Good day, ladies and gentlemen and thank you for your patience. You've joined Zions Bancorporation's second quarter 2017 earnings results webcast. [Operator Instructions]. As a reminder, this conference may be recorded. I would now like to turn the call over to your host, Director of Investor Relations, Mr. James Abbott. Sir, you may begin.

Thank you, Latif and good evening. We welcome you to this conference call to discuss our 2017 second quarter earnings. To begin, we will hear prepared remarks from, Harris Simmons, Chairman and Chief Executive Officer; and Paul Burdiss, Chief Financial Officer. Additional executives with us in the room today include, Scott McLean, President and Chief Operating Officer; Ed Schreiber, Chief Risk Officer; Michael Morris, Chief Credit Officer; as well as other Zions executives who are available to address your questions during the question-and-answer section. I would like to remind you that during this call, we will be making forward-looking statements, although actual results may differ materially. We encourage you to review the disclaimer in the press release or the slide deck dealing with forward-looking information which applies equally to statements made in this call. A copy of the full earnings release as well as a supplemental slide deck are available at zionsbancorporation.com and we will be referring to these slides during the call. The earnings release, the related slide presentation and this earnings call contain several references to non-GAAP measures, including preprovision net revenue and the efficiency ratio which are common industry terms used by investors and financial services analysts. Certain of these non-GAAP measures are key inputs into Zions' management compensation and are used in Zions' strategic goals that have been and may continue to be articulated to investors. Therefore, the use of such non-GAAP measures are believed by management to be of substantial interest to the consumers of these financial disclosures and are used prominently throughout the disclosures. A full reconciliation of the difference between such measures and the GAAP financials is provided within the published documents and participants are encouraged to carefully review this reconciliation. We intend to limit the length of this call to 1 hour. During the question-and-answer section of the call, we ask you to limit your questions to 1 primary and 1 related follow-up question to enable other participants to ask questions. With that, I will now turn the time over to our Chairman and CEO, Harris Simmons.

Thanks very much, James and we want to welcome all of you to our call today to discuss our second quarter results. On Slide 3 are some highlights for the quarter. We were pleased with the strength of the loan growth and the sources of that growth, notably C&I loans, excluding oil and gas loans, consumer loans and there was less dependence on commercial real estate loans than in years past. We were pleased to contain the cost of deposits and the combination of those 2 factors led to a healthy increase in sustainable net interest income. Finally, we're very pleased with the trends in credit quality, particularly in the oil and gas space which has been a substantial portion of our problem credits in recent quarters. I'll cover the rest of the key indicators listed on this page as we move through the presentation. On Slide 4, our adjusted preprovision net revenue reflects steady improvement, up 27% year-over-year and about 19% if one excludes the interest income recovered on 4 larger previously charged-off loans that we call out as unlikely to be sustained. Some of the growth is due to the benefits of rising interest rates and securities purchases which we do not expect to be as significant of a contributor to growth over the foreseeable future, but we do expect continued solid loan growth and customer-related fee income growth that we expect will contribute to further positive operating leverage. Turning to Slide 5. We posted an efficiency ratio of 59.8% in the second quarter. Excluding the interest recoveries described throughout the release, the ratio would be closer to 61%. Because of seasonal factors in both revenue and expense, it's more appropriate to compare the efficiency ratio to the year ago quarter as shown in the chart on the…

