's ancient history now, we couldn't have done it without this new core. We are quickly doing the real land office business in PPP with a great process. So that's just an example of how it's allowing us to get things done faster.

Well, the other couple of other points that I would add is the real-time data and the fact that all of our loans and deposits are on one data system, again, that doesn't send tingles through clients' minds. But in a data-driven world, it's absolutely critical that it'd be accurate. And we -- it also, we're -- we said on our last call that we were close to closing a transaction with TCS to bring their Quartz -- to have a product called Quartz that is a tokenized deposit, stable coin application. And because we're on their platform, the ability to start innovating with tokenized deposits or stablecoin is infinitely cheaper than anybody else trying to do this. And so we think it's going to be an interesting way to compete way beyond our size in that arena should we choose to. We've not announced that we are, and we just -- we've got a platform that we would not have had if it not been our core conversion.

And our next question comes from the line of Janet Lee with TD Cowen.

Just to go back on -- just to go back on your 7% to 8% NII growth, assuming no rate cuts. Is it fair to say that, that assumption is baking in moderately increasing loan growth, so call it mid-single digit or so. But that would also imply a pretty meaningful step up in net interest margin expansion throughout the course of 1Q '26 to 1Q '27 in order to get to the 7% to 8%?

Yes. Listen, I think you're right about that. In terms of allowing for loan growth to be embedded in that figure and margin expansion. We don't guide -- it hasn't been our practice to guide on margin. But we see ample opportunity to expand the margin throughout the course from this point in time to that point in time in the years, hence -- so both of those are encompassed within our guide. And I can rehearse all those different contributing factors, if you like. But I gave you the short form answer.

I would take that.

So yes, listen, I think there's different things that are playing through and you've heard us probably talk a little bit about this before. We do have the latent effect of those fixed asset repricing that has yet played through. There's still some sizable books that have longer repricing cutoff patterns. So if you think about things like muni, if you think about owner occupied, if you think about some 1 to 4 family resi. So all that, together with things like less -- these headwinds for those terminated swaps, this quarter, we had about a $10 million headwind through the fourth quarter this year, it goes down to about $5 million. We've got some disclosures in our 10-K that talked about that. All those things blend to an improvement in earning asset yields kind of 1 year in and along the way. We've sort of sized that about 2 to 3 basis points improvement in earning asset yields. We are doing some roll-off of our investment securities portfolio to other gainful places like loan growth and paying down wholesale sources of funding. We sized that as a 1 basis point kind of accretive earning assets. So it's that together with some -- a little bit of a taper of things yet to play through and repricing down of term deposits are all things that contribute to a better NIM story moving forward.

Got it. That's very helpful. And your 150 basis points POL for 2026, you seem very comfortable achieving it in a no rate cut scenario. I would -- is it fair to assume that's still the case if we were to get a change in -- if we do end up getting a rate cut? Or does it get more challenging?

So we were prepared with something analogous to that last quarter where we were seeing 2 rate cuts. So I wouldn't necessarily back away from that. I would just say, as with all things, it will all depend on our success in driving through those lower-cost bonds and our deposit growth through the course of the year. That's our biggest variable and not knowing day-to-day, week-to-week, what the forward markets are going to tell us. I just feel like we're at least as good or better place than we were last quarter.

And our question comes from the line of Anthony Elian with JPMorgan.

On M&A, last month, you announced the acquisition of the agency lending business from Basis. right? Last year, you acquired 4 branches in the Coachella Valley. Harris, are these the types of acquisitions we should expect going forward? Or would you cast a wider net at some point, inclusive of bank acquisitions for what you'd look at?

Well, the first thing I'd say is it's not so much that we're casting a net. We're waiting for fish to swim into the pond that we are comfortable with. We're not out looking to try to -- it's not an objective to do M&A to grow. I've been pretty consistent about that. But I -- but as we see opportunities, we ask ourselves the question, is it a good fit strategically? Is it something that strengthens the franchise and it's all about price at the end of the day, too. And so we'd be opportunistic about it. I think both of these kind of hit that. These agency relationships, the Fannie, Freddie business, we've been talking about here. That is something we have been looking to do. We live in a part of the country where you have a combination of a reasonably young population, a high-cost housing affordability. All of that creates demand for more multifamily over time. It's about -- where about 80% of the population of the nation is taking place. through the Mountain West, the Southwest, et cetera. And so being able to be a one-stop shop for developers of multifamily product fits really nicely into the capital market strategy we have. And fits nicely with the real estate talent we have in-house to originate that kind of product. So I would expect that anything we do would have kind of a story to it in terms of how it fits with the strategy of becoming a stronger presence in the Western United States.

