Zions Bancorporation N.a. · NASDAQ:ZION
Zions Bancorporation N.a — Zions Bancorporation — Investor Day (February 2014)
145 slides from Zions Bancorporation N.a's investor day presentation, Feb 13, 2014
Slide 1: Zions 2014 Biennial Investor Conference
February 13, 2014 Zions 2014 Biennial Investor Conference
Slide 2: Forward-Looking Statements
Forward-Looking Statements 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, opportunities, models, illustrations,
Slide 3: Agenda
Agenda • Return On Equity: Scenario Analysis • Under the Hood: Net Interest Margin • Fee Income Initiative • Risk Oversight and Credit Management • CDO Portfolio and Volcker Rule Update • CCAR • FutureCore • Updated Guidance • Appendix 3 • Overview
Slide 4: Capital Levels are In Line to Strong Relative to Peers
Capital Levels are In Line to Strong Relative to Peers Source: Company documents for Zions as of 4Q13, SNL Financial as of 3Q13 for peers. Loss absorbing capital defined to include tangible common equity, Basel III-qualifying non-common Tier 1 equity, and the allowance for credit losses
Slide 5: Credit Quality is Improving and In Line-to-Better Than Peers
Credit Quality is Improving and is In Line-to-Better Than Peers Nonperforming Lending Related Assets and Classified Loans Nonperforming ratio consists of nonaccrual loans, real estate owned, and loans 90+ days past due and still accruing. The ratio excludes accrual troubled debt restructured (TDR) l
Slide 6: Net Charge-offs: Quarterly Trend
Credit Quality is Improving and is In Line-to-Better Than Peers Net Charge-offs: Quarterly Trend, With and Without Construction & Land Development Loans Source: Company documents for Zions as of 4Q13, SNL Financial as of 3Q13 for peers. Net charge-off ratios annualized.
Slide 7: Net Charge-offs: Through the Cycle, and Construction Loans
Net Charge-offs: Through the Cycle , and Construction Loans NCO rate compares favorably with peers through the cycle Source: Company Documents & SNL Financial. Net charge-off ratios annualized. 7 With Without
Slide 8: Summary View of Profitability
Summary View of Profitability Improvement in 2013 driven by capital actions, partially offset by a decline in net interest income 1. ROAA and reserve release adjusted ROAA based on net income available to common. Source: SNL Financial and Company documents. * Net Income normalized for one-time debt
Slide 9: Net Interest Margin
Source: SNL Financial as of 4Q13. Risk adjusted NIM calculated as net interest income less net charge-offs divided by average earning assets. 9 Net Interest Margin Net interest income, less net charge-offs, is considerably stronger than most peers
Slide 10: Non-Interest Expense: Medium Term Outlook
Non-Interest Expense: Medium Term Outlook Adjusts 4Q13 NIE for items such as debt extinguishment, FDIC Indemnification Asset Amortization and CCAR costs 10 Source: Company Documents Professional & Legal ($40mm), Debt Extinguishment ($320mm), Regulatory Related ($24mm), Credit Related ($12mm), Allowa
Slide 11: Fee Income Initiative
Fee Income Initiative • Zions has proportionately low fee income relative to peers • Long term fixes through organic growth, not major M&A • Areas Targeted for Growth: • Treasury Management • Business Credit Cards • Wealth Management • Mortgage • Growth focused within Zions’ footprint with relations
Slide 12: Capital Actions
Capital Actions 12 2013 Capital Actions § Redeemed all $285 million 8.0% Series B trust preferred § Redeemed (via tender offer) $257 million 7.75% Senior Notes § Issued $800 million of preferred stock (6.2% weighted average dividend rate) and redeemed all $800 million 9.5% Series C preferred stock §
Slide 13: Remaining Significant High Cost Debt Reduction Opportunities
Remaining Significant High Cost Debt Reduction Opportunities Effective GAAP Interest Cost In High Cost Debt Maturity Profile; Return on Tangible Common Equity (RoTCE) Expansion Assumes No Replacement of Debt Because of Strong Cash Balances at Parent Company 13 Assumes no replacement cost Effective p
Slide 14: Agenda
Agenda • Overview • Under the Hood: Net Interest Margin • Fee Income Initiative • Risk Oversight and Credit Management • CDO Portfolio and Volcker Rule Update • CCAR • FutureCore • Updated Guidance • Appendix 14 • Return On Equity: Scenario Analysis
Slide 15: Drivers of Expansion to RoTCE: Bear Case
Drivers of Expansion to RoTCE- : Medium Term Outlook 15 Source: Company Documents *NIE increase to reflect normal salary adjustments Case for Contraction of RoTCE: • RoTCE Normalization Assumptions Found on Slide 86 • Provision Expense adjusted to 0.4% of total loans per year • Added $20 Million of
Slide 16: Drivers of Expansion to RoTCE: 100 bp Rate Hike
Drivers of Expansion to RoTCE- : Medium Term Outlook 16 Case for Expansion of RoTCE: • RoTCE Normalization Assumptions Found on Slide 86 • Provision Expense adjusted to 0.4% of total loans per year • Added $100 Million of Growth Related Non-Interest Expense* • Financial Restructuring assumptions fou
Slide 17: Drivers of Expansion to RoTCE: 200 bp Rate Hike
Drivers of Expansion to ROTCE- : Medium Term Outlook 17 Source: Company Documents *NIE increase to reflect growth related salary adjustments Rate Hike assumes “fast “ deposit response - meaning, deposit pricing adjusts quickly to an upward shift in interest rates. Case for Expansion of RoTCE: • RoTC
Slide 18: Agenda
Agenda • Overview • Return On Equity: Scenario Analysis • Interest Rate Risk Positioning • Fee Income Initiative • Risk Oversight and Credit Management • CDO Portfolio and Volcker Rule Update • CCAR • FutureCore • Updated Guidance • Appendix 18 • Under the Hood: Net Interest Margin • New Production
