Thank you, Julian, and good evening, everyone. Welcome to our conference call to discuss Zions Bank Corporation's Second Quarter 2026 results.

My name is Dave Riches, Interim Director of Investor Relations. Before we begin, I would like to remind you that during this call, we will be making forward-looking statements.

Actual results may differ materially. We encourage you to review the forward-looking 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 the presentation are available at zionsbancorporation.com. For our agenda today, Chairman and Chief Executive Officer, Harris Simmons, will provide opening remarks.

Following Harris's comments, Chief Financial Officer, Ryan Richards, will review our financial results and outlook. Also with us today are Scott McLean, President and Chief Operating Officer; and Derek Steward, Chief Credit 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 Simmons.

Thanks very much, Dave, and good evening, everyone. We are reasonably pleased with our financial results for the first quarter, which reflect meaningful year-over-year improvement and continued progress on a variety of strategic priorities.

Net earnings available to common was $452 million or $3.05 per share, including a couple of exceptional items, the first being a $215 million pretax gain on the liquidation of Visa Class B-1 shares and the other being an unrealized pretax gain on an SBIC investment, which net of a success fee accrual totaled $37 million. Excluding such items, earnings per share totaled $1.74 compared to $1.58 in last year's first quarter.

Our Capital Markets division continues to be an important driver of fee income growth. Since launching the business in 2020, we've invested steadily in talent, technology and product capabilities, expanding our presence across investment banking, sales and trading, and real estate capital markets.

Last quarter, we announced an agreement with Basis Investment Group to acquire its Fannie Mae and Freddie Mac multifamily lending business line, related mortgage servicing rights and an experienced team supporting those businesses. We expect the transaction to close here in the third quarter.

Upon closing, we believe the acquisition will enhance our ability to serve commercial real estate clients across the Western United States and beyond, while further strengthening our capital markets franchise. As this transaction has not closed yet, any revenue or other financial contribution from the business is not included in our current outlook or forecast.

Additionally, we expect the financial benefits of the acquisition to build gradually over time as the platform is integrated and production volumes ramp up. We also continue to invest in our consumer and small business franchises.

In the second quarter, we introduced an upgraded feature-rich deposit and payments account for small businesses, which we're marketing as the Business Beyond Account. It's a companion offering to the Gold Account we launched for consumers last year.

The Business Beyond Account is designed to support clients as they grow from basic banking needs to more complex cash flow management and money movement capabilities. We're pleased with the early results of the campaign.

And between Gold and Business Beyond, we've opened over 10,000 accounts so far this year. Going to the slide, Slide 3 summarizes second quarter results versus the prior quarter and last year's second quarter.

As noted earlier, earnings per share was $3.05. When excluding net equity investment gains of $1.31 this year and $0.05 in last year's quarter, adjusted quarterly earnings per share grew 10% to $1.74 from $1.58 a year ago due to growth in customer-related noninterest income, modest loan growth and margin improvement, expense discipline, and solid credit performance.

The net interest margin was stable to the prior quarter at 3.27% and up 10 basis points from a year ago. When compared to the prior quarter, average loans grew 4.7% on an annualized basis, led by commercial lending.

Average customer deposits grew 4.0%. Credit losses were modest at 6 basis points annualized of average loans.

Slide 4 presents the recent history of our earnings performance, together with the impact of the provision for loan losses on quarterly results. Notable items in each of the recent quarters are also included on this slide.

As shown on Slide 5, adjusted pre-provision net revenue was $332 million. It increased 10% from the prior quarter, reflecting improvement in both adjusted taxable equivalent revenue and adjusted noninterest expense, which last quarter included seasonal compensation expense.

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

Thank you, Harris, and good evening, everyone. 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 $677 million, up $15 million or 2% from the prior quarter and up $29 million or 4% from the year ago quarter. Earning asset yields, cost of funding and the net interest margin were all stable compared to the prior year.

Slide 7 -- excuse me, compared to the prior quarter. Slide 7 provides additional detail on the drivers of net interest margin.

The linked quarter walk reflects minimal change. Year-over-year, the 10-basis point improvement in margin primarily reflects lower cost of funding for deposits and borrowings.

For the second quarter of 2027, our outlook for net interest income is moderately increasing. The forward curve as of June 30 assumed an interest rate increase over the next 12 months.

If that plays out, net interest income growth could exceed this guide and result in NII growth in the upper single digits. Moving to non-interest income on Slide 8.

Customer-related noninterest income was $182 million compared with $172 million in the prior quarter and $164 million a year ago. Excluding net credit valuation adjustment, adjusted customer-related noninterest income was $108 (sic) [ $181 ] million compared with $174 million in the prior quarter and up $17 million or 10% from the year ago quarter.

These results reflect broad-based growth across nearly all revenue streams. Capital markets fees increased by $8 million with higher real estate capital markets and investment banking advisory fees.

We continue to see attractive opportunities in capital markets and have strong pipelines going into the third quarter. Securities gains in the quarter included, as Harris alluded to before, a $44 million unrealized gain related to a single investment within our small business investment company portfolio.

