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| 8-K - 8-K - 3Q17 EARNINGS RELEASE - ZIONS BANCORPORATION, NATIONAL ASSOCIATION /UT/ | a3q20178-kcoverpage.htm |
| EX-99.1 - 3Q2017 EARNINGS RELEASE - ZIONS BANCORPORATION, NATIONAL ASSOCIATION /UT/ | exh9913q20178-k.htm |
Third Quarter 2017
Financial Review
October 23, 2017
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 Litigation Reform Act of 1995. Statements based on historical data are not intended and should not be
understood to indicate the Company’s expectations regarding future events. Forward-looking statements provide
current expectations or forecasts or intentions regarding future events or determinations. These forward-looking
statements are not guarantees of future performance or determinations, nor should they be relied upon as
representing management’s views as of any subsequent date. Forward-looking statements involve significant risks
and uncertainties, and actual results may differ materially from those presented, either expressed or implied, in
this presentation. Factors that could cause actual results to differ materially from those expressed in the forward-
looking statements include the actual amount and duration of declines in the price of oil and gas, our ability to
meet our efficiency and noninterest expense goals, the rate of change of interest sensitive assets and liabilities
relative to changes in benchmark interest rates as well as other factors discussed in the Company’s most recent
Annual Report on Form 10-K and Quarterly Report on Form 10-Q, filed with the Securities and Exchange
Commission (“SEC”) and available at the SEC’s Internet site (http://www.sec.gov).
Except as required by law, the Company specifically disclaims any obligation to update any factors or to publicly
announce the result of revisions to any of the forward-looking statements included herein to reflect future events
or developments.
This document contains several references to non-GAAP measures, including pre-provision net revenue and the
“efficiency ratio,” which are common industry terms used by investors and financial services analysts. Certain of
these non-GAAP measures are key inputs into Zions’ management compensation and are used in Zions’ strategic
goals that have been and may continue to be articulated to investors. Therefore, the use of such non-GAAP
measures are believed by management to be of substantial interest to the consumers of these financial
disclosures and are used prominently throughout the disclosures. A full reconciliation of the difference between
such measures and GAAP financials is provided within the document, and users of this document are encouraged
to carefully review this reconciliation.
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-year increase in adjusted noninterest expense (1)
Tracking on the efficiency initiative:
• Efficiency ratio equaled 62.3% in 3Q17, an improvement from 65.9% in the year ago period
• Committed to low 60 percent range for 2017
• Noninterest expense (NIE) increased 2.5% from the year ago period, as well as adjusted NIE
increased 2.5%
Loans & Deposits:
• Loans increased $473 million from the prior quarter, an increase of 1%; from increases in commercial
and consumer loans, while commercial real estate loans declined
• Average deposits decreased slightly from the prior quarter; period-end deposits decreased 0.5%
from the prior quarter
• Cost of total deposits increased slightly compared to the prior quarter, to 12 basis points from 11
Healthy and improving credit quality: Classified loans declined 5% from prior quarter
Improved returns on capital are leading to improved returns of capital
3
Third Quarter 2017 Key Performance Indicators
Continued PPNR growth and improved profitability
(1) Adjusted for items such as severance, provision for unfunded lending commitments, securities gains and
losses and debt extinguishment costs. See Appendix for GAAP to non-GAAP reconciliation tables.
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, securities gains and
losses and debt extinguishment costs. See Appendix for GAAP to non-GAAP reconciliation table. 2Q17 results
included $16 million of interest recovery income related to four loans.
