Zions Bancorporation N.A (ZION) — Q1 2026 Earnings Call Transcript

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

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

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

This concludes our prepared remarks. Julian, please open the line for questions.

On the margin side, I understand that your loan yield compressed about 14 basis points from the previous quarter. You mentioned that this was mainly due to rate cuts and variable rate repricing. Was the change from the previous quarter solely attributed to the benchmark rate change? Were there any other factors affecting loan yields during the quarter? Also, could you provide us with your new money loan yields to give us an idea of where new originations are coming in?

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

Okay. And regarding your expectation of positive operating leverage of 100 to 150 basis points for the year, what rate assumption does that suggest? You mentioned that if there are no changes in rates, consistent with the forward curve, your NII outlook for the next 12 months could be 7% to 8% above the range. Does the 100 to 150 basis points expectation align with the forward curve? Could you provide more detail about that NII expectation?

Thank you for that, John. In the past, we've discussed a view of latent emergent trends. This quarter, it's less relevant since there aren’t significant changes in the forward curve regarding implied rates at the quarter's end. Those rates are quite close together. Consequently, we could confirm our guidance for the full year. Typically, we provide guidance based on a one-year, four-quarter outlook. We believe you will observe a much more robust positive operating leverage, similar to what we've experienced this quarter compared to the last quarter. As mentioned by Harris, we anticipate a positive operating leverage of 270 basis points. We expect that as our repricing shifts from investment securities to loans and as we face fewer challenges from our terminated swaps, the outlook for the fourth quarter will be strong. Previously, we accounted for potential rate cuts in our guidance for June and September. However, given the current forward curve, those cuts are no longer anticipated, so having no cuts is factored into our full-year positive operating leverage guidance.

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

I'll try to clarify that in several areas and encourage my colleagues to contribute as well. I believe there's been discussion in other calls during this earnings cycle regarding the potential movement of deposit costs if rates remain stable for the rest of the year. There are still some lingering effects and adjustments on term deposits, particularly concerning customer time deposits that have yet to be fully realized. This will certainly play a role. We've been increasingly discussing our strategic initiatives quarter-over-quarter and at conferences, which we see as valuable for increasing deposit balances. Harris mentioned the gold account and the business beyond, and we've shared a lot about our SBA lending, which also helps bring in deposits. We find that to be beneficial. Additionally, we've been working on wholesale deposits for customers in relation to other sources of wholesale funding that we believe could lower deposit costs in the future. While we don’t provide explicit deposit guidance or guidance on deposit costs, all of this will contribute positively to our net interest income guidance. There may also be comments related to deposit propositions.

Yes, Manan, this is Scott McLean. I want to add that we've been running a deposit campaign to bring some of our off-balance sheet deposits back onto the balance sheet. We had between $7 billion and $12 billion in off-balance sheet deposits, and it's really a decision for clients regarding where they wish to allocate their funds. We've successfully transferred more of these deposits back onto the balance sheet at attractive rates that are more beneficial than brokered deposits and overnight borrowing costs. We have focused on this at various times and have been successful in doing so. Overall, we've seen it be around 25 to 35 basis points better than brokered deposits. We plan to continue this effort. Regarding deposit costs in general, I can't recall a time when it hasn't been highly competitive, except perhaps for 2020 and 2021. Most of these deposits we're bringing on are relationship deposits, and they're not solely coming from off-balance sheet sources. A significant portion is from new clients or existing clients whose deposits we didn't have previously.

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

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

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

Yes, Dave, I think that's a valid point, especially considering my earlier comments about having those two rate cuts off the table that we discussed last quarter. So, certainly, we don't typically do this throughout the year, but it's clear that the things we discussed last quarter have improved.

