Zions Bancorporation N.A. 2026 Q3 Earnings Call

Thank you, Cleo, and good evening, everyone. Welcome to our conference call to discuss Zions Bancorporation's third quarter 2026 results. My name is Jason Arbuckle, Senior Director of Investor Relations. Before we begin, I would like to remind you that during the call, we will make forward-looking statements. Actual results may differ materially. We encourage you to review the forward-looking statements and non-GAAP disclosures in our press release 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 on our website, 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 one hour, and I will now turn the time over to Harris Simmons.

Thanks very much, Jason, and good evening everyone. We are reasonably pleased with our financial results for the third quarter, which reflect meaningful year-over-year earnings improvement and continued progress on our strategic priorities. Going to the slides. Slide 3 summarizes second quarter results versus the prior quarter and last year's third quarter. Net earnings available to common was $262 million, or $1.78 per share, an increase of 20% compared to $1.48 in last year's third quarter, and an increase of 2% compared with $1.74 last quarter, after adjusting for that quarter's large equity securities gains. The increase from a year ago was due to growth in net interest income and customer-related non-interest income, modest loan growth and exceptional credit performance. The net interest margin was 3.23%, down four basis points from the prior quarter and down five basis points from a year ago.

When compared to the prior quarter, average loans grew 3.7% on an annualized basis, led by commercial lending. Average customer deposits grew 8.8% on an annualized basis. Credit losses were modest at 2 basis points annualized of average loans. Slide four presents the recent history of 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 five, adjusted pre-provision net revenue was $338 million. It increased 2% from the prior quarter, reflecting improvement in adjusted taxable equivalent revenue, which more than offset a modest increase in adjusted non-interest expense. Adjusted pre-provision revenue declined $14 million or 4% from the prior year period, which represented a particularly strong comparison quarter.

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

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

In addition to the talented team that joined us from Basis, we have added seasoned lenders with deep experience in multifamily agency lending and servicing to help scale the platform. We are excited about the opportunities this creates and the talent that we have assembled. This acquisition enhances our ability to serve commercial real estate clients and in particular, those in the Western U.S., where we see a real market opportunity with population growth and housing affordability issues that drive demand for multifamily products. Included in the quarter were approximately $4 million of expenses associated with our newly acquired multifamily agency platform, including personnel and other integration-related costs and approximately $300,000 of revenue. We expect the financial benefits to build gradually over time as the platform is integrated and production ramps up.

For 2027, we anticipate approximately $17 million-$20 million of revenue and $12 million-$13 million of expense, recognizing that we're in the early process of scaling the business. Over the medium term, we expect the business to generate approximately $30 million-$40 million of annual revenue. The pace of growth and ultimate revenue potential will be influenced by market conditions, including the interest rate environment. Moving to slide 8, we see wealth management as a compelling growth opportunity given our broad customer base and the size of wealth assets under management relative to the size of our banking franchise. We have seasoned affiliate and wealth leadership teams focused on continuing to enhance coordination between our banking and advisory businesses, which we believe positions us to deepen client relationships and capture additional growth opportunities.

A key component of our strategy is a product we call Wealth Select, which is a new offering that expands our addressable market by allowing us to serve clients with approximately $100,000 to $1 million of investable assets through a scalable advisory model. Wealth Select helps us engage clients earlier, deepen relationships over time, and create a pathway for those relationships to grow alongside their financial needs. Slide 9 provides more information about what we refer to as our strategic six products. While each serves a different client segment and business need, they all share a common objective, which is strengthening sustainable growth through our branch footprint and core deposits, small business relationships, and fee income. We continue to be encouraged by the early results. For example, year to date, at September 30, we've opened over 14,000 Gold accounts for consumers, totaling approximately $275 million in new-to-bank deposits.

1,300 Business Beyond accounts, bringing in about $120 million in new deposits. In addition, we currently rank number 10 nationally in SBA 7 lending based on approval volume, and number 9 in SBA 504 loans. While the near-term financial contribution is modest relative to the size of the bank, these products are helping us grow long-term relationships and creating opportunities to deliver additional banking payments, lending, and wealth management solutions over time. With that overview, I'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 10, you can see the five-quarter trends for net interest income and net interest margin. Tax-equivalent net interest income was $684 million, up $7 million or 1% from the prior quarter, and up $12 million or 2% from the year-ago quarter. Earning asset yields were relatively stable sequentially, while our cost of funding increased, resulting in a decline in the net interest margin compared to the prior quarter. Slide 11 provides additional detail on the drivers of net interest margin, which decreased four basis points from the prior quarter and five basis points from a year ago. The linked quarter decline was primarily driven by higher deposit costs and growth in lower-yielding assets. As Harris noted in his opening remarks, deposit growth significantly outpaced loan growth during the quarter, with average customer deposits growing by 8.8% on an annualized basis.

This compares with annualized loan growth of 3.7% during the quarter and a slight decrease in ending loan balances. We used this excess funding to pay down short-term FHLB borrowings with the residual deployed into money market investments, which increased meaningfully during the quarter. Moving forward, these lower-yielding money market balances, which are dilutive to our net interest margin, will be utilized to fund loan growth and/or reduce broker deposits as those balances mature. The total cost of deposits increased 11 basis points to 1.59% during the quarter. This increase was driven in part by a recent change in how we present interest paid on cash collateral associated with our derivatives portfolio. Earlier this year, we began presenting derivatives and related cash collateral on a net basis.