[audio distortion] [audio distortion] [audio distortion] [audio distortion] [audio distortion] [audio distortion] Thank you. My, my luck, that one won't work either. All right. Well, up next, we are pleased to have Zions joining us once again. Company's had a strong year returning to top-line growth while continuing to manage cost and credit in a disciplined manner. Here to tell us more about the road ahead is Chairman and CEO Harris Simmons. We're gonna have a fireside chat, so let's kick it off. Thanks. Great to have you here once again, Harris. Thank you. So, you know, since we last heard from you, there's obviously been a lot of change in the markets and on the political side, you know, where we could potentially be in a more friendly business environment. As you think about the next year, maybe just start off with how you feel the bank is positioned to win in the environment we're about to enter. Yeah, I'm very excited about what's ahead, because, you know, and maybe I guess we all feel particularly persecuted in our own realms. But the last dozen years or so, in the wake of the financial crisis with the passage of Dodd-Frank and then, you know, a decade of zero interest rates and inverted yield curve and what happened with SVB last year, etc. I mean, it's, you know, one thing after another. Through it all, we have been very internally focused. You know, we kept coming out of the financial crisis, we were the smallest of the SIFIs, some of you may recall. You know, when Dodd-Frank was passed, we were about $53 billion in assets. And so we were responding to all the requirements of Section 165 of Dodd-Frank, all the enhanced prudential standards, building out kind of the second line of defense. I mean, we'd had a little bit of that, but nothing near what was gonna be required. Stress testing, liquidity stress testing, you know, the whole gamut, and you know, ultimately got some relief in 2018, but have continued those disciplines, and along the way, we have spent the last decade replacing all of our core systems. We're at a point today where I would debate anybody with respect to the fact I think we have probably the most modern systems architecture in the industry among any of the larger banks, and we completed that back in July. Mm-hmm. And it puts us, I think, in a position where we feel like we've dealt with a lot of kind of tech debt. We are in very good shape in terms of, you know, credit is good, and we have a franchise that's in markets that are growing faster than the rest of the country. And it's feeling like a time that it will be, I hope, further enabled and even emboldened by the change in the leadership and the regulatory agencies when we can start to really become much more externally focused, and there are opportunities for growth in these markets that we'll take advantage of with the investments we've made, so. Gotcha. Helpful oversight. So, you know, when you think about sort of the bread and butter of your customer base, you know, small business activity has obviously been slower for the last handful of quarters. You know, there's obviously renewed optimism now. Can you maybe just talk about what you're hearing from clients and how are they thinking about their business post-election? Yeah. I mean, I haven't. It's not like I've talked to a lot of small businesses post-election. My gut tells me. I mean, just knowing a lot of these kinds of people that they are feeling like we are probably gonna be, you know, see an era where risk-taking is more encouraged, where government is getting out of their way. So I, you know, I'm quite excited about what I think it's going to present. They are, you know, they've been waiting for this. I think this is gonna be an exciting time for all of us. You know, obviously, you know, there hasn't been great loan growth across the industry given all the uncertainty that we experienced in 2023 and not only 2023 but obviously still into 2024 with, you know, the passage of the election and waiting for rates to be lowered. I guess, you know, is what we've seen enough to get clients off the sidelines and start borrowing again? And how long do you think it's gonna take for us to see a pickup? And are you seeing any indicators of improvement across any of your geographies? Well, first of all, you know, I don't think interest rates are, you know, at extremes; they make a difference. But, you know, a rate cut or two, one way or another, or a hike, I think is less consequential than simply feeling like there's a little bit of certainty with respect to the operating environment that we've probably accomplished a soft landing. And I think everybody had this kind of sword over their head with respect to, do we have a recession around the corner? It's been really constructive to hear Chairman Powell suggesting, you know, he thinks that we can kind of declare victory. Maybe not. But all that plus the election results, seeing that we have maybe a more business-friendly environment