Zions Bancorporation, National Association (ZION) Q3 2026 earnings call transcript

I will now turn the conference over to Jason Arbuckle.

Thank you, Clio, and good evening, everyone. Welcome to our conference call to discuss ZIONS BANCORPORATION's third quarter, 2026 results. My name is Jason Arbuckle, Senior Director of Investor Relations, and before we begin, I would like to remind you that during the call, we will make forward-looking statements. Actual results may differ materially. We encourage you to review the forward-looking statements and non-GAAP disclosures in our press release on slide two of today's presentation, which applies to the I will now apply equally to statements made during this call. A copy of the earnings released in the presentation are available at our website, zionsbandcorporation. com. For our agenda today, Chairman and Chief Executive Officer Harris Simmons will provide opening remarks.

Following Harris' comments, Chief Financial Officer Ryan Richards will review our financial results and outlook. And 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, and I will now turn the time over to Harris Simmons.

Thanks very much, Jason, and good evening, everyone. We're reasonably pleased with our financial results for the third quarter, which reflect meaningful year-over-year earnings improvement and continued progress on our strategic priorities. Going to the slides, slide three summarizes second quarter results versus the prior quarter and last year's third quarter. Net earnings available to common was $262 million, or $1.78 per share, an increase of 20% compared to $1.48 in last year's third quarter, and an increase of 2% compared with $1.74 last quarter, after adjusting for that quarter's large equity securities gains. The increase from a year ago was due to growth in net interest income and customer-related non-interest income, modest loan growth, and exceptional credit performance. The net interest margin was 3.23%, down 4 basis points from the prior quarter and down 5 basis points from a year ago.

When compared to the prior quarter, average loans grew 3.7% on an annualized basis, led by commercial lending. Average customer deposits grew 8.8% on an annualized basis. Credit losses were modest at 2 basis points, annualized of average loans. Slide four presents the recent history of earnings performance together with the impact of the provision for loan losses on quarterly results. Notable items in each of the recent quarters are also included on this slide. As shown on slide five, adjusted pre-provision net revenue was $338 million. It increased 2% from the prior quarter, reflecting improvement in adjusted taxable equivalent revenue which more than offset a modest increase in adjusted non-interest expense. Adjusted pre-provision revenue declined $14 million or 4% from the prior year period, which represented a particularly strong comparison quarter.

In addition, results for the current quarter included $4 million of expense associated with a recently acquired multi-family agency platform that was not included in our original forecast. Turning to slide 6, our capital markets division continues to be an important driver of fee income growth. Since launching the business in 2020, we have nearly doubled the annual fee income contribution by investing steadily in talent, technology, and product capabilities, including investment banking, commodities hedging, real estate capital markets, and multifamily agency capabilities, which I will discuss in more detail on the next slide. Before moving on, I will note that the $136 million fee income number shown for 2026 is annualized based on its performance through September 30th. Given the momentum we are seeing across the business, our expectations for the fourth quarter, we anticipate the full year results to come in somewhat above that level.

Turning now to slide 7, I would like to highlight the acquisition of Basis Investment Group's multifamily agency lending business, which closed during the third quarter. This acquisition represents an important step in building what we believe can be a highly differentiated multifamily franchise. Our goal is straightforward, to provide clients with a single source of financing solutions Across market rate, affordable, construction, bridge, agency, and CMBS products. With this acquisition, we are now one of only four banks in the country that combines direct access to both Fannie Mae designated underwriter servicer and Freddie Mac's Optigo programs, together with originations to third-party CMBS conduit platforms. And combined with the broader capabilities of the bank, this creates a differentiated, one-stop, multifamily platform capable of serving clients throughout the lifecycle of an asset.

In addition to the talented team that joined us from BASIS, we have added seasoned lenders with deep experience in multifamily agency lending and servicing to help scale the platform. We are excited about the opportunities this creates and the talent that we have assembled. This acquisition enhances our ability to serve commercial real estate clients, and in particular those in the western United States where we see a real market opportunity with population growth and housing affordability issues that drive demand for multifamily products. Included in the quarter were approximately $4 million of expenses associated with our newly acquired multifamily agency platform, including personnel and other integration-related costs, and approximately We expect the financial benefits to build gradually over time as the platform is integrated and production ramps up.

For 2027, we anticipate approximately $17-20 million of revenue and $12-13 million of expense, recognizing that we are in the early process of scaling the business. Over the medium term, we expect the business to generate approximately $30-40 million of annual revenue. The pace of growth and ultimate revenue potential will be influenced by market conditions, including the interest rate environment.

