Zions Bancorporation N.a. · NASDAQ:ZION
Zions Bancorporation N.a — Zions Bancorporation — Q2 2017 Earnings Presentation
34 slides from Zions Bancorporation N.a's earnings presentation, Jul 25, 2017
Slide 1: Second Quarter 2017 Financial Review
Second Quarter 2017 Financial Review July 25, 2017
Slide 2: Forward-Looking Statements and Use of Non-GAAP Financial Measures
2 Forward-Looking Statements and Use of Non-GAAP Financial Measures Statements in this presentation that are based on other than historical data or that express the Company’s expectations regarding future events or determinations are forward-looking within the meaning of the Private Securities Litig
Slide 3: Second Quarter 2017 Key Performance Indicators
Strong growth in EPS: Diluted earnings per share increased substantially from the year-ago period, to $0.73 in 2Q17 from $0.44 Strong growth in adjusted pre-provision net revenue (1): 27% growth over year-ago period • An 11.9% year-over-year increase in adjusted revenue (1) • A 3.6% year-over-ye
Slide 4: Pre-Provision Net Revenue
Pre-Provision Net Revenue Adjusted Pre-Provision Net Revenue (1) 4 Strong improvement driven by active balance sheet management, loan growth, expense control, and the benefit of higher benchmark interest rates (1) Adjusted for items such as severance, provision for unfunded lending commitments, secu
Slide 5: Efficiency Ratio
74.1% 69.6% 64.6% 65.9% 64.5% 65.9% 59.8% 55% 60% 65% 70% 75% 4Q14 4Q15 2Q16 3Q16 4Q16 1Q17 2Q17 Efficiency Ratio Efficiency Ratio (1) 5 Substantial improvement driven by both revenue growth and expense control (1) Defined as noninterest expenses as a percentage of net revenue, adjusted for items su
Slide 6: Total Loan and Deposit Growth
Total Loan and Deposit Growth Total Loans Total Deposits 6 Moderate balance sheet growth is expected to be a key driver of Zions’ positive operating leverage Period-end loans held for investment increased $941 million or 8.8% (annualized) from prior quarter Average deposits increased slightly fr
Slide 7: Credit Quality
Credit Quality 7 Key Credit Quality Ratios Credit quality remains healthy and is improving Key Credit Metrics: Classified loans were 3.0% of loans Down 10% from the first quarter Down 18% from the prior year NPAs were 1.1% of loans Down 17% from the first quarter Down 12% from the prio
Slide 8: Profitability
Profitability 8 Zions’ profitability is improving Return on assets has improved steadily since announcing the efficiency initiative Return on tangible common equity continues to improve, to 10.2% in 2Q17 from 6.3% a year ago Excluding noted interest recoveries and tax adjustments, the 2Q17 ROA
Slide 9: Financial Results
Financial Results 9 Solid and improving fundamental performance Three Months Ended (Dollar amounts in millions, except per share data) Jun 30, 2017 Mar 31, 2017 Jun 30, 2016 Earnings Results: Diluted Earnings Per Share $ 0.73 $ 0.61 $ 0.44 Net Earnings Applicable to Common Shareholders 154 129 91 Ne
Slide 10: Net Interest Income
Net interest income growth continued its positive trajectory, increasing 14% over the year-ago period Excluding loan recovery income in 2Q17, net interest income increased 10% over the prior year period On a linked quarter basis, net interest income increased by $39 million from 1Q17 Majorit
Slide 11: Active Balance Sheet Management
Active Balance Sheet Management 11 Short to medium duration portfolio; minimal duration extension risk Total Securities (end of period balances) ($ billion) $0 $2 $4 $6 $8 $10 $12 $14 $16 $18 2Q16 3Q16 4Q16 1Q17 2Q17 Municipal & Other Securities SBA Loan-Backed Securities Agency Securities Agency MB
Slide 12: Loan Growth by Type
C&I (ex-O&G) 4.8% Owner Occupied (ex-NRE) 5.2% C&D 4.7% Term CRE (ex- NRE) -0.8% 1-4 Family 12.0% National Real Estate -16.1% O&G -19.8% Home Equity 7.6% Other 14.9% -30% -20% -10% 0% 10% 20% 30% Loan Growth by Type 12 Moderate to strong loan growth achieved in targeted growth categories Year-over-Y
Slide 13: Net Interest Income Drivers
Loans 71% Securities 27% Cash 2% Net Interest Income Drivers 13 2017 rate hikes expected to benefit net interest income in the near term Net Interest Margin (NIM) Avg Earning Asset Mix Relative to the prior quarter, the 2Q17 NIM was 3.52%, up 14 basis points Yield on loans increased to 4.38% fro
Slide 14: Interest Rate Sensitivity and Historical Deposit Beta
Over the past year Zions has reduced its net interest income sensitivity Much of the reduction in rate sensitivity was due to securities purchases during 2016 and early 2017; as of 2Q17, interest income from securities was an annualized $185 million more than 4Q15 Zions updated its NII sensiti
Slide 15: Noninterest Income
118 126 118 115 121 $0 $20 $40 $60 $80 $100 $120 $140 2Q16 3Q16 4Q16 1Q17 2Q17 Customer-related fee income increased 5% from 1Q17, primarily due to: $7 million increase in other service charges, commissions and fees driven by increased sales of interest rate swaps and lending-related fees Incr
Slide 16: Noninterest Expense