coming from government, I think is going to be energizing for as I told some folks today, you know, the phrase "drill, baby, drill" actually really resonates in a place like Houston. Mm-hmm. But I think it's symbolic of an attitude. It's not, it isn't about fracking. This is a. Yeah. This is about, let's get to work and get out of people's way. Yeah. No, that makes sense. So when thinking about performance, you know, we've seen a pickup in net interest income the past couple of quarters. And you know, you've given expectations of growth, you know, looking out four quarters driven by a variety of factors. I think when we last heard from you, it was as of 9:30 A.M., markets were assuming more rate cuts. Can you maybe just talk about drivers of net interest income from here? Do you think, you know, less cuts and higher long-term rates will support your expectations? What do you see as the main drivers from here? First of all, I mean, you know, clearly we've seen over the last couple of months, we've seen term rates kind of creeping back up a little bit after the election. I actually think that if we get to something that is a little more normal, kind of a yield curve with some, you know, if we saw another cut or two, but with the 10-year remaining around where it is today, that's gonna be a pretty healthy environment, certainly for regional banks. It's part of what I would hope and expect will take us back to a net interest margin that is, you know, closer to the mid-threes over the next couple of years. So there'll be some remixing of our balance sheet. We've, I'd see us probably letting securities run off somewhat, one-to-four family residential lending probably starting to run off somewhat and replaced with probably a greater degree of C&I in the mix. I think it's gonna be a pretty, you know, a pretty good C&I market. Small business is something that we really focus on. We'll be really promoting that. I expect we'll see growth there. One area that you did not touch upon, with commercial real estate, which, you know, hasn't seen much growth the last few years. You know, putting office aside, which, you know, has been a problematic asset class, you know, have you reached the point where you're willing to start growing this portfolio again? And if so, you know, where would the focus for growth mean? And, you know, or is it being impacted by things like paydowns, which are gonna prevent you from generating growth? Yeah. I mean, I think generally, refinancing is probably gonna be somewhat of a headwind in CRE in 2025. But, you know, we're still out doing business. And I, you know, I think it's gonna be a slow growth category, you know, probably for the next couple of years. Multifamily is probably modestly overbuilt in some markets. But there is a real housing crisis out there. And so it, I mean, I think that'll take care of itself. The deals, generally, not just us, but I think across the industry, deals have been well-structured. There's a lot of equity in these deals. So I think it's gonna end up ultimately performing pretty well. Mm-hmm. Even as we're watching it carefully because lease-ups have probably slowed down a little bit with some oversupply. But, you know, it'll come back around. I'd like everything, it cycles. Mm-hmm. Even office will come back around. I mean. It might be a while. It might be a while, but you know, if what you see in the Central Business District might be quite a while. Yeah. But you'll see demand for, you know, kind of smaller office product, I think, so. Gotcha. Maybe let's shift gears and talk about deposits. You know, they bottomed early last year, and you've been able to generate solid growth. And there's been a lot of remixing under the hood. I know you've aggressively moved to take balances from off the balance sheet and brought them on, which I'm assuming maybe came at a little bit of a higher cost. Maybe just talk about your views on deposit growth from here. Talk about the opportunities to re-remix the balance sheet, you know, if that's a strategy at all. Yeah. I mean, clearly, SVB's failure and the related challenges at the spring of last year, post-problems for regionals, and particularly for some reason, those in the Western United States maybe a little more acutely. AOCI, clearly a factor in all of that. We're, you know, we're watching that kind of a creep back and, you know, getting to a much better place. But, the, you know, we were coming into the spring of 2023, we'd had, I think probably among the very best deposit rates in the industry. Mm-hmm. Yeah. What had been a strength immediately turned into a liability. Because we were suddenly playing catch-up. Mm-hmm. To try to address, I mean, it's like kicking a sleeping dog and trying to calm it down. Kick it sometimes, yeah. Yeah. So, you know, we're still in that process. I've got a little ways to go. But we've traditionally had, you know, I'd argue one of the best deposit franchises in the industry. Absolutely. In