Zions Bancorporation, National Association (ZION) Q2 2026 Earnings Report, Transcript and Summary

Greetings, and welcome to the Zions Bancorp Second Quarter Earnings Conference Call. At this time, all participants are in a listen-only mode. A question-and-answer session will follow the formal presentation. Please note that this conference is being recorded. I will now turn the call over to David Riches.

Thank you, David.

You may begin.

Thank you, Julian, and good evening, everyone. Welcome to our conference call to discuss Zions Bancorporation's second quarter 2026 results. My name is David Riches, Interim Director of Investor Relations Before we begin, I would like to remind you that during this call, we will be making 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 the presentation are available at 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, review our financial results and outlook. Also with us today are Scott McLean, 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 will now turn the over to Harris Henry Simmons.

Thanks very much, David, and good evening, everyone.

We are recently pleased with our financial results for the first quarter, which reflects meaningful year over year improvement and continued progress on a variety of strategic priorities. Net earnings available to common shareholders was $452 million or $3.05 per share, including a couple of exceptional items, the first being a $215 million pretax gain on the liquidation of Visa Class B1 shares. The other being an unrealized pretax gain on an SBIC investment which net of a success fee accrual totaled $37 million Excluding such items, earnings per share totaled $1.74, compared to $1.58 in last year's first quarter. Our capital markets division continues to be an important driver of fee income growth since launching the business in 2020. We have invested steadily in talent technology and product capabilities, expanding our presence across investment banking, sales and trading and real estate capital markets, Last quarter, we announced an agreement with Basis Investment Group to acquire its Fannie Mae and Freddie Mac multifamily lending business line, related mortgage servicing rights, and an experienced team supporting those businesses. We expect the transaction to close here in the third quarter. Upon closing, we believe the acquisition will enhance our ability to serve commercial real estate clients across the Western United States and beyond. Further strengthening our capital markets franchise. This transaction is not closed yet, any revenue or other financial contribution from the business is not included in our current outlook or forecast. Additionally, we expect the financial benefits of the acquisition to build gradually over time as the platform is integrated and production volumes ramp up. We also continue to invest in our consumer and small business franchises. In the second quarter, we introduced an upgraded feature rich deposit and payments account for small businesses, which we are marketing as the business beyond account. it is a companion offering to the gold account we launched for consumers last year. The business beyond account is designed to support clients as they grow. From basic banking needs to more complex cash flow management and money movement capabilities. We are pleased with the early results of the campaign and between gold and business beyond, we have opened over 10 thousand new accounts so far this year. Turning to the slide, Slide 3 summarizes second quarter results versus the prior quarter and last year's second quarter. As noted earlier, earnings per share was $3.05. When excluding net equity investment gains of $1.31 this year and $0.05 in last year's quarter, Adjusted quarterly earnings per share grew 10% to $1.74 from $1.58 a year ago. Due to growth in customer related non interest income, modest loan growth and margin improvement. Expense discipline and solid credit performance. The net interest margin was stable with the prior quarter at 3.27%, and up 10 basis points from a year ago. When compared to the prior quarter, average loans grew 4.7% on an annualized basis led by commercial lending. Average customer deposits grew 4.0%. Credit losses were modest at 6 basis points annualized of average loans. Slide 4 presents the recent history of our earnings performance together with the impact of the provision for loan losses on quarterly results. Notable items in each of the recent quarters also included on this slide. As shown on Slide 5, adjusted pre provision net revenue was $332 million. It increased 10% from the prior quarter reflecting improvement in both adjusted tax equivalent revenue and adjusted non interest expense. Which last quarter included seasonal compensation expense. 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 our outlook. Ryan?

Thank you, Harris, and good evening, everyone. Getting to Slide 6, you can see the 5 quarter trend for net interest income and net interest margin Taxable equivalent net interest income was $677 million, up $15 million or 2% from the prior quarter, and $29 million or 4% from the year ago quarter. Earning asset yields, cost of funding and the net interest margin were all stable compared to the prior year.

Slide 7, excuse me, compared to the prior quarter.