Moving to slide eight, we see wealth management as a compelling growth opportunity given our broad customer base and the size of wealth assets under management relative to the size of our banking franchise. We have seasoned affiliate and wealth leadership teams focused on continuing to enhance coordination between our banking and advisory businesses, which we believe positions us to deepen client relationships and capture additional growth opportunities. A key component of our strategy is a product we call Wealth Select, which is a new offering that expands our addressable market by allowing us to serve clients with approximately $100,000 to $1 million of investable assets. Through a scalable advisory model, Wealth Select helps us engage clients earlier, deepen relationships over time, and create a pathway for those relationships to grow alongside their financial needs.

Slide 9 provides more information about what we refer to as our Strategic 6 products. While each serves a different client segment and business need, they all share a common objective, We continue to be encouraged by the early results. For example, today, September 30th, we've opened over 14,000 gold accounts for consumers, totaling approximately $275 million in Nudabank deposits. And 1,300 Business Beyond accounts, bringing in about $120 million in new deposits. In addition, we currently rank number 10 nationally in SBA 7A lending based on approval volume, number 9 in SBA 504 loans. While the near-term financial contribution is modest relative to the size of the bank, These products are helping us grow long-term relationships and creating opportunities to deliver additional banking, payments, lending, and wealth management solutions over time.

With that overview, I will turn the call over to our Chief Financial Officer, Ryan Richards, to walk through the quarter in more detail and walk through our outlook. Ryan?

Thank you, Harris, and good evening, everyone. Looking on slide 10, you can see the five-quarter trend for net interest income, net-ish margin. Tax-low equivalent net interest income was $684 million, up $7 million or 1% from the prior quarter, and up $12 million or 2% from the year-ago quarter. Earning asset yields were relatively stable sequentially, while our cost of funding increased, resulting in a decline in the net interest margin compared to the prior quarter. Slide 11 provides additional detail on the drivers of net interest margin, which decreased four basis points from the prior quarter and five basis points from a year ago. The linked quarter decline was primarily driven by higher deposit costs and growth and lower yielding assets.

As Harris noted in his opening remarks, deposit growth significantly outpaced loan growth during the quarter, With average customer deposits growing by 8.8% on an annual basis, annualized basis. This compares with annualized loan growth of 3.7% during the quarter and a slight decrease in ending loan balances. We use this excess funding to pay down short-term FHLP borrowings with the residual deployed into money market investments, which increased meaningfully during the quarter. Moving forward, these lower yielding money market balances, which are dilutive to our net interest margin, will be utilized to fund loan growth and or reduce broker deposits as those balances mature. The total cost of deposits increased 11 basis points to 1.59% during the quarter. This increase was driven in part by a recent change in how we present interest This is a report that we have a report that we have a report that we have to do on the cash collateral associated with our derivatives portfolio.

Earlier this year, we began presenting derivatives and related cash collateral on a net basis. Beginning this quarter, we reflected the interest costs associated with the cash collateral held and the cost of deposits as opposed to short-term borrowings. This increased our reported cost of deposits by approximately three basis points, but had no impact on our overall cost of funds. As Harris noted in our earnings release, we expect our asset-sensitive balance sheet to produce stronger net interest income in a higher rate environment. For the third quarter of 2027, we anticipate net interest income to increase by approximately 8 to 12 percent. Our outlook is based on the forward curve as of September 30th, which assumes three rate increases occurring in December, March, and June, respectively.

The forecast assumes our cost of deposits rise to around 2% from current levels of 1.59%, which includes migration of some non-interest-bearing deposits into interest-bearing products. If deposit pricing and mixed trends develop more favorably than we have assumed, there is potential for net interest income to exceed our guidance.

Moving to non-interest income on slide 12. Customer-related non-interest income was $192 million, compared with $182 million in the prior quarter, and $163 million a year ago. Excluding the net credit valuation adjustment, adjusted credit customer-related non-interest income was $182 million, compared with $181 million in the prior quarter, and up $8 million, or 5% from the year-ago quarter. As Harris mentioned earlier, capital markets continue to deliver strong performance and remains on pace for a strong fourth quarter. In wealth, we are seeing encouraging momentum and remain focused on executing our strategy to drive growth and deepen client relationships.

Looking ahead to the third quarter of 2027, we expect adjusted customer-related fee income to grow 6 to 9% relative to the third quarter 2026 results of $182 million. We anticipate broad-based growth across our fee businesses, led by continued momentum in capital markets.