Slide 19: Business Confidence Levels: Large vs. Small Business
Business Confidence Levels: Large Business vs. Small Business Small Business Optimism Still Soft 19 Average Levels (1988-2006): • ISM: 55 • NFIB: 101
Slide 20: Total Loan Portfolio - C&I, CRE, and Consumer
Total Loan Portfolio - C&I, CRE, and Consumer Pricing on new production stabilizing Small Loans < $5M Commitment Source: Company Documents; Loans Held For Investment, excluding FDIC-Supported Loans. Production defined as new loans and marginal draws on existing lines of credit
Slide 21: C&I Portfolio
C&I Portfolio (53% of yearly production) Pricing on production stabilizing, gap has narrowed from nearly 70 bps to approximately 50 bps Source: Company Documents; Production defined as new loans and marginal draws on existing lines of credit Small Loans < $5M Commitment
Slide 22: Owner Occupied Portfolio
Owner Occupied Portfolio (7% of yearly production) Owner occupied loans equaled $7.4 billion or 19% of the total portfolio Source: Company Documents; Production defined as new loans and marginal draws on existing lines of credit Small Loans < $5M Commitment Middle Market & Large Loans > $5M Commitme
Slide 23: Term CRE Portfolio
Term CRE Portfolio (11% of yearly production) Pricing on Term CRE remains dilutive to portfolio yield Source: Company Documents; Production defined as new loans and marginal draws on existing lines of credit Small Loans < $5M Commitment
Slide 24: Other Loans
Other Loans (29% of yearly production) Pricing on Other Loans improving - higher residential mortgage rates a contributing factor Small Loans < $5M Commitment Source: Company Documents; Production defined as new loans and marginal draws on existing lines of credit. Other Loans includes: Construction
Slide 25: Smaller loan yields only slightly lower than overall portfolio yield
Smaller loan yields are only slightly lower than the overall portfolio yield A shift to smaller business loans would have a favorable impact on the NIM trend 25 Source: Company documents as of 4Q13. Production defined as new loans and marginal draws on existing lines of credit Small Loans < $5M Comm
Slide 26: Commercial/Industrial Loan Growth by Industry
Commercial/Industrial (incl. Owner Occupied) Loan Growth by Industry Energy loans have been a significant driver of C&I growth Other includes: • 19% Agriculture, Forestry, Fishing, Hunting • 13% Utilities • 13% Administrative and Support and Waste Management and Remediation Services • 11% Informatio
Slide 27: CRE Loan Growth By Type
CRE (Term & Construction) Loan Growth By Type Apartment loan concentration has increased, while land loan concentration continues to decline Other includes: • 17% Recreation/Restaurant • 13% Hospital/Medical Centers • 70% General Other
Slide 28: Loan Growth and Production Remains Positive
Loan Growth and Production Remains Positive Favorable Trends in Commitments and Production 28 Source: Company documents as of 4Q13. “FDIC” refers to FDIC-supported loans; “NRE” refers to National Real Estate. Both of these portfolios are currently in run-off mode 7% Growth
Slide 29: C&I Utilization Rate
C&I Utilization Rate Smaller Loan Utilization Rates Materially Higher than Larger Loan Utilization Rates 29 Small < $5M Commitment Middle Market & Large > $5M Commitment
Slide 30: Agenda
Agenda • Overview • Return On Equity: Scenario Analysis • New Production Pricing Vs. Portfolio Yield • Fee Income Initiative • Risk Oversight and Credit Management • CDO Portfolio and Volcker Rule Update • CCAR • FutureCore • Updated Guidance • Appendix 30 • Under the Hood: Net Interest Margin • Int
Slide 31: Zions Deposit Franchise is Among Best of Peers
Zions Deposit Franchise is Among Best of Peers Source: SNL Financial as of 4Q13
Slide 32: History of Interest Bearing Cash vs. DDAs
Zions’ History of Interest Bearing Cash vs. DDAs Growth in DDA has been Primarily Held in Cash; Deposit Costs at Historic Lows Source: Company Documents SNL Financial as of 4Q13 (In Billions)
Slide 33: Securities & Cash Portfolio
Securities & Cash Portfolio ZION has one of the Smallest Securities (and MBS) Portfolio vs. its Peers Source: Company Documents for Zions as of 4Q13, SNL Financial for peers as of 3Q13 MBS securities include resi mortgage pass-through investments that are not guaranteed by the U.S. Government Estima
Slide 34: Long-Term Capital Risk not Traded for Short-Term Profitability
Long-Term Capital Risk not Traded for Short-Term Profitability 34 Source: Zions' estimates based upon Bloomberg MBS models; key assumptions include the WAC of the underlying mortgages is approximately 4%, 30-year pass-through paper, Bloomberg's DAPAX model for duration extension (increasingly slower
Slide 35: Third Party Analysis Ranks Zions Near Top of Asset Sensitive Banks
3 rd Party Analysis Ranks Zions Near Top of Asset Sensitive Banks 35 Source: Raymond James Research, June 2013
Slide 36: Balance Sheet Remains Significantly Asset Sensitive
Balance Sheet Remains Significantly Asset Sensitive 36 Zions estimates net interest income would increase between an estimated 14.2% and 17.1% if interest rates were to rise 200 bps* in the first year. * 12-month simulated impact using a static balance sheet and a parallel shift in the yield curve,
Slide 37: Agenda
Agenda • Overview • Return On Equity: Scenario Analysis • Under the Hood: Net Interest Margin • Risk Oversight and Credit Management • CDO Portfolio and Volcker Rule Update • CCAR • FutureCore • Updated Guidance • Appendix 37 • Fee Income Initiative
Slide 38: Zions vs. Peer Group
Zions vs. Peer Group 38 Source: Company documents for Zions as of 4Q13, SNL Financial as of 3Q13 for peers.