Slide 7 provides additional detail on the drivers of net interest margin. The linked quarter walk reflects minimal change. Year over year, the 10 basis point improvement in margin primarily reflects lower cost of funding for deposits and borrowings. For the third quarter of 2026, our outlook for net interest income is moderately increasing. The forward curve as of June 30 assumed an interest rate increase over the next 12 months. If that plays out, interest income growth could exceed this guide and result in NII growth in the upper single digits. Moving to non interest income on Slide 8, customer related non interest income was $182 million, up from $172 million in the prior quarter and $164 million a year ago. Excluding net credit valuation adjustment, adjusted customer related non interest income was $181 million compared with $174 million in the prior quarter, and up $17 million or 10% from the year ago quarter. These results reflect broad based growth across nearly all revenue streams. Capital markets fees increased by $8 million with higher real estate capital markets investment banking advisory fees. We continue to see attractive opportunities in capital markets and have strong pipelines going into the third quarter. We Securities gains for the quarter included, as Harris alluded to before, a $44 million unrealized gain related to a single investment within our small business investment company portfolio. Including the $7 million success fee related to this investment that was recorded in other non-interest expense, the net unrealized gain was $37 million. For the third quarter of 2026, our outlook for adjusted customer fee related income is moderately increasing versus the second quarter 2026 results of $181 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 non interest expense was $546 million. Expenses decreased versus the prior quarter driven primarily by seasonal compensation, Additionally, deposit and regulatory expense decreased $8 million, with $6 million of that related to a decrease to our FDIC special assessment. Expenses were higher year over year reflecting increased professional and outsourced services higher incentive compensation and increased technology costs. We will continue to manage expenses prudently while investing to support growth. Our third quarter 2026 outlook for adjusted non interest expense is moderately increasing versus the second quarter of 2026. Based on second quarter performance and full year expectations, we continue to expect positive operating leverage for the full year of 2026 in the range of 100 basis points to 150 basis points. Slide 10 presents trends in average loans and deposits. Average loans grew 4.7% annualized during the quarter, primarily within the commercial and industrial portfolio. And increased 2.3% year-over-year Loan yields remained stable sequentially and declined year over year as benchmark rate cuts in the latter part of 2025 reflected in variable rate repricing. Average deposits increased $779 million from the prior quarter. Driven by an increase in interest-bearing balances. The cost of total deposits was flat at 1.48% sequentially and declined by 20 basis points year over year 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 cost was stable at 1.69% compared with 1.68% in the prior quarter. Period end deposit balances were relatively stable compared to the prior quarter, and short term borrowings increased $837 million linked-quarter and declined $4.6 million versus the prior year quarter. 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 $514 million were partially offset by the reinvestment of $297 million. The continued paydown of lower yielding mortgage backed securities supports earning asset remix and or reduction in wholesale funds. Estimated price sensitivity of the portfolio inclusive of hedging activity was 3.6 years. Credit quality remains strong as shown on Slide 13, Net charge offs were 6 basis points of average loans. Annualized, the nonperforming assets ratio was unchanged sequentially at 48 basis points. Classified and criticized balances both declined modestly during the quarter. The allowance for credit losses ended the quarter at 1.13%, and remains well-positioned relative to our risk profile. and 227% coverage of nonaccrual loans. Slide 14 provides an overview of our $14.1 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 non accruals and delinquency. Our capital position remains strong as shown on Slide 15. Common equity Tier 1 ratio improved to 11.8% during the quarter from strong earnings and the exceptional items referenced by Harris. Partially offset by $75 million in common share repurchases, common and preferred dividends paid, and growth in risk weighted assets. We continue to expect net capital generation through earnings and improvement in which resulted in a 22% increase in tangible book value per share versus the prior year. Slide 16 summarizes the outlook we have discussed across loans. Net interest income, fee income and expenses. This outlook reflects our best estimate based on current information and is subject to risks and uncertainties discussed in our forward looking statements. This concludes our prepared remarks.

As we move on to the question and answer section of the call, we request that you limit your questions to 1 primary and 1 follow-up. To enable other participants to ask questions. Julian, please open the line for questions.

Thank you. And with that, this is the question-and-answer session. And our first question comes from the line of John Pancari with Evercore ISI. Please proceed with your question.

Good afternoon.

Hi, John.

On the just on the deposit side, I wanted to see if give us a little bit of color on what you are seeing in terms of deposit pricing due so deposit costs were relatively stable down a bit in the quarter. How would your how does this influence your outlook in terms of the competitive backdrop you are seeing? And maybe if you can comment also on the competitive side on the lending side as well with how loan spreads are shaping up? Thank you.

Yes. Thanks, John. I appreciate the question. You know, having heard some of the other earlier reports I am not sure our message is going to be very much different. It is a competitive environment. On both sides of that equation. We are seeing that you will see that in also a little bit of the mix that is showing up on the deposit side. You know, the average holding on, but on a on a period end basis, we saw a noninterest-bearing being off. We have seasonality in the second quarter, so some of that can be expected but supplanting that with interest bearing balances it is competitive. And some of those targeted deposit campaigns are approaching closer to wholesale rates in places. So it really underscores the importance of us doubling back to our core strategic initiatives and pulling through all the things you have been hearing about us talk about in recent calls coupled with the marketing dollars that come with that. Same thing that you are seeing on the loan side, we are seeing a little bit of spread compression there. So the earning asset yields sort of hung on quarter over quarter sequentially. We had some good underlying things to help counteract some of that spread compression. That you would have heard us talk about in prior quarters. We still get some benefits there in terms of those terminated cash flows. swaps. This quarter had about $8 million of headwind. that is going to continue to diminish through the remainder of 2026. And for all 2027, we will only have $8 million remaining there. The remix that we have been talking about for quarters now continues. We do see continued upside and fixed asset repricing. Some of that was a little bit masked this quarter by some of the compression and the spreads. But it still remains. We still see at least 1 basis point of earning asset yields playing through there. We still have the securities coming in at a better front book rates than back book rates still can contribute, we think, 1 basis point or better on investment security yields So there is some there is still some helpful things working on our behalf. The other thing that we saw play out this quarter is, you know, probably our most important repricing benchmark is 1 month SOFR. That was coming at the low end of a kind of a range that you could think about in the market So that was a little bit softer on the loan side. Vis a vis without having a Fed funds rate decreases. It was kind of harder to push that through on the deposit side. So all of that kind of equates to what came in this quarter as a very stable net interest margin. And it has not been our practice to provide deposit or NIM guidance for the future. But suffice to say, we do believe that there is some upside here. Again, going back to our core strategic initiatives to drive deposit growth.

