Q2 2025 Zions Bancorp Earnings Call
Operator: and a listen only mode.
Operator: A question and answer session will follow the formal presentation.
Operator: If you require operator assistance during the conference, please press star zero on your telephone keypad.
Operator: As a reminder, this conference is being recorded.
Shannon Drage: It is now my pleasure to introduce you to your host, Shannon Drage, Director of Investment Relations. Thank you, Shannon, you may begin. Thank you, Alicia.
Greetings and welcome to the Zions Bank Corp earnings conference call at this time. All participants are in a listen-only mode. A question and answer session will follow the formal presentation. If you require operator assistance, during the conference, please press star zero on your telephone keypad. As a reminder, this conference is being recorded. It is now my pleasure to introduce you to your host San Andreas, director of investor relations. Thank you Shannon. You may begin.
Shannon Drage: And good evening, everyone.
Shannon Drage: Welcome to our conference call to discuss the second quarter earnings for 2025. My name is Shannon Drage, Senior Director of Investor Relations.
Shannon Drage: I would like to remind you that during this call, we will be making forward-looking statements. Please note that actual results may differ materially.
Shannon Drage: We encourage you to review the disclaimer in our press release or slide 2 of the presentation dealing with forward-looking information and the presentation of non-GAAP measures, which applies equally to statements made during this call.
Shannon Drage: A copy of the earnings release as well as the presentation are available at zionsbankcorporation.com.
Shannon Drage: For our agenda today, Chairman and Chief Executive Officer Harris Simmons will provide opening remarks.
Thank you, Alicia. And good evening, everyone. Welcome to our conference, call to discuss the second quarter earnings for 2025. My name is Shannon Dre, senior director of investor relations. I would like to remind you that during this call, we will be making forward-looking statements, please note that actual results May differ materially. We encourage you to review the disclaimer in our press release or slide 2 of the presentation, dealing with forward-looking information and the presentation of non-gaap measures which applies equally to statements. Made during this call a copy of the earnings release as well as the presentation are available at Zions Bank corporation.com.
Shannon Drage: Following Harris's comments, Ryan Richards, our Chief Financial Officer, will review our financial results. Also with us today are Scott McLean, President and Chief Operating Officer, Derek Steward, Chief Credit Officer, and Chris Kirakakis, Chief Risk Officer.
For our agenda. Today, chairman and chief executive officer Harris, Simmons will provide opening remarks.
Following Harris's comments, Ryan Richards, our Chief Financial Officer will review our financial results.
Shannon Drage: After our prepared remarks, we will hold a question and answer session. This call is scheduled for one hour.
Harris Simmons: I'll now turn the time over to Harris. Thanks very much, Shannon. And good evening, everyone. As you've seen, we reported second quarter net earnings of $243 million. which reflects a 28% improvement over the prior year period. We're pleased with the momentum and core earnings, which includes continued expansion of the net interest margin, customer fee growth. and well-managed expenses. While we see some signs of economic slowing, the magnitude and imminence of tariff-related risks noted in our first quarter call feel like they've abated somewhat. As a result, we are incrementally more sanguine about potential growth in our outlook, which Ryan will elaborate on in his remarks.
Also with us today are Scott mlan president and Chief Operating Officer. Derek Stewart Chief credit officer and Chris Carillo caucus, Chief risk officer after our prepared remarks, we will hold a question and answer session. This call is scheduled for 1 hour. I'll now turn the time over to Harris Simmons.
Harris Simmons: Thanks very much, Shannon and good evening everyone. As you've seen, uh, we reported second quarter net earnings of 243 million.
Which reflects a 28% improvement over the prior year period.
We're pleased with a momentum in core earnings which includes continued expansion of the net interest margin.
Harris Simmons: Customer fee growth.
And well-managed expenses.
while we see some signs of economic slowing the magnitude and imminence of tariff related, risks noted in our first quarter, call feel like they've abated somewhat
Harris Simmons: As a result, we are incrementally more sanguine about potential growth in our Outlook which, uh, Ryan will elaborate on in his remarks.
Harris Simmons: We continue to focus on growing customers and customer relationships. with a particular emphasis on small business banking that brings with it the kinds of deposits and ancillary services that we find to be very valuable and that build strong relationships. For example, our effort to grow loans made through the SBA 7A program has led to a 91 percent increase in the number of deals booked in the first nine months of the SBA's 2025 fiscal year relative to the same period. In mid-May, we began the rollout of our consumer gold account offering in the Nevada market. We'll be launching the product in other markets later this quarter.
Harris Simmons: We continue to focus on growing customers and customer relationships.
Harris Simmons: Uh with a particular emphasis on small business uh banking that brings uh with it, the kinds of deposits and ancillary services that we find to be very valuable and that build strong relationships. For example our effort to grow loans made through the SBA 7A program has led to a 91% increase in the number of deals booked and the first 9 months of the sba's 2025 fiscal year relative to the same period last year.
Harris Simmons: This product provides customers with a variety of high-value benefits. Designed for a Mass Affluent Market and pairs well with our existing wealth offerings, which are also tailored to clients beginning kind of in the Mass Affluent stage of wealth accumulation. We're really pleased by the enthusiastic response we've seen so far from customers in Nevada with respect to this offer. It was launched May 12th and through early July we had a 78% increase in sales of this product versus the product that had been its predecessor, with average balances in these accounts of around $30,000, and this is before we really started in late June.
Harris Simmons: In mid-may. Uh we be we began the roll out of our consumer gold account offering in the Nevada market and we'll be launching the product and other uh, markets later this quarter.
Harris Simmons: Wealth offerings which are also tailored to clients uh beginning kind of in the mass affluent stage of wealth accumulation. We're really pleased by the enthusiastic response. We've seen so far from customers in Nevada with respect to this offering uh through it was a launched May 12th and through early July, we'd had a 78% increase in sales of this product versus the product that has
Harris Simmons: do paid marketing. So we're really excited about the prospects for this as we roll this out across the entire enterprise. Turning now to key financial metrics for the quarter, slide 3 presents the net earnings for the quarter of $243 million, as noted, up 28% from the same period last year, and up 44% compared to the first quarter.
Harris Simmons: And its predecessor uh, with average balances in these accounts of around 30,000 dollars. So uh, and this is before we really started uh, in late June to uh, do paid marketing. So we're we're, we're we're uh, really excited about the prospects for this as we roll This Out across. Uh, the entire uh, Enterprise
Um, turning now to, uh, key financial metrics for the quarter slide 3 presents, the Met earnings, for the quarter.
Harris Simmons: Efficiency Ratio Improved to 62.2%. The net interest margin continued to increase for the sixth consecutive quarter to 3.17%. The lower funding costs and the benefits from an improved earning asset.
Harris Simmons: Uh of 243 million is noted up 28% from the same period last year and up 44% compared to the first quarter.
Harris Simmons: The efficiency ratio improved to 62.2%.
Harris Simmons: And that interest margin continued to increase for the sixth consecutive quarter to 3.17%.
Harris Simmons: Fixed Rate Asset Reprice. Net loan losses for the quarter were $10 million or seven basis points annually. Average customer deposits in the second quarter were up 0.5% relative to last year's number. down 1.4% annualized on a linked quarter basis. Non-interest bearing deposits reflect continued stability at 34% of total deposits.
Harris Simmons: To the lower funding costs and the benefit, uh, from an improved earning asset mix and fixed rate asset repricing.
Harris Simmons: Net loan, losses, for the quarter, were 10 million or 7 basis points annualized.
Harris Simmons: Average customer deposits. In the second quarter were up. 0.5% relative to the last to last year's number and down, 1.4%, annualized on a linked quarter basis.
Harris Simmons: Non-interest bearing deposits, reflect continued stability at 34% of total deposits.
Harris Simmons: Average loans experienced modest growth at 5.6% on an annualized linked quarter basis and were up 3.7% year over Moving to slide four, diluted earnings per share.
Harris Simmons: Average loans experienced modest growth of 5.6% on an annualized, linked quarter basis and we're up 3.7% year-over-year.
Harris Simmons: was $1.63 compared to $1.13 in the prior period and $1.28 in the year ago. This quarter's results include a $0.05 per share benefit related to the successful public offering of an investment in our SBIC portfolio. This investment net of fees will be marked to market until our shares, which are subject to a minimum minimum 180 day lockup period from the IPO are fully divested.
Harris Simmons: To slide 4 diluted earnings per share.
Uh was 1.63 cents compared to a dollar 13 cents in the prior period and a 1.28 uh in the year ago. Period.
Harris Simmons: This quarter's results include a 5-cent per share benefit related to the successful public offering of an investment in our sbic portfolio.
This investment, net of fees will be marked to Market until our shares, which are subject to a minimum. Minimum 180 day, lock up, period. From the IPO are fully devest
Harris Simmons: Slide five provides a five-quarter view of pre-provision net revenue.
Harris Simmons: On an adjusted basis, our second quarter results of $316 million. reflect an improvement of 18% compared to the prior quarter and 14% compared to the prior year period. This revenue growth is outpaced expenses.
Slide 5 provides a 5 quarter view of pre-provision net revenue.
Harris Simmons: On an adjusted basis, our second quarter results of 316 million.
Reflect and Improvement of 18% compared to the prior quarter and 14% compared to the prior year period.
Harris Simmons: As Revenue growth has outpaced expense growth.
Ryan Richards: That high-level overview, I'll turn the time over to our Chief Financial Officer, Ryan Richards, for additional details related to our performance. Harris, and good evening everyone. I'll begin by breaking down the drivers behind...
That high level overview. I'll turn the time over to our Chief Financial Officer. Ryan Richards for additional details related to our performance. Ryan
Harris Simmons: You Harris and good evening, everyone.
Ryan Richards: Beginning on slide six. 5-Quarter Trend for Net Interest Income and Net Interest Margin. income increased by $51 million, or 9% relative to the second quarter by 24 million relative to the prior. The increase relative to the prior quarter was supported by lower funding costs and a favorable Composition of Average Interest Earnings. As a result, the netted margin expanded.
Harris Simmons: I'll begin by breaking down the drivers behind the changes and pre-provision that Revenue.
Beginning on slide 6, you will see the 5 quarter trends for net. Net, net interest.
Income. And that.
Harris Simmons: Margin.
And interest income increased by 51 million or 9% relative to the second quarter of 2024 and increased by 24 million relative to the prior quarter.
The increased relative to the prior quarter was supported by lower funding costs and if favorable shipped and the composition of average interest earning assets reflecting growth in average loans,
Unknown Speaker: Speaker, Dan Taylor.
Ryan Richards: 3.17 Our Outlook for Net Interest Income for the second quarter of 2020. relative to the second quarter of 2025. Supported by Continued Earnings Asset Remix Growth in Loans and Deposits. Fixed Rate Asset Repricing. Our guidance incorporates two 25-basis point Fed Fund cuts in the second half of the year. and an additional 25 basis point cut in April.
Harris Simmons: As a result, the net margin expanded for the 6 consecutive quarter to 3.17%.
Harris Simmons: Our outlook for net interest income for the second quarter of 2026 is moderately increasing relative to the second quarter of 2025.
Harris Simmons: Supported by continued, earnings asset remix.
Growth and loans and deposits and fixed rate asset repricing.
Harris Simmons: Our guidance incorporates 2, 25 basis points fed fund Cuts in the second half of the year.
Harris Simmons: And September and December respectively.
And in additional 25 basis, point cut in April 2026.
Ryan Richards: Slide 7 presents additional details on changes in the net Linkorder Waterfall Chart on the left outlines the changes in both rate and volume.
Harris Simmons: Slide 7 presents additional details on changes in the net. Interest margin.