Thank you, Harris and good evening, everyone. I'll begin on Slide 9. For the second quarter of 2017, Zions reported net earnings applicable to common shareholders of $154 million or $0.73 per share which is up from $0.44 per share in the year ago period. There are some items within the second quarter 2017 result that are operating but generally infrequent and those include, interest recoveries of $60 million on 4 loans that had previously been charged off; securities gains of $2 million; income tax benefits that are not expected to recur in a material amount which were about $4 million in the second quarter; and accelerated recognition of preferred stock issuance costs of $2 million due to the redemption of preferred shares in the second quarter. These items amount to about $13 million in after-tax dollars or about $0.06 per share. Let me make a few comments about revenue. Approximately 80% of our revenue comes from net interest income. Slide 10 depicts the recent trend in net interest income which continued to demonstrate growth in the second quarter. On a year-over-year basis, quarterly net interest income was up $71 million or 14% and about $55 million or 10% if one excludes the aforementioned loan recovery income. The most significant factor in the year-over-year increase in net interest income is the $5.9 billion period end and $6.7 billion average balance increase of the investment securities portfolio. Slide 11 shows the growth in the period end balances. If I extend the time period back just a bit further, since the fourth quarter of 2015, the growth of securities has resulted in about $185 million of increased interest income annually. Before I move on to the next slide, I will reiterate that we continue to exercise caution with respect to duration extension…

[Operator Instructions]. Our first question comes from the line of Emlen Harmon of JMP Securities.

You guys had included in your capital return for this year, in your repurchase, you'd included the, up to the full CCAR ask amount. I mean, do you anticipate anything that could push you off a trajectory to complete that full amount?

Well, we don't at the moment, but it's obviously something that the Board's going to look at every quarter before they declare it and see if conditions have changed, either deterioration in the general economy or our portfolio, et cetera, but at the moment, we don't foresee anything.

Got it. And then, deposit costs were really well controlled this quarter. How long do you guys feel like you can keep a lid on that? I mean, obviously you noted you're not seeing a whole lot yet. We have started to hear from some of your peers that there's a little bit more competition on the commercial side of things, but just be interested in your outlook on that.

Yes, we're seeing a little more competition which I -- this is Paul which I referenced in my comments. We're not seeing systemic pressure, but we're seeing sort of one-off which we're addressing through kind of our regular processes. You would imagine this is critically important to our interest sensitivity and therefore, net interest margin and income and profitability, so we're watching this very, very closely. But as I said, we're not yet seeing any systemic pressure on deposit pricing.

Our next question comes from Marty Mosby of Vining Sparks.

Paul, I would ask you about the margin versus the NII. As you've been purchasing securities in the last couple of quarters, there wasn't really a substitution, so your balance sheet actually expanded. Is that why your margins didn't kind of expand as much, but yet NII kept the same pace of growth?

Yes, Marty, by my calculation, these are very rough and approximate and probably subject to debate. But the securities portfolio of growth that we experienced in the first quarter was a headwind of about 8 basis points or so on the net interest margin. In the second quarter, I calculate that headwind to be 4 to 5 basis points. So that is to say, you correctly point out, the purchase of securities has actually expanded the size of the balance sheet, whereas in the past we were just replacing cash. So therefore the sort of marginal spread of what is being added is lower than that strict cash replacement which is why you're seeing a little bit of a headwind. Now with all that being said, as I said at the end of the first quarter call, the securities portfolio of growth is effectively done. In fact, you saw the securities portfolio, the ending balance was actually down a little bit, even though the average was up. So my expectation going forward is that net interest margin headwind will no longer be there.

And then a follow-on to that. The second stage was the interest-bearing swap as you add to and begin to neutralize the sensitivity through the swaps. Do still feel like you're going to do that? And where will that show up? In what line item will that be a benefit?

Well, Marty, I'll tell you, right now, our swaps portfolio is approximately -- at the end of June, it was about $1.4 billion and had a carry of about 10 basis points. The yield curve has become so flat that it's -- swaps aren't nearly as exciting as they used to be. But that being said, I think we're looking at least what's rolling off and kind of considering strategies to replace those to kind of maintain our current level of asset sensitivity. But without a really big change in sort of the shape of the curve or the risk return for kind of extending duration, I don't imagine that we're going to materially reduce our asset sensitivity from here, all other things equal.

Our next question comes from Ken Usdin of Jefferies.