($mm)
$0
$50
$100
$150
$200
$250
3Q16 4Q16 1Q17 2Q17 3Q17
Adjusted pre-provision net revenue has
strengthened measurably, up 20% over
the past year, and up 71% from 4Q14
Persistent improvement driven by
success on multiple fronts:
Loan growth
Improved return on liquid assets
Customer-related fee income growth
Solid expense control
Additionally, revenue benefited from
increases in benchmark interest rates
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 ratio to the low 60
percent range for 2017
9-month YTD efficiency ratio:
62.6%
4Q14 shown to depict progress since
embarking upon the efficiency
initiative
74.1%
69.6%
65.9%
64.5%
65.9%
59.8%
62.3%
55%
60%
65%
70%
75%
4Q14 4Q15 3Q16 4Q16 1Q17 2Q17 3Q17
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 such as severance,
provision for unfunded lending commitments, securities gains and losses and debt extinguishment costs. See
Appendix for GAAP to non-GAAP reconciliation table.
Profitability
6
Zions’ profitability is improving
Return on assets has improved steadily since announcing the efficiency initiative
Return on tangible common equity continues to improve, to 9.8% in 3Q17 from 7.9% a year
ago
Return on Assets
0.84%
0.88% 0.88%
1.03%
0.97%
0.0%
0.2%
0.4%
0.6%
0.8%
1.0%
1.2%
3Q16 4Q16 1Q17 2Q17 3Q17
Return on Tangible Common Equity
7.9%
8.4%
8.8%
10.2%
9.8%
0.0%
2.0%
4.0%
6.0%
8.0%
10.0%
12.0%
3Q16 4Q16 1Q17 2Q17 3Q17
(1) 2Q17 results included $16 million of interest recovery income related to four loans, or approximately nine
basis points of ROA and one percentage point of ROTCE.
(1) (1)
Total Loan and Deposit Growth
Total Loans Total Deposits
7
Moderate balance sheet growth is expected to be a key driver of Zions’ positive operating leverage
Period-end loans held for investment increased 3.8% over the year-ago period, and 4.3% (annualized) from
the prior quarter
Period-end deposits increased 2.5% over the year-ago period, and decreased slightly from the prior quarter
($mm)
$35,000
$37,000
$39,000
$41,000
$43,000
$45,000
3Q16 4Q16 1Q17 2Q17 3Q17
$45,000
$47,000
$49,000
$51,000
$53,000
$55,000
3Q16 4Q16 1Q17 2Q17 3Q17
($mm)
$2,962
$835
$128
$519
$1,144
$1,841
$117 $178
$253
$47
$-
$500
$1,000
$1,500
$2,000
$2,500
$3,000
$3,500
C&I - C&I C&I -
Owner
Occupied
C&I -
Other
CRE -
Constr. &
Land
CRE -
Term
Consumer
- SFR
Consumer
-
Revovlers
Consumer
- Const.
Consumer
- HELOC
Consumer
- Other
Loan Balance Composition for Harvey Affected Area
8
Topical Issues: Hurricane Affected Areas
$8.0 billion of loan balance exposure to customers or collateral in FEMA-designated counties
$0.1 billion par value of municipal securities in FEMA-designated counties
Substantial number of clients with weather related geographic exposure have been contacted, with
minimal challenges identified to date
Utilized multiple top-down and bottom-up analyses to apply a $34 million qualitative allowance for credit
loss
$ in millions
Total Balance of $8.0B
Utilized multiple top-down and bottom-up analyses to apply a $34 million qualitative
allowance for credit loss to Zions’ $8 billion of loan exposure
9
Topical Issues: 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 updated LTV: 58%
Average June 30, 2017 updated FICO score 763
Less than 0.3% of loans had a FICO < 700 and LTV > 80%
Only 3% of Houston-area consumer loans elected 90-day payment deferral
Financial Results
10
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 152 154 117
Net Interest Income 522 528 469
Noninterest Income 139 132 145
Noninterest Expense 413 405 403
Pre-Provision Net Revenue (1) 251 268 209
Provision for Credit Losses 1 10 16
Ratios:
Return on Assets(2) 0.97 % 1.03 % 0.84 %
Return on Common Equity(3) 8.3 % 8.6 % 6.7 %
Return on Tangible Common Equity(3) 9.8 % 10.2 % 7.9 %
Net Interest Margin 3.45 % 3.52 % 3.36 %
Yield on Loans 4.27 % 4.38 % 4.11 %
Yield on Securities 2.21 % 2.20 % 2.00 %
Average Cost of Total Deposits(4) 0.12 % 0.11 % 0.10 %
Efficiency Ratio (1) 62.3 % 59.8 % 65.9 %
Effective Tax Rate 34.2 % 32.3 % 33.9 %
Ratio of Nonperforming Assets to Loans, Leases and OREO 1.06 % 1.12 % 1.37 %
Annualized Ratio of Net Loan and Lease Charge-offs to Average Loans 0.07 % 0.06 % 0.28 %
Basel III Common Equity Tier 1 12.2 % 12.3 % 12.0 %
(1) Adjusted for items such as severance, provision for unfunded lending commitments, securities gains and losses and debt extinguishment costs. See
Appendix for GAAP to non-GAAP reconciliation tables.
