Zions Bancorporation N.a. · NASDAQ:ZION
Zions Bancorporation N.a — Zions Bancorporation — Q3 2017 Earnings Presentation
40 slides from Zions Bancorporation N.a's earnings presentation, Nov 29, 2017
Slide 1: Fourth Quarter 2017 Financial Update
Fourth Quarter 2017 Financial Update November 29, 2017
Slide 2: Zions Is A Collection of Community Banks
2 Local decision-making and top-notch service separates Zions from peers Source: SNL Financial, BEA.gov, Zions’ calculations, using simple average of trailing 10 years (2007-2016) of annual GDP growth by state multiplied by the percent of deposits in each state. Dollars of deposits do not sum due to
Slide 3: Zions is a Commercially-Oriented Bank
The Big Picture: Zions is a Commercially-Oriented Bank Earning Assets Liabilities and Equity 3 55% of earning assets are commercial loans (vs. 45% for peers), and 37% of liabilities and equity are funded by noninterest-bearing deposits (vs. 24% for peers) 2% 36% 19% 17% 26% 3% 33% 12% 28% 22% Cash C
Slide 4: Zions is a Leader in Small Business Lending
The Big Picture: Zions is a Leader in Small Business Lending Commercial Loans sized $100k - $1M Commercial Loans sized $100k - $1M as a percent of total commercial loans 4 0% 2% 4% 6% 8% 10% 12% 14% 16% 18% 20% ZIO N B B T H B A N R F M TB US B WF C KE Y JP M CM A B A C ST I P N C FIT B U B C Note:
Slide 5: 2018-2019 Objectives: Growth Through Simplification and Focus
Continue to Achieve Positive Operating Leverage Maintain annual mid-single digit loan growth rate, generally balanced within all three types (Commercial, CRE, and Consumer) Target mid-single digit growth rates in customer-related fee income Extract efficiencies through automation and simplif
Slide 6: Zions Intends to Merge Parent Company into Bank Subsidiary
6 The Big Picture: Zions Intends to Merge Parent Company into Bank Subsidiary Eliminates duplicative regulatory oversight and enhances capital flexibility Zions intends to merge the Bank Holding Company (Parent) into its bank subsidiary Approval required by the OCC, FDIC and shareholders Appli
Slide 7: Decade-Long Risk Profile Improvement
The Big Picture: Decade-Long Risk Profile Improvement 7 Since the recession, Zions has addressed the following: Concern Mitigation Negative/Low Profitability Improved ROA to levels approximately in line with A-/BBB+ rated banks Improved Efficiency Ratio to 62.6% (2017 YTD), committed to “low 60s
Slide 8: Credit Quality
0.00% 0.50% 1.00% 1.50% 2.00% FRC PBCT BOKF MTB CBSH EWBC ASB ZION CMA WBS BBT CFG STI RF HBAN FITB KEY FHN SNV 0.00% 0.50% 1.00% 1.50% 2.00% FR C C B SH EWB C PB C T ST I B B T SN V H BA N K EY FI TB FH N C FG ZI O N C M A M TB A SB B O K F R F Credit Quality Last 4 Quarter Average (NPAs + 90DPD) /
Slide 9: Strong Balance Sheet
Strong Balance Sheet Common Equity Tier 1 Capital Ratio Tier 1 Risk-Based Capital Ratio 8% 9% 10% 11% 12% 13% 14% ZI O N C B SH FR C M TB R F B O K F B B T FI TB WB S C M A EWB C C FG H BA N FH N K EY ST I A SB SN V PB C T Note: Regulatory capital ratios are Basel III. Source: SNL Financial, data as
Slide 10: Capital Actions: CCAR / Horizontal Capital Review 2017
Increased Payout Zions’ capital plan increased the common dividend payout to an expected $0.72 per share (3Q17-2Q18) from $0.32 per share in the trailing four quarters, and in 2Q18 is expected to be $0.24 per share ($0.96 annualized), triple the rate paid in 2Q17. Zions’ capital plan included
Slide 11: Profitability: Solid Improvement Since 2014
Profitability: Solid Improvement Since 2014 Source: SNL Financial, Zions calculations *Adjusted ROA and ROTCE for ZION excludes gains/losses on fixed income securities, debt extinguishment and preferred stock redemption cost, and reserve release, which is defined as provision for credit losses net o
Slide 12: Net Interest Income
Net interest income increased 11% over the year-ago period Majority of the increase attributable to: An increase in interest on securities from an increase in the average investment securities portfolio An increase in interest and fees on loans due to loan growth in commercial and consumer l
Slide 13: Loan Growth by Type
C&I (ex-O&G) 5.7% Owner Occupied (ex-NRE) 6.6% C&D 1.1% Term CRE (ex- NRE) -2.6% 1-4 Family 12.7% National Real Estate -15.8% O&G -11.6% Home Equity 6.3% Other 24.6% -30% -20% -10% 0% 10% 20% 30% 40% Loan Growth by Type 13 Moderate to strong loan growth achieved in targeted growth categories Year-ov
Slide 14: Active Balance Sheet Management