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

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

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

I would add that investors really need to take a closer look at the type of loan growth that banks are experiencing. The issue surrounding non-bank financial institutions has created significant differences in how banks rely on that growth. It should be a promising asset class if managed responsibly. For us, it's about $2 billion of our portfolio and has not increased in five years. In contrast, our peers and other banks are actively pursuing these loans, showing a disparity in commercial real estate growth as well. I believe that if investors take a deeper look, they will realize that if they have concerns about non-bank financial institutions, rapid commercial real estate growth, or personal unsecured lending, that does not apply to us. It just requires a bit more exploration of the subject.

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

Yes. First of all, I have some difficulties with this product. It's a business beyond what we feel this product suite represents. I can't read my own words here on the front page, but this product suite is too new to have made any impact in the first quarter and won't have much effect in the second. We launched it in Arizona and Colorado starting on March 26. However, the initial response to it, from a very limited sample, has been positive. This is the first truly new product offering we've had for small businesses in quite a while, and it's been well-received. I’m excited about its potential. We plan to roll it out across the rest of the organization in late May, and we expect to start understanding its impact in the third and fourth quarters. Regarding the Gold Account, we began rolling this out in the second half of last year, with the full impact starting in the fourth quarter. In the first quarter, we opened around 4,000 new accounts, and I'm hopeful we can ramp that up to about 20,000 new accounts for the year. Over time, the total relationship balances are roughly around $100,000. It’s not immediate, but we are seeing accounts build up to that level. We believe this presents a great opportunity for us, and we are putting a significant amount of energy and marketing into it. It’s still early, but I’m optimistic that it will contribute to a well-priced deposit base that is robust and composed of customers we can engage in significant business with.

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

Yes. This is Scott. I'm happy to address that. We had a challenging quarter compared to last year due to a significant M&A transaction fee that we reported. However, we were pleased with the quarter's outcome, and all our businesses continue to show strong potential. In the first quarter, we experienced considerable strength in our syndications and interest rate hedging businesses, along with a new oil and gas hedging practice we initiated in the last quarter of last year. We believe this has the potential to generate around $7 million to $10 million annually in revenue, and we're just starting out. This business primarily targets about 80 of our energy reserve-based lending clients, and we've already engaged around 30 to 35 of them in this hedging activity. Between our syndications, interest rate hedging, foreign exchange, and commodity hedging, our real estate capital markets business had a slower quarter. However, they are optimistic about a strong performance in the second, third, and fourth quarters. In our M&A business, which can be inconsistent, we've invested significantly in new talent, and our deal flow appears promising. It has been a high-growth segment for us, and we're confident that our investments will pay off this year.

I wanted to return to your mention of the Basel III end game benefit, which seemed to indicate a modest net benefit. Are you able to quantify what that benefit could be for Zions?

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

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

Sure, this is Derek again. Yes, the activity levels are strong, and we are in a competitive market. We are experiencing some price competition, although it's not significant, but we are certainly aware of it.

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

Yes, thank you for the question. Overall, we are seeing continued improvement in commercial real estate, as evident from the decreasing number of criticized, classified, and nonaccrual loans. We are particularly focused on the commercial and industrial sectors, where we have experienced year-over-year improvement in criticized and classified loans, although there was a slight increase this quarter. This is where we are directing our attention. Currently, we are not experiencing significant impacts from tariffs or the events in the Middle East, but we are closely monitoring rising expenses in specific areas, such as restaurants and consumer-focused businesses, which are our primary concerns.

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

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

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

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

I wanted to clarify the discussion between the full year and the standard guide. So we are referring to the standard guide. Moving forward, the earning asset base has remained quite stable over the past few quarters. As you adjust the balance sheet mix, should we expect to see more AEA growth, or will the advantages from NII be more about margin expansion?

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

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

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

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

I would just add that most of the broad-based growth we're seeing in fees now is due to significant investments in capital markets. The other areas don't require much incremental investment. I believe our sales practices are improving, our call programs are getting stronger, and this is the best broad-based growth we've seen in a long time.