(2) Net Income before Preferred Dividends or redemption costs used in the numerator
(3) Net Income Applicable to Common used in the numerator
(4) Includes noninterest-bearing deposits
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 loans
Increase in short-term benchmark
interest rates
Net Interest Income
Net Interest Income
11
Growth due primarily to deployment of cash into securities, balance sheet growth
and higher interest rates coupled with stable deposit costs
($mm)
$400
$425
$450
$475
$500
$525
$550
3Q16 4Q16 1Q17 2Q17 3Q17
(1) 2Q17 results included $16 million of interest recovery income related to four loans.
(1)
Active Balance Sheet Management
Short to medium duration portfolio; minimal duration extension risk
Total Securities
(end of period balances) ($ 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 Securities
Added net $4.9 billion of securities during
last 12 months
Securities portfolio duration
Current rate environment: ~3.1 years
Minimal duration extension using
parallel rate shock modeling
Expect generally stable investment portfolio
size over the near term
12
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-over-Year Loan Growth
Total Loans: +3.8%
Year over year:
Loan growth predominantly in
Residential Mortgage (1-4 Family)
and C&I
Decline in National Real Estate
(NRE), Term CRE and Oil and Gas
(O&G)
Over the next four quarters, we expect
moderate total loan growth, driven
by:
Strong growth in 1-4 Family
Moderate growth in C&I, Owner-
Occupied and Commercial Real
Estate loans
Stable to slightly increasing O&G
Continued attrition in NRE
Note: National Real Estate (NRE) is a division of Zions Bank (which is a division of ZB, N.A.) 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.
Note: Bubble size indicates relative proportion of loan portfolio as of 3Q17.
Loans
76%
Securities
19%
Cash
5%
Loans
72%
Securities
26%
Cash
2%
Net Interest Income Drivers
14
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
interest income recoveries on four larger loans
in 2Q17, the NIM increased three basis points
Yield on loans decreased to 4.27% from 4.38% in
the prior quarter, but if excluding the
aforementioned interest income recoveries, the
yield increased four basis points
Cost of deposits increased slightly to 12 bps
3.36% 3.37% 3.38% 3.52% 3.45%
0.0%
0.5%
1.0%
1.5%
2.0%
2.5%
3.0%
3.5%
4.0%
4.5%
5.0%
3Q16 4Q16 1Q17 2Q17 3Q17
Loan Yield
Securities Yield
Interest Expense
Net Interest Margin
Cash Yield
3Q16 3Q17
Short Term Resets
or Maturities
(loans only)
Percent
of
Loans
Hedges
(swaps,
floors)
Net
Percentage of
Portfolio (1)
Prime and 1M
Libor
48% -4% 44%
2-3M Libor 4% -- 4%
4-12M Libor 4% -- 4%
Other Lns <12
months
10% 1% 11%
Longer-term Resets
or Maturities
1-5 years 24% -- 24%
5+ years 11% -- 11%
(1) Net percentage column sums to 98% due primarily to 2% of total loans that have interest rate floors which are in the money (floor rate > index+spread
rate); these $1.0 billion of loans with floors have a weighted average “in the money” amount of 48 basis points. After giving effect to potential future rate
hikes, loans with floors would no longer be subject to the floors and would begin to reset with the relevant indices and therefore the 98% total at September
30, 2017 would increase to/towards 100%. Because the dates at which the floors would no longer be in effect are not certain (subject to future Federal
Reserve monetary policy decisions), the timing of such cannot be reflected in the chart.
