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

I am here with Zions Bancorp. For those of you who do not know them, they are an $89 billion asset bank headquartered in Salt Lake City. They are unique and that they operate several segments within their brand. It includes Zions Bank, Amegy, California Bank & Trust, National Bank of Arizona, Nevada State Bank and Vectra Bank Colorado and the Commerce Bank of Washington. Zions has an excellent profile, mid-teens ROTCE, attractive deposits with noninterest-bearing at 24%, fee revenues at 22%, which I want to talk about later. And then a valuation, very attractive at 8x 2026 earnings and 1/3 of tangible book value. So all of this terrific profitability with cheap valuation. With me again this year is Ryan Reynolds? Richards? It is the second year, 2 years in a row, Ryan, right?

I'm so hopeful. And you always land flat when you...

Ryan Richards. Thanks for having you here.

Great to be back. This is my favorite moderator of all time.

Ryan is Chief Financial Officer of Zions, a position he held since 2024. Prior to the CFO role, he served 3 years, beginning as a Corporate Controller for Zions Bank. Before coming to Zions, he was Chief Accounting Officer and Director of Investor Relations at Truist and Corporate Controller at SunTrust. Ryan has had lots of other interesting positions before joining the bank, including [ royals ] at KPMG, and the [ Feds ] division of Banking and Supervision Regulation and at the Bank for International Settlements. Welcome back, Ryan Richards.

Great to be here. I always love this conference.

I'll start, if we could, on the loan side. Your bank has always had a focus on smaller customers. You might have a slightly lower average loan size compared to the peers of your size. And it seems like you're still interested, even though you've gotten larger, you're still interested in small business lending. So can you start with thinking -- what are you thinking there?

Yes, it's wonderful, and thanks so much for facilitating here. Clearly, as a -- predominantly a commercial bank with a growing consumer presence, our bread and butter, it really is the small middle market customers. And it's a place that we've really been focused on for a very long time. What you've heard us talk increasingly about is kind of restoring back to where I think we've been in prior times and our presence in the SBA loan product. They just cut off the measurement year for the SBA, and we moved up the league tables to the 14th, which was good progress to see. We're not done. I think there's still quite a lot to be gained there because I think that's a place that we really show well. It's a place that I think we've built the franchise to serve those clients and we think, in a differentiated way. And we think that's really the foundation of everything that we do at the bank. It really is a feeder for a lot of the great things that are happening across our businesses.

So that was a very large business for you at one time and then you sort of took it down a little bit. And now you're seeing opportunity, like what sort of made you go back there?

We do. We do think it's -- again, it fits. It's not a stretch. We've done a lot of things technology-wise that's really focused in that area. It's an area that we think our capabilities translate. It's one that when we were very, very successful in starting our clients at the small business level and when we grow them to the middle market companies all the way up into corporates, there's a great deal of loyalty there. And [ you're -- when ] you're part of their story and your story is kind of getting woven. And then our success in employing through things like our growing capital markets offerings. And bringing to bear when the needs arise. Because they've been very, very successful in growing their business, we don't have to step away from them in their growth because now we've got capabilities on the capital market side to help them with syndications. If they decide it's time to sell and move along, we've got those capabilities. When they become wealthy to the course of their exercise of their business, we're there to help facilitate them. So it's a great place to build the foundation of our bank, and that's never become more important as we saw going back to the events of a couple of years ago. It's been a differentiator for us. Over time, you size some really nice statistics for us. It's a big part of the reason why our deposit costs are where they've been for a very long time, where we tend to be differentiated on a total funding cost against the base that's built across those small businesses.

Okay. And we started off talking about some of different brands and you're in different geographies or in many states in the west. Are there markets that you're more focused on? Or will you see more opportunity, you kind of have like a very unique footprint there.

Yes. Thank you. It's a question we get quite a lot. We -- we're open for business across all those markets, and they're all very important to us. The way that I often will orient people back -- and we've included some materials in our travel deck -- is rather than peering into the future and making projections, I ask people to say kind of look at where the growth came from in more recent periods. And so we've got some materials that we show across our affiliate banks and across various products where that growth is originating from. And we've been sort of conveying to investors and to analysts over time that we've been hearing good things, a lot of optimism out of Texas and our Amegy affiliate. We've seen that pull through in C&I growth where we sort of expected it. But we've also seen strong growth across our California affiliates and our Zions First National Bank in Utah, Idaho and Wyoming. So those, there's been leadership there, but there's certainly been growth in other areas as well.

