ZIONS(ZIONL) - 2023 Q4 - Annual Report

Part I Business Zions Bancorporation is a major regional bank with $87 billion in assets, offering comprehensive financial services across 11 Western and Southwestern states under extensive regulatory supervision Description of Business Zions Bancorporation, a Salt Lake City-based bank with $87 billion in assets, operates through seven distinct brands across 11 states, serving over one million customers - As of December 31, 2023, Zions Bancorporation, N.A. had total assets of approximately $87 billion and annual net revenue of $3.1 billion[18] - The bank operates through seven separately managed, geographically defined bank divisions, emphasizing local authority and branding[19] - At year-end 2023, the bank served over one million customers through 407 branches and employed 9,679 full-time equivalent staff[18] Products and Services The bank provides a full suite of commercial, retail, and wealth management services, including lending, capital markets, and fiduciary solutions - Serves small- and medium-sized businesses with commercial and industrial lending, municipal finance, and cash management services[21] - Provides capital markets solutions including loan syndications, foreign exchange, interest rate derivatives, and advisory services[25] - Offers retail banking products such as residential mortgages, home equity lines of credit, and consumer cards[25] - Delivers wealth management services, including investment management, fiduciary and estate services, and business succession planning[25] Competition The bank faces intense competition from traditional banks, credit unions, and fintech companies, differentiating itself through service quality and local expertise - The most direct competition comes from commercial banks, credit unions, fintechs, and private credit funds, some of which operate without a physical presence in Zions' market[23] - Key competitive differentiators include service quality, local knowledge, branch convenience, and broad product offerings[24] Supervision and Regulation The bank operates under extensive federal regulation, maintains capital ratios well above required minimums, and is monitoring proposed changes like "Basel III Endgame" Capital Ratios vs. Requirements (Dec 31, 2023) | Capital Ratio | Minimum Requirement with Buffer | Current Capital Ratio | Minimum to be "Well-Capitalized" | | :--- | :--- | :--- | :--- | | CET1 to risk-weighted assets | 7.0% | 10.3% | 6.5% | | Tier 1 capital to risk-weighted assets | 8.5% | 10.9% | 8.0% | | Total capital to risk-weighted assets | 10.5% | 12.8% | 10.0% | | Tier 1 leverage ratio | 4.0% | 8.3% | 5.0% | - The bank is monitoring the "Basel III Endgame" proposal, which would significantly revise capital requirements for banks with over $100 billion in assets[36] - A proposed rule would require banks with over $100 billion in assets to hold a minimum amount of long-term debt, potentially requiring Zions to issue $3.5 billion in incremental debt[38] - The bank recorded an estimated $90 million expense in Q4 2023 for the FDIC special assessment related to the 2023 bank failures[40] Human Capital Management The company focuses on diversity and inclusion, with women comprising 58% of its workforce, and ensures pay equity through regular independent reviews Workforce Demographics (Dec 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% | - The company is committed to creating a diverse and inclusive workplace, supported by an Everyone Counts Council and various employee business forums[54][57] - In 2023, Zions enhanced employee benefits, including more flexible paid time off, additional health care plan options, and greater access to mental health benefits[53] - A recent independent review found no meaningful pay differences among men, women, and people of color after adjusting for relevant variables[63] Risk Factors The company faces material risks in credit, interest rates, liquidity, and cybersecurity, particularly related to its commercial real estate portfolio and deposit fluctuations - Credit Risk: Deterioration in credit quality could adversely affect results, with concentrations in commercial real estate (CRE) and specific geographic regions posing key vulnerabilities[67][69][72] - Interest