February 13, 2014
Zions 2014 Biennial Investor Conference
Forward-Looking Statements
This presentation contains statements that relate to the projected or modeled performance or condition
of Zions Bancorporation and elements of or affecting such performance or condition, including
statements with respect to forecasts, opportunities, models, illustrations, scenarios, beliefs, plans,
objectives, goals, guidance, expectations, anticipations or estimates, and similar matters. These
statements constitute forward-looking information within the meaning of the Private Securities Litigation
Reform Act. Actual facts, determinations, results or achievements may differ materially from the
statements provided in this presentation since such statements involve significant known and unknown
risks and uncertainties. Factors that might cause such differences include, but are not limited to:
competitive pressures among financial institutions; economic, market and business conditions, either
nationally, internationally, or locally in areas in which Zions Bancorporation conducts its operations,
being less favorable than expected; changes in the interest rate environment reducing expected interest
margins; changes in debt, equity and securities markets; adverse legislation or regulatory changes; and
other factors described in Zions Bancorporation’s most recent annual and quarterly reports. In addition,
the statements contained in this presentation are based on facts and circumstances as understood by
management of the company on the date of this presentation, which may change in the future. Except
as required by law, Zions Bancorporation disclaims any obligation to update any statements or to
publicly announce the result of any revisions to any of the forward-looking statements included herein
to reflect future events, developments, determinations or understandings.
of Zions Bancorporation and elements of or affecting such performance or condition, including
statements with respect to forecasts, opportunities, models, illustrations, scenarios, beliefs, plans,
objectives, goals, guidance, expectations, anticipations or estimates, and similar matters. These
statements constitute forward-looking information within the meaning of the Private Securities Litigation
Reform Act. Actual facts, determinations, results or achievements may differ materially from the
statements provided in this presentation since such statements involve significant known and unknown
risks and uncertainties. Factors that might cause such differences include, but are not limited to:
competitive pressures among financial institutions; economic, market and business conditions, either
nationally, internationally, or locally in areas in which Zions Bancorporation conducts its operations,
being less favorable than expected; changes in the interest rate environment reducing expected interest
margins; changes in debt, equity and securities markets; adverse legislation or regulatory changes; and
other factors described in Zions Bancorporation’s most recent annual and quarterly reports. In addition,
the statements contained in this presentation are based on facts and circumstances as understood by
management of the company on the date of this presentation, which may change in the future. Except
as required by law, Zions Bancorporation disclaims any obligation to update any statements or to
publicly announce the result of any revisions to any of the forward-looking statements included herein
to reflect future events, developments, determinations or understandings.
2
Agenda
• Overview
• Return On Equity: Scenario Analysis
• Under the Hood: Net Interest Margin
• Fee Income Initiative
• Risk Oversight and Credit Management
• CDO Portfolio and Volcker Rule Update
• CCAR
• FutureCore
• Updated Guidance
• Appendix
3
Capital Levels are In Line to Strong Relative to Peers
Source: Company documents for Zions as of 4Q13, SNL Financial as of 3Q13 for peers.
Loss absorbing capital defined to include tangible common equity, Basel III-qualifying non-common Tier 1 equity,
and the allowance for credit losses
and the allowance for credit losses
Credit Quality is Improving and is In Line-to-Better Than Peers
Nonperforming Lending Related Assets and Classified Loans
Nonperforming Lending Related Assets and Classified Loans
Nonperforming ratio consists of nonaccrual loans, real estate owned, and loans 90+ days past due and still accruing.
The ratio excludes accrual troubled debt restructured (TDR) loans and loans supported by FDIC loss-sharing
agreements. Source: Company Documents & SNL Financial.
The ratio excludes accrual troubled debt restructured (TDR) loans and loans supported by FDIC loss-sharing
agreements. Source: Company Documents & SNL Financial.
(In billions)
Annualized Losses Relative to Classified Loans
(In Millions)
Credit Quality is Improving and is In Line-to-Better Than Peers
Net Charge-offs: Quarterly Trend, With and Without Construction & Land Development Loans
Net Charge-offs: Quarterly Trend, With and Without Construction & Land Development Loans
Source: Company documents for Zions as of 4Q13, SNL Financial as of 3Q13 for peers. Net charge-off ratios annualized.
Net Charge-offs: Through the Cycle, With and Without Construction Loans
NCO rate compares favorably with peers through the cycle
NCO rate compares favorably with peers through the cycle
Source: Company Documents & SNL Financial. Net charge-off ratios annualized.
7
Summary View of Profitability
Improvement in 2013 driven by capital actions, partially offset by a decline in net interest income
Improvement in 2013 driven by capital actions, partially offset by a decline in net interest income
1. ROAA and reserve release adjusted ROAA based on net income available to common.
Source: SNL Financial and Company documents.
