Prepared remarks
Greetings, and welcome to the Zions Bancorp Second Quarter Earnings Conference Call. Please note that this conference is being recorded. I'll now turn the call over to Dave Riches. Thank you, Dave. You may begin.
Thank you, Julian, and good evening, everyone. Welcome to our conference call to discuss Zions Bancorporation'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 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 $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 continuing 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.
Questions and answers
And our first question comes from the line of John Pancari with Evercore ISI.
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 outlook be influenced by 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. Having heard some of the other earlier reporters, our message is not very different. It is a competitive environment on both sides of that equation. You'll see that in also a little bit of the mix that's showing up on the deposit side. On a period-end basis, we saw noninterest-bearing balances down. We have seasonality in the second quarter, so some of that can be expected. But we're supplanting that with interest-bearing balances; it's competitive. Some of those targeted deposit campaigns are approaching closer to wholesale rates in places. So it really underscores the importance of us doubling down on our core strategic initiatives and pulling through on the things you've been hearing us talk about in recent calls, coupled with the marketing dollars that come with that. On the loan side, we are seeing a little bit of spread compression. The earning asset yields held flat quarter-over-quarter. We had some underlying items that helped counteract some of that spread compression, things we've talked about in prior quarters. We still get some benefits there in terms of 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. For all of 2027, we'll only have $8 million remaining there. The remix we've been discussing continues. We do see continued upside in fixed asset repricing. Some of that was a little masked this quarter by spread compression, but that still remains. We still see at least 1 basis point of earning asset yields playing through there. We still have securities coming in at a better front-book rate than back-book rates, which should contribute about 1 basis point or better on investment security yields. The most important repricing benchmark for us is 1-month SOFR, and that was coming at the low end of the range in the market. That was a little softer on the loan side without any Fed funds rate decreases, and it was harder to push that through on the deposit side. Overall, this quarter came in as a very stable net interest margin, and while it has not been our practice to provide deposit or NIM guidance, we do believe there's some upside from here, going back to our core strategic initiatives to drive deposit growth.
John, this is Scott. Ryan mentioned it a couple of times here, but this marketing initiative we've had with six strategic products is all focused on granular deposits. We're doubling advertising in 2026 compared to 2024 with a better company-wide approach to product advertising. We're still very early into that, but our whole branch teams and our business bankers are highly focused on these efforts to grow granular deposits. On the larger side, we still have net 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. Those higher-priced deposits are clients or prospective clients; we're not just buying money in the open market.
On the spread compression discussion, yes, we saw some compression. The earning asset yields hung on sequentially due to the beneficial items I mentioned. The dynamics between deposit and loan pricing are competitive, and we are mindful of that. We expect some of the positive drivers to continue to help the margin over time, but deposit competition remains a factor.
Got it. And then, Ryan, you alluded to that you don't really guide on deposit growth or the margin. But I guess I'm 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 Scott mentioned, but I wanted to get a sense of how the funding picture may look here as you continue to see some strengthening underlying trends on the loan side. Will there be a greater reliance on the wholesale side, or is there a reasonable pace of deposit growth we should assume?
John, we certainly hope and expect deposit growth based upon all the things we're doing internally. The guidance I provided about NII a year out is constructive, and it will be beholden to our success in driving loan and deposit balances. Underlying that, we would be showing a decent amount of average deposit growth that would be implied by that guidance, but without getting into specifics, which has not been our practice.
And our next question comes from the line of David Smith with Truist Securities.
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. The implied forward rate at the time we established the guidance allowed for one rate increase, so that was embedded in our outlook.
Would you report sensitivity to a 25-basis point shock? Is that about 1% sensitivity if we're assuming more or fewer hikes?
Yes, that's an important point. We continue to screen asset sensitivity relative to peers. Methodologies differ across firms, but on a parallel shift basis, we still internally think about latent emergent sensitivity and 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. You'll see some of the sensitivity materials in the appendix of our presentation.
Following up on deposits, you've got initiatives to try to reignite growth. If it remains competitive in the short term, though, your loan-to-deposit ratio was up a couple of points to 82%. How high would you feel comfortable taking that ratio in the current environment if deposit growth takes a little longer?
We still have the investment securities position that we've discussed and are getting closer to a point where we fully reinvest cash flows. We're probably still a quarter or two away from fully reinvesting securities cash flows. We've been mindful of liquidity stress tests and deposit behavior, and we think we have sufficient buffer. At 82% loan-to-deposit, there's a little more room to run before we'd have to take other actions to support stable funding sources.
And our next question comes from the line of Manan Gosalia with Morgan Stanley.
