Zions Bancorporation, National Association (ZION) Earnings Call Transcript & Summary

All right. Hi, everybody. I know it's late in the day so we'll get started here. I am pleased to have Ryan Richards. I almost said Ryan Reynolds.

That happens more often and everybody is always disappointed.

Ryan Reynolds, everyone. He's the CFO from Zions Bancorp. And just a little bit of background on Zions. Its total assets of $87 billion, strong presence in the Southwestern and Western markets, so in some very, very attractive markets. ROTCE just under 17%. Very attractive deposits with noninterest-bearing DDA about 33%. So Ryan is the CFO of -- new-ish CFO of Zions. Prior to joining Zions, he served -- I'm sorry, at Zions the prior 3 years, he was the Corporate Controller where he oversaw accounting policy, SEC regulatory reporting, along with other responsibilities. Prior to joining Zions, he was Chief Accounting Officer and Director of IR at Truist. And then Ryan has also had some other work experience, including at FASB so we have an accounting [Indiscernible]. We got an accounting guy here at the D.C. Fed and at the Bank of International Settlements, among other things. So thanks for joining us today, Ryan.

So I just gave a couple of stats on the company, but if we can sort of start maybe at a little bit higher level, can you kind of walk us through how Zions compares to other regional banks and sort of what's unique about Zions Bank?

Thank you, Sue, and thanks to the organizers for allowing us to present today. Being my first [BAAB], I've always heard great things so it's great to be with you in person. And thank you for that generous introduction. And you said it well. We are Western and Southwestern. We cover 11 states, really nice growth markets. I think this part of our story is pretty well known. We are more oriented traditionally on the commercial side of things with a strong small middle market focus. That's provided us some funding advantages over the years, thankfully, have been sustained through various economic environments. We've demonstrated a lot of credit discipline. We've been able to be, I'd say, discerning because of the growth in those fast-growing markets that allows us to kind of pick our spots. The other part of our experience, I think, is people have a good calibration on is that at a point in time, we were deemed to be a systemically important financial institution. I think we were coined the itty-bitty SIFI. So we've gone through some of those routines, regulatory routines that probably has served us well along the way. We're also known for having spent a good bit of time and effort focusing on a core financial transformation project that's gone, in the better part of a decade, really kind of focusing on the replacement of our core loan and deposit systems. So in that sense, we've taken on a project that maybe some others haven't focused on just yet. So those are a few things that I think we're known for in sort of a differentiated way.

Okay. Maybe I'll ask you later about the core because I know it was just talked about forever. I remember pre COVID or I remember going to one of your trips, Investor Relations so maybe we'll [indiscernible] that in just a bit.

You can measure the life of your children against our projects.

So the theme of the conference is scale, sort of fact after fiction. Can you talk about whether this is actually true, whether scale is important in your business? And then when investors think about Zions, how should we measure the scale of Zions in this business?

Yes, thank you for that question. And listen, I think scale gets a lot of play, and it's a question that as a regional bank, we hear quite a lot about. It's something that we do also address externally. I'm not going to say that there aren't places where scale matters. I think probably in fee businesses, things that are not capital-intensive. You can make a case for scale. Certainly, I'm sure that there's G-SIBs today that can make a case for scale in terms of some of the advantages that they enjoy. I think when you step back and think about this in other measurable ways, and there was a piece that was included in our annual shareholder report last year, where there was an analysis of sort of looking at banks $5 billion and above and sort of measuring outcomes on the basis of efficiency. And when you sort of look across that horizon of institutions ranging all the way to the top, there wasn't a discernible measurement difference across that group, certainly some were better than others, but it wasn't obvious on the basis of that the efficiency scale that being very, very large was of great advantage. The other thing that's sort of come up and we'll cite here, I think Tom Brown has a pretty nice readership, and it was relayed to me at a recent note where he profiled a recent McKinsey article that was talking about technology and value creation and sort of exploring some scale elements in that. And so I think part of what that article was investigating was looking across about 90 banks, I think, is what they cited in their study over a 10-year horizon and kind of looking across the span of institutions, who's done really well on total shareholder returns, and who's done less well and kind of trying to regress different variables to try to explain who are the best performers and who are not. And through the course of that work, the things that they sort of cite as being drivers that you could sort of explain with the data were more things like revenue growth and earning asset yields, things about your deposit costs, operating expenses. And they made a point in that article to point out that really, asset size was not a meaningful variable in their analysis. So I guess that's a long-winded way of saying, in some places, I think you can make an argument for where scale does show up and matters. But I think when you step back and think of a larger financial metrics like efficiency and total shareholder return, others have pointed out that maybe not so much. And here, I'll give a nod to the newsletter where I kind of like the way that Tom expressed this is saying that there are efficiencies of processing. But then if you think about our economies of processing and the offset being maybe the diseconomies of management, and when you start getting into very large complex organizations with more regulatory intensity and how you have to solve for that being a diseconomy of scale. So it's a bit of a mixed bag but we -- I think from a Zions level, we think that we can be very successful as a regional bank of that size.