John, this is Scott. I would add, Ryan mentioned it a couple of times there, but I this marketing initiative we have had with these kind of strategic 6 products, they are all focused on granular deposits. And the fact that we are doubling advertising in 2026 compared to 2024 with, I think, better company wide approach to product advertising. We are still very early into that, but our whole branch teams and our business bankers, etcetera, are highly focused on these efforts to grow granular deposits. And on the larger side, the fact that we still have net sort of average broker deposits plus net overnight borrowings of about $2.5 billion We have got room to bring in larger deposits at rates that are meaningfully accretive to that overnight borrowing rate. So I think we will continue to see improvement there. And those higher priced deposits they are clients. Their clients are prospective clients. We are not just buying money in the open market.

Okay. that is-- yeah.

And go ahead, Scott.

Did you comment on loan pricing? You did. Okay. With the spread compression. Yeah. Got it. And then, you know, Ryan, you kind of alluded to it, they did not really guide on the deposit growth or the margin, but I guess I am just trying to get a little more color on how we should think about the reliance on wholesale here or short term borrowings. I know you have the capacity to, as you just mentioned, Scott. But I wanted to get a sense of how the funding picture may look here as you continue to see some strengthening underlying trends as you cited on the loan side.

What the funding side of the picture may look like as that plays out if there is going to be greater reliance we should expect on the wholesale side of things or is there a way to assume a pace of deposit growth that is reasonable here? Mr. John, we certainly hope for that. We certainly expect that based on the things we are doing initially internally. Hopefully, you heard and the guidance I provided was pretty constructive. How we are thinking about NII 1 year out. I mean, it is always going to be beholden to our success in driving loan and deposit balances But underlying that, we would be showing some, a decent amount of average deposit growth that would be implying that guide, but without getting any of the specifics, which has not been our practice.

Yeah. Fully understand. Thank you so much, Ryan. Appreciate it.

Thank you. And our next question comes from the line of David Smith with Truist Securities. Please proceed with your question.

Hey. Good evening.

Hey.

I guess, you confirm that your year ahead outlook for moderately increasing NII does not include a Fed hike?

No, it is part of a-- it is part of our guidance.

Sorry if I was not as clear, about that. But so the implied sort of forward rate at the time that we kind of struck the chalk line would have allowed for 1 rate increase and Okay. Kind of no. that is right. Okay. And then so it would just be kind of your, your reported sensitivity to a 25-basis point shock of about 1% if we are assuming more or fewer hikes in there?

Yes. I am glad that you called us out. So that is an important point. We do continue to screen asset sensitive relative to our peers, recognizing that methodologies are not necessarily common across all But on that basis and it is day to day, week to week in terms of where the market is implying, these rates. But, yes, I mean, we still-- you will see some sensitivity materials towards the back of our materials and the appendix on a on a parallel shift We, you know, we still think internally about things like latent emergence. And we would show, you know, a lift of about 3.2% above the latent sensitivity that would be implied by having 1 or more, board and rate increases in the curve.

Okay. And then just following up on deposits. Hear you that you have got some initiatives in place to try to reignite that growth. Guess if it remains competitive, in the short term though, Your loan-to-deposit ratio was up a couple points from last quarter to 82%, recognizing that is, you know, not very high, but how high would you feel comfortable taking that ratio in the current environment, if it does take a little bit longer for the deposit growth to transpire?

Yeah. Good point. Good question. We still have, and I did not mention this as much, but in the past we have talked about investment securities and how much we need to reinvest in those versus letting them roll off for other useful purposes. And I think we said maybe even last call that we are getting closer. We are not there yet. We are probably still 4 or 2 away. Before we think about fully reinvesting investment securities just another way of saying as it stands now, as we think about you know, liquidity stress tests and deposit behaviors, how much contingent liquidity we need to hold, we do think we have sufficient with buffer. So we are sitting here at an 82% loan-to-deposit. that is suggests that there is probably a little bit more room to run. That ratio. We would start thinking about other things to do. To support us in stable funding sources. Alright.

Thank you.

Thank you. And our next question comes from the line of Manan Gosalia with Morgan Stanley. Please proceed with your question.

Can you give us a sense of, I guess, the trajectory of deposit costs through the quarter? I know that the spot deposit rates were up about 6 basis points or so quarter on quarter, but recognize that there might be some seasonality in there, especially related to NIB deposits. So if you could just help us with how deposit costs evolved through the quarter and how competition evolved through the quarter.

Yeah. I think, I mean, the competition is certainly there, Manan. You know, the reference we have, it is in the small type and the presentation on slide 10 about total cost of deposit spot rate at the end of the quarter at 1.49%, so you can kind of get a little bit of feel for the direction of travel there. it is competitive. So I again, I do not think our story is any different than some of the earlier reporters. Our success will be really driving through these core campaigns. Got it.

And then maybe if you can talk a little bit about loan growth and the drivers there. C and I growth was clearly good this quarter. Any sense of, how things are progressing, whether there is some acceleration there and we should think about the next year or so?