Just as a follow-up on the balance sheet. So Paul, if you're rightsized now on the securities book, in the last few quarters you've been using the wholesale borrowings, the short term funding to fill that GAAP which you said you would. Now -- but this quarter also, deposits shrunk a little bit. Can you just talk us through the dynamics of deposit growth versus the short term borrowings? And is any of the deposit shrinkage related to kind of an indirect data? Or how our customers moving money and is any of it related to the rate increases we've seen?

Yes. Sure, Ken. It's hard to specifically tie deposit movements to the change in the rates, at this point, because we're still kind of early innings, right? Anecdotally, I've heard of, kind of cash being used by our businesses for -- kind of investments and other things and so I'm not seeing anything systemic that would lead me to think that we have got deposit dollar movement because of changes in rates. That being said, while it's true that our ending balances were down, I do note that our average balances were actually up quarter-over quarter. We do, because of the nature of our deposits, we do see some volatility on any given day and so any time on period end balances, for example, you compare any 2 days and you could see some volatility. So I'm actually watching average balances much more carefully than the ending balances. And I am not seeing a discernible trend that is causing me concern, to think that we're beginning to see deposit run off. All that being said, deposits, well-priced, relationship-driven deposits are kind of really a big part of the core value of this organization. This is something we watch very, very closely and take very seriously and we will protect our deposit base.

Understood. Well put. And just one question on credit. You mentioned that there were the actually recoveries, all the NPA categories are looking good. You still have the 8% on energy as well. And you mentioned that provisions that are approximate or be slightly higher than this quarter which was as low as 7 on losses and 10 credit overall. Can you just talk us through just what -- there doesn't seem to be anything underneath, in terms of credit problems. So can you just talk us through what your expectation there on the provisions staying so low?

Maybe I'll start with that, Scott, if it's all right, maybe you can jump in. The issue -- and what we said in the first quarter was that energy was going to continue to get better and we've actually observed that and there's an expectation that, that's going to continue. The dollar, you pointed out the energy reserves and I'll just remind everyone and thank you for saying it, that we're still holding over an 8% reserve on that energy portfolio. And so while the dollar amount of that reserve has gone down, the portfolio has also gone down a little, of which is why you're seeing really, strong sort of reserve ratio. So all that being said, the rest of the portfolio is performing so very well that it's hard to imagine that, given the sort of length we're in the credit cycle that, that can continue indefinitely. So as we think about potential weaknesses, what we're thinking about is everything else in the portfolio that's not energy and while we're not seeing any indication today as you correctly pointed out, that there is deterioration in the portfolio. Yes, we think it's possible. And so we try to embed that into our outlook.

Hi, this is Scott McLean and I would just add to that, that clearly, assuming energy prices stay where they are we'll -- or better, we'll see continued improvement in that part of the portfolio at it'll mean less pressure on the provision. But as Paul notes, we're remaining cautious about where we're in the credit cycle. And secondarily, the loan growth is certainly there and it soaks up some of this provision requirement as well.

Our next question comes from Steve Moss of FBR.

I was wondering here, given your constructive comments on loan growth, how should we think about funding it, whether it's securities, deposits or continued increases in short term borrowings?

Well, I'm certainly hopeful that we can continue the trend of solid deposit growth that we've seen. That is our first and best kind of source of funds. You correctly point out, we have, over the course of the last quarter, dipped into our cash position which I think on a relative basis, still very healthy and probably a little higher than it needs to be. And the securities portfolio is also sort of a ready source of funding. Absent all of those, then that's when we would look to the wholesale market. And we looked at that, I would say last, but we've got a lot of availability there. If you look at our debt relative to peers, you'll see that what we're one of the most deposit-funded organizations. And so while we expect to continue to be almost entirely deposit funded, we do have capacity to incrementally add debt to support loan growth.

Okay. And then, what were new money yields here for the second quarter?

Are you talking on loan yields or?

Loan originations for the quarter.

Loan originations, probably about 4-15, 415 basis points on a yield basis.