And what you're seeing on the horizon, I know you said you'd rather look back, but what are you seeing in the horizon? Given period-end loans declined this quarter, what do you see that gives you confidence that you can have positive loan growth and maybe it's not next quarter but in 2026 or something?

Yes. As we sort of roll back the tape coming into this year, first quarter, a lot of uncertainty about what was going to be happening in the economic environment, didn't know how severe the tariffs were going to be. We got some feedback after the first quarter that it felt like our team was a little bit down on life. That wasn't purposeful. It was really just not knowing what was coming. We came into the second quarter, and we had some pretty nice loan print, and the deposits were lagging. Third quarter, deposits showed up in a nice way and the loans would appear to be a little bit lagging on that basis. When you sort of average it in and look at a longer time frame, over the course of the year, the loan growth is there, such over 3%. There's more to be done. The deposit growth was pretty stable year-over-year. So as we sort of peer forward and see where it does it go, recently in our earnings call, we were able to sort of be a little bit more constructive on how we see our guidance taking shape sort of 1 year hence. And we see some really good things underlying. We said leadership would be coming out of our C&I portfolio. We still believe that. And that we just don't know quarter-to-quarter, what's going to show up on the CRE side or whether or not there'll be enough movement in the 10-year to bring on any refi trends in the 1-4 family. So if I had to characterize that in total, it was coming into the year, there's a lot of uncertainty in the environment so we're a little bit softer with our guidance. But what we've seen as we've built through the year is the underlying loan production has actually been ramping in a way that gives us -- we're more upbeat on saying, hey, this could be -- we can move up from here. With the wildcards being, what do we get in terms of payoffs on CRE? And how much refi activity do we see? How much of that share can we take, should those things materialize.

Okay. And how do your customers see right now? There was a lot of -- you pointed out first quarter, there's a lot of uncertainty, then maybe we get a little bit more confidence in the second quarter. Are they still carrying a little bit more cash than they were? Are their inventory levels, like are they starting to rebuild inventories and things like that? Like, what is the confidence level look in your customers?

Yes. Thanks. So we've heard some of that. We've had a chance to kind of go back here recently and just do some survey work with our people, relationship managers, credit folks, and kind of hear what they're hearing from their clients. I think what you said there is fair. I think we do hear feedback and indications that yes, we need to keep going here, and we need to be building inventories and taking stock. What we hear from them is it's neither hot nor cold, right? It's not either one of those bookends. It feels very stable and then constructive against the backdrop of rates continuing to come down. That seems to be sort of an important factor that's giving people incrementally more confidence. When we ask them about the things that they're really, really focused on, it's -- tariffs are definitely in that mix, and it's back in the headlines again. I don't know if it ever left here in the recent days. But just as important and perhaps cited even more were some macro factors around, okay, what's going on with the rate environment, what are we going to see with inflation? What's the employment picture, how confident are we in that, that's going to take shape? Are we going to lose ground? And then that makes us also tariffs. So I think coming into the year, the worst outcomes that we would have -- or at least envisioned could happen. It feels like we sell it into a place that's not quite that severe. And so that's, I think, been really helpful in kind of building [ Bo's ] point.

Okay. That's helpful. And then just moving over to the other side of the balance sheet on the deposit side, this quarter, particularly, you had some really nice paydowns on broker deposits. And will this continue -- is there still some runway for the deposits can improve? And how you're thinking about the composition? Do you have any federal home loan banks maturing? Would you have a whole slew of [ burger ] deposits? Will you replace all of them? You just kind of give us like a little bit of a...