Including the $7 million success fee related investment that was recorded in other noninterest expense, the net unrealized gain was $37 million. For the second quarter of 2027, our outlook for adjusted customer fee-related income is moderately increasing versus the second quarter 2026 results of $181 million, with broad-based growth and capital markets continue to contribute in an outsized way.

We currently expect results towards the top end of that range. Turning to Slide 9.

Adjusted noninterest expense was $546 million. Expenses decreased versus the prior quarter, driven primarily by seasonal compensation.

Additionally, deposit and regulatory expense decreased $8 million with $6 million of that related to a decrease to our FDIC special assessment. Expenses were higher year-over-year, reflecting increased professional and outsourced services, higher incentive compensation and increased technology costs.

We will continue to manage prudently expenses while investing to support growth. Our second quarter of 2027 outlook for adjusted noninterest expense is moderately increasing versus the second quarter of 2026.

Based on second quarter performance and full year expectations, we continue to expect positive operating leverage for the full year of 2026 in the range of 100 basis points to 150 basis points. Slide 10 presents trends in average loans and deposits.

Average loans grew 4.7% annualized during the quarter, primarily within the commercial and industrial portfolio and increased 2.3% year-over-year. Loan yields remained stable sequentially and declined year-over-year as benchmark rate cuts in the latter part of 2025 were reflected in variable rate repricing.

Average deposits increased $779 million from the prior quarter, driven by an increase in interest-bearing balances. The cost of total deposits was flat at 1.48% sequentially and declined by 20 basis points year-over-year, benefiting from both repricing and a more favorable mix within interest-bearing deposits.

Slide 11 presents the 5-quarter trend of our average and ending funding sources. Our total funding cost was stable at 1.69% compared with 1.68% in the prior quarter.

Period-end deposit balances were relatively stable compared to the prior quarter and short-term borrowings increased $837 million linked quarter and declined $4.6 billion versus the prior year quarter. Turning to Slide 12.

The investment securities portfolio continues to serve as an important source of on-balance sheet liquidity and a tool to balance interest rate risk through deep access to the repo markets. During the quarter, principal and prepayment-related cash flows from investment securities of $514 million were partially offset by the reinvestment of $297 million.

The continued paydown of lower-yielding mortgage-backed securities supports earning asset remix and/or reduction in wholesale funds. Estimated price sensitivity of the portfolio, inclusive of hedging activity, was 3.6 years.

Credit quality remains strong, as shown on Slide 13. Net charge-offs were 6 basis points of average loans annualized, and the nonperforming assets ratio was unchanged sequentially at 48 basis points.

Classified and criticized balances both declined modestly during the quarter. The allowance for credit losses ended the quarter at 1.13% and remains well positioned relative to our risk profile with 227% coverage of nonaccrual loans.

Slide 14 provides an overview of our $14.1 billion commercial real estate portfolio, which represents approximately 22% of total loans. The portfolio remains granular and well diversified by property type and geography with conservative loan-to-value characteristics.

Credit metrics remain favorable, including low levels of non-accruals and delinquency. Our capital position remains strong, as shown on Slide 15.

The common equity Tier 1 ratio improved to 11.8% during the quarter from strong earnings and the exceptional items referenced by Harris, partially offset by $75 million in common share repurchases, common and preferred dividends paid and growth in risk-weighted assets. We continue to expect net capital generation through earnings and improvement in AOCI, which resulted in a 22% increase in tangible book value per share versus the prior year.

Slide 16 summarizes the outlook we've discussed across loans, net interest income, fee income and expenses. This outlook reflects our best estimate based on current information and is subject to risks and uncertainties discussed in our forward-looking statements.

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

On the -- just on the deposit side, I wanted to see if you can give us a little bit of color on what you're seeing in terms of deposit pricing. The deposit costs were relatively stable, down a bit in the quarter.

How would your -- how does this influence your outlook in terms of the competitive backdrop you're seeing? And maybe if you can comment also on the competitive side on the lending side as well with how loan spreads are shaping up.

Thanks, John. I appreciate the question.

And having heard some of the other earlier reporters, I'm not sure our message is going to be very much different. It is a competitive environment on both sides of that equation.

We're seeing that. You'll see that in also a little bit of the mix that's showing up on the deposit side, average holding on.

But on a period-end basis, we saw noninterest-bearing being off. We have seasonality in the second quarter.

So we -- some of that can be expected. But supplanting that with interest-bearing balances, it's competitive.

And some of those targeted deposit campaigns are approaching closer to wholesale rates in places. So it really underscores the importance of us doubling back to our core strategic initiatives and pulling through on the things you've been hearing about us talk about in recent calls, coupled with the marketing dollars that come with that.

Same thing that you're seeing on the loan side. We are seeing a little bit of spread compression there.

So the earning assets yields sort of hung on quarter-over-quarter sequentially. We had some good underlying things that helped counteract some of that spread compression, things that you would have heard us talk about in prior quarters.