Slide 39: Zions vs. Community Bank Peers in Footprint
Zions vs. Community Bank Peers in Footprint ($5-15B in assets) Source: Company documents for Zions as of 4Q13, SNL Financial as of 3Q13 for peers.
Slide 40: Historical Impediments and Growth Areas
Historical “Impediments” and “Growth Areas” 40 2013 Fee Income * • NSF • Debit Cards • DDA Service Charges • Sweep Income • Card • Treasury Management (Core) • Mortgage *$333MM as reported adjusted for fixed income securities, net impairment on OTTI, Treasury Management fees compensated by balances.
Slide 41: Case Study: Fee Growth Muted by Legislative and Economic Pressure
Case Study: Fee Growth Muted by Legislative and Economic Pressure 41 (in millions) (1) 2008 Adjusted for $38mm swap gain. $ Change Fee Income Categories 2008 (1) 2013 `13 vs. `08 Impacted by Legislative Changes 40.2 25.8 (14.4) (NSF, Debit Card, Private Equity) Impacted by Economic Softness 57.8 50.
Slide 42: Zions Fee Income Mix
Zions Fee Income Mix 42 Treasury Management 32% Card* 14% Loan Fees 8% Mortgage 7% Capital Markets 7% Wealth Management 5% Foreign Exchange 2% Subtotal 75% 25% 100% % of Total *Commercial Card included in Treasury Management Growth Products Other
Slide 43: Treasury Management Key to Community Banking Strategy
Treasury Management Key to Zions’ Community Banking Strategy 43 Ø Represents 32% of Non- Interest Income Ø 63% of DDA balances are tied to Corporate Treasury Management (CTM) accounts Ø Recognized by Greenwich Associates for Overall Satisfaction and Customer Service Ø Significant investment in treas
Slide 44: Card…Low Penetration…Competitive Offering
Card…Low Penetration…Competitive Offering 44 Card Products Fee Income (000's) • Corporate platform delivered locally • Penetration: Consumer - 12.7%...25% optimal Business - 4.8%...15% optimal Commercial - nominal…growing rapidly • 2013 total spend growth - 18% • #13 U.S. business card issuer in ter
Slide 45: Mortgage…Community Banks Uniquely Positioned
Mortgage…Community Banks Uniquely Positioned 45 • 2013 Results: Production - $3.3 billion Fee income - $37.7 million • Model leverages community bank franchise to achieve higher level of “purchase” business • Investing in corporate operations, compliance, product development with local sales and ser
Slide 46: Fee Income…What to Expect
Fee Income…What to Expect 46 • Greater focus and tracking • Enhanced utilization of corporate infrastructure, product development with local pricing • Above average growth rates, assisted by generally low current penetration rates • Simple products that can be leveraged over entire employee base • C
Slide 47: Agenda
Agenda • Overview • Return On Equity: Scenario Analysis • Under the Hood: Net Interest Margin • Fee Income Initiative • CDO Portfolio and Volcker Rule Update • CCAR • FutureCore • Updated Guidance • Appendix 47 • Risk Oversight and Credit Management
Slide 48: Risk Management Changes in the last 3-5 Years
Risk Management Changes in the last 3-5 Years • Implemented a Board Risk Oversight Committee • Standardized Risk Committees at all affiliate banks based upon Risk Appetite Framework • Increased risk management staffing with expertise in specific areas including: • Investments • Operations • Model ma
Slide 49: The Future of Enterprise Risk Management
The Future of Enterprise Risk Management (ERM) Establish an ERM Program commensurate with the size and complexity of Zions Ø Formalize the Operational Risk function Ø Integrated the Compliance function into ERM Ø Enhance existing risk areas (e.g., Credit, Market, Liquidity, Interest rate, Model) Ø F
Slide 50: Enhanced Future Risk Reporting Structure
50 Enhanced Future Risk Reporting Structure
Slide 51: Risk Appetite Framework Core Principles
Risk Appetite Framework Core Principles 3 Lines of Defense: 1. The first line of defense: business lines 5 Key Basic Concepts: 1. We take risks we assess 2. We take risks we understand 3. We take risks that we can measure 4. We take risks that we can monitor, and, 5. We take risks that we can manage
Slide 52: Select Credit Risk Management Changes Since 2008
Select Credit Risk Management Changes Since 2008 production Corporate Chief Credit Officer governs all credit approvals and policy Delegates (or retracts) authority to Affiliate Bank Chief Credit Officers. CCOs have veto (decline) over any transaction, program, or concentration Enhanced senior loan
Slide 53: Future Improvements of Credit Risk Management
Future Improvements of Credit Risk Management • Enhance Concentration Management Ø Introduce Industry Risk Ratings Ø Portfolio/Segment Stress Testing Ø Introduce a “white paper” process • Eliminate remaining exceptions to the uniform underwriting standards • Enhance Data Management and oversight • I
Slide 54: CRE Risk Hurdles
CRE Risk Hurdles - Disciplined Approach to Asset Classes and Markets 54 (e.g. Las Vegas Office) Definitions
Slide 55: Enabling Growth, While Carefully Managing Risk
Enabling Growth, While Carefully Managing Risk • Developing key metrics that serve the purpose of • Growing the business in a managed way • Adhering to the strategic plan • Exceptions to the policy are being monitored, managed and escalated in an effective manner • Ensuring “business lines” have cri
Slide 56: Credit Quality - Total Portfolio
