ZIONS(ZIONL) - 2024 Q3 - Quarterly Results

Financial Highlights and CEO Commentary Zions Bancorporation's third-quarter 2024 financial performance and strategic commentary from the CEO are highlighted Third Quarter 2024 Performance Summary Zions Bancorporation reported strong Q3 2024 results with net earnings of $204 million and $1.37 diluted EPS, alongside improved NIM of 3.03% and CET1 ratio of 10.7% Q3 2024 Key Financial Metrics | Metric | Q3 2024 | Q3 2023 | Q2 2024 | | :--- | :--- | :--- | :--- | | Net Earnings ($ million) | $204 | $168 | $190 | | Diluted EPS ($) | $1.37 | $1.13 | $1.28 | | Net Interest Margin (NIM) (%) | 3.03% | 2.93% | 2.98% | | Estimated CET1 Ratio (%) | 10.7% | 10.2% | 10.6% | Q3 2024 Operational Highlights (vs. Q3 2023) | Category | Metric | Value | Change (YoY) | | :--- | :--- | :--- | :--- | | Income & Revenue | Net Interest Income ($ million) | $620 | +6% | | | PPNR (Adjusted) ($ million) | $299 | +10% | | | Customer-related Noninterest Income ($ million) | $161 | +3% | | Balance Sheet | Loans and Leases ($ billion) | $58.9 | +3% | | | Total Deposits ($ billion) | $75.7 | +0.4% | | | Short-term Borrowings ($ billion) | $2.9 | -33% | | Credit Quality | Provision for Credit Losses ($ million) | $13 | vs. $41 | | | Net Charge-offs (annualized) (%) | 0.02% | vs. 0.10% | CEO Commentary Chairman and CEO Harris H. Simmons highlighted a 21% EPS increase driven by stronger net interest margin and controlled costs, while addressing rising classified loans and announcing a strategic branch acquisition - Financial performance improved, with a 21% increase in EPS over the prior year, a strengthened NIM of 3.03%, and a modest 1% rise in operating costs[4] - Average noninterest-bearing demand deposits showed signs of stabilization, decreasing only 1.7% from the prior quarter but remaining flat to the prior quarter's ending balance[4] - Classified loans increased 66% quarter-over-quarter, mainly due to weaker performance in multi-family residential loans, but realized credit losses remained very low at an annualized rate of 0.02% of loans[4] - Announced an agreement to acquire four branches from FirstBank in California's Coachella Valley, which includes approximately $730 million in deposits and $420 million in loans[4] Results of Operations Zions Bancorporation's operational results are analyzed, focusing on net interest income, noninterest income, and noninterest expenses Net Interest Income and Margin Net interest income increased 6% to $620 million in Q3 2024, with net interest margin expanding 10 basis points to 3.03% due to higher asset yields Net Interest Income and Margin Performance | Metric | Q3 2024 | Q3 2023 | Change (YoY) | | :--- | :--- | :--- | :--- | | Net Interest Income ($ million) | $620 | $585 | +$35 (+6%) | | Net Interest Margin (%) | 3.03% | 2.93% | +10 bps | | Yield on Earning Assets (%) | 5.35% | 5.02% | +33 bps | | Cost of Total Deposits (%) | 2.14% | 1.92% | +22 bps | - The increase in NII was primarily due to higher yields on interest-earning assets, which rose 33 basis points year-over-year, outpacing the 22 basis point increase in the cost of total deposits[8][9][10] - Average interest-earning assets grew by $2.2 billion (3%) YoY, driven by increases in money market investments and loans, partially offset by a decline in securities[11] Noninterest Income Total noninterest income decreased 4% to $172 million, despite a 3% rise in customer-related income driven by 56% growth in capital markets fees Noninterest Income Breakdown (in millions) | Category | Q3 2024 | Q3 2023 | Change (YoY) | | :--- | :--- | :--- | :--- | | Customer-related noninterest income | $161 | $157 | +3% | | Capital markets fees | $28 | $18 | +56% | | Loan-related fees and income | $17 | $23 | -26% | | Fair value and nonhedge derivative income (loss) | ($3) | $7 | NM | | Dividends and other income | $5 | $12 | -58% | | Total noninterest income | $172 | $180 | -4% | - The growth in customer-related income was primarily driven by a $10 million increase in capital