Yes, you bet. And listen, I think if you go back to a number of years, we certainly weren't running broker deposits at this level. To your point, we've been successful in bringing them down, but we would aspire to continue doing that. There's a number of factors, as you would expect, that would be in play there and seeing our success. But really important to that and something we're putting a lot of energy into internally is driving those core deposits. And where do we get the growth and how do we energize those efforts. And there's at least a couple of things in play that's worth noting, I think, here, and the folks who have been following us will have heard other references to this. During the course of 2025, we sort of realized that after spending a lot of years focused inwardly, that Harris has referred to at various times, it's kind of our part in our dust era. When we're doing a lot of things on future core, our core financial transformation work. And looking to turn the corner with more of a growth orientation, we sort of said, hey, it's probably time to do a little bit more in retouching the products on the shelf, on the storefront, and to go back and retouch some of our consumer offerings and think about how we're serving our small businesses. And one of the focal points we've had there is really a rollout of a demand deposit product that is really feature-rich, that we've been in the marketplace, that allows clients to have really nice opportunities in terms of our consumer lending products at reduced rates, have nice deposit features and other kind of wealth tie-ins and roll that out as sort of a way to supplement our demand deposits and growing our noninterest bearing. What you will see through the course of the year is in the second quarter, we had the first sort of migration of that in our Nevada affiliate. And so if you kind of use rough round numbers, about $500 million sort of migrated out of what was sort of a premier interest checking account that paid a very modest interest rate into a noninterest-bearing that was again, feature rich. And we were able to continue that effort through the third quarter. And so we saw a good bit of geographical migration on that basis. But the -- I'd say some of the very early things that we were seeing coming out of our Nevada affiliate in the second quarter are encouraging. We still need to see that play through over multiple quarters. But the early evidence would say that compared to its predecessor product, the new account openings were 2x or more week over week over week and what we were seeing. The average deposit balances were coming in pretty healthy for a mass affluent strategy averaging around $20,000. And then the pull-through on some of these offerings that would be part and parcel to that offering, whether that be like a HELOC program or a money market mutual fund type program were also promising. So that's a new offering for us that we've been rolling out for the course of the year. Complementing that on the small business side would be something that we have our eyes trained on in 2026, in the early part of 2026, which will very much be a small business bundle, not unlike what we're talking about on the consumer side. And one of the things that we're -- I think as we said in our last earnings call and that we're conveying at the course of our investor meetings is we think those are helpful things in sort of retouching and bringing something compelling to the marketplace from the product side, but coupling that also with a renewed presence and investment in our marketing programs and the build-out of our marketing teams with the new Chief Marketing Officer, putting a lot of effort and resource behind that. So that -- sorry, I will come to where I think you want me to go. Those core deposit programs will then be in place to help us supplant what we've been relying upon, things that are approaching wholesale deposits rates.

Okay. If I could just go back to this new product, you had called out Nevada as place where it's unveiled right now. When was it launched? Was it just in Nevada? Or is it in all your markets? And if it's not, when will it go to all of the markets?

Yes. So Nevada in the second quarter. And in the third quarter, basically essentially the bulk of the remaining affiliates came on board. But it was really, really late in the third quarter. So it would have shown up in period end balances, but it would not have been averaged then in the third quarter. So we can look forward to that moving forward in the fourth quarter.

Okay. And this similar success, I guess, early readings are positive. It's hard to say because we said it...

Because that came really at the tail end of the third quarter, it would be kind of -- it's really hard to judge. And the other part of that is we haven't put the full force of the marketing dollars behind those programs.

It's such an excellent segue to marketing behind this. How much of the whole budget have you spent in the -- in these -- the Nevada market to start with and then everywhere else? Like, are you 10% of the way through? Or you...

So the way I would characterize that is, I would say, through the course of 2025, it's really been about the full build-out, and we're not exactly all the way there of the reimagined marketing team with some campaigns coming later in the year. And I was looking forward to 2026, I see more of those campaign dollars being put behind those products. So it will probably be more evident externally about what we've been working on for those campaigns.

So more expense, but hopefully much more -- even greater success in the...

It's sort of getting -- the important thing when we talk about expenses with this growth orientation, this more external is -- are we getting good expense growth? And by good expense growth, I mean expense that's aligned with revenue. And in this case, I very much see it as expense aligned with revenue growth.

Okay. And then just going to noninterest income. In a recent conference and actually on your conference call as well, you spoke about this 3.5% margin kind of target. We have some questions about it, follow-up questions. Can you talk about the drivers, the environment you need to have? And does this feel more aspirational? Or you feel like you're going to get there?