Credit Quality - Total Portfolio 4Q13 3Q13 4Q12 Total Loan Balance ($B) 39.2 38.4 37.9 Total Delinquencies 0.8% 0.8% 1.5% Total Non-Performing Loans 1.0% 1.2% 1.7% Total Classifieds 3.2% 3.7% 4.7% % of Classifieds Performing 84.4% 83.9% 78.6% Total Net Charge-Offs 0.2% 0.1% 0.2% Total Loan Balance T
Slide 57: Term CRE Portfolio Improving
Term CRE Portfolio Improving Term CRE Key Statistics 4Q13 3Q13 4Q12 Loan Balance ($B) 8.0 8.2 8.1 Delinquencies 1.1% 0.8% 1.8% Non-Performing Loans 1.4% 1.4% 2.9% Classifieds 3.3% 3.7% 4.9% % of Classifieds Performing 90.8% 89.0% 80.9% Net Charge-Offs 0.1% 0.2% 0.3% Collateral 57 Gradient Fill - 201
Slide 58: Term CRE Metrics are Solid
• Left - Sample data: As of 4Q13; non-FDIC supported term loans > $500k balance • Right - As of 4Q13; LTVs were adjusted using PPR’s market level/property type value trend indices 58 Term CRE Metrics are Solid
Slide 59: Net Charge-offs: Through the Cycle
Net Charge-offs: Through the Cycle , and NCO rate compares favorably with peers through the cycle Source: Company Documents & SNL Financial. Net charge-off ratios annualized. 59 Term CRE Multi-Family
Slide 60: Concentration policy limits and organization established
60 Concentration policy limits & organization established; integrated into business process Board approved risk appetite & limits; risk boundaries aligned with capital Corporate Concentration Risk Committee (CCRC) manages appetite and limits Limit asset levels set conservatively lower than actual pe
Slide 61: Affiliates Within Limits and Historical Highs
61 Affiliates Within Limits and Historical Highs Current portfolio as a % of risk based capital Portfolio limit as a % of regulatory capital Portfolio peak as a % of regulatory capital Sources: Total Risk Based Capital = SNL Financial, Bank Balance and Remaining Commitment = EDW. Notes: As of Date =
Slide 62: HECL Payment Shock Risk: 2014-2015
Nominal near-term risk: Under roll-rate methodology, $2B HECL portfolio would generate $5.6 million and $5.3 million in 2014 and 2015 net losses, respectively. Using payment shock method, there is only a nominal increase to $6.1 million of expected loss for each 2014 and 2015. Home Equity Credit Lin
Slide 63: HECL End of Draw Schedule
No Particular Balloon to Pop: There’s a fairly even distribution of loans coming to end of their draw period over next several years. Highest exposure to payment shock is clearly 2016 and 2017, but should not have dramatic impact on portfolio as a whole. HECL End of Draw Schedule
Slide 64: Loan Growth Outlook, by Type
Loan Growth Outlook, by Type 64 § Healthy growth expected in Commercial & Industrial lending § Small business loan growth is emphasized across the company § Middle-market business banking will also play a major role in 2014 C&I growth § Generally limited growth in CA, AZ, CO § Stronger growth expect
Slide 65: Agenda
Agenda • Overview • Return On Equity: Scenario Analysis • Under the Hood: Net Interest Margin • Fee Income Initiative • Risk Oversight and Credit Management • CCAR • FutureCore • Updated Guidance • Appendix 65 • CDO Portfolio and Volcker Rule Update
Slide 66: Bank CDOs: Failures and Deferrals Have Declined Sharply
Bank CDOs: Fundamental Trends are Improving Failures and Deferrals Have Declined Sharply 66 As of 12-31-2013 (1) Last 12 months. Prior to 3Q09, averages were predominately large banks, significantly skewing the data. New Bank Deferrals in Zions’ CDOs are Trending Downward (Aggregate Underlying Colla
Slide 67: Bank CDOs: Deferring Bank Re-performance Has Increased
Bank CDOs: Fundamental Trends are Improving Deferring Bank Re-performance has Increased 67 As of 12-31-2013 67 (In millions) Net of $250 million of re-deferrals from 9 banks • Peak dollar value of deferring collateral: $3.5 billion (2Q11) • Current deferring collateral: $1.46 billion
Slide 68: Underlying Collateral for Zions' CDOs
Underlying Collateral for Zions’ CDOs (after 1 st Q Sales) 68 *Non Defaulted Collateral Collateral = the sum of the all trust preferred securities (TRUPS) for all owners of Zions CDO tranches
Slide 69: CDO Portfolio Composition & Values as of 4Q13
CDO Portfolio Composition & Values as of 4Q13 69 December 31, 2013 (Amounts in Millions) # of Tranches Par Amount Amortized Cost Carrying Value Net Unrealized Losses Recognized in AOCI Performing CDOs Predominantly Bank CDOs 23 $687 $617 $499 -$118 Insurance CDOs 22 433 413 346 -67 Other CDOs 3 43 2
Slide 70: CDOs Identified for Sale
CDOs Identified for Sale 70 December 31, 2013 (Amounts in Millions) # of Tranches Par Amount Amortized Cost Carrying Value Performing CDOs Predominantly Bank CDOs 0 $0 $0 $0 Insurance CDOs 3 71 55 55 Other CDOs 3 43 26 26 Total Performing CDOs 6 114 81 81 Nonperforming CDOs CDOs Credit Impaired Prio
Slide 71: CDO Sale Results
CDO Sale Results February 14, 2014 (Amounts in Millions) # of Tranches Par Amount Amortized Cost Loss Taken in 4Q13 Sale Proceed Realized Gain/Loss Performing CDOs Predominantly Bank CDOs 0 $0 $0 $0 $0 $0 Insurance CDOs 3 71 55 -16 55 0 Other CDOs 3 43 26 -8 28 3 Total Performing CDOs 6 114 81 -24 8
Slide 72: CDO Portfolio Pro Forma for Sold CDOs