terms of the mix, core deposits, you know, or demand deposits percent of total. You know, and that obviously comes down as rates have gone up, but it's still, you know, it's around 33% today, still really strong relative to the universe. I expect that it'll be just a continued kind of healing process of getting interest-bearing deposit rates back to somewhat better than peer, in terms of funding costs. We continue to, we have a real focus on just continuing to build a very granular deposit base in the company. Mm-hmm. That's where I think you build franchise value in a regional bank. Absolutely. You referenced net interest margin being at 33%. Obviously, it's been under a lot of pressure for the bank and the industry. You know, do you think we've reached the point yet where we're seeing signs of stabilization? I know that you guys saw some good results at the end of last quarter. Are you expecting further migration from here or are clients still putting money to work? What's sort of driving the pluses and minuses in your net interest margin? Yeah. I mean, the third quarter was actually it had clearly really stabilized. I don't know that, you know, is that the end state? I don't know. And depending on kind of the rate path from here, I mean, our rates continue to come down a notch or two. That's gonna help. You know, if they remain stuck kind of where they are, short-term rates start to rise a little bit, maybe it hurts a little bit. But I think that probably, certainly the pace of decline has really shallowed out. Sure. This is really interesting to me. I mean, we're in a much better place than we were. If I go back to, I mean, this goes back a while, but I go back to like 2006 before the financial crisis, in kind of a similar rate environment, we were down back then to something like 25%-26% of deposit. Mm-hmm. So it's actually strengthened over time. And I, you know, I think we're probably getting pretty close to where the trough is. That's encouraging. So maybe one last question on deposits before we move on to some other initiatives. It seems like you've had real or good success bringing down deposit costs. You gave some stats at earnings that I think implied about, you know, 50% beta or so. And, you know, given the way the book has been split, can you maybe just talk about, you know, how you've been able to execute on this, how the slower rate cuts and improving loan growth impact this over time? And as we talked about before, is there opportunities to remix back towards your more, traditional mix that could help drive deposit costs lower? Yeah. Well, first of all, kind of how we manage it. We price locally in each market, but we share results very deliberately, frequently internally. So everybody, I mean, there's a little bit of internal competition around, you know, it's a combination of growth and pricing, so that everybody sees each other's results. And they, you know, and our folks appreciate the importance of this in terms of creating margin. I think that, you know, if we're to see loan growth, we're throwing off about $750 million out of the securities portfolio every quarter. And we, I mean, that actually can absorb quite a lot of loan growth. That's about 2% a quarter. Yeah. So, I don't think we're feeling like there's a lot of pressure on deposit pricing. We still have some room. So, you know, fee income has been a real bright spot for the bank. I can think about the progression over the many years I've followed the company when, you know, you guys, consolidated the charters and really made fee income a bigger focus. And recently, Capital Markets has been really strong, wealth, and obviously treasury management. Maybe just talk a little bit about these initiatives, where you think each of them are in terms of their build-out. And as you look ahead, where do you think you see the best opportunities to generate growth in 2025? Yeah. I'll start with Capital Markets. We have a really phenomenal team. You know, we've hired some great people from some of the largest banks, and they're really some of the really top people, from Wells, from others. But that's really starting to show. They're working well with our bankers, with our commercial bankers. And the focus is really with, you know, companies that are probably kind of $50 million-$500 million. Mm-hmm. In revenues, and you know, sometimes larger, sometimes a little smaller, but that's kind of a sweet spot. And we're finding there's, it's a really good place to play. And they're doing it, you know, it's syndicated lending. It's swaps. It's foreign exchange. We started doing advisory work, M&A advisory work. And I think that's gonna grow well over the next couple of years. Wealth management has also been a nice growth story. We've had a little some disruption kind of this year. It's kind of flattened it, as we've revised some pricing and internal compensation arrangements. But it's made it a more profitable business, and we expect that to grow