Turning to slide 13, adjusted on interest expense was $549 million, representing an increase of $3 million or 1% from the prior quarter. And as Harris mentioned earlier, included $4 million of expense related to the newly acquired multifamily agency platform. Technology telecom and information processing expense increased $4 million, driven by higher application software licensing and maintenance costs. Additionally, deposit and regulatory expense increased $5 million related to the decrease to our FDIC special assessment in the prior quarter. Expenses were higher year-over-year, reflecting higher incentive compensation, increased professional and outsourced services, and higher technology costs. We will continue to manage expenses prudently while investing to support growth. For the third quarter of 2027, we expect adjusted non-interest expense to increase by approximately We also continue to expect positive operating leverage for the full year of 2026.

Our initial outlook of 100 to 150 basis points of operating leverage did not contemplate the acquisition of the multifamily agency platform for basis. Including the impact of that acquisition, we We now expect operating leverage of approximately 40 to 50 basis points. Excluding the acquisition, operating leverage would approach the low end of our prior expectations of 100 to 150 basis points. Slide 14 presents trends in average loans and deposits. Average loans grew 3.7% annualized during the quarter, primarily within the commercial and industrial portfolio, And increased 2.7% year-over-year. Loan yields remain relatively stable sequentially, and we're down 28 basis points year-over-year, primarily reflecting lower interest rates.

Looking ahead, we expect low growth to be between 2% to 4% for the third quarter of 2027, compared with the third quarter of 2026. Our outlook reflects current pipeline activity, customer utilization trends, and the broader economic environment. Given the expected path of interest rates, we are tempering our outlook for loan growth, particularly within commercial real estate. Average deposits increased $17 billion from the prior quarter, driven largely by an increase in interest-bearing deposits. The cost of total deposits was 1.59%, an increase of 11 basis points sequentially, primarily reflecting deposit repricing and to a lesser extent, the presentation change related to interest paid on cash collateral associated with our derivatives portfolio. Our deposit growth allowed us to reduce wholesale funding sources during the quarter, tempering the increase in total cost of funding.

Year over year, the cost of deposits declined 8 basis points, primarily due to lower interest rates. Slide 15 presents the five-quarter trend of our average and ending funding sources. Our total funding costs increased to 1.75%, compared with 1.69% in the prior quarter. Period and deposit balances increased by billion compared with the prior quarter driven by a billion increase in customer deposits partially offset by a decrease of million in broker deposits Short-term borrowings decreased $376 million linked quarter and declined by $2.7 billion versus the prior quarter.

Turning to slide 16, the investment securities portfolio continues to serve as an important source of on-balance sheet liquidity and a tool to balance interest rate risk. During the quarter, principal prepayment-related cash flows from investment securities of $631 million were partially offset by reinvestment of $296 million. The continued paydown of lower-yielding mortgage-backed securities supports earning asset remix and or a reduction in wholesale funds. The estimated The median price sensitivity of portfolio, inclusive of hedging activity, was 3.4 years. Credit quality remains strong, as shown in slide 17. Net charge-offs were two basis points of average loans annualized, and the non-performing asset ratio was 50 basis points compared with 48 basis points from the last quarter. Classified and criticized balances declined 12% and 8% respectively during the quarter.

The allowance for credit losses ended the quarter at 1.11% and remains well positioned relative to our risk profile with 207% coverage of non-accrual loans.

Our capital position remains strong, as shown on slide 18. The common equity tier 1 ratio remains stable at 11.8% during the quarter, Notwithstanding a $229 million increase in goodwill and tangible assets arising from our newly acquired multifamily agency business, we expect continued strong capital generation through earnings and improvement in AOCI. Related improvements resulted in a 13% increase in tangible book value per share versus the prior year. When compared with June 30, 2026, unrealized losses in AOCI increased by 122 million, reflecting declines in the fair value of AFS securities resulting from increased termed interest rates. This mark-to-market impact was tempered by pay-fixed, received-loading interest rate swaps designated as hedges of our AFS securities to reduce volatility in our AOCI balance.

It also bears noting that a significant portion of our unrealized losses recorded in AOCI relates to securities previously transferred from AFS to health and maturity, the related balance of which does not fluctuate with mark-to-market chains. Slide 19 summarizes the outlook we've discussed across loans, net interest income, seeing income, and expenses. This outlook remains 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 to the question and answer section of the call, we request that you limit your questions to one primary and one follow-up question to enable other participants to ask questions. Cleo, please open the line for questions.

Thank you. We will now be conducting a question and answer session. If you would like to ask a question, please press star 1 on your telephone keypad. A confirmation tone will indicate your line is in the question queue. You may press star 2 if you would like to remove your question from the queue. For participants using speaker equipment, it may be necessary to pick up your handset before pressing the star keys. As a reminder, we ask that you please limit yourself to one question and one follow-up. One moment, please, while we poll for questions.