Yes. Thank you for that. I mean, we've gotten a lot of questions on that topic. To be clear, we've never really had NIM guidance. There has been commentary in the past that's also fair that said that we think we have the potential to be a mid-3s NIM performer. And there was more recent dialogue about what it might take to get to that point. That also came up in our last earnings call. So the conditions that I think help you get to mid-3s, there's a number of things that are just playing through that are helpful to us. We've talked quite a lot about the balance sheet healing. And we've had a couple of years of that. Now we were able to through our third quarter, our earnings point to 7 consecutive quarters of NIM expansion. So evidence of all these things occurring. So by that, we mean, first, let's start on the funding side. We saw after the events of March 2023 and sort of some of the shock and awe that came with that to the marketplace, a need to participate and kind of pay up for deposits relative to where we've been traditionally. And so we found ourselves sort of towards the end of 2023 as being a little bit north of peer median on interest-bearing deposit costs. And that's not where we've traditionally functioned. And so we recognize that there would be an opportunity in a down rate environment to kind of get back to something that looks more normal for Zions. And so you will have seen that play out in some of the price response and the down rate environment in the beta, where it's come through pretty strong. So this most recent quarter, if you look at what the trending was on loan yields, loan yields were up 5 basis points because we had the fixed asset pricing still playing through. And our total funding costs were down 5 basis points. That's a good outcome for us. So as we've gotten back to having more managed deposit costs, having that underlying kind of spot period-over-period deposit growth is helping driving through our deposit growth initiatives. Those things are all really, really helpful. The other things that you'll hear me talking about quite a lot on our calls -- and for those who stay close to our name, you will see play out over the course of years now -- is this remix of earning assets, where we've been able to go for where our investment security portfolio has been outsized for where we've been historically. And we've been working that down over time, allowing it to run off. In more recent periods, only reinvesting about half of those gross cash flows that are coming from that securities portfolio and we've been able to reinvest that in loan growth. So that's been really useful for us. And then within the loan growth category itself, we see an opportunity as another contributing factor to think about the mix within our loans. We said as part of our guidance that we're a bit more constructive, more upbeat about where loan growth goes, we think that's going to be on the backs of C&I growth. And not knowing exactly where CRE is going to come in terms of payoffs. But what we've seen over the course of time is going back some years, we had an outsized amount of growth that showed up in muni there for a number of years, municipal loans. We've seen a little bit more concentration that was our historical norm on 1 to 4 family resi. The munis are typically pretty thin. Spread-wise, the 1-4 families spreads have gotten better. But relative to where you would see growth in the C&I book, maybe not as healthy. And so if we sort of think more about that model that we've been talking about externally of, hey, let's have more of an orientation towards held for sale as opposed to inventoring as much on our balance sheet on the 1 to 4 resi side, but that can also help with the loan yield remix. So -- and 1 more factor, again, people probably get tired about hearing us talking about because it's a little bit of a pointy-head accounting topic is this notion about we had some terminated hedges that go back for some time that we've had this headwind that's been tapering off going on for some years. And so the headwind associated with that will continue to diminish. You couple that with the prospect of marketing dollars behind those deposit programs driving deposit growth, those are all the things that combine. The other part of that is we actually need some help, too, to help us get there to get to our place where we want to be where we think we're going to operate with the yield curve. I mean, it's always -- in prior times, whenever we talked about a mid-3s NIM, it's usually been against the backdrop of a more constructive yield curve. And that's not really the yield curve we see now. It doesn't mean that we can't get there. It's just going to take longer with this type of yield curve. And where -- if you believe the forward curve and you think that rates are coming down, the Fed's going to persist on this path. I mean, we show our asset sensitivity. We show and we screen relative to others as being a bit more asset sensitive. Now these methodologies are not common across all banks, right? So it's also a useful thing to look at realized sensitivity. But at least on how we report, you would say, well, it may take a little bit longer to get to that mid-3s if we're going to have a -- if the curve is going to take the shape of the forward curve.

Can you just remind us when the hedges actually -- you said it's been a little bit of a headwind, but it's going to taper off. When did they go away forever?