well. Mm-hmm. There's gonna be. We will find ourselves investing some marketing dollars and doing some kind of down-market business through an arrangement we have with LPL that I think. Mm-hmm. Can be really good for that business. So, those would be the two horses that I'd, You'd bet on? That I'd bet on. Yeah. Interesting. So, you know, when you think about investing in the company, I think you've talked about expenses increasing slightly. You know, you made a comment before you'd been internally focused for a while. Now, obviously trying to be more externally. Maybe just talk about the investments across the franchise. You know, maybe break it down for between tech, revenue-producing, and then where are you finding opportunities to, if any, to control costs? Yeah. So in terms of where we're making investments, I mean, we finished this decade-long, really complicated project to replace all of our core consumer loan, commercial loan, commercial real estate loan, and deposit systems this last July. And having that in the rearview mirror really feels great. We actually hosted a little conference. Mm-hmm. Out in Salt Lake City, a few days ago and had some banks from around the country who were starting to think about, you know, they're starting to think about this journey, at a time when we've completed it. I couldn't be more pleased. The investments we're making going forward tend to be more customer-focused. It's how do we take this platform and make it and find ways to monetize it, find ways to deliver information about customers to our employees, creating a 360-degree view of customers. We've made investments in customer relationship management. We have, I think we may be the only bank in the country that has a single instance of Salesforce running, where all of our, you know, all of our bankers are on the same platform. So we've tried to create a lot of consistency. One of the things that's come out of all of this is in order to do this systems conversion project, we spent a lot of time and effort working on data governance, data models. We have a single data model for all consumer, commercial, C&I, you know, fundamental, all of our business, and that I think is gonna turn out to be very helpful in an age when AI becomes more prevalent, and so I, you know, I expect that we'll find use cases that might be easier for us to implement because of the investments we've made in this. Those would be some examples. Gotcha. So the guidance that you laid out in earnings implies positive operating leverage a year out, so in the third quarter. How do you think about it for the full year 2025? And over the years, you've been in cost-saving mode when revenues were more challenging and then investing mode when things were improving. You know, where do you think we are now? I think we'll see operating leverage through 2025. Yeah, I mean, we talk about kind of a quarter year from now, but to get there is not a cliff. Yep. And I think we're probably in an environment. I mean, we're watching costs really closely. I mean, it's, and there's more work we are doing every quarter on that. At the same time, we're gonna spend more money marketing, becoming more externally focused. Mm-hmm. We really believe we have a reasonably rare, if not unique, model operating in some really great markets in this country. Yep. Positioning ourselves as a really quality alternative to the national brands. Mm-hmm. is kind of where we're gonna be spending marketing dollars. Mm-hmm. Particularly in further building a focus on smaller businesses, mid-sized businesses, wealth management, etc. Sounds good. So, Harris, you talked before about, you know, having, you know, the bank hoping to have a margin back towards the 350s at some point in time. I know you historically used to talk about, I believe it was the mid-50s efficiency. Is there a path back to those levels, and if so, over what time frame? Yeah. I mean, there, there absolutely is. Again, if I were to dial back to the, you know, if we go back and look at the fourth quarter of 2022, I, I think we were well on our way there. And. Yep. You know, we had a setback. Our issue, I mean, you can triangulate on expenses various ways. We've done a lot of benchmarking with peers. I think we understand where we're doing well and where we're not, and we're focused on where we're not. There's more opportunity for some outsourcing of some activity, that you know, whether dollars to be saved. I'm losing my train of thought. Cost save. Yeah. Yeah. In terms of. Cost save. Yeah. Cost, cost saves are on everybody's mind as part of our incentives. And, so I, you know, I expect that even with some additional working spend, that our expense growth is going to be among the best, you know, kind of around the top quartile in the industry. That would be my bet. One thing that could be a little bit of a headwind to expenses, just been, you know, crossing $100 billion in assets. You know, you guys have, you know, as you mentioned