The link quarter waterfall chart on the left. Outlines the changes in both rate and volume.
Ryan Richards: are key components of the NEDDISH Smart. The netted margin expanded by seven basis points sequentially from favorable earning asset remix and fixed loan repricing, as well as improvement in total funding. Against the year-ago quarter, the right-hand chart on this slide presents the 19 basis point improvement in the net interest margin. benefited from the improved cost of deposits as shown on the slide.
Harris Simmons: For a key components of the net, interest margin.
The net is margin expanded by 7 basis points. Sequentially from favorable, earning asset remix, and load fixed loan, rep pricing as well as Improvement in total funding costs.
Ryan Richards: Moving to non-income and revenue on slide eight. Customer related non-interest income was $164 million for the quarter. A 7% increase versus the year ago.
Harris Simmons: Moving to non interest income and revenue on slide 8.
Customer related. Non-interest income was 164 million for the quarter.
Ryan Richards: capital markets activity continues to be a major driver for fee income study growth across most other areas. The chart on the right side of this page presents both total revenue and adjusted revenue for the five most... were impacted by the factors previously noted for net interest income.
Harris Simmons: an increase of 4% on a leak quarter basis and a 7% increase versus the year ago quarter,
Harris Simmons: Capital markets activity continues to be a major driver for fee income growth with steady growth across most other areas of the income.
The chart on the right side of this page presents, both total revenue and adjusted revenue for the 5. Most recent quarters.
Which were impacted by the factors previously, noted for net interest income and customer related fee income.
Ryan Richards: Our outlook for customer related fee income for the second quarter Moderately. Relative to the second quarter of 2020. growth is expected to be broad based.
Our outlook for customer related fee income for the second quarter of 2026 is moderately increasing relative to the second quarter of 2025.
Ryan Richards: Capital Markets Continue to Distribute in an Outsized Slide 9 presents Adjusted Non-Interest Expense and the lighter version of it. $12 billion versus the prior year to $521 billion. This decrease reflects seasonally higher first quarter compensation expense. This is partially offset by higher incentive accruals as a result of improved profitability. Against the year-ago period, adjusted expenses increased $15 million, or 3%. primarily in higher incentive comp accrual.
Harris Simmons: The growth is expected to be broad-based and driven by increased customer activity and new client acquisition with capital markets continuing to distribute in an outsized way.
Slide 9, presents adjusted, non-interest expense and a lighter blue bars.
Adjusted expenses decreased by 12 million versus the prior year to 521 million.
This decrease reflects seasonally higher first quarter compensation, expense and lower technology costs. In the second quarter relative to the first
Harris Simmons: This is partially offset by higher incentive approvals as a result of improved profitability.
Against the year ago, period, adjusted expenses, increased 15 million or 3%.
Harris Simmons: Primarily in higher incentive comp acrus pre previously mentioned.
Ryan Richards: Our outlook for adjusted non-interest expense for the second quarter of 2026 is moderate. relative to the second quarter of 2025. and continues to reflect expectations of positive...
Our outlook for adjusted non-interest expense for the second quarter of 2026 is moderately increasing relative to the second quarter of 2025.
Ryan Richards: Dispense Outlook considers increased marketing related costs.
Harris Simmons: And continues to reflect expectations of positive operating Leverage.
Ryan Richards: Continued Investments in Revenue Generating Businesses Pressure on Technology.
Harris Simmons: The expense Outlook, considers increased marketing related costs continue and investments in Revenue generating businesses and pressure on technology costs.
Ryan Richards: Slide 10 presents the 5 quarter trend in average loans and deposits. average loans increased 5.6% annualized over the 3.7% over the year. Total loan yields increased by two basis points.
Harris Simmons: July 10 presents, the 5, quarter Trend in average, loans and deposits.
Average loans increase 5.6%, annualized over the previous quarter and 3.7% over the year ago. Period.
Ryan Richards: Our outlook for period end loan balances for the second quarter of 2020. slightly increasing relative to the second quarter of 2020. and assumes growth will be led by commercial.
Harris Simmons: Total loan yields increased by 2 basis points, sequentially.
Harris Simmons: Our outlook for period, end loan, balances for the second quarter of 2026 is slightly increasing relative to the second quarter of 2025.
Ryan Richards: We also acknowledge that there may be upside opportunities to surpass this outlook depending on the outcome of trade policy. Average deposit balances are presented on the right side of the slide. Relative to the prior quarter, total average deposits declined. 9% due to the seasonal customer deposit outflows early in the quarter, in addition to an 8% decline in average broker deposits. Average non-industry deposits grew approximately 480 million or partially as a result of the migration.
Harris Simmons: And it assumes growth will be led by commercial loans.
We also acknowledge that there may be upside opportunities to to surpass this Outlook depending on the outcome of trade policy negotiations.
Harris Simmons: Average deposit balances are presented on the right side of the slide.
Harris Simmons: Relative to the prior quarter total average deposits declined.
Harris Simmons: 0.9%, due to the seasonal customer deposit outflows early in the quarter. In addition to an 8% decline in average, broker deposits
Average non-interest range deposits grew approximately 480 million or 2% compared to the prior quarter.
Ryan Richards: Consumer Interest-Bearing Product New non-interest bearing product in mid-May at our Nevada affiliates. The cost of total deposits to coin is sequentially by 8%. and 1.68%. On average, the rate on interest-bearing deposits was 2.5... compared to 2.61% in the prior.
Partially, as a result of the migration of a consumer interest, bearing product in a new non-interest, bearing products in mid-may at our Nevada affiliate that prepares mentioned previously.
Harris Simmons: the cost of the total deposit to quantity sequentially by 8 basis points to 1.68%
On average the rate on interest Varian deposits was 2.52% for the quarter compared to 2.61% in the prior period.
Ryan Richards: Further opportunities to reduce deposit costs will depend on the timing and speed of short term benchmark.
Ryan Richards: Growth in Customer Deposits and Market Competition and Deposits.
Ryan Richards: Slide 11 provides additional details on funding sources.
Further opportunities to reduce deposit costs, will depend on the timing and speed of short-term, Benchmark, rate changes growth in customer deposits and Market, competition, and depositor behavior.
Ryan Richards: Funding Cost Trends. Presented on the left are ending deposit... increased by 1.9 billion versus the prior. Including an $837 million decrease in broker time deposits. partially offset by a six hundred twenty one million dollar and Non-Interesting. Short-term FHLB advances increased during the quarter due to low demand and the aforementioned deposit. On the right side, average balances for our key funding categories are shown along with total funding. As seen on this chart, our total funding cost declined by four basis points during the quarter to $1.5 million.
Harris Simmons: July 11th additional details on funding sources and total funding cost trends.
Harris Simmons: Presented on the left are ending deposit balances, which decreased, by 1.9 billion versus the prior quarter, including an 837 million decrease. In broker time deposits that was partially offset by a 621 million increase in non-interest bearing deposits.
To return fhlb advances increased during the quarter due to loan demand and the aforementioned deposit decline.
On the right side, average balance is for our key funding categories. Are shown along with the total fund.
As seen on this chart are total funding costs declined by 4 basis points during the quarter to 1.97%.
Ryan Richards: Moving to slide 12, our investment Our portfolio exists primarily to be a storehouse of funds to absorb customer-driven balance Allowing for deep liquidity through the refill.
Harris Simmons: Moving to slide 12, our investment.
Harris Simmons: Portfolio exists primarily to be a storehouse of funds to absorb customer-driven balance sheet changes.
Ryan Richards: Presented here are securities and money market portfolios over the last five quarters. Securities, principal amortizations, and prepayment-related cash flows from our Securities portfolio . $726 million in the quarter. or $427 million when considering a net of reimbursement. The paydown and reinvestment of lower-yielding securities continues to contribute to the favorable remix of our earnings.
Allowing for deep liquidity through the refill Market.
Harris Simmons: Presented here our Securities and money market portfolios over the last 5 quarters.
Maturities. Principal amortizations. And prepayment relay cash flows from our Securities portfolio. Where 726 million in the quarter.
Ryan Richards: The duration of our investment securities portfolio, which is a measure of price sensitivity to change...
The pay down and reinvestment of lower yielding. Securities continues to contribute to the favorable remix of our earning assets.
Ryan Richards: estimated at three point We begin our discussion of credit quality on slide Realize Net Charge Offs in the Portfolio continue to be very manageable at quarter, or seven basis points.
Harris Simmons: The duration of our investment Securities portfolio, which is a measure of price, sensitivity to changes in interest rates is estimated at 3.8 years.
Harris Simmons: We Begin our discussion of credit quality on slide 13.
Ryan Richards: Non-performing assets remain low at 0.51% of loans and other Classified load balance has declined quarter over quarter by $194 million, driven by a $196 million reduction in CRE classified levels from improving leasing activity and cash free margins and pay. We expect the CRE classified balances will continue to decline going forward through payoffs.
Harris Simmons: Realize net charge offs in the portfolio. Continue to be very manageable at 10 million this quarter or 7 basis points annualized.
Not performing assets, remain low at 0.51% of loans and other real estate owned.
classified loan balance is declined quarter over quarter by 194 million driven by a 196 million reduction in CRA classified levels from improving leasing activity and cash flows, REM margins and payoffs
Harris Simmons: We expect the CRA classified. Balances will continue to decline going forward through payoffs and upgrades.
Ryan Richards: During the second quarter, we recorded a negative $1 million provision for credit loss. which when combined with net charge-offs, reduced the allowance for credit losses by $11 million relative to the prior cost. Production reflects reduced emphasis on certain portfolio-specific risks, such as commercial real estate. Changes in Portfolio Mix Offset somewhat by the change in The Allowance for Credit Losses as a Percentage of Loan .
During the second quarter, we recorded a negative 1 million provision for credit losses.
Harris Simmons: Which when combined with net charge offs reduce the allowance for credit losses, by 11 million relative to the prior quarter.
The reduction reflects reduced emphasis on certain poorer, portfolio specific risks such as commercial real estate.
Harris Simmons: And changes and portfolio mix.
Offset somewhat by the change in economic forecasts.
Ryan Richards: And the Low Loss Allowance coverage with respect to Non-Accrual Allowance was $220,000.
the allowance for credit losses, as a percentage of loans and leases declined to 1.2%
Harris Simmons: and the low loss allowance coverage with respect to non-accrual loans was 224%
Ryan Richards: Slide 14 provides an overview of the 13.6 billion CRE This represents 22% of total loan balance.
Harris Simmons: Slide. 14 provides an overview of the 13.6 billion CRA portfolio.
Ryan Richards: Notably, this portfolio continues to maintain low levels of non-accruals, delinquencies, and net charges. Our portfolio is granular and well-diversified by property type.
Harris Simmons: Which represents 22% of total loan, balances.
Notably this portfolio continues to maintain low levels of non-accruals delinquencies and net charge offs.
Ryan Richards: This group, carefully managed for over a decade through discipline, confidence, and hard work, Slide 15 provides a detailed view of the problem loans in our CRE portfolio. The chart on the right hand side provides a breakout of which sub-portfolios drove changes in criticized and classified assets. A decrease in total classified loans was driven by commercial real estate, primarily in multifamily The chart on the bottom left hand side of the slide reflects the LTV distribution of classified CRE loans. approximately half of those classified loans having LTVs, loan-to-values, less than 60% when calculated using either recent appraisal or index-adjusted values.
Harris Simmons: Portfolio is granular and well Diversified by property, type and location with its growth carefully, managed for over a decade, through discipline concentration limits.
July 15 provides a detailed view of the problem loans in our CRA portfolio.