Our next question comes from Geoffrey Elliott of Autonomous Research.

The common equity Tier 1 is still at 12.3%. Clearly the higher buyback of dividend, coupled with loan growth helps to bring that down a bit. But what's the right level for that ratio longer term? And how quickly do you think you can get there?

Well I think, as we look at kind of regional peers, we expect the end of the first quarter median for the group that we use for compensation for comparative purposes anyway, was about 10.4. And I don't know that we get to 10.4. I suspect we may want to stay a little north of that, but we've obviously got some room to either grow or continue to repatriate capital. And the course is pretty well set through the CCAR cycle. But as we go into next year, that's -- longer term, as we think about targets, it's probably someplace, in my mind, it's probably between 10.4 and 11, something like that.

And I would remind you, Jeffrey, we've mentioned in the past, yes, we publish our semi-annual, kind of DFAST results and the loss content in our model is a lot loss less than the lost content in the Fed's model. So in terms of what we think we need to hold, right now we're being constrained, I would say through the Horizontal Capital Review process, but in fact we think we can hold less capital than that, as Harris said.

And the Horizontal Capital Review process, what exactly do you mean by that?

Oh, sorry, that's the process formerly known as CCAR for banks of our size and complexity. The name has changed, I don't know if the headlines have caught up with it yet.

Okay. And then, but surely on the 10.4, I mean the peer group is going to move down over time, isn't it, as other banks are paying out 100% of earnings and growing loans a bit. So I mean isn't there, as a peer group moves down, then that's got to get lower than that?

Well, yes. And I'm actually just looking -- I had, I said 10.4. It was actually 10.7. So 30 basis points difference. The peer group may move our thinking about it phase. We'll -- I guess the point being, simply, I think we'll want to remain at or a little better than the peer group. I mean there's several ways to think about this, including using the results of our DFAST, our own internal models, et cetera. We want to be sure that in the downturn, that we've got plenty of capital, that we're not a laggard, so. That's something that we'll just keep evaluating. But I -- rather than be precise about it, I think the message is that we still have some room, right?

Our next question comes from Dave Rochester of Deutsche Bank.

Hey Paul, you've mentioned feeling hopeful about deposit growth going forward. We're just wondering, what you think the shape of that looks like over the next year. And if you think moderate deposit growth is something you can achieve in the current environment, so something in like the mid-single-digit range.

I think mid-single-digits is going to be a little tough, to be honest with you. That being said, as I've said, we've actually been more successful over, certainly since I've been here, than our business leaders expected. We've got of a lot of very high-quality relationships that we continue to attract money into the bank. But the environment is changing and it's kind of hard for me to be really certain that we could achieve a deposit growth in the mid- to mid-single-digit range. I would like to do that, that frankly is probably going to be the high end of what I would expect.

Okay. And then just another question and then real quick, if I could. The loan book yield ex the recoveries was around 4.23. That was up about 8 bps if I back out recoveries this quarter and the reversal last quarter. Can you talk about the accretion of prepayment penalty income trends in 2Q that may have impacted that trend this quarter?

It wasn't a measurable amount. We really -- we tried to call out what we thought was the big piece which was the recovery income. The rest of the pickup, as you correctly pointed out, we're largely ascribing to the change in short term rates. And if you go back to that slide that was in my comments where we described kind of the expected changing in coupon, attached to the change in index, I think you'll find that if you kind of run the math through, that sounds about right.

Yes, okay. And then just one last one if I could. Could you just talk about the performance of that new small business platform? You guys had adopted this quarter into the small business loan generating platform. I know you had a decent increase in pull through from that platform. And then, just any color on how much you [indiscernible] that was to grow this quarter?

I have Michael Morris, our Chief Credit Officer, talk about that. Michael?

Thanks. We call that the business banking loan center, the BBLC. They've had very solid success, both in the approval and pull through rate. We've added balances of about $11 billion in a pretty short time period and we're we talking about...