Can you give us a sense of the trajectory of deposit costs through the quarter? I know spot deposit rates were up about 6 basis points quarter-on-quarter, but there might be seasonality, especially related to noninterest-bearing deposits. How did deposit costs evolve through the quarter and how did competition evolve?
Competition is certainly present. The spot total cost of deposit at the end of the quarter was 1.49% per the MCI-type disclosure on Slide 10, which gives you a feel for the direction. It's competitive, and our success will depend on driving through our core campaigns.
And on loan growth drivers, C&I growth was good this quarter. Any sense of acceleration and how to think about the next year or so?
Thanks, Manan. We had good loan growth for the quarter, primarily driven by C&I. It was diversified across segments in the commercial and industrial book. We saw decent increases in utilization on revolving lines of credit from companies growing and needing additional working capital, which was positive, as well as new originations primarily in middle market and upper middle market tied to capital markets syndication activity—an area we're aiming to grow. We also saw good growth in the term CRE book. Our construction mix is down as a percentage of CRE to 16%, partly because construction loans rolled into term and because of new originations in our term book, which we think has opportunities to grow.
And next, we have Bernard Von Gizycki from Deutsche Bank.
On expenses, I think you called out credit-related expense rose $4 million due to increased loan-related legal costs. Was this mostly due to legal issues with the Cantor Fund, and any updates on that? Do you expect it to continue spilling into the second half?
Yes, Bernard, that's a prominent component of that expense item related to those legal matters.
Any thoughts on that continuing into the second half?
I don't think we really have anything to offer at this point on that matter.
Last follow-up on fees. Ryan, you mentioned attractive opportunities in capital markets and strong pipelines into 3Q, with real estate cap markets and investment banking fees strong. How do you see that trending? Also, wealth management fees were down slightly in the quarter—what drove that and thoughts on the second half?
It was a solid quarter. Recent quarters have shown growth in fee income that is broader than a year or two ago. Capital markets has been a significant contributor, but other major fee categories are now performing well. Our largest source of fee income, about 30%, comes from treasury management activities, which are up nicely year-over-year. Loan-related businesses and mortgage—shifting mortgage to held-for-sale from held-for-investment—will continue to show year-over-year mortgage fee growth. Wealth management was actually up over the June quarter of last year, and we're encouraged by the teams' progress. Rebecca Robinson, who ran the business for many years, retired and did a great job creating a strong foundation. We've hired Mike Selfridge, formerly Chief Banking Officer at First Republic, to run wealth. He brings experience for the next phase of growth. We expect wealth revenue to be a high single-digit to low double-digit growth business.
And next, we have a question from Ben Gerlinger with Citi.
On deposits, I know you don't want to give full guidance, but are there silos that are growing because everything gets lumped together? Is there a pricing strategy or any individual silos doing better than others, considering the net was down a bit?
We've had an ongoing targeted deposit campaign inviting people to bank with us; rates are more generous but still with clients. Growth is probably coming from those focused outreach efforts. There are underlying green shoots from our strategic efforts that should produce more growth going forward.
These initiatives are a marathon, not a sprint. Over time, if we keep these growth rates, I expect it will be a meaningful contributor to strengthening the consumer and small business part of the franchise.
Ryan, just to double check: you said operating leverage of 100 basis points to 150 basis points. Is that GAAP or core? How should we treat the Visa gain?
We would not include the Visa gain for that purpose. This reaffirms what we shared last quarter: we still see that range for the full year. If you think about the words I used for guiding 2Q '27, it implies quite a bit better than that for the 1-year forward quarter, but we need deposits to pull through for that to stick.
And our next question comes from the line of David Chiaverini with Jefferies.
On NII guidance clarification: the moderately increasing assumes one hike. If we get two hikes is that when we'd get to upper single digits?
The guidance had one hike embedded. Markets sometimes anticipate moves, so think of our guide as reflecting one full hike. If we saw two full hikes, emergent NII would be more constructive and could push to upper single digits.
And on positive operating leverage, the 100 to 150 basis points is 2026 core. If you look 12 months forward, how should we think about positive operating leverage over the next 12 months?
I don't have that exact 12-month statistic in front of me. The guide I provided for the 1-year core quarter is intended to steer the market: moderate loan growth, fee income at the upper end of our guide, and NII with the forward curve suggests upper single digits. With moderate expense growth, that gets you to a healthy place for the full year.
And our next question comes from the line of Chris McGratty with KBW.