Noninterest Expense ($ millions) 382 403 404 414 405 $0 $50 $100 $150 $200 $250 $300 $350 $400 $450 2Q16 3Q16 4Q16 1Q17 2Q17 Noninterest Expense 16 Expense controls have resulted in improved profitability Total NIE decreased 2% versus the prior quarter and increased 6% from the year-ago period;
Slide 17: 2017-2018 Objectives: Growth Through Simplification and Focus
Continue to Achieve Positive Operating Leverage Maintain annual mid-single digit loan growth rates while holding strong CRE concentration limits Moderately reduce the Company’s interest rate sensitivity by: Active investment portfolio management Continue to increase market share in residen
Slide 18: Next 12-Month Outlook Summary
Next 12-Month Outlook Summary (2Q18E, vs. 2Q17A) 18 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 • Excluding $16 million of interest recoveries from four loans in 2Q
Slide 19: Appendix
Impact of Warrants Oil & Gas (O&G) Portfolio Detail Credit Quality Metrics, O&G and Ex-O&G Retail Commercial Real Estate, Retail C&I Loans Loan Growth by Bank Brand and Loan Type Zion’s Announced Financial Targets GAAP to Non-GAAP Reconciliation 19 Appendix
Slide 20: 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 21: Oil & Gas (O&G) Portfolio Detail
21 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 22: Credit Quality: Oil & Gas and Non-O&G
Credit Quality: Oil & Gas (O&G) and Non-O&G 22 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% 2Q16 3Q16 4Q16 1Q17
Slide 23: 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 55% of classified O&G loans are from services loans 72% of O&G losses incurred since
Slide 24: Retail CRE Summary - Credit Metrics
Retail CRE Summary - Credit Metrics 24 Balanced Retail CRE portfolio with emphasis on stand alone and neighborhood retail Note: Data as of 2Q17 Retail CRE average loan balance < $2.0MM Retail portfolio metrics: > 90% occupied Loan-to-value of ~ 55% Debt Service Coverage of ~ 2.00x Granul
Slide 25: Retail CRE Summary – Regional Malls
Retail CRE Summary – Regional Malls 25 Limited exposure to Regional Malls; performing portfolio Note: Data as of 2Q17 During recession, the Bank’s retail and regional malls performed poorly – high criticized, delinquent and non- accrual levels; stable today. Current - limited concentration level
Slide 26: Retail CRE Summary - Location and Collateral Type
Retail CRE Summary - Location and Collateral Type 26 Footprint based lending with Term loan emphasis Note: Data as of 2Q17 93% of portfolio is in the Bank’s footprint states Since recent recession, Zions identified specific retail types as a concern, thus limiting exposure to shadow anchor retai
Slide 27: Retail C&I Summary
82% 18% More Insulated Less Insulated Retail C&I Summary 27 The portfolio is stable, with limited exposure to national brick and mortar retailers Retail C&I loans (defined by NAICS codes) total $2.3B and represent exposure to the overall retail industry; More insulated (82%) includes auto dealer
Slide 28: Retail C&I Summary - Total
Retail C&I Summary - Total 28 Total Retail C&I is dominated by Term Debt secured by Real Estate or Dealer Flooring Approximately half of the Total Retail C&I balances ($2.2 billion) are secured by real estate, primarily auto dealers, gas stations and grocery stores. Flooring lines of credit (tho
Slide 29: Retail C&I Summary – More Insulated
Retail C&I Summary – More Insulated 29 More Insulated (80%; $1.9 billion) includes auto dealers, gas stations, supermarkets, home improvement, and non-store retailers. Approximately half of the More Insulated exposure is real estate secured with another 23% dealer flooring lines. Only 3% is un
Slide 30: Retail C&I Summary – Less Insulated
Retail C&I Summary – Less Insulated 30 Less insulated (20%; $403 million) includes those providing products widely available both on-line and through traditional brick and mortal channels. Limited exposure to national, legacy brick and mortar retailers. Majority of borrowers defined as less in
Slide 31: Loan Growth by Bank Brand and Loan Type
31 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 32: Zions' Announced Financial Targets
Zions’ Announced Financial Targets 32 On June 1, 2015 Zions announced several financial targets, including: 2H15 FY16 FY17 Hold to below $1.58 (2) billion Hold to below $1.58 (1) billion Slightly above $1.58 (1) billion On Track ≤70% <66% Low 60s On Track 50% >80% 100% On Track 100% -- -- -- -- -- -
Slide 33: GAAP to Non-GAAP Reconciliation
33 GAAP to Non-GAAP Reconciliation (Amounts in millions) 2Q17 1Q17 4Q16 3Q16 2Q16 Efficiency Ratio Noninterest expense (GAAP) (1) (a) $ 405 $ 414 $ 404 $ 403 $ 382 Adjustments: Severance costs - 5 1 - - Other real estate expense - - - - (1) Provision for unfunded lending commitments 3 (5) 3 (3) (4)
Slide 34: GAAP to Non-GAAP Reconciliation
34 GAAP to Non-GAAP Reconciliation $ In millions except per share amounts 2Q17 1Q17 4Q16 3Q16 2Q16 Pre-Provision Net Revenue (PPNR) (a) Total noninterest expense (1) $405 $414 $404 $403 $382 LESS adjustments: Severance costs - 5 1 - - Other real estate expense - - - - (1) Provision for unfunded lend