Zions Bancorporation(ZION) - 2023 Q3 - Quarterly Report

PART I. FINANCIAL INFORMATION Management's Discussion and Analysis of Financial Condition and Results of Operations (MD&A) Zions Bancorporation's Q3 2023 saw diluted EPS and net interest income decline due to higher costs, despite deposit growth and improved liquidity | Metric | Q3 2023 | Q3 2022 | | :--- | :--- | :--- | | Diluted EPS | $1.13 | $1.40 | | Net Interest Income | $585 million | $663 million | | Provision for Credit Losses | $41 million | $71 million | | Noninterest Expense | $496 million | $479 million | | Net Interest Margin (NIM) | 2.93% | 3.24% | - Key strategic actions during the first nine months of 2023 included growing customer deposits, actively managing the balance sheet by shifting asset mix, increasing liquidity sources, managing interest rate risk through hedging, controlling expenses, and strengthening the regulatory capital position[17] - Total customer deposits (excluding brokered deposits) increased by $3.0 billion, or 5%, from June 30, 2023, driven by a shift to interest-bearing products and expanded use of reciprocal placement products[23] - Nonperforming assets increased to $219 million (0.38% of loans) from $151 million (0.28% of loans) in the prior year quarter, primarily due to two suburban office commercial real estate loans in Southern California totaling $46 million[22] Results of Operations Q3 2023 net interest income decreased 12% to $585 million due to higher funding costs, impacting the efficiency ratio Q3 2023 vs Q3 2022 Income Statement Highlights | Metric | Q3 2023 (Millions) | Q3 2022 (Millions) | Change (%) | | :--- | :--- | :--- | :--- | | Net Interest Income | $585 | $663 | (12)% | | Provision for Credit Losses | $41 | $71 | (42)% | | Noninterest Income | $180 | $165 | 9% | | Noninterest Expense | $496 | $479 | 4% | | Net Earnings Applicable to Common | $168 | $211 | (20)% | - The efficiency ratio increased to 64.4% from 57.6% in the prior year quarter, primarily due to a decline in adjusted taxable-equivalent revenue[20][63] Balance Sheet Analysis Total assets were $87.3 billion, with loans growing to $56.9 billion and deposits increasing to $75.4 billion, shifting to interest-bearing Balance Sheet Highlights (Sept 30, 2023 vs Dec 31, 2022) | Metric | Sept 30, 2023 (Billions) | Dec 31, 2022 (Billions) | | :--- | :--- | :--- | | Total Assets | $87.3 | $89.5 | | Total Loans and Leases | $56.9 | $55.7 | | Total Deposits | $75.4 | $71.7 | | Shareholders' Equity | $5.3 | $4.9 | - Total deposits increased by $3.7 billion (5%) from December 31, 2022, marked by a shift from noninterest-bearing demand deposits (down to 35.5% of total) to interest-bearing deposits[95] - Estimated uninsured deposits were $31.2 billion, representing 41% of total deposits, a decrease from 53% at the end of 2022[97] Risk Management The bank manages credit, market, and liquidity risks, reducing CRE concentration, increasing ACL, and maintaining robust liquidity coverage - The bank actively manages credit risk by diversifying its loan portfolio and has reduced its Commercial Real Estate (CRE) loan concentration to 23% of total loans, down from 33% in late 2008[100] - Total available liquidity was $43.6 billion at September 30, 2023, which is 140% of the $31.2 billion in estimated uninsured deposits, a significant increase from 56% coverage at year-end 2022[169][97] - The Allowance for Credit Losses (ACL) to total loans ratio increased to 1.30% at September 30, 2023, up from 1.14% at year-end 2022, primarily due to deterioration in economic forecasts[130] Capital Management The bank maintained strong capital, with CET1 at 10.2%, increased shareholders' equity, paused share repurchases, and is evaluating Basel III Regulatory Capital Ratios | Ratio | Sept 30, 2023 (%) | Dec 31, 2022 (%) | Well-Capitalized Minimum (%) | | :--- | :--- | :--- | :--- | | Common Equity Tier 1 (CET1) | 10.2% | 9.8% | 6.5% | | Tier 1 Risk-Based | 10.9% | 10.5% | 8.0% | | Total Risk-Based | 12.8% | 12.2% | 10.0% | | Tier 1 Leverage | 8.3% | 7.7% | 5.0% | - Share repurchases were paused during the second and third quarters of 2023, and are not expected in the fourth quarter, due to the uncertain macroeconomic environment[174] - The bank is evaluating the potential impact of the proposed Basel III "Endgame" rules, as it expects to become subject to them in the next few years if total assets grow to $100 billion or more[183] Financial Statements (Unaudited) Unaudited consolidated financial statements for Q3 2023 detail the company's financial position, operational results, and cash flows Consolidated