Roughly $11 billion, excuse me, $11 million. Sorry. Anyway, the platform is up and running. It's running well. We like what we're seeing from a credit perspective. We like what we're seeing from a yield perspective. And certainly, the turn time within that platform has been greatly shortened.

Our next question comes from Brad Milsaps of Sandler O'Neill.

Just wanted to follow up on the provision guidance of around $10 million. You guys have had, at least this quarter, a pretty healthy dose of recoveries. Is that also a part of your calculus? I know those are hard to anticipate, but just kind of curious kind of what the pipeline for further recoveries if there was a big driver this quarter, if that kind of plays into kind of some of your guidance there as well?

I'll start up out and then maybe my partners here can join and. I will remind you that it's not explicitly $10 million, it's sort of $10 million plus, so maybe a little more than $10 million. Yes, there are recoveries in there. But yes, we're looking at the credit quality of the portfolio and we generally have a pretty decent insight into the sort of upcoming charge-off that's generally true. And so our expectation is the credit performance continues to be so strong, that we could modestly adjust that outlook for provision, downward from what we've seen in the first quarter.

This is Scott. I would just add that as you noted, recoveries -- projecting recoveries, it's very episodic, it's hard to do. But when you look at the levels of energy charge-offs we've had in the last 24 months, just any rule of thumb recovery rate on that should produce a higher level of recoveries than we've experienced say, in 2014 or '15.

And just one follow-up, if I may. Scott, just -- would see if you could comment on any additional color, maybe specifically on Amegy, looks like that was about 40% of the growth in loans this quarter, including a big chunk in C&I, x oil and gas. Just kind of curious what trends you see there, if there's any kind of chunky pieces in the C&I or any other color you could offer around Texas?

Sure. Happy to do that. One influence was the fact that energy loans were flat as opposed to contracting by, anywhere from $100 million to $150 million a quarter which is what we've been experiencing, so that's the sort of the bullet point #1. But more importantly, the math, they've just seen really solid middle market, small business, lower end of corporate growth. And they've really seen that pretty consistently through last year and through the first half of this year. So I would just describe it as good, solid, community banking, middle market, private banking, loan opportunities, very granular and the -- of note as well is on the CRE side, there's virtually no new underwriting going on there. There is some, but not, it's not adding to loan balances, materially. The 1-4 Family business is doing very well in Texas and we've not seen any real energy impact on FICO scores, et cetera, but a little bit of deterioration, but not much. So it's just good, granular, community banking type activity.

Our next question comes from Jennifer Demba of Suntrust.

Around the national commercial real estate portfolio, what is the size of that now? How long before that likely stabilizes?

Yes, hi Jennifer, this is James. We've got $1.8 billion at this time and maybe I'll turn the call over to Michael here to talk about some changes in policy on that.

Yes, I would add that the national real estate portfolio average balance is below $1 million per ticket. So it's very granular, it's starting to slow down, the attrition is starting to slow down. We've made a couple of changes to the platform and it should invite some new loan growth, but nothing that would rock the charts. But it's a platform that we will stay with and continue to grow where and when we can.

I would be help hopeful that it's, that we're within probably 3 to 4 quarters of it really stabilizing and starting to grow. That would be my best guess, but it's purely that. It's largely a function of how much liquidity is out there, particularly with the Community Banks we like. We sourced a fair amount of this product from a network of Community Banks around the country and they're all very liquid. And so that slowed the originations, but it's getting to a point where it will start to stabilize.

Okay. Follow-up question. You mentioned, Paul that you're in the very early innings of supply chain cost improvement initiatives. Any way you can quantify the opportunity there?