Active Balance Sheet Management Short to medium duration portfolio; minimal duration extension risk Total Securities (end of period balances) ($ billion) $0 $2 $4 $6 $8 $10 $12 $14 $16 $18 3Q16 4Q16 1Q17 2Q17 3Q17 Municipal & Other Securities SBA Loan-Backed Securities Agency Securities Agency MBS S
Slide 15: Net Interest Income Drivers
Loans 76% Securities 19% Cash 5% Loans 72% Securities 26% Cash 2% Net Interest Income Drivers 15 Net interest income reflects higher short-term interest rates Net Interest Margin (NIM) Avg Earning Asset Mix Relative to the prior quarter, the 3Q17 NIM was 3.45%, down 7 basis points, but excluding i
Slide 16: Interest Rate Sensitivity and Historical Deposit Beta
Much of the reduction in rate sensitivity was due to securities purchases during 2016 and early 2017 The average investment portfolio is $11.6 billion higher than 4Q14; interest income from this investment portfolio growth is nearly $90 million more per year than if the same average balance were
Slide 17: Noninterest Income
Customer-related fee income decreased 3.2% from 3Q16, primarily due to: 3Q17 write-down in a loan HFS (within loan sales and servicing line) Decline from non-sufficient funds charges Strength from: Wealth management Capital markets (primarily foreign exchange related revenue) Noninterest
Slide 18: Revenue
Revenue growth continued its positive trajectory, increasing approximately 17% since 4Q14 (excludes $16 million of interest income recoveries from 2Q17 results) Revenue is expected to continue to increase due to loan growth, customer-related fee income growth, and the benefit of interest rate hi
Slide 19: Noninterest Expense
Total adjusted noninterest expense has grown at a much slower rate than peers, and is moderately lower than the 4Q14 level Expect to hold noninterest expense growth in 2017 to 2% to 3% over 2016 results Continue to invest substantially in technology and begin to realize efficiencies Indexed No
Slide 20: Efficiency Ratio
The efficiency ratio in the quarter was 62.3% (3Q17), declining 3.6 percentage points from 65.9% in the year-ago period Solid progress on the efficiency ratio driven by factors previously mentioned, while investing substantially in enabling technology Remain committed to driving the efficiency
Slide 21: Pre-Provision Net Revenue
Pre-Provision Net Revenue 21 Strong Improvement driven by active balance sheet management Source: SNL Financial. Data adjusted to account for major acquisitions. Zions results adjusted in 2Q17 to exclude $16 million of interest income from loan recoveries on four loans. (1) Adjusted for items such a
Slide 22: Next 12-Month Outlook Summary
Next 12-Month Outlook Summary (3Q18E, vs. 3Q17A) 22 Outlook Comments Moderately Increasing • Over the next 12 months, we expect continued strong growth from residential mortgage, moderate growth in C&I and CRE Moderately Increasing • Expect continued increases in loans and a moderate increase in fun
Slide 23: Appendix
Summary Financial Results Table Third Quarter 2017 Key Performance Indicators Impacts of Hurricane Harvey Potential Change to Federal Statutory Tax Rates Impact of Warrants Oil & Gas (O&G) Portfolio Detail Commercial Real Estate Portfolio Summary CRE Term Portfolio CRE Construction
Slide 24: Financial Results
Financial Results 24 Solid and improving fundamental performance Three Months Ended (Dollar amounts in millions, except per share data) Sept 30, 2017 Jun 30, 2017 Sept 30, 2016 Earnings Results: Diluted Earnings Per Share $ 0.72 $ 0.73 $ 0.57 Net Earnings Applicable to Common Shareholders 152 154 11
Slide 25: Third Quarter 2017 Key Performance Indicators
Strong growth in EPS: Diluted earnings per share increased substantially from the year-ago period, to $0.72 in 3Q17 from $0.57 Strong growth in adjusted pre-provision net revenue (1): 20% growth over year-ago period • An 8.5% year-over-year increase in adjusted revenue (1) • A 2.5% year-over-yea
Slide 26: Hurricane Affected Areas
$3,089 $835 $519 $1,144 $1,841 $117 $178 $253 $47 $- $500 $1,000 $1,500 $2,000 $2,500 $3,000 $3,500 C&I - Non OO C&I - Owner Occupied CRE - Constr. & Land CRE - Term Cnsmr - 1-4 Fam. Cnsmr - Revovlers Cnsmr - Const. Cnsmr - HELOC Cnsmr - Other Loan Balance Composition for Harvey Affected Area 26 Hur
Slide 27: Hurricane Harvey Impact on Loans
27 Hurricane Harvey Commercial Loans The vast majority of Amegy commercial customers in affected areas contacted by loan officers $64 million of loans downgraded (most remain pass grade) due to Harvey Consumer Loans 1-4 Family Residential balance in Houston area $2.2B Average June 30, 2017 u