Okay. So it's debunked. You heard it here. It's been debunked, it's official, okay. And then moving on to more specific questions and loan growth. And I know we've had -- we had an event this week that maybe will change and today, in fact, too. But when you think about the loan growth guidance, what are your customers saying to you? Why are they on the sidelines? Are they seeing it end demand? Like just kind of give us a little color there.

Yes, thanks. On the loan growth side, we've been guiding to some growth year-over-year. Admittedly not a great deal of growth but some. And it's hard to know exactly how that shakes out. And by the day, it seems to like have a different flavor. But if we were -- as we went through our earnings process and as we were talking during our call, we would have said that -- and we still believe this, that the C&I growth would be the driver moving forward for what's going to take us up. And we've seen some really healthy pipeline developments. We get for some positive feedback from some of our affiliates about what they're seeing there. What we didn't know and what we still don't exactly know how to calibrate is what we're going to see in the refi activity around CRE. I think maybe with some rates backing up here, that maybe that won't be quite as pronounced, but who knows? We've also talked about the 1- to 4-family refi opportunity or challenge depending on what side of that equation you're on. We've signaled more openly through our earnings process that we'll probably have a stronger orientation to originate to sell than holding on to as much in the portfolio. So that's another kind of crosscutting thing. But I'd say in sum total, in recent events the last couple of days, feels like there's going to be more confidence. We heard from our borrowers that taking down rates by the 50 basis points haven't had a chance to obviously to check in today, to know how sentiment is, that, that was sort of a win in their minds in terms of their willingness to push forward with projects, catching a little bit of relief on rate. And hopefully now with the election tucked behind us for the most part and more certainty that's come with that and perhaps even some confidence in the business community that, that can translate to a more constructive view of loan growth.

Okay. And just as a quick follow-up to that, you said that your pipeline is driven by C&I. And I know you've tried to manage your commercial real estate. You have very tight controls in -- With rates declining and probably declining a bit more, if you wanted to, is there demand to add to commercial real estate and you're just not interested? Or it's still a little bit soft and we have another 100 basis points or so to go before you see some real acceleration in commercial real estate?

Yes, that's excellent. So I think the answer to that is yes and has been yes for quite a long time. We've made a really concerted focused effort of since the great financial crisis is deemphasizing that as a share of the whole in terms of our concentration of CRE. It's also when people bring us deals from time to time, that kind of cross our business development desk, we don't get very energized about deals that have a heavier CRE concentration. The feeling is that if we want a CRE, we could get it on our own volition. So yes, I think it's ever present. We just -- because we have those very nice markets and the growth in our markets, we can be very selective in where we lean in there.

Okay. And then during the quarter, you had a bit of a migration in your classified loans, and it was really skewed more towards multifamily. Can you just talk a little bit about, is this something we should be worried about what's going on in multifamily? That's been sort of a really good strong performing asset class. And so what are you observing there systemic?