Sure. Thanks, Manan. This is Derek. We had good loan growth for the quarter. Primarily driven by C and I. It was pretty well diversified across segments in the commercial and industrial book. 1 thing we did see is a decent increase in utilization on revolving lines of credit just from some companies that were growing and having additional working capital needs that was a positive as well as just new originations tied primarily, middle market and some upper middle market activity tied to some capital markets syndication activity that we are trying to really grow. We did see a good growth in the term CRE book as well. You will see our construction mix is actually down as a percentage of total CRE to 16% and some of that is just construction loans rolling into term, but also new originations in our term book, which is an area that we think we have some opportunities to grow at this time. Great.

Thank you.

Thank you. And next, we have Bernard Von Gizycki from Deutsche Bank. Please proceed with your question.

Hi, good afternoon. Just wondering on expenses, I think called out the credit related expense rose $4 million due to the increased loan related legal costs. Was this mostly due to the legal issues with Cantor fund or any updates on this?

Yeah. Bernard, that is certainly a prominent component of that. That factors into that expense item.

Oh, any thoughts on that continuing? Will there still be some probably spilling out in the second half? Maybe that is mostly in your guidance, but just thoughts there.

I do not think we really have anything to offer at this point on that 1, Bernard.

Okay. Maybe just the last follow-up. Just on fees, I think, Ryan, you mentioned the attractive opportunities in cap markets and the strong pipelines going into 3Q. And, obviously, the real estate cap markets investment banking fees are strong. Just thoughts on how that trends and just anything on wealth management fees that was down slightly in the quarter. Just wondering what drove that? And thoughts on the second half as well.

Sure. This is Scott. And it was a really solid quarter. The recent quarters have been solid in fee income customer fee income And what is different from a year or 2 ago is that a year or 2 ago, the growth was principally in capital markets. The rest of our major fee income categories were growing a little bit, but not much. And we are seeing broader growth now. Our largest source of fee income, about 30% of it, comes from our treasury management activities and they are up very nicely. Year over year. And similarly, our some of our loan related businesses, you are seeing increases in fees, shifting our mortgage business to held for sale from held for investment. We will continue to see nice year over year mortgage fee growth. And wealth management actually was up over the June quarter of last year, and it is we are encouraged about we have had a couple of flat years and we are encouraged about what our teams are doing there. And as we have mentioned, Rebecca Robinson, who ran that for us for many years, did a wonderful job of creating a strong foundation improving our core profitability in that business. And she has retired from the organization and Mike Selfridge, we hired who was the chief banking officer at First Republic. And he is now running our wealth business. And I think just brings a great deal of experience also for this next phase of growth. Wealth should become again a high single digit growth, low double digit growth business for us in revenue.

Great. Thank you.

And next, we have a question from Benjamin Gerlinger with Citi. Please proceed with your question.

Hi, good afternoon. I just want to unpack a little bit on deposits. I know you do not want to give a full guide. I get that. Since we only really see 3 line items, I was curious, is there any silos that were growing everything kind of gets lumped together. Like, is there pricing strategy or any individual silos that seem to be doing better than others considering the net was down a little bit?

No. We have we have had an ongoing targeted deposit campaign, that sort of alludes to a little bit before. Which is sort of inviting people to bank with us, you know, through whatever capacities that rates are a little bit more generous but are still with clients as Scott alluded to. I think it is also important to say that Harris talked about this business beyond and some of the other things that we are doing. You know? We cited 10 thousand new accounts. I mean, it takes a little while for all this to play through, but you know, we are putting a lot of energy and resource behind these initiatives. So why I would say, recent periods, the growth is probably coming from those more of those focused outreach efforts. there is some really nice underlying green shoots that are coming through our strategic efforts that we will look for more growth moving forward.

Yeah. I would just add. I mean, these initiatives we have are it is a it is a marathon, not a sprint. So you know, over time, we keep these kinds of growth rates going on. It you know, over time, I would expect it will be a meaningful contributor to really strengthening the consumer and small business part of the franchise.

Gotcha. that is helpful. And then, Ryan, I just want to double check. You said operating leverage of 100 to 150. I feel like is in line to what you said in 1Q. I just wanted to confirm that is is that gap or is that core? How should we deal with the Visa game?

Oh, yeah. We would not be including the Visa gain for that purpose. And so, yeah, I am that was just reaffirming what was shared last quarter. But we still see it for the full year. And then if you sort of think about the words I used and kinda guiding things for 2Q 2027, it would apply I think, quite a bit better than that for the 1 year forward quarter. But, again, we need we need deposits to pull through for that to stick.

Got you. Thank you.

Thank you. And our next question comes from the line of David Chiaverini with Jefferies. Proceed with your question.

Hi, thanks for taking the question. So wanted to start on NII guidance, a clarification here. So the moderately increasing that includes 1 hike. And if we get 2 hikes is when we would get to upper single digits. Is that the right way to think about it?

No. I think with the 1 hike is what we had embedded in our, you know, our guidance. And, you know, with some probably some pull forward, it was probably between 1 and 2 hikes kinda how we were seeing the forward curve at a point in time. But if you saw 2 rate hikes coming through, then it would be better on an emergent basis. It would be even more constructive than what we were talking about.

Okay. So moderately increasing is 1 to 2 hikes. And then 2 to 3 is when we get to I heard you mentioned upper single I just want to take a look at that.

it is 1 full yeah. it is 1 full hike. But sometimes the market tends to peak ahead and anticipate what could be coming. I would just think about 1 full hike. If we get 2 full hikes, then it will be more constructive than what I spoke about in my script.