earlier, you've been, you were there, right? And then we had 2155 that sort of pulled it back. But, you know, given all the changes that are happening, does this at all change? You know, in, in down in D.C. and regulatory-wise, does this at all change the way becoming a $100 billion bank impacts you, fully recognizing you don't have a, a hold co and you're a, you know, you're an OCC-oriented bank? Yeah. Yeah. I mean, I think it's all just fundamentally good news. I think a primary concern of mine had been the long-term debt proposal. Yep. It was gonna be expensive. I think it's almost a given that that's going to be really dramatically revised. Yep. Whether it kicks in at 100 or not, question. If it does, it's gonna be at a much lower level than 6%, and I, you know, I think you're gonna have leadership in the agencies that are gonna be more pro-growth than what we've seen the last. Yep. Few years. And crossing 100 isn't something that we're all losing a bunch of sleep over. I think we've built the fundamentally built the mousetrap. And when it happens, it happens. I mean, I'm not anxious to get there. Sure. If there's an additional cost, or from, say, long-term debt requirement. But it's gonna happen. Yeah. When it happens, we'll be able to. Yeah. Yeah. So I know that your favorite part of every conference is giving a near-term update. And I know that's a business practice of yours not to do. But I guess my question is, you know, obviously there's a lot of enthusiasm coming, you know, given the events of the last few weeks, I guess. The question I have is, are you at least hearing at the margin any changes to customer behavior, any sort of, you know, desire to borrow more? Are you hearing anything as you're out in the field talking to the loan officers? It's too early, just fundamentally. I think it's still sinking in, but I absolutely believe that. I mean, I think the wild card is gonna be tariffs. Mm-hmm. potentially immigration policy, things like that. I think if President Trump's, President-elect Trump's sort of darker instincts with respect to the populist strain of economics that he subscribes to don't overcome him, there's a lot of good that'll happen. And if he can use it to negotiate, you know, that it's gonna be fascinating to see how much of this actually plays out. But, you know, so I think that's the wild card. Then, fundamentally, repopulating agencies with people and the whole DOGE thing, again, I think it's symbolic of, we're gonna try and get people, you know, get government to do what government should be doing, get it out of people's way. Yep. And let people become productive. And that's the kind of thing I'm hearing. Yeah. From people I talk to. Gotcha. So, wanna spend a couple of minutes on both credit and capital. Maybe we'll start with credit. You know, obviously office and multifamily have been the focus. You know, office because of the supply and demand imbalance. Multifamily, you know, there's been some softness 'cause of overbuilding like you talked about. But yeah, loss content for the bank has still been very, very low for the year. So question, where are we? Where do you think we are in terms of either migration or loss content? And what do you think that ultimately looks like for your CRE portfolio? You know, in CRE, I think, I mean, we've seen increased classifications, so migration is a substandard. But it's really been more a sea change in terms of our thinking about the definition. Yeah. than it has been, fundamental performance of the portfolio, and I expect that that's gonna continue to perform extremely well. You know, as far out as I, you know, through 2025, as far as I can see. C&I tends to be, I mean, you kind of have episodic, you know, some, Yeah. Things that sometimes go bump, but it's been in very good shape as well. So I mean, our my stated objective has been, you know, I wanna see us in the top quartile, as measured by net charge-offs. Mm-hmm. The thing is classifications are very much a PD or probability of default kind of driven. Yeah. Approach to things. What's the risk that somebody could, you know, you're gonna have to sit down and negotiate with them? What you really wanna look at is non-performing assets. I think you'll see those continue to perform quite well, and it should be, I think, a pretty benign 2025. Yeah. When I look, you were one of the most well-reserved banks in terms of your charge-offs relative to the allowance. I guess, what do you think it's gonna take for us to actually see those reserves come down? Or, or is that you're gonna continue to, given all the uncertainty, continue to hold on to qualitative reserves? I mean, the truth of the matter is, I mean, we go through quite a process. We've been putting, generally, qualitatively saying, "Look, we think there's a lot of risk in the environment out there." I continue to think, in a lot of respects, that continues to be true. I think there's inflationary risk that could have rates higher. So, you