Thank you.

Yeah, thank you, Bernard, for the question. Listen, I try to call out my prepared remarks that we are anticipating three rate hikes as part of that guidance, so December, March, and June. We certainly expect a larger contribution in terms of deposit growth coming from interest-bearing deposits. Expecting that interest-bearing deposit growth would be very modest in that type of rate environment. We also have observed or expected relative to the last freight hiking cycle when we were pretty much awash with deposits and perhaps could have been more patient. We are now in a position that's a very competitive market, and so we're anticipating that it will be a slightly different deposit And so our guidance that you might have heard in my prepared remarks, we've allowed for an increase in deposit costs to the extent about 40 basis points increase in deposit costs.

That would imply sort of a beta in the upper 40s to low 50s is sort of the assumption that we're thinking of. As in prior quarters, the contributions that you would expect there, of course, variable rate repricing is given. Fixed rate loans is a significant contributor there. We see potential for three to four basis points on earning asset yields arising from the fixed rate loan repricing. And of course, the continued remakes out of investment securities into loans, but also this notion that we continue to kind of reinvest a portion of our investment securities, and there we expect two to three basis points of earning asset pickup as well. So think about sort of a, you know, five to seven basis point increase in earning asset yields in that rate environment.

That's what we're thinking about it.

Thanks, Bernard. Listen, I think when we talked about the mid-3s, NIMS, we always sort of conditioned in the past the kind of rate environment that we would be in. You know, there's tons of uncertainty in the future about how deposits behave. We know that. But we do see scenarios that would allow us to operate in the mid-3s moving forward with this type of rate environment. Of course, that's always dependent upon deposit growth, the rate paid on those deposits, the beta, but we think with some reasonably conservative assumptions that we can reach those mid-three levels in 2027.

Yeah, great call out, John. And maybe we should have a moment of silence for moderately increasing. Let's give this a moment to celebrate those terms. Listen, you're right. I mean, we do expect some growth from CRE. There will probably be a little bit more pressure from the rate environment. But if you think about, even not going back that far in time, there was a point in time where we were getting a pretty outsized contribution from consumer loan growth. And given our guidance, which is recently modest at 2% to 4% of loan growth, we really pointed to CNI, owner-occupied, and then to a little bit lesser contribution from CRE. That's still typically a better outcome than consumer-like growth.

So that coupled with the traditional things you've heard us talk about over time, the remix of securities into loans, the less of the headwind of those discontinued swaps are all contributors to, I think, a brighter prospect for them. And, of course, you heard Harris talk about our underlying Strategic Six offerings that we continue to grind away at and building that new relationship. That will also be very, very important as we continue to drive down our wholesale borrowing costs. We have been very successful year over year in driving down our broker deposits and other short-term borrowings. We certainly look for that to continue.

John, with all such things, I think we're subject to regulatory approvals and where the Board wants us to go. But, listen, with the kind of rate environment that I just described, provided that it holds, that can translate, as you can see in our guide, to some pretty positive outcomes for us. So I wouldn't be giving up on capital absorption and the potential even for it to potentially grow in that type of operating environment. But I don't want to prejudge outcomes with our regulators and the board. But I think that we see scenarios where we could actually increase our capital absorption moving forward. If you think about our results this quarter, Certainly, the mark-to-market and the run-up of the term rates was challenging for the industry.

We actually fared pretty well on that basis. A bigger driver of capital absorption this quarter for us was the goodwill and the intangibles that we absorbed through the multi-valley agency business. When setting that aside, with the hedges we have in place and the fact that a very large portion of our AOCI is sort of frozen from the transfer into HTM, we have very, very good performance on a relative basis. If you think about the mark-to-market, we had about a 50% or better offset with the hedges that we have in place that we call out in the appendix of our materials. So I think with that extra level of protection and a potential for a very positive operating environment, there may be room to do a little more.

Thanks, Dave.

This is Derek. To the commercial real estate side, as far as growth there, Pipeline's actually pretty good right now. It is competitive, but we're being very disciplined in our underwriting, as well as risk selection as far as our approach there. I think just given the competitive environment, given some of the supply-demand issues that are going on in our market, as well as just the increase in interest rates, it could have an impact on the CRE growth. But as you look in the last quarter, we actually had pretty good growth in CRE. Actually, it was able to offset a number of payoffs that we had that exited from our classified book. As far as the rest of the portfolio, pipeline has been good in the CNI.