So -- thank you for ever never return. No. So right now, we would show the residue of that out to 2027. I think there's like a $7 million headwind in that year. And we have some disclosures in the 10-K for people who really want to go deep into that topic.

Okay. Great. I am going to stop for a minute and see if there are questions. Yes, it looks like there's lots. I don't know if you can bring the microphone forward. Great. One moment.

Ryan Nash, Goldman Sachs. So on the earnings call, there was a discussion about capital and you talked about peers at around the 10% adjusted level and it would take you guys around -- I think you said around 12 months you got in there. I guess, is CET1 the binding constraint for returning capital? Are you looking at other ratios like TCE? And do you need to get all the way there before you start returning incremental capital?

Great question, Ryan. Thank you for that. Listen, I think we do spend most of our time talking about CET1. But there is -- implicitly, when we talk about including AOCI, there's a read-through for TCE. So I think what the market -- we believe what the market has told us, irrespective of what happens on Basel III in game, is sort of we're going to look at your capital inclusive of AOCI. And so that's definitely part of the equation. And so when we talked about the roughly 10%, it was where our peers -- where is peer median including AOCI? Now what we don't know is whether or not there's going to be convergence. Whether we're going to hear -- and you all have been to more of these sessions than I have -- whether peers are going to judge whether they can run leaner on a capital ratio basis, including AOCI. And then we could stare at that as well. But just -- we've been building back this tangible book value at a really quick clip. It's actually a really nice part of our story. The AOCI has been coming in quickly. And so what we were just sort of saying out loud was when we look at sort of our own internal projections and where we think peers are, not knowing where they're ultimately going to be, it looks like that would be roughly around 12 months out when we would be in the same kind of close clustering of peers. But we don't -- we'll have to watch peer behavior. When we look internally and you'd say you really want to start from a capital policy of, well, what do you need to withstand stress losses? When we do all that math, including things that we did when we were subject to CCAR and we run scenarios like the Fed's severely adverse scenario, running all that math tells us we have ample capital. It's more of an environmental concern. We just don't know what any day is going to bring anymore. We hope for a really bright future. When we were here about a year ago, things were looking at really upbeat, really bullish. And we just want to be in a position that should we hit a bumpy air in the future, that we don't want to be screened as being an outlier on any of those dimensions.

Chris Spahr with Wells Fargo. So can you tell me which markets are having the most competition? And how do you handle potential disruptive mergers that are -- overlap with your footprint?

Yes. Thank you for the question. Or questions. Listen, I -- because we were in the markets we're in, I think people would generally judge us and other people have written notes about that we're in a good footprint, right? So that's been established. We have slides to say 35% of GDP are in our footprint. So there's not a single market to -- I would point to if it doesn't feel like we have really solid competition. Texas, everybody knows the Texas stories. People know that the multiples the Texas banks trade at. It's a pretty strong backdrop of growth to be in. So we're going to see it there. But we're in lots of fast growth markets where people tend to pour into and are very interested in. And what we said publicly, as long as people are being rational competitors, we totally get it. And we think there's a niche for us to serve there and continue to serve and we're good with that. In terms of the competitive M&A environment and what that means, we certainly have seen that in our footprint here recently. There's been a number of deal announcements, whether in Texas or Colorado or otherwise. And so we, we're going to be present in those markets. We're going to be open for business. It's not our intent ever to be predatory in those kinds of things. But if there are things that we stand for that resonates with our clients where we can suit their needs very, very well and if people make a judgment that said, hey, I kind of like being at a community bank or like being at a regional bank, I like the service model that I got there, and I didn't sign up to be part of a larger institution. And if they're looking for that white glove service that comes from a Zions model for the small middle market, we would be happy to serve those customers. So -- but we'll see.

Janet from TD Cowen. So you've been limiting buyback as you were accruing capital to get to the CET1 ex AOCI. But in recent quarters, you -- it also sounds like you're a little bit more open to M&A opportunities from an acquired standpoint outside of branch opportunities. So what is your current stance right now? And what makes sense to you and what does not?

