Zions Bancorporation, National Association (ZION) September 2026 Conference Transcript

So moving right along, very pleased to have Zy and Spancorp with us. I want to say this is the 24th consecutive year they've been at this conference, and we've only done a 24. I'll check that. But Harris Timmons has been chairman and CEO for every one of those years, probably one of the very few companies of the 220 we have here that can say that. So, Harris, welcome back. Maybe the best place to start is just the macro environment. You operate in many markets that are traditionally kind of above-average growth on the western part of the U.S. The environment today feels a lot different than the environment we talked about when you were here last year. Just talk about your outlook for the U.S. economy, your expectations for interest rates over the next few months, and how you think that will overall impact customer behavior.

Yeah, well, I think the economy continues to just chug along. I mean, I think in each of the markets we operate in, we're kind of everything kind of Texas up to the Pacific Northwest and south and west of that. So it's a pretty good cross-section of the southwest. And, you know, we're not seeing signs of any kind of fraying in terms of credit, it's not, nothing's on fire other than a lot of forests this summer, but the economy just kind of pranks it out. It's kind of the energizer bunny of economies, which has surprised me. I'd really expected that the combination of tariffs and what's happening in the Middle East, et cetera, would slow things down. But we're just not really seeing it. It's hard to know how much of that is spillover from data centers and everything else. But it doesn't feel that way. It feels like main street businesses are in pretty decent shape right now. So, you know, we'll see, you know, probably a hike or two. I don't think that's going to materially change anything. I think it's going to take some bigger shock to then. It's so widely anticipated that I don't think it's going to be a big deal.

You know, you mentioned Texas, which is a market we've heard a lot about at this conference. You know, you entered there, I want to say 15 plus years ago. 20 years ago. 20 years ago with the Amogee purchase. Now it seems like everyone wants to be there. There's a bunch of, whether it's Veritech's going to, and Caden's going to Huntington, you know, FIFTER with Comerica. There's been some other smaller transactions. Just how has that landscape changed? Does those kind of mergers create opportunities for you, either for employees or customers, and just how you're tackling that?

Yeah, it's created some opportunity probably so far mostly in terms of employees. We've had some hires, a few hires. It has, I think we've probably seen more opportunity coming out of some of the larger banks, Wells Fargo, U.S. Bank, in terms of people and bringing some nice business with them. And just, you know, probably just their sheer size relative to a Veritex or even a Comerica. You know, we'd run into them, but not that frequently, kind of in the smaller end of the middle market, which is a lot of our activity takes place.

Maybe just talk about the overall lending environment. You know, CNIGR has been strong. I think you're up like 5% last quarter. You talked to higher utilization, revolving credit lines. Let me just talk to you kind of what industries, client segment geographies are kind of driving growth and just how you're thinking about the near-term outlook for C&I.

Well, what I'd say is what we're seeing most recently is C&I is probably – lending generally is flattened growth. We're seeing a big, nice pickup in deposit growth. And so, you know, you kind of hope over time that they stay somewhat in sync. But, you know, very late, you know, we're seeing lending growth slow and deposit growth pick up. The growth that we've seen year to date has been pretty broad-based. it's we're trying to we're really working at taking the one to four family portfolio and keeping that kind of stable to even coming down a little bit just because I think the reason for that is just to keep it from becoming a source of more rate risk and kind of convexity that you find sometimes in that product but the The rest of the portfolio, we've seen just geographically and by industry, I can't point to any single thing that is driving it. It's been across the board. I could talk about where we're not growing is NDFI. I mean, we've been very flat there. I mean, we're trying to kind of sit that one out.

I tend to believe that there is quite a lot of risk building in that sector and so we have some exposure but it tends to be very seasoned kind of long time customers that I think know what they're doing but we're not kind of trying to build balances that way Maybe you can talk a bit more just on commercial real estate balances have been going up, obviously more kind of construction, maybe migrating to term or maybe some new term, just provide some color in terms of what you're seeing across the portfolio and where you see opportunities and maybe where you are going to see opportunities.