* Net Income normalized for one-time debt extinguishment expense in 2Q13, preferred stock redemption in 3Q13, OTTI
and debt extinguishment cost in 4Q13
and debt extinguishment cost in 4Q13
Source: SNL Financial as of 4Q13.
Risk adjusted NIM calculated as net interest income less net charge-offs divided by average earning assets.
9
Net Interest Margin
Net interest income, less net charge-offs, is considerably stronger than most peers
Net interest income, less net charge-offs, is considerably stronger than most peers
Non-Interest Expense: Medium Term Outlook
Adjusts 4Q13 NIE for items such as debt extinguishment, FDIC Indemnification Asset Amortization and CCAR costs
Adjusts 4Q13 NIE for items such as debt extinguishment, FDIC Indemnification Asset Amortization and CCAR costs
10
Source: Company Documents
*There will be a proportionate revenue reduction related to the decline in the indemnification
asset expense; Such revenue amounted to an annualized $135 million in 4Q13.
asset expense; Such revenue amounted to an annualized $135 million in 4Q13.
Professional & Legal ($40mm), Debt Extinguishment ($320mm), Regulatory Related ($24mm), Credit Related ($12mm), Allowance for Unfunded Commitments
($12mm), Indemnification Asset Expense ($80mm) *
($12mm), Indemnification Asset Expense ($80mm) *
Additions to Non-Interest Expense:
Systems Upgrade (“FutureCore” - core processing system upgrade, chart of accounts overhaul, and front-end loan entry system upgrade): $28mm additional
estimated, on average (This does not include the approximately $18 mm annualized of systems upgrade expense recognized in 4Q13); salary & other growth-
related increases: $100mm (dynamic balance sheet)
estimated, on average (This does not include the approximately $18 mm annualized of systems upgrade expense recognized in 4Q13); salary & other growth-
related increases: $100mm (dynamic balance sheet)
(In millions)
Fee Income Initiative
• Zions has proportionately low fee income relative to peers
• Long term fixes through organic growth, not major M&A
• Areas Targeted for Growth:
• Treasury Management
• Business Credit Cards
• Wealth Management
• Mortgage
• Growth focused within Zions’ footprint with relationship
customers
customers
11
Capital Actions
12
2013 Capital Actions |
§ Redeemed all $285 million 8.0% Series B trust preferred § Redeemed (via tender offer) $257 million 7.75% Senior Notes § Issued $800 million of preferred stock (6.2% weighted average dividend rate) and redeemed all $800 million 9.5% Series C preferred stock § Issued $250 million of subordinated debt (6.1% weighted average coupon) § Redeemed (via tender offer) $250 million of high cost subordinated debt |
Remaining Significant High Cost Debt Reduction Opportunities
Effective GAAP Interest Cost In High Cost Debt Maturity Profile; Return on Tangible Common Equity (RoTCE) Expansion
Assumes No Replacement of Debt Because of Strong Cash Balances at Parent Company
Effective GAAP Interest Cost In High Cost Debt Maturity Profile; Return on Tangible Common Equity (RoTCE) Expansion
Assumes No Replacement of Debt Because of Strong Cash Balances at Parent Company
13
Assumes no replacement cost
Effective pre-tax cost listed above each bar
In the chart above, no adjustments have been made to other sources of revenue
or expense, which may increase or decrease, depending upon various factors,
such as loan growth or attrition, net interest margin expansion or compression,
and non-interest expense increases or reductions.
or expense, which may increase or decrease, depending upon various factors,
such as loan growth or attrition, net interest margin expansion or compression,
and non-interest expense increases or reductions.
26.7%
11.3%
23.4%
21.8%
Agenda
• Overview
• Return On Equity: Scenario Analysis
• Under the Hood: Net Interest Margin
• Fee Income Initiative
• Risk Oversight and Credit Management
• CDO Portfolio and Volcker Rule Update
• CCAR
• FutureCore
• Updated Guidance
• Appendix
14
Drivers of Expansion to RoTCE- Bear Case: Medium Term Outlook
15
Source: Company Documents
*NIE increase to reflect normal salary adjustments
Bear Case for Contraction
of RoTCE:
of RoTCE:
•RoTCE Normalization Assumptions
Found on Slide 86
Found on Slide 86
•Provision Expense adjusted to 0.4% of
total loans per year
total loans per year
•Added $20 Million of Growth Related
Non-Interest Expense*
Non-Interest Expense*
•Loan Portfolio turns over at a
weighted average yield of 3.9% (vs.
portfolio yield of 4.4% in 4Q13)
weighted average yield of 3.9% (vs.