Thank you, Janet. I really appreciate the question. Listen, yes, we've done -- you alluded to it, we've done some branch deals in the last 3, 4 years, most recently in the Coachella Valley of California. What we've said and remains true is that even when we were doing our part in the dust era and we're really focused on our core transformation, that means that things didn't cross our desk. Of course it did. And there are things that you would look at, nothing of a very large size came of that. But we're really happy with the tuck-in deals that we were able to do. So I think that the message -- and I have nothing different to say. I think when Harris says, we want to be a great Western bank, that is our -- who we are and who we can strive to continue to be. It's getting more -- there's more energy, as you might expect out in the marketplace. I think when we have a number of very, very good investment bankers that calling us, and I'm sure they call on a lot of different people in this room. And they would tell us that this is a beat of a deal environment as they've seen in a while. So we'll continue to look at things as they come through. We're not dying to do a deal. We'll keep saying that every time that we have a microphone. The things that we've talked about that make strategic sense or could make strategic sense for us, and I'm parroting here, some things that I think that Harris shared about a year ago that I think they're still very relevant, which is it's -- in footprint, we like really strong deposit franchises that densify where we're at currently, strong management teams. We're not looking to pay up for what we would judge to be lesser quality assets. Although some of those things, you can kind of cure through purchase accounting and kind of rebalance. We're not looking for sprawl. That's really been our posture. We really like kind of the Western footprint. We -- Kevin say a friend of mine, so it's kind of fun coming behind him on this panel. We're not -- we're personally interested in doing mergers of equals. I think they made a reference to others in the Southeastern market. So we've been through that. I was -- I participated in that at a former life, and that wasn't particularly fun. So that gives you any kind of idea about where we're at. But the other challenge in all this is you start with strategic fit. And the deal math has to work, right? And you shared in your opening remarks that our multiple is bargain price. For all of you here who are -- your Bloomberg Terminals at a bargain price. So our multiple is not exactly back where we would want it to be. That doesn't mean that deals can't be done, but you got to be really smart about where you play in doing deals with the currency that we currently have.

Manan Gosalia of Morgan Stanley. Ryan, as a follow-up to the two capital questions. You're accreting more capital. You will accrete more through AOCI and through earnings. At the same time, there's a higher bar for deals. So when you think about as you get closer to peers next year, how do you manage the asset sensitivity of the balance sheet? It looks like you are getting more asset sensitive as you move from those securities to C&I loans. So how are you thinking about managing that over the medium term?

Excellent question, Manan. Thank you for it. We are doing things currently, right? So then again, I want to return to what I said before. We have published statistics, and we have our models and we report asset sensitivity, and we're consistent in how we think about that. Others also have published statistics. And these -- we're not common across institutions on how we model these things. So -- but notwithstanding that, I will acknowledge that we tend to screen more asset sensitive. And we don't care to be an outlier across these dimensions. And so what we said is we've been doing some very balanced hedging strategies, right? So I think as we kind of go back in time, when there were bumps, we didn't like screening on the lower cyber tangible common equity. That's why we've been allowing us to build back. And we've had hedges in place, a lot of pay-fix hedges to guard against -- to the extent that term rates or longer-term rates start running on us to make sure that we have some protection in place to guard against that. And there's no magical level that says that above or below this level, you're kind of in harm's away from the market perspective. But we didn't even want to enter the fray. We didn't want to have that conversation. So we've had those hedges in place for a while. Going directly back to your point on the asset sensitivity side, we've also had an opportunity to start putting in some more received fixed hedges on our commercial loans to try to take the edge off of where we tend to be showing up a little bit more on asset sensitivity. And that's a tool that we can continue to deploy, depending on where our sensitivity moves as we press forward.

Okay. Are you ready for credit?

Let's go. Come on.

The moment you've all been waiting for. Zions made headlines before the third quarter earnings with a charge-off for a large NDFI loan. Let's spend a few minutes on this. We got some details. Can you talk about, I guess, just talk about that quickly and why you decided to charge off what you charge off and set aside a provision? And then two follow-ons.