We still get some benefits there in terms of those terminated cash flow swaps. This quarter, we had about $8 million of headwind.

That's going to continue to diminish through the remainder of 2026. And for all of 2027, we'll only have $8 million remaining there.

The remix that we've been talking about for quarters on end continues. We do see continued upside in fixed asset repricing.

Some of that was a little bit masked this quarter by some of the compression in the spreads, but that still remains. We still see at least 1 basis point of earning asset yields playing through there.

We still have the securities coming in at a better front book rate than back book rates. That's still going to contribute, we think, 1 basis point or better on investment security yields.

So there's still some helpful things working on our behalf. The other thing that we saw play out this quarter is probably our most important repricing benchmark is 1-month SOFR, and that was coming at the low end of kind of a range that you could think about in the market.

So that was a little bit softer on the loan side vis-a-vis without having any Fed funds rate decreases, it was kind of harder to push that through on the deposit side. So all that kind of equates to what came in this quarter as a very stable net interest margin, and it has not been our practice to provide deposit or NIM guidance in the future.

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

John, this is Scott. I would -- Ryan mentioned it a couple of times here, but this marketing initiative we've had with this kind of strategic 6 products they are all focused on granular deposits.

And the fact that we're doubling advertising in '26 compared to '24 with, I think, a better company-wide approach to product advertising. We're still very early into that, but our whole branch teams and our business bankers, et cetera, are highly focused on these efforts to grow granular deposits.

And on the larger side, the fact that we still have net sort of average broker deposits plus net overnight borrowings of about $2.5 billion. We've got room to bring in larger deposits at rates that are meaningfully accretive to that overnight borrowing rate.

So I think we'll continue to see improvement there. And those higher-priced deposits, they are clients.

They are clients or prospective clients, as we're not just buying money in the open market.

Okay. Go ahead, Scott.

Did you comment on loan pricing? You did.

Okay. Sorry.

On the spread compression.

Yes.

Got it. And then, Ryan, you kind of alluded to it that you don't really guide on the deposit growth or the margin.

But I guess I'm just trying to get a little bit more color on how we should think about the reliance on wholesale here or short-term borrowings. I know you have the capacity to, as you just mentioned, Scott, but I wanted to get a sense of how the funding picture may look here as you continue to see some strengthening underlying trends as you cited on the loan side, what the funding side of the picture may look like as that plays out, if there's going to be a greater reliance we should expect on the wholesale side of things?

Or is there a way to assume a pace of deposit growth that's reasonable here?

John, we certainly hope for that. We certainly expect that based upon all the things we're doing initially internally.

Hopefully, you heard, and the guidance I provided was pretty constructive about how we're thinking about NII 1 year out. I mean it's always going to be beholden to our success in driving loan and deposit balances.

But underlying that, we would be showing some -- a decent amount of average deposit growth that would be implying that guide. But without getting any of the specifics, which has not been our practice.

I guess can you confirm that your year ahead outlook for moderately increasing NII does not include a Fed hike?

No, it is part of our guidance. Sorry if I wasn't as clear about that.

But so the implied sort of forward rate at the time that we kind of struck the chalk line would have allowed for one rate increase and kind of -- yeah, that's right.

Okay. And then so it would just be kind of your report sensitivity to a 25-basis point shock of about 1% if we're assuming more or fewer hikes in there?

Yes. I'm glad that you called this out.

So that's an important point. We do continue to screen asset sensitive relative to our peers, recognizing that methodologies aren't necessarily common across all.

But on that basis, and it gets day-to-day, week-to-week in terms of where the market is implying these rates. But yes, I mean, we still -- you'll see some of the sensitivity materials towards the back of our materials in the appendix on a parallel shift.

We still internally think about things like latent emergent, and we would show a lift of about 3.2% above the latent sensitivity that would be implied by having one or more forward rate increases in the curve.

Okay. And then just following up on deposits.

I hear you that you've got some initiatives in place to try to reignite that growth. I guess if it remains competitive in the short term, though, your loan-to-deposit ratio was up a couple of points from last quarter to 82%.

I recognize that's not very high, but how high would you feel comfortable taking that ratio in the current environment if it does take a little bit longer for the deposit growth to transpire?

Yes. Good point, good question.

We still have -- and I didn't mention this as much, but in the past, we've talked about investment securities and how much we need to reinvest in those versus letting them roll off to other useful purposes. And I think we said maybe in the last call that we're getting closer.

We're not there yet. We're probably still a quarter or 2 away before we think about fully reinvesting investment securities.

That's just another way of saying, as it stands now, as we think about liquidity stress tests and deposit behaviors and how much contingent liquidity we need to hold, we do think we have sufficient with buffer. So we're sitting here at 82% loan to deposit.

That suggests that there's probably a little bit more room to run in that ratio before we would start thinking about other things to do to support us stable funding sources.

Can you give us a sense of, I guess, the trajectory of deposit costs through the quarter? I know that the spot deposit rates were up about 6 basis points or so quarter-on-quarter, but I recognize that there might be some seasonality in there, especially related to NIB deposits.

