Zions Bancorporation(ZION) - 2019 Q3 - Quarterly Report

PART I. FINANCIAL INFORMATION Item 1. Financial Statements (Unaudited) The unaudited statements detail the company's financial position, operational results, and cash flows for the reported periods Consolidated Balance Sheets Total assets grew to $70.4 billion, driven by loan growth, while shareholders' equity remained stable at $7.5 billion Consolidated Balance Sheet Highlights (in millions) | Balance Sheet Item | Sep 30, 2019 | Dec 31, 2018 | | :--- | :--- | :--- | | Total Assets | $70,361 | $68,746 | | Net Loans Held for Investment | $48,325 | $46,219 | | Total Securities | $14,971 | $15,617 | | Total Liabilities | $62,852 | $61,168 | | Total Deposits | $56,139 | $54,101 | | Total Shareholders' Equity | $7,509 | $7,578 | Consolidated Statements of Income Q3 2019 net income was $222 million, nearly flat year-over-year, with stable net interest income Income Statement Highlights (in millions, except per share data) | Metric | Q3 2019 | Q3 2018 | Nine Months 2019 | Nine Months 2018 | | :--- | :--- | :--- | :--- | :--- | | Net Interest Income | $567 | $565 | $1,713 | $1,654 | | Provision for Credit Losses | $10 | $(11) | $35 | $(46) | | Noninterest Income | $146 | $136 | $410 | $412 | | Noninterest Expense | $415 | $420 | $1,270 | $1,259 | | Net Income | $222 | $223 | $633 | $658 | | Diluted EPS | $1.17 | $1.04 | $3.20 | $3.01 | Notes to Consolidated Financial Statements The notes detail key accounting policies, including the upcoming CECL standard adoption and capital management actions - The Bank will adopt the new Current Expected Credit Loss (CECL) standard on January 1, 2020, which is expected to increase volatility in the credit loss estimate[215] - During the first nine months of 2019, the Bank repurchased 18.0 million shares of common stock for $825 million, with an additional $275 million approved for Q4 2019[316] - The Bank manages its operations through seven geographically focused banking segments, which form the basis for performance assessment and resource allocation[342] Item 2. Management's Discussion and Analysis of Financial Condition and Results of Operations Management discusses Q3 2019 results, including loan growth, margin compression, and risk management strategies Executive Summary Q3 2019 EPS grew 12.5% to $1.17 driven by share repurchases, despite flat net earnings Q3 2019 Key Financial Results | Metric | Q3 2019 | Q3 2018 | Change | | :--- | :--- | :--- | :--- | | Net Earnings (common) | $214M | $215M | (0.5)% | | Diluted EPS | $1.17 | $1.04 | +12.5% | | Adjusted PPNR | $309M | $291M | +6.2% | | Efficiency Ratio | 57.3% | 58.8% | -1.5 p.p. | - The Bank announced a 5% workforce reduction and 15 branch closures, expecting approximately $25 million in severance and related costs in Q4 2019[38][39] - The Bank repurchased $1.1 billion of common stock over the last 12 months, equivalent to 12% of shares outstanding as of September 30, 2018[43] Results of Operations Net interest margin compressed to 3.48% while noninterest income grew 7% on strong customer-related fees - Net interest margin (NIM) decreased to 3.48% in Q3 2019 from 3.63% in Q3 2018, primarily due to increased costs of deposits and borrowed funds[47] - The provision for credit losses was $10 million in Q3 2019, compared with a benefit of $(11) million in Q3 2018, reflecting loan growth and economic changes[67] - Noninterest income increased by $10 million (7%) YoY, largely due to a $14 million (11%) increase in customer-related fees from client interest rate swap activity[69][71] - Noninterest expense decreased by $5 million (1%) YoY, mainly due to an $11 million reduction in FDIC premiums[73][75][76] Balance Sheet Analysis The loan portfolio expanded to $48.8 billion, funded by stable deposit growth to $56.1 billion Loan Portfolio Composition (in millions) | Loan Category | Sep 30, 2019 | Dec 31, 2018 | | :--- | :--- | :--- | | Commercial | $25,287 | $24,162 | | Commercial Real Estate | $11,816 | $11,125 | | Consumer | $11,732 | $11,427 | | Total Net Loans | $48,835 | $46,714 | - The investment securities portfolio decreased by 7% in amortized cost from year-end 2018 to $14.7 billion at September 30, 2019[88] - Average total deposits for the first nine months of 2019 increased by 3% compared to the same period in 2018, with noninterest-bearing deposits decreasing by 2%[100] Risk Elements Credit quality improved with nonperforming assets declining to 0.48%, while interest rate risk was actively managed Credit Quality Metrics | Metric | Sep 30, 2019 | Dec 31, 2018 | | :--- | :--- | :--- | | Nonperforming Assets | $237M | $256M | | Ratio of NPA to Net Loans & OREO | 0.48% | 0.55% | | Nonaccrual Loans | $233M | $252M | | Troubled Debt Restructurings (TDRs) | $182M | $202M | - The Bank actively reduced its asset sensitivity in 2019, converting interest rate floors into $2.0 billion of receive-fixed interest rate swaps to hedge against declining net interest income[42][138][139] - Liquidity is strong, with a loan-to-deposit ratio of 87% and available borrowing capacity from the FHLB and Federal Reserve of approximately $14.5 billion[176][178] Capital Management The Bank returned 157% of net earnings to shareholders in Q3 2019 while maintaining strong capital ratios Capital Ratios | Ratio | Sep 30, 2019 | Dec 31, 2018 | | :--- | :--- | :--- | | Common Equity Tier 1 | 10.4% | 11.7% | | Tier 1 Leverage | 9.3% | 10.3% | | Total Risk-Based Capital | 12.6% | 13.9% | | Tangible Common Equity | 8.5% | 8.9% | - In the first nine months of 2019, the Bank repurchased 18.0 million shares for $825 million, with total repurchases over the last four quarters reaching $1.1 billion[187][188] - Capital distributed to common shareholders was 157% of net earnings applicable to common shareholders in Q3 2019, up from 113% in Q3 2018[190] Item 3. Quantitative and Qualitative Disclosures About Market Risk This section refers to the market risk discussion within the Management's Discussion and Analysis - The report directs readers to the "Interest Rate and Market Risk Management" section within the MD&A for quantitative and qualitative disclosures about market risk[352] Item 4. Controls and Procedures Management concluded that disclosure controls and procedures were effective with no material changes to internal controls - The CEO and CFO concluded that the Bank's disclosure controls and procedures were effective as of the end of the quarter[353] - There were no material changes in the Bank's internal control over financial reporting during the third quarter of 2019[353] PART II. OTHER INFORMATION Item 1. Legal Proceedings The Bank faces several legal proceedings with an estimated aggregate range of possible losses up to $35 million - The Bank is facing several material legal cases, including suits related to former customers International Manufacturing Group (IMG) and Rust Rare Coin, alleging the Bank assisted in Ponzi schemes[321][326] - The aggregate range of reasonably possible losses for significant legal matters, in excess of amounts already accrued, is estimated to be between $0 and $35 million[324] Item 1A. Risk Factors No material changes were reported for risk factors from the 2018 Annual Report on Form 10-K - There have been no material changes to the risk factors previously disclosed in the 2018 Annual Report on Form 10-K[355] Item 2. Unregistered Sales of Equity Securities and Use of Proceeds The Bank repurchased 6.64 million shares at an average price of $41.44 per share in Q3 2019 Q3 2019 Share Repurchases | Period | Total Shares Repurchased | Average Price Paid per Share | | :--- | :--- | :--- | | July 2019 | 750,639 | $44.97 | | August 2019 | 5,887,565 | $40.99 | | September 2019 | 127 | $45.13 | | Third Quarter Total | 6,638,331 | $41.44 | Item 6. Exhibits This section lists all exhibits filed with the Form 10-Q, including certifications and XBRL data - Lists exhibits filed with the report, such as Articles of Association, Bylaws, CEO/CFO certifications, and XBRL data[358]