The chart on the right hand side provides a breakout of which sub portfolios, drove changes and criticized and classified assets during the quarter.
The decrease in total classified loans, was driven by commercial real estate.
Harris Simmons: Primarily in multi-family due to the factors mentioned previously.
Ryan Richards: Overall, we continue to expect the CRE portfolio to perform well with limited losses based on the current economic outlook, the types of problems being experienced by borrowers. Relatively Low Loan-to-Value Ratios and Continuous Funding.
The chart on the bottom left-hand side of the slide, reflects, the LTV distribution of classified re C loans with approximately half of those classified loans. Having ltvs loan to values less than 60%. When calculated using either recent appraisal or index adjusted values,
Overall, we continue to expect the CRA portfolio to perform well with limited losses. Based on the current economic Outlook, the types of problems being experienced by borrowers, relatively low loan-to-value ratios and continue sponsored support.
Ryan Richards: Our loss absorbing capital is shown on slide. The Common Equity Tier 1 Ratio this quarter was 11%. This, when combined with the allowance for credit losses, compares well to our risk profile.
Harris Simmons: Our loss absorbing capital is shown on slide 16.
Harris Simmons: The common Equity Tier 1 ratio of this quarter was 11%.
Ryan Richards: as reflected in top four tile performance for loan. We expect our common equity from both a regulatory and GAAP perspective. and that AOCI improvement will continue through unrealized loss accretion in the securities portfolio. as individual securities pay down in...
This when combined with the allowance for credit losses Compares, well to our risk profile.
Harris Simmons: As reflected in top 4 tile performance for loan losses.
Harris Simmons: We expect our common Equity from both a regulatory and GAP perspective to continue, increasing organically through earnings.
Ryan Richards: And most importantly, our organic earnings growth, when coupled with AOCI improvements, has enabled us to grow tangible book value per share by 20% versus the prior.
Harris Simmons: And that aoci Improvement will continue through unrealized loss. Secretion in the Securities portfolio, at individual Securities, pay down and mature.
Importantly, our organic earnings growth when coupled with aoci Improvement has enabled us to grow tangible book value per share by 20% versus the prior period.
Ryan Richards: Slide 17 summarizes the financial outlook provided over the course of our prepared remarks for the second as compared to the second quarter of 2025. Our Outlook represents our best estimate of financial performance based on current information.
Harris Simmons: Slide 17 summar is the financial Outlook provided over the course of our prepared remarks for the second quarter of 2026.
Compared to the second quarter of 2025.
Ryan Richards: We expect to continue to bring Positive operating leverage as revenue growth outpaces non- This concludes our prepared remarks.
Harris Simmons: Our Outlook represents our best estimate of financial Performance Based on the current information and we expect to continue to produce.
Harris Simmons: positive operating leverage as Revenue, growth, outpaces on interest expense growth,
Shannon Drage: 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.
Operator: Alicia, please open the line for questions. Thank you.
Harris Simmons: This concludes our prepared remarks. As we move to the question and answer section of the call. We request that you limit your questions to 1 primary and 1. Follow-up question to enable other participants to ask questions. Alicia please open the line for questions.
Operator: 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 2. One moment, please, while we poll for questions.
Harris Simmons: Thank you.
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.
Harris Simmons: 1 moment, please while we pull for questions.
Operator: Thank you.
Manan Gosalia: Our first question comes from the line of Mahan Gosalia with Morgan Stanley. Hi, good afternoon, all right. Harris, I was wondering, what are you hearing from clients in the small business and middle market side? You sound a lot more positive versus last quarter. Is it just the lower uncertainty in the macro environment that's driving that or are you seeing something more that's driving that? Oh, I think so.
Thank you. Our first question comes from the line of Mahan gosalia with Morgan Stanley please proceed.
Mahan Gosalia: Hi. Good afternoon all hi.
Speaker Change: Um, Harris. I was wondering what are you hearing from uh, clients in the small business and Middle Market side? Um, you you you sound a lot more positive versus last quarter. Is it just, uh, the, the lower uncertainty in the macro environment that's driving that or are you seeing something more? That's driving that change.
Harris Simmons: I, you know, I think we last spoke It looked like we were going to have this wall of tariffs coming at the entire economy. Kind of like a tidal wave, and I think that what we've seen over the last 90 days has been willingness on the part of the administration to https://www.youtube.com.au You know, the The ball keeps kind of moving around the court a little bit in terms of, you know, what many I don't know if there's still a lot of certainty as to where it lands. But it's become, I think, a little more clear that.
Uh, the, you know, it looked like this. We were going to have this wall of tariffs coming at the entire economy. Uh,
Kind of like a Title Wave. And I, I, I think that what we've seen over the last 90 days has been willingness on the part of the administration to, uh, to be more flexible. They've, um,
you know, and the the, uh,
The ball keeps kind of moving around the court a little bit in terms of, you know what any, you know.
I don't know if there's still a lot of certainty as to where it lands.
Harris Simmons: that they are trying to kind of thread a needle here and do this without. Duly disrupting the economy. I think they're sensitive to markets. And so, you know, we went out and actually we, we surveyed a lot of small businesses early on, and found that while You know, just over half thought that this was going to be, tariffs were going to be problematic. We also saw that there were, you know, a number of, a number of... Smaller Businesses who actually saw opportunity in it. And as we kind of dig into the portfolio, we're seeing some of that.
Speaker Change: but it's become, I think a little more clear that, um,
Uh, that they are trying to kind of throughout a needle here and and do this without uh, unduly disrupting uh, the economy. I think they're sensitive to markets and
Speaker Change: and so, uh,
you know, we went out and actually we we surveyed uh, a lot of small businesses early on and uh,
Speaker Change: found that uh, while
Speaker Change: You know, just over half thought that this was going to be uh tariffs were going to be problematic.
Uh, we also saw that there were, you know, a number number of uh, businesses smaller businesses who actually saw opportunity in it.
Harris Simmons: You know, there are some businesses being hurt, but there are others that are actually being helped by this. And the economy seems to be weathering this in better shape than I think we might have anticipated a quarter ago. That leads us to believe that probably things are going to be better than we expected when talked about this after the first quarter. Got it.
Speaker Change: and as we kind of dig into the portfolio, we're seeing, uh, we're seeing some of that, uh, you know, it's not, uh,
you know, there are some businesses being hurt, but there are others that are actually being helped by this and
And the economy seems to be weathering this and better shape than I think. Uh, we might have anticipated uh, a quarter ago. So
Speaker Change: Uh, that leads us to, you know, to to believe that. Probably things going to be better than we uh, expected. When we talked about this after the first quarter.
Manan Gosalia: And then maybe on the other side of the balance sheet, on the deposit side, are you seeing any elevated competition? I mean, it looks like the spot rate is lower than the average, it looks like things are moving the right way. But with more banks talking about loan growth improving, are you seeing any early signs of higher competition? I think it's been a really competitive market. for Deposits.
Got it. Um, and then maybe on the other side of the balance sheet, um on the deposit side, are you seeing any elevated competition? I mean, it, it looks like the spot rate is lower than the average. It looks like things are moving the right way. But um, with more Banks, talking about loan growth improving, are you seeing any early signs of higher competition?
Speaker Change: I think it's been, it's been a really competitive market, uh,
for deposits. Um,
Harris Simmons: The challenge is always kind of trying to find the sweet spot between trying to protect your margin, but you're also trying to make sure that your deposit base remains intact and growing. And so we're trying to walk that line. But. I think we pay particular attention to the total funding cost, the cost of funding the balance sheet, and that's continued to come down in a nice way. down roughly 40 basis points over the last And that's how we'll continue to look at it, but we're certainly working hard on the deposit front. That's why I mentioned this consumer deposit effort, which I'm enthusiastic about.
Speaker Change: and,
the, you know, the challenge is always kind of trying to find The Sweet Spot between trying to protect your margin but you're also trying to make sure that your deposit base remains intact and growing and
Speaker Change: and uh, so we're trying to walk that line. But uh,
Speaker Change: uh,
Manan Gosalia: It's too early to know kind of what that can bring, but I think it represents a foray into the consumer market that has been probably less on our priority list in years past than it's becoming today. And we think that incrementally there is opportunity. as there is with small businesses. So that's where we're working at it primarily. and I expect we'll continue to see progress. So are you saying that deposit costs should come down a little bit or total funding costs should come down a little bit from here even without FedRaid cuts? Well, obviously, it's all going to be dependent on on what the Fed what the Fed does.
I I think we paid particular attention to the total funding cost cost of funding, the balance sheet and that's continued to I you know to come down and a nice way. Uh it's down roughly 40 basis points over the last year and um, that's how we'll continue to look at it. But we're, we're certainly working hard on the deposit front. So, I mentioned this, you know, this this consumer deposit uh, effort which uh, I'm enthusiastic about it, it's too early to know, kind of what that can bring, but I think it it represents a 4, a into
Speaker Change: Uh, the consumer Market that has been probably less.
Speaker Change: On our, you know, our priority list in in years past than it than it's becoming today. And we we think that incrementally there is opportunity there as there is with small businesses, so that's where we're working at it. Uh, primarily and uh,
And I expect we'll continue to see progress there.
Speaker Change: So, are you saying that, uh, deposit cost should come down a little bit or total funding cost, should come down a little bit from your even without Fed rate cuts?
Harris Simmons: If they remain static, it could get stickier, but we still have repricing going on in on the asset side of the balance sheet that should give us some boost. I'm not going to suggest that this number can continue to just come down. If you look at our total deposit costs, we already sort of tend to be better than the industry. So I'm not sure there's a lot of additional rooms there.
Well I I obviously it's all going to be dependent on on what the FED what the FED does. Um if they remain static, it could get stickier but we still have repricing going on in uh on the asset side of the balance sheet that should give us uh some boost.
Speaker Change: Um,
Speaker Change: so,
Speaker Change: uh,
Manan Gosalia: I think probably the greatest room is going to be on the... Great, thank you. Thank you.
Speaker Change: I'm not going to suggest that that this number can continue to just come down. Uh, if you look at our total deposit costs, we were already sort of tend to be better than uh, the industry. And uh and so I I'm not sure there's a lot of additional rooms there. I think probably the the greatest room is going to be on the asset side.
Speaker Change: Great, thank you. Yep.
Bernard Gizycki: Our next question comes from the line of Bernard Ron Gizyck with Deutsche Bank. Please proceed. Hey guys, good afternoon. Just on loan growth, it looks like it was really solid in the quarter led by C&I, some term financing and CRE and mortgage from consumer. Just any color you can provide on the increase in loan growth and where you expect to continue from here?
Speaker Change: Thank you. Our next question comes from the line of Bernhard Von gusic with Deutsche Bank, please proceed
Speaker Change: Uh, Hey guys, uh, good afternoon. Um, just on Long growth. Uh, it looks like it was really solid in the quarter led by cni, uh, some term financing and, uh, CRA and mortgage from consumer. Uh, just any color, you can provide on the increase in loan growth and where you expect uh to continue from here.
Derek Steward: Derek, you have anything else? Yeah.
Derek Steward: Well, thank you. Good afternoon. Yeah. So we had Nice loan growth for the quarter, about $891 million. The vast majority of it was from commercial and industrial. Industrial Site. CRE. Not very much. We are seeing increased The consumer side mortgage was up about $120 million. 14 million, both mortgages. Unclosed Construction. and then Originations on the home equity side combined. I would anticipate that that will continue, you know, in the near future.
Speaker Change: Yeah. Well uh, thank you. Um, good afternoon. Yeah. So we we had um, nice loan growth for the quarter of about 891 million.
