Zions Bancorporation N.A. · NASDAQ:ZION
Zions Bancorporation N.A — Zions Bancorporation — Q1 2017 Earnings Presentation
41 slides from Zions Bancorporation N.A's earnings presentation, May 9, 2017
Slide 1: Second Quarter 2017 Financial Update
Second Quarter 2017 Financial Update May 8, 2017
Slide 2: Forward-Looking Statements; Use of Non-GAAP Financial Measures; Peer Group Key
2 Forward-Looking Statements; 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
Slide 3: A Collection of Community Banks
3 A Collection of Community Banks 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 of annual GDP growth by state multiplied by the percent of deposits in each state, most recently ava
Slide 4: Superior Brand: Nationally Recognized for Excellence
4 Superior Brand: Nationally Recognized for Excellence (1) One of five winning teams, 2015, Zions Bank. (2) Readers of the San Diego Union-Tribune, August 2016, for six consecutive years; Orange County Register, for three consecutive years. (3) Ranking Arizona Magazine, 2016. Strong reputation in
Slide 5: Zions is a Commercially-Oriented Bank
Zions is a Commercially-Oriented Bank Earning Assets Liabilities and Equity 5 55% of earning assets are commercial loans (vs. 45% for peers), and 38% of liabilities and equity are funded by noninterest-bearing deposits (vs. 24% for peers) 3% 37% 18% 14% 27% 2% 33% 12% 29% 22% Cash Commercial Loans C
Slide 6: Small Business Lending
Small Business Lending Commercial Loans sized $100k - $1M Commercial Loans sized $100k - $1M as a percent of total commercial loans 6 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 P N C ST I FIT B U B C Note: Call report data via SNL Financial, as
Slide 7: Credit Quality
0.00% 0.50% 1.00% 1.50% 2.00% 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 H BA N SN V FI TB K EY C FG FH N ZI O N M TB C M A A SB B O K F R F Credit Quality Last 4 Quarter Average (NPAs + 90DPD) / (Loans +
Slide 8: Strongest Decile Balance Sheet
Strongest Decile Balance Sheet Common Equity Tier 1 Capital Ratio Tier 1 Risk-Based Capital Ratio 8% 9% 10% 11% 12% 13% 14% ZI O N FR C C B SH R F B B T M TB FI TB C FG B O K F WB S FH N C M A H BA N K EY EWB C PB C T ST I A SB SN V Note: Regulatory capital ratios are Basel III. Source: SNL Financia
Slide 9: Profitability
Profitability 9 Zions’ profitability is improving; leading capital ratios disproportionately impact ROTCE 0.00% 0.25% 0.50% 0.75% 1.00% 1.25% 1.50% 1.75% EWB C C B SH B B T FI T B M TB FR C R F ST I ZI O N C M A H B A N SN V WB S C FG FH N PB C T A SB ZI O N -1 Q 1 6 K EY B O K F Return on Assets 0.