It has, and it has become part of our story. We certainly shared a number of statistics around that more recently. It is -- there is credit deterioration there, right? And as you think about regulatory classification schemes, regulatory ratings, it's the hurdle that they think about as identify weaknesses. And so as we think about focusing on the primary source of cash flows, are there any identified weaknesses here? Well, the answer to that, we believe, is yes. Notwithstanding that, we still believe in the veracity and the quality of the secondary sources of repayment that we have with our sponsors, guarantors, and a very -- and a lot of headroom on loan-to-value basis. So we are going through our process the way we normally would in evaluating that. There are things that are taking a little bit longer to occur, to lease-up, we are -- sorry, our borrowers are offering concessions in places. There has been an imbalance in supply and demand, I think, will solve itself over time. But you see the weaknesses, so we'll take the step of putting things in criticized and classified. But we've been, I think, very consistent in saying that we still don't see much in the way of loss content in that asset class for all those things that we mentioned in terms of the headroom that we have, very strong guarantors, very strong sponsors and lots of equity in those deals.

Okay. Is there a particular market that sort of stands out as being kind of the bogeyman, but long term, you feel good?

Yes. We don't really see it and we do stare at that. And we do have far-reaching calls with our credit officers and our affiliates to see if there's any 1 area that is sticking out as being the sore point, and it's more widespread. Yes.

So I guess having said that, if you're intellectually honest, you need to increase criticized and classified because you have clearly identified [indiscernible] So what does that mean to your allowance sort of in the short term -- CECL kind of -- there was a little monkey wrench in this if you're actually following it. Does that mean that as these cure, you're looking at releases or things are a little uncertain right now and so you kind of bump up your macro factors to keep it steady? Or I don't know how you think about that, the allowance.

See, now we're bringing the actual accounting stuff.

The accounting stuff is coming.

I'm going to come to life here. Be careful. So it is, to your point about CECL and current expected credit losses, the accounting model, the FASB sort of went back and looked at the model and learned from maybe the Great Financial Crisis or other periods of time where we wait for a bad thing to happen and then you recognize the losses all at once, the so-called sort of incurred loss model. And they said, well, that's not -- that's kind of pro-cyclical. That's not terribly helpful when you get to catch a tough down cycle in the economy. So what if we ask people to kind of peer into the future and think about reasonable and supportable forecasts and then kind of judge on that basis what might come? And so the expression I use is probably not a great expression, but the expression I use now is we saw dark clouds forming and I think others did as well. And so I was 1, I'll own up to it right now, is 1 that wasn't necessarily believing that the FASB model was going to work the way that they had intended. I thought that like many in the crisis, it didn't happen the same way as the last 1. And I sometimes compare it to the notion of like blue sky turbulence on an airplane. They always tell you to keep your seatbelt buckled because you never really know when you might hit something. And that's some -- very often, that's what a crisis feels like. And I thought the notion that we would be able to see in the future and see something coming seemed like a faulty premise. In this case, I think the model is more or less worked. I would have been dismissive of it being countercyclical. But in this case, there were lots of people 2 to 3 years ago that said, "Hey, it looks like we could have a little tougher economy. It looks like there could be recessionary things afoot." And so we took note of that, and at the time, we sort of agreed. And so if you think about our process of running our models and estimating those credit losses into the future, we would ingest economic inputs, bended economic measures and those are very commonly used. And when we looked at those metrics, we said the out-of-box metrics, we think there's a greater risk of recession than what the out-of-the-box metrics would suggest. And so we have been reserving as though we were expecting there to be a deterioration. So it turns out there has been and that's the way the model is supposed to work. You sort of peer in the future, you see the dark clouds forming. You anticipate the credit losses are coming, you reserve for them in advance. And now we're seeing the manifestation of some of those things show up in our credit metrics. And it will kind of cascade down. It starts at criticized and classifieds. And at some point, some of those may migrate to nonaccruals. And what we try to get people oriented to in our materials is that I would really have you pay attention when it gets to at the nonaccrual level because there's a nice history of time that we show in our materials that shows kind of what the loss severity is, is when something gets to that level. In the past, I would tell you there's probably about 20%-ish loss content in that. So I think the model is working in the sense that we're now seeing that deterioration for things that we reserved in the past. What happens moving forward is we're still peering into the future. So we need to peer in the future and see what our read is on economic conditions and what that informs us about the level of allowance. We'll continue to watch to say, hey, what we're seeing consistent with what we would have expected on the basis of those economic scenarios. And so far, we believe that they are. And we've made adjustments along the way where we felt like we had a top-up for certain segments qualitatively. And that would be borne out in the commercial real estate space where we've made some adjustments to make sure that we were well covered on that basis as well.