I think this quarter, just at the period end, we had a little decrease in utilization. Second quarter was actually strong utilization, and just saw a little decline in some capital call usage and a number of other just general business activities. It seemed just utilization was down by the quarter.

Hey, Dave, this is Scott. I might add a little more color to that, too. I think Derek covered the CRE as well as just other topics related to pipeline. But, you know, 3Q, if you just look at H8 data, total loan growth was down and CNI growth was down, and we tracked pretty close to what H8 data was. And I don't know why third quarters seem to be soft. Third quarter last year was soft. Third quarter in 23 was soft. I don't know if it's summer vacation or what it is, but there is something about the third quarter going on. If you look at slide 25, just another way to kind of think about what's happening.

Basically, what you can see there is, you know, we're basically no growth for the quarter. You can see that negative 9 million over there in the bottom right-hand corner. We kind of fundamentally need about 500 to 600 million to hit a good solid 3% to 4% growth rate. Basically, it's happening at Amogee. Amogee was down 293 million for the quarter, as opposed to being up 150 to 200 million. And that's kind of the difference between, you know, $500-600 million in quarterly growth, which isn't great. We'd like for it to grow better, but that's kind of 3% to 4% growth. And to put that in additional perspective, if you look at slide 26, where you see the year-over-year growth, 3Q26 versus 3Q25, you'll see that Amogee, those first two lines, CNI excluding I think the C&I and owner-occupied growth year over year.

They have been outperforming all of our other affiliates for some time in terms of C&I growth, including owner-occupied. They just happen to have a soft quarter. And so, I don't, we're not especially worried about that. It just happened to be a soft quarter for them. Otherwise, I think we would have seen growth more in line with, you know, $500 million to $600 million for the quarter. And their pipelines are just fine. There's nothing unusual about their pipelines at the moment.

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

Sure. Taking incentive comp first, we made some incentive comp adjustments 12 to 24 months ago that, quite frankly, created some churn in our bankers, and we sort of thought that might happen. And so this kind of no growth period that we had in wealth fees that total about 58 million plus or minus right now you know there been we kind of had a no growth phase We think the incentive comp elements both for our wealth colleagues and our private banking colleagues around the company are aligned better now and that everybody sort of adjusted to it And so that's the incentive comp side. The answer to your first question of what's our penetration and what's the outlook, our penetration is really low and the outlook is really positive.

Any data I would give you, you would say, boy, your penetration is really low, guys. Come on now. And part of that is because the dog didn't need our homework papers, but we just have never had a large trust business that we acquired. And most of our peers either acquired large trust businesses somewhere in their past, or they grew one. And we just never did. So we're kind of starting from behind. But we think the calling efforts with our private bankers, wealth bankers, our commercial bankers, and the energy level we have there right now is really positive.

Well, listen, hopefully I understood that correctly, Chris, if not just re-guide me here. But certainly, based upon how we guided it to the third quarter of 2027, we see very positive prospects for operating leverage. I mean, some of our assumptions and models would point to six points or better that quarter. And we don't typically go too far afield for that, but even for the full year of 2027, we're seeing the prospects for a pretty positive spread there. So if that's where you're going, then that's probably the color. If you're looking at something else, please let me know.

I think the other thing Ryan was talking about was our full year operating leverage in 26. Yes. And he was commenting about we were guiding to 100 and 150. We've talked about that all year for 2026. The third quarter has obviously been a little soft here. We actually saw it coming, but we still think for the fourth quarter, I won't repeat what he said, but that's what he was talking about in terms of the operating leverage, there being a lower number.

I mean, if we look at the adjusted PPNR, we had this quarter relative to what, as Harris noted, a very strong third quarter of 2025. I would just gently remind everybody that that was actually shaping up to be a very, very strong quarter for us. And on PPNR it was, but we had the credit matter that presented that quarter that kind of was a dour tone for that quarter. But underlying that, you know, on a year-over-year basis, certainly a contributor to our softer just PPNR performance, We saw some increase in incentive accruals. Our incentive accruals are sensitive to credit performance, and we've had truly outstanding credit performance this year. So while the core performance is a little bit softer against a strong comp, the credit has been excellent.

And there's been some other things that showed up in the third quarter of 2025 that were different on the non-interest, the income side, non-customer related. There was a pretty sizable difference in terms of our ESPIC, securities gains and losses, period over period. That was about a $15 million delta. And then in the prior year quarter, we also had higher dividends and other income, FHLP dividends and other matters. So, it would be understandable if people sort of looked at our full year and said, hey, tough quarter for operating leverage, tough PPNR versus a strong comp, can you still get there for the full year? And we do see, as I guided, once you adjust for basis not having been our run rate, we think we can get close to the lower end of our prior guide of 100 to 150 basis points.