Um, as he indicated the majority of it was from commercial and Industrial. Uh what we, what we saw during the quarter was uh probably about half of it was from just increased utilization as well as new and then the other half from new origination some nice new originations on the commercial industrial side.
Speaker Change: Um, c. C was up slightly but uh, not very much. We are seeing increased activity though. In the commercial real estate space uh for new origination volume.
The consumer side mortgage was up about 120 million. Um, in home equity was up, 114 million both. Uh, I you know, mortgage was just uh, new origination activity as well as some loans. Continuing to move from our our 1 time, close construction book into the mortgage book. Um, and then originations on the home, equity side combined with some increased utilization there.
Speaker Change: so, I would anticipate that, that will continue
Speaker Change: you know, um,
Derek Steward: have a number of initiatives around small Commercial, Industrial, and again the increased activity that we're starting.
Ryan Richards: This is Ryan. One of the views that we brought this quarter that we sometimes have in our travel day. I'm going to give you a view of where the growth is coming from across our affiliates, so I would just point you to slide 23 of the materials, and it will be clear to the growth we're seeing, sort of when the Zions market, the California Bank of Trust and AMG, we're seeing a lot of growth with the top-line growth coming out of commercial, as you noted, and that is certainly where we expect to see the growth going forward.
In in the the near future as we continue to uh have a number of initiatives around small business as well as commercial and Industrial. And again, the increased activity that we're starting to see uh in commercial real estate Bernard. This is Ryan, 1 of The Views that we brought this quarter that we sometimes have in our travel decks.
Speaker Change: Is a view of where the growth is coming from across our Affiliates. So I would just point you to slide 23 in the materials and clear to the growth. We're seeing
Speaker Change: sort of when the designs uh markets, the California Bank and Trust and ammo where we're seeing a lot of growth with the Topline growth coming out of commercial as you noted. And that is certainly where we expect to see the growth going.
Bernard Gizycki: Okay, got it.
Bernard Gizycki: And that's for a follow up on just the regulation. You know, Bowman has laid out a number of items that likely need to be dialed back, and we'll likely see an overall easing of the regulatory framework. Can you just talk to any specific items that could be beneficial for Zion? Obviously, tiering is an area that could be beneficial if the $100 billion asset threshold is moved to $130 billion or so, or to $250 billion.
Harris Simmons: But just wanted to hear your thoughts if this could lead to a more willingness to pursue M&A. Obviously, I understand your focus on a more organic growth. Maybe it's just a benefit to the industry, that could still obviously be some benefit to your bank. Just any thoughts here would be great.
And that's just for a follow-up on. Just the regulation, uh, you know, Bowman is laid out a number of items that like we need to be dialed back. Uh, and will likely see an overall easing of the regulatory framework. Can you just talk to any specific items that could be beneficial for Zion? Obviously tearing is is an area that could be beneficial. It's the 100s of thresholds moved uh to 130 billion or so or to 250 million uh but just wanted to hear your thoughts. If this could lead to a more willingness to pursue m&a, obviously understand your focus on more organic growth. Uh, maybe it's just a benefit to uh, the industry uh, that that could still obviously be some benefit to to your bank. Uh, just any thoughts, here would be great.
Harris Simmons: Yeah, I, you know, this is Harris, I, from my perspective, probably the most encouraging thing is the cheering you're talking about and the You know, of all the proposals that have been out there, Fossil 3 Endgame, etc., the long-term debt requirement was probably... It was going to maybe have the biggest impact and just because of spreads on that for regional bankers. Substantial relative to alternative funding costs. And so having that... It's not off the table, at least on the back burner and probably subject to a lot of additional thought about tiering. is maybe the most encouraging thing that I see in the landscape.
no, I I, you know, if this is a Harris, I from my perspective, probably the most encouraging thing, uh, is, is the cheering you're talking about and the
You know, I the the of all the proposals that have been out there uh fossil 3 end game Etc. The uh the long-term debt requirement was probably
you know, was going to maybe have the biggest impact and uh just because it spreads on that for a regional bank or you know,
Speaker Change: substantial relative to Alternative funding costs.
Speaker Change: And uh, so
Speaker Change: having that, uh,
if not off the table, at least, uh, the back on the back burner and probably subject to a lot of additional thought about, uh, tiering
Speaker Change: Is uh, maybe the most encouraging thing that I that I see in the landscape.
Harris Simmons: You know, as for M&A, you know, I just point anybody to my shareholder letter. Published in February. on pages 13 and 14. I do a little treatise there on M&A, and I simply point to anybody there. It's very consistent with how I think we're going. We don't think that we need to grow for growth's sake. There are going to be occasions. We demonstrated the deal we did last quarter. down in the Coachella Valley, Southern California, you know, kind of a tuck-in deal that is really a nice fit for us that gives us a really nice market presence and a great market.
Um, you know, it's RAM and I uh, you know, I just point anybody to I my shareholder letter. It was published in February, so on pages, 13 and 14.
Speaker Change: We need to grow for growth's sake.
Um there are going to be occasions. We we, we demonstrated uh, the deal we did last quarter down in the Coachella Valley, uh, Southern California and all kind of a tuck in deal. That is is really a nice fit for us. Uh, that gives us a really nice Market presence and a great Market.
Harris Simmons: And, you know, so I, you know, I think we think strategically about it, but not strategically in terms of, hey, we just got to get it done. Costs. So, uh, For more, go to my essay.
um,
and you know, so I I you know I I I think we think strategically about it but not strategically in terms of hey we just got to get bigger at any cost, so
Speaker Change: um,
Speaker Change: For for more uh go to what I go to my essay.
Bernard Gizycki: Okay, great. Thanks for taking my question.
Okay. Great. Thanks for taking my question.
John Pancari: Our next question comes from the line of John Pancari with Evercore ISI. Please proceed. That's him! All right, here we go. I guess just on the expense side, I know you're still targeting, you're indicating that your expense outlook does imply confidence in driving positive operating leverage. I want to see if you can maybe help us frame the degree of positive operating leverage that you think is reasonable given your growth opportunities in front of you, but also the investments. And if you do see a degree of revenue pressure than you currently include in the guidance, do you still have confidence in the ability to achieve positive operating leverage just given the expense?
Thank you.
Our next question comes from the line of John pichkari with evercore. Isi, please proceed.
Good afternoon.
Speaker Change: Hi.
Um, I I guess just on the expense side. I um
Speaker Change: I know you're still uh, targeting your indicator that your expense Outlook does imply confidence in driving positive operating leverage. Uh, I want to see if you're can maybe help us frame the degree of positive operating leverage that you think is reasonable given your your growth opportunities in front of you but also the Investments. And if you do see a greater degree of Revenue press,
John Pancari: Hey, John, thanks for that. Thank you for your question. And yes, we updated some of the guidance they're looking for for the quarter. And it wouldn't be immediately obvious just on the words that we choose that the positive operating leverage would be there, I would reaffirm that we see it, we sort of size it in the 100 to 200 base There's a litany of things that we do internally to make sure that we stay focused on the expense side. I don't think that's ever going to change. I think where we came into this year was with more of a growth orientation, kind of turning the page, putting more money into marketing dollars, putting more money into revenue producers.
Then you currently include in this Guidance. Do you still have confidence in the ability to to achieve positive operating leverage? Just given the expense Flex?
Speaker Change: Hey, John, thanks for that. Uh
Speaker Change: For your question. And and yes, that we updated some of the guidance there. Looking forward for the quarter, and it wouldn't be immediately obvious. Just on the words that we choose that the positive offering leverage would be there. I would reaffirm that we see it. Uh, we sort of size it, and the 1002 basis points,
Ryan Richards: And so that's the pull-through you're going to see on the revenue side. It's really hard for us to exactly project what we're going to get in loan growth, but we're a little bit more upbeat, as Harris alluded to before.
Ryan Richards: So if you sort of think about the breadth of what some of the words we use suggest, think about being on the higher end of that range for the revenue pieces and maybe the lower end for the...
Ryan Richards: PART 2 OF 2 I just add that one of the things I'm really encouraged by is we've either hired or have offers out. These are ten really good producers that I could, you know... have on my desk. And just in the last couple of And not that we're going to always be working at that pace, but we're finding some really good people. who through disruption other places are looking. So we're going to see increases, I think, are going to be in what I think of as good expense, which is... not compliance, regulatory, back office, it's actually people who are actually really good revenue producers.
Um so and and we, you know, there's a Litany of things that we do internally to make sure that uh, we stay focused on the expense side. I don't think that's ever going to change. I think where we came into this year, was with more of a growth orientation kind of turning the page putting more money into marketing dollars. Putting more uh money into Revenue producers and so that's the pull through. You're going to see on the revenue side. It's really hard for us to exactly project what we're going to get the loan growth, but we're a little bit more upbeat as as Harris alluded to before. Uh, so if you sort of think about the, the breadth of what the, some of the words we use suggest, um, think about being at the higher end of that range for for the revenue pieces and, and maybe at the lower end for the for the expense piece of the line. For some operating leverage. I just add that, uh, 1 of the things I'm really encouraged by is we we
do we have either hired or have offers out to at least 10, uh, really good producers that I could, you know that I have on my desk or have been
Speaker Change: Uh, sent uh just it's in the last couple of weeks.
Speaker Change: And uh, not that we're going to tell us be working at that pace. But uh we're finding some really good people um who through disruption other places are are looking for good home and and uh,
and so we're going to see increases, I think are going to be in what I think of as good expense which is
Speaker Change: Which is, uh, you know, it's not compliance regulatory back office. It's actually people who are actually really good Revenue. Producers,
Ryan Richards: So, you know, that and some increased... You know, I mentioned a couple of initiatives we have going in small business, consumer. that I think can be really meaningful for us, but it's going to take some marketing to get there. So those are the kind of those are kind of places where we're going to see. It doesn't always produce revenue day one, but it should kind of pretty quickly. We look at the report results for this quarter on a year-over-year basis, the 9% growth in 7% growth in customer fees year-over-year. illustrative of kind of where we've been heading on the revenue side.
um,
Speaker Change: and so you know that that and some increased marketing spend uh on you know I mentioned a couple of initiatives we have going in small business consumer
Speaker Change: Uh, that I think can be really meaningful for us, but it's going to take some marketing to get there. And, uh,
uh, so those are the kind, those are the kind of places where we're going to see. Spend,
Ryan Richards: Compare that to the 3% adjusted expense growth year-over-year, we've been disciplined, so I think it's, just reiterating what Harris said, it would be the good kind of expense growth while also building on our revenue. John and Scott, I would just add, I think you can tell from Ryan and Harris's comment that there's a lot of momentum and energy behind investing in revenue growth in our key segments, products, marketing, etc., hiring. And so that, you know, gives us a lot of confidence about revenue going forward. But the other thing I would point back to is, you know, you've heard us talk about The better part of the last 10 years of just kind of this continuous improvement process that we're always going through.
Speaker Change: Uh, it doesn't always produce Revenue, uh, day 1, but they, it, it should kind of pretty quickly turn into Revenue. If you look at the momentum in our, the reported results for this quarter on a year-over-year basis, the 9% growth in that interest income, the 7% growth in customer feeds year-over-year, that just is illustrative of kind of where we've been heading on the revenue side of the business. And and and we compare that to the 3.
3%, adjusted expense growth year-over-year, we've been disciplined. So I I think it just reiterating what Harris said it would be the good kind of expense growth while also building on our Revenue momentum,
Scott: John this Scott. I I would just add. I I think you can tell from uh Ryan and Harris's comment that there's uh
Ryan Richards: And we have probably, for the expense growth that you see, we have every year about 2% of our base of expenses that we're eliminating through just continuous improvement. How we process documents, how we're using AI, we process 21,000 W-9 forms and signature cards a year. It's kind of an inane number, but oh my gosh, there's so much expense related to that. And we're finding great benefit from using AI in a place like that. We have a lot of quality assurance and review function. You know, if you look at our wire transactions, AMLBSA, there's a significant amount of false positives that are created there.