portfolio yield of 4.4% in 4Q13)
•Financial Restructuring assumptions
found on Slide 13
found on Slide 13
•Rates Unchanged
•Deployment of $1 billion of Cash into
Loans at 4%
Loans at 4%
•Enter into $500 million of Receive
Fixed/Pay Floating Swaps at 3% Yield
to Zions (~5 year duration)
Fixed/Pay Floating Swaps at 3% Yield
to Zions (~5 year duration)
•Fee Income remains unchanged
Drivers of Expansion to RoTCE- Base Case: Medium Term Outlook
16
Base Case for Expansion
of RoTCE:
of RoTCE:
•RoTCE Normalization Assumptions
Found on Slide 86
Found on Slide 86
•Provision Expense adjusted to 0.4%
of total loans per year
of total loans per year
•Added $100 Million of Growth
Related Non-Interest Expense*
Related Non-Interest Expense*
•Financial Restructuring assumptions
found on Slide 13
found on Slide 13
•100 bp Rate Hike
•Deployment of $3 billion of Cash
into Loans at 5% (Assumes 100 bp
rate hike has already occurred)
into Loans at 5% (Assumes 100 bp
rate hike has already occurred)
•Enter into $1.5 billion of Receive
Fixed/Pay Floating Swaps at 3% Yield
to Zions (~5 year duration)
Fixed/Pay Floating Swaps at 3% Yield
to Zions (~5 year duration)
•Additional $50 million of Fee Income
Source: Company Documents
*NIE increase to reflect growth related salary adjustments
Rate Hike assumes “fast “ deposit response - meaning, deposit pricing adjusts quickly to an upward shift in
interest rates.
interest rates.
The above assumptions are illustrative only, and do
not reflect targets, goals or budgeted amounts.
not reflect targets, goals or budgeted amounts.
Drivers of Expansion to ROTCE- Bull Case: Medium Term Outlook
17
Source: Company Documents
*NIE increase to reflect growth related salary adjustments
Rate Hike assumes “fast “ deposit response - meaning, deposit pricing adjusts quickly to an upward shift
in interest rates.
in interest rates.
Bull Case for Expansion
of RoTCE:
of RoTCE:
•RoTCE Normalization Assumptions
Found on Slide 86
Found on Slide 86
•Provision Expense adjusted to 0.4%
of total loans per year
of total loans per year
•Added $130 Million of Growth
Related Non-Interest Expense*
Related Non-Interest Expense*
•Financial Restructuring assumptions
found on Slide 13
found on Slide 13
•200 bp Rate Hike
•Deployment of $4 billion of Cash into
Loans at 6% (Assumes 200 bp rate
hike has already occurred)
Loans at 6% (Assumes 200 bp rate
hike has already occurred)
•Enter into $1.5 billion of Receive
Fixed/Pay Floating Swaps at 4% Yield
to Zions (~5 year duration)
Fixed/Pay Floating Swaps at 4% Yield
to Zions (~5 year duration)
•Additional $100 million of Fee
Income
Income
The above assumptions are illustrative only, and do
not reflect targets, goals or budgeted amounts.
not reflect targets, goals or budgeted amounts.
Agenda
• Overview
• Return On Equity: Scenario Analysis
• Under the Hood: Net Interest Margin
• New Production Pricing Vs. Portfolio Yield
• Interest Rate Risk Positioning
• Fee Income Initiative
• Risk Oversight and Credit Management
• CDO Portfolio and Volcker Rule Update
• CCAR
• FutureCore
• Updated Guidance
• Appendix
18
Business Confidence Levels: Large Business vs. Small Business
Small Business Optimism Still Soft
Small Business Optimism Still Soft
19
Average Levels (1988-2006):
•ISM: 55
•NFIB: 101
Total Loan Portfolio - C&I, CRE, and Consumer
Pricing on new production stabilizing
Pricing on new production stabilizing
Small Loans < $5M Commitment
Source: Company Documents; Loans Held For Investment, excluding FDIC-Supported
Loans. Production defined as new loans and marginal draws on existing lines of credit
Loans. Production defined as new loans and marginal draws on existing lines of credit
C&I Portfolio (53% of yearly production)
Pricing on production stabilizing, gap has narrowed from nearly 70 bps to approximately 50 bps
Pricing on production stabilizing, gap has narrowed from nearly 70 bps to approximately 50 bps
Source: Company Documents; Production defined as new loans and marginal draws on
existing lines of credit
existing lines of credit
Small Loans < $5M Commitment
Owner Occupied Portfolio (7% of yearly production)
Owner occupied loans equaled $7.4 billion or 19% of the total portfolio
Owner occupied loans equaled $7.4 billion or 19% of the total portfolio
Source: Company Documents; Production defined as new loans and marginal draws on
existing lines of credit
existing lines of credit
Small Loans < $5M Commitment
Middle Market & Large Loans > $5M Commitment
Term CRE Portfolio (11% of yearly production)
Pricing on Term CRE remains dilutive to portfolio yield
Pricing on Term CRE remains dilutive to portfolio yield
Source: Company Documents; Production defined as new loans and marginal draws on
existing lines of credit
existing lines of credit
Small Loans < $5M Commitment
Other Loans (29% of yearly production)
Pricing on Other Loans improving - higher residential mortgage rates a contributing factor
Pricing on Other Loans improving - higher residential mortgage rates a contributing factor
Small Loans < $5M Commitment
Source: Company Documents; Production defined as new loans and marginal draws on
existing lines of credit. Other Loans includes: Construction, HECL, 1-4 Family, Bankcard
existing lines of credit. Other Loans includes: Construction, HECL, 1-4 Family, Bankcard
Smaller loan yields are only slightly lower than the overall portfolio yield
A shift to smaller business loans would have a favorable impact on the NIM trend
A shift to smaller business loans would have a favorable impact on the NIM trend
25
Source: Company documents as of 4Q13.