So if you could just help us with how deposit costs evolved through the quarter and how competition evolved through the quarter?

Yes. I mean the competition is certainly there, Manan.

The reference we have is in the MCI type in the presentation on Slide 10 about total cost of deposit spot rate at the end of the quarter at 1.49%. So you can kind of get a little bit of feel for the direction of travel there.

It's competitive. So again, I don't think our story is any different than some of the earlier reporters.

Our success will be really driving through these core campaigns.

Got it. And then maybe if you can talk a little bit about loan growth and the drivers there.

C&I growth was clearly good this quarter. Any sense of how things are progressing, whether there's some acceleration there and how we should think about the next year or so?

Thanks, Manan. This is Derek.

Yes, we had good loan growth for the quarter, primarily driven by C&I. It was pretty diversified across segments in the commercial and industrial book.

One thing we did see is a decent increase in utilization on revolving lines of credit just from some companies that were growing and having additional working capital needs. That was a positive as well as just new originations, primarily middle market and some upper middle market activity tied to some capital market syndication activity that we're -- that's an area that we're trying to really grow.

We did see a good growth in the term CRE book as well. You'll see our construction mix is actually down as a percentage of CRE to 16%.

And some of that is just construction loans rolling into term, but also new originations in our term book, which is an area that we think we have some opportunities to grow at this time.

Just wondering on expenses. I think you called out the credit-related expense rose $4 million due to the increased loan-related legal costs.

Was this mostly due to the legal issues with Cantor Fund or any updates on this?

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

Any thoughts on that continuing? Will there still be some probably spilling out into the second half?

Maybe that's mostly in your guidance, but just thoughts there.

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

Okay. Maybe just the last follow-up, just on fees.

I think, Ryan, you mentioned the attractive opportunities in cap markets and the strong pipelines going into 3Q. And obviously, the real estate cap markets, investment banking fees are strong.

Just thoughts on how that trends? And just anything on wealth management fees.

It was down slightly in the quarter. Just wondering what drove that and thoughts on the second half as well.

Sure. This is Scott.

And it was a really solid quarter. The recent quarters have been in fee income, customer fee income.

And what's different from a year or 2 ago is that a year or 2 ago, the growth was principally in capital markets. The rest of our major fee income categories were growing a little bit, but not much.

And we're seeing broader growth now. our largest source of fee income, about 30% of it comes from our treasury management activities, and they're up very nicely year-over-year.

And similarly, our -- some of our loan-related businesses, you're seeing increases in fees, shifting our mortgage business to held for sale from held for investment. We'll continue to see nice year-over-year mortgage fee growth.

And wealth management actually was up over the June quarter of last year. And it's -- we're encouraged about -- we've had a couple of flat years, and we're encouraged about what our teams are doing there.

And as we've mentioned, Rebecca Robinson, who ran that business for us for many years, did a wonderful job of creating a strong foundation, improving our core profitability in that business. And she has retired from the organization.

And Mike Selfridge, we hired, who was the Chief Banking Officer at First Republic, and he's now running our wealth business, and I think just brings a great deal of experience also for this next phase of growth. Wealth should become, again, a high single-digit growth, low double-digit growth business for us in revenue.

I just want to unpack a little bit on deposits. I know you don't want to give a full guide; I get that.

But since we only really see 3-line items, I was curious, are there any silos that were growing because everything kind of gets lumped together? Like is there pricing strategy or any individual silos that seem to be doing better than others considering the net was down a little bit?

We've had an ongoing targeted deposit campaign that I sort of alluded to a little bit before, which is sort of inviting people to bank with us through whatever capacity, the rates are a little bit more generous, but are still with clients, as Scott alluded to. I think it's also important to say that Harris talked about this business beyond and some of the other things that we're doing.

You cited 10,000 new accounts. I mean it takes a little while for all this to play through, but we're putting a lot of energy and resources behind these initiatives.

So I'd say most recent periods, the growth is probably coming from those -- more of those focused outreach efforts. There are some really nice underlying green shoots that are coming through our strategic efforts that we'll look for more growth moving forward.

Yes, I'd just add, I mean, these initiatives we have are -- it's a marathon, not a sprint. So over time, we keep these kinds of growth rates going on, over time, I expect it will be a meaningful contributor to really strengthening the consumer and small business part of the franchise.

Got you. That's helpful.

And then, Ryan, I just want to double check. You said operating leverage of 100 basis points to 150 basis points.

I feel like that is in line to what you said in 1Q. I just wanted to confirm that's -- is that GAAP?

Or is that core? How should we deal with the Visa gain?

Yes, we would not be including the Visa gain for that purpose. And so yes, that was just reaffirming what was shared last quarter that we still see it for the full year.

And then if you sort of think about the words I used in kind of guiding things for 2Q '27, it will imply, I think, quite a bit better than that for the 1-year forward quarter. But again, we need deposits to pull through for that to stick.