Part of the last 10 years of just kind of this continuous improvement process that we're always going through. And we have probably uh, for the expense growth that you see. Uh, we have every year about 2% of our base of expenses that we're eliminating through uh uh,
Ryan Richards: And so we're using AI actively there, both in the false positives in our wire room and also in AMLBSA. And then if you just look at our credit process. a huge area of activity in our company, and whether it's loan spreading or credit presentations for renewals or new loans, loan reviews, the whole area of activity there, we're actively pursuing the use of AI to not necessarily, I mean, in most cases, it will reduce expense, but it'll also allow us to redirect the work of those colleagues that are in those areas to higher value work, actually analyzing the data to create more revenue or reduce expense or minimize losses as opposed to just producing the data and then being so exhausted, you know, we don't know what to do with it.
Just continuous Improvement. I, you know how we process, documents how we're using AI, uh, you know, we process 21,000 W9 forums and signature cards a year. Uh, it's kind of an inane number, but oh my gosh. There's so much expense related to that. And we're finding, uh, uh, great benefit from using a AI in a place like that. Um, we have a lot of quality assurance and review functions, you know, if you look at our wire, transactions AML BSA, uh, there's a significant amount of false positives that are created there, and so we're using AI actively there, uh, both in the false positives, in our wire wire room, and also in AML BSA. Um, and then if you just look at our credit processes, a huge, uh, you know, area of activity in our company, and whether it's loan, spreading or credit presentations, for renewals or new loans,
John Pancari: So those would just be a few examples of this big bucket of small improvements that we've been about for over a decade. Got it. Okay. All right. Thank you for all that detail. And then one quick follow up. And I know M&A was already asked about, but on the M&A front, I know you mentioned the merits of the smaller Coachella Valley deal that you did. And have you seen, you know, as you completed that transaction, and you know, have you seen the benefit of the new core system in terms of the ability to integrate and close the deal faster and ideally save on costs and achieve potentially higher cost savings through a transaction like that?
Loan reviews, the whole area of activity there. Uh we're we are actively pursuing the use of AI to not necessarily. Uh, I mean in most cases it's it it will reduce expense. But it'll also allow us to redirect the work of those colleagues that are in those areas to higher value work. Actually analyzing the data to create more revenue or reduce expense or minimize losses as opposed to just producing the data and then being so exhausted. You know, we don't know what to do with it. So uh those would just be a few examples of this big bucket of small improvements that we've been about for over a decade now.
Scott Mclean: Yeah, John, this is Scott again. Absolutely. I mean, if you just think about it at 30,000 feet, we had three loan systems, one for consumer, one for commercial, one for real estate, one deposit system, all 40 years old, all customized, customized like crazy. And every other bank in the country has this, we weren't the only one. And dozens and dozens of data models. So if you just think about that on the one hand, and then you think about now, we have one integrated loan and deposit system with one data model. In the elimination of all that tech debt, that is AI-enabled, cloud-enabled, real-time processing.
Scott: Got it. Okay. All right. Thank you for for all that detail and then 1 1, quick, follow-up and and I know Emma was already asked about but on on the Yemen front, I know you mentioned the merits of the smaller uh uh Coachella Valley Valley deal that you did. And and um have you seen you know, as you as you completed that transaction and you know have you seen the benefit of the new core system in terms of um the ability to integrate um and close the deal faster and uh ideally save on on costs and Achieve potentially higher cost savings through the transaction like that. Yeah. John this Scott again? Uh, absolutely. I mean if you just think about it at 30,000 ft, uh we had 3 loan systems.
1 for Consumer, 1 for commercial 1, for Real Estate 1, deposit system, all 40 years old uh all customized uh customized like crazy. Uh and every other bank in the country has this, we weren't the only 1 and uh dozens and dozens of data models.
Uh so if you just think about that on the 1 hand and then you think about now we have 1, integrated loan and deposit system with 1 data model.
Scott Mclean: And then you think about how do you merge like these branches we just did in the Coachella Valley? I mean, There's always complication on the seller side, but on our side, we're merging into a much more clean and modern environment that no one else really I might just add, you know, if it hasn't come up, it might.
And the elimination of all that Tech debt uh, that is uh AI enabled, cloud enabled uh real time processing.
And then you think about how do you merge? Uh, like these branches. We just did in the Coachella Valley. I mean, there's always complication on the seller side, but on our side we're merging into a much more clean and modern environment. Uh, that no 1 else really has
Scott Mclean: otherwise come up.
Scott Mclean: There's been, you know, obviously a lot of focus on the Genius Act and stable tokenized. and this new platform we have, the TCS Bank.
I might just add uh you know if it hasn't come up, it might otherwise come up, but there's been, you know, obvious a lot of focus on uh the genius act and stable coin, Etc, tokenized deposits.
Scott: And this, this new platform, we have the TCS Bank system.
Scott Mclean: is, I don't know that we're. It's singular this way, but it's probably one of the few cores in the... Well, we're actually... settling transactions into the core in real time. and what I think you're seeing. We're coming into a world where real-time settlement is going to be... to have. That's built into what we have.
Um, is I I I don't know that we're, you know, singular this way but it's it, it's probably 1 of the few cores in the United States uh, where we're actually settling transactions into the core in real time.
And what I think you're seeing with developments, with stablecoin, we're tokenized deposits.
Is that we're coming into a world where real-time settlement is going to be, uh, really important. Um,
kind of functionality to have, and
Scott Mclean: We could define an account type in our core system to custody digital assets, tokenized deposit. PCS has a crypto service platform that would allow us to connect to crypto exchanges.
Uh, that's built into what we have. We could, we could, um, Define an account type in our core system, to custody to digital assets tokenized deposits.
Scott: and um,
Scott Mclean: So I think a lot of plumbing has been built for however that future unfolds, and I think it's still too early certainly for us to see how that unfolds, how it affects a regional bank like us. But I think we'll find that a lot of the investment... Preparing School. Got it. All right. Thank you for that. Appreciate it. Yep. Thank you.
And TCS has a a crypto service platform that would allow us to connect to crypto exchanges. So I think, I think a lot of
A lot of Plumbing has been built for however that future unfolds and I think it's still too early certainly for us to see how that unfolds out, how it affects a Regional Bank like us.
Scott: Uh, but I think we'll find that a lot of the investment we've made, uh, prepares us well for that world.
Got it. All right, thank you for that. Appreciate it.
Bill Karshay: Our next question comes to the mind of Bill Karshay with Wolf Research. Please proceed.
Scott: Thank you.
Our next question comes from the line of bill caret with wolf research, please proceed.
Bill Karshay: Bill, your line is unmuted. You may be muted on your end. Hi, thank you. Good afternoon.
Ryan Richards: As you think about the interplay between ongoing repricing tailwinds and your funding dynamics that you've discussed, is there anything that gets in the way of your NIM getting back to sort of that 3.5% level that we saw pre-COVID? The consensus doesn't have you getting there through 2027. Is that too conservative? Perhaps, you know, any thoughts on the reversion to that sort of pre-COVID NIM level? Hey, thanks, Bill. We'll take that in parts. And let me know if we don't get all the way there. I think we you're right to remember us talking about a three mid three mid three type NEM.
Uh, Bill, your line is unmuted. You may be muted on your end. Hi. Yes. Thank you. Uh, good afternoon. Um, as you think about the interplay between ongoing repricing tailwind, and your funding dynamics that you've discussed? Is there anything that gets in the way of
Your Nim getting back to sort of that 3 and a half percent level that we saw a preco, the consensus doesn't have you getting there through 2027 is that too conservative. Perhaps, you know, any thoughts on, um, you know, on on the reversion to that sort of preco nim level.
Ryan Richards: You know, hopefully having a more constructive yield curve is useful and all that as well. But we do have some things working in our favor. Harris was right earlier in the call noting on the deposit side, there's not much more to play through on that side that we're seeing in terms of fixed type of repricing on CDs. So that has more or less played out. On the asset side, there's still things that are lagging through on the fixed asset repricing that we see the potential for two to three basis points just like it through each quarter on that basis for things that just haven't quite fully We also make a point to talk about the fact that we've had cash flow hedges that were And it's been a headwind for our NIM over time, but it's been negating an impact.
Hey, thanks Bill. Let's go take that in parts and let me know if we don't get all the way there. Um, I think when we, you're right to remember us talking about a 3, mid mid 3 Type NM um, you know, hopefully having a more constructive yield curve is useful in all that as well, but we do have some things working in our favor. Um, Harris was right earlier in the call noting on the deposit side. There's not much more to play through, on that side that we're seeing, in terms of fixed, uh, type of repricing on CD. So that has more or less played out on the asset side, there is still things that are legging through, on the fixed asset repricing, um, that we we see the potential for 2 to 3 basis points. Just looking through each quarter on that basis for things that just haven't quite fully manifest.
Ryan Richards: So I think in this quarter, there was a $16 million negative impact associated with that. You can think about that diminishing roughly $2 million per quarter over time until you get basically to the end of 2027. So that's a dimension in that. always talked about the remix. We still have room to run as it relates. The training out of the rundown of our investment securities portfolio and the beneficial trade that we've had in reinvesting a lot of those dollars into loan. So we've, you know, we've said in my prepared remarks, and it's been pretty consistent here for the past few quarters, of generating anywhere between $700 million to $800 million worth of cash flows from investment securities portfolio, in more recent periods, reinvesting about half of that, while allowing us to, you know, have higher yielding loans come onto the balance and award to pay down, you know, following costs.
We also make a point to talk about the fact that we've had these uh, cash flow Hedges that were, uh, just discontinued and it's been a headwind for our Nim over time, but it's been negating an impact. Um, so I think at this quarter, there was a 16th of that, you can think about that diminishing roughly 2 million dollars per quarter over time until you get basically to the end of 2027. Uh, so that's a dimension in in, in that that we've always talked about the remix. Um, we still have room to run as it relates to uh, the trading out of the rundown of our investment Securities portfolio, and the benefit the beneficial trade that we've had in reinvesting. A lot of those dollars into loan growth. Um, so we've, you know, we've said in my prepared remarks and it's been
Pretty consistent here for the last. Few quarters of generating anywhere between 700 and 800 Million worth of cash flows for investment Securities portfolio and more recent periods. Reinvesting about half of that.
Ryan Richards: So those are dynamics that we think all kind of work in our favor, to kind of keep pushing forward from here, on the backs of six consecutive quarters of nomination. with this one being pretty pronounced. So that's what kind of gives Some ... Page 1 Thank you. That's helpful.
While allowing us to, you know, have higher yielding loans, come on the balance sheet and, or to pay down, um, you know, borrowing costs. Uh, so those are, those are dynamics that we think all kind of work in our favor. Um, so to kind of keep pushing forward from here, on the backs of 6 consecutive quarters of name, Nim expansion with this 1 being pretty pronounced. Um,
Scott: so that's what kind of gives us um, you know, some
Scott: Feelings that we can we can press for from this level.
Harris Simmons: And then, Harris, following up on your gold account comments, can you give a little bit more color on some of the features of that? You know, what's contributing to success, how you're thinking about expanding that offering into your other markets? Yeah, I mean, some of the features of the account, unlimited ATM, free ATM access. which by the way, you know, people are using ATMs less and less and so so it becomes © The Bulletproof Executive 2013 for using less. http://TheBusinessProfessor.com We have lots of safe deposit box inventories. We're giving people access where we have availability to a free safe.