CDO Portfolio Composition & Values Pro Forma for Sold CDOs* 72 February 14, 2014 (Amounts in Millions) # of Tranches Par Amount Amortized Cost Carrying Value* Net Unrealized Losses Recognized in AOCI* Performing CDOs Predominantly Bank CDOs 23 $687 $617 $499 -$118 Insurance CDOs 19 362 358 292 -66 O
Slide 73: Mezzanine CDO Value History
Mezzanine CDO Value History: Recovery of value has been significant, particularly on mezzanine (Original A Rated) securities 73
Slide 74: Agenda
Agenda • Overview • Return On Equity: Scenario Analysis • Under the Hood: Net Interest Margin • Fee Income Initiative • Risk Oversight and Credit Management • CDO Portfolio and Volcker Rule Update • FutureCore • Updated Guidance • Appendix 74 • CCAR
Slide 75: CCAR, Volcker Rule, and CDO Sales
CCAR, Volcker Rule, and CDO Sales • Original CCAR submission projected over $600 million of capital stress from CDO portfolio under severe stress scenarios due to Volcker Rule. • CDO sales and Volcker Rule revisions materially reduce the adverse impact. • Zions expects to resubmit a revised CCAR str
Slide 76: Major improvements in all CCAR principles
Major improvements in all CCAR principles 1. Foundation Risk Management • Created CRO position, updated all major risk policies and risk appetite framework 2. Effective Loss Estimation • Created loan level loss models for C&I and Resi • Approximately 90% of loan portfolio modeled at loan level 3. Ca
Slide 77: Major improvements in all CCAR principles (Cont'd)
Major improvements in all CCAR principles (Cont’d) 5. Comprehensive Capital Policy and Planning • Rewritten Capital Policy • Substantial improvements and documentation of procedures 6. Robust Internal Controls • Improved Model Risk Management practice • Increased control points in CAP procedures • E
Slide 78: Agenda
Agenda • Overview • Return On Equity: Scenario Analysis • Under the Hood: Net Interest Margin • Fee Income Initiative • Risk Oversight and Credit Management • CDO Portfolio and Volcker Rule Update • CCAR • Updated Guidance • Appendix 78 • FutureCore
Slide 79: Systems Upgrade Overview
Systems Upgrade Overview • FutureCore is a program initiated by Zions Bancorporation to replace its core operating systems into a single application • Zions is working with TCS (Tata Consultancy Services) to implement their BαNCS operating software • Zions managed, but 3 rd party oversight reports d
Slide 80: Systems Upgrade Benefits
Systems Upgrade Benefits Key benefits of FutureCore How will this help? Real-time processing -Transactions, balances and other information updated immediately -Less manual and more efficient processing Standardization of processes and data -Reduced customization reduces cost -Significant improvement
Slide 81: Agenda
Agenda • Overview • Return On Equity: Scenario Analysis • Under the Hood: Net Interest Margin • Fee Income Initiative • Risk Oversight and Credit Management • CDO Portfolio and Volcker Rule Update • CCAR • FutureCore • Appendix 81 • Updated Guidance
Slide 82: Key Takeaways: Medium to Long Term Outlook
Key Takeaways: Medium to Long Term Outlook 82 § Return on Tangible Common Equity can improve through loan growth, modest amounts of asset duration extension, executing on the fee income initiative, and/or an increase in interest rates § Sale of CDOs with highest risk weighting and greatest impact on
Slide 83: Key Takeaways: Medium to Long Term Outlook (Cont'd)
Key Takeaways: Medium to Long Term Outlook (Cont’d) 83 § Will continue to avoid assuming risk we don’t know how to manage - namely, duration extension risk from MBS, with a related shortage of funding for loan growth at precisely the time when MBS prepayments are slowing § May add receive fixed/pay
Slide 84: Outlook by Topic
Topic Outlook Comment Loan Balances Slightly to Moderately Increasing • Prepayments remain volatile, making net loan growth difficult to forecast Net Interest Income Moderately Declining • FDIC Covered Loan income likely to experience further decline • Excluding interest income from covered loans, N
Slide 85: Agenda
Agenda • Overview • Return On Equity: Scenario Analysis • Under the Hood: Net Interest Margin • Fee Income Initiative • Risk Oversight and Credit Management • CDO Portfolio and Volcker Rule Update • CCAR • FutureCore • Updated Guidance 85 • Appendix
Slide 86: Calculation for Normalized Net Income in 4Q13
Calculation for Normalized Net Income in 4Q13 86 Right hand column reflects a tax rate of 38.75% Systems Upgrade (“FutureCore” - core processing system upgrade, chart of accounts overhaul, and front-end loan entry system upgrade): $28mm additional estimated, on average (This does not include the app
Slide 87: A Collection of Great Banks
A Collection of Great Banks More than 70% of Assets in Utah / Texas / Coastal California 87 Subsidiary information as of 3Q13 Superior lending capacity relative to community banks Superior local customer access to bank decision makers relative to big nationals Centralization of some processing and o
Slide 88: Awards: Nationally Recognized for Excellence
Awards: Nationally Recognized for Excellence • Twelve (12) Greenwich Excellence Awards in Small Business and Middle Market Banking (2013) • Including: • Nationally Ranked in the Top 10 in Small Business Loan production 1 • Top team of women bankers - American Banker 2 88 1. Volume and number of loan
Slide 89: Stronger Economic Growth than Overall U.S.