So I wanted to start on NII guidance, a clarification here. So the moderately increasing, that includes 1 hike.

And if we get 2 hikes is when we'd get to upper single digits. Is that the right way to think about it?

No, I think with the 1 hike is what we had embedded in our guidance. And with some -- probably some pull forward, it was probably between 1 and 2 hikes is kind of how we were seeing the forward curve at a point in time.

But if you saw 2 rate hikes coming through, then it would be better on an emergent basis. It would be even more constructive than what we were talking about.

Okay. So moderately increasing is 1 to 2 hikes and then 2 to 3 is when we get to -- I heard you mention upper single digits.

So I just want to take...

Yes, it's one full hike. But sometimes the market tends to peek ahead and anticipate what could be coming.

So I would just think about it as 1 full hike, if we get 2 full hikes, then it will be more constructive than what I spoke about in my script.

Got it. And then a follow-up on the positive operating leverage.

So the 100 basis points to 150 basis points is 2026 core. If we pencil out 12 months forward since the other items you're giving 12 months forward, how should we think about positive operating leverage over the next 12 months?

Yes. I don't really have that statistic in front of me right now, David.

But what I was trying to point you to is if you just think about that 1 year's core, 12-month advance quarter, that's where we provide our guidance to kind of steer the market. And so we said loan growth moderate looks good.

We said fee income. We just came off of a really nice year-over-year performance.

I think Harris quoted in his script of 11% growth. We think we can be at the upper end of our guide moderately there.

And then for NII, with that forward curve we just talked about, we said upper single digits with -- kind of think about a true moderate for expense growth sort of gets you to a place that's pretty healthy relative to what we're talking about on a full year basis here.

Ryan, just kind of a bigger picture on the margin discussion, NII. We've heard a lot of discussion this quarter from your peers about NII kind of being more important than margin and managing to a margin is more of an output.

I know you've walked -- you guys have walked back that 3.5% NIM that you previously talked about. But like conceptually, like what's more important to the bank over the next 6 to 12 months?

The NII growth or maybe you lean into growth a little bit and you have a little bit more pressure on the margin?

Yes. Listen, I think it always -- it comes back.

I mean, there are various components. Margin is interesting, but NII is where ultimately what the juice is in terms of profitability.

So I know the commentary in the marketplace, and I get it, we certainly saw in our performance with loan growth outpacing deposit growth, and that could potentially constrain your margin. But I think there's a lot to like in our loan guide, coupled with the way that the rate curve is being constructive at a time when we are asset sensitive.

So I would say for me, at least, and you might ask a different member of management team, they might reach a different conclusion. But for me, it comes back to NII.

And we hear that, too, from investors. They just say, we want to see you grow and grow responsibly.

And I think that, that will show up in the NII print moving forward.

Okay. Maybe just on the ACL, it's -- your credit numbers are fantastic with just your ACL approaching 1.

How should we as outsiders think about I guess, willingness to bring that down, either maybe relative to CECL day 1 or mix shifts, but that 106 basis points number, how do we think about that?

Sure. This is Derek.

Our ACL, I mean, we feel we're very well reserved at this point. It's all just going to depend on what the forecast, the economic forecast looks like.

If the economy continues to improve, then we have room to move it down. If it deteriorates, then we move it up.

It just really depends on where the economy is headed in the forecast. But at this point, we feel like we're very well reserved.

You think about having coverage for 6 years of gross charge-offs, it feels pretty good given the tenor of our portfolio.

We also know that the weather changes in the economy, all those range -- the ratios are pretty sensitive to there's a lot of leverage in those numbers. So I think we're well reserved, but I don't think it's out of line with where we ought to be.

And then just, Ryan, on the tax rate, could you just help us about the outlook for the tax rate?

Sorry, on the tax rate?

Yes.

Was that the question? Yes, nothing unusual.

We had a little bit going on in the first quarter that was a bit of a good guy to kind of normalize. But otherwise, it's business as usual from an effective tax rate perspective.

Nothing to call out.

Ryan, I'm sorry to come back on this one more time, but I think there's still a little confusion out there. Can you just make sure we understand that your -- the main guide to focus on for NII is with 1 hike included, you think you can do upper single-digit year-over-year to 2Q '27 NII growth?

Is that the main thing? Because people are still comparing it to the moderately that's on the slide.

If you could just square that, I think that would be helpful.

You nailed it, Ken. Listen, sometimes the words get in the way, and that's why we try to come over the top with some additional narrative.

We don't really have a great word where the better part of moderately increasing and potentially overachieve. We could say increasing, but what are you talking about?

So that's why I just try to provide a little extra color to help you kind of see where we're going here.

Okay. Thank you for just restating that.

I appreciate it. Second question, just on capital.

You had the nice Visa gain. I think you're around what looks like 9.2% with AOCI.

Can you -- I know it's a Board decision, and they usually make that announcement separately, but the $75 million you did in terms of capital return, is that the type of return we can expect going forward? Do you think you're at the point where you're at that comfort zone with AOCI that we can start to see an increase from here?