Okay. So absent a deterioration, macro deterioration, which you just talked about, or if you have loan growth that's way in excess of what you're expecting, then you'd probably be roughly the same?

You got the right factors. Let the -- all those factors play out. But yes, if loan growth were to ramp, if we were to see a different state of the economy, if there was something showing up in the data that was inconsistent with our prior expectations, that would all point to a different view on the reserves.

Okay. Just moving to the other side of the balance sheet, just moving to deposits and DDA migration. We opened the comments with 33% noninterest-bearing DDA, which is pretty attractive. What are you seeing? I'm guessing the rate of growth has slowed out of the DDA? And then what are you thinking about with overall deposit growth?

Yes. That's been a really helpful part of, I think, the story for our name here in the last couple of quarters. We've been sharing various views about interest rate sensitivity, of course, most of that being informed with our assumptions about deposit migration from noninterest-bearing into interest-bearing and the cost of the latter. When we sort of got to the second quarter earnings cycle, we saw the pattern of migration was improving in a way that gave us confidence to be more constructive as we were talking about our guidance looking forward to 1 year. So for net interest income, we were pretty upbeat. And I think there are probably some folks here today who maybe saw that and maybe had a different view of where rates were going and thought that maybe the terminal down rate would be even steeper than what we were modeling from an interest rate sensitivity. We were sort of modeling, at that time, Fed fund rate to go to 4.5% and maybe had an alternative view that said, no, the Fed may be more aggressive than that. You may have more downside risk. As we pushed into the third quarter, we still allow for an assumption of migration out of noninterest-bearing to interest-bearing. But again, we continue to see really nice stabilization. As we think about where average deposits were for the third quarter, really your jumping-off point was your spot rate in the second quarter and that stayed pretty true. So that tells us, all else being equal, settling in that we've got a better NII trajectory than if we allow for, at 1 point in time, we allowed assumption of upwards the $5 billion in noninterest-bearing deposit migration. Third quarter, we brought that in a little bit tighter. So we've already realized some really nice NII growth second quarter to third quarter, and we're still able to remain constructive about what our NII looks like in a year's time. And we have modeled our guidance as -- for the third quarter after the yield curve as of 9/30. And I think if you just kind of look at where rates are, you can sort of interpolate between kind of the implied forward view that we shared and sort of the book ends of plus 100 and minus 100. And the backdrop of what we're seeing now with the Fed may be not being forceful and lowering rates moving forward, anybody has their own assumptions about that. But if you believe that maybe they're going to be less forceful than they were, then that potentially gives us some upside on our earnings potential in the near term.

Okay. And you talked about the spot rate second quarter. I think it -- in the third quarter, the beta is close to 50%. It may not be relevant anymore, I don't know how, because of what you just said, but how was that relative to your expectations? And can you -- can that improve? It sounds like you can improve even now more just based on your prior comments.

Yes. Listen, it's been a heavy focus as I'm sure it has been for other participants in this conference. I mean, as in our case, being very commercial-oriented, being a regional bank, 80% of our revenue is really dictated by our balance sheet with a contribution of around 20% of our revenue from fee income. And so we've noticed and certainly others have felt it through the course of last year, that it got a lot more expensive to fund the balance sheet and even so for us, a little bit outside of historical norms for interest-bearing deposit costs. And so it was an opportunity for us to get really focused on saying, "Hey, we can get back to where we've been historically and make sure that we're operationally ready." So we spend a lot of time getting people operationally ready for not knowing at the time whether it was going to be a 25 basis point cut or 50 basis point cut by being in the athletic stance, so to speak, so that we can be responsive. And so what we've seen, and we share this quite frequently, it's sort of a trimodal outcome for us in our deposit base and our deposit accounts, where we have about 1/3 of our interest-bearing deposits that sort of approach wholesale rates. And we've got 1/3 of them that are just kind of 2% below and then you got the middle. And we saw on the way up that those -- the accounts approaching wholesale rates, they were very sensitive. They were approaching the 100% betas on the way up. And so that was our expectation coming down. And so far, that's proven out and we're really happy with that. We'll see. I know the question comes is, well, how many rate cuts can you sustain that? And I guess we don't really know. But we think that so far, it's working and we think there's more room to keep it at sort of a lockstep.