Production defined as new loans and marginal draws on existing lines of credit
Small Loans < $5M Commitment
Middle Market & Large Loans > $5M Commitment
Small Loan
Production (Coupon)
Production (Coupon)
Mid & Large Loan
Production (Coupon)
Production (Coupon)
Commercial/Industrial (incl. Owner Occupied) Loan Growth by Industry
Energy loans have been a significant driver of C&I growth
Energy loans have been a significant driver of C&I growth
Other includes:
•19% Agriculture, Forestry, Fishing,
Hunting
Hunting
•13% Utilities
•13% Administrative and Support and
Waste Management and Remediation
Services
Waste Management and Remediation
Services
•11% Information
•10% Education
•9% Public Administration
•25% Other Services Excluding Public
Admin (Autos, Religious, Hair Salons, Civic
and Social Organizations some of the
largest contributors)
Admin (Autos, Religious, Hair Salons, Civic
and Social Organizations some of the
largest contributors)
CRE (Term & Construction) Loan Growth By Type
Apartment loan concentration has increased, while land loan concentration continues to decline
Apartment loan concentration has increased, while land loan concentration continues to decline
Other includes:
•17% Recreation/Restaurant
•13% Hospital/Medical Centers
•70% General Other
Loan Growth and Production Remains Positive
Favorable Trends in Commitments and Production
Favorable Trends in Commitments and Production
28
Source: Company documents as of 4Q13. “FDIC” refers to FDIC-supported loans; “NRE” refers to National Real
Estate. Both of these portfolios are currently in run-off mode
Estate. Both of these portfolios are currently in run-off mode
7% Growth
C&I Utilization Rate
Smaller Loan Utilization Rates Materially Higher than Larger Loan Utilization Rates
Smaller Loan Utilization Rates Materially Higher than Larger Loan Utilization Rates
29
Small < $5M Commitment
Middle Market & Large > $5M Commitment
Agenda
• Overview
• Return On Equity: Scenario Analysis
• Under the Hood: Net Interest Margin
• New Production Pricing Vs. Portfolio Yield
• Interest Rate Risk Positioning
• Fee Income Initiative
• Risk Oversight and Credit Management
• CDO Portfolio and Volcker Rule Update
• CCAR
• FutureCore
• Updated Guidance
• Appendix
30
Zions Deposit Franchise is Among Best of Peers
Source: SNL Financial as of 4Q13
Zions’ History of Interest Bearing Cash vs. DDAs
Growth in DDA has been Primarily Held in Cash; Deposit Costs at Historic Lows
Growth in DDA has been Primarily Held in Cash; Deposit Costs at Historic Lows
Source: Company Documents SNL Financial as of 4Q13
(In Billions)
Avoiding the Next Big Risk to Equity: Securities & Cash Portfolio
ZION has one of the Smallest Securities (and MBS) Portfolio vs. its Peers
ZION has one of the Smallest Securities (and MBS) Portfolio vs. its Peers
Source: Company Documents for Zions as of 4Q13, SNL Financial for peers as of 3Q13
MBS securities include resi mortgage pass-through investments that are not guaranteed by the U.S. Government
§ Estimated option-adjusted duration of Zions’:
§ Loan portfolio < 2 years
§ Cash portfolio ~ 0.1 years
§ Securities portfolio < 2 years
33
Avoiding the Next Big Risk to Equity:
Long-Term Capital Risk not Traded for Short-Term Profitability
Long-Term Capital Risk not Traded for Short-Term Profitability
34
Source: Zions' estimates based upon Bloomberg MBS models; key assumptions include the WAC of the underlying mortgages is
approximately 4%, 30-year pass-through paper, Bloomberg's DAPAX model for duration extension (increasingly slower prepayment
speeds with each incremental increase in interest rates), and the trailing six months for empirical prepayment history; analysis as of
February 11, 2014.
approximately 4%, 30-year pass-through paper, Bloomberg's DAPAX model for duration extension (increasingly slower prepayment
speeds with each incremental increase in interest rates), and the trailing six months for empirical prepayment history; analysis as of
February 11, 2014.