Thank you. Uh that's helpful. And then Harris following up on your gold account comments. Can you give a little bit more color on some of the features of, you know, of that um, you know, what's contributing uh to success how you're thinking about expanding that offering into your other markets?
Yeah, I mean, some of the features, uh, of the account, uh, unlimited ATM, you know, free ATM access.
Um, which by the way you know people are using ATMs, less and less. And so so it becomes, I mean, the the cost of giving away something that uh, people are using less, it becomes easier over time.
Scott: Uh, we have lots of safe deposit box. Inventories, we're giving people access where we have availability to a free safe deposit box.
Harris Simmons: https://www.larryweaver.com Money Market Accounts You kind of get the idea, it's, we're really trying to say, hey, we want all of your business. These customers, it's got a $2,500 minimum balance. Non-interest Grants And what we're finding is people who will open an account that has a $2,500 minimum balance carry much higher balance. And that's, that's, that's why. We'll be rolling it out starting here. mid-September across the rest of the company. I would just add there's additional credit card bonuses related to it as well as access to wealth planning capabilities, you know, capabilities, investment management. http://TheBusinessProfessor.com Thank you for the details.
Um, uh, some discounts on Consumer loans, some premium on, uh, money money market accounts, uh,
Scott: You kind of get the idea. It's it's uh we're really trying to say, hey we want all of your business and and really embrace
these uh customers. It's got a 2500 minimum balance.
Scott: It's a non-interest-bearing account.
$100 minimum balance, carry higher balance, much higher balance, isn't that?
Scott: And that's that's that's why uh we think that's going to be a real winner.
Uh we'll we'll be rolling it out. Starting uh here in mid September across the rest of the uh
The company uh that's the current plan. I would just add. There's additional credit card, bonuses related to it as well as uh uh access to wealth planning cap. You know, capabilities and Investment Management capabilities at at with less friction associated with it.
Harris Simmons: That's very helpful. Thank you.
Speaker Change: Thank you for the details. It's very helpful. Yep.
Kenneth Usdin: Our next question comes from the line of Ken Usdin with Autonomous Research. Please proceed. Great. Thanks, guys. Just a couple more follow-ups on the remix points. On the liability side, you've had a great path towards getting down some of those broker deposits. And this quarter, I see a little remixing into FHLB.
Thank you. Our next question comes from the line of. Can you use them with autonomous research, please proceed?
Ryan Richards: Can you just kind of give us an update of where your brokerage stand at the end of the quarter? And how much more remixing can you do, especially if the DDA balances look like they've bottomed, if not started to increase a little bit? Thanks. Yeah, thanks, Ken. I'm happy to get going on that. You know, thank you for noting that it is something that we Working Down. that the balance on the spot basis was down just over 800 million. We sort of think about opportunities across broker deposits, think about federal home loan bank borrowings, and think about repos.
Uh, great thanks guys. Um, just a couple more follow-ups on the, on the remix points on. On the liability side, you've had a great path towards getting down some of those broker deposits. And, um, this quarter, I see a little remixing in fhlb, can you just kind of give us an update of where your brokerage stand at the end of the quarter and how much more remixing can you do? Um, especially if, if, uh, if the DDA balances look like they, they bottomed if not started to increase a little bit. Thanks.
Ryan Richards: about the relative trade-offs between those various funding And this quarter we saw an opportunity on some of those sort of home loan advances. All in all, I think we're a very good team, a member of that that was more advantageous and useful in helping to work down that balance. So it's something that we're...
Yeah, thanks Ken. I'm happy to get going on that. Um, you know, thank you for noting that we, it is something that we we've been working down, um, and certainly, uh, that the balance on the spot basis was down, just over 800 million this quarter uh, we sort of think about opportunities um across, you know, broker deposits. Think about Federal Home Loan Bank, borrowings to think about repos and think about the relative trade-offs between those various funding sources.
Ryan Richards: Part of our calculus that we'll continue to work down, and we've demonstrated an ability to do that, but of course our success in doing so will depend a lot on where Harris opened the and our success in generating that new client relation. We'll be driving through that channel That's what I taught. Got it. And on the loan side, very interesting to see all three of the loan categories yields go up. I know there's obviously a little swaps impact on the CNI book, but the CRE and the consumer. So can you can you help us walk through what the what that front book, back book benefit continues to be?
And this quarter, we saw an opportunity on some of those uh, sort of home loan advances. We used to factor in the the the stock dividends that we received as being a member of that, that was more advantageous and useful in helping to work down that balance. Um, so it's something that we're, you know, that it's been part of our calculus, that we'll continue to work down. Um, and we've demonstrated an ability to do that, but of course, our success in doing. So will depend a lot on where Harris opened this call and our success in generating a net new uh client relationships and and and driving through that channel. Um, so
Speaker Change: That's what I that's how I would respond to your question.
Ryan Richards: And, and just what's your natural states of just what competitions like out there in terms of spreads? Thanks. Yeah, I'll get started. I'll invite my colleagues to jump in as they see fit. From a front book, back book perspective, what's coming on is coming on a yield at 7.38%, compared to a back book at 7.31%. What you see there, and I think you understand this intuitively, Kenneth, there's been a lot of repricing in the back for our materials, we show the repricing. Pattern of our earning assets or loans. We see a lot of that re-prices within a year, certainly the majority of earning assets, and it's even more pronounced for loans.
Got it. And on the loan side, it's very interesting to see. All 3 of the loan categories, uh, yields go up. I know there's a, obviously a little swaps impact on the cni book but the CRA and the consumer. So can you can you help us walk through? Um, what the what that front book bakbuk benefit continues to be and um and just what your natural state of of just what competitions like out there in terms of spreads? Thanks.
Speaker Change: Y'all get started and I'll invite my colleagues to jump in as they see fit, uh from a front load back book perspective. Uh, what's coming on, it's coming on a yield at 7.38% compared to a back book at 7.31%, what you see there. And I think you understand this intuitively can. If there's been a lot of repricing in the back of our materials, we show the repricing.
Ryan Richards: So that's why you don't see as stark of a difference between the front book and back book. Interesting, we are reaching a point now in the consumer books, as you pointed to that, where we had some of those, you know, 5-1 arms that are now starting, that were priced at lower rates, they're now starting to remark and reprice to the level that's really helpful to us. And you would also note that, you know, even for our commercial book, that our terms of our commercial lending typically are not very extended. And we've had some opportunities there that have been really useful in the repricing up of commercial fixed.
Pattern of our earning assets and loans and you'll see a lot of that reres within a year. Certainly the majority of earning assets and even if it's even more pronounced for loans,
Ryan Richards: So those are just a couple of dynamics I would point to that are kind of probably pointing to the pattern. Okay, great.
Um, so that's why you don't see as Stark of a, of a difference between the front book and back book, interesting. We we are reaching a point. Now, the consumer books that you, you pointed to that, where we had some of those, you know, 51 arms that are now starting that were priced at lower rates they're now starting to, to remark and re price, uh, to the level that's, that's really helpful to us. And you would also note that, you know, even on for our commercial book, that our terms of our commercial lending, uh, typically are not very extended. Um, and we've had some opportunities there that have been really useful in the re-pricing up of commercial fixed. Um, relationships. So those are just a couple of dynamics that would point to that are kind of probably pointing to the pattern that you're seeing.
Ryan Richards: Thanks a lot, Ryan. Thank you.
Okay, great. Thanks a lot Ryan.
Speaker Change: Thank you.
Peter Winter: Our next question comes from the line of Peter Winter with D.A. Davidson. Please proceed. Thanks. Good afternoon.
Thank you. Our next question comes from the line of Peter winter who's da Davidson please proceed.
Peter Winter: If I look at slide 27, the latent emergent scenario, the hypothetical simulation, it does seem conservative with the assumption of $1.4 billion migration of non-interest bank deposits. Could you, Ryan, maybe provide some sensitivity if DDA deposits stabilize, which has kind of been the trend the last few quarters? Hey, thanks, Peter. We, we didn't know if this would go quietly into the night. No interest in it, which is fine. We actually find it quite interesting for ourselves as a management team. But we don't want to force feed people things that they don't really care to So, for what it's worth, we'll let you judge how conservative that is.
Uh, thanks, good afternoon. If if I look at slide 27, the late in the merchant, uh, scenario that the hypothetical simulation it. It does seem conservative with the Assumption of 1.4 billion, uh, migration. If not interesting deposits. Maybe could you Ryan maybe provide some sensitivity if DDA deposits stabilized, which is kind of been the trend, the last few quarters
Speaker Change: To go quietly.
Speaker Change: But as it turns out still interested in it.
Ryan Richards: I know that people have made those points before. There was a time when that migration assumption was as high as $5 billion, and over time, we've sort of tightened that up. We like some of the stability that we've been seeing over periods in non-interest-bearing deposits. I think, certainly, the things we're talking about, the gold accounts had a hand in that in the most recent period. We haven't gone to further lengths of talking about what happens if there's zero migration here. We're feeding you with an assumption. We do try to give you some bounds in other places to try to show, you know, when you overlay the emergent piece of that, kind of getting to more of a forward path view, and then putting some bookends at 100 basis points and other ends around that implied rate path.
But we don't want a 4-speed people things that they don't really care to consume. So, uh, for what it's worth, we'll let you judge how conservative that is. I know that people have made those points before. There was a time when that, that migration assumption was as high as 5 billion and over time, we've sort of tighten that up. Um, you know, we like some of the stability that we've been seeing over over periods. Um, and non-interest bearing deposits. I think, you know, certainly the things we're talking about with the gold accounts, had a hand on that and most recent periods.
Matt Tyler: We do show some breadth of that, but I don't have a statistic in front of me that would show, you know, what the assumption would be at, like, a zero billion migration. You can probably take 1.4 minus zero times the current short term. Yeah, that's right. You can solve it. You can solve for it. Matt may have some. This is Matt Tyler. I'm a corporate treasurer. I think... We're tuned to whatever DDA runs off as replaced. funding near, very close to the Fed funds rate, you get your sensitivity. Okay, got it.
Speaker Change: Uh, we haven't gone to further Links of talking about what happens if there's zero migration here, we're just we're feeding you with an assumption. We do try to give you some balance in other places to try to show, you know, when you overlay the emergent piece of that kind of getting to more of a 4 Forward, path View, and then putting some book ends at 100 basis points, and other ends around that implied, rate path. We do show some some breadth of that, but I don't have a statistic in front of me that would show, you know, what? Assumption would be at like, a zero billion. Migration. Um, so but we can you can like, take 1.4 minus 0. Uh, times. The current short term. Yeah. That's right. And you can solve it. Yeah, you can solve for it and that may have you. And this is Matt Tyler.
For Treasure. I think if you, if you just assume that whatever, DDA um uh runs off is replaced with funding near, very close to the FED funds rate. Uh, you'll get your sensitivity that you're looking for.
Ryan Richards: And if I could ask, you know, just speaking about balance sheet, you know, still asset sensitive. Could you talk about maybe some of the plans going forward to manage the balance sheet sensitivity? It, you know, clearly seems like the next Fed Chairman's likely going to take a more dovish stance on rates. Yeah, thank you for that, Peter. Happy to provide some perspectives there. Listen, we have some materials to talk about where we are with hedges. We try to remain balanced. We try to balance as we can, and we think we're in a reasonably good place, but we do recognize that we tend to screen on the higher end of asset sensitivity in our peer set.
Speaker Change: Okay, got it.
And if I could ask, you know, just speaking about balance sheet um you know, still assets sensitive uh could you talk about maybe some of the plans going forward?