Yes. Thanks. That wasn't very much fun. I'd prefer not to be in the press for any of those reasons, coming on the heels of some other announcements. And the timing, it was just really regrettable. It's never a good time to announce anything that way, but I think it was a very tenuous kind of marketplace, I think, to have that 8-K announcement. So we were pretty assertive, I say, in terms of how we've handled it based upon all the information that we currently had in our possession. We'd rather be on the side that says, let's go ahead and reserve for this. So we went and put the full reserve on the full $68 million amount. And again, knowing what you know at a point in time, we went and charged 50 of that off. And we released our 8-K to coincide with the timing of our complaint that was filed in the state of California. And a lot of the philosophy for why, why did you do the 8-K, why don't you just wait? I mean, we get that question, is sort of the democratization of information. We don't know how many people will be scouring the litigation records in some court in California. And given some of the other things that have transpired in the environment, we said, well, let's go ahead and share so that people can see some of the things that we're working on and show folks that we're taking a pretty conservative posture here, and we're going to go pursue this actively and try to do the best we can to get a recovery here. So that's what that was about. Some people have asked, well, why couldn't you just bundle that with your earnings. And because I think once our earnings were released, people said, well, that was actually pretty strong core earnings. And so I understand that philosophy. But at a minimum, we want to make sure that we allow people to see the information more equally across the various space. So we're in active litigation there. The complaint was filed against the guarantors. So I'm really quite guarded on how deeply we can go into that. But suffice to say that there's a body of work that would continue, which is sort of getting deep into what happened, what happened when, what representations were made, what was known at a point in time, building the time line that would be really useful as you go through a litigation process. As an extension of that work, there's also an opportunity to say, okay, what can we learn here? What do we know about this spec pattern? Let's take a look at our nondepository financial institution lending practices. Let's look at -- for people to do this also for a living, and maybe they do this on an advisory basis, let's go have an independent review of folks today, look at policies, look at processes and see what can be learned, as any prudent institution would. They're saying, what is the best practice in around these areas because we want to make sure that we're at that level.

So the review that you did and the one that's ongoing with some of these outside third-party leads you to believe that this is an isolated incident, that it isn't -- there aren't more case to come?

No, and that's a really fair question. And we continue to -- everything that we've seen so far would tell us that this is not a systemic topic, right? So -- and it's just incumbent upon us to keep doing the work and make sure that we see it all the way through. But heretofore, nothing else to report.

And this is a relatively small piece of your overall loan portfolio. It's 3%?

Yes. Yes. So our total -- if you think about dimensioning across non-depository financial institutions, there, we run about $2 billion in exposure. And with the subcomponent, we sort of -- we included a slide in our most recent earnings material that kind of breaks that down across the 5 sort of main subcomponents that kind of follows from like the call report approach. And so if you think about that mortgage lending subcomponent, it's running a touch under $400 million, and that's where these [ Cantor ] exposures would have been reported.

Okay. And this has been a pretty low growth area for you. We've had some other folks say the business, they really like this NDFI lending. It's been growing in other banks, but it's been quite small for you. The rate of growth has been quite small. Why is that?

It absolutely has. And we have no real aspirations currently to grow that in any different way. It's something that's been very modest. Mind you, it's a very diversified portfolio. There's lots of different things that are featured there. But part of -- I think part of the philosophy is -- and layering this gets to my earlier comments about kind of the bread and butter offering at Zions being starting with the small and middle market clients and helping them grow. When we -- that's core to our business because we can bring the whole bank in serving those clients. A part of Ryan's view is why this has been more an ancillary offering for ours is that there can be value in these relationships. It's not the same bringing the full bank to those relationships that you can -- when you grow, your relationships from the small middle market clients up. And not to say that it's always fully transactional, but probably not as much relationship lending in that portfolio for us.

Yes. Okay.

So when we look at the whole of it -- and there will be more disclosures forthcoming, for those who are close followers of our 10-Qs. We'll have some more information there about credit exposures and the like. But by and large, when you go back over time, our credit loss history is actually not bad here. It's held up reasonably well, and it tends to be smaller than the types of loans we've been talking about externally on average. So it's not a growth area for us. This is a regrettable episode that we're working our way through, and it's not really -- our history hasn't shown out this way.

Okay. We're almost out of time. We didn't get a chance to talk about fees, which I know is something that you guys have focused on for a while, but maybe next year, we'll start with fees and talk about that.

That's good. Sounds good. Less credit, more fees.

That's right. Okay. Please join me in thanking Ryan for joining us today.