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 $90 million more per year than if the same average balance were held in cash
Zions and the peer median experienced a cumulative 44% and 46% deposit beta during 2004-5 rate cycle,
respectively, although for the first 200 bps the beta for Zions and Peers was 19% and 24%, respectively
Interest Rate Sensitivity and Historical Deposit Beta
15
Zions has partially reduced asset sensitivity in exchange for current income
Source: Company filings and SNL Financial. Cumulative full cycle beta includes one full year for deposit costs to
catch up to the changes in the benchmark rates
Modeled Annual Change in a
+200bps Interest Rate Environment(1)
∆ in NII [5]%
Beta of Total
Deposits
[37]%
(1) This 12-month simulated impact using a static-sized balance
sheet and a parallel shift in the yield curve, does not
contemplate changes in fee income that is amortized in
interest income (e.g. premiums, discounts, origination points
and costs) and is based on statistical analysis relating pricing
and deposit migration to benchmark rates (e.g. LIBOR, U.S.
Treasuries).
Net Interest Income Sensitivity
0.0
1.0
2.0
3.0
4.0
5.0
6.0
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3
ZION Cost of Total
Deposits
Peer Median Cost of
Total Deposits
FF Target Rate
2000-2006 Rate Cycle Percent
n NI 6%
%
Customer-related fee income decreased 3.2%
from 3Q16, primarily due to:
3Q17 write-down in a loan HFS (within
loan sales and servicing line)
Decline from non-sufficient funds charges
Strength from:
Wealth management
Capital markets (primarily foreign
exchange related revenue)
Noninterest Income
16
Continued focus on fee income – targeting mid-single digit annual growth
(1) Reflects total customer-related noninterest income, which excludes items such as fair value and non-hedge
derivative income, securities gains (losses), and other items, as detailed in the Noninterest Income table
located in the earnings release.
Customer-Related
Fee Income (1)
($mm)
$126
$118 $115
$121 $122
$0
$20
$40
$60
$80
$100
$120
$140
3Q16 4Q16 1Q17 2Q17 3Q17
Noninterest Expense
($ millions)
$403 $404
$414 $405 $413
$0
$125
$250
$375
3Q16 4Q16 1Q17 2Q17 3Q17
Noninterest Expense
17
Expense controls have resulted in improved profitability
Total NIE increased 2.5% from the year-
ago period
Compared to the prior quarter, 3Q17
included
a $6 million increase related to property
damage and community and employee
support as a result of Hurricane Harvey
an increase in salaries and benefits due in
part to increased healthcare costs
Expect adjusted noninterest expense
growth of between 2% and 3% for FY17
vs. FY16
Credit Quality
18
Key Credit Quality Ratios
Credit quality remains healthy and is improving
Key Credit Metrics:
Classified loans were 2.8% of loans
Down 5.2% from prior quarter
Down 23% from the prior year
NPAs were 1.1% of loans
Down 4.5% from prior quarter
Down 20% from the prior year
Annualized NCOs were 0.07% of
average loans for the quarter
Allowance for credit losses remains
strong at 1.36% of total loans and
leases
1.3x coverage of NPAs
Strong coverage of annualized NCOs
0.0%
0.5%
1.0%
1.5%
2.0%
2.5%
3.0%
3.5%
4.0%
4.5%
3Q16 4Q16 1Q17 2Q17 3Q17
Classified / Loans NPAs / Loans NCOs / Loans (ann.)