Slide 10: Net Interest Income
Net interest income growth continued its positive trajectory, increasing 8.0% over the year-ago period On a linked quarter basis, net interest income grew by $9 million over 4Q16 Approximately 75% of year-over-year growth in NII is due to investment portfolio activity, the remainder is due to
Slide 11: Volume: Loan Growth by Type
C&I (ex-O&G) 2.9% Owner Occupied (ex-NRE) 2.6% C&D 7.9% Term CRE (ex- NRE) 5.1% 1-4 Family 14.2% National Real Estate -15.8% O&G -22.0% Home Equity 8.5% Other 14.1% -25% -15% -5% 5% 15% 25% Volume: Loan Growth by Type 11 Healthy loan growth achieved in targeted growth categories Year-over-Year Loan
Slide 12: Active Balance Sheet Management: High Quality Securities Portfolio Growth
Volume: Active Balance Sheet Management: High Quality Securities Portfolio Growth 12 Short to medium duration portfolio; limited duration extension risk Total Securities (end of period balances) ($ billion) $0 $2 $4 $6 $8 $10 $12 $14 $16 $18 1Q16 2Q16 3Q16 4Q16 1Q17 Agency MBS Securities Agency Secu
Slide 13: Net Interest Income Drivers
Loans 72% Securities 25% Cash 3% Net Interest Income Drivers 13 December 2016 and March 2017 rate hikes expected to benefit net interest income throughout 2017 Net Interest Margin (NIM) Avg Earning Asset Mix Relative to the prior quarter, the 1Q17 NIM was 3.38%, up one basis point Continued mix
Slide 14: Noninterest Income
436 450 466 300 350 400 450 500 Mar-15 Mar-16 Mar-17 Customer-related fee income has increased at a compound annual growth rate of approximately 3.3% (2) Targeted growth includes treasury management (including commercial card), mortgage, and wealth management Additional focus on growth of cust
Slide 15: Revenue
Revenue growth continued its positive trajectory, increasing approximately 11% since 4Q14 Revenue is expected to continue to increase due to further purchases of highly liquid assets, loan growth, and customer-related fee income Revenue 15 Moving meaningfully higher after a period of stability 9
Slide 16: Noninterest Expense
Total noninterest expense has grown at a much slower rate than peers, and is moderately lower than the 4Q14 level Expect to hold noninterest expense to 2% to 3% growth in 2017 Continue to invest substantially in technology and begin to realize efficiencies Indexed Noninterest Expense 90 100 11
Slide 17: Efficiency Ratio
Efficiency Ratio Efficiency Ratio (1) 17 Substantial improvement driven by expense control and revenue growth (1) Defined as noninterest expenses as a percentage of net revenue, adjusted for items such as severance, provision for unfunded lending commitments, securities gains and losses and debt ext
Slide 18: Pre-Provision Net Revenue
Pre-Provision Net Revenue 18 Steady improvement driven by disciplined expense and balance sheet management Source: SNL Financial. Data adjusted to account for major acquisitions. (1) Adjusted for items such as severance, provision for unfunded lending commitments, securities gains and losses and deb
Slide 19: Strategic Priorities
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 20: Hot Topics: Capital Actions: CCAR 2016
Increased Payout Increased the common dividend payout to an annualized $0.32 per share from $0.24 per share previously Target: repurchase up to $180 million of common equity from 3Q16 to 2Q17 Reduce preferred equity by up to $144 million Expect improved return on tangible common equity due
Slide 21: Hot Topics: Interest Rate Sensitivity and Historical Deposit Beta
Over the past year (measured from 1Q16 to 1Q17), Zions has reduced its net interest income sensitivity in a +200bps scenario from +16% to +10% in its modeled Slow case, and from +9% to +3% in its modeled Fast case Much of the reduction in rate sensitivity was due to securities purchases during 2
Slide 22: Hot Topics: Possible Changes in Tax Rates
22 Hot Topics: Possible Changes in 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 FHN CBS
Slide 23: Next 12-Month Outlook Summary
Next 12-Month Outlook Summary (1Q18E, vs. 1Q17A) 23 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, continued benefit from recent
Slide 24: Appendix
Summary Financial Results Table First Quarter 2017 Key Performance Indicators Zions Announced Financial Targets Impact of Warrants Oil & Gas (O&G) Portfolio Detail Deep Dive Retail Commercial Real Estate High O&G Employment Counties: Consumer Credit Scores Loan Growth by Bank Brand a
Slide 25: Financial Results