Rate & Market Risk: Net interest income is vulnerable to interest rate changes, which can also lead to lower loan demand and higher credit losses[74][75] - Liquidity Risk: Customer deposit fluctuations and recent bank closures have led to increased funding costs, and a credit rating downgrade could exacerbate this pressure[77][78][80] - Strategic & Business Risk: Systemic risk from other financial institutions, competition for talent, and adaptation to new technologies like AI present ongoing challenges[82][83][87] - Legal/Compliance Risk: Operating under the National Bank Act presents a less-developed corporate law framework, potentially hindering transactions like mergers[117][118][119] - Cybersecurity Risk: The bank faces continuous, sophisticated cyber threats and relies on third-party suppliers, which introduces additional security risks[98][99] Unresolved Staff Comments The company reports no unresolved written comments from SEC or OCC staff regarding its periodic or current reports as of year-end 2023 - There are no unresolved written comments from SEC or OCC staff[129] Cybersecurity Cybersecurity risk is managed through a multi-layered framework overseen by the Board, with no material incidents identified as of December 31, 2023 - Cybersecurity risk is overseen by the Board and the Risk Oversight Committee (ROC), with direct management by the CISO and CTOO[131][132][133] - The bank uses an established Enterprise Risk Management (ERM) framework and engages independent third parties for assessments like penetration testing[131][134] - A supply chain risk management program is in place to monitor suppliers' cybersecurity posture using real-time security scoring and threat intelligence[135] - As of December 31, 2023, management determined there have been no material cybersecurity incidents that have affected the company[137] Properties The company operates 407 branches, of which 278 are owned and 129 are leased, with its headquarters being a leased property - At year-end 2023, the bank operated 407 branches, with 278 owned and 129 leased[139] Legal Proceedings Information regarding legal proceedings is available in Note 16 of the Notes to Consolidated Financial Statements - Details on legal proceedings are provided in Note 16 of the Notes to Consolidated Financial Statements[140] Mine Safety Disclosures The company reports no mine safety disclosures are applicable - None[141] Part II Market for Registrant's Common Equity, Related Stockholder Matters and Issuer Purchases of Equity Securities The company's stock trades on NASDAQ, with share repurchases of $50 million in 2023 and a five-year total return underperforming key banking and market indices - The company's common stock (ZION) and various preferred stock series are traded on the NASDAQ Global Select Market[3][144] - In Q1 2023, 0.9 million common shares were repurchased for $50 million, with a new plan for up to $35 million approved for 2024[146][147] - A quarterly dividend of $0.41 per common share was declared in February 2024[145] 5-Year Cumulative Total Return Comparison | Index | 2018 | 2019 | 2020 | 2021 | 2022 | 2023 | | :--- | :--- | :--- | :--- | :--- | :--- | :--- | | Zions Bancorporation, N.A. | $100.0 | $131.1 | $113.8 | $169.7 | $127.2 | $119.0 | | KRX Regional Bank Index | $100.0 | $123.9 | $113.1 | $154.6 | $143.9 | $143.3 | | S&P 500 | $100.0 | $131.5 | $155.7 | $200.3 | $164.0 | $207.0 | Management's Discussion and Analysis of Financial Condition and Results of Operations In 2023, net earnings fell 26% to $648 million due to rising funding costs and a $90 million FDIC assessment, though the bank grew deposits and maintained strong capital Results of Operations Net income fell 25% to $680 million in 2023, driven by a 3% decline in net interest income and a 12% rise in noninterest expense 2023 Financial Performance Highlights | Metric | 2023 | 2022 | % Change | | :--- | :--- | :--- | :--- | | Net Interest Income | $2,438 M | $2,520 M | (3)% | | Provision for Credit Losses | $132 M | $122 M | 8% | | Noninterest Expense | $2,097 M | $1,878 M | 12% | | Net Income | $680 M | $907 M | (25)% | | Diluted EPS | $4.35 | $5.79 | (25)% | - Strategic actions in 2023 included growing customer deposits, increasing available liquidity to