Well, there again, our goal over the last 15 years has been to build that portfolio kind of at a slower pace than the rest of the balance sheet. And so we've brought our concentrations at CRE down You know, it was about a third of the balance sheet coming out of the financial crisis. It's down to about, you know, about 22% or something like that today. And I think that discipline has been really, it's going to be hit a bump. The categories that we've been building in, I mean, multifamily has been active over the last number of years. Again, we're trying to keep that kind of a little bit restrained. We have capacity to do more than we are doing. One of the reasons we acquired an agency lending franchise from Basis Investment Group gives us Fannie and Freddie multifamily origination licenses that we think are going to be really useful tools, kind of managing that and catering to a great client base we have there. But we've also seen, you know, it's been in – it's been reasonably broad-based. It's been – we're seeing, you know, retail, some growth there. Industrial and multifamily have been most – you know, predominantly where we've seen growth.

And then, you know, on the earnings call, you know, you mentioned some load spread, compression. and products can provide an update in terms of what you're seeing currently and just how competitive the lending environment is?

Yeah, I think, I mean, it is very competitive right now. You get used to hearing your people talk about it's competitive out there, but probably more so, you know, as we came into the summer and early fall here, and, you know, you see it in individual deals. It's less so as you go, you know, down market in smaller size deals, but the corporate lending market is, you know, you're seeing real spread compression, credit spread compression going on today.

Is that just a lot of banks chasing the same credit?

I think so, yeah. I think you're seeing more banks showing – you're seeing in commercial real estate, you're seeing banks that were sort of sitting it out, concerned about office exposure, that are coming back in. You're seeing Wells Fargo more active. They're a big force in the West, and with the asset cap gone, they're showing up more frequently. So, yeah, it's a very competitive market.

I guess so we kind of talked about price competition. Are we also seeing kind of companies get more aggressive on standards and terms, or is it more so on price?

No, I think it's been price. We're not seeing sloppy competition. I mean, I think that's where I have a concern with private credit, because I think they tend to be probably more covenant-like, less kind of rigid around guarantees and that kind of thing. and maybe just easier to navigate but I think that's that's also a source of risk so I I but I think I think commercial bank competitors are we are not seeing we're not seeing sloppy lending taking place um you know one of you know it's you know Morgan Stanley was just speaking about this capex

investment cycle and obviously you guys play in different games but you know how How does that translate into, you know, the need for concrete or need for HVACs? And clearly you're lending to companies that do those. Are you seeing kind of this AI, any of this AI-related spillover? And if so, kind of, you know, how do you think about that?

Yeah, I think it's hard to kind of know because it's an ancillary part of a lot of these, you know, middle market companies. I was mentioning this morning to one of the groups we were visiting with. And I was on a call with a customer, to a customer up in Logan, Utah, recently. It's an electrical contractor, and it's a fabulous business. But, you know, they've got 4,000 employees. They've got 80% of these electrical contractors in their business are doing data center work. And, you know, it's all over the country. And, you know, I think there's quite a lot of that that's going on. It's not just hyperscalers that are, you know, I mean, there is a real trickle-down effect that's taking place. It's hard to know how much or any, you know, but transmission line contractors and all kinds of folks that are supporting this build-out.

Earlier you talked about deposit growth accelerating in the back half of the year. I know on the consumer side, you rolled out new gold accounts last year. This year, you kind of followed up with that business beyond bank account. On the commercial side, you've mentioned doubling the marketing spend from 24 to 26. I mean, are those initiatives kind of driving the growth, kind of what differentiates those products? And just maybe kind of more color around that.

Yeah, I mean, they're contributing to it. This gold account product, it's a great, we think a really well-constructed, mass affluent product. product and our goal this year is to do 20,000 new to bank clients in that account. We'll come close to that. I'm not sure if we'll quite hit it. We had a companion product for small businesses. It's kind of a tiered product set. And we're doing 70% beyond what we expected there. And they're really great accounts. It's the type of activity that is a real marathon. It's not a sprint. in any given year is not going to move the needle, but we think over time will continue to strengthen what we think is already one of the great deposit franchises in the industry.