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

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

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

Okay. If I may ask a separate question regarding the growth initiatives in progress, can you point to anything specific that shows how the investments made in FutureCore to modernize the core systems have contributed to your growth or attracted more customers? We're noticing some strong organic growth from your team, and I'm curious if FutureCore is influencing that.

Yes, while it's difficult to quantify precisely, it's helping us complete tasks more efficiently. Customers don’t choose a bank based on core systems, particularly in lending; they prioritize execution, pricing, and relationships. Looking back, we managed exceptionally well during the PPP process, which seems like a long time ago now, and we couldn't have achieved that without this new core system. We're rapidly handling significant business in PPP with an effective process. That's just one example of how it's enabling us to work more quickly.

I would like to highlight a couple of points. First, the importance of real-time data and the fact that all our loans and deposits are managed on a single data system is crucial. While this may not excite clients, accuracy is vital in a data-driven world. Additionally, we mentioned in our last call that we are close to finalizing a deal with TCS to implement their Quartz product, which involves a tokenized deposit and stablecoin application. Being on their platform allows us to innovate with tokenized deposits or stablecoins at a significantly lower cost than others attempting this. We believe this could provide us a competitive edge beyond our current size if we decide to pursue it. However, we have not made any announcements regarding that, and we have a platform in place thanks to our core conversion.

Just to revisit your point about the 7% to 8% net interest income growth, assuming there are no rate cuts. Is it accurate to say that this assumption reflects a moderate increase in loan growth, perhaps in the mid-single digits? However, this would also suggest a significant increase in net interest margin expansion from the first quarter of 2026 to the first quarter of 2027 to achieve that 7% to 8% target?

Yes. I think you're correct about that. When considering loan growth as part of that figure and margin expansion, we don't typically provide guidance on margins. However, we believe there are plenty of opportunities to expand the margin from now until then in the coming years. Both factors are included in our projections. I can detail all the various contributing factors if you want, but that's the concise answer I can offer. There are various factors influencing our situation, and we've touched on this previously. We are still experiencing the effects of fixed asset repricing that hasn't fully materialized yet, with some significant accounts having longer repricing timelines. When considering areas such as municipal bonds, owner-occupied properties, and certain types of residential loans, we are also facing challenges related to terminated swaps. In the fourth quarter, we encountered a headwind of approximately $10 million, which will decrease to about $5 million. There are additional details about this in our 10-K. Overall, these factors should lead to an improvement in earning asset yields over the year, which we estimate at around a 2 to 3 basis points increase. Additionally, we are reallocating our investment securities portfolio towards more productive areas such as loan growth and reducing wholesale funding sources, contributing about 1 basis point to our earning assets. All of these elements, combined with a gradual tapering of future effects and reduced term deposit repricing, are expected to enhance our net interest margin going forward.

Got it. That's very helpful. Regarding your 150 basis points plan for 2026, you seem quite confident in achieving it without any rate cuts. Is it reasonable to assume that this remains true if there is a rate cut, or would it make things more difficult?

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

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

The first thing I want to point out is that we’re not actively seeking out acquisitions. Instead, we’re waiting for the right opportunities that fit our criteria. We’re not pursuing M&A as a means for growth; I’ve been clear about that. When opportunities arise, we evaluate whether they align strategically and strengthen our franchise, and of course, price is a significant factor. We would take a targeted approach. The agency relationships and the Fannie and Freddie business we’ve discussed are areas we are interested in. We operate in regions with a relatively young population and high housing costs, leading to increased demand for multifamily properties. About 80% of national growth is happening in areas like the Mountain West and Southwest. Being a comprehensive resource for multifamily developers aligns well with our capital market strategy and leverages our internal real estate expertise. I expect that any actions we take will support our strategy to enhance our presence in the Western United States.