Balance Sheets As of Sept 30, 2023, total assets were $87.3 billion, with loans at $56.2 billion, deposits at $75.4 billion, and equity at $5.3 billion Consolidated Balance Sheet Data (in millions) | Account | Sept 30, 2023 | Dec 31, 2022 | | :--- | :--- | :--- | | Total Assets | $87,269 | $89,545 | | Total Investment Securities | $20,738 | $23,506 | | Loans Held for Investment, Net | $56,212 | $55,078 | | Total Liabilities | $81,954 | $84,652 | | Total Deposits | $75,399 | $71,652 | | Federal Funds & Short-Term Borrowings | $4,346 | $10,417 | | Total Shareholders' Equity | $5,315 | $4,893 | Consolidated Statements of Income Q3 2023 net interest income was $585 million, resulting in net income of $175 million and diluted EPS of $1.13 Income Statement Summary (in millions, except EPS) | Metric | Three Months Ended Sept 30, 2023 | Three Months Ended Sept 30, 2022 | | :--- | :--- | :--- | | Net Interest Income | $585 | $663 | | Provision for Credit Losses | $41 | $71 | | Noninterest Income | $180 | $165 | | Noninterest Expense | $496 | $479 | | Net Income | $175 | $217 | | Diluted EPS | $1.13 | $1.40 | Notes to Consolidated Financial Statements Notes provide detailed disclosures on accounting policies, fair value, loans, derivatives, and commitments, including ASU 2022-02 - The bank adopted ASU 2022-02 on January 1, 2023, which eliminated the recognition and measurement of Troubled Debt Restructurings (TDRs) and required enhanced disclosures for loan modifications to borrowers experiencing financial difficulty[258][259] - At September 30, 2023, the bank had $22.7 billion in total derivative notional amounts, primarily used to manage interest rate risk. This includes $7.6 billion designated as hedging instruments[285] - The bank has unfunded lending commitments of $29.7 billion and total unfunded commitments of $30.5 billion as of September 30, 2023[305] Quantitative and Qualitative Disclosures About Market Risk The company identifies interest rate and market risk as its most significant risks, actively monitored by management - The company identifies interest rate and market risk as its most significant risks, which are closely monitored by management[330] Controls and Procedures Management concluded disclosure controls and procedures were effective as of September 30, 2023, with no material changes to internal controls - The CEO and CFO concluded that the company's disclosure controls and procedures were effective as of September 30, 2023[331] - There were no changes in internal control over financial reporting during Q3 2023 that materially affected, or are likely to materially affect, internal controls[331] PART II. OTHER INFORMATION Legal Proceedings The company is involved in material legal proceedings, with estimated possible losses up to $5 million in excess of accruals - The company is subject to material litigation, including two cases related to a bankrupt borrower and one case regarding foreign transaction fees[307][310] - The aggregate range of reasonably possible losses for significant matters where a loss is not probable but reasonably possible is estimated to be from zero to approximately $5 million in excess of current accruals[308] Risk Factors Amended risk factors highlight liquidity and capital changes from banking events, systemic risk, geopolitical conflicts, and government shutdowns - Recent banking industry events have led to deposit fluctuations and increased funding costs, which may limit operations and growth[333] - Systemic risk is highlighted, where concerns about or failures of other financial institutions could lead to market-wide liquidity problems and adversely affect the company[335] - Geopolitical conflicts (Russia/Ukraine, Middle East) and potential U.S. government shutdowns are cited as risks that could disrupt economies, markets, and introduce volatility[337][339] Unregistered Sales of Equity Securities and Use of Proceeds No unregistered sales of equity securities occurred during the reporting period - The company reported no unregistered sales of equity securities or use of proceeds from such sales[340] Other Information No directors or officers adopted, modified, or terminated a Rule 10b5-1(c) trading arrangement during Q3 2023 - No directors or officers adopted, modified, or terminated a Rule 10b5-1(c) trading arrangement during Q3 2023[341] Exhibits This section lists exhibits filed with Form 10-Q, including CEO/CFO certifications and financial data in Inline XBRL format - Exhibits filed include CEO and CFO certifications (31.1, 31.2, 32) and financial statements in Inline XBRL format (101)[343]