exceed uninsured deposits, and strengthening regulatory capital[158][162] - Noninterest expense was significantly impacted by a $90 million accrual for the FDIC special assessment in Q4 2023[166][201] - Credit quality remained strong, with net charge-offs at 0.06% of average loans, though nonperforming assets increased by 53%[166] Business Segment Results Performance varied across the bank's seven segments, with most experiencing pre-tax income declines due to lower net interest income and higher expenses Selected Segment Information - Income Before Income Taxes (in millions) | Segment | 2023 | 2022 | % Change | | :--- | :--- | :--- | :--- | | Zions Bank | $311 | $387 | (20)% | | California Bank & Trust (CB&T) | $282 | $314 | (10)% | | Amegy Bank | $218 | $311 | (30)% | | National Bank of Arizona (NBAZ) | $107 | $111 | (4)% | | Nevada State Bank (NSB) | $23 | $76 | (70)% | | Vectra Bank Colorado | $34 | $55 | (38)% | | The Commerce Bank of Washington (TCBW) | $38 | $45 | (16)% | - Zions Bank's loan portfolio grew by $852 million, driven by consumer and commercial loans, while deposits decreased by 3%[219] - CB&T's nonperforming assets increased by $57 million, largely due to two suburban office CRE loans totaling $46 million[220] - NSB's significant drop in income was primarily due to a $38 million increase in the provision for credit losses[225] Balance Sheet Analysis Total assets decreased 3% to $87.2 billion, while deposits grew 5% to $75.0 billion, with a significant shift from noninterest-bearing to interest-bearing accounts Key Balance Sheet Items (in billions) | Item | Dec 31, 2023 | Dec 31, 2022 | % Change | | :--- | :--- | :--- | :--- | | Total Assets | $87.2 | $89.5 | (3)% | | Loans and Leases, net | $57.8 | $55.7 | 4% | | Total Deposits | $75.0 | $71.7 | 5% | | Noninterest-bearing Deposits | $26.2 | $35.8 | (27)% | | Interest-bearing Deposits | $48.7 | $35.9 | 36% | - The loan portfolio increase of $2.1 billion was primarily driven by growth in 1-4 family residential mortgages and commercial real estate term loans[245] - The investment securities portfolio (amortized cost) decreased by $2.5 billion, mainly from principal reductions[234][236] - Estimated uninsured deposits decreased to $33.2 billion (44% of total deposits) from $38.1 billion (53%) at year-end 2022[259] Risk Management The bank strengthened its risk posture by increasing its Allowance for Credit Losses, actively managing interest rate risk, and boosting available liquidity to 122% of uninsured deposits - Credit Risk: The Allowance for Credit Losses (ACL) increased to $729 million (1.26% of loans) at year-end 2023, reflecting incremental reserves for CRE and deteriorating economic forecasts[189][304] - Interest Rate Risk: Deposit models were redeveloped to reflect higher deposit betas and migration from noninterest-bearing accounts[308][311] - Liquidity Risk: Total available liquidity more than doubled to $40.6 billion at year-end 2023, with the ratio of available liquidity to uninsured deposits at 122%[342] - Capital Risk: The Common Equity Tier 1 (CET1) capital ratio improved to 10.3% from 9.8% in 2022, comfortably above the 7.0% requirement[368] Critical Accounting Policies and Significant Estimates Key estimates include the Allowance for Credit Losses, fair value measurements, and goodwill, with the annual test confirming no goodwill impairment - Allowance for Credit Losses (ACL): The ACL calculation is highly sensitive to economic scenarios; using only the baseline scenario would have decreased the ACL by $138 million[375] - Fair Value Estimates: For assets and liabilities without active market prices, fair value is estimated using modeling techniques like discounted cash flow analysis[377][378] - Goodwill: The annual goodwill impairment test as of October 1, 2023, showed no impairment, with fair values of all reporting units significantly exceeding their carrying values[386] Financial Statements and Supplementary Data This section includes audited financial statements and unqualified opinions from Ernst & Young LLP on both the financials and internal controls, identifying the ALLL as a Critical Audit Matter - Management concluded that the company's internal control over financial reporting was effective as of December 