With this kind of pickup in deposit growth, there's obviously been concerns to talk about upward pressure to deposit costs. Maybe just talk about the deposit mix you're seeing, the deposit cost you're seeing, and just the competitive landscape around that.

Yeah. Well, again, it's been a competitive market. I mean, we went through a period where everybody was washing deposits, and we're all kind of driving them away, and that's flipped. What we're doing is we're incentivizing bankers to think about kind of – first of all, we price locally. And in each market, we have our management teams locally who price. They do it against an internal yield curve that is built around our, you know, basically reflects our marginal cost of funding the place. And our focus is really on displacing borrowings from the home loan, broker deposits, It's kind of the wholesale kind of sources and to pick up a few basis points where we can doing it with customers with deposits. And so, you know, the goal is to focus on total funding costs, not just the cost of interest period and deposits, because we'll see pressure on that and bringing down the cost in total is what we're basically trying to accomplish right now.

Got it. And then, you know, last quarter, I guess loan growth outpates deposit growth. Then we saw, you know, broker deposits, borrowings go up. This quarter sounds like deposit growth outpates grown growth. Just how do you think about balancing, you know, the two? And, you know, maybe.

Well, I mean, you're trying to, you know, you're always trying to build both. And sometimes the emphasis shifts a little bit in terms of what you're spending a lot of time talking about internally. But, no, we've got, I think our capital is in increasingly really good, you know, quite good shape. And we have the capacity to organically grow. And so we're, you know, I've talked about commercial real estate. We're trying to moderate the growth of that, but not to cap it by any means. One to four family, we are trying to fundamentally keep that reasonably flat to even down. So that's a drag on growth, but we just think it's the right thing to do to continue to get the mix optimized, particularly in an environment where rates probably are going to be higher, I think, in the future.

In the past, you talked about not fully reinvesting the securities portfolio, but at some point you get back to that. Maybe when do you think that is?

I think we're probably, you know, we're still a little ways out. We're probably a few quarters out before we need to do that, but it's not too far away.

All right. Let me tie together the loan and deposit discussion. But in the last quarter during this call, you talked about the 2Q27 NA outlook of moderately increasing, but then kind of told us that maybe we can get to this high single-digit growth with some Fed cuts, I think. And now we're going to get these Fed cuts. How are we thinking about that?

The Fed bumps. Yeah.

I think there was some confusion in terms of how you were kind of framing the NA outlook. Maybe just tell us what you're thinking.

I think fundamentally we're built for the way we'd model it is 100 basis point parallel shift upward in the curve should generate about a 4% increase in net interest income and everything else being equal. Everything else isn't equal obviously. We were talking about credit spreads could be a little bit of a headwind But I think that, you know, fundamentally we're in quite good shape for where Kevin Worsh is likely to take the bus here over the next year. So, you know, I feel pretty good about how we're positioned right now.

So I guess just to clarify, you know, to get to that high single-digit year-over-year growth, you know, what weight backdrop would it take?

I mean, I think that's anticipating what we're seeing in the forward curve, which I think, you know, the last call, we're starting to see more outlook for probably, you know, cuts are behind us, and we're probably going to see some steepening. So I think we had, David, you can remind me, but I think we had two, I think two rate hikes in, yeah, one to two. Anyway, so it's building in the anticipation of one to two quarter point hikes. Makes sense.

Let me just talk to an interest margin, and I fully appreciate this as an output, not an input, but you had nine quarters of expansion. Last quarter, we were kind of stable-ish at $3.27. I think last year, we talked about normalized, maybe closer to $3.5. I'm not sure if you can get there. Just how are you thinking about managing NIM against everything we've talked about so far?