Job Creation: Jobs grew in Zions' footprint by 13.5% during the last 10 years, a full 8 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 1.3 percentage points per year (compounded) over the last ten years Str
Slide 90: Balance Sheet Mix
Balance Sheet Mix Strengths include a strong mix of loans and DDA funding 90 Source: Company documents as of 3Q13
Slide 91: Strong Focus on Business Banking & Smaller-Sized Customers
Source: Company Documents for Zions as of 4Q13, SNL Financial for peers as of 3Q13 *Includes farm, home equity, consumer, and other loans 91 Strong Focus on Business Banking & Smaller-Sized Customers - Loan Mix • Small Loans < $5M Commitment • Large Loans > $5M Commitment Small Loans Large Loans
Slide 92: ——Amegy CBR. ===NBA mmeNSB ==Vectra =meZFNB a
20% 15% 10% 5% 1012 2012 3012 4q12 1013 2013 3013 4013 ——Amegy CBR. ===NBA mmeNSB ==Vectra =meZFNB a ZIONS BANCORPORATION
Slide 93: Credit Quality Key Takeaways
Portfolio overview: Credit quality metrics have improved materially in: All loan types All geographies Problem loan inflows continue to slow; most resolutions are favorable; charge-offs are declining; loss severities are declining Loan loss reserve is strong and problem loan coverage improving Credi
Slide 94: Credit Quality - Total Portfolio
Credit Quality - Total Portfolio 4Q13 3Q13 4Q12 Total Loan Balance ($B) 39.2 38.4 37.9 Total Delinquencies 0.8% 0.8% 1.5% Total Non-Performing Loans 1.0% 1.2% 1.7% Total Classifieds 3.2% 3.7% 4.7% % of Classifieds Performing 84.4% 83.9% 78.6% Total Net Charge-Offs 0.2% 0.1% 0.2% Total Loan Balance T
Slide 95: C&D Problem Loans Also Improving
C&D Problem Loans Also Improving *Commercial includes multi-family **Based on gross charge-offs Current Commercial C&D Balance - $1.5B (3.9% of Total Loans); Residential C&D - $713MM (1.8% of Total Loans)
Slide 96: Term CRE Portfolio Improving
Term CRE Portfolio Improving Term CRE Key Statistics 4Q13 3Q13 4Q12 Loan Balance ($B) 8.0 8.2 8.1 Delinquencies 1.1% 0.8% 1.8% Non-Performing Loans 1.4% 1.4% 2.9% Classifieds 3.3% 3.7% 4.9% % of Classifieds Performing 90.8% 89.0% 80.9% Net Charge-Offs 0.1% 0.2% 0.3% Collateral 96 Gradient Fill - 201
Slide 97: Term CRE Losses and Loss Severity Improving
Source: company documents and earnings releases *Based on gross charge-offs Term CRE Losses and Loss Severity Improving 97
Slide 98: Term CRE Metrics are Solid
• Left - Sample data: As of 4Q13; non-FDIC supported term loans > $500k balance • Right - As of 4Q13; LTVs were adjusted using PPR’s market level/property type value trend indices 98 Term CRE Metrics are Solid
Slide 99: Term CRE collateral shows strong cash flow
Term CRE collateral shows strong cash flow 99 (In billions) • Sample data: As of 4Q13; term loans > $500k balance Loans with high debt yield ratios have lower refinance risk.