31, 2023[402] - Ernst & Young LLP issued an unqualified opinion on the consolidated financial statements and on the effectiveness of internal control over financial reporting[405][412] - The auditor identified the Allowance for Loan and Lease Losses (ALLL) as a Critical Audit Matter, citing significant judgment in determining economic scenario weightings[418][419][420] Consolidated Financial Statements The consolidated financial statements show total assets of $87.2 billion and net income of $680 million for 2023, with shareholders' equity increasing to $5.7 billion Consolidated Balance Sheet Highlights (in millions) | Account | Dec 31, 2023 | Dec 31, 2022 | | :--- | :--- | :--- | | Total Assets | $87,203 | $89,545 | | Loans, net of allowance | $57,095 | $55,078 | | Total Deposits | $74,961 | $71,652 | | Total Liabilities | $81,512 | $84,652 | | Total Shareholders' Equity | $5,691 | $4,893 | Consolidated Income Statement Highlights (in millions) | Account | 2023 | 2022 | 2021 | | :--- | :--- | :--- | :--- | | Net Interest Income | $2,438 | $2,520 | $2,208 | | Provision for Credit Losses | $132 | $122 | $(276) | | Total Noninterest Income | $677 | $632 | $703 | | Total Noninterest Expense | $2,097 | $1,878 | $1,741 | | Net Income | $680 | $907 | $1,129 | - Comprehensive income was $1.1 billion in 2023, a significant recovery from a comprehensive loss of $2.1 billion in 2022[428] Controls and Procedures Management concluded that the company's disclosure controls and procedures were effective as of year-end 2023, with no material changes to internal controls in Q4 - The CEO and CFO concluded that disclosure controls and procedures were effective as of December 31, 2023[681] - No material changes in internal control over financial reporting were identified during the fourth quarter of 2023[681] Other Information No directors or officers adopted, modified, or terminated a Rule 10b5-1(c) trading arrangement during the 2023 fiscal year - No directors or officers have adopted, modified, or terminated a Rule 10b5-1(c) trading arrangement during the fiscal year 2023[683] Part III Directors, Executive Officers, and Corporate Governance Required information regarding directors, officers, and governance is incorporated by reference from the company's forthcoming Proxy Statement - Incorporated by reference from the Proxy Statement[686] Executive Compensation Required information regarding executive compensation is incorporated by reference from the company's forthcoming Proxy Statement - Incorporated by reference from the Proxy Statement[687] Security Ownership of Certain Beneficial Owners and Management and Related Stockholder Matters The company details its equity compensation plan, with over 2.7 million securities available for future issuance as of year-end 2023 Equity Compensation Plan Information (as of Dec 31, 2023) | Plan Category | Securities to be Issued Upon Exercise (a) | Weighted-Average Exercise Price (b) | Securities Remaining Available for Future Issuance (c) | | :--- | :--- | :--- | :--- | | Equity compensation plan approved by security holders | 1,415,155 | $53.00 | 2,747,546 | Certain Relationships and Related Transactions, and Director Independence Required information regarding related transactions and director independence is incorporated by reference from the company's forthcoming Proxy Statement - Incorporated by reference from the Proxy Statement[689] Principal Accountant Fees and Services Required information regarding accountant fees and services is incorporated by reference from the company's forthcoming Proxy Statement - Incorporated by reference from the Proxy Statement[690] Part IV Exhibits and Financial Statement Schedules This section lists all financial statements and exhibits filed with the Form 10-K, including governance documents and required certifications - The consolidated financial statements for the years ended December 31, 2023, 2022, and 2021 are filed under Item 8[692] - A detailed list of exhibits is provided, including governance documents, compensation plans, and required CEO/CFO certifications[693][694][695] - Financial data is provided in inline XBRL format as required by SEC rules[698] Form 10-K Summary This item is not applicable to the filing - Not applicable[699]