Got it. Thank you for that. And then a follow-up on the positive operating leverage. So the 100 to 150 is 26 core. If we pencil out 12 months forward, since the other items you are giving 12 month forward, how should we think about positive operating leverage over the next 12 months?

Yes. I do not really have that statistic front of me right now, David. But what I was trying to point you to is if you just think about that 1 year's 12-month advance quarter, that is where we provide our guidance to kind of steer the market. So we said loan growth moderate, looks good. We said fee income. We just came off of a really nice year over year performance. I think Harris put it in his script. 7% growth. We think we can be at the upper end of our guide, moderately there. And then for NII, with that forward curve we just talked about, we said upper single digits with you know, kind of think about it a true moderate or expense growth sort of gets you to a place that is pretty healthy relative to what we are talking about on a full year basis here.

Very helpful. Thank you.

Thank you. And our next question comes from the line of Christopher McGratty with KBW. Please proceed with your question.

Great. Thanks.

Ryan, just kind of a bigger picture on the margin discussion, NII. We have heard a lot of discussion this quarter from your peers about you know, NII kind of being more important than margin and managing to a margin is more of an output. I know you have walked you guys have walked back that 3.5 NIM that you previously talked about, but like, conceptually, like, what is more important to the bank over the next 6 to 12 months? The NII growth or maybe you lean into growth a little bit and you have a little bit more pressure on margin?

Yes. Listen, I think it always comes back. I mean, their various components, margin is interesting, but NII is where the ultimately what the juice is in terms of profitability.

So I know the commentary in the marketplace and I get it, When you start with certainly solid outperformance with loan growth outpacing deposit growth, I mean, that could potentially constrain your margin But I think there is a lot to like in our loan guy coupled with the way that the rate curve is constructive at a time when we are asset sensitive. So I would say, me, at least, and you might ask a different member of management team, they might reach a different conclusion. But, for me, comes back to NII. And we hear that too from an investors They just say, we want to see you grow and grow responsibly I think that will show up in NII print. Moving forward.

Okay. Maybe just on the ACL, it is your credit numbers are fantastic. With your ACL approaching 1. Like, how should we as outsiders think about I guess, willingness to bring that down either maybe relative to CECL day 1 or mix shifts, but that 1.06 number, how do we think about that?

Sure. This is Derek. Our ACL, I mean, we feel we are very well reserved at this point. it is all just going to depend on what the forecast, the economic you know, forecast look like. If the economy continues to improve, then we have room to a little bit. If it deteriorates and we move it up. It just really depends on where the economy's headed in the forecast. But at this point, we are we feel like we are very well reserved You think about, you know, having coverage for 6 years of gross charge off you know, it feels pretty good given the, you know, the tenor of our portfolio.

We also know that, you know, with changes in the economy all those things, these ratios are pretty sensitive to there is a lot of leverage in those numbers. So I think we are, you know, well reserved, but I, you know, I do not think it is out of line with where we ought to be.

Thanks for that.

And then just, Ryan, on the tax rate, could you just help us with the outlook for tax rate? On the sorry. On the tax rate?

Yes.

That was the question we have given. Yes, nothing unusual. We had a little bit going on in the first quarter that was a bit of a good guide to kind of normalize. But otherwise, it is business as usual from an effective tax rate perspective. Nothing to call out.

Great. Thank you.

And our next question comes from the line of Kenneth Usdin from Autonomous Research. Please proceed with your question.

Ryan, I am sorry to come back on this 1 more time, but I think there is still a little confusion out there. Can you just make sure we understand that you are the main guide to focus on for NII is with 1 hike included, you think you can do upper single digit year over year to 2Q 27 NII growth? Is that the main thing? Because people are still moderately that is on the slide. If you could just square that, I think that would helpful. Thank you.

Hey, you nailed it, Kenneth. And listen. Sometimes the words get in the way. that is why we try to come over the top with some additional narrative. We do not really have a great word for where the better part of moderately increasing and such a level of-- so you could say increasing, but it would be what are you talking about. So that is why I just try to pry a little extra color to help you kind of see where we are going here.

Okay. Thank you for thank you for just restating that. I appreciate it. Question, just on capital. You had the nice Visa gain. I think you are around, looks like, 9.2% with AOCI. Can you I know it is a Board decision, and they usually make that announcement separately. But $75 million in terms of capital return. Is that the type of return we can expect going forward? Do you think you are at the point where you are at that comfort zone with AOCI that we can start to see an increase from here? Thanks.

I think if the economy continues to cooperate with our plan kind of plays out as we expect. You know, I would expect that will incrementally continue to increase the capital repatriation to our owners and so I do not expect anything very sudden or dramatic, but I think the current pace of buybacks is certainly sustainable and probably we will see some increase. I would expect to probably see some increase in that over the coming year as well as with the dividend. So you know, all consistent with kind of the forecast we are giving you out of the year out here.

Yeah. Kenneth, the numbers we see, we always wanna look around and see where peers are at. And on a reported basis, looking pretty healthy at this level. You know, Harris talked about closing of transaction in third quarter that will absorb some of the capital on the way, but we still think we are gonna be setting the place that will be a little bit better than what we see in our peer median. So on our reported basis, it looks like there is capacity. And to your point, you know, the ALTI has been coming in well and reasonably predictably. We see the glide path for that to keep coming in while still being able to manage the amount of reporting CT 1. Which allows for the opportunity that Harris alluded to.