Note: Net Charge-offs/Loans ratio is annualized for all periods shown
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 simplification
Expect adjusted noninterest expense to increase slightly in FY18 vs. FY17 and remain disciplined in
2019
Expect to operate with an adjusted efficiency ratio consistently < 60% for the full year 2019
Maintain continued alignment of incentive compensation to profitability improvement objectives
19
2018-2019 Objectives:
Growth Through Simplification and Focus
Implement Technology Upgrade Strategies
Increase the return on and maintain or
increase the return of Capital
Improvements in operating leverage lead to
stronger returns on capital
Surplus capital position (as seen in stress
testing) supports stable to increasing
returns of capital
Execute on our Community Bank Model –
doing business on a “Local” basis
Capital
Action
3Q16A-
2Q17A
3Q17-2Q18
Plan
Common
Dividend
$0.32 per
share / ~$65
million
$0.72 per
share / ~$140
million
Share
Repurchase
$180 million Up to $465
million
Next 12-Month Outlook Summary (3Q18E, vs. 3Q17A)
20
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
funding costs
Modest
• Expect quarterly loan loss provisions to be modest as stress related to
oil and gas, and Hurricane Harvey subsides
Moderately
Increasing
• Customer-related fees excludes securities gains, dividends
Stable
• FY17 adjusted NIE expected to be 2% to 3% higher than FY16
• FY18 adjusted NIE expected to be slightly higher than FY17
• Excluding adoption of 2017 stock-based compensation accounting
guidance (1), and potential tax reform, the effective tax rate expected
to remain 34-35%
• Expect preferred dividend to be $34 million
• Diluted shares may experience some volatility due to the effect of
outstanding warrants and the average price of ZION shares
Customer-Related
Fees
Loan Balances
Net Interest Income
Loan Loss Provision
Tax Rate
Preferred Dividends
& Diluted Shares
Adjusted Noninterest
Expense
(1) ASU 2016-09 went into effect January 1, 2017 and now requires the difference between income tax
accounting and U.S. GAAP accounting for stock compensation to be recognized in the income statement
instead of a direct adjustment to equity.
Impact of Warrants
Oil & Gas (O&G) Portfolio Detail
Credit Quality Metrics, O&G and Ex-O&G
Commercial Real Estate Portfolio, CRE Term, CRE Construction
Loan Growth by Bank Brand and Loan Type
GAAP to Non-GAAP Reconciliation
21
Appendix
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 from exercise to repurchase shares at the average market price during period
Net shares issued = shares issued from warrant exercise – shares repurchased
Impact of Warrants
Dilutive Impact Sensitivity
Reflects potential dilution given various average common stock share prices over any given period
22
Potential dilution is expected to be slight to moderate, depending upon future stock price
(mm)
0.0%
1.0%
2.0%
3.0%
4.0%
5.0%
6.0%
7.0%
8.0%
-
2
4
6
8
10
12
14
16
$35 $40 $45 $50 $55 $60
Dilutive shares (mm) % Dilution
Note: Analysis utilizes current warrant strike price and warrant multiplier. For more details, please see
Zionsbancorporation.com → Stock Information → Warrant Information, or the prospectus supplement from
September 2010, which can be found on the SEC’s website.
23
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 is used as a guide. (1) Calculated as the ratio of annualized net charge-offs for each respective period to loan
balances at each period end.
