Zions Bancorporation N.a. · NASDAQ:ZION
Zions Bancorporation N.a — Zions Bancorporation — Q2 2015 Earnings Presentation
38 slides from Zions Bancorporation N.a's earnings presentation, Jul 28, 2015
Slide 1: 2015 Third Quarter Update
July 2015 2015 Third Quarter Update
Slide 2: Forward-Looking Statements & Peer Group Abbreviations
Forward-Looking Statements & Peer Group Abbreviations This presentation contains statements that relate to the projected or modeled performance or condition of Zions Bancorporation and elements of or affecting such performance or condition, including statements with respect to forecasts, opportuniti
Slide 3: Agenda
Agenda • Company Profile • Common-Sized Balance Sheet and Income Statement • Small Business Focus • Economic Advantage: Footprint • Awards: Superior Brand • Fundamentals • Energy Portfolio • Efficiency Initiative • Outlook • Appendix 3
Slide 4: Zions relative to peers: cash, commercial lending, deposits, low debt
4 On a relative basis, Zions has an above-average cash position, is a strong commercial lender, has strong noninterest bearing deposits, and low debt. 18% 38% 19% 16% 10% 7% 26% 8% 30% 26% Cash Commercial Loans Commercial Real Estate Loans Consumer Loans Securities Earning Assets 37% 47% 2% 11% 2% 2
Slide 5: Zions Punches Above Its Weight in Small Business Lending
$0 $5,000,000 $10,000,000 $15,000,000 $20,000,000 $25,000,000 $30,000,000 WF C B A C JP M US B B B T P N C ZIO N M TB R F C ST I H B A N FIT B KE Y CM A U B Commercial Loans Sized $100k - $1M Zions Punches Above Its Weight in Small Business Lending 5 Source: Call report data via SNL Financial, as of
Slide 6: Stronger Economic Growth than Overall U.S.
Job Creation: Jobs grew in Zions' footprint by 15% during the last 10 years, a full 9 percentage points better than U.S. nonfarm payroll growth GDP Growth: GDP growth in our footprint exceeded nominal U.S. GDP by an average of 1.2 percentage points per year (compounded) over the last ten years S
Slide 7: Awards: Nationally Recognized for Excellence
Awards: Nationally Recognized for Excellence • Twenty Four (24) Greenwich Excellence Awards in Small Business and Middle Market Banking (2014) • Including: Excellence: Overall Satisfaction Excellence: Likelihood to Recommend Excellence: Treasury Management Excellence: Financial Stability Zio
Slide 8: Agenda
Agenda • Company Profile • Fundamentals • Capital • Credit Quality • Liquidity • Profitability • Energy Portfolio • Efficiency Initiative • Outlook • Appendix 8
Slide 9: Capital Levels are Among the Best in the Industry
Capital Levels are Among the Best in the Industry Regulatory capital ratios are Basel III. Source: SNL Financial as of 1Q15 for peers, 2Q15 for ZION 9 11.9% C U B ZIO N R F B A C JP M WF C KE Y B B T PN C CM A ST I M TB US B FIT B H B A N Common Equity Tier 1 Capital Ratio 14.2% 8% 9% 10% 11% 12% 13
Slide 10: Zions' Credit Quality Metrics are Strong
Zions’ Credit Quality Metrics are Strong Through-the-Cycle Losses are Substantially Better than Most Peers 10 Source: SNL Financial as of 1Q15 for peers, 2Q15 for ZION; trailing 12 months net charge-offs used in the allowance / loan chart 0.0% 0.5% 1.0% 1.5% 2.0% U B C M A ZIO N M TB K EY P N C H B
Slide 11: Strong Liquidity Profile, Superior Deposit Franchise
Strong Liquidity profile, Superior Deposit Franchise Over Time 11 0% 10% 20% 30% 40% 50% 60% 2000 2002 2004 2006 2008 2010 2012 2014 Noninterest-Bearing Deposits / Total Deposits ZION Peer Median C M A ZI O N K EY M TB B A C U B R F FI TB JP M P N C B B T WF C U SB ST I C H BA N Noninterest-Bearing
Slide 12: Profitability: Historical Improvement
Profitability: Historical Improvement driven primarily by capital actions; expected improvement likely driven by positive operating leverage 12 Source: SNL Financial *Adjusted ROAA and ROTCE for ZION excludes gains/losses on fixed income securities, debt extinguishment and preferred stock redemption
Slide 13: Net Interest Income Drivers: Loan Growth
Net Interest Income Drivers: Loan Growth In Line with CCAR Banks, Lagging Small Regional Banks 13 Source: SNL Financial Smaller Non-CCAR Regional peer group selected based upon asset size that is reasonably comparable to the asset sizes of Zions’ affiliate banks Softer Growth Driven in part by risk