Slide 100: Real Estate Loan Portfolio Mix
Real Estate Loan Portfolio Mix Higher Risk Loans Declining, Growth in Apartment Loans 100 Portfolio Mix Shifting Away From Risky Assets Loan Balance Changes From 2008 RE Property Type 4Q13 Residential 30.3% Warehouse 9.2% Other 12.4% Office 19.1% Retail 10.4% Apartment 6.4% Hospitality 7.6% Land and
Slide 101: Portfolio Diversified by Geography and Property Type
Portfolio Diversified by Geography and Property Type Term CRE Predominately in Footprint 10 1 Location Property Type Data as of 4Q13. Source: company documents
Slide 102: Sources of Interest Income from Diversified Property Types and Industries
Sources of Interest Income from Diversified Property Types and Industries 102 Data as of 4Q13. Source: company documents
Slide 103: Credit Quality Improving in Commercial and Industrial
Credit Quality Improving in Commercial and Industrial C&I Key Statistics 4Q13 3Q13 4Q12 Loan Balance ($B) 20.7 20.1 19.5 Delinquencies 0.9% 0.9% 1.4% Non-Performing Loans 1.2% 1.3% 1.6% Classifieds 4.1% 4.5% 4.6% % of Classifieds Performing 86.1% 87.4% 80.9% Net Charge-Offs 0.1% 0.1% 0.2% C&I Loan B
Slide 104: Owner Occupied Losses & Loss Severity Improving
Source: Company Documents. * Based on gross charge-offs Owner Occupied Losses & Loss Severity Improving 10 4 Current C&I OO Balance - $7.7B (19.8% of Total Loans) Increase attributable to National Real Estate grading methodology change
Slide 105: Credit Quality Improving in Consumer
Credit Quality Improving in Consumer Consumer Key Statistics 4Q13 3Q13 4Q12 Balance ($B) 7.7 7.5 7.3 % of Total Loan Portfolio 19.6% 19.7% 19.3% Delinquencies 0.7% 0.8% 1.2% Net Charge-Offs 0.02% 0.1% 0.6% Consumer Loan Balance 10 5 Current Consumer Balance - $7.7B (19.8% of Total Loans) Source: SNL
Slide 106: Majority of HECLs in Under 80% LTV Category
106 Source: company documents *Sample covers 99% of portfolio Data as of 4Q13 Majority of HECLs in Under 80% LTV Category
Slide 107: Current LTV-FICO Distribution on Mortgage Loans
Current LTV- FICO Distribution on Mortgage Loans: 107 FICO Segments <= 600 600-650 650-700 > 700 Row Total LTV Segments < 80 2% 2% 7% 67% 79% 80-90 1% 0% 1% 7% 10% 90-100 0% 0% 1% 4% 5% > 100 0% 0% 1% 5% 6% Column Total 3% 4% 10% 83% 100% FICO Segments <= 600 600-650 650-700 > 700 Row Total LTV Segm
Slide 108: Affiliate Information
108 Affiliate Information
Slide 109: Amegy Bank of Texas February 2014
Amegy Bank of Texas February 2014
Slide 110: Texas economy highlights
• 15 th largest economy in the world • Population ranks 2 nd in the U.S. • Leads the nation in job creation • 5.6% unemployment rate • 2012 housing starts exceeded 60,000 • Ranked 1 st by export revenues in the U.S. 110
Slide 111: Houston…Operating in a Diversified Economy
Houston…Operating in a Diversified Economy • 3,700+ energy-related entities • Home to 40 of the nation’s 145 publicly traded oil and gas E&P firms, and 10 of the top 25 • The nine refineries in the Houston region produces 13.3% of total U.S. crude oil capacity • By 2021, the Eagle Ford Shale should
Slide 112: Two Key Market Segments
Two Key Market Segments Energy • Economy has rebounded since `08-`09 price volatility Commercial Real Estate 112 Source: Property and Portfolio Research (PPR)
Slide 113: Recent Significant Accomplishments
Recent Significant Accomplishments • #1 middle market bank* (lead relationship share) • #2 treasury management bank* • #3 small business bank* (lead relationship share) • #2 SBA lender in Houston • 4.8% deposit market share (JPM, BAC, WFC: 58% deposit market share) • #7 in U.S. for EX-IM working cap
Slide 114: Core Earnings Remain Strong
Core Earnings Remain Strong 114 ($’s in millions)
Slide 115: Loan Portfolio…Becoming More Granular
Loan Portfolio…Becoming More Granular 115 Loans by Line of Business Dec MTD Average
Slide 116: Expense Control…Remains a Key
Expense Control…Remains a Key 116
Slide 117: Fee Income…Growth Opportunity Muted
Fee Income…Growth Opportunity Muted by Legislative and Economic Conditions 117 (1) 2008 Adjusted for $38mm swap gain.
Slide 118: Net Charge-offs…Fared Better than Most
Net Charge-offs…Fared Better than Most 118 (1) Peer Group includes 64 publicly traded companies with assets > $10 Billion. Average is weighted by Total Net Loans. (2) Analyst Peer Group consists of 19 publicly traded banks stock analysts deem Zions’ Peers. Average is weighted by Total Net Loans.
Slide 119: Amegy Bank of Texas…Well-positioned for the Future
119 Amegy Bank of Texas…Well-positioned for the Future
Slide 120: Energy Loan Portfolio
120 Energy Loan Portfolio
Slide 121: Energy Loan Portfolio Composition
Energy Loan Portfolio Composition - at 12/31/13 Commitments $5.4 Billion Upstream FaP Services 35% Oil Field 27% “s Other 4 Downstream Non-Services 7 Produc 1%
Slide 122: Oil and Gas…A Historical Snapshot
Oil and Gas…A Historical Snapshot 122
Slide 123: 1/5/2007 1/5/2008 1/5/2009 1/5/2010 1/5/2011. 1/5/2012 1/5/2013
1/5/2007 1/5/2008 1/5/2009 1/5/2010 1/5/2011. 1/5/2012 1/5/2013
Slide 124: Credit Quality…Significant Improvement