know, we come at it, you know, everybody has their secret sauce in terms of how they come at a reserve. But, you know, a lot of quantitative history, modeling, stress testing, and then, asking, you know, what do we think the next, kind of three years could hold? And it's allowed us to bring it down a little bit. But, yeah, relative to charge-offs, charge-offs can change quickly. Mm-hmm. And so you have to be careful about anything that has denominators that are small. Fair enough. You gotta be careful about that ratio in isolation, I think. Maybe shifting to talk a little bit about capital. You know, I know the industry's been building for the last few years in anticipation of some new rules. TBD whether what ends up coming of that. But maybe just how are you thinking about capital priorities from here? And does the environment we're gonna move into change what the priorities are at all? I think the given in our minds is that AOCI will come back into capital. Yep. One way or the other. I think there's not much debate about that. And that's probably warranted and a good thing. Expecting that one way or another, that's gonna happen. As I said, you know, we have ours. AOCI is accreting back at a pretty good pace. Tangible book value per share has, you know, been growing in the high 20s. Mm-hmm. 20% range the last year. Expect that will continue. So at the end of the day, you know, what we want to do is be ahead of the curve somewhat. What I don't want to find us ever doing is being kind of at the back of the bus when. Yeah. When the economy sinks, and that's just not a good place to be. So, you know, maintaining strong capital is something, one of the things that we do. We tend not to use return on equity as an internal for incentives, things like that. We try to depoliticize how we use capital. Mm-hmm. You know, we get people focused on returns on risk-weighted assets, for example. Sure. So that, we're trying to get people focused on value creation. But hey, if we hold more capital, that's not gonna be on our people. It's gonna be on us. Yep. So I, anyway, I don't think we're gonna be very aggressive doing anything with capital distributions this next year. But I would hope that as we come into 2026, a lot of this will be behind us and should be in a place, you know, unless we have really good. Yeah. Loan growth, a better loan growth than I think. I think I've asked you this question in some way or form. Mm-hmm. The last nine of the last 10 years. You recently announced the small branch deal in California, I think $730 million in deposits, $420 million in loans in California. I guess, given the potential changes in bank regulation, a more favorable environment, plus the completion of Future Core, you know, does this at all change the way you think about acquisitions? You said you talked about having a lot of banks and you could have invited them to the platform as opposed to building it. Yeah. You know, how do you, how are you thinking about, you know, M&A as a strategic fit for Zions going forward, given all the stuff you've done on the tech side, to position the bank? Yeah. I mean, I think what we've done with technology puts us in a really good position to be able to do it. It's not a reason to do it. The reason to do it is fit. It's strengthening the deposit franchise in market. And so deals with the right economics that would do that. There are things that we'd look at. You know, typically, I don't see us doing anything really large. Yep. as, as. How would you define that? Huh? How would you define really large? You know, it's anything, you know, about 90 billion, anything more than a third of our size. Yep. Would probably be beyond what we'd be interested in. Gotcha. All right. Maybe one last question for me. So when you talked about capital wanting to be in a good position, obviously the stated capital was good. The TCE fell a lot. I know that's not a regulatory metric. But as you look back on the events of the last few years, any way you think you're gonna run, you're gonna allocate your capital or manage the capital differently given the events of the last few years? Yeah. I mean, one of the things, I think everybody'll manage liquidity a little differently, with an eye toward, you know, how do they hedge things. I know we had more in available for sale in our securities portfolio than I wish we'd had. Yep. We'd moved to slug that into held-to-maturity. I, you know, we still have a lot of flexibility. It's still available for, you know, secured borrowing. Okay. You know, you can have a lot of liquidity even out of an HTM portfolio. You know, so I think that you'll see us reducing the amount of one-to-four family we have on the balance sheet. Yep. It has too much optionality in it. Yep. in, you get into a rising rate environment and, you know, the depositor behavior changes and, all of a sudden you've got a problem, so. Great. Well, we're out of time. Thank you. But please join me in thanking Harris.