Oil & Gas (O&G) Portfolio Detail
(In millions) 3Q17 2Q17 $ Change
%
Change 3Q16
Loans and leases:
Upstream - exploration and production $ 784 39% $ 709 34% $ 75 11% $ 752
Midstream – marketing and transportation 601 29% 622 30% (21) -3% 623
Downstream – refining 100 5% 103 5% (3) -3% 123
Other non-services 40 2% 37 2% 3 8% 44
Oilfield services 412 20% 455 22% (43) -10% 596
Oil and gas service manufacturing 109 5% 136 7% (27) -20% 176
Total loan and lease balances 2,046 100% 2,062 100% (16) -1% 2,314
Unfunded lending commitments 1,799 1,855 (56) -3% 1,784
Total oil and gas credit exposure $ 3,845 $ 3,917 $ (72) -2% $ 4,098
Private equity investments $ 4 $ 4 $ (0) 0% $ 6
Credit Quality Measures
Criticized loan ratio 29.8% 33.1% 41.8%
Classified loan ratio 24.0% 27.2% 33.1%
Nonaccrual loan ratio 10.2% 12.1% 15.0%
Ratio of nonaccrual loans that are current 67.9% 84.7% 87.3%
Net charge-offs, annualized(1) 1.2% 3.1% 7.1%
Credit Quality: Oil & Gas (O&G) and Non-O&G
24
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 3Q17
Criticized / Loans Classifieds / Loans
Nonperforming Assets / Loans Net Charge-offs / Loans
O&G Non-O&G
Criticized Loans $73 million decline, 6th
consecutive linked
quarter decrease since
cycle began
2.8% of loans,
declining slightly
from 2.9% in 2Q17
Classified Loans $69 million decline, 5th
consecutive linked
quarter decrease since
the cycle began
1.8% of loans
Nonperforming
Assets
$40 million decline
0.57% flat
compared to 2Q17
NCO /average
loans
(annualized)
1.2% 0.02%
Allowance for
credit losses
7.7% of O&G Balances
1.05% of total
loans and leases
Coverage of
NPAs
0.8x 1.8x
Coverage of
Annualized
NCOs
6.5x 55.4x
O&G
Non-O&G
-5%
5%
15%
25%
35%
45%
3Q16 4Q16 1Q17 2Q17 3Q17
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 O&G losses incurred since Sep 30, 2014 are from services loans
Healthy sponsor support has resulted in loss levels that were lower than otherwise would have
been experienced
Improved borrower and sponsor sentiment in late 2016 and early 2017 vs early 2016
Strong Reserve Against O&G Loans
Zions’ O&G allowance for credit losses is:
7.7% of O&G loan balances
26% of criticized O&G loan balances
25
Oil & Gas Loss Outlook and Reserve
The outlook is improving for the O&G portfolio
(1) Assuming oil and gas commodity prices remain relatively stable; LTM O&G NCOs were $52 million.
Commercial Real Estate Portfolio Summary
26
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%
Home Builder Construction – 0.3%
CRE Term – 2.7%
0% 5% 10% 15% 20% 25% 30% 35%
WA/OR
Other
Colorado
Nevada
Arizona
UT/ID
Texas
California
CRE Balances by Collateral Location
Term CRE (80%) Commercial Construction (14%) Residential Construction (6%)
$bn 2017 Sep 2017 Jun QoQ ($MM) 2016 Sep YoY
Term Balance $8.9 $9.0 ($69) $9.3 -3.60%
Construction Balance $2.2 $2.2 ($7) $2.1 1.90%
Delinquencies 0.3% 0.3% -2bp 0.6% -35bp
Non-Maturity Delinquencies 0.2% 0.1% +3bp 0.2% -1bp
Nonaccrual Loans 0.4% 0.4% +4bp 0.3% +14bp
% of Nonaccruals Current 65.8% 54.8% 11.1% 63.3% 2.5%
Classifieds (% of loans) 1.46% 1.69% -23bp 1.26% +20bp
Net Charge-Offs TTM ($MM) -4.9 (-4 bp) -13.7 (-12 bp) +8bp -7.1 (-7 bp) +3bp
CRE Term Portfolio
27
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.
Balanced CRE portfolio; ¾ is Office,
Multifamily, Retail and Industrial/Warehouse.
