Zions Bancorporation, National Association (ZION) Q2 2026 earnings call transcript

Thank you, Dave.

Thank you, Julian, and good evening, everyone. Welcome to our conference call to discuss ZIONS BANCORPORATION's second quarter 2026 results. My name is Dave 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 We will now turn the call over to management and the earnings release and non-GAAP disclosures in our press release and on slide two 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 Simmons will provide opening remarks.

Following Harris's comments, Chief Chief Financial Officer Ryan Richards will review our financial results and outlook. Also with us today are Scott McClain, President and Chief Operating Officer, and Derek Stewart, Chief Credit Officer. After our prepared remarks, we will hold a question and answer session. This call is scheduled for one hour. I will now turn the time over to Harris Simmons.

Harris Simmons Thanks very much, Dave, and good evening, everyone. We were reasonably pleased We have a lot of financial results for the first quarter, which reflect meaningful year-over-year improvement and continued progress on a variety of strategic priorities. Net earnings available to common was $452 million, or $3.05 per share, including a couple of exceptional items, the first being a $215 million pre-tax gain on the liquidation of Visa Class B1 shares, and the other being an unrealized pre-tax 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've 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. On closing, we believe the acquisition will enhance our ability to serve commercial real estate clients across the western United States and beyond, while further strengthening our capital markets franchise. As 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're marketing as the Business Beyond account. It's 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're pleased with the early results of the campaign, and between Gold and Business Beyond, we've opened over 10,000 accounts so far this year.

Going 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 to the prior quarter of 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 six basis points annualized of average loans. Slide four 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 are also included on this slide. As shown on slide five, adjusted pre-provision net revenue was $332 million. It increased 10% from the prior quarter. Reflecting improvement in both adjusted taxable equivalent revenue and adjusted non-interest expense, which last quarter included seasonal compensation expense. For that overview, I will turn the call over to our Chief Financial Officer, Ryan Richards, to walk through the quarter in more detail and walk through our outlook. Ryan?

Thank you, Harris, and good evening, everyone. Getting on slide 6, you can see the five-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 up $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 of margin primarily reflects lower cost of funding for deposits and borrowings. For the second quarter of 2027, 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, net 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, The ZIONS BANCORPORATION, NET CREDIT VALUATION ADJUSTMENT, ADJUSTED CUSTOMER-RELATED NON-INTEREST INCOME WAS 108 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 STREENS. CAPITAL MARKETS FEES INCREASED BY 8 MILLION WITH HIGHER REAL ESTATE CAPITAL MARKETS AND INVESTMENT BANKING ADVISORY FEES We continue to see attractive opportunities in capital markets and have strong pipelines going into the third quarter. Securities gains in 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 to you related this investment that was recorded in other non-interest expense, the net unrealized gain was $37 million. For In the second quarter of 2027, 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 nine, 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 prudently expenses while investing to support growth. Our second quarter 2027 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 to 115 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 were 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 five-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 and deposit balances were relatively stable compared to the prior quarter, and short-term borrowings increased $837 million in the 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 pay down of lower-yielding mortgage-backed securities supports Earning asset remix and or reduction in wholesale funds. Estimated price sensitivity to the portfolio inclusive of hedging activity was 3.6 years. Credit quality remained strong as shown in slide 13. Net charge offs were 6 basis points of average loans, annualized, and the non-performing assets ratio was unchanged sequentially at 48 basis points.

The credit size and credit size 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, with 227% coverage of non-accrual 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 nonaccruals and delinquencies. Our capital position remains strong, as shown on slide 15. The 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 the AOCI, which resulted in a 22% increase in tangible book value per share versus the prior year. 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 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 I will turn your questions to one primary and one follow-up to enable other participants to ask questions. Julian, please open the line for questions.

Hi, John.

Thanks, John. I appreciate the question. Having heard some of the other earlier reports, I'm not sure our message is going to be very much different. It is a competitive environment on both sides of that equation. We're seeing that. You'll see that in also a little bit of the mix that's showing up on the positive side, the average holding on, but on a period-end basis, we saw a non-interest bearing being off. We have seasonality in the second quarter, so some of that can be expected. But supplanting that with interest-bearing balances 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 on the things you've been hearing about us talk about in recent calls, coupled with the marketing dollars that come with that.