markets fees from swaps, loan syndication, and real estate activities[13] - The overall decline was influenced by a $10 million decrease in fair value and nonhedge derivative income and a $7 million drop in dividends and other income[14] Noninterest Expense Total noninterest expense increased modestly by 1% to $502 million, driven by salaries and technology costs, while the efficiency ratio improved to 62.5% Noninterest Expense Breakdown (in millions) | Category | Q3 2024 | Q3 2023 | Change (YoY) | | :--- | :--- | :--- | :--- | | Salaries and employee benefits | $317 | $311 | +2% | | Technology, telecom, and info processing | $66 | $62 | +6% | | Professional and legal services | $14 | $16 | -13% | | Total noninterest expense | $502 | $496 | +1% | - The increase in salaries and benefits was mainly due to a decline in capitalized salaries from reduced software development and higher benefits accruals[15] - The efficiency ratio improved to 62.5% from 64.4% a year ago, reflecting better revenue generation relative to expenses[16] Balance Sheet Analysis Zions Bancorporation's balance sheet components, including investment securities, loans, and deposits, are analyzed for key trends and changes Investment Securities The investment securities portfolio decreased 7% to $19.4 billion due to principal reductions, maintaining a stable estimated duration of 3.6% Investment Securities Portfolio (in millions) | Category | Q3 2024 | Q3 2023 | Change (YoY) | | :--- | :--- | :--- | :--- | | Available-for-sale, at fair value | $9,495 | $10,148 | -6% | | Held-to-maturity, at amortized cost | $9,857 | $10,559 | -7% | | Total investment securities | $19,352 | $20,707 | -7% | - The decrease of $1.4 billion in the securities portfolio was largely due to principal reductions. The bank primarily holds securities that can provide liquidity through secured borrowing without needing to be sold[17] Loans and Leases Total loans and leases grew 3% to $58.9 billion, driven by an 8% increase in consumer loans and a 2% rise in commercial loans Loan Portfolio Breakdown (in millions) | Category | Q3 2024 | Q3 2023 | Change (YoY) | | :--- | :--- | :--- | :--- | | Commercial | $30,785 | $30,208 | +2% | | Commercial real estate | $13,483 | $13,140 | +3% | | Consumer | $14,616 | $13,545 | +8% | | Total loans and leases | $58,884 | $56,893 | +3% | - Consumer loan growth of $1.1 billion was primarily driven by the 1-4 family residential portfolio, while commercial loan growth of $0.6 billion was concentrated in the commercial and industrial portfolio[18] Deposits and Borrowed Funds Total deposits remained stable at $75.7 billion, with a shift from noninterest-bearing to interest-bearing deposits, while total borrowed funds decreased 29% to $3.5 billion Deposit Composition (in millions) | Category | Q3 2024 | Q3 2023 | Change (YoY) | | :--- | :--- | :--- | :--- | | Noninterest-bearing demand | $24,973 | $26,733 | -7% | | Interest-bearing | $50,745 | $48,666 | +4% | | Total deposits | $75,718 | $75,399 | +0.4% | - Customer deposits (excluding brokered deposits) increased to $70.5 billion from $68.8 billion in the prior year. The loan-to-deposit ratio was 78%, up from 75% YoY[22] - Total borrowed funds decreased by $1.4 billion (29%) from the prior year, mainly due to a reduction in security repurchase agreements[23] Credit Quality Zions Bancorporation's credit quality is assessed through provisions for credit losses, nonperforming assets, and classified loans Provision and Allowance for Credit Losses Provision for credit losses decreased to $13 million, with the Allowance for Credit Losses (ACL) stable at $736 million (1.25% of loans) and minimal net charge-offs Key Credit Quality Metrics | Metric | Q3 2024 | Q3 2023 | Change (YoY) | | :--- | :--- | :--- | :--- | | Provision for credit losses ($ million) | $13 | $41 | -$28 | | Allowance for credit losses (ACL) ($ million) | $736 | $738 | -$2 | | Net loan and lease charge-offs ($ million) | $3 | $14 | -$11 | | ACL to total loans ratio (%) | 1.25% | 1.30% | -5 bps | - The slight decrease in the ACL reflects improved economic forecasts and lower unfunded commitments, partially offset by reserves for portfolio-specific risks like Commercial Real Estate (CRE) and loan growth[19] Nonperforming and Classified Assets Nonperforming assets increased 68% to $368 million, and classified loans rose significantly to $2.1 billion, primarily in multifamily commercial real estate Problem Asset Trends | Metric | Q3 2024 | Q3 2023 | Change (YoY) | | :--- | :--- | :--- | :--- | | Nonperforming assets ($ million) | $368 | $219 | +68% | | Classified loans ($ billion) | $2.1 | $0.769 | +172% | | Ratio of nonperforming assets to loans (%) | 0.62% | 0.38% | +24 bps | | Ratio of classified loans to loans (%) | 3.55% | 1.35% | +220 bps | - The increase in classified loans was primarily in the multifamily CRE portfolio, as borrowers faced challenges from lower-than-expected leasing, rent concessions, and higher costs and interest rates[21] - Despite the increase in classified loans, the bank noted that its multifamily CRE portfolio benefits from strong underwriting, high borrower equity, and guarantor support[21] Capital and Shareholders' Equity Zions Bancorporation's capital position and shareholders' equity, including key capital ratios and dividend information, are reviewed Shareholders' Equity and Capital Ratios Total shareholders' equity increased 20% to $6.4 billion, driven by retained earnings and reduced AOCI, with the estimated CET1 ratio improving to 10.7% Shareholders' Equity Components (in millions) | Category | Q3 2024 | Q3 2023 | Change (YoY) | | :--- | :--- | :--- | :--- | | Retained earnings | $6,564 | $6,157 | +7% | | Accumulated other comprehensive loss (AOCI) | ($2,336) | ($3,008) | +22% | | Total shareholders' equity | $6,385 | $5,315 | +20% | - Tangible book value per common share saw a significant increase to $33.12 from $25.75 in the prior year, driven by higher retained earnings and reduced unrealized losses in AOCI[26] Estimated Regulatory Capital Ratios | Ratio | Q3 2024 | Q3 2023 | | :--- | :--- | :--- | | Common equity tier 1 (CET1) (%) | 10.7% | 10.2% | | Tier 1 risk-based capital (%) | 11.4% | 10.9% | | Total risk-based capital (%) | 13.2% | 12.8% | | Tier 1 leverage (%) | 8.6% | 8.3% | Financial Statements and Supplemental Data Detailed consolidated financial statements and supplemental data tables are provided for comprehensive financial analysis Consolidated Financial Statements Detailed unaudited Consolidated Balance Sheets and Statements of Income provide a comprehensive view of the company's financial position and performance Loan and Credit Quality Details Detailed schedules on loan portfolio composition, nonperforming assets, allowance for credit losses, and net charge-offs offer deeper insight into credit risk Consolidated Average Balance Sheets, Yields and Rates Consolidated average balance sheets, asset yields, and liability rates are presented, crucial for analyzing net interest margin and profitability drivers Non-GAAP Financial Measures Non-GAAP financial measures used by management to assess performance are explained and reconciled in this section Reconciliation of Non-GAAP Measures Reconciliations of GAAP to non-GAAP financial measures, including Tangible Common Equity, Adjusted PPNR, and Efficiency Ratio, are provided for consistent performance assessment - The company uses non-GAAP measures like Tangible Common Equity to provide a basis for evaluating performance more consistently, whether a business was acquired or developed internally[45] - The Efficiency Ratio and Adjusted PPNR are used to measure operating expense relative to revenue and assess the ability to generate capital, respectively. Adjustments are made to exclude items not expected to recur frequently[50] Key Non-GAAP Metrics (Q3 2024) | Metric | Value | | :--- | :--- | | Return on average tangible common equity (%) | 17.4% | | Tangible book value per common share ($) | $33.12 | | Adjusted PPNR ($ million) | $299 | | Efficiency ratio (%) | 62.5% |