Note: Data as of 3Q17. DSCR excludes loans < $500M, many < 1.0 DSCR term loans maintain pass grade
status due to guarantor support; LTV represents most current appraisal; published semi-annually.
CRE Term by Collateral Type
($8.9 billion)
Office, $2.1,
24%
Multifamily,
$1.7, 19%
Retail, $1.7,
19%
Industrial/Whse
., $1.2, 14%
Other, $1.1,
12%
Hospitality,
$0.7, 8%
Hospital/Medic
al, $0.3, 3%
Unsecured CRE,
$0.1, 1%
0%
10%
20%
30%
40%
50%
<50% <60% <70% <80% <90% <100% 100%+
Term CRE - LTV
All Houston
0%
10%
20%
30%
40%
50%
<1.0 <1.25 <1.50 <1.75 <2.0 2.0+
CRE Term - DSCR
All Houston
CRE Construction Portfolio
28
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%; Construction
as a % of total net loans is < 5%
Construction by Collateral Type
($2.2 billion)
$7.5
$5.6
$3.5
$2.3 $1.9 $2.2 $2.0 $1.8 $2.0 $2.2
$6.2
$7.3
$7.7
$7.9
$8.1 $8.0 $8.1 $8.5 $9.3
$8.9
20%
22%
24%
26%
28%
30%
32%
34%
$0
$2
$4
$6
$8
$10
$12
$14
$16
YE 2008 YE 2009 YE 2010 YE 2011 YE 2012 YE 2013 YE 2014 YE 2015 YE 2016 Q3 2017
Bi
llio
n
s
Limited Growth in CRE
CRE Const. and Land Dev. CRE Term CRE as a % Of Total Net Loans
Homebuilder
Residential,
$0.65, 30%
Multifamily,
$0.64, 29%
Office, $0.23,
11%
Other, $0.23, 10%
Land, $0.13, 6%
Retail, $0.12, 6%
Industrial,
$0.12, 6%
Hospitality,
$0.04, 2%
29
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 shown above may not foot due to rounding.
Year over Year Loan Growth (3Q17 vs. 3Q16)
Linked Quarter Loan Growth (3Q17 vs. 2Q17)
(in millions)
Zions
Bank
Amegy CB&T NBAZ NSB Vectra CBW
ZBNA
Other
Total
C&I (ex-Oil & Gas) (175) 433 272 60 25 52 3 - 670
Owner occupied (ex-NRE) 93 148 119 16 (47) 11 39 - 379
CRE C&D 51 12 (36) (53) 12 20 17 - 23
CRE Term (ex-NRE) 63 (52) (205) (171) 23 73 46 - (223)
1-4 Family 71 411 14 15 1 57 6 162 737
National Real Estate (322) - - - - - - - (322)
Energy (Oil & Gas) 32 (283) (1) (1) - (15) - - (268)
Home Equity (35) 41 60 28 21 37 12 - 164
Other 143 104 95 62 23 47 (19) 1 456
Total net loans (79) 814 318 (44) 58 282 104 163 1,616
(in millions)
Zions
Bank
Amegy CB&T NBAZ NSB Vectra CBW
ZBNA
Other
Total
C&I (ex-O l & Gas) (5) 70 74 (49) 29 39 5 - 163
wner occupied (ex-NRE) (14) 45 (38) 12 (6) 5 30 - 3
CRE C&D 34 (8) (2) (67) (4) 3 8 - (1 )
CRE Term (ex-NRE) (28) (33) (27) 15 (8) 16 5 - (60)
1-4 Family 30 90 26 7 (3) 18 4 (9) 163
National Real Estate (55) - - - - - - - (55)
Energy (Oil & Gas) (28) 13 (1) (1) - 1 - - (16)
Home Equity (12) 9 24 12 5 4 6 - 48
Other 53 65 14 40 4 56 (19) (1) 212
Total net loans (25) 251 70 (31) 17 162 39 (10) 473
30
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)
Debt extinguishment cost - - - - -
Amortization of core deposit and other intangibles 2 2 2 2 2