3rd Party Analysis Ranks Zions Near Top of Asset Sensitive Banks
35
Source: Raymond James Research, June 2013
Rate: Balance Sheet Remains Significantly Asset Sensitive
36
Zions estimates net interest income
would increase between an
estimated 14.2% and 17.1% if
interest rates were to rise 200 bps*
in the first year.
would increase between an
estimated 14.2% and 17.1% if
interest rates were to rise 200 bps*
in the first year.
* 12-month simulated impact using a static balance sheet and a parallel shift in the yield curve, and is based on regression analysis comparing deposit repricing changes against
similar duration benchmark indices (e.g. Libor, U.S. Treasuries); also includes management input across all major geographies in which Zions does business, intended to adjust for
local market conditions. “Slow Response” refers to an assumption that market rates on deposits will adjust at a moderate rate (i.e. supply of deposits exceeds demand for loans). Data
as of 4Q13
similar duration benchmark indices (e.g. Libor, U.S. Treasuries); also includes management input across all major geographies in which Zions does business, intended to adjust for
local market conditions. “Slow Response” refers to an assumption that market rates on deposits will adjust at a moderate rate (i.e. supply of deposits exceeds demand for loans). Data
as of 4Q13
Effective
duration
Effective
duration
Effective
duration
Effective
duration
FAST
SLOW
Agenda
• Overview
• Return On Equity: Scenario Analysis
• Under the Hood: Net Interest Margin
• Fee Income Initiative
• Risk Oversight and Credit Management
• CDO Portfolio and Volcker Rule Update
• CCAR
• FutureCore
• Updated Guidance
• Appendix
37
Zions vs. Peer Group
38
Source: Company documents for Zions as of 4Q13, SNL Financial as of 3Q13 for peers.
Zions vs. Community Bank Peers in Footprint
($5-15B in assets)
($5-15B in assets)
Source: Company documents for Zions as of 4Q13, SNL Financial as of 3Q13 for peers.
Historical “Impediments” and “Growth Areas”
40
2013 Fee Income
$527MM
*
Impediments:
•NSF
•Debit Cards
•DDA Service Charges
•Sweep Income
Growth Areas:
•Card
•Treasury Management (Core)
•Mortgage
*$333MM as reported adjusted for fixed income securities, net impairment on OTTI,
Treasury Management fees compensated by balances.
Treasury Management fees compensated by balances.
Case Study: Fee Growth Muted by Legislative and
Economic Pressure
Economic Pressure
41
(in millions)
Case Study…Amegy Bank
(1) 2008 Adjusted for $38mm swap
gain.
gain.
$ Change | ||||||
Fee Income Categories | 2008(1) | 2013 | `13 vs. `08 | |||
Impacted by Legislative Changes | 40.2 | 25.8 | (14.4) | |||
(NSF, Debit Card, Private Equity) | ||||||
Impacted by Economic Softness | 57.8 | 50.3 | (7.5) | |||
(Service Charges, Wealth Management, | ||||||
FX, Investment Services) | ||||||
Growth Areas | 28.8 | 57.6 | 28.8 | |||
(Mortgage, Treasury Management, | ||||||
Credit Cards) | ||||||
Core Noninterest Income | 126.8 | 133.7 | 6.9 | |||
Non Core, Noninterest Income | 21.3 | 12.7 | (8.6) | |||
Noninterest Income | $ 148.1 | $ 146.4 | $ (1.7) | |||
Fee Income Ratio | 29% | 28% |
Zions Fee Income Mix
42
Treasury Management | 32% | |
Card* | 14% | |
Loan Fees | 8% | |
Mortgage | 7% | |
Capital Markets | 7% | |
Wealth Management | 5% | |
Foreign Exchange | 2% | |
Subtotal | 75% | |
25% | ||
100% |
% of Total
Growth Products
Other
*Commercial Card included in Treasury Management
Treasury Management
Key to Zions’ Community Banking Strategy
Key to Zions’ Community Banking Strategy
43
Ø Represents 32% of Non-
Interest Income
Interest Income
Ø 63% of DDA balances
are tied to Corporate
Treasury Management
(CTM) accounts
are tied to Corporate
Treasury Management
(CTM) accounts
Ø Recognized by
Greenwich Associates
for Overall Satisfaction
and Customer Service
Greenwich Associates
for Overall Satisfaction
and Customer Service
Ø Significant investment
in treasury systems
since 2007
in treasury systems
since 2007
Source: SNL Financial as of 4Q13
Banking Entity (by Geography) | Account Analysis DDA as % of total DDA |
Washington/Oregon | 88% |
Texas | 84% |
Nevada | 76% |
Bancorp | 63% |
Colorado | 63% |
Arizona | 55% |
California | 48% |
Utah/Idaho | 45% |
Card…Low Penetration…Competitive Offering