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

No, I think we're pretty pleased with what I mentioned in the shareholders letter. After a crisis, there tends to be a reaction, which has been the history of bank regulation. Looking back over the last 1.5 decades since the Dodd-Frank passage, it's clear that some regulations were actually useful and necessary, while others seem excessive. From my viewpoint, the current regulatory agencies are doing a good job in emphasizing the fundamentals. The risk lies in getting too caught up in the details and missing the bigger picture. This was evident during the bank failures three years ago, where issues were often obvious but overlooked. The banking industry has become adept at self-regulation, especially after the great financial crisis, so there's less need for extensive reminders on how to manage portfolios correctly. However, the regulatory response has sometimes added complexity, contributing to the current housing affordability issues, like the rising costs of obtaining a mortgage. I believe they are working sensibly to return to a more balanced approach, and I'm quite satisfied with what we're observing.

I wanted to ask you about the agency businesses, but I think you clarified those, Harris. It's just a profit and loss statement. There's not really a use of the balance sheet in those businesses. Is that correct?

Yes, we utilize the balance sheet for deal origination, construction, and stabilization, but our customers who are developing this type of product consistently require a long-term takeout. This positions us well within that process.

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

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

Sure, Jon. On the Amegy side, they had really strong loan growth last year, with broad-based commercial and industrial growth, and their commercial real estate is holding steady. Energy did not see much growth last year for them, but they are experiencing better growth in smaller businesses. They primarily focus on the middle market and the upper end of it, and they are making good progress. Their call programs are effective, and their activities in the Dallas-Fort Worth metroplex and San Antonio are performing well. They have a lot of momentum going into this year, and they feel very optimistic about leading loan growth for the company this year as well. Regarding energy, we've been at $2 billion in outstanding loans for a while and would like to see that increase. The credit and pricing metrics have never been better, especially since about 40% of the banks that participated in reserve-based lending have exited the market. Much of this business is now being originated by private equity firms that we have long-standing relationships with. We currently hold about 75 reserve-based loans, which are secured and adjust based on pricing, and have performed well through various cycles. However, oilfield service companies have not performed as well, so we've significantly reduced our engagement with those companies, down to about 12% of our book, from as much as 35% or 40% in the past. I believe we have structured the portfolio correctly, with a strong midstream component and an excellent energy lending team recognized across the industry. Additionally, our oil and gas commodity hedging activity has been outstanding, and we're seeing much strength from it as our clients want to partner with us. Overall, I am optimistic. If that business grows by 10% a year for three to four years, we would be very satisfied. We have had outstandings of $3 billion in the past, so we are not uncomfortable with that level; we just need to see the activity.

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

We are utilizing AI in various ways, and while we may not be much different from our peers, I believe our core replacement project over the last decade has set us apart. It compelled us to significantly enhance the organization and quality of our data, similar to cleaning up before moving into a new house. This effort is proving beneficial as it accelerates our solution delivery. We are applying AI in areas such as appraisal and document review, as well as in our credit review processes to expand the deals we evaluate. Instead of searching for 'needles in the haystack,' our focus is now on the needles identified by other tools. The potential applications are extensive, and many are seeking efficiency through technology. Reflecting on our headcount, which has decreased by 20% since 2008, we have seen around a 25% increase in productivity per dollar of real assets, even accounting for inflation. AI is playing a role in this improvement. While AI is often seen as a new trend, various technologies have historically enhanced productivity, and I believe AI could further expedite this. We have several projects underway, and while there are concerns regarding AI's impact on margins, I think some fears may be exaggerated. Much of what we consider free balances actually involves paying for services, and as agentic AI becomes more prevalent, we'll see adjustments in pricing. The resilience of our free enterprise system means it will adapt and evolve. For instance, when Reg Q was removed, I would have thought it impossible for us to have more noninterest-bearing demand deposits as a percentage of total deposits four years later than we did in the early 1980s, but that turned out to be true. It's crucial to maintain awareness and focus on customer needs, providing solutions that strengthen our relationships with them. As long as we stay committed to this approach, I believe things will work out well.

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