Restructuring costs 1 1 1 3 -
Total adjustments (b) (1) 6 3 9 (1)
Adjusted noninterest expense (non-GAAP) (a) - (b) = (c) 414 399 411 395 404
Net Interest Income (GAAP) (d) 522 528 489 480 469
Fully taxable-equivalent adjustments (e) 9 9 8 8 7
Taxable-equivalent net interest income (non-GAAP) (d) + (e) = (f) 531 537 497 488 476
Noninterest income (GAAP) (1) (g) 139 132 132 128 145
Combined income (f) + (g) = (h) 670 669 629 616 621
Adjustments:
Fair value and nonhedge derivative income (loss) - - - 7 -
Equity securities gains (losses), net 5 2 5 (3) 8
Total adjustments (i) 5 2 5 4 8
Adjusted taxable-equivalent revenue (non-GAAP) (h) - (i) = (j) 665 667 624 612 613
Pre-provision net revenue (PPNR), as reported (h) – (a) $ 257 $ 264 $ 215 $ 212 $ 218
Adjusted pre-provision net revenue (PPNR) (j) - (c) $ 251 $ 268 $ 213 $ 217 $ 209
Efficiency Ratio (1) (c) / (j) 62.3 % 59.8 % 65.9 % 64.5 % 65.9 %
31
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 lending commitments (4) 3 (5) 3 (3)
Debt extinguishment cost - - - - -
Amortization of core deposit and other intangibles 2 2 2 2 2
Restructuring costs 1 1 1 3 -
(b) Total adjustments (1) 6 3 9 (1)
(a-b)=(c) Adjusted noninterest expense $414 $399 $411 $395 $404
(d) Net interest income 522 528 489 480 469
(e) Fully taxable-equivalent adjustments 9 9 8 8 7
(d+e)=(f) Taxable-equivalent net interest income (TENII) 531 537 497 488 476
(g) Noninterest Income 139 132 132 128 145
(f+g)=(h) Combined Income $670 $669 $629 $616 $621
LESS adjustments:
Fair value and nonhedge derivative income (loss) - - - 7 -
Securities gains (losses), net 5 2 5 (3) 8
(i) Total adjustments 5 2 5 4 8
(h-i)=(j) Adjusted revenue $665 $667 $624 $612 $613
(j-c) Adjusted pre-provision net revenue (PPNR) $251 $268 $213 $217 $209
Net Earnings Applicable to Common Shareholders (NEAC)
(k) Net earnings applicable to common 152 154 129 125 117
(l) Diluted Shares 209,106 208,183 210,405 205,446 204,714
GAAP EPS 0.72 0.73 0.61 0.60 0.57
PLUS Adjustments:
Adjustments to noninterest expense (1) 6 3 9 (1)
Adjustments to revenue (5) (2) (5) (4) (8)
Tax effect for adjustments (38%) 2 (2) 1 (2) 3
Preferred stock redemption - (2) - - -
(m) Total adjustments (4) - (1) 3 (6)
(k+m)=(n) Adjusted net earnings applicable to common (NEAC) $148 $154 $128 $128 $111
(n)/(l) Adjusted EPS 0.71 0.75 0.64 0.62 0.54
(o) Average assets 65,339 65,411 63,995 61,746 60,062
(p) Average tangible common equity 6,212 6,123 5,974 5,974 5,961
Profitability
(n)/(o) Adjusted Return on Assets (Annualized) 0.91% 0.94% 0.80% 0.83% 0.74%
(n)/(p) Adjusted Return on Tangible Common Equity (Annualized) 9.55% 10.09% 8.55% 8.58% 7.48%
(c)/(j) Efficiency Ratio 62.3% 59.8% 65.9% 64.5% 65.9%