You know, if some things were to break our way, could we fit our way within there? Possibly. But we'll just see how the quarter shapes up.

I don't think much. I would agree with your assessment. I think we would show ourselves on a market capital basis being just shy of 9% as well. So I don't think anything that you would hear from this management team would change about how we would think about capital employment, other than just what I've said already that moving forward we could have a more constructive operating environment for capital actions, I should say.

I don't think so. I think it's just a very cross-the-board competitive environment out there. I don't think we're seeing a lot of impact from, you know, kind of neophanics and that kind of thing. Certainly, that's out there, something that the whole industry will be watching here for the next few years. But, no, I think it's a competitive deposit market, but it's manageable. I think there's probably more price competition on the asset side than on the liability side. But, yeah, it's just competitive all over. It sounds like the spot rate for interest-sparing deposits was up only a couple of basis points versus the average. So, given that the rate hike came in September, does that mean that clients were asking for higher rates throughout the quarter?

Could you see that dynamic going forward where deposits reprice ahead of future rate hikes? I think a lot of the deposit growth was in kind of higher-cost deposits. We've moved a lot of money back on the balance sheet from customers that we can't. We chased away a few years ago, and everybody was awash with liquidity. Bringing that back on, our goal, as we said before, was really just bringing down our total cost of funding. A lot of the growth was higher cost deposits, but certainly lower costs than our marginal cost of funding. That's kind of what you saw this quarter.

Thanks, Ken. I'll speak to that maybe in broad strokes, and we've got Matt Tyler here in the room, our corporate treasurer. You could probably drill down maybe another level before I take it. But I think that the message, the big picture message that we're trying to convey with our hedging activity is we're sensitive to both earnings sensitivity and sort of tangible common equity or EVE sensitivity. That's why you see both sides of these hedges. What you've been seeing, and I think what you're alluding to on the sort of receive-fix side, is we do tend to measure on a relative basis as being more asset sensitive than others. I've said it before, I'll say it again.

These are not common methodologies of measuring things. But we do want to be also thoughtful and perhaps prudent, and what goes up sometimes goes down. And so while that asset sensitivity is serving us well, we think, in this type of environment, things can always reverse. And so we've, on the C6 side, really trying to think about the downside sensitivity should rates reverse in a minus 100, minus 200 rate environment and maybe take a little bit of the edge off of how we would measure there. So we did add some hedges during the quarter. I think you would have seen reference to that in that related slide to that end. And a little bit more modest activity as we think about that TCE protection on the paid fix.

And Matt, I invite you to add anything you can want. Yeah, the additional hedging, I mean, we've really been keeping our cash flow hedges, which are the received fix, shorter maturities, kind of under two years. So, you know, we're kind of just rolling those out as time goes on, which has been most of the activity. You know, if you have two years hedged, you know, two months from now, it won't be a year and a half, so I think two quarters from now. So we've just been kind of rolling those on a continuous basis forward over time.

Right.

Yeah, that's a great question. I want to get started and invite other members of the team here to jump in. What you called out is a really important part of our story. We have a success year over year in paying down broker deposits, paying down wholesale borrowing sources. Having this really positive deposit growth story this quarter enabled us to pay down our FHLP borrowings almost straight away. Where it was a little more tricky is there's, of course, a term structure to broker deposits. And so it takes a little bit more time for those to run off. We show, I believe, in the fourth quarter we have about $2.2 billion worth of maturity of broker deposits.

And we already said that we're sort of overbuilt on our money market position that could be redeployed. So I do think as part of, as we think about this moving forward, is to continue to pay down those sources of funding that aren't with clients. This is kind of what Harris was talking about. We would rather be reaching out to our clients and serving them, and even these higher cost products, When they bring net new balances to us, then paying away to a broker or some other wholesale funder. So that's sort of where we see this going on the funding side.

So Ryan, in terms of timing, I would just add that on the broker deposits, their certificates of deposit, they have an average maturity of about three months, which, you know, think about it, Half of it is going to roll off within three months. And we're bringing that down as we manage. We watch it all the time as we manage funding coming in from deposits. It just isn't instantaneous like if we had borrowings from the home loan, for example, which would be its payoff. But it will adjust very quickly. And we've already seen a lot of it. We've probably down a lot so far this quarter as it's mature. It's versus June 30th of last year.

