PART I. FINANCIAL INFORMATION Management's Discussion and Analysis of Financial Condition and Results of Operations The company's Q3 2023 results reflect a challenging interest rate environment, with decreased net interest income driving lower EPS while the company actively managed its balance sheet and capital position Results of Operations Q3 2023 net earnings decreased year-over-year, driven by a 12% decline in net interest income from higher funding costs, though the provision for credit losses was lower Q3 2023 Key Financial Performance | Metric | Q3 2023 | Q3 2022 | Change | | :--- | :--- | :--- | :--- | | Diluted EPS | $1.13 | $1.40 | -19.3% | | Net Interest Income | $585 million | $663 million | -12% | | Provision for Credit Losses | $41 million | $71 million | -42% | | Noninterest Income | $180 million | $165 million | +9% | | Noninterest Expense | $496 million | $479 million | +4% | | Efficiency Ratio | 64.4% | 57.6% | +680 bps | - Strategic actions during the first nine months of 2023 included growing customer deposits, actively managing the balance sheet, increasing liquidity sources, and strengthening the regulatory capital position17 Balance Sheet Analysis Total loans and deposits grew since year-end 2022, with a significant shift from noninterest-bearing to interest-bearing accounts, while uninsured deposits declined Balance Sheet Highlights (vs. Dec 31, 2022) | Metric | Sep 30, 2023 | Dec 31, 2022 | Change | | :--- | :--- | :--- | :--- | | Total Loans and Leases | $56.9 billion | $55.7 billion | +2% | | Total Deposits | $75.4 billion | $71.7 billion | +5% | | Noninterest-bearing Deposits | $26.7 billion | $35.8 billion | -25% | | Interest-bearing Deposits | $48.7 billion | $35.9 billion | +36% | | Uninsured Deposits % | 41% | 53% | -12 p.p. | - The bank is in the final phase of a core system replacement project with capitalized costs totaling $295 million as of September 30, 2023, expected to be substantially complete in 20249496 Risk Management The bank manages credit, market, and liquidity risks by diversifying loans, increasing available liquidity to 140% of uninsured deposits, and maintaining strong capital ratios - Nonperforming assets increased to $219 million (0.38% of loans) from $149 million at year-end 2022, primarily due to two suburban office CRE loans in Southern California totaling $46 million125 - Total available liquidity significantly increased to $43.6 billion, covering 140% of uninsured deposits, up from $21.1 billion and 56% coverage at the end of 2022172 - The bank is evaluating the potential future impact of the Basel III "Endgame" proposal, which would apply if total assets exceed $100 billion186187 Non-GAAP Financial Measures This section provides reconciliations for non-GAAP measures used to assess performance, including tangible common equity and adjusted pre-provision net revenue (PPNR) Key Non-GAAP Metrics (Q3 2023) | Metric | Q3 2023 | | :--- | :--- | | Return on Average Tangible Common Equity | 17.3% | | Tangible Common Equity Ratio | 4.4% | | Tangible Book Value per Common Share | $25.75 | | Adjusted PPNR | $272 million | | Efficiency Ratio (Non-GAAP) | 64.4% | Financial Statements (Unaudited) The unaudited statements show total assets of $87.3 billion and net income of $554 million for the nine months ended September 30, 2023, with detailed financial positions and results Consolidated Balance Sheets As of September 30, 2023, total assets were $87.3 billion, with deposits growing to $75.4 billion and shareholders' equity increasing to $5.3 billion Consolidated Balance Sheet Summary (in millions) | Account | Sep 30, 2023 | Dec 31, 2022 | | :--- | :--- | :--- | | Assets | | | | Total Assets | $87,269 | $89,545 | | Loans held for investment, net | $56,212 | $55,078 | | Total investment securities | $20,738 | $23,506 | | Liabilities & Equity | | | | Total Deposits | $75,399 | $71,652 | | Noninterest-bearing demand | $26,733 | $35,777 | | Interest-bearing | $48,666 | $35,875 | | Total Liabilities | $81,954 | $84,652 | | Total Shareholders' Equity | $5,315 | $4,893 | Consolidated Statements of Income For Q3 2023, net income was $175 million, a decrease from $217 million year-over-year, driven by lower net interest income Income Statement Highlights (in millions, except EPS) | Metric | Q3 2023 | Q3 2022 | YTD 2023 | YTD 2022 | | :--- | :--- | :--- | :--- | :--- | | Net Interest Income | $585 | $663 | $1,855 | $1,800 | | Provision for Credit Losses | $41 | $71 | $132 | $79 | | Noninterest Income | $180 | $165 | $529 | $479 | | Noninterest Expense | $496 | $479 | $1,516 | $1,407 | | Net Income | $175 | $217 | $554 | $623 | | Diluted EPS | $1.13 | $1.40 | $3.57 | $3.96 | Notes to Consolidated Financial Statements The notes detail accounting policies, fair value measurements, loan portfolio analysis, and a significant 2022 transfer of available-for-sale securities to the held-to-maturity category - The company adopted ASU 2022-02, which eliminated the recognition of Troubled Debt Restructurings (TDRs) and required enhanced disclosures for certain loan modifications208261 - In Q4 2022, the company transferred approximately $10.7 billion of AFS securities to the HTM category; the unamortized discount on these securities was $2.2 billion at September 30, 2023223 - The total allowance for credit losses was $738 million, or 1.30% of total loans, at September 30, 2023, up from $590 million (1.09%) a year prior243244 Quantitative and Qualitative Disclosures About Market Risk The company's most significant market risk is interest rate risk, which is actively monitored by management - The company identifies interest rate and market risk as its most significant risks, which are closely monitored by management334 Controls and Procedures Management concluded that disclosure controls and procedures were effective as of September 30, 2023, with no material changes to internal control over financial reporting - The CEO and CFO concluded that the company's disclosure controls and procedures were effective as of September 30, 2023335 - There were no changes in internal control over financial reporting during Q3 2023 that have materially affected, or are reasonably likely to materially affect, internal controls335 PART II. OTHER INFORMATION Legal Proceedings The company is involved in various legal proceedings, with an aggregate estimated range of reasonably possible loss from zero to approximately $5 million above accrued amounts - The company is subject to material litigation, including cases related to a bankrupt borrower's alleged fraud and a case regarding foreign transaction fees313 - The aggregate range of reasonably possible losses for significant matters, beyond amounts already accrued, is estimated to be from zero to approximately $5 million311 Risk Factors Key risks include deposit volatility, increased funding costs, systemic risk from other institutions, geopolitical conflicts, and potential U.S. economic volatility - Recent events in the banking industry have led to deposit fluctuations and increased funding costs, which may limit operations and growth337 - Systemic risk is a concern, as problems at other financial institutions could lead to market-wide liquidity issues and adversely affect the company339 - Geopolitical conflicts, including the Russia/Ukraine war and escalating events in the Middle East, are identified as creating significant disruptions to economies and markets341 - Potential U.S. government shutdowns due to political stalemates are cited as a risk that could introduce additional volatility in the U.S. economy and financial markets343 Unregistered Sales of Equity Securities and Use of Proceeds There were no unregistered sales of equity securities during the reporting period - None344 Other Information No directors or officers adopted, modified, or terminated a Rule 10b5-1(c) trading arrangement during the third quarter of 2023 - No directors or officers have adopted, modified, or terminated a Rule 10b5-1(c) trading arrangement during the quarter ended September 30, 2023345 Exhibits This section lists the exhibits filed with the Form 10-Q, including CEO and CFO certifications and financial data formatted in Inline XBRL - Lists filed exhibits, including CEO/CFO certifications and Inline XBRL data346
ZIONS(ZIONL) - 2023 Q3 - Quarterly Report