Same thing that you're seeing on the loan side. We are seeing a little bit of spread compression there. So, the earring asset yields sort of hung on quarter over quarter sequentially. We had some good underlying things that helped counteract some of that spread compression, things that you would have heard us talk about in prior quarters. You know, we still get some benefits there in terms of those terminated cash flow swaps. This quarter, we had about $8 million of headwind. That's going to continue to diminish through the remainder of 2026. And for all 2027, we'll only have $8 million remaining. You know the remix that we been talking about for quarters on end continues We do see continued upside and fixed asset repricing Some of that was a little bit masked this quarter by you know some of the compression and the spreads but it still remains We still see at least one 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 one basis point or better on investment security yields So there some there 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 one month SOFR And 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 without having any Fed funds rate decreases It was kind of harder to push that through on the deposit side So all 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 guides to the future.

But suffice to say, we do believe that there's some upside from here. Again, going back to our core strategic initiatives to drive deposit growth.

John and Scott, I would – Ryan mentioned it a couple of times here, but this marketing initiative we've had with these kind of strategic six projects, They are all focused on granular deposits, and the fact that we're doubling advertising in 26 compared to 24 with, I think, a better company-wide approach to product advertising. We're still very early into that, but our whole branch teams and our business bankers, et cetera, 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've got room to bring in larger deposits at rates that are meaningfully accretive to that overnight borrowing rate.

So I think we'll continue to see improvement there. And those higher price deposits, they are clients. They're clients or prospective clients. We're not just buying money in the open market.

Go ahead, Scott. Did you comment on loan pricing? You did? Okay, sorry.

John, we certainly hope for that. We certainly expect that based upon all the things we're doing initially and internally. Hopefully you heard and the guides I provided was pretty constructive about how we're thinking about NII when you're out. I mean, it's always going to be beholden to our success in driving loan and deposit balances. But, you know, underlying that, you know, we would be showing some, you know, a decent amount of average deposit growth I would be implying that guide, but without getting any of the specifics, which has not been our practice.

No, it's part of our guidance. Sorry if I wasn't 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 one rate increase.

No, that's right.

Yeah, I'm glad that you called this out. So that's an important point. We do continue to screen asset sensitive relative to our peers, recognizing that methodologies aren't necessarily common across all. But on that basis, and it's day to day, week to week in terms of where the market is implying these rates. But yes, I mean, we still see some of the sensitivity materials towards the back of our materials and the pegs on a parallel shift. We still internally think about things like latent emergence, and we would show a lift of about 3.2 percent above the latent sensitivity That would be implied by having one or more forward rate increases in the curve.

Yeah, good point, good question. We still have, and I didn't mention this as much, but in the past we've talked about investment securities and how much we need to reinvest in those versus letting them roll off to other useful purposes. And I think we said maybe in the last call that we're getting closer. We're not there yet. We're probably still forward to a way before we think about fully reinvesting investment securities. That's just another way of saying, as it stands now, if we think about liquidity stress tests and deposit behaviors and how much contingent liquidity we need to hold, we do think we have sufficient with buffer. So, we're sitting here at 82% low on the pot that suggests that there's probably a little bit more room to run in that ratio before we would start thinking about other things to do to support a stable funding sources.

Yeah, the competition is certainly there, Manon. The reference we have is in the MICE type in 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's competitive. So again, I don't think our story is any different than some of the earlier reporters. Our success will be really driving through these core campaigns.

Thanks, this is Derek. We had good loan growth for the quarter, primarily driven by CNI. It was pretty diversified across segments in the commercial and industrial book. One thing we did see is a decent increase in utilization on revolving lines of credit, Some companies that were growing and having additional working capital needs, that was a positive, as well as just new originations. You know, primarily, you know, middle market and some upper middle market activity tied to some capital market syndication activity that we're trying to really grow. We did see good growth in the term CRE book as well. You'll see our construction mix is actually down as a percentage of CRE to 16 percent. 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.

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

You know, I don't think we really have anything to offer at this point on this. on that one, Bernard.

Sure. This is Scott. It was a really solid quarter. The recent quarters have been in customer fee income. What's different from a year or two ago is that a year or two ago, the growth was principally in capital markets. The rest of our major fee income categories were growing a little bit, but not much. We're seeing broader growth now. Our largest source of fee income, about 30% of it comes from our treasury management activities, and they're up very nicely year over year. And similarly, some of our loan related businesses, you're seeing increases in fees, shifting our mortgage business to help for sale from help for investment. We'll continue to see nice year-over-year mortgage fee growth.

Wealth Management actually was up over the June quarter of last year. We've had a couple of flat years, and we're encouraged about what our teams are doing there. And as we've mentioned, Rebecca Robinson, who ran that business 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's 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.