And those folks are sticking around for the most part, the 100% beta people are sticking around. So [indiscernible] it's as short term as possible.

Correct. And you can see that in our -- where that manifests is thinking about our customer deposits year-over-year and sequentially have been up on a spot and average basis speaking of customer deposits in total.

Okay. One more quickie on deposits before I go to the audience. But competition, deposit competition, I have to say I was a little bit skeptical. We meet with a lot of banks and they said, "Oh, we're going to be at least 50% beta, if not more, on the way down. I didn't think it would happen. But it does seem that deposit pricing is much less competitive with a few exceptions. But what are you observing and you guys are in lots of different markets in the Southwest and the West, what are you observing from competition?

Yes, thank you for that. And I don't want to leave you with the impression that our markets are not competitive. We absolutely are. When you're in really attractive growth markets, it turns out other people pay attention to that, too. So we do have competition in our markets. So far, it's felt mostly rational, which is good. We like having good strong competitors. We know where we slot in our markets. We don't particularly like irrational competitors. And so, so far, I think people will have their headsets on well and they are behaving well. So we'll see. I mean, we still got to see where it goes from here. The question sometimes comes about, what about the pacing of cuts and does that matter? And if you have more forceful pacing of cuts, does it make it easier to run down that deposit down deposit beta? My answer is probably, but we'll see what the Fed brings us.

All right. I'm going to maybe go to the audience and see. Okay. I think he's coming here.

I got you, Ryan.

I have 2 questions. I'll start with 1 and then I'll follow up. So as one of the largest non-hundred billion-dollar banks, what are you expecting for changes post the election from either a supervisory perspective? And do you expect tangible impacts in terms of the cost of surpassing $100 billion? And what type of additional flexibility do you think this will provide the bank?

Thank you, Ryan. It is a question that we get quite often. Listen, I think net-net, pleased with the prospects of maybe less of a really, really heavy orientation in the regulatory environment. I think if you go back to the annual report, if you look at Harris's letter there, he sort of inventoried the sum total of some pretty meaningful regulatory efforts that were underway. And those things are consequential things. So I think that our stock responded favorably. Other stocks responded favorably to the news, so maybe being a little bit less heavy-handed perhaps is the implication. Where we really are watching, there are things that occur from our primary regulator in terms of direct supervision, and there are things that happen on an interagency basis. So for the things that are happening on an interagency basis, things like Basel III Endgame, like others, we're paying attention to remarks there from Michael barr. It looked like there was, for us, a more constructive tone about tailoring, definitely like that. We're still awaiting further word on long-term debt to see kind of where that lands and at what level does it land if it does. That will be really important to us more so than I think Basel III Endgame. There's other things that are going on in an environment that are well known to you on regulatory fronts. If we can get a tempering of that, that really helps. Now from our -- thinking about our primary regulator, the thing that people don't always understand that we do our best to try to convey, we have a very attentive regulator, like it's definitely not light touch. From an OCC perspective, they're our primary regulator. We are not Fed-supervised. Their heightened standards kicks in at $50 billion and above. So we've been subjected to heightened standards here for a good time and will continue to be. And so as we think about step changes in regulation and under a Fed model consolidated supervisor, if we had a holding company which we do not, there are sort of bright line step changes that occur in Category 4 at that $100 billion threshold. So that's not directly applicable for us. But listen, what we understand from our regulators is that their regulatory intensity, supervisory intensity will scale with us as we grow. So in terms of what it means for us to be above $100 billion on how do we think about that. Listen, we're not saying that there wouldn't be any costs. We're not talking about maybe the way some of our other peers are talking about because we have had this experience before in our past of building out a lot of these processes if it were stress testing on a capital basis, liquidity stress testing. We feel like we've been through a number of those routines. The long-term debt is the big variable there. So if that lands at 6% of RWA, that's punitive. I've sort of said that's like getting a special assessment every year, and I wouldn't relish that. So really hoping that they come to a better place, whether tailored or whether they don't proceed with that proposal.