Ryan, bigger picture on margin and NII: many peers have said NII is more important than margin and margin is an output. You walked back the 3.5% NIM before. Conceptually, what's more important over the next 6 to 12 months: NII growth or leaning into growth even if margin compresses a bit?
It comes back to NII. Margin is interesting, but NII ultimately drives profitability. Loan growth outpacing deposits can constrain margin, but there is a lot to like in our loan guide and the rate curve is constructive while we're asset sensitive. For me, the focus is on NII and growing responsibly, which should show up in NII moving forward.
On the allowance for credit losses, your ACL is strong. How should we think about willingness to bring it down, mix shifts, or other factors affecting the 1.06% number?
We feel very well reserved at this point. Movements in the ACL will depend on the economic forecast. If the economy improves, we have room to move it down; if it deteriorates, we'll move it up. Given our coverage—about six years of gross charge-offs—it feels appropriate for the tenor of our portfolio.
And a quick question on the tax rate outlook?
Nothing unusual. We had a small first-quarter item normalizing, but otherwise it's business as usual for our effective tax rate. Nothing to call out.
And our next question comes from the line of Ken Usdin from Autonomous Research.
Ryan, to be clear: the main guide for NII includes one hike and you think you can do upper single-digit year-over-year NII growth to 2Q '27 with that? People are comparing the word 'moderately' on the slide to your more specific comments.
You nailed it, Ken. Sometimes words get in the way. Our guidance embedded one full hike. If markets show more hikes, it would be more constructive than the base guidance we provided.
Second question on capital: You had the Visa gain and roughly 9.2% with AOCI. You did $75 million of buybacks. Is that the type of return we can expect going forward? Can we expect increases as AOCI improves?
If the economy cooperates and our plan plays out, I expect we'll incrementally increase capital repatriation to owners. I don't expect anything sudden or dramatic, but the current pace of buybacks is sustainable and you'll probably see some increase over the coming year as well as dividend increases—consistent with the forecast we're giving a year out.
Looking at peers on a reported basis, we're healthy at this level. The Basis transaction closing in the third quarter will absorb some capital, but we still expect to be a little better than peer median on reported CET1. AOCI has been coming in predictably and we see the glide path continuing, which supports the opportunity Harris described.
And our next question comes from the line of Peter Winter from D.A. Davidson.
Following up on AOCI, Scott, you previously said capital is building with AOCI accretion, giving you more capital available for acquisitions. Can you or Harris provide an update on thoughts about bank M&A?
I wouldn't say we won't do deals, but it's not a daily focus. Any activity would be opportunistic and likely in markets we serve where economics favor consolidation, with good deposit bases and strategic fit. We've spent years strengthening systems, people and risk management. Now our capital is stronger. We need to demonstrate returns that justify doing deals and be competitive. We're focused on organic opportunity; M&A is not a primary daily focus, though we remain open to attractive opportunities.
At investor conferences I noted two things: Harris and I don't typically make calls about M&A first thing Monday mornings; we're focused on growing the company and initiatives. When opportunities present, we can convene quickly to assess. AOCI accretion has been predictable for multiple years. Looking out to quarters in '27 or '28, on a reported basis CET1 will be favorable to peers and CET1 including AOCI is no longer a constraint. We want to be above peer median but not way above it. You can make your own assessment of buybacks or other capital uses based on that predictability.
One housekeeping item: Derek, you mentioned utilization increased. Can you give the number this quarter versus last quarter and how much 1 percentage point equals in terms of loan growth?
I don't have exact numbers at hand versus last quarter. Ballpark, utilization increases accounted for roughly 40% to 50% of the loan growth this quarter. Broad strokes: close to a 2% increase in utilization with varying dimensions across sub-portfolios—C&I, CRE and consumer.
And our next question comes from the line of Dave Rochester from Cantor.
Going back to the NII guide: can you state what the NII guide is without rate hikes, 2Q to 2Q? Is that moderately increasing or 4% to 6%?
Even without a rate increase, I believe we'd still be moderately increasing. Sensitivity is different than forward guidance, but even without a hike we see moderate increases given our loan growth and other drivers.
On deposits, are you still focused on pulling off-balance-sheet deposits back on balance sheet? How much do you have there, what is the funding advantage versus wholesale, and are you baking any of that into the guide?
We have about $6.5 billion to $7 billion in off-balance-sheet deposits—clients we asked to move off balance sheet in prior stress periods like 2020 and 2021. That number was as high as $12 billion; we've brought some back on. When we bring those deposits back on balance sheet, it is accretive to net overnight borrowing rates. Higher-priced deposits coming in from wholesale campaigns are generally 30 to 40 basis points accretive to overnight borrowing. We currently have about $2.5 billion on average in brokered deposits plus net overnight borrowings.