I think, Ken, if the economy continues to cooperate with our plan kind of plays out as we expect, I would expect that we'll incrementally continue to increase the capital repatriation to our owners. And -- so I don't expect anything very sudden or dramatic.

But I think the current pace of buybacks is certainly sustainable and probably you'll see some increase. I would expect to probably see some increase in that over the coming year as well as with the dividend.

So all consistent with kind of the forecast we're giving you kind of a year out.

Yes, Ken, the numbers we see, we always want to look around and see where peers are at. And on a reported basis, looking pretty healthy at this level.

Harris talked about closing of a transaction in the third quarter that will absorb some of the capital on the way, but we still think we're going to be sitting in a place that will be a little bit better than what we see in our peer median. So on a reported basis, it looks like there's some capacity.

And to your point, the AOCI has been coming in well and reasonably predictably. And we see the glide path for that to keep coming in while still being able to manage the amount of reported CET1, which allows for the opportunity that Harris alluded to.

I just wanted to follow up on this AOCI because, Scott, at a recent conference, you talked about how the capital is building with the AOCI accretion, giving you more capital available for acquisitions. Can you or Harris just provide an update on your thoughts about bank M&A?

Yes, I will. I mean it's -- I think it's irresponsible if any management say we're just not going to do it.

But that said, it's not something that we wake up every morning saying what can we buy? I think anything we do is likely to be opportunistic.

It's going to be likely to be highly likely in markets we're serving where the economics are easier through consolidation, where they have a good deposit base where it's just additive strategically to us. But there's -- I think the -- I would rather suspect -- there was a period in our history, if you go back 25-plus years, I mean we're doing a lot of deals.

And the math worked. And I think we've been going through a period of repair, and it's been going on now for some years.

And it's not just capital. It's also -- it was really strengthening the foundation of this place with systems, with people, with risk management.

There's a lot that's been going on. So I think we're in a very different place.

We're getting back to a place where our capital is really strong. And I think if -- we need to demonstrate to owners that we have the kind of financial returns that justify being out in the market doing deals where we can be competitive doing deals, maybe more to the point.

But -- so we're not -- I wouldn't say that that's not going to happen, but it's not something that we are particularly focused on. There's a lot of just organic opportunity for us, and that's where our real focus is.

I would just -- we're commenting on a comment I made at one investor conference in June, but I made the same one in March. And that was really 2 things, and Harris just noted it.

But what I said was that Harris and I don't -- the first call we make to each other on a Monday morning is not to talk about M&A. We just -- that's just not a call we make.

We're talking about how to grow the company and projects that are going on and initiatives, et cetera. And when opportunities present, we're not an overly bureaucratic shop.

We can get folks together quickly to make a quick assessment. And we see most deals that are going on in our markets, not every deal, but most.

The other comment was that -- the math isn't that difficult. As Ryan said, the AOCI accretion has been very predictable for multiple years now.

And so it's not hard to look out to this quarter in '27 or this quarter in '28, CET1 is already very favorable to peers and CET1, including AOCI, is no longer a story and, in fact, is above peers by probably a predictable margin. And so you can just make your own assessment of, okay, well, they're not going to stay way above peers.

We've always said we want to be above peer median, but not way above. So you can almost talk yourself into whatever level of buybacks or other capital usage you want to think about.

That's what I said.

Got it. I appreciate that.

And then just one housekeeping item. Just, Derek, you mentioned that line utilization increased.

I was just wondering if you can give what the number was this quarter versus last quarter and maybe how much 1 percentage point equals in terms of loan growth?

Oh, boy, I don't have all those numbers at the top of my head versus last quarter. But just ballpark, it was a decent amount of the increase, I'd say, 40% to 50% of the increase from the utilization.

Just broad strokes, close to an increase of 2% utilization with varying dimensions across sub-portfolio, C&I, CRE and consumer.

I just want to go back to the NII guide one more time in case we haven't beaten it to death. Can you just state what the NII guide is without rate hikes, 2Q to 2Q?

Is that moderately increasing or 4% to 6%?

That's a good way of putting that. Listen, as we look at sensitivity, which is different than forward guidance, even without a rate increase, I believe we would still be moderately increasing to give you some indications about how we're seeing it.

When you layer over the top of our sensitivity, what we're seeing in loan growth.

Okay. Great.

All right. And just a follow-up.

On the deposit side, are you guys still focused on pulling some of the off-balance sheet deposits back on balance sheet? Can you just give us an update how much you have there, what the funding advantage is versus wholesale?

And if you're baking any of that into the guide, that would be great.

Sure, Dave. This is Scott.

We have about $6.5 billion, $7 billion in off-balance sheet deposits. These are clients that we've asked to move off balance sheet at other points in times like 2020, 2021.

And that number was as high as $12 billion. So we've moved some of that back on balance sheet.

And generally speaking, when we bring those deposits back on balance sheet, it is definitely accretive to overnight -- net overnight borrowing rates. And then -- but that's not the only place these higher-priced deposits are coming from.