Yes, Jennifer and I think you probably heard me talk about this before. Unfortunately, I can't quantify that yet. I will say we're kind of completely modernizing our supply chain process. And I expect that there's going to be a lot of efficiencies to come out of that. And we highlight that is one example, because we get the question a lot around keys. It seems like you guys have really controlled expenses over the course of the next couple of years. How much longer can you do that? And the point of highlighting that is to say that, there continues to be opportunities as we, have consolidated the charters 18 months ago, continuing to work through kind of back office and other sort of operational efficiencies, there continues to be opportunities to continue to make substantial investments in the business, while controlling expenses. And so I can't really quantify that 1 without probably going through a whole other laundry list of all other things, including things we might be investing in. So I don't want to mislead you.

Our next question comes from Ken Zerbe of Morgan Stanley.

Two quick questions. I guess, the first in terms of the oil and gas portfolio. You talked about it being stable. Is that due to less runoff of the existing book or is that due to more willingness for you guys to actually put on new loans?

Ken, this is Scott. We have done some new underwriting in midstream and in the upstream. But the services portfolio, just the payoffs in general, have slowed. And -- but I would note that you just go back 18 months, to the end of 2015, services -- the energy services loan outstandings are about -- they're down about 40% from that time period. And that's basically because the -- most -- about 2/3 of that portfolio is term loans that have been amortizing and certainly charge-offs have had an impact on it too, but that's far less impact than basic amortization. So some new underwriting in midstream and upstream and then just a slowing in paydowns, in an appropriate slowing in paydowns, is what I would say. We're seeing revolver usage start to pick back up again, as the rig count is almost doubled -- it's not quite doubled in the last year, but nearly doubled.

Got it. Okay. Helpful. And then, just a question for Paul on the tax rate. If I heard right, I think you said your guidance over the next 4 quarters was 34% to 35%. But you don't -- I guess, how we should we think about the first quarter stock-based accounting change that flows through the tax rate in the first quarter? I presume that, that would actually happen again next first quarter, correct?

Right. Well, look, it's the -- maybe. Not necessarily. It is the next 4 quarters, as you point out. The -- that impact is dependent upon the strike price of the equity-based compensation when it was issued and the kind of prevailing stock price at the time. So what I thought I said and what I intended to say was that excluding the effect of that accounting kind of guidance on stock-based compensation, we expect the tax rate to be 34% to 35%. And the reason -- yes, 34%, 35%. But the reason is that it's really hard for me to predict what that kind of accounting guidance figure is going to be. Hopefully that makes sense.

Got it. No, it does. So the base rate is 34% in first quarter of next year and then we subtract whatever percentage due to where your stock is at the time. Okay, I think I understand that.

Yes, it was intended -- the outlook was intended to exclude that accounting guidance piece, because it's a little hard to predict.

Our next question comes from John Pancari of Evercore.

On the loan growth and on the commercial side, I'm just trying to get a better feel of how much of that is a pickup in demand, where you're seeing pipelines better and maybe CapEx driving growth and everything, versus anything you're changing? Because there a real notable pickup in growth here and then I'm just curious if any of that is pricing or any change in your willingness to lend in any way?

If I might just jump in and get started, John, real quick and then kick it to others but -- and this is James. The origination volume that we did in the second quarter of '17 was almost exactly identical to what we did in the second quarter of '16. The big difference was really in the prior quarter. In the first quarter of 2017, we saw probably about $700 million less origination volume than we had in previous first quarters and we don't have a fabulous explanation for that. But we and the rest of the industry, all had the same problem. And -- so I think that it was more of an anomaly of what was going on in the first quarter than what we've seen in the second quarter.

And this is Michael. I'll add that demand probably has picked up a little bit. It's probably a combination of demand in process improvement, but not really expanding the underwriting box.

And we certainly haven't changed our pricing perspective as well, either. We're maintaining the same pricing approach as we've had in recent years.

Okay. That's helpful. And to James, your point -- admittedly though, the third quarter and fourth quarter '16 was pretty much flattish on EOP total loans' total and C&I was a little bit sluggish there as well. So, I guess, it's more of a pickup versus just last quarter but over the prior couple of quarters as well.