It's down about $3 to $4 billion. It was about our broker deposits and overnight borrowings net of money market investments was about $6.5 billion. Then if you adjust for long-term debt we've issued, et cetera, it's down about $3 to $4 billion. It has been very intentional. It has not been serendipitous. We still have a little over $7 billion in client funds off balance sheet. Almost 100% guaranteed when we bring them back on, the cost is accretive to our overnight cost of funding, which Harris was mentioning earlier.

Yeah, listen, I think it has to be, yes, all of it. It's both. It's both funding mix, it's asset mix—sorry, yeah, asset mix. And it's our sensitivity to that rising rate environment. It's the driving of the net new relationships through these very granular things that Harris described. All those things combined with that sensitivity to three future rate hikes sets up pretty well for us if it all pulls through at that level. And again, reiterating that we recognize that that's a pretty – that's a stronger price response on a pause than what we would experience previously, and we hope that there's some conservatism in that. But we'll see.

Deposit costs will increase, but as Harris was noting, cost of funding will decrease, all things being equal.

You know, actually, as it relates to sequential quarters, the amount in off-balance sheet deposits didn't change appreciably. It was pretty across, but there was plenty of evidence of us inviting in other net new balances that we knew were away from us to come in in the way that exactly how Scott and Harris have described Quantifying that impact I don think I have a good number I will be here for you now but that pretty much I say over the last let see 12 to 18 months we attracted certainly north of billion of client deposits that are focused deposit efforts that are accretive to total cost of funding Okay. It would be otherwise judged to be higher cost deposits.

It's some of both.

This is Derek. Yeah, I mean, we're seeing primarily pricing competition, but I would say on structure, covenants, et cetera. But again, we're maintaining our discipline there on the structural side and maintaining our underwriting and just the risk selection. And, you know, again, having good luck at still winning our fair share. It's just a more competitive environment, I'd say, today.

Yeah, I don't think – you know, it's an open question that's been discussed, I think, by analysts and others about the amount of sensitivity that people report The sensitivity that people report versus the actual sensitivity that people will actually experience because we've had this higher for longer rate environment and the prospect of rate hikes, will there be a stronger price sensitivity on the upside? And so we've allowed for some of that and sort of the guidance that we provided in the deposit beta that I would have communicated earlier on this call.

Scott, I will start with it. Related to the basis business, the $30-40 million was several years out. I can't remember the script. It's 29. Yeah, medium term. Yeah, medium term. And interest rates certainly can have an impact. But, you know, the production of multifamily across, you know, in the country is, there's just a real vibrance to it still. And so, but you're right, interest rates can have an impact on it. It is a flow business for most people. So the production builders that are doing this, they build and sell. Derek may have more color on that, but it's not a hold. It's not a hold and then get lucky on rates kind of thing. And then the interest rate business, the interest rate hedging business that we have, which is about a 30 million-ish revenue business just on interest rate hedging for our clients, that, as rates continue to go up, that could actually be impacted some, although we haven't seen too much weaknesses there.

One of the things to note in this quarter's capital markets revenue is it included almost no investment banking or M&A advisory work. And that's a practice we started about 18 months ago. And our franchise is really very fertile grounds for small and medium sized business M&A. And we have a very nice pipeline there. It's just very lumpy. So we're very optimistic about that M&A business going forward. And then our garden variety syndications, foreign exchange, the bond underwriting that we do, etc. , That is, you know, we think moving along at a pretty nice rate. I guess that. I mean, higher rates will be a little bit of a headwind, but I think we also have the tailwind of really have a lot of ground to plow here.

I mean, we're seeing a lot of interest from middle market kinds of clients we've had long relationships with on the investment banking point. For example, we think that can turn into a really nice business across the West. Capital markets' businesses by their nature are kind of lumpy. We get that, but we think it really is a nice value add for us from a client base that needs it.

Pretty much unchanged. I mean, I would be very opportunistic. It's kind of likely to be something. I mean, I guess this multifamily agency platform, I mean, we've long had a really solid commercial real estate business here, and we also know there kind of goes a limit to what you can do with a balance sheet with a regional bank We've been looking for some time. We've actually looked at a couple of other opportunities and hadn't made it. So we're really pleased to have this. It's just a really nice strategic fit for us. But over time, we'll look back on this 10 years from now and say, what a fabulous thing that was. I think that's kind of what we're looking for, are things that just It will fit well and probably a little on the smaller side.

And particularly the valuation, look, we need to see some better valuation before we start thinking about becoming very aggressive. But anyway, I think that's been kind of consistent theme.