44
Card Products Fee Income (000's)
• Corporate platform delivered
locally
locally
• Penetration:
Consumer - 12.7%...25% optimal
Business - 4.8%...15% optimal
Commercial - nominal…growing
rapidly
rapidly
• 2013 total spend growth - 18%
• #13 U.S. business card issuer in
terms of sales volume (spend)
terms of sales volume (spend)
• Product offering/infrastructure
significantly enhanced
significantly enhanced
• Commercial card fastest growing
treasury management product
nationally
treasury management product
nationally
Mortgage…Community Banks Uniquely Positioned
45
• 2013 Results:
Production - $3.3 billion
Fee income - $37.7 million
Production - $3.3 billion
Fee income - $37.7 million
• Model leverages community bank franchise
to achieve higher level of “purchase”
business
to achieve higher level of “purchase”
business
• Investing in corporate operations,
compliance, product development with
local sales and service
compliance, product development with
local sales and service
• Volatile industry volumes and dramatically
higher CFPB compliance mandates are
eroding mortgage industry capacity
higher CFPB compliance mandates are
eroding mortgage industry capacity
• Ability to leverage community bank
franchise relationships with builders,
realtors, and high net worth clients
franchise relationships with builders,
realtors, and high net worth clients
• Mortgage colleagues’ referrals to other
bank products accelerating
bank products accelerating
Fee Income…What to Expect
46
• Greater focus and tracking
• Enhanced utilization of corporate infrastructure, product
development with local pricing
development with local pricing
• Above average growth rates, assisted by generally low
current penetration rates
current penetration rates
• Simple products that can be leveraged over entire employee
base
base
• Community bank relationship advantage
Agenda
• Overview
• Return On Equity: Scenario Analysis
• Under the Hood: Net Interest Margin
• Fee Income Initiative
• Risk Oversight and Credit Management
• CDO Portfolio and Volcker Rule Update
• CCAR
• FutureCore
• Updated Guidance
• Appendix
47
Risk Management Changes in the last 3-5 Years
• Implemented a Board Risk Oversight Committee
• Standardized Risk Committees at all affiliate banks
based upon Risk Appetite Framework
based upon Risk Appetite Framework
• Increased risk management staffing with expertise in
specific areas including:
specific areas including:
• Investments
• Operations
• Model management
• Credit
• Enhanced risk and control reporting
48
The Future of Enterprise Risk Management (ERM)
Establish an ERM Program commensurate with the size and complexity of Zions
Ø Formalize the Operational Risk function
Ø Integrated the Compliance function into ERM
Ø Enhance existing risk areas (e.g., Credit, Market, Liquidity, Interest rate, Model)
Ø Formalize the Wealth Management risk program
Enhance ERM’s interaction and Status
Ø Grant Risk Management “veto” capacity for all risks (e.g., liquidity, interest rate, credit)
Ø Involve Risk Management in all committees
Ø Chief Risk Officer and Chief Credit Officer reside on the Executive Management Committee
Ø Hired a Director for Operational Risk
Enhance key Policy and Oversight
Ø Revise the Risk Appetite Framework to include quantitative and qualitative metrics
Ø Improve ERM Governance and Reporting
Ø Update the Board Risk Oversight & Enterprise Risk Management Committee Charters
Drive the Risk Culture
Ø Communicate Risk Appetite and principles
• We take risks we can understand, manage, and measure
• Implemented a Risk Hotline for employees to “speak up”
49
50
Enhanced Future Risk Reporting Structure
Risk Appetite Framework
Core Principles
Core Principles
3 Lines of Defense:
1.The first line of defense: business lines
5 Key Basic Concepts:
1.We take risks we assess
2.We take risks we understand
3.We take risks that we can measure
4.We take risks that we can monitor, and,
5.We take risks that we can manage.
2.Employees complete annual i-achieve training.
51
Select Credit Risk Management Changes Since 2008
production
nCorporate Chief Credit Officer governs all credit approvals and policy
n Delegates (or retracts) authority to Affiliate Bank Chief Credit Officers.