Slide 28: Possible Changes in Federal Statutory Tax Rates
28 Possible Changes in Federal Statutory Tax Rates Although it remains uncertain as to the outcome of GOP / Trump stated objectives to lower the corporate tax rate in the U.S., Zions would likely benefit from such a change 0% 5% 10% 15% 20% 25% 30% 35% 40% KEY FRC HBAN FITB EWBC CMA STI BBT ASB RF F
Slide 29: Impact of Warrants
Zions has two tranches of warrants outstanding (ZIONZ and ZIONW), both of which are currently in the money Dilution is calculated using the treasury method of accounting, which relies upon the following assumptions: Warrants are exercised at the beginning of the period Issuer uses proceeds f
Slide 30: Oil & Gas (O&G) Portfolio Detail
30 Note: Because many borrowers operate in multiple businesses, judgment has been applied in characterizing a borrower as oil and gas- related, including a particular segment of oil and gas-related activity, e.g., upstream or downstream; typically, 50% of revenues coming from the oil and gas sector
Slide 31: Credit Quality: Oil & Gas and Non-O&G
Credit Quality: Oil & Gas (O&G) and Non-O&G 31 Key Credit Quality Ratios O&G credit quality remains challenged, but improving. Ex-O&G credit quality remains very good. Note: Net Charge-offs/Loans ratio is annualized for all periods shown. NM: not meaningful -5% 5% 15% 25% 35% 45% 3Q16 4Q16 1Q17 2Q17
Slide 32: Oil & Gas Loss Outlook and Reserve
O&G Loan Loss Expectation O&G loan losses are expected to decline substantially over the next 12 months as compared to the last 12 months (1) Most of the expected loss is likely to come from services loans 51% of classified O&G loans are from services loans Approximately three quarters of
Slide 33: Commercial Real Estate Portfolio Summary
Commercial Real Estate Portfolio Summary 33 Stable CRE Credit Quality Note: Data as of 3Q17, published semi-annually. CRE Balances down 3% YoY; stable credit metrics for delinquencies, nonaccrual, and classifieds Criticized balance by type (Total CRE: 2.4%) Commercial Construction – 1.8% Hom
Slide 34: CRE Term Portfolio
CRE Term Portfolio 34 Strong CRE metrics and conservative structures, Houston emphasized Houston Term: DSCR’s and LTV’s are slightly worse than overall term portfolio. Portfolio benefits from conservative advance rates; DSCR’s reflect performing portfolio with strong guarantor support. Balance
Slide 35: CRE Construction Portfolio
CRE Construction Portfolio 35 Balanced, performing portfolio Note: Data as of 3Q17, published semi-annually. Diversified construction portfolio with 30% Homebuilder Residential, 70% Commercial Homebuilder Residential performing well; ~75% of portfolio in CA and TX YoY construction growth of 2%
Slide 36: Loan Growth by Bank Brand and Loan Type
36 Loan Growth by Bank Brand and Loan Type Note: National Real Estate (NRE) is a division of Zions Bank with a focus on small business loans with low LTV ratios, which generally are in line with SBA 504 program parameters. “Other” loans includes municipal and other consumer loan categories. Totals s
Slide 37: GAAP to Non-GAAP Reconciliation
37 GAAP to Non-GAAP Reconciliation (Amounts in millions) 3Q17 2Q17 1Q17 4Q16 3Q16 Efficiency Ratio Noninterest expense (GAAP) (1) (a) $ 413 $ 405 $ 414 $ 404 $ 403 Adjustments: Severance costs 1 - 5 1 - Other real estate expense (1) - - - - Provision for unfunded lending commitments (4) 3 (5) 3 (3)
Slide 38: GAAP to Non-GAAP Reconciliation
38 GAAP to Non-GAAP Reconciliation $ In millions except per share amounts 3Q17 2Q17 1Q17 4Q16 3Q16 Pre-Provision Net Revenue (PPNR) (a) Total noninterest expense (1) $413 $405 $414 $404 $403 LESS adjustments: Severance costs 1 - 5 1 - Other real estate expense (1) - - - - Provision for unfunded lend
Slide 39: Forward-Looking Statements
39 Forward-Looking Statements Forward Looking Information The attached presentation includes forward-looking statements within the meaning of Section 21E of the Securities Exchange Act of 1934, as amended, or the Exchange Act. Statements in the attached presentation that are based on other than hist
Slide 40: Use of Non-GAAP Financial Measures; Peer Group Key
40 Use of Non-GAAP Financial Measures; Peer Group Key ASB: Associated Banc-Corp BAC: Bank of America BBT: BB&T Corporation BOKF: BOK Financial Corporation C: Citigroup, Inc. CBSH: Commerce Bancshares, Inc. CFG: Citizens Financial Group, Inc. CMA: Comerica Incorporated EWBC: East West Bancorp, Inc. F