Financial Results 25 Solid and improving fundamental performance Three Months Ended (Dollar amounts in millions, except per share data) Mar 31, 2017 Dec 31, 2016 Mar 31, 2016 Earnings Results: Diluted Earnings Per Share $ 0.61 $ 0.60 $ 0.38 Net Earnings Applicable to Common Shareholders 129 125 79 N
Slide 26: First Quarter 2017 Key Performance Indicators
Strong growth in EPS: Diluted earnings per share increased substantially from the year-ago period, to $0.61 in 1Q17 from $0.38 Strong growth in adjusted pre-provision net revenue (1): 17% growth over year-ago period • An 8.0% year-over-year increase in adjusted revenue (1) • A 3.8% year-over-yea
Slide 27: Zions' Announced Financial Targets
Zions’ Announced Financial Targets 27 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 TBD ≤70% <66% Low 60s TBD 50% >80% 100% TBD 100% -- -- -- -- -- -- -- -- Lower b
Slide 28: 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 29: Oil & Gas (O&G) Portfolio Detail
29 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 30: Credit Quality (Excluding Oil & Gas Portfolio)
Credit Quality (Excluding Oil & Gas Portfolio) 30 Key Credit Quality Ratios (Ex-O&G) Excluding oil and gas lending, credit quality remains very good Overall stable and healthy credit quality Key Metrics: Criticized loans equaled 3.0% of loans, declining slightly from 3.1% in 4Q16 Classified
Slide 31: Oil & Gas (O&G) Credit Quality
Oil & Gas (O&G) Credit Quality 31 O&G Key Credit Quality Ratios O&G credit quality remains challenged, although active management and the recovery in commodity prices has aided in the portfolio’s overall improvement Relative to December 31, 2016: Criticized O&G loans declined by $32 million, the
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 57% of classified O&G loans are from services loans 75% of O&G losses incurred since
Slide 33: Deep Dive: Retail Commercial Real Estate
Deep Dive: Retail Commercial Real Estate 33 78% of portfolio is neighborhood / stand alone retail Retail CRE totals $1.85 billion Average loan balance: $1.8 million Granular tenant mix: Top ten tenants are < 20% of the total exposure Minimal exposure to national tenants with announced bank
Slide 34: Deep Dive: Retail Commercial & Industrial Loans
Deep Dive: Retail Commercial & Industrial Loans 34 The portfolio is stable, with no material exposure to national brick-and-mortar retailers Retail Commercial and Industrial loans1 total $2.2B and represent exposure to the overall retail industry; More insulated (80%) includes auto dealers, gas
Slide 35: The Derivative Effect: Zions' Commercial Real Estate Portfolio in Texas
35 Note: Data as of 4Q16, published semi-annually. The Derivative Effect: Zions’ Commercial Real Estate Portfolio in Texas Houston is approximately 3/5 of total Texas exposure. Construction and Land Development loans in Houston have declined by more than 80% since prior credit cycle $0 $100 $200 $30
Slide 36: Commercial Real Estate Portfolio Summary
Commercial Real Estate Portfolio Summary 36 Credit Quality Remains Strong Note: Data as of 4Q16, published semi-annually. CRE Balances up 10% YoY, Delinquencies and nonaccruals improved YoY, Classifieds stable Criticized balance by type (Total CRE: 2.5%) Commercial Construction – 6.1% Home B
Slide 37: CRE Term Portfolio
CRE Term Portfolio 37 Strong CRE metrics and conservative structures, Houston emphasized Houston Term: DSCR’s and LTV’s are in line with overall term portfolio. Adverse migration of loan grades is occurring; portfolio benefits from conservative advance rates, > 1.0 DSCR’s and guarantor support A
Slide 38: CRE Construction Portfolio
CRE Construction Portfolio 38 Balanced, performing portfolio Note: Data as of 4Q16, published semi-annually. Diversified construction portfolio with 37% Homebuilder Residential, 63% Commercial Commercial construction is 6.1% criticized – some stress in Houston CRE. Homebuilder Residential perfor
Slide 39: High O&G Employment Counties: Consumer Credit Scores
Takeaways: Consumer loans from high O&G employment counties performing in line with overall consumer portfolio; nearly all of these consumer loans are with Amegy (96%) located in Texas, primarily in the Houston area 82% of consumer loans in high O&G counties are residential mortgage and home equ
Slide 40: Loan Growth by Bank Brand and Loan Type
40 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 41: GAAP to Non-GAAP Reconciliation
41 (1) In Q1 2016, to be consistent with industry practice, the Company reclassified its bankcard rewards expense from “Other noninterest expense” to “Other service charges, commissions and fees”, offsetting this expense against associated noninterest income. Prior period amounts have also been recl