K. Thanks a lot.

Thank you. And our next question comes from the line of Peter Winter from D. A. David. Proceed with your question.

Thanks. Good evening. I wanted to follow-up on this AOCI because Scott, at a recent conference, you talked about how the capital is building with the AOCI accretion you more capital available for acquisitions, can you or Harris just provide an update on your thoughts about bank M and A?

Yeah. I will. I mean, it is I think it is irresponsible for management to say we are just not gonna do it. But that said, it is not something that we wake up every morning and saying, can we buy? I think anything we do is likely to be opportunistic. it is gonna be it is likely to be highly likely to get in markets where serving where the economics are easier through consolidation, where they have a good deposit base. You know, where it is just additive strategically to us. But there is I think I rather suspect that there was a period in our history, if you go back 25 plus years, we were doing a lot of deals. The math worked and I, you know, I think we are we have been going through a period of repair, you know, and it is been going on now for some years. And it is not just capital. it is it is also it was it was really strengthening the foundation of this place. Systems, with people, with risk management. A lot that is been going on. So I think we are in a very different place. Getting back to a place where our capital is really strong. And I think if we need to demonstrate to owners that we have the kind of you know, financial returns that justify our being out in the market doing deals. before we can be competitive doing deals. Maybe more to the point, So we are not, I would not say that is not going to happen, but it is not something that we are particularly focused on. there is a lot of just organic opportunity for us. that is where our real focus is.

I would just you were commenting on a comment I made at 1 investor conference in June, but I made the same 1 in March. And that was really 2 things and Harris just noted it, but what I said was that Harris and I the first call we make to each other on a Monday morning is not to talk about M and A. We just that is just not a call we make. We are talking about how to grow the company and projects that are going on initiatives, etcetera. And when opportunities present, not an overly bureaucratic shop. We can get folks together quickly to make a quick assessment. And we see most deals that are going on in our markets, not every deal, but most, The other comment was that the math is not that difficult. As Ryan said, our AOCI accretion has been very predictable for multiple years now. And so it is not hard to look out to this quarter in 2027 or this quarter in 2028, our CET1 is already very favorable to peers and 1 including AOCI is no longer a story and in fact is above peers. By a probably a predictable margin And so you can just make your own assessment of, okay, well, they are not going to stay way above peers. We have always said we wanna be above peer median, but not way above. So you can almost you know, talk yourself into whatever level of buybacks or other capital usage you wanna think about. that is what I said.

Got it. I appreciate that. And then just 1 housekeeping item. Just Derek, mentioned that line utilization increased. I was just wondering if you can give what the number was this quarter versus last quarter and maybe how much 1 percentage point equals in terms of loan growth?

Oh, boy. I do not have all those numbers at the top of my head. Versus last quarter. But, you know, just ballpark you know, it was a decent amount of the increase of the increase. I would say, you know, 40% to 50% of the increase from the utilization. Got it.

Yeah. And much as my friend says, it is broad strokes. Yeah. You know, close to I think of 2% utilization for overall. With varying dimensions across Okay. subportfolio C&I, CRE and consumer.

Got it. Thank you.

Thank you. And our next question comes from the line of David Rochester from Cantor. Please proceed with your question.

Hey, good afternoon guys. Just wanted to go back to the NII guide 1 more time. In case we had not beaten it to death. Can you just state what the NII guide is without rate hikes? 2Q to 2Q. Is that the moderately increasing, or 4% to 6%. that is a good way of putting that.

Listen. I think as we look at sensitivity, which is different than forward guidance, even without a rate increase, we I believe we would still be moderately increasing to give you some indications about how we are seeing it. When you layer over the top of our sensitivity what we are seeing in loan growth. Okay.

Great. Right and just a follow-up. On the deposit side, are you guys still focused on pulling of the off balance sheet deposits back on balance sheet? Can you just give us an update how much you have there? what the funding advantage is versus wholesale? And if you are baking any of that into the guide, that would be great. Thanks.

Sure, David. This is Scott. We have about $65 million trillion dollars in off balance sheet deposits. These are clients that we have asked to move off balance sheet at other points in times like 2020, 2021, etcetera. And that number was as high as $12 billion So we have moved some of that back on balance sheet. And generally speaking, when we bring those deposits back on balance sheet, it is definitely accretive to overnight net overnight borrowing rates. And then but that is not the only place these higher priced deposits are coming from. Generally speaking, when we bring deposits into this kind of wholesale deposit campaign, we have been focused on they are coming in anywhere from 30 to 40 basis points accretive to our overnight borrowing. And we currently have about $2.5 billion average brokered deposits plus net overnight borrowings. Okay. Great. So the idea is sort of just replace those over time. With deposits that are accretive. It makes no sense to do it if it is not accretive to our overnight borrowings.

Sounds good. Alright. Thanks, guys.

And our next question comes from the line of Anthony Elian with JPMorgan. Please proceed with your question.