Yeah, I mean, one of the things, there are a couple of concerns I'd make. One is that underlying it all, particularly as we start to build the securities portfolio, current yields, that will help. I would say that's maybe still a little way off. And in the meantime, with better deposit growth and without offsetting loan growth, I mean, that's probably a little bit of a headwind on the NIM, but not on the net interest income. So, you know, incrementally, you know, what's happening, deposits coming up, but a lot of that's, you know, some of that's going into cash because we're not seeing the loan growth. I think, you know, I expect it's going to be reasonably stable through, you know, the next few months until, but as we start getting into a place where we see better loan growth and start replacing securities with higher yielding, you know, current yields, I think, you know, that should continue to help improve the margin. Ultimately, you know, I think I said here a year ago, and I do think that probably kind of somewhere in the mid-threes, three and a half or so, is about where our sort of mix of deposits we have and the kind of business we're running should take us. But, you know, it'll take a little bit of time to get there.

You know, maybe moving to the, you know, the income side, you know, you've certainly been building out a bunch of those capabilities. You know, wealth management comes to mind. Hired Mike Selfridge from First Republic earlier this year, a name any of us know. So maybe talk about kind of what his mandate is and what we could just expect from that business. It seems like a big opportunity given your footprint.

Yeah, we think it is, and we're really delighted to have Mike on board with us. The mandate is really to work to integrate wealth management into our private banking operation. We have a lot of business owners. We think there's a huge untapped opportunity there. And I think we have the leadership in Mike to be able to continue to build that. I mean, Rebecca Robinson, who'd been building this the last few years, did a great job taking what was really a very kind of a ragtag operation, getting it, making money, and Mike, we think, will take it to a new level. And I'm really pleased with him. And we have accompanying kind of the larger kind of wealth clients. We're also doing something on the retail front with Wealth, called Wealth Select. And it's really designed for somebody that has $100,000 to $600,000 or $700,000 to invest. I mean, there are just a lot of people out there. And particularly given kind of all the small businesses we bank, I mean, we think there's a lot of opportunity there to build managed asset balances as well.

And then maybe turning to capital markets, you know, it's a business you've built up over the last five, six years. Maybe just talk about, you know, the progress you've made there. You mentioned the basis acquisition, just how that fits in.

Well, Mike McDonald, who is building that business, is first rate. We've kind of doubled the revenue over the last four years and added in the last year a commodities hedging business. It's coming along very nicely. An investment banking capability. We have a handful of bankers who are now working with some really great opportunities. I mean, these are deals that generate fees kind of for two or three years six seven million dollar fees they're not they're not large in the scheme of things but we have but there are a lot of them we think we think there's a lot of opportunity there and so he's got some great people we've added they've come out of some you know major banks we've got a team in Charlotte down in Houston Los Angeles and we're really pleased with what he's building this Basis acquisition gives us a new set of tools. We've become one of a very small handful. There are only four or five banks in the industry that have both Fitbit Freddy and Fannie licenses as well as TMBS capabilities, and we think that's going to be a really nice combination to build from. And we've got some good leadership in place.

And I think, you know, when you, on the July call, when asked about Basis, you said you weren't allowed to talk about the financial impact or contribution from it because the deal hadn't closed. It's now closed. Any thoughts around, you know, what this impact could have?

Well, I think that, you know, it's a business that there's a lot of building to do with it. But we'll continue to work with Basis Investment Group here in New York. we expect will be referring business to us. They're really good. And we'll add to that the distribution that we have through a pretty deep client set in the West. I mean, we're in a part of the country where you have a disproportionate amount of population growth taking place and where affordability has become a real issue. You've got families that are starting later and they're smaller. And so you just see more multifamily product as part of the housing mix. And we think that we're going to be really well positioned across the western United States to help address the term financing needs of these clients. I expect that probably, you know, if I look out three to four years, I think it becomes a $30 to $40 million kind of revenue business and kind of ramping up toward that.

Interesting. And maybe on the expense side, Spencer I think we're about 5% year over here in the second quarter on a core basis. You've talked about getting to 100 to 150 basis points of positive operating leverage this year. How are you tracking against that objective and how should we think about cost in the back half of the year?