Generally speaking, when we bring deposits into this kind of wholesale deposit campaign we've been focused on, they're coming in anywhere from 30 basis points to 40 basis points accretive to our overnight borrowing. And we currently have about $2.5 billion on average brokered deposits plus net overnight borrowings.

Okay. Great.

So the idea is sort of just to replace those over time.

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

Just following up directly on that previous question. So on the deposit initiatives, right, how quickly could you see those efforts make their way into deposits to ultimately reignite growth in total deposits, customer deposits, which has held flat the past couple of quarters?

It's been doing it for the last 9 months.

Yes. I mean so far, you brought in...

$3.5 billion.

$3.5 billion. But it's maybe the inverse of a fat guy losing weight.

Come on now. Who are we talking about here?

I'm not talking about Scott. No, I mean the first few pounds are either in the last few.

And so I mean -- so there -- it's not a straight line. It's -- you get to a point of kind of diminishing returns where you pick through, you've talked to customers and some of what's left off balance sheet is going to be a little stickier than it was originally.

So, well, all apologies to anybody overweight.

Apology taken.

None taken. And then my follow-up -- so look, loans are still expected to moderately increase over the next year.

But given that the company's funding costs are below those of peers, many banks, including you guys, are talking about the level of deposit competition remaining intense with no signs of slowing down. I'm just -- if I put it bluntly, I'm just struggling to see how you won't see a surge in funding costs in the coming quarters to support your loan growth outlook and ultimately get you into that upper single digits range for NII?

On this, I would say that our loan growth has been really disciplined. It's been muted by the fact that we've not been gulping down NDFI loans for the last 5 years.

It's been muted by the fact that our -- the peer median of CRE growth is about 60% higher than our growth, the upper quartile, the most fastest-growing peer banks are growing at about 2x our CRE growth. We're just not -- we can grow loans faster, but we're choosing to be very disciplined about concentration management, and we're not growing unsecured at a rapid rate, which investors hate when you go into a recession.

And so I think with the loan growth projection that we have, we have a very solid opportunity to keep funding costs, which is a significant competitive advantage for us, very much intact. We have over about 3 decades, our cost of deposits relative to peers.

Yes. Listen, I think all agreed with what Scott said.

I mean, certainly, there's pressure, right? I don't know if I would say surge, but we're seeing it in the marketplace.

And so there is going to be some pressure on funding costs. But as Scott alluded to, we've been very successful in managing that over time.

On your NII -- sorry about this, NII question again. But on your NII growth assumptions of 4% to 6%-ish in a rate hike or upper single digits in a rate hike assumption, are you assuming your NIB deposits stay in that 34% of total range?

It sounded like you were attributing some seasonality to a second quarter decline. Just wanted to see what is baked into your baseline.

Yes. Thank you, Janet.

I think just broadly speaking, as we work with our businesses, we do see some degree of seasonality that presents from time to time in the second quarter. And typically, when we work with our bankers and our affiliates and our businesses, it usually is a stronger second half of the year.

So that would certainly be factored into how we think about projecting into the future, and that will be part and parcel to our guidance. So that -- does that get to part of what you're asking?

I think it's on the noninterest-bearing deposits and the proportion of that...

Yes. Listen, I think if you look at more recent trends, interest-bearing has been growing faster than the noninterest-bearing.

So a lot of that will -- I personally expect that to continue in the near term and maybe longer term, I don't know, we'll see. But the -- again, it really comes back to the things that we're prioritizing as a management team and as an institution.

There's a reason why we talk about these targeted focused campaigns on the wholesale side, but the real franchise will be made on those granular deposits and the efforts that we're making on retooling our commercial deposit accounts, our small business deposit accounts and getting at those granular relationships that we are building over time. And it does take a little bit of time to play through, as Harris said, it's the marathon, not the sprint.

So that -- I mean, that's really where I'm going to be training my eyes in the coming quarters and years is how successful are we in advancing the ball there.

Got it. Appreciate all the color.

And just on the securities portfolio size, I mean, that's been grinding down for a few quarters and I guess, for some years. How should we think about the trajectory of the security portfolio going forward?

Yes. Thanks, Janet.

I do think we're getting closer to the time where it will -- it's not a trading where we'll need to start reinvesting 100% of those securities cash flows. But again, I think we're still a quarter or 2 out.

We're always thinking about our funding structure and how -- like approach it from a rating agency perspective or how the regulators think about stable funding. You've seen that we've been in the capital markets.

I wouldn't rule that out in the future. We sort of see what the market bears.

But notwithstanding that, I think we probably have a quarter or 2 where there's still some cash flows that we can reinvest to other things that are not securities, whether that be continued loan growth or paying down some of these wholesale funding sources. There's still some movement there.

I think a BioChem question would be most welcomed at this time.

We got a BioChem incident there. Shall we go to the next?

Let's move on.

So the technology expense comment, was that related to the trend like a quarter-over-quarter or year-over-year just because it's been elevated the last few quarters?