nCCOs have veto (decline) over any transaction, program, or concentration
nEnhanced senior loan committees with Corporate involvement
nCentralized support and underwriting processes for Small Business
nEstablished CRE risk hurdles (threshold criteria for each market and asset class)
nImplemented CRE triggers - concentrations and “hot spots” early warning
52
Account Management
n Centralized oversight of CRE appraisal, environmental and engineering
n Enhanced loan risk grading tool and refined grade definitions
n Centralized underwriting and implemented standard loan monitoring for small commercial credits with automated triggers for
review
review
Corporate Credit Oversight
n Established high quality, formal Corporate Credit organization
n Credit Administrators for each portfolio segment
n Concentration Risk Manager
n Launched key initiatives to improve credit performance and achieve common credit culture
n Launched multiple enterprise-wide credit training programs
n Rewrote company general credit policy
n Enhanced market analyses through underwriting triggers and hurdles
Future Improvements of Credit Risk Management
• Enhance Concentration Management
Ø Introduce Industry Risk Ratings
Ø Portfolio/Segment Stress Testing
Ø Introduce a “white paper” process
• Eliminate remaining exceptions to the uniform underwriting
standards
standards
• Enhance Data Management and oversight
• Implement Hold limits that incorporate PD Risk Ratings and
Industry Ratings at Corporate and Affiliate levels
Industry Ratings at Corporate and Affiliate levels
• Enhance Risk Rating Models
• Improve Reporting Lines for Affiliate Chief Credit Officers
53
CRE Risk Hurdles - Disciplined Approach to Asset Classes and Markets
54
(e.g. Las Vegas Office)
Definitions
Enabling Growth, While Carefully Managing Risk
• Developing key metrics that serve the purpose of
• Growing the business in a managed way
• Adhering to the strategic plan
• Exceptions to the policy are being monitored,
managed and escalated in an effective manner
managed and escalated in an effective manner
• Ensuring “business lines” have critical input into
risk decisions and jointly develop any risk
mitigation plans
risk decisions and jointly develop any risk
mitigation plans
55
Credit Quality - Total Portfolio
4Q13 | 3Q13 | 4Q12 | |
Total Loan Balance ($B) | 39.2 | 38.4 | 37.9 |
Total Delinquencies | 0.8% | 0.8% | 1.5% |
Total Non-Performing Loans | 1.0% | 1.2% | 1.7% |
Total Classifieds | 3.2% | 3.7% | 4.7% |
% of Classifieds Performing | 84.4% | 83.9% | 78.6% |
Total Net Charge-Offs | 0.2% | 0.1% | 0.2% |
Total Loan Balance
Total Loan Balance Key Statistics
56
Source: SNL and company documents
Loan growth is strong and charge offs remain low compared to Comm’l Banks
Rolling NCO rate gradually declined from 0.41% in 2012 Q4 to 0.13% in 2013 Q4
Credit quality metrics indicate improving trends
Rolling NCO rate gradually declined from 0.41% in 2012 Q4 to 0.13% in 2013 Q4
Credit quality metrics indicate improving trends
Term CRE Portfolio Improving
Term CRE Key Statistics
4Q13 | 3Q13 | 4Q12 | |
Loan Balance ($B) | 8.0 | 8.2 | 8.1 |
Delinquencies | 1.1% | 0.8% | 1.8% |
Non-Performing Loans | 1.4% | 1.4% | 2.9% |
Classifieds | 3.3% | 3.7% | 4.9% |
% of Classifieds Performing | 90.8% | 89.0% | 80.9% |
Net Charge-Offs | 0.1% | 0.2% | 0.3% |
Collateral
57
Gradient Fill - 2013 % mix ↓from 2008
Solid Fill - 2013 % mix ↑ from 2008
Source: SNL and company documents
Current Term CRE Balance - $8.0B (21.0% of Total Loans)
Term CRE balances steady with improving NCO rate
Credit quality metrics for Term CRE show improving trends
Credit quality metrics for Term CRE show improving trends
• Left - Sample data: As of 4Q13; non-FDIC supported term loans > $500k balance
• Right - As of 4Q13; LTVs were adjusted using PPR’s market level/property type value trend indices
58
Term CRE Metrics are Solid
Net Charge-offs: Through the Cycle, Term CRE and Multi-Family
NCO rate compares favorably with peers through the cycle
NCO rate compares favorably with peers through the cycle
Source: Company Documents & SNL Financial. Net charge-off ratios annualized.
59
60
n Concentration policy limits & organization established; integrated into business process
n Board approved risk appetite & limits; risk boundaries aligned with capital
n Corporate Concentration Risk Committee (CCRC) manages appetite and limits
n Limit asset levels set conservatively lower than actual peak downturn
n Current portfolios well below peak concentration levels
n Risk management assessment considers new loan production by market and asset class
n CRE high risk loan alerts provided to relationship managers
Notes: As of Date = 12/31/13; Risk-based cap. As of 9/30/13. Values are Committed Exposure as a percentage of Total Risk Based Capital (CE / TRBC);
Committed Exposure = Bank Balance + Remaining Commitment * Credit Conversion Factor (100% for Construction, 0% for Bankcard, 100% for
C&I and CRE, and 50% for all other assets.;
Exposures Below Limits and Historical Highs
61
Affiliates Within Limits and Historical Highs
Current portfolio as a % of risk based capital
Portfolio limit as a % of regulatory capital
Portfolio peak as a % of regulatory capital
Sources: Total Risk Based Capital = SNL Financial, Bank Balance and Remaining Commitment = EDW.
Notes: As of Date = 12/31/13 (Risk Based Numbers as of 9/30); Values are Committed Exposure as a percentage of Total Risk Based Capital (CE / TRBC);
Committed Exposure = Bank Balance + Remaining Commitment * Credit Conversion Factor (100% for Construction, 0% for Bankcard, 100% for C&I and CRE, and 50% for all
other assets.
other assets.