Yeah. Well I expect that, I still think that that's probably kind of the right kind of target and you know the operating leverage is, I expect that continues in the next year I tell our folks, you have to be wary of not painting yourself in a corner with an operating leverage long-term target because it's an incremental kind of thing. Everybody hits a wall there eventually, but I think we've got some room to run still before we do that. And that's with some additional, like I say, some additional marketing experience.

Maybe shift gears to just credit quality. It's obviously been a non-event. I think we did six basis points of charge-offs last quarter despite good loan growth. Just, you know, industries, portfolios, are you being more selective or, you know, anywhere that you're kind of avoiding? You mentioned NDFI earlier. I mean, what else is on your mind?

You know, we're just steady as she goes. I mean, I think it's really notable. Commercial real estate, everybody was, you go back a couple of years, everybody's freaked out about office and everything else. I haven't updated my numbers for a couple of quarters. But, I mean, the last I looked, and it's gotten better over the last couple of quarters, but we were running on an average seven-tenths of one basis point of net charge-offs in that book over the last five years. And so it's been a total non-event, and as clean as a portfolio can be. And I don't see that changing. I mean, I think that if we get into a tougher economy, higher, you know, higher cap rates, et cetera, it's going to perform well. It's underwritten well. and the concentration relative to our total loan book has been steadily coming down. We got it down to about 22%. It was a third of the balance sheet, third of the loan book go back after the financial crisis and so steadily we've brought that down. That probably goes a little further, but we like the business. I think we've got good people and if you do it well, it's good business.

I guess in the reserve side, you know, reserve ACL ratio is now 1.13%. You know, CECL day one is, you know, 1.1. As we kind of get back to that level, you know, the economy is, you know, good. But just, you know, how do you think about that metric relevant or how do you think about that?

I'm a big fan of what Jamie Dimon said a year or two ago. Somebody asked a similar question. The reserve is – he said a reserve is ink on paper. I mean, and you know, all of our internal metrics, all of our incentive plans, they're all geared we take the provision out of it, we depoliticize the whole process of it, we plug in net charge-offs and I was joking with Tom Brown recently we were talking about Cecil when I started my career I was CFO years ago at the bank and And I'd just decide what the reserve was. I mean, it was back in the good old days. So you're closing the books. It probably ought to be 110, 110 basis points. And today we stress test. We go through all the committees and oversight and auditors listening in. And, you know, let's go through all the CECL calculations. We get to 110, you know. So I think that Mickey Bowman is actually on to something that, I mean, I mean, CECL has been kind of a whole bunch of nothing. So it's important because it goes into a filed financial statement with the SEC. And so you do build process around it, and we talk about the assumptions that go into it, et cetera. But somehow, you know, you always get back to about the same number.

I can say on capital, you know, kind of restarted the buyback, you know, 75 million or so the last few quarters. The regulatory backdrop is more constructive than it's been in a bit. Maybe just how are you thinking about capital deployment, capital management, share buyback, et cetera?

Well, I think we went through a period that came to a conclusion a couple of years ago with a new administration where there were concerns about what the capital regime was going to look like, about long-term debt requirements and all the rest. And clearly that's changed a lot. It could change again. And so it's, you know, you're kind of grateful for maybe a pause here. But ultimately, what I think the focus is is on making sure that if at some point we're going to come into a downturn. I'm concerned, given how long it's been since the last real one, you know, I'm kind of familiar with kind of the whole Hyman-Minsky school of thought about this, an old Fed economist from years ago. I mean, the longer we go, the worse it probably will be. And that when we get to that point, we want to be a company that's known as having been disciplined in terms of how we built the book of credit we have. And we have solid capital and a good deposit base. I mean, it's the meat and potatoes of regional banking, I think. And so, you know, just really a matter of thinking about how our capital is going to look relative to peers as it's looked at by the market and not by regulators. Because it's the market that's really reacting to it in a visible way. And so you want to be in a place. And I think, and we're quickly getting there, tangible book value per share has been increasing at, you know, north of 20% for the last three years. And we're getting to a pretty good place. I think that's going to facilitate more in the way of buybacks next year. It's a board decision, but, you know, we did this basis deal that was done with cash that, you know, that took some. But fundamentally, it's building at a nice pace, and CET1, including AOCI, without excluding the exemption, if you will, is getting to a place where it's going to be in the high nines, close to 10%, I think, during the next quarter or two. And so I think we're going to be in a position where we can start to accelerate it.