Speaker Change: To manage the balance sheet. Sensitivity it, you know, clearly seems like the next fed, Chairman's, likely, going to take a, a more dovish stance, uh, on rates.
Ryan Richards: And we recognize that methodologies can be different, and how people think about their positive assumptions can drive various outcomes there. But, you know, we also want to be in tune to the, you know, net interest income impacts of if there is a more dovish Fed and a downturn there. So it is something we talk about internally. We do think there's probably some room to do a little bit of management to decrease that asset sensitivity at the margin. But we also couple that with considerations about the value considerations and fair value of equity and tangible common equity.
Yeah, thank you for that Peter. Happy to um, provide some perspectives there. Uh, listen we we we have some materials to talk about where we are with Hedges. We we try to remain balanced here as balances we can and and we think we're in a reasonably good place. But we do recognize that we screen, 10 to screen on the higher end of assets, sensitivity and our peer set.
Ryan Richards: And so you've seen over time us. Pivot and put on more pay fixed hedges on our loans and securities to also protect about and to the extent that term rates were to run up on us to make sure that we manage that to a level that we feel is appropriate. So it's sort of a dual fold explanation about how we're managing the balance. Got it. Thanks, Ryan. Thank you.
Um, and we, we recognize that methodologies can be different and how people think about their positive assumptions can drive various outcomes there. Uh but you know we we also want to be attuned to the uh, you know, net interest income impacts of if there is a a more dovish fed and and a downturn there. So it is something we talked about internally. We do think there's probably some room to do a little bit of management to decrease that asset sensitivity at the margin. But we also couple that with considerations about the value considerations, and fair value of equity, and tangible, common equity and so,
So, you've seen over time us.
Pivot and put on more uh paid fixed Hedges on our loans and securities to also protect about to the extent, the term rates uh, were to run up on us uh to make sure that that um we manage that to a level that we feel is appropriate. So it's sort of a dual fold uh explanation about how we're managing the balance sheet right now.
Speaker Change: Got it. Thanks Ryan.
Chris Mcgratty: Our next question comes from the line of Chris McGratty with KBW. Please proceed. Great. Thanks for the question.
Speaker Change: Thank you.
Our next question comes from the line of Chris McGrady with KBW, please proceed.
Scott Mclean: Can you speak about the outlook for your capital markets business, your fee income that you spent, you know, a lot of time building, interested in how that business is progressing relative to expectations and where you think that could be over time? Thanks.
Great. Thanks for the question.
Scott Mclean: Sure, Chris, this is Scott McLean. And no, the business is, is growing really nicely for us, you know, recall that in 23, we had about $81 million in revenue. It grew to $107 million last year, and we're on a good pace this year. And we've said for three years now, as you'll recall, that this is a business that we thought we could double in size in a four-year period, five-year period, that kind of range. And I think we're on our path to doing that. You know, the major contributors, clearly, you know, loan syndications, interest rate risk management, foreign exchange, those have been three businesses we've been in for a long time, and they're continuing to grow at a nice pace, you know, depending on the economic circumstances.
Um, can you speak about the outlook for your Capital markets business? Your fee income that you spent you know a lot of time building um interested in in how that business is progressing relative to expectations and and where you think that could be over time. Thanks.
Scott: sure Chris uh, this is Scott mlan and now the business is, uh,
Is growing really nicely for us, you know, recall that in 23 we had about 81 million dollars in Revenue.
Scott: It grew to 107 Million last year. And, you know, we're on a good good Pace this year.
Uh and we've said for, oh, 3 years now as you'll recall that uh this is a business that we thought we could double in size in a you know 4 year period 5 year period, that kind of range.
Scott Mclean: But then we've added a real estate capital markets business, as you'll recall, about two years ago. We added it in kind of a rough time period for real estate capital markets, but it started to show some growth last year, and we believe will continue to, you know, move towards the expectation that we had over time. You'll also see us, we've had some early success on the M&A front in terms of doing M&A advisory work for our small and medium-sized client base. We think that's going to be a nice active source of new revenue going forward.
And I think we're on our path to doing that. Um, you know, the major contributors, uh, clearly, you know, loan syndications, uh, interest rates interest rate risk management, foreign exchange. Those have been 3 businesses. We've been in for a long time and they're, they're continuing to grow at a nice Pace. Uh, you know, depending on the economic circumstances.
Uh, but then we've, uh, added a real estate Capital markets business is your recall about 2 years ago. We added a kind of a rough time period for Real Estate Capital markets, but it started to show some growth last year. Uh, and, and, uh, we believe will continue to, you know, move towards the expectation that we had over over time. Uh, you'll also see us. Uh, We've, we've had some early success.
Scott Mclean: We commented on that with the Success we had with one particular transaction in the first quarter.
Scott Mclean: And then commodity risk management is another area we're moving into, you know, in in Texas. We have about 80 reserve based loans there. Outstanding relationships where we do a lot for these companies. And we will, later in the third quarter, I'm sorry, later in the late second quarter, I'm sorry, late third quarter, we'll be launching our oil and gas derivatives business with, and we have 80 clients that we've actively called on, almost all of them now. And they, because we're in their reserve based borrowing transactions, they are very open to including us on that front.
Front in terms of doing m&a, advisory work for our small and medium-sized client base. We think that's going to be a nice active source of new Revenue going forward. We commented on that uh, with the, uh, the the uh, success. We had with 1 particular transaction in the first quarter and then commodity risk management is another area we're moving into, you know, in in Texas. Uh we have about 80 uh reserve-based loans there.
Scott Mclean: And, and that is going to be, we think have a lot of potential for us. So those would just be some of the major categories. We have other parts of capital markets that we're involved in, like bond underwriting, etc. But I think the ones I mentioned would be the highest So we're, we're very optimistic.
Scott Mclean: Investing significantly in systems and risk management. And just the quality and depth of our people, so it's an exciting part of the job. Thank you for the color. I appreciate it. I may have missed it.
Uh, outstanding relationships where we do a lot for these companies and we will, uh, later in the third quarter. Uh I'm sorry later in the late second quarter, I'm sorry, late third, quarter um will be launching our oil and gas uh derivatives business with and and we we have 80 clients that we've actively called on almost all of them now and they uh because we're in their reserve-based borrowing, uh transactions. They are very open to including us on that front and and that is going to be we think have a lot of potential for us. Uh, so those would just be some of the major categories. Uh we have other parts of capital markets that we're involved in like Bond underwriting, Etc. But I I think the ones I mentioned would be the highest growth potential. So we're we're very optimistic.
Uh, investing significantly in systems and risk management and just the quality and depth of our people. So it's it's an exciting part of the story.
Harris Simmons: Just going back to capital, including the tiering conversation. How are you trying to message potential resumption of buybacks? Again, if I missed it, I'm sorry. Well, I think We're going to be somewhat conservative for the next little while. We're all, you know, our nominal CET1 ratio we think is very strong at 11%, but in times of stress people don't care about nominal. Look at marked numbers. You know, we still have some ALCI that needs to work. And as that does, I mean, we had a 20% increase in 10. Common Equity over the last 12 So it's, you know, it's a pretty fact, you know, combined with earnings.
Uh thank you for the call. I appreciate it. I I may have missed it just going back to Capital um uh including the tiering conversation. Uh how should we be? How are you trying to message potential resumption of BuyBacks again if I missed it? I'm sorry.
Well, I think, uh, look. We're going to we're going to be somewhat conservative for the next little while. Um, I think we're all, you know, you you the, you know, our our nominal, the C1 ratio, we think it's very strong at 11%, but, uh, in times of stress, people don't care about nominal numbers. They look at marked numbers and we, you know, we still have some alci that needs to work off.
Harris Simmons: Pretty good clip, but we're just not there yet in terms of where we're comfortable starting. Take our foot off. off the pedal yet.
And uh, is that does? I mean we had a, we had a 20% increase in tangible common Equity over the last 12 months. Uh, so it's, you know, it's it's a pretty effect, you know, combined with earnings
Scott: at a pretty good clip, uh, but we're just not there yet in terms of where we're comfortable starting to
Scott: uh,
Harris Simmons: We certainly don't know the full profile of what will come out of the Basel III endgame. U.S.F. Certainly I've seen other calls and heard others talk about an ex-AOCI view, something with a nine handle. It's something that people are solving for. We have not made any such commitment, but we can see a glide path in the next year that would get us to something with a nine handle, ex-AOCI. and the pattern that we've seen in our earnings. That's helpful. Thank you so much. Thank you.
Take our foot off the off, the pedal yet. And, and, and, and start buying shares.
And we certainly don't know the full profile of what will come out of the bottle, 3 in game, you know, I think it's re-exposed what dimensions of that are. Uh, but to Harris's point that the aoci has been coming back in and certainly have seen other calls and heard others. Talk about in x, aoci view something with a 9 handle, it's something that people are solving for. We have not made any such commitment, uh, but we can see a Glide path into the next year that would get us to something with a 9 handle xoci.
Scott: the pattern that we've seen in, in our earnings generation,
That's helpful. Thank you so much.
Anthony Elian: Our next question comes from the mind of Anthony Elaine with J.P. Morgan. Please proceed. Hi, everyone, your deposit balances have declined for two straight quarters now on a period end basis. I know on the slides, you called out the headwinds and to queue from seasonal April outflows and brokered balances. But do you think the third quarter could be a growth quarter for total deposits? just, you know, Could be. I think it's too soon to know. yet we're starting to see the kind of deposit growth we'd like. So I don't think it's going to be a big driver.
Thank you. Our next question comes from the line of Anthony Elaine with JP Morgan please proceed.
Hi everyone. Your deposit balances have declined for 2, Straight quarters. Now on a period end basis. I know on the slides you called out the headwinds and 2 Q from seasonal, April outflows and brokered balances. But do you think the third quarter could be a growth quarter for total deposits?
Just, you know, uh, could be. I think it's it's, it's too soon to know I, I, you know, I don't think yet we're starting to see the kind of deposit growth. We'd like,
Scott: um,
Harris Simmons: but we're sure working hard at it. doing everything we can. Again, I think we start... a little behind the goal line and That's why I said earlier, you know, kind of threading the needle on getting this right in terms of price. I'd look through to the whole, you know, the total funding structure. That's kind of the North Star for us, is trying to really get that balance right. So, you know, bringing down broker deposits and, you know, we'd like, really like to see more of that, less reliance on.
Scott: uh, so I, you know, I I I don't think it's going to be a big driver.
But we're sure working hard at it. Uh, and, um,
You know, just doing everything we can. It's again I I think we start
a little behind the goal line in that.
That's why I said earlier, you know, kind of threading, the needle of getting this right, in terms of pricing.
Scott: Maintaining uh, the deposit base. I I look through to the whole, you know, the total funding
Structure of the company and the cost of it.
Scott: and,
That's that's kind of the North Star for us, is trying to, you know, really get that balance, right? And um,
So you know I'm bringing down broker deposits and you know, we we we we'd like really like to see more of that less Reliance on short-term borrowings Etc.
Anthony Elian: So we're working on the deposit side, too soon to know whether we're going to make Thank you.
Um, and so we're working on the deposit side uh too soon to know whether we're going to make the big difference this quarter.
Harris Simmons: And then my follow up, actually, on your comments, Harris, earlier on stablecoins. So I know you mentioned it's still too early to see how something like that could impact Zions. But given you have the leg up with already being integrated on TCS, right, we saw the Genius Act sign into law last week, and there's only a handful of regional banks that are active in the space today. Could you see stablecoins and digital assets more broadly being an area that contributes to Zions deposit growth at some point? Thank you. Yeah. Listen, my own view is that that it's a little tough to...