Thank you. Just following up directly on that previous question. So on the deposit initiatives, right, how quickly could you see those efforts make their way into deposits to ultimately reignite growth in total deposits, customer deposits, which has held flat the past couple of quarters?

it is been doing it for the last 9 months. Yes. I mean, so far you brought in $3.5 billion.

But it is maybe the inverse of a fat guy losing weight. Wait. Woah.

Woah. Woah. Woah. Come on now.

Listen. Come on now. Who are we talking about?

I am talking about Scott.

No. I mean, the first few pounds are easier than the than the last few. And so, I mean so they are you know, it is not a it is not a straight line. it is they are get to a point of diminishing returns where you have given your picture, you have talked to customers and, you know, some of what is left off balance sheet is gonna be a little stickier than it was originally. So all apologies to anybody overweight. Yeah. Just offended.

Apology, Ted. Yep. None taken. Thanks, Harris.

And then my follow-up, though, so, look, loans are still expected to moderately increase over the next year. But given that the company's funding costs are below those of peers, many banks, including you guys, are talking about the level of deposit competition remaining intense. With no signs of slowing down. I am just if I put it bluntly, I am just struggling to see how you will not see a surge in funding costs in the coming quarters. To support your loan growth outlook and ultimately get you into that upper single digits range for NII?

On this, I would say that our loan growth has been really disciplined. it is been muted by the fact that we have not been gulping down NDFI loans. For the last 5 years. it is been muted by the fact that our the peer median of CRE growth is about 60% higher than our growth The upper quartile, the fastest growing peer banks are growing at about 2x our CRE growth. We are just not we can grow loans faster, but we are choosing to be very disciplined about concentration management and we are not growing unsecured at a rapid rate, which investors hate when you go into a recession. And So I think with the loan growth projection that we have, we have very solid opportunity to keep funding costs which is a significant competitive advantage for us, much intact. We have over about 3 decades. Our cost of deposits relative to peers.

Yes. Listen, think, I agree with 1 thing. Scott said. I mean, certainly, there is pressure. Right? I know if I would say surge, but I we are seeing it in the marketplace. And so there is going to be some pressure on funding costs. But Scott alluded to, we have been very successful in managing that over time.

Thank you.

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

Good afternoon. On your NII sorry about this NII question again. But on your NII growth assumptions, of 4% to 6% -ish and a no rate hike or upper single digits in rate hike assumption. Are you assuming your NIB deposits stay in that 34% of total range of total range? It sounded like you were attributing some seasonality to a second quarter decline. Just wanted to see what is baked in to your baseline?

Yes. Thank you, Sun Young. I think just broadly speaking, as we work with our businesses, we do see some degree of seasonality that presents from time to time in the second quarter. And typically, when we work with our bankers and our affiliates and our businesses, it usually is a stronger second half of the year. So that would certainly be factored into how we think about know, projecting into the future, and that would be part and parcel to our guidance. So that does that answer part of what you are asking?

I think some of the noninterest bearing deposits in the proportion that Oh, it is on the cost.

Proportion Oh. Yeah. Listen. I think if you look at more recent trends, yeah, interest bearing has been growing faster than the non interest bearing. So a lot of that will and I personally expect that to continue in the near term. Maybe longer term, I do not know. We will see. But the again, it really comes back to the things that we are prioritizing as management team and as an institution. that is a reason why we talk about these targeted focus campaigns on the wholesale side. But the real franchise will be made on those granular deposits and the efforts that we are making on retooling our commercial deposit accounts, our small business deposit accounts, and getting at those granular relationships that we are building over time. It does take a little bit of time to play through this. As Harris said, the marathon, not the sprint. So that I mean, that is really where I am gonna be training my eyes in the coming quarters and years is how successful are we in advancing the ball. There.

Got it. Appreciate all the color. And just on the securities portfolio size, I mean, that is been grinding down for a few quarters. And I guess, for some years. How should we think about the trajectory of the security portfolio going forward? Thanks.

Yeah. Thanks, Jon. I do think we are getting closer to the time where it will of course, not a trident where we will need to start reinvesting 100% of those securities cash flows. But again, I think we are still a quarter or 2 out. You know, we are always thinking about our funding structure. And, you know, how, for, like, we approach it from a rating agency perspective or how regulators think about stable funding. You have seen that we have been in the capital markets. I would not rule that out. in the future. We will sort of see where the market bears. But notwithstanding that, I think we probably have a quarter or 2 where we there is still some cash flows that we can reinvest to other things that are not securities. Whether that be continued loan growth or paying down some of these wholesale funding sources. there is still some room to move there.

Thank you.

Welcome.

Thank you. And our next question comes from the line of Jon Arfstrom with RBC Capital Markets. Please proceed with your question. [Crosstalk] your line is live.

I think a biochem question would be most welcome at this point. you have been in a biochem incident. Shall we go to the next?

[Crosstalk] let's move on. And the next question is coming from the line of Jon Arfstrom with RBC Capital Markets. Please proceed with your question.

Hi, good evening. So the technology expense comment, was that related to the trend, like, quarter-over-quarter or year-over-year just because it is been elevated the last few quarters.

there is a little bit of both. I think if you look at our narrative that is in the earnings release that is typically a year over year observation. Where we talk about the increase in technology costs But I think it is it is coming. it is just the world we are living in now where things are the investments we are making to stay, current it is a continuing trend.