Slide 14: Net Interest Income Drivers: Loan Growth by Category
Net Interest Income Drivers: Loan Growth is strongest in 1-4 Family, with declines in construction & land development and the National Real Estate Group 14 Source: Company documents;); NRE = National Real Estate Group, a division of Zions Bank that focuses on small business loans generally underwrit
Slide 15: Net Interest Income Drivers: Net Interest Margin
Source: SNL Financial as of 1Q15 for peers, 2Q15 for Zions *Risk adjusted NIM calculated as net interest income less net charge-offs divided by average earning assets. Net Interest Income Drivers: Net Interest Margin Remains Stronger Than Peers 15 3.1% 0.0% 0.5% 1.0% 1.5% 2.0% 2.5% 3.0% 3.5% 4.0% ZI
Slide 16: Net Interest Income Drivers: Loan pricing discipline
Net Interest Income Drivers: Loan pricing discipline supports NIM stability 16 3.0% 3.5% 4.0% 4.5% 5.0% 2Q14 3Q14 4Q14 1Q15 2Q15 Portfolio Yield vs. Production Yield New Production Coupon Loans HFI Yield Loans HFI Coupon • Stable linked-quarter loan yield • Coupon rate of new loan production (green)
Slide 17: Positioned for Economic Recovery and Rising Rates
Net Interest Income: Zions is Positioned for Economic Recovery and Rising Rates 17 Source: Company Documents as of 2Q15 -$0.09 $0.00 $0.42 $0.78 $1.07 -5% 0% 5% 10% 15% 20% 25% 30% -100 0 100 200 300 N et In te re st I n co me C h an ge Basis Point Interest Rate Change Net Interest Income Interest R
Slide 18: Agenda
Agenda • Company Profile • Fundamentals • Energy Portfolio • Segmentation • Underwriting • Price Deck • Credit Metrics • Oil Price & Rig Count • Efficiency Initiative • Outlook • Appendix 18
Slide 19: Energy Loan Portfolio Key Takeaways
Energy Loan Portfolio 19 Key Takeaways • $2.9 billion of outstanding balances at June 30, 2015 (Oil & Gas) • 7% of total loans • Diversified portfolio, primarily upstream / midstream / services (see slide 20) • No junior or second liens • Very modest growth in 2014, some run-off in 2015. Growth lead
Slide 20: Segmentation of Energy Portfolio
Segmentation of Energy Portfolio 06/30/15: Well Diversified Portfolio 20 Source: Company Documents Oil Gas Upstream 33% Midstream 20% Downstream 5% Other 3% Oilfield 30% Energy Service Manufacturing 9% Balanced production between oil and gas: approximately half of weighted average production is oil
Slide 21: Conservative Underwriting: What We Do, and What We Avoid
Conservative Underwriting: What We Do, and What We Avoid 21 Source: Company Documents What We Do: • Upstream lending – multiple “haircuts” on oil / gas values and commodity prices to arrive at borrowing base (loan commitment amount) • Semi-annual borrowing base redeterminations and sensitivity testi
Slide 22: Upstream (Reserve-Based) Underwriting
Upstream (Reserve-Based) Underwriting 22 Typical Oil & Gas Reserve-Based Loan $100 - E&P company’s PV of oil & gas reserves using current NYMEX prices $ 85 - Zions’ risk-adjusted value of reserves (e.g. Zions applies discounts to non-producing reserves) $ 77 - Apply “bank price deck” (generally ~90%
Slide 23: Price Deck: Consistently Conservative vs. 12-Month Oil Futures Strip
0 20 40 60 80 100 120 140 160 Ja n -0 8 Ju l- 0 8 Ja n -0 9 Ju l- 0 9 Ja n -1 0 Ju l- 1 0 Ja n -1 1 Ju l- 1 1 Ja n -1 2 Ju l- 1 2 Ja n -1 3 Ju l- 1 3 Ja n -1 4 Ju l- 1 4 Ja n -1 5 Ju l- 1 5 Ja n -1 6 Ju l- 1 6 $ / B b l Amegy Price Deck vs. NYMEX Oil 12-mo. Fwd Strip NYMEX Amegy Strip Base Amegy Str
Slide 24: Energy Services – Key Credit Metrics
Energy Services – Key Credit Metrics 24 How We Mitigate Risk in Energy Service Lending • Conservative Capital Structures • Senior Debt / EBITDA: Generally underwritten in the 1.5-to-1 area • Has increased to approximately 2.5-to-1, driven primarily by decline in EBITDA. • Recall, Zions underwrites i
Slide 25: Oil Price Decline History; Drilling Rig Count
Oil Price Decline History Drilling Rig Count Has Corrected Quickly and Significantly 25 Source: Bloomberg 0 20 40 60 80 100 120 T + 0 T + 5 T + 1 0 T + 1 5 T + 2 0 T + 2 5 T + 3 0 T + 3 5 T + 4 0 T + 4 5 T + 5 0 T + 5 5 T + 6 0 T + 6 5 T + 7 0 T + 7 5 T + 8 0 T + 8 5 T + 9 0 T + 9 5 T + 1 0 0 T + 1