Actually on your comments, Harris earlier on stable coins. So I know you mentioned, it's still too early to see how something like that could impact Zions, but giving you have the leg up with already being integrated on TCS, right? We saw the genius act signed into law last week and there's only a handful of regional banks that are active in the space today. Could you see stable coins and digital assets? More broadly being an area that contributes to Zions deposit growth at some point. Thank you. Yeah.
You is.
Harris Simmons: I think the Genius Act, thankfully, creates some really good guardrails in terms of... Not only prohibitions on the payment of interest, but substitutes for that as well. I think anybody trying to make their way around that is going to find themselves in court. Staplecoin becomes basically a really fancy form of the currency you carry in your wallet. It's non-interest bearing. It's really a non-interest bearing money market mutual fund. I think the better case is going to be a tokenized deposit. I think that's going to be healthier for the economy because it's going to allow for the creation of private credit.
That, uh, that it's a little tough to I, I think the genius act, I uh, thankfully, uh, create some really good guard rails in terms of, not only, uh, propositions on the payment of interest, but but substitutes for that as well. And I, you know, I
I think anybody trying to make their way around that is going to find themselves in court. And so it, you know, stable coin becomes basically a really fancy form of the currency period in our wallet. It's not an interest-bearing. Uh, uh, I was it's really a, it's really an honor to spurring money market. Mutual funds is what it is. You know what it becomes
Scott: I think the better case is going to be in tokenized deposits.
Harris Simmons: that the banking system is so important. And so I'm not sure, you know, I'd certainly be wrong, but I, and I think Stablecoin's gonna have a place, cross-border payment. Beyond that, maybe, but it's hard for me. Relative Tokenized Deposits. In both cases, I think the big advantage is going to be down the road, it's gonna be the programmability. State. Department of Commerce, et cetera, so lien filings. property records, those kinds of things, you can certainly see a future where a lot of the friction Financial Transactions Disappears Programmable Payments. But it's hard for me to see how Stablecoin has a leg up on tokenized deposits to do And so we'll see how it plays out.
I think I think that's going to be healthier for the economy because it's going to allow for the you know, creation of private credit.
Scott: that the banking system is so uh, important for
And so, I'm not sure, I, I, you know, I certainly be wrong, but I and I think Sable coin is going to have a place cross border payments, Etc.
Beyond that uh Nate, you know, maybe uh but I it's hard for me to see where the advantages is relative to tokenized. Deposits in both cases. I think the big Advantage is going to be down the road, it's going to be the programmability of payments. It's going to be uh payments that uh settle on a blockchain.
Simultaneously multiple transactions. A title companies with
Scott: uh,
you know with uh State uh, Departments of Commerce, Etc, you know, so lean filings uh
Property records, those kinds of things you, you can certainly see a future where a lot of the friction in financial transactions disappears through programmable payments. But it's hard for me to see how stable coin has a leg up on tokenized deposits to do that.
Harris Simmons: We'll be watching. I guess my point is, I think we've got probably. Operationalizer.
Scott: And so, you know, we'll, we'll see how it plays out, you know, we'll be watching. I I guess my point is I think we've got probably
Less work to do and some will have in terms of being able to actually operationalize it.
Scott: Thank you.
Harris Simmons: Thank you.
David Smith: Our next question comes from the line of David Smith with Tourist Securities.
David Smith: Please proceed. Thank you. Yeah, it's a nice loan growth this month. I'm just thinking ahead about the outlook for slightly increasing loan growth a year from now. Do you feel constrained at all on how much you can grow given your current gap equity levels? Just given how credit has been performing and the fact that customer sentiment seems solid, it would seem like a good time to really be leaning into growth for a while and Do you have the capacity to do as much of that as you'd like to organically right now? I know if you can maintain these returns it'll help obviously, but any color on that would be really helpful.
Thank you. Our next question comes from the line of David Smith which tourist Securities please proceed.
Speaker Change: Thank you. Um yeah, that's a nice long growth this month. I'm just thinking ahead about the outlook for slightly increasing loan. Growth a year from now. Do you feel concerned at all on, how much you can grow, giving your current Gap Equity levels? Just giving how credit has been performed and the fact that customer sentiment seems solid. It would seem like a good time to really be leaning into growth for a while. And
Ryan Richards: Hey, thanks for that, David. Yeah, we don't feel capital constrained from taking such organic growth action. You know as would have tried to call out in my remarks is we are really wanting to have a growth orientation and some of the things. be showing up in our guide for non-interest expense are meant to be more growth-oriented, more marketing dollars, more revenue. So that is our hope. We need the economy to be constructive. In my prepared remarks, I sort of said we could actually see outlook, upside from our outlook, if the tariffs settle into a place that's not disruptive.
You know, do you have the capacity to do as much of that as you'd like to organically right now? I know if you can maintain these returns, it will help obviously. But um, any call on that would be really helpful.
Hey, uh, thanks for that. David. Um, yeah, we we don't feel Capital constrained from taking any such organic Growth Action, um, you know, as as would have tried to call out in some of my remarks, as we are really wanting to have a growth orientation here. And, and some of the things that you would be showing up in our guide for non-interest, expense are meant to be more growth oriented more marketing dollars, more Revenue producers. So that is our, hope we need the, the economy to be constructive. In my prepared remarks. I sort of said we we could actually see Outlook
Ryan Richards: But we don't know until we get there. But if you look at what we produced this past quarter and you analyze that, at 5.6% of loan growth, it was a pretty healthy economy. So there's no guarantee that that persists, but we like the markets we're in, and we kind of like the strategy.
Scott Mclean: David, this is Scott. I would just add, should have added it earlier, our our call programs, I've mentioned this on the last two calls. The calling programs that we have with our branch managers, our small business bankers, our middle market commercial bankers, private bankers, etc., they are as intensified as they've ever been. It's just a real focus on calling on existing customers, but calling on pure prospects as well, and that's just ramping up, and so I think we're going to get as many good looks if not more than anybody, and then we just have to see how, again, the economy and everything else balances out.
Speaker Change: Look uh, upside from our Outlook if you know the tariffs settle in to a place. Um, that's not disruptive uh but we if we don't know till we get there. But if you look at what we produce this past quarter and you Analyze That at 5.6% of loan growth, it was a pretty healthy quarter. Um so there's no guarantees of that persists. Uh but we we like the markets we're in um and we and we kind of like the strategy moving forward David to Scott. I would just add uh should have added it earlier our, our call programs. I've mentioned this on the last 2 calls
Scott: Ramping up and so um you know I think we're going to we're going to get you know as many good looks, if not more than anybody. Uh and then we just have to see how again.
Scott Mclean: I think we'll compete effectively.
The economy and everything else. Balances out. I think we'll compete effectively.
David Smith: All right, thank you. Thank you.
Scott: All right. Thank you.
John Arfstrom: Our next question comes from the line of John Arfstrom with RBC Capital Markets. Please proceed. Hey, thanks. I know it's getting late. So we can be quick here.
Thank you. Our next question comes from the line of John arm with RBC Capital markets, please proceed.
Derek Steward: But on slide 23, Can you talk a little bit more about the construction and CRE term loan activity? Is that just construction loans going to permanent or is there something else happening there? Yeah, thanks, John. This is Derek. Yeah, on slide 23, what you're seeing there for Real Estate, the C&D Construction. It's really just construction law. that are moving. So as they reach. Occupancy, that's when we moved them into the term loan bucket.
Scott: Hey, uh, thanks. I, I know it's getting late so we can be quick here. But, um, on slide 23, um,
Scott: Can you talk a little bit more about the construction and CRA Term? Loan activity? Is that is that just construction loans? Going to permanent or is there something else happening there within an airplane?
Scott: yeah, thank
Thanks Derek. Um yeah on slide 23. What you're seeing there for the the commercial real estate the C and D construction. It's really just construction loans. Um that are moving into the term loan bucket.
Ryan Richards: And then, Ryan, just one quick one for you. I think you're saying this, but I just want to make sure I've got it right. You have a lot of repricing that happens immediately with a rate cut or a rate hike. You're just saying there's enough momentum in your model right now that if we get a couple of cuts, you still feel like there's enough momentum to push the margin higher. Is that fair? Thank you for that. I'm glad you raised that question because it gives me a chance to clean up something I said previously and reinforce a point I wanted to make on this call.
So, as they reach, uh, certificate of occupancy, um, that's when we move them into the term Term Loan bucket. Okay. Okay, good. Thank you on that. Um, and then um, Ryan just 1 quick 1 for you. I I think you're saying this but I just want to make sure I've got it right. Yeah on. You have a lot of repricing that happens immediately with a rate cut or a rate high.
Ryan Richards: So that fixed asset repricing is good for two to three basis points on earning assets. where I think I may have said. And I think the reason why we sort of like some of the things that we put in the back, but we don't want to force feed people with it is, you know, you have kind of a traditional view of assets and sensitivity around like parallel shocks. And we've been not really talking about that very much, because we actually don't think it's that interesting, given the fact that the Fed could be changing their posture.
You're, you're just saying there's enough momentum in your model right now that if we get a couple of cuts, you still feel like there's enough momentum to push the margin higher. Is that fair? Yeah, thank you for that. Um, that I'm glad you raised that question because it gives me a chance to clean up. Something I said previously, and reinforce the point, I wanted to make on this call, um, so that fixed asset repricing is good for 2 to 3 basis points. On earning asset yields quarter to quarter. I think I may have said Nim before.
Ryan Richards: But what's important about that sensitivity view, and it's not guidance, it's a static balance sheet, all those disclaimers, is that it shows that even when you allow for, you know, three rate deductions. And even when you said a 100 basis point bound on the downside from the implied forward curve, that would still allow for an overall increase from kind of the basis point. So that is a message that we're trying to convey is there's enough latent things working its way through That even with the Fed cutting rates that we could still show growth in NII one-year hints Okay.
Um, and and I, I think the reason why we, we sort of, like some of the things that we put in the back, but we don't want to force feed people with it is, you know, you have kind of a traditional view of assets since sensitivity around like parallel shocks. And we've been not really talking about that very much because we actually don't think it's that interesting given the fact that the, the FED could be changing their posture. Uh, but what, what's important about? That sensitivity View and it's not guidance, it's a static balance sheet, all those disclaimers is that it shows that even when you allow for, you know, 3 rate decreases. Um, and even when you said a 100 basis point bound on the downside, from the implied forward curve, that would still allow for an overall increase from the, uh, from kind of the base that we'd be assuming. Um, so that that is a message that we're trying to convey. Is there's enough latent things working its way through that. Even with a the FED cutting a rates that we could still show growth in in II 1 year, hence.
Operator: Okay. Thank you very much. Thank you. There are no further questions.
Speaker Change: Okay, okay. Thank you very much.
Shannon Drage: I'd like to pass the call back over to Shannon Drage for any closing remarks. Thank you, Alicia. And thank you all for joining us today. We appreciate your interest in Zions Bancorporation. If you have additional questions, please contact us at the email or phone number listed on our website.
Speaker Change: Thank you. There are no further questions. I'd like to pass the call back over to San Andreas for any closing remarks.
Operator: We look forward to connecting with you through the coming months and this concludes our call. Thank you. At this time you may disconnect your lines. Thank you for your participation.
San Andreas: Thank you Alicia and thank you all for joining us today. We appreciate your interest in Zion's Bank Corporation. If you have additional questions. Please contact us at the email or phone number listed on our website. We look forward to connecting with you, through the coming months and this concludes our call.
San Andreas: Thank you.
At this time, you may disconnect your lines. Thank you for your participation.