Maybe 1 other question for me. So if you think back over the last 2 years, small businesses coming out of the pandemic, borrowed a ton of money, they spent a ton. And in recent times, they've been much more hesitant not only to spend but to borrow. And I'm curious, do you think clarity from the election and now that we've started to get rate cuts is enough to start to see them reengaging? And if not, what are some of the additional things that you think that they're waiting on?

Yes, great. We certainly hope so. One of the things that we've called out here or has been attributed to our management team, and we're seeing it sort of post pandemic, we're seeing a lot of new business, small business formation in our markets. And that part is exciting. We're in some very entrepreneurial places. And that's an intersection that we like. We like growth and particularly where it's coming through in the small, middle market segment. That's something that we think we can do pretty well, and that people usually give us pretty high marks on for serving that group. So yes, I think that there's -- I think finding some more certainty, some more confidence maybe coming from the results, we didn't know how long those were going to drag on, can make things a little bit more fulsome as a backdrop for an environment that gives people a chance to press forward. We've been talking about it more, and we think there's more for us to do in the SBA loan space. We do really well on that in some markets, and there's places where we'd like to make up the gap in other markets. Again, because it's kind of who we are and it's something that we think we do reasonably well. So listen, I think a little bit of relief on rates is helpful as well in that mix. So a little bit of rate relief, a little more confidence in the business environment together with more of a focus and more digital tools we're bringing to bear, we think can translate to more growth in that area.

John Pancari, Evercore ISI. Can you, Ryan, maybe talk through your capital deployment priorities, obviously, across dividend and organic, but most importantly, where does M&A fit in there versus buybacks? And has your view on M&A changed at all in the past 24 hours?

Yes. Thanks, John. And thank you for asking it that way. Sometimes people go straight to, "When are you going to buy back shares?" And we bypass a number of steps along the way. So listen, I think we've shared and others have shared that there are things that have been happening in the regulatory environment that we can't ignore on a Basel III Endgame perspective. It seems like wherever we go from here, most people are pricing and the fact that AOCI and capital is going to survive for a regional bank that sort of reaches $100 billion. So we're sort of -- that's part of our calculus and that's part of how we think about what's capital available for other purposes. So we can't ignore that. Like others, we want to invest first in ourself, find organic growth in our markets, serve our clients well. That's going to be our primary consumption of capital. We're going to pay a healthy dividend. We had a chance to nudge that up here recently. So that's an important part. And then to your point, John, I mean you have to think about strategic opportunities in the mix. And I think we would think about strategic opportunities even before we would have the conversation about buybacks. And we've had a chance here. We announced it this quarter to do a little important and relevant tuck-in deal in our California Bank & Trust affiliate, doing a 4-branch deal with First Bank that we're really pleased by. They've been a great partner. We think it's a great way of finding scale and density in our relevant markets. And so we definitely have had an appetite for that where it makes sense, where it fits us. We're not out looking for a deal for the sake of doing a deal. But listen, I think it's been the case in recent years, even when we've been very inwardly focused with our big transformation project, that deals do cross our desks from time of time. And if they make sense to us and they're financially viable, we would look at them but we're not actively looking to consume capital that way. If a deal were to come upon us that made sense, we would do it. And then we get to that share buyback part of the equation. And for us, given that we still feel like there is a degree of uncertainty about where we finally land with the Basel III Endgame and other regulatory initiatives, that sort of kept us on pause until we get clarity on that front but it is in that -- sort of in that order.

Manan Gosalia, Morgan Stanley. You spoke about solid pipelines on the C&I side. We've got the 75 basis point of rate cuts. We've got clarity on the election. So it feels like you're in a good spot to generate that loan growth as we get into 2025. Are there any investments that you think you need to make, whether it's in terms of hiring or any other investment spend in order to generate faster growth? Or do you think we can get there just organically from here?