We've had an ongoing targeted deposit campaign that I sort of alluded to a little bit before, which is sort of inviting people to bank with us through whatever capacities. Rates are a little bit more generous, but are still with clients as Scott alluded to. I think it's also important to say that Harris talked about this business beyond and some of the other things that we're doing. You cited 10,000 new accounts. It takes a little while for all this to play through, but we're putting a lot of energy and resource behind these initiatives. So I'd say most recent periods, the growth is probably coming from more of those focused outreach efforts. There's some really nice underlying green shoots that are coming through our strategic efforts.

We'll look for more growth moving forward.

Can I just add, I mean, these initiatives we have are, it's 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 expect it will be a meaningful contributor to really strengthening the consumer and small business part of the franchise.

Oh, yeah. We would not be including the visa game for that purpose. That was just reaffirming what was shared last quarter. We still see it for the full year. And then if you sort of think about the words I used and kind of guiding things for 2Q27, it would apply, I think, quite a bit better than that for the one year forward quarter. But again, we need deposits to pull through for that to stick.

No, I think with the one hike is what we had embedded in our guidance. And with some – probably some pull forward, it was probably between one and two hikes is kind of how we were seeing the bore curve at a point in time. But if you saw two 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.

If we get two full hikes, then it would be more constructive than what I spoke about in my script.

Yeah, I don't really have that statistic in front of me right now, David, but what I was trying to point you to is if you think about that one year's core, a 12-month advance quarter, That's where we provide our guides to kind of steer the market. And so we said low growth, moderate, looks good. We said fee income. We just came off of a really nice year-over-year performance. I think CARES quoted in a script of 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 a true moderate for expense growth sort of gets you to a place that's pretty healthy relative to what we're talking about on a full-year basis here.

Yeah, listen, I think it always comes back. I mean, there are various components. The margin is interesting, but NII is ultimately what the juice is in terms of profitability. So, you know, I know the commentary in the marketplace, and I get it. You know, we certainly saw in our performance with loan growth outpacing deposit growth, and that could potentially constrain your margin. But I think there's a lot to like in our loan guide coupled with the way that the rate curve is being constructed at a time when we are asset sensitive. So I would say, for me at least, and you might ask a different member of management team and they might reach a different conclusion, but for me it comes back to NII.

And we hear that too from investors. They just say, we want to see you grow and grow responsibly. And I think that that will show up in the NII print moving forward.

This is Derek. Our ACL, I mean, we feel we're very well reserved at this point. You know, it's all just going to depend on what the forecast, the economic, you know, forecasts look like. If the economy continues, you know, improves, then we have revenue move it down. If it deteriorates, then we move it up. It just really depends on where the economy's headed in the forecast. But at this point, we feel like we're very well reserved. You think about having coverage for six years of growth charge-off, it feels pretty good given the tenor of our portfolio. We also know that the weather changes in the economy, all those ratios are pretty sensitive. There's a lot of leverage in those numbers.

I think we're well-reserved, but I don't think it's out of line with where we ought to be.

Sorry, on the tax rate?

Yeah, nothing unusual. You know, we had a little bit going on in the first quarter that was a bit of a good guy to kind of normalize, but otherwise it's as usual from an effective tax rate perspective. Nothing to call out.

You nailed it, Ken. And listen, sometimes the work's getting in the way, and that's why we try to come over the top with some additional narratives. We don't really have a great word when we're the better part of moderately increasing and potentially overachieve. We could say increasing, but it would be what are you talking about. So that's why I just try to pry a little extra color to help you kind of see where we're going here.

You know, I think, Sarah, if the economy continues to cooperate, when our plan kind of plays out as we expect, you know, I would expect that we'll incrementally continue to increase the capital repatriation to our owners. And so I don't expect anything very sudden or dramatic, but I think the current pace of buybacks is certainly sustainable and probably you'll see some increase. I would expect to probably see some increase in that over the coming year as well as with the dividends. So, you know, all consistent with kind of the forecast we're giving you out of a year out here.

Yeah, Ken, the numbers we see, we always want to 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 a transaction here at the third floor that will absorb some of the cap along the way, But we still think we're going to be setting a place that will be a little bit better than what we see in our peer median. So, in our reported basis, it looks like there's some capacity. And to your point, you know, the AOCI has been coming in well and reasonably predictably. And we see the glide path for that to keep coming in while still being able to manage the amount of reported CT1, which allows for the opportunity that Harris alluded to.