Yeah, thanks for the question, Janet. I think it would be reasonable to assume that interest-faring deposits would take a larger share of moving forward in that higher-rate environment. We are doing a lot of great things. We will continue to do a lot of great things. Building out the granular strategies that Harris discussed. That is something you do over many months and years and most valuable part of our franchise. But pressing forward, I think those non-interest bearing balances are going to be harder to come by. So I could anticipate potentially a little bit of a slightly different mix there.

Listen, we do see very healthy NIMS. We don't provide NIMS guides. It certainly has been our practice because of all the variables that go into it. But as a general matter, just restating what I mentioned before, it really is beholding the operating environment. And if we do see the rate hikes that we see in our forecast with the type of deposit behavior we described, we think it's realizable to be operating at that level.

Yeah, listen, thanks for the question. I mean, you know, if you look across the past few quarters, it's been a little uneven, right? So the last quarter we showed up with really, really healthy loan growth. Utilization picked up, really, really positive, but we fell a little bit flat on deposits. This quarter we showed up with really strong deposit growth and not a whole lot of period-end loans to show for. So it is useful to kind of step back, zoom out a little bit, and kind of think of longer time horizons. If I think back year-over-year period, you think about, you know, loan growth around 4%, customer deposit growth about 5%, when talking about ending balances, you know, that's pretty solid, right?

It's, and if you think about the growth for our market, that probably tells you we're getting the growth in our market, we're probably not reaching for it. So going forward, does it persist at an 8.8% average annualized growth? I'm not sure. It's a lot of, and probably not, but it's a lot of the same type of deposit gathering that Harris alluded to before. A lot of the growth came from money market balances. There was what we refer to as our gold suite balances. And these are higher cost deposits. The most important part is we just keep grinding away at what you referenced in that slide at those more granular deposit gathering strategies. That's where I think we'll be having a chance to delight shareholders over a longer period of time.

Yeah, I mean, I, you know, if we could see three-quarter percent to a point, you know, one percent growth. Our total deposits coming from these things that we're really focusing on, you know, the small business, consumer, non-interest-bearing kinds of accounts, It's not just about deposit growth, it's about the quality of the deposits, the cost of the deposits, the stickiness of the deposits. Over time, that really makes a difference. I tell people around here, this is a marathon, this isn't a sprint. We'll be talking about this 10 years from now. It's just really the kind of foundation we're trying to create under everything else that goes on, corporate deposits and everything else. I hope that's helpful, but that's where a lot of our focus is, but it's a longer term sign of it.

Some of us will be watching paint dry a little bit.

Yeah, I mean, very reasonable question. You know, I think we just want to be careful not to get too far over our skis. It's pretty early on here. We closed the deal at the end of July. We certainly want to have some experience. So we did quote all those numbers you cited, and we said we expect this to scale over time. That requires investment to continue to build out the talent against a very good backdrop of talent as is now. So probably with a hold off or a little bit more experience before we guide more deeply into the expense, how that grows through 2027, through 2028. We did say for full year 2027, $12 to $13 million of expenses.

Beyond that, it will just depend on the pacing of how much we add in talent and further capability.

Yeah, I mean, we're still kind of setting the table there, but I'd expect better fourth quarter revenue than we had in the third quarter. It closed kind of the end of July, and it was a little bit there in the pipeline. I don't think we've thought a lot about what the fourth quarter is going to look like. We've thought more about what next year's likely to look like. That's where we said 17 to 20. We think it's kind of the target. But I don't think we have anything we'd say about the fourth quarter yet.

It was just a small number, Harris, and I didn't know if it was the acquisition or some other reason behind that.

It's such a growth. The only thing we are seeing new is that the disruption there because of these acquisitions, the acquisition of Comerica, clearly, the acquisition of Cadence, the acquisition of Veritex, a few other small, that is all opportunity for us. I have said this for several quarters and it's just opportunity and it's not just because I am saying it and it's corporate speak. If we had our fellows from Texas on the phone, they would not speak with granularity that we can't talk about on a call like this, but that's what we hear internally. And there is disruption. We've already seen it. And so our calling programs are highly focused on those. They've always been on those banks, but we're especially focused on it right now.

There will be competition for people, too. There is a negative side of this, but we have seen that for decades with folks parachuting into Texas.

Absolutely. I am sorry. The bottom line is yes, more positive.

Great. Thank you, Clio, and thank you all for joining today and participating. We appreciate your interest in ZIONS BANCORPORATION. If you have additional questions, please reach out to the Investor Relations team at the email and phone numbers provided on our website. We look forward to connecting with you throughout the coming months. This concludes our call.