That's right.

Okay. All right. And then one other follow-up is, around your guidance fee, the -- your expense guidance base that you're going off of, is that, does that base exclude the FDIC $3 million impact in the second quarter?

The outlook -- the 2% to 3% is -- right, it does not. It's -- what we're intending to demonstrate is the sort of adjusted expenses which we're using for the efficiency ratio. So it does exclude things like reserve, [indiscernible] lending commitments. And you can see, at the back of our press release, we've got a schedule of GAAP to non-GAAP reconcilement. And you can see the things that we're including and excluding in that.

Okay. Though I guess, I'll just look at the next 12-month guidance, of up slightly to moderately increasing and I'm just wondering if that is off of the second quarter number where you take out the FDIC loss share impact.

Yes, John, if you think of the -- so it was $399 million on an adjusted noninterest expense which is in the tables in the back. If you subtract out the revenue sharing with the FDIC which is about $3 million, you're asking is, is it off of that base, of $396 million? And the answer is no. It's just off of the $399 million.

And the reason, John, is that, that expense also comes with revenue, right? And so we're focused on operating leverage. And as you know, efficiency ratio is just a kind of a handy way to get at our intent which is positive operating leverage.

Our next question comes from Erika Najarian of Bank of America.

Just as a follow-up to Geoffrey Elliott's line of questioning. So in the treasury white paper, there seems to be a lot of proposals that could directly address some of the constraints directly related to Zions which has been CCAR, small business and CRE, as it relates to both CCAR and regulation. And I'm just wondering, I think the message is very clear to your shareholders that your risk management has significantly tightened since the crisis voluntarily. I'm wondering though, if you could give us a sense of what is the gap between what's driven by regulatory regime and what you think is prudent in terms of how you're running your business. So you clearly got a line of questioning on CET1 levels, but I'm wondering strategically, what could change if we do get red reform in Washington?

Let me, this is Harris, let me start off here. I think the -- a primary benefit, if we saw some red reform that provided greater transparency in the CCAR process for that to change the threshold so that we weren't subject to the process in the first place, would be with respect to the, just the complicated capital management regime that CCAR, that is now known as Horizontal Capital Review, is creating. I don't think it changed fundamentally the way that we're doing risk management around things like concentrations. It may give us a little more, incrementally more room, because we don't have sort of this unknown constraint hanging out there. But listen, we recognize that we're probably deep into a credit cycle that there are particular pieces of the CRE segment that everybody needs to be careful about, retail being one of them. We've been, I think, pretty disciplined around multifamily over the last year or 2 and will continue to be. So I mean, we're thinking about those kinds of things independently of the regulatory regime. But it would simply remove some of the -- a couple of, sort of artificial constraints, particularly on the way we manage the capital piece of it, so. That's how I would think about it. Anybody else have thoughts?

And just maybe a follow-up there. What kind of liquidity -- or what changes in the balance sheet composition could happen if the liquidity coverage ratio was no longer applicable to Zions?

This is Paul. Under Dodd-Frank Reg YY, we're also constrained by maintaining a 30-day coverage, coverage of 30-day cash outflows. That's actually more constraining for us, as it is for many banks of our size, than the modified LCR. So if the kind of LCR just sort of evaporates, frankly I don't think it's going to affect us too much. And I will also say, this kind of 30-day cash outflow thing is really kind of a proxy for liquidity stress testing. And we have, all the banks, have significantly changed our risk management practices generally. And specifically, in liquidity, not unlike what's gone on in interest rate risk for the last several decades, liquidity risk is now really being measured and defined by stress testing and that's what we're doing. So I would not see -- I would not expect to see, even if Dodd-Frank went away, I would not expect to see a measurable change in the balance sheet composition as it relates to liquidity because we're all just really focused on stronger balance sheets today than we have been in the past.

Our next question comes from Steven Alexopoulos of JPMorgan.