I will. I think it's irresponsible. Many management say we're not going to do it. But that said, it's not something that we wake up every morning saying, what can we buy? I think it's irresponsible. Many management say they're not going to do it. But that said, it's not something that we wake up every morning saying, what can we buy? I think anything we do is likely to be opportunistic. It's going to be likely to be highly likely to be in markets we're serving where the economics are easier through consolidation. I think we've been going through a period of repair. It's been going on now for some years. It's not just capital. It's also really strengthening the foundation of this place, with systems, with people, with risk management.

There's a lot that's been going on. I think we're in a very different place. We're 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 financial returns that justify our being out in the market doing deals, where we can be competitive doing deals, maybe more to the point. But, so, we're not, I wouldn't say that, you know, that's not going to happen, but it's not something that we are particularly focused on. There's a lot of just organic opportunity for us, and that's where our real focus is.

I would just, you were commenting on a comment I made at one investor conference in June, but I made the same one in March. And that was really two things, and Harris just noted it, but what I said was that Harris and I don't, the first call we make to each other on a Monday morning is not to talk about M&A. We just, that's just not a call we make. We're talking about how to grow the company and projects that are going on and initiatives, etc. And when opportunities present, we're 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 isn't that difficult. As Ryan said, the AOCI accretion has been very predictable for multiple years now. And so it's not hard to look out to this quarter in 27 or this quarter in 28. CET1 is already very favorable to peers, and CET1, including AOCI, is no longer a story and, in fact, is above peers by probably a predictable margin. So you can just make your own assessment of, okay, well, they're not going to stay way above peers. We've always said we want to be above peer median, but not way above. So you can almost talk yourself into whatever level of buybacks or other capital usage you want to think about.

That's what I said.

Oh, boy. I don't have all those numbers in the top of my head. This is the last quarter. But, you know, just ballpark, you know, it was a decent amount of the increase. I'd say, you know, 40 to 50 percent of the increase from the utilization.

Yeah, I'm just saying this broad strokes, you know, close to an increase of 2 percent utilization for them. With varying dimensions across subportfolio, CNI, CRE, and consumer.

That's a good way of putting that. Listen, as we look at sensitivity, which is different than Ford guidance, even without a rate increase, I believe we would still be at moderately increasing, to give you some indications about how we're seeing it. When you layer over the top of our sensitivity what we're seeing in low growth.

Sure, Dave. This is Scott. We have about $6.5-$7 billion in off-balance sheet deposits. These are clients that we've asked to move off balance sheet at other points in time, like 2020, 2021, etc. And that number was as high as $12 billion, so we've moved some of that back on balance sheet. Generally speaking, when we bring those deposits back on balance sheet, it is definitely accretive to net overnight borrowing rates. But that's not the only place these higher price deposits are coming from. Generally speaking, when we bring deposits into this wholesale deposit campaign we've 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 broker deposits plus net overnight borrowings.

With deposits that are accretive. It makes no sense to do it if it's not accretive to our overnight borrowings.

3.5 billion.

But it's maybe the inverse of a fat guy losing weight.

Whoa, whoa, whoa.

Come on now.

Who are we talking about?

I'm talking about Scott.

The first few pounds are easier than the last few. It's not a straight line. You get to a point of diminishing returns where you've talked to customers and some of what's left off balance sheets are going to be a little thicker than it was originally.

So, well, all apologies to anybody overweight.

Yeah, just a friend.

Apology taken.

None taken.

You know, I, on this, I would say that our loan growth has been really disciplined. It's been muted by the fact that we've not been gulping down NDFI loans for the last five years. It's been muted by the fact that 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 can grow loans faster, but we're choosing to be very disciplined about concentration management. And we're 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 a very solid opportunity to keep funding costs, which is a significant competitive advantage for us, very much intact.

We have, over about three decades, our cost of deposits relative to peers.

Yeah, I think I'll agree with what Scott said. Certainly there's pressure, right? I don't know if I would say surge, but we're seeing it in the marketplace, so there is going to be some pressure on funding costs, but as Scott alluded to, we've been very successful in managing that over time.

Yeah, thank you. Thank you, Janet. I think just broadly speaking, as we work with our businesses, we do see some degree of seasonality that presents from time to time 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, you know, projecting into the future, and that would be part of our guidance.