I just add, I mean, there is been a lot of we talked in prior quarters. there is been a lot of pressure coming in terms of just a vendor price increase, software maintenance, etcetera. I would like to think that may be 1 of the bright spots coming out of AI for a lot of folks is that is that maybe that gets tempered. And so it is a better start to feel the benefits of that and maybe lose some of the pricing. Leverage they have had. On the other hand, I mean, everybody's gonna be spending more on AI Question is, how quickly we actually see meaningful results from it. But I think the 1 thing that sure is you are going to have more and more technology is gonna be applied to this industry.

Got it. And so about 1 fourth of your expenses if you look at the technology spend disclosures in the queue, which are very helpful. So 1 fourth of the total expenses are tech related. Where do you see that going? Are you spending more gonna go towards 30 temporarily? Is it gonna kinda just you increase with the natural growth rate of expenses? And could it go lower over time? Thank you.

Yep. This is Scott. I think I do not think the trend will change significantly. We are continuing to invest across the board in technology. In all ways. But as Harris noted, there are definitely elements of, the business that we see from providers that is changing. And they have clearly had the upper hand in the last 2 or 3 years, but you can see a world where that becomes more controllable, where they are searching for revenue and not searching for pure price increases.

Then I guess the question becomes where does the token math go? Eventually over time Right. If people are pivoting to more AI, large language models So a lot more that is showing up in various CFO forms about ROI from token math. That will probably be the new battleground over time.

I think 1 of the trends you will see is that all of our peers generally report that they have used outsourcing to the extent of 10% to 15% of their FTE base. And we were probably lagging, considerably on that front in maybe the around 3%, but we have been moving that number up using it as a lever But the point I want to make is that what is happening with outsourcing broad based is that AI is replacing the need for having to outsource it all. So and as we are able to bring that outsourced total down, we are bringing down 100% dollars as opposed to when you go to an outsourcer. So I think there is going to be a real expense opportunity there as companies replace outsourcing with AI. You hear this from AI outsourcing vendors and that is why many of their stocks are being hurt in the market right now.

Next question. And our final question comes from the line of Jon Arfstrom with RBC Capital Markets. Please proceed with your question.

Hey, thanks. Everyone. Scott or Ryan, anything you would call out in the capital markets revenue line this quarter? Do you feel like that is granular, repeatable type number? And then maybe, Harris, anything you can share with us in terms of maybe sizing the agency acquisition?

I will take the easier part of that. And just say that, no, I think that the different major capital markets product groups that we have, we have invested in several of significantly in recent years and both in colleagues and in risk and technology structure. And I think we have got a long runway on growing those businesses. So I am not worried about, and I do not think our teams are worried about having to repeat the revenue level that we have. I think they can see a nice upward trajectory in and we will see the benefit of many of our products hitting on all cylinders at the same time as opposed to just 1.

Yeah. With respect to the basis investment of that acquisition, I think contractually, we are not able to talk about making any projections about that until we close the deal. And so I expect that this time next quarter certainly we will be able to talk about that. I cannot today.

Okay. Fair enough.

I can just double add, those are really important. And what Scott said is valuable. I mean, if you think about this history here and the investments that Harris talked about at the beginning part of this call, you think about what the bread and butter has been for our capital markets business historically, risk management through swaps, FX, loan FX. The neat part of the story of the story this quarter we are talking about a whole another set of complementary skill sets in real estate capital markets, investment banking advisory fees. Harris talked about what is coming on the multifamily side. So it makes the business overall more durable. And it is still going to be lumpy, we know that, but it makes it a little bit less lumpy when you have that many businesses to draw upon. So I think that is really, really encouraging. Something that help us to get lost in this. When we are seeing lots of other people showing really strong capital markets results this quarter, it is really nice to have that part of our narrative as well.

Okay. Just 1 thing maybe to end the call. it is kind of an NII question, but maybe not. But Harris or really any of you, do you think the Fed should hike or needs to hike rates And do you guys have a kind of a preference or a bias on rates?

I mean, far be it from me to I will say, I think that the Newfed chair I just mis-spoke, but I think Kevin Walsh brings I am I tend to be a fan. I think I think the Fed over the last 20 years has kind of painted themselves into corners. Like, with their own forward guidance, I mean, I am talking to a group of folks who love forward guidance and I understand that. But 1 of the problems with it is it creates pressure to do something sometimes that you know, things that are you know, unnatural. I think it takes away degrees of freedom. And I tend to think that hard Kevin Walsh is what he says he is, and that is focused first and foremost on inflation. I think he is closer to a Milton Friedman kind of a guy than anybody we have seen there for the last couple of decades. And as long as we have inflation that is kind of sticky, I think pressure is going to be probably upward on rates. I just think that is who he is. So and I think he is trying to be careful not to paint himself in the corner to, you know, he is going to let-- he is I really think it is going to be a Fed that under his leadership is gonna be very responsive to what is happening with inflation and pretty transparent about it.

Okay. Fair enough. Thank you.

Thank you. And with that, I will pass the floor back over to David Riches for any closing comments.

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 feel free to contact us at the e mail or phone number listed on our website or on the press release. Look forward to connecting with you throughout the coming months. This concludes our call.

Thank you, ladies and gentlemen. We thank you for your participation. You may disconnect your lines at this time, and have a wonderful rest of your day.