Maybe to follow up on Erica's question. Harris, I saw you testify in front of the Senate Bank Committee last month. After the time you spent in Washington, what's your level of optimism for the potential of the $50 billion threshold getting lifted?

Well, as you saw, there's some opposition to it.

I did see that.

Nevertheless, there is a fair amount of consensus that the $50 billion threshold, as I tried to note -- I mean, there's a lot of consensus that the number is wrong. And I'd like to be optimistic about the fact that ultimately, that common sense and good policy will win out over politics. But right now, the politics are pretty -- are reasonably daunting. I think that it could take a little while -- I mean, the bill that I refer to as the Luetkemeyer bill, passed the House in December and it would have eliminated the $50 billion, replaced it with basically a systemic risk index. That bill has been reintroduced, so the effort is on to re-sign cosponsors, et cetera. And the question is whether this can be done, is kind of a rifle shot as opposed to part of a larger bill. And it's unclear to me, given the dynamics around -- I think what's happened with health care probably muddies the water a little bit. There's just more blood in the water than there probably, than we would have hoped for. So it could take a little bit of time. But I think ultimately, it will happen, just because people, including former Fed Governor Tarullo, Janet Yellen, I mean, there's some credible voices from kind of center-left, if you will, agreeing that there's a better way to do this. So I don't know when it'll happen, but I remain optimistic that it will happen.

Okay. That's good color. And if I could just ask, Scott, looking at the loan growth detail, why are you not seeing better C&I growth out of the Zions Bank sub?

Michael, do you want to...

Sure, I mean -- well, the Zions Bank MSAs is really your Salt Lake City and Boise, those are the big MSAs. And we're seeing most of the loan growth come from our larger population bases in MSAs, like various parts of Texas outside of Houston, actually. And really good, solid loan growth in California bank and trust C&I portfolio. So that might be one of the reasons we're not seeing stronger growth. I mean, Zions First National Bank, obviously has a great presence in the Salt Lake and Boise markets and communities, but we're just seeing stronger loan growth in deeper MSAs and population bases for now.

Yes, I don't know that I have a simple answer to that. But it's certainly something that we're pushing, but it didn't show up here. You saw it in some other pockets on C&I this quarter, but C&I was a little bit slow here. I don't know what the answer is.

Our next question comes from [indiscernible] of Katcha Investments.

My quick question is, in most of the markets you're in, the area really is on fire. We're 9 months in this expansion and most of the markets that you're in, the unemployment rate's somewhere in the 4s. Do you see some nice upside from here? Or are we sort of reaching a top in just available labor and the ability of the economy in those areas to expand?

I might just say that we talked to, I think, last quarter about some of the things we've done to kind of reengineer processes for small business loans. And we think that, that's starting to take hold and we'd done something similar with middle-market kinds of credits, loans from kind of $3 million up to $10 million or $20 million in size. And we had a call this morning with a lot of our relationship managers and credit officers going through a variety of process simplification kind of items that we think will make it easier for them just to get deals done without compromising credit quality, doesn't change the size of the credit box, if you will. But it just makes it easier for them to get across the goal line. And I think that, that's -- I really think that going to help on the margin. It doesn't feel like anything is really slowing down in the economies around the West. And so, I'm reasonably optimistic that we could see, for the coming 4 quarters, a pretty good business environment for lending. There's still a lot of cash out there. I think if there's -- if there's anything that's really hindering loan demand, it's probably the amount of cash that companies have piled up and if they'll start spending it, it will help a lot.

Thank you. At this time, I'd like to turn the call back over to Mr. Abbott for any closing remarks. Sir?

Thank you very much for joining the conference call today to discuss the results. We look forward to seeing you at a conference sometime soon or at the next earnings call out in October. Thank you very much.

Thank you, sir. Thank you, ladies and gentlemen. That does conclude your program. You may disconnect your lines at this time. Have a wonderful day.