Yes, thank you. That's a great question. Listen, I think the answer in the first place is we can get there organically. I think to be good stewards of capital, we should always be mindful and observant of places where we can grow disproportionately and make sure we're not starving the businesses that could otherwise grow nicely. So that's something we'll always have an eye to. One of the things that I just point you to that we bring as part of our kind of travel decks, there's a slide there that sort of shows across our markets where is the loan growth coming from. Where did it come from year-over-year? Where did it come from sequentially? So you kind of get a sense for where maybe the economies are being conducive to the growth. I'd say on a year-over-year basis, we've seen some really nice growth trajectory out of our Texas affiliate. And we continue to hear very upbeat sentiment from our folks in Texas, but there are other places that are growing nicely as well. I think the most recent quarter, we kind of break it out that California Bank & Trust showed some nice growth as did our Commerce Bank of Washington and Oregon. So yes, I think we can -- I think all the things you said are right. And I think they do lend to growth that the offsets are just kind of hard to calibrate on the CRE side and the 1- to 4 resi side.

Right. I wanted to get to this. I know we're getting a little short on time but I wanted to make sure we got to this. I think that the perception is that you are asset-sensitive, and I think your disclosure supports that as well. You have been sort of able to hold the line, keep increasing your margin with your repricing of your fixed assets and then keeping your deposits pretty stable. So we had another cut today, another 25 basis points today. So what happens to your NII trajectory from here, if you are, in fact, asset-sensitive or maybe you're not?

Yes, thank you. So listen, it's a very relevant question. I think we would -- anybody who wants to kind of delve into that topic more deeply, would point you back to our materials from the 9/30 earnings call or even carried forward in the investor deck. This notion that we are -- first of all, we are asset-sensitive. I think we screen that way within our peer set. And all else being equal, some people will say, "Well, maybe it's not great to be that asset-sensitive in a down rate environment." And so there could be some near-term earnings consequences of being asset-sensitive. I think the other thing that we've been sort of mindful of is, well, yes, but there's also the types of things that we're talking about now, the potential for maybe some more inflationary things to bear out and being cognizant that, that could show up in medium- and long-term rates. And who knows, maybe eventually it slows down how the Fed is thinking about rate decreases. So if you think about where we were as of 9/30 in terms of the guidance we gave, in terms of our NII guide 1 year in advance using the 9/30 rate curve, I think you would only judge based upon probably how people are talking about the number of rate cuts, that there's probably a potential for upside relative to that interest rate sensitivity view. As you think about the plus 100 and the minus 100 scenario being more oriented, you can interpolate kind of where you think is appropriate more towards the plus 100 scenario in terms of thinking about our NII growth year-over-year. But let me just also add that as our -- part of our story has been our investment securities portfolio has been paying down, and we've sort of been on runoff here for a time and we think there's still more room to run. As those investment securities kind of pay down and pay off, that would make us inherently even more asset-sensitive. And so the open question is, do you try to protect that asset sensitivity and thinking about earnings impacts in the near term, recognizing that if you were to add back duration, that creates other considerations about how you think about tangible common equity and other exposures where those medium- and longer-term rates are increasing. And so there are trade-offs in there that we are actively considering.

So you're not necessarily -- as it runs off, you're not necessarily investing it longer or much longer?

Yes. When we take in those cash flows, it's -- we would love to have them reinvested in loan growth. That's a great place to deploy it. We, of course, look at those short-term borrowing opportunities to pay down debt. And we -- sometimes we just have that set as an additional source of liquidity that's earning rates that actually, in this case, are paying above the investment security yield. So different opportunities there but if we did -- if we just left it at cash, we'd become much more -- we would become more asset-sensitive, and much more would be probably too strong an expression.

Okay. I think we have 30 seconds left so maybe -- unless you have some closing remarks you'd like to make?

No, listen, I think others have noticed this. I think for our story, we've made a lot of progress. There's been a lot as people have talked about balance sheet healing coming out of 2023, we've been able to enjoy that. That's been part of -- as you think about 3 successive quarters of minimum expansion. I think if you look at our guidance, looking out 1 year, the guidance would tell you that we expect positive operating leverage. We think there's a lot to like. There's a lot of growth to come. And I think against the backdrop of maybe not as intensive regulatory demands would be most welcomed.

We didn't get to your core -- to your big core operating system...

Next year, next year.

Yes, next year. That's for next year. Okay, please welcome -- please help me in thanking Ryan for being here.