Commercial Real Estate (CRE) excludes Owner Occupied; Commerce Bank of Washington and Commerce Bank of Oregon excluded as not being material
Nominal near-term risk: Under roll-rate methodology, $2B HECL portfolio would generate $5.6 million and $5.3
million in 2014 and 2015 net losses, respectively. Using payment shock method, there is only a nominal
increase to $6.1 million of expected loss for each 2014 and 2015.
million in 2014 and 2015 net losses, respectively. Using payment shock method, there is only a nominal
increase to $6.1 million of expected loss for each 2014 and 2015.
Home Equity Credit Line (HECL) Payment Shock Risk: 2014-2015
62
Combined payment shock of HECLs rolling into an amortizing payment and experiencing an interest rate increase (HECLs are adjustable rate)
estimated by shifting DTIs given higher payment, holding income and other debts flat from origination. The rate environment
contemplated is the Fed’s Adverse Economic Scenario from CCAR (which has the highest interest rate assumptions).
estimated by shifting DTIs given higher payment, holding income and other debts flat from origination. The rate environment
contemplated is the Fed’s Adverse Economic Scenario from CCAR (which has the highest interest rate assumptions).
No Particular Balloon to Pop: There’s a fairly even distribution of loans coming to end of their draw
period over next several years. Highest exposure to payment shock is clearly 2016 and 2017,
but should not have dramatic impact on portfolio as a whole.
period over next several years. Highest exposure to payment shock is clearly 2016 and 2017,
but should not have dramatic impact on portfolio as a whole.
HECL End of Draw Schedule
Loan Growth Outlook, by Type
64
Ø C&I and Owner Occupied Loans
§ Healthy growth expected in Commercial & Industrial lending
§ Small business loan growth is emphasized across the company
§ Middle-market business banking will also play a major role in 2014 C&I growth
Ø CRE Loans
§ Generally limited growth in CA, AZ, CO
§ Stronger growth expected in UT and TX
Ø Mortgage Related Consumer Loans
§ Expect continued healthy to robust growth
Ø Memorandum: National Real Estate (a division of Zions
Bank)
Bank)
§ National Real Estate loans continue to decline; estimated 2014 decline: $500 million
(split between Term CRE and Owner Occupied buckets).
(split between Term CRE and Owner Occupied buckets).
Agenda
• Overview
• Return On Equity: Scenario Analysis
• Under the Hood: Net Interest Margin
• Fee Income Initiative
• Risk Oversight and Credit Management
• CDO Portfolio and Volcker Rule Update
• CCAR
• FutureCore
• Updated Guidance
• Appendix
65
Bank CDOs: Fundamental Trends are Improving
Failures and Deferrals Have Declined Sharply
Failures and Deferrals Have Declined Sharply
66
As of 12-31-2013
(1) Last 12 months. Prior to 3Q09, averages were predominately large banks, significantly skewing the
data.
data.
New Bank Deferrals in Zions’ CDOs
are Trending Downward
(Aggregate Underlying Collateral)
are Trending Downward
(Aggregate Underlying Collateral)
(In millions)
(In millions)
Bank CDOs: Fundamental Trends are Improving
Deferring Bank Re-performance has Increased
Deferring Bank Re-performance has Increased
67
As of 12-31-2013
67
(In millions)
Net of $250 million of re-deferrals from 9 banks
• Peak dollar value of deferring collateral: $3.5 billion (2Q11)
• Current deferring collateral: $1.46 billion
Underlying Collateral for Zions’ CDOs (after 1st Q Sales)
Collateral = the sum of the all trust preferred securities (TRUPS) for all owners of Zions CDO tranches
Collateral = the sum of the all trust preferred securities (TRUPS) for all owners of Zions CDO tranches
68
*Non Defaulted Collateral
CDO Portfolio Composition & Values as of 4Q13
69
December 31, 2013 | |||||
(Amounts in Millions) | # of Tranches | Par Amount | Amortized Cost | Carrying Value | Net Unrealized Losses Recognized in AOCI |
Performing CDOs | |||||
Predominantly Bank CDOs | 23 | $687 | $617 | $499 | -$118 |
Insurance CDOs | 22 | 433 | 413 | 346 | -67 |
Other CDOs | 3 | 43 | 26 | 26 | -- |
Total Performing CDOs | 48 | 1163 | 1056 | 871 | -185 |
Nonperforming CDOs | |||||
CDOs Credit Impaired Prior to Last 12 Months | 32 | 614 | 369 | 285 | -84 |
CDOs Credit Impaired During Last 12 Months | 23 | 448 | 187 | 147 | -40 |
Total Nonperforming CDOs | 55 | 1062 | 556 | 432 | -121 |
Total CDOs | 103 | $2,225 | $1,612 | $1,303 | -$309 |
CDOs Identified for Sale
70
December 31, 2013 | ||||
(Amounts in Millions) | # of