Oh, yeah. Listen, I think, you know, if you look at more recent trends, interest bearing has been growing faster than the non-interest bearing. So a lot of that will, I personally expect that to continue in the near term, maybe longer term, I don't know, we'll see. But again, it really comes back to the things that we're prioritizing as a management team and as an institution. There's a reason why we talk about these targeted focused campaigns on the wholesale side, but that the real franchise will be made on those granular deposits and efforts that we're making on retooling our commercial deposit accounts, Our small business deposit accounts and getting at those granular relationships that we are building over time.

And it does take a little bit of time to play through, as Harris said, the marathon, not the sprint. So that's really where I'm going to be training my eyes in the coming quarters and years is how successful are we in advancing the ball there.

Yeah, thanks, Janet. I do think we're getting closer to the time where it's not at triding, where we'll need to start reinvesting 100% of those securities cash flows. But again, I think we're still a quarter or two out. We're always thinking about our funding structure and You know, how, like, approach it from a rating agency perspective or how the regulators think about stable funding. You've seen that we've been in the capital markets. I wouldn't rule that out in the future. We sort of see what the market bears. But notwithstanding that, I think we probably have a quarter or two where there's 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's still some movement there.

You're welcome.

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

I just add, I mean, there's been a lot of it. We talked in prior quarters. There's been a lot of pressure coming in terms of just vendor price increases, software maintenance, etc. I'd like to think that that may be one of the bright spots coming out of AI for a lot of folks is maybe that gets tempered a little bit. I think some of the vendors may start to feel the pinch of that and maybe lose some of the pricing leverage they've had. On the other hand, I mean, everybody's going to be spending more on AI. The question is how quickly we actually see meaningful results from it. But I think one thing that ensures more and more technology is going to be applied to this industry.

Scott, I don't think the trend will change significantly. We're 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 two or three years, but you can see a world where that becomes more controllable, where they're searching for revenue and not searching for peer price increases. Then I guess the open question becomes, where does the token math go eventually over time? If people are pivoting to more AI, large language models, there's a lot more that's showing up in various CFO forums about ROI from token math that will probably be the new battleground over time.

I think one of the trends you'll see is that all of our peers generally report that they have used outsourcing to the extent of 10 to 15 percent of their FTE base. And we were probably lagging considerably on that front, maybe around 3 percent. But we've been moving that number up using it as a lever. But the point I want to make is that what's happening with outsourcing broad based is that AI is replacing the need for having to outsource at all. So, and as we're able to bring that outsource total down, we're bringing down 100% dollars as opposed to when you go to an outsourcer. So I think there's going to be a real expense opportunity there as companies replace outsourcing with AI.

You hear this from AI outsourcing vendors, and that's why many of their stocks are being hurt in the market right now.

I will take the easier part of that and just say that, no, I think the different major capital markets product groups that we have, we have invested in several of them significantly in recent years, I think we have a long runway on growing those businesses. 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. We will see the benefit of many of our products hitting on all cylinders at the same time as opposed to just one.

Yeah, with respect to the basis investment acquisition, contractually we are not able to talk about, make any projections about that until we close the deal. And so I expect that this time next quarter certainly we'll be able to talk about that, but I can't today.

And if I can just double up, 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, you know, risk management through swaps, FX, loan syndications. The neat part of the story this quarter is we're talking about a whole other set of complementary skill sets in real estate capital markets, investment banking advisory fees. We talked about what's coming on the multifamily side. So it makes the business overall more durable. And it's 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's really, really encouraging. It's something I hope this doesn't get lost in this. When we're seeing lots of other people showing really strong capital markets results this quarter, it's really nice to have that part of our narrative as well.

I mean, far be it from me to, you know, I will say I think that the new Fed Chair, just me speaking, but I think Kevin Warsh brings, I tend to be a fan. I think the Fed over the last 20 years has kind of painted themselves into corners with their own forward guidance. I mean, I'm talking to a group of folks who love forward guidance, and I understand that, but one of the problems with it is that it creates pressure to do something sometimes that, you know, things that are, you know, unnatural. I think it takes away degrees of freedom. I tend to think that at heart, Kevin Warsh is what he says he is, and that is focused first and foremost on inflation.

I think he's closer to a Milton Friedman kind of a guy than anybody we've seen there for the last couple of decades. And as long as we have inflation that's kind of sticky, I think the pressure is going to be probably upward on rates. I just think that's who he is. So, and I think he's trying to be careful not to paint himself in the corner. I really think it's going to be a Fed that under his leadership is going to be very responsive to what's happening with inflation and pretty transparent about it.

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 email or phone number listed on our website or on the release. We look forward to connecting with you throughout the coming months. This concludes our call.