Zions Bancorporation(ZION) - 2023 Q4 - Annual Report

Part I Item 1. Business Zions Bancorporation, N.A. is a $87 billion asset bank operating seven affiliate banks in the Western U.S., offering diverse services amid competition and regulation - Zions Bancorporation, N.A. is a bank with total assets of approximately $87 billion and net revenue of $3.1 billion in 2023, serving over one million customers through 407 branches across 11 states[17] - The Bank operates through seven separately managed affiliate banks, each with its own local branding and management team, supported by a centralized enterprise segment for governance, risk management, and technology[18] - Key business lines include commercial and small business banking, capital markets, commercial real estate lending, retail banking, and wealth management[20][23] - The company faces intense competition from commercial banks, credit unions, fintechs, and private credit funds, differentiating itself through service quality, local knowledge, and customer relationships[22][23] - In November 2023, the FDIC implemented a special assessment to recover costs from bank closures, with Zions recording an estimated impact of approximately $90 million for this assessment in Q4 2023[38][190] Workforce Demographics (as of December 31, 2023) | Employee Roles | Women | People of Color | Disabled | Veterans | | :--- | :--- | :--- | :--- | :--- | | Management | 52% | 29% | 9% | 2% | | Non-management | 60% | 40% | 10% | 2% | | All employees | 58% | 38% | 10% | 2% | Item 1A. Risk Factors The company faces significant credit, market, liquidity, strategic, operational, cybersecurity, capital, legal, and compliance risks - Credit Risk: The company has significant risk concentration in its loan portfolio, particularly in Commercial Real Estate (CRE), oil and gas lending, and leveraged loans, with the office CRE sector experiencing increased vacancy rates and declining property values[64][65] - Geographic Concentration Risk: A substantial portion of the loan portfolio is concentrated in Utah, Idaho, Texas, and California, making the company's financial performance highly dependent on the economic conditions in these states[67] - Liquidity Risk: The company experienced deposit outflows as customers sought higher rates or moved funds, though deposit levels increased in the latter half of 2023, the cost of funds also rose significantly[72][73] - Strategic & Technology Risk: The company faces competitive pressure from both traditional banks and non-traditional fintechs, and failure to develop and adopt new technologies, including AI and blockchain, could impede its market position[82] - Cybersecurity Risk: The company is subject to continuous and increasingly sophisticated cyber threats, acknowledging that while no past incidents have had a material impact, there is no assurance that future breaches will not occur or be adequately addressed[93][95] - Legal & Compliance Risk: The company's corporate affairs are governed by the National Bank Act, which is less developed than state corporate laws, potentially hindering the ability to execute mergers and acquisitions as efficiently as competitors structured as bank holding companies[112][113][114] Item 1B. Unresolved Staff Comments The company has no unresolved written comments from SEC or OCC staff received 180 days or more before fiscal year-end - There are no unresolved written comments from SEC or OCC staff as of the reporting date[124] Item 1C. Cybersecurity Cybersecurity risk is managed through a multi-layered approach involving the Board, ROC, and ERM framework, with no material incidents reported to date - Cybersecurity risk is overseen by the Board and managed through a three-lines-of-defense model, with the Risk Oversight Committee (ROC) reviewing and approving information security policies and programs[126][127] - The Chief Information Security Officer (CISO) and Chief Technology and Operations Officer (CTOO) are the management positions directly responsible for assessing and managing cybersecurity risks[128] - As of December 31, 2023, management has assessed known cybersecurity incidents and determined that there have been no material incidents, individually or in aggregate[132] Item 2. Properties As of December 31, 2023, the company operated 407 branches (278 owned, 129 leased) and leases its Salt Lake City headquarters - The company operates 407 branches, with 278 owned and 129 leased properties at year-end 2023[134] Item 3. Legal Proceedings Legal proceedings information is incorporated by reference from Note 16 of the Consolidated Financial Statements - Details on legal proceedings are provided in Note 16 of the financial statements[135] Item 4. Mine Safety Disclosures The company reports no mine safety disclosures are applicable - None[136] Part II Item 5. Market for Registrant's Common Equity, Related Stockholder Matters and Issuer Purchases of Equity Securities ZION common stock trades on NASDAQ; the company repurchased shares, declared a $0.41 dividend, and underperformed benchmarks - In February 2024, the Board declared a dividend of $0.41 per common share[140] - During Q1 2023, the company repurchased 0.9 million shares for $50 million, with no shares repurchased in Q2, Q3, or Q4 2023[141] - In February 2024, the Board approved a new share repurchase plan for up to $35 million, under which the company subsequently repurchased 0.9 million shares for $35 million[142] 2023 Share Repurchases | Period | Total number of shares purchased | Average price paid per share | | :--- | :--- | :--- | | First quarter | 953,080 | $52.82 | | Second quarter | — | — | | Third quarter | — | — | | Fourth quarter | 18,851 | $45.59 | | Total 2023 | 971,931 | $52.68 | Item 7. Management's Discussion and Analysis of Financial Condition and Results of Operations Zions' 2023 financial performance was shaped by declining net interest income, deposit growth, increased credit loss provisions, and higher noninterest expenses - The company's financial performance in 2023 was marked by lower net interest income, loan growth, strong credit quality, higher noninterest expense, and an increased provision for credit losses[156] Selected Financial Highlights | (in millions, except per share) | 2023 | 2022 | % Change | | :--- | :--- | :--- | :--- | | Net interest income | $2,438 | $2,520 | (3)% | | Provision for credit losses | $132 | $122 | 8% | | Noninterest expense | $2,097 | $1,878 | 12% | | Net income | $680 | $907 | (25)% | | Net earnings applicable to common shareholders | $648 | $878 | (26)% | | Net earnings – diluted (per share) | $4.35 | $5.79 | (25)% | | Total assets (at year-end) | $87,203 | $89,545 | (3)% | | Total loans and leases (at year-end) | $57,779 | $55,653 | 4% | | Total deposits (at year-end) | $74,961 | $71,652 | 5% | Results of Operations 2023 saw net interest income fall to $2.44 billion, net interest margin contract, credit loss provisions rise, and noninterest expense increase Net Interest Income and Net Interest Margin Analysis | (in millions, except rates) | 2023 | 2022 | | :--- | :--- | :--- | | Net interest income | $2,438 | $2,520 | | Average interest-earning assets | $81,984 | $83,638 | | Yield on interest-earning assets | 4.86% | 3.28% | | Cost of total deposits | 1.46% | 0.09% | | Net interest margin | 3.02% | 3.06% | - The provision for credit losses was $132 million in 2023, an increase from $122 million in 2022, with the Allowance for Credit Losses (ACL) growing to $729 million, or 1.26% of total loans, up from 1.14% in the prior year[179][180] - Customer-related noninterest income increased by $6 million (1%), driven by higher commercial account and wealth management fees, but partially offset by a $7 million decrease in retail banking fees due to changes in overdraft practices[189] - Noninterest expense increased by $219 million (12%), primarily due to a $119 million rise in deposit insurance and regulatory expense, largely driven by a $90 million accrual for the FDIC special assessment[190] - The effective tax rate for 2023 was 23.3%, an increase from 21.3% in 2022, primarily due to higher non-deductible FDIC premium expenses and increased interest expense related to tax-exempt income[198] Balance Sheet Analysis Total assets decreased to $87.2 billion, loans grew to $57.8 billion, and deposits increased to $75.0 billion as of December 31, 2023 Loan and Lease Portfolio Composition (in millions) | Loan Category | Dec 31, 2023 | Dec 31, 2022 | | :--- | :--- | :--- | | Commercial | $30,588 | $30,495 | | Commercial real estate | $13,371 | $12,739 | | Consumer | $13,820 | $12,419 | | Total loans and leases | $57,779 | $55,653 | Deposit Portfolio Composition (in millions) | Deposit Type | Dec 31, 2023 | Dec 31, 2022 | | :--- | :--- | :--- | | Noninterest-bearing demand | $26,244 | $35,777 | | Interest-bearing | $48,717 | $35,875 | | Total deposits | $74,961 | $71,652 | | Estimated uninsured deposits | $33,184 (44%) | $38,063 (53%) | - The company is in the final phase of a project to replace its core loan and deposit banking systems, with total capitalized costs of $293 million as of December 31, 2023, and remaining system conversions expected in 2024[244][245] Risk Management The company manages credit, interest rate, liquidity, and capital risks, noting increased criticized CRE loans, enhanced liquidity, and strong capital ratios - The Commercial Real Estate (CRE) loan portfolio grew to $13.4 billion, with the office CRE sub-portfolio, totaling $2.0 billion, seeing its criticized loan ratio increase to 11.9% from 7.2% and its ACL coverage ratio increase to 3.80% from 1.36%[264][276][277] - Nonperforming assets increased to $228 million (0.39% of loans) from $149 million (0.27%) at year-end 2022, primarily due to one large commercial loan and two suburban office CRE loans being placed on nonaccrual status[285] - The company updated its deposit models for interest rate risk management to reflect recent customer behavior, resulting in a higher assumed deposit beta and increased migration from noninterest-bearing to interest-bearing accounts[299] Available Liquidity (in billions) | | Dec 31, 2023 | Dec 31, 2022 | | :--- | :--- | :--- | | Remaining borrowing capacity | $38.4 | $19.1 | | Cash and interest-bearing deposits | $2.2 | $2.0 | | Total available liquidity | $40.6 | $21.1 | | Ratio of available liquidity to uninsured deposits | 122% | 56% | Regulatory Capital Ratios | Ratio | Dec 31, 2023 | Dec 31, 2022 | | :--- | :--- | :--- | | Common equity Tier 1 capital | 10.3% | 9.8% | | Tier 1 risk-based | 10.9% | 10.5% | | Total risk-based | 12.8% | 12.2% | | Tier 1 leverage | 8.3% | 7.7% | Item 7A. Quantitative and Qualitative Disclosures About Market Risk Market risk disclosures are incorporated by reference from the "Interest Rate and Market Risk Management" section of the MD&A - Information regarding market risk is detailed in the MD&A section starting on page 63[388] Item 