Okay. And then my follow-up on deregulation. So Harris, you addressed this in your annual letter. We had the capital proposals a few weeks ago. I know we have the comment period now, but I'd like to get your thoughts on if you think those proposals are largely sufficient or what more you'd like to see from those proposals?

No, I think we're pretty pleased with what -- I -- one of the things -- what I said in the shareholders letter is, the pendulum -- what happens is you get a crisis and a reaction. And that's the history of bank regulation. And the statutes that are passed to turn that into law. And the -- what happened in the wake of the passage of Dodd-Frank was there were a lot of things that I think that with the benefit now of looking back over the last 1.5 decade, regulator sensible people looking at this would say, okay, some of that was actually really useful and needed necessary. And some of it is overkill. And from my perspective, I think the current cast in place and the agencies is doing a really nice job of trying to say, let's focus on the basics because the risk is you get so involved in the thick of thin things that you missed the main event. And I think that's one of the things that happened with the bank failures 3 years ago, things that are kind of hiding in plain sight. It wasn't about some of the -- I mean, everybody -- the industry is actually pretty good at self-regulating. I mean after you've been through the great financial crisis, you don't need to be told a lot about how you adjust your portfolio to make sure that doesn't happen again. And yet that's kind of where the system tends to pile on. And so a lot of things were done in terms of ability to repay qualified mortgages and everything that it's part of the housing affordability problem we have today. It's just more expensive to get a mortgage, for example. I think they're trying to be sensible about how do we get back to kind of the center point. And so I'm actually quite pleased with what we're seeing.

And our next question comes from the line of Jon Arfstrom with RBC Capital Markets.

I wanted to ask you about the agency businesses, but you -- I think you cleared those up, Harris, but that's just a P&L. It's not really use of balance sheet on those businesses. Is that correct?

Yes. Yes. That -- it shouldn't -- I mean we use the balance sheet for the origination of the deal, the construction, the stabilization, but without fail, our customers who are developing this kind of product, they need a long-term takeout. And so it just allows us to be in the stream for that.

One way of maybe stitching together, Harris' a very good response on the regulatory environment. And if there was anything on the wish list, going back to Basel III end game, getting some more risk sensitivity on the commercial loan side of the business would be helpful. It looks like they may have MSRs and scope of things to at least nominally reconsider getting away from the dollar -- for dollar exclusion above certain levels and maybe rethinking of the risk weighting. For this type of business, it's agency multifamily business, there will be some MSR generation that would come from it. So we'll have to see where that falls out.

Yes. I know there are rare licenses and very valuable, so that will be good. Scott, maybe just to go back on lending, energy and lending appetite. Just curious how you're approaching the business with so much volatility. And then can you touch a little bit on the Texas or Amegy C&I growth and what's driving that?

Sure, Jon. Let me -- on the Amegy side, they had -- I'll take the second one first. They had really strong loan growth last year, really broad-based C&I growth and their CRE is holding in there. Energy really did not grow much last year for them. They are seeing better growth in smaller businesses. Principally, they've played more in the middle market, the kind of middle of the middle market and the upper end of it. But just good progress there. Their call programs are great. The bank in the metroplex, their activities in the Dallas-Fort Worth metroplex and in San Antonio are doing well. And so they just have a lot of momentum that they brought into this year, and I know they feel very optimistic about leading the way in terms of loan growth for the company this year, too. On the energy side, holy cow, we've been sitting at $2 billion in outstanding for a long time. And we would love to see that grow, the credit metrics, the pricing metrics have never been better as probably 40% of the banks that play in the reserve-based lending, what I would call middle market of energy lending, about 40% of the banks that used to have exited. And a lot of this business is originated by private equity firms that we know extremely well and have decades of experience with. And so -- and the way we do it, we have about 75 reserve-based loans. So these are highly secured, they modulate based on pricing. And the -- that has done very well through many cycles. What didn't do well was financing oilfield service companies. We have long since reduced our engagement with those companies dramatically. It's about 12% of the book now. It was as high as 35%, 40% at one time. So that was decades it was 15 to 18 years ago. So anyway, I think we've got the portfolio structured right. The midstream side of the portfolio is very good. And we have a great energy lending team. They're widely recognized across the industry as being pros. And adding this oil and gas commodity hedging activity, it just has been terrific, and we'll see a lot of strength from that because our clients want to do business with us. So anyway, I'm optimistic about it. And if that business grew 10% a year for 3 or 4 years, we'd be really happy with it. We had outstandings of $3 billion some years ago. So it's the level that we're not afraid to the level. We just need to see the activity.