I guess on AOCI, AOCI losses were like, I think, $2 billion-ish last quarter. Given the move in rates, that goes up.

Does that matter? No, I mean, a lot of what we have is hedged, and so it should be pretty predictable.

Maybe talk about bank consolidation. There's been a few transactions in your footprint. We saw the first Hawaiian Tri-Counties deal, Everbank, Wafit. Maybe it's a bit unique. But I guess despite that, I feel like we all came into the year thinking there would be a lot more bank consolidation. So I guess first off, why do you think there hasn't been more? And then given, which we talked about in prior years, all the significant investments you've made in technology on your systems, why haven't you been more active?

Well, we've looked. I think the deals that have been done have been – there are a couple of deals that have been done that we've been interested in that we – you can think Colorado was second place there. I mean, that would have been a great addition, but not at the price for us. I mean, I think that's a deal that a PNC can do and digest in a way that somebody our size relative to that size can't. So I, you know, I am not one who believes, we've talked about this before, I would probably maybe have actually a difference of opinion. I don't think that size is, you know, that it ever will finally solve the problem of efficiency in banking. And the data, I think, really demonstrates, if you look at kind of the weighted average efficiency ratios, you know, buckets of 5 to 10 billion, 10 to 25, 25 to 100, 500 on up, I mean, it's all pretty consistent, really, in terms of now that the mix is different. And so when you get into capital efficiency, it's a little different issue. And we have to kind of scale that. You know, that's why we have to work on fee income. I don't think it's one where you have to just have a larger balance sheet to be better at what you do. And I do think we've made investments in technology that I think lead the industry. I think we're in a great position to be able to do a deal to acquire larger community banks, et cetera. But it's got to be on terms that work for us. So I don't wake up every morning saying, how do we get to $150 billion or whatever. I don't think that's how value gets created.

I guess from a financial perspective, when you're evaluating deals, is there a metric or two that you kind of look at that, like, oh, I want to buy First Bank, but I can't pay more than X?

Well, obviously, everybody's really focused on kind of tangible equity. solution and earn back and everything. And so you look at those things. But fundamentally, it's I'm not sure it's always necessarily the best measure. And it's one that, frankly, once you've scrambled the egg, it's kind of hard to always figure it out anyway. But you look at what I think about is the quality of the deposit franchise is very very much on my mind as I look at anything. What kind of, and on the asset side, if it's all commercial real estate, it's probably that's less interesting. I mean, we could digest that. But the ability to actually take product that we have that's geared towards small to mid-sized businesses and pump it through there, that's where I think the opportunity is for a bank like us.

And just maybe in our final minute, And, you know, in the second quarter you did 16, 16.5% ROTC kind of X the items. You know, just how do you think about the longer-term kind of profitability of the company and, you know, how do you kind of balance returns versus growth?

Well, ultimately, returns need to come before growth because you – and I think that needs to be the priority is you're creating value before you start doing more of whatever you're doing. And so, you know, but listen, I think that if we, you know, I would expect us to be, you know, thinking about something that's kind of, you know, 15 and north as sort of, you know, reasonably decent performance that you can grow with. And I think it's, you know, especially if you think about what the, you know, everybody might have a different opinion about what the real cost of equity is in the industry. But with, particularly in an environment where you've got still pretty historically low long-term rates, if you're doing 15, I think you're creating real value.

On that note, please join me in thanking Harris for his time today.