So the idea is to replace those over time?
Yes. The intention is to bring on deposits that are accretive. It doesn't make sense to bring on funds that are not accretive to our overnight borrowings.
And our next question comes from the line of Anthony Elian with JPMorgan.
On the deposit initiatives, how quickly could you see those efforts make their way into deposits to ultimately reignite growth in total customer deposits, which have held flat the past couple of quarters?
It's been doing that for the last nine months.
So far we've brought in about $3.5 billion. It's like losing weight: the early progress can be encouraging but it's not a straight line. There's diminishing returns as the remaining off-balance deposits are stickier. It's a process.
Apology accepted on the metaphor. Our loan growth is disciplined and muted by choice: we've avoided rapid growth in higher-risk areas. Peer CRE growth is much higher; we're choosing concentration management. Given our loan growth projection, we have a solid opportunity to keep funding costs, a significant competitive advantage, intact.
And our next question comes from the line of Janet Lee with TD Cowen.
On NII growth assumptions—are you assuming noninterest-bearing deposits stay around the 34% range? There is seasonality in the second quarter; what is baked into your baseline?
Broadly, we do see some seasonality in the second quarter and typically a stronger second half. That seasonality is factored into how we project the future. More recent trends show interest-bearing balances growing faster than noninterest-bearing ones, and I expect that to continue in the near term. Our focus remains on the targeted campaigns to grow granular deposits—retooling commercial and small business deposit accounts—which takes time to play through.
Regarding the securities portfolio size, it's been grinding down for a few quarters—how should we think about its trajectory going forward?
We are getting closer to a point where we won't need to fully reinvest securities cash flows, but we are probably a quarter or two away. We continually consider funding structure, rating agency perspectives, and regulators. There are cash flows we can reinvest into loans or use to pay down wholesale funding. There's still movement to come.
And our next question comes from the line of Raul Zarma with BioChem Limited. Raul, your line is live.
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.
And the next question is coming from the line of Christopher Spahr with Wells Fargo.
The technology expense comment—was that related to a quarter-over-quarter or year-over-year trend, since it's been elevated the last few quarters?
It's a bit of both. Year-over-year we have seen increases in technology costs, and that's a continuing trend given investments to stay current.
There's been pressure from vendor price increases and software maintenance. AI may temper some vendor pricing leverage over time, but everyone will be spending more on AI. The question is how quickly meaningful results come from it. More technology will be applied to this industry.
About a quarter of your expenses are tech-related—could that go to 30% temporarily or is it likely to increase with the growth rate of expenses or go lower over time?
I don't think the trend will change significantly. We're continuing to invest in technology across the board. Some providers are changing strategy and they had pricing leverage, but that may become more controllable. Outsourcing is changing too; we've been increasing outsourcing from a low base and AI may replace some outsourced work, providing an expense opportunity as companies replace outsourcing with AI.
And our final question comes from the line of Jon Arfstrom with RBC Capital Markets.
Scott or Ryan, anything to call out in the capital markets revenue line this quarter? Do you feel that's a granular, repeatable number? Harris, anything you can share about sizing the agency acquisition?
Different major capital markets product groups have been invested in with colleagues, risk and technology. We have a long runway to grow those businesses. I believe the teams can see a nice upward trajectory and we will benefit from multiple products hitting on all cylinders rather than just one.
Regarding the Basis Investment acquisition, contractually we are not able to make projections about that until we close the deal. I expect we'll be able to talk about it next quarter, but I can't today.
To build on Scott's point: historically our capital markets strengths were risk management through swaps, FX, and loan syndications. The recent quarter shows complementary skill sets—real estate capital markets and investment banking advisory fees. The Basis transaction on the multifamily side complements that and makes the business more durable. It will still be lumpy, but having multiple businesses reduces lumpiness and is encouraging.
One final question: Do you think the Fed should hike or needs to hike rates? Any preference or bias on rates?
I won't give policy advice, but I will say I think the new Fed Chair brings a different style. I tend to think Kevin Warsh is focused first and foremost on inflation and is closer to a Milton Friedman view than we've seen in recent decades. He seems to be careful not to paint himself into corners with forward guidance. I expect the Fed under his leadership will be responsive to inflation and transparent about it. If inflation is sticky, there's upward pressure on rates. I think he will be pragmatic and responsive.
And with that, I will pass the floor back over to Dave Riches for any closing comments.
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.
Thank you, ladies and gentlemen. We thank you for your participation. You may disconnect your lines at this time and have a wonderful rest of your day.