Slide 26: Agenda
Agenda • Company Profile • Fundamentals • Energy Portfolio • Efficiency Initiative • Overview • Noninterest Expense • Efficiency Ratio • Outlook • Appendix 26
Slide 27: June 1, 2015 organizational and operational changes
On June 1, 2015, Zions announced several organizational and operational changes, including: • Consolidate bank charters from seven to one while maintaining local leadership, local product pricing, and local brands • Create a Chief Banking Officer position, with responsibility for retail banking, wea
Slide 28: Noninterest Expense - Informing the Outlook
Noninterest Expense - Informing the Outlook: Insight into seasonality and other specific items 28 $404.1 $5.9 $2.6 $2.7 $2.4 $1.7 $0.7 $9.2 $2.3 $399.6 $380 $385 $390 $395 $400 $405 Reported NIE Seasonal Share- Based Compensation Incentive Plans Based on Stock Price Indemnification Asset Expense Deb
Slide 29: Efficiency Ratio
Efficiency Ratio 29 73.3% 73.0% 74.1% 72.3% 71.4% 55% 60% 65% 70% 75% 80% 2Q14 3Q14 4Q14 1Q15 2Q15 Noninterest Expenses as a Percentage of Net Revenue1 • The efficiency ratio improved modestly to 71.4%, from 73.3% a year ago. • The Company is reiterating its commitment to holding the efficiency rati
Slide 30: Agenda
Agenda • Company Profile • Fundamentals • Energy Portfolio • Efficiency Initiative • Outlook • Next 12 Month Outlook • Capital Return Opportunities • Appendix 30
Slide 31: Next 12-Month Outlook Summary
Next 12-Month Outlook Summary Relative to 2Q15 Results Topic Outlook Comment Loan Balances Slightly to Moderately Increasing • Prepayments remain volatile, energy lending softness making net loan growth difficult to forecast Net Interest Income Moderately Increasing • Driven by loan growth, MBS purc
Slide 32: Capital Return Opportunities
Capital Return Opportunities 32 1 Federal Reserve’s model Source: SNL Financial *UB not included, as it is not a publically traded company Strong Capital Levels, but Limited Return of Capital: • Low 5.1% Tier 1 Common result on 2014 DFAST from Federal Reserve vs. Zions’ modeled 8.6%. • Further enhan
Slide 33: Agenda
Agenda • Company Profile • Fundamentals • Energy Portfolio • Efficiency Initiative • Outlook • Appendix • CDOs • Risk Management • Technology Projects 33
Slide 34: Major 2Q15 Announcements: Sold the remainder of the CDOs
Major 2Q15 Announcements: Sold the remainder of the CDOs as de-risking efforts continue 34 • As announced in mid-June, Zions sold the remaining balance of its collateralized debt obligation (CDO) portfolio. • Recognized loss of $137 million on $574 million (amortized cost) of such securities. • 2Q15
Slide 35: Significant Change to Risk Profile May Not Be Reflected in Stock
• Risk Management • Complete overhaul of risk management infrastructure since 2009 • Exhaustive review and enhancement of policies / procedures • Complete overhaul of organization structure and staffing levels • Risk Profile • Construction & Land Development loan concentration significantly reduced
Slide 36: Risk Management: Construction & Land Development Exposure Reduced
2008 2014 0% 5% 10% 15% 20% 25% 30% 35% C&I C&D Owner Occupied Term CRE 1st Lien Mtg HELOC / 2nd Lien Mtg Consumer Risk Management: Construction & Land Development (C&D) Exposure Has Been Significantly Reduced 36 • Orange bars show loan balance at the sub-type level as a percentage of total loans in
Slide 37: System and Operational Upgrades
Zions Bancorporation System and Operational Upgrades Currently five major initiatives underway to implement best-in- class operating systems and simplify our operating model • FutureCore – Replaces three core systems which have been customized for each of our affiliates with a fully-integrated core
Slide 38: Systems Upgrade Overview-- FutureCore
Systems Upgrade Overview-- FutureCore • FutureCore is a program initiated by Zions Bancorporation to replace its core operating systems into a single application • Zions managed, but 3rd party oversight reports directly to the board 38 batch batch online batch batch batch batch batch batch batch bat