Thank you. And our next question comes from the line of Chris McGratty from KBW.

Great. Harris, on AI, could you speak to perhaps the near-term opportunity for the company, but maybe over time, any risks that you see out there on the revenue side?

Sure. I mean we have a variety of things going on with where we're using AI. I don't suspect we're particularly different than most peers this way other than the fact that I think we have -- going back the core replacement project over the last decade, I mean it forced us to do something that I think few others were forced to do. And that is to dramatically focus on the quality of data and its organization. So I felt -- we cleaned the house before we moved into a new house. We threw away a lot of the junk. We organize things. And that's proving to be -- I think that's going to really prove to be useful, in terms of speeding up our -- the delivery of solutions. The kinds of things we're using it for -- I mean just examples, we're using it for things like appraisal review all kinds of document review, contract review, we're using it in our credit exam or credit review function to expand the population of deals that we're looking at and to basically, instead of having people finding needles in the haystacks. They're now -- people are now looking at the needles that we find with other tools. And so the -- I mean, the use cases go on. People are looking for savings through technology. I came across something earlier today. I was looking -- I came across just our headcount back in 2008, that was 18 years ago, there's nothing magic about the year, except that our headcount is down 20% and our -- back then, we were about $54 billion company, you have to inflation adjust that. But even with that, I mean, it's about a 25% improvement in productivity per dollar of real assets. And AI is becoming a part of that. So my view is AI isn't -- it's a new shiny object, but a lot of different technologies have led to improvement in productivity over the years. I think this has the promise of accelerating it somewhat. I mean, we'll be looking at it in -- we -- I touched on the surface of a few things, but we've got a variety of projects going on. As to the threat from AI, there's certainly, there's a concern about agentic AI on margins, et cetera. But I also think that some of these things get overplayed. I think that's probably going to be the case in some places. But a lot of the balances we have -- a lot of the free balance we have actually aren't free balances, they're paying for services. A lot of it's analyzed. And in a world where if you see more agentic AI optimizing, you'll see -- I mean the economies, I'm a great believer that the magic of our free enterprise economy is it's really resilient and responsive to change. And so you'll see things priced that maybe are free today that maybe get charged for. Everybody will kind of figure out their way. And I think back to -- I've been around long enough. I remember when Reg Q was removed. And if you told me that 4 years later, we have more in way of noninterest-bearing demand deposits as a percentage of total deposits and we had in 19 -- in the early 1980s, I'd have said that's impossible. And yet that's the case. And so I think the -- you have to take with a grain of salt, sort of the sky is going to fall because companies adjust, pricing adjust, et cetera. So I think the important thing is to make sure that you're not -- you don't have your head in the sand, you're keeping focused on what customers want that you're supplying solutions and that's where it is right now is kind of how do we develop and participate in solutions that actually help customers and improve the relationships we have with them. I think as long as we're doing that, it's going to work out fine.

Okay. And with that, it looks like that's all the questions we have. I would like to now turn the floor back over to Andrea Christoffersen for closing remarks.

Thank you, Julian, and thank you to all for joining us today. We appreciate your interest in Zions Bancorporation. If you have additional questions, please contact us at the e-mail or phone number listed on our website. We look forward to connecting with you throughout the coming months. This concludes today's call.

Thank you. And with that, this does conclude today's teleconference. We thank you for your participation. You may disconnect your lines at this time, and have a wonderful rest of your day.