8. Financial Statements and Supplementary Data This section includes management's and the auditor's reports on effective internal controls and audited consolidated financial statements with notes - Management concluded that the company's internal control over financial reporting was effective as of December 31, 2023, based on the COSO 2013 framework[393] - The independent registered public accounting firm, Ernst & Young LLP, issued an unqualified opinion on both the consolidated financial statements and the effectiveness of internal control over financial reporting[396][397][403] - The critical audit matter identified by the auditor was the Allowance for Loan and Lease Losses (ALLL), due to the significant judgment involved in weighing economic scenarios and determining qualitative adjustments[407][411] Consolidated Financial Statements Consolidated financial statements show total assets of $87.2 billion, net loans of $57.1 billion, total deposits of $75.0 billion, and net income of $680 million for 2023 Consolidated Balance Sheet Highlights (in millions) | | Dec 31, 2023 | Dec 31, 2022 | | :--- | :--- | :--- | | Total Assets | $87,203 | $89,545 | | Loans, net of allowance | $57,095 | $55,078 | | Goodwill and intangibles | $1,059 | $1,065 | | Total Liabilities | $81,512 | $84,652 | | Total deposits | $74,961 | $71,652 | | Total Shareholders' Equity | $5,691 | $4,893 | Consolidated Statement of Income Highlights (in millions) | | 2023 | 2022 | 2021 | | :--- | :--- | :--- | :--- | | Net interest income | $2,438 | $2,520 | $2,208 | | Provision for credit losses | $132 | $122 | $(276) | | Noninterest income | $677 | $632 | $703 | | Noninterest expense | $2,097 | $1,878 | $1,741 | | Net income | $680 | $907 | $1,129 | Notes to Consolidated Financial Statements The notes provide detailed explanations of accounting policies for fair value, investment securities, loans, derivatives, leases, goodwill, regulatory matters, and commitments - The Allowance for Credit Losses (ACL) methodology combines quantitative models based on historical loss experience under multiple economic scenarios with qualitative management adjustments[516][520][523] - In Q4 2022, the company transferred AFS securities with a fair value of $10.7 billion ($13.1 billion amortized cost) to the Held-to-Maturity (HTM) category, with $2.4 billion of associated unrealized losses in AOCI to be amortized over the life of the securities[500] - The company adopted ASU 2022-02 on January 1, 2023, eliminating accounting for Troubled Debt Restructurings (TDRs) and enhancing disclosures for loan modifications to borrowers experiencing financial difficulty, with $264 million of such loans modified during 2023[545][547][550] - The company uses derivative instruments, primarily interest rate swaps, to manage interest rate risk, with a total notional amount of $6.5 billion designated as hedging instruments as of December 31, 2023[566][585] Item 9. Changes in and Disagreements with Accountants on Accounting and Financial Disclosure The company reports no changes in or disagreements with its accountants regarding accounting principles or financial disclosure - None[674] Item 9A. Controls and Procedures Management, including the CEO and CFO, concluded that disclosure controls and procedures were effective as of December 31, 2023, with no material changes in Q4 - The CEO and CFO concluded that disclosure controls and procedures were effective as of December 31, 2023[675] Item 9B. Other Information The company reports no directors or officers adopted, modified, or terminated Rule 10b5-1(c) trading arrangements in 2023 - No directors or officers adopted, modified, or terminated a Rule 10b5-1(c) trading arrangement in 2023[677] Item 9C. Disclosure Regarding Foreign Jurisdictions that Prevent Inspections This item is not applicable to the company - None[678] Part III Item 10. Directors, Executive Officers, and Corporate Governance This section is incorporated by reference from the company's subsequently filed Proxy Statement Item 11. Executive Compensation This section is incorporated by reference from the company's subsequently filed Proxy Statement Item 12. Security Ownership of Certain Beneficial Owners and Management and Related Stockholder Matters This section details equity compensation plans, with 1.4 million securities issuable and 2.7 million available for future issuance under the 2022 Omnibus Incentive Plan Equity Compensation Plan Information (as of Dec 31, 2023) | Plan Category | Number of securities to be issued upon exercise | Weighted average exercise price | Number of securities remaining available for future issuance | | :--- | :--- | :--- | :--- | | Zions Bancorporation, N.A. 2022 Omnibus Incentive Plan | 1,415,155 | $53.00 | 2,747,546 | Item 13. Certain Relationships and Related Transactions, and Director Independence This section is incorporated by reference from the company's subsequently filed Proxy Statement Item 14. Principal Accountant Fees and Services This section is incorporated by reference from the company's subsequently filed Proxy Statement Part IV Item 15. Exhibits and Financial Statement Schedules This section lists all financial statements filed under Item 8 and provides a comprehensive list of exhibits filed with the Form 10-K - This section lists all consolidated financial statements and exhibits filed with the Form 10-K[686][687] Item 16. Form 10-K Summary This item is not applicable to the filing - Not applicable[693]