124 Credit Quality…Significant Improvement
Slide 125: Energy Service Exposure By Market Segment
Energy Service Exposure By Market Segment 125 $2.2 Billion in Commitments
Slide 126: Reserve-Based Underwriting
Reserve-Based Underwriting 126 ($ in millions) $100 - value using NYMEX oil and gas prices $ 85 - Amegy risk-adjusted reserves (i.e. collateral value) $ 68 - apply Amegy prices (80% of NYMEX) $ 51 - loan value 75% adv. rate (25% of reserves hedged) $ 41 - loan value 60% adv. rate (no hedging) Note •
Slide 127: Gas Shale Plays: A New Dimension
Gas Shale Plays: A New Dimension
Slide 128: Outlook
Outlook 128 • Consolidation has resulted in larger companies with stronger balance sheets and access to multiple capital sources • Continued Price Volatility • Increased Global Oil & Gas Demand • Increased production costs and tight supply will provide upward price pressure • Experienced Team • Cons
Slide 129: California Bank & Trust Investor Day
Page * California Bank & Trust Investor Day David Blackford February 13, 2014
Slide 130: Loan Portfolio - December 2013
Page * Loan Portfolio - December 2013
Slide 131: 2013 Loan Growth
$ Growth (in MM) % Growth C&I $374 +21% Owner Occupied $19 +1% CRE - Construction $164 +34% CRE - Term -$13 -1% 1-4 Family -$29 -2% HECL -$20 -9% Other Consumer -$22 -3% Total - Core $493 +6% FDIC Supported -$178 -35% Total - Net $315 +4% Page * 2013 Loan Growth Growth in monthly average balances fr
Slide 132: 5.00% 4.50% 4.00% 3.50% 3.00% 2.50% 2.00% 1.50% 1.00% 0.50% 0.00% 4.70% 4.72% 4.13%
5.00% 4.50% 4.00% 3.50% 3.00% 2.50% 2.00% 1.50% 1.00% 0.50% 0.00% 4.70% 4.72% 4.13% 3.82% 0.90% 0.57% |_| 2012 2013 @Reported tMCore Excess Accretion
Slide 133: FDIC Supported Loan Recap
($ in millions) 2009-13 2014F Bargain Purchase Gain 172 0 Recoveries 14 0 Excess Accretion 265 33 IA Amortization Expense 212 21 Provision, Net 22 0 Pretax Benefit 217 12 Ending FDIC Loans 321 219 Classified Cmmt 20 57 Ending IA Balance 26 ~0-4 Page * FDIC Supported Loan Recap ® Acquired $2.4 billio
Slide 134: Real Estate Division Originations Year-Over-Year
Page * Real Estate Division Originations Year-Over-Year
Slide 135: 2013 Real Estate Division Originations by Location
Page * 2013 Real Estate Division Originations by Location 71% of originations in SF Bay, Los Angeles and Orange County
Slide 136: LTV 2013 Real Estate Division Originations
LTV Cml Land Industrial Multi- family Office Res Lots Res Prod Retail % LTV Segment < =50% 0.0% 22.3% 18.3% 34.4% 55.8% 27.2% 19.3% 25.7% 50.1% - 60% 100.0% 55.9% 55.3% 18.1% 44.2% 25.1% 24.7% 38.1% 60.1% - 70% 0.0% 15.9% 24.9% 24.0% 0.0% 33.4% 56.0% 27.7% >70.1% 0.0% 5.9% 1.4% * 23.5% 0.0% ** 14.3%
Slide 137: Credit Quality
2012 2013 NCO/Average Loans 0.30% -0.003% NPAs/Loans + OREO 1.66% 1.27% Classified Loans/Loans 3.26% 2.24% ACL/Loans 1.99% 1.57% Page * Credit Quality ® Credit quality improved steadily throughout 2013 ® The majority of remaining non-performing loans consist of small business and SBA 504 loans, whic
Slide 138: Recap of CBT Strategic Objectives for 2014
Page * Recap of CBT Strategic Objectives for 2014 ® Expand core non-interest income ® Grow loans while maintaining desired product mix, geographic diversification, and risk profile ® Increase core operating deposit accounts, with cross sell of fee income services ® Manage expenses carefully with con
Slide 139: National Bank of Arizona
Slide 140: NB|AZ Loan Portfolio 2007
NB|AZ Loan Portfolio 2007 ($4.5B) Consumer, $40 (2%) Construction, $239 con (CRE - Construction $480 (25%) — Commercial $1,434 (31%) NATIONAL BANK OF ARIZONA
Slide 141: NB|AZ Loan Portfolio 2013
NB|AZ Loan Portfolio 2013 ($3.7B) Construction, Lot Loans, $20 $53 (a) 0%) | Pe _consumer, $31 0%) ; /\ =~ | CRE - Lot Loans, $65 (5%) ‘CRE - Construction, $12 (9%) Commercial \ $1,529 \ (41%) NATIONAL BANK OF ARIZONA E 2
Slide 142: NB|AZ New Loan Spreads
NB|AZ New Loan Spreads (by Year) NewLoan Volume $0 $500 $1,000 $1,500 2.80 2.90 3.00 3.10 3.20 3.30 3.40 3.50 3.60 3.70 Average Loan Spread pread m Volume Quarter Commitments Spread 2010_QT See STS: 2010_Q2 $75 3.39 2010_Q3 $102 3.72 2010_Q4 $93 3.73 2011_Q1 $85 3.53 2011_Q2 $136 3.43 2011_Q3 $152 3
Slide 143: NB|AZ Historical NIM Analysis
NB|AZ Historical NIM Analysis 5.7% 5.6% 5.3% 3.75% 2008 2009 2010 2011 2012 2013 @Loan Yield mCOF @NIM NATIONAL BANK OF ARIZONA g
Slide 144: NB|AZ Energy Savings
$1,800,000 $1,700,000 $1,600,000 $1,500,000 $1,400,000 $1,300,000 $1,200,000 $1,100,000 $1,000,000 $900,000 $800,000 2008 NATIONAL BANK OF ARIZONA 2 NB|AZ Energy Savings 2010 2012 === Actual Energy Expense Restated Energy Expense Using 2013 Rates 2013 $643M annual savings in Energy Expense at 2013 r
Slide 145: NB|AZ Significant Expense Reductions
NB|AZ Significant Expense Reductions $120,000 $113,444 $114,559 $115,244 Sip ais: $111,939 $110,000 $60,000 $52,083, $49,149 47,547 $50,000 : $45,846 $45,433 $45,659 $40,000 $34,099 $ $29,145 30,000 $20,000 $10,000 $2,172 so 2008 2009 2010 2011 2012 2013 Total Direct Expense before Credit ===Base Sa