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

I'd just add. I mean, there's been a lot of -- we talked in prior quarters, there's been a lot of pressure coming in terms of just vendor price increases, software maintenance, et cetera.

I'd like to think that that may be one of the bright spots coming out of AI for a lot of folks is that maybe that gets tempered a little bit. I think some of the vendors start to feel the pinch of that and maybe lose some of the pricing leverage they've had.

On the other hand, I mean, everybody is going to be spending more on AI. Question is how quickly we actually see meaningful results from it.

But I think one thing that's sure is you're going to -- more and more technology is going to be applied to this industry.

Got it. And so about 1/4 of your expenses, if you look at the technology spend disclosures in the Q, which are very helpful.

So 1/4 of the total expenses are tech related. Where do you see that going?

Are you spending more? Is it going to go towards 30% temporarily?

Or is it going to kind of just increase with the natural growth rate of expenses? And could it go lower over time?

This is Scott. I think -- I don't think the trend will change significantly.

We're continuing to invest across the board in technology in all ways. But as Harris noted, there are definitely elements of the business that we see from providers that is changing.

And they have clearly had the upper hand in the last 2 or 3 years, but you can see a world where that becomes more controllable, where they're searching for revenue and not searching for pure price increases.

And then I guess the open question becomes where does the token math go eventually over time if people are pivoting to more AI large language models. There's a lot more that's showing up in various CFO forms about ROI from token math that will probably be the new battleground over time.

I think one other trend you'll see is that all of our peers generally report that they have used outsourcing to the extent of 10% to 15% of their FTE base. And we were probably lagging considerably on that front and maybe around 3%, but we've been moving that number up using it as a lever.

But the point I want to make is that what's happening with outsourcing broad-based is that AI is replacing the need for having to outsource at all. So -- and as we're able to bring that outsourced total down, we're bringing down 100% dollars as opposed to when you go to an outsourcer.

So I think there's going to be a real expense opportunity there as companies replace outsourcing with AI. You hear this from AI -- outsourcing vendors and that's why many of their stocks are being hurt in the market right now.

Scott or Ryan, anything you would call out in the capital markets revenue line this quarter? Do you feel like that's granular, repeatable-type number?

And then maybe, Harris, anything you can share with us in terms of maybe sizing the agency acquisition?

I'll take the easier part of that and just say that, no, I think the different major capital markets product groups that we have. We've invested in several of them significantly in recent years and both in colleagues and in risk and technology structure.

And I think we've got a long runway on growing those businesses. So I'm not worried about, and I don't think our teams are worried about having to repeat the revenue level that we have.

I think they can see a nice upward trajectory, and we'll see the benefit of many of our products hitting on all cylinders at the same time as opposed to just one.

Yes. With respect to the Basis Investment acquisition, contractually, we are not able to talk about -- make any projections about that until we close the deal.

And so I expect that this time next quarter, certainly, we'll be able to talk about that, but I can't today.

And if I can just double up, I think those are really important. And what Scott said is valuable.

I mean if you think about this history here and the investments that Harris talked about at the beginning part of this call, if you think about what the bread and butter has been for our capital markets business historically, risk management through swaps, FX, loan syndications. The neat part of the story in this quarter is we're talking about a whole another set of complementary skill sets in real estate capital markets, investment banking advisory fees.

Harris talked about what's coming on the multifamily side. So it makes the business overall more durable.

And it's still going to be lumpy. We know that, but it makes it a little bit less lumpy when you have that many businesses to draw upon.

So I think that's really, really encouraging, something that I hope doesn't get lost in this. When we're seeing lots of other people showing really strong capital market results this quarter, it's really nice to have that part of our narrative as well.

Okay. Just one thing maybe to end the call.

It's kind of an NII question, but maybe not. But Harris or really any of you, do you think the Fed should hike or needs to hike rates?

And do you guys have kind of a preference or a bias on rates?

I mean, far be it from me to. I will say, I think that the new Fed chair, just me speaking, but I think Kevin Warsh brings -- I tend to be a fan.

I think the Fed over the last 20 years has kind of painted themselves into corners with their own forward guidance. I mean, I'm talking to a group of folks who love forward guidance, and I understand that.

But one of the problems with it is it creates pressure to do something sometimes things that are unnatural. I think it takes away degrees of freedom.

And I tend to think that hard, Kevin Warsh is what he says he is, and that is focused, first and foremost, on inflation. I think he's closer to a Milton Friedman kind of a guy than anybody we've seen there for the last couple of decades.

And as long as we have inflation that's kind of sticky, I think the pressure is going to be probably upward on rates. I just think that's who he is.

So -- and I think he's trying to be careful not to paint himself into the corner or -- I really think it's going to be a Fed that under his leadership is going to be very responsive to what's happening with inflation and pretty transparent about it.

Thank you, Julian, and thank you to all for joining us today. We appreciate your interest in Zions Bancorporation.

If you have additional questions, please feel free to contact us at the email or phone number listed on our website or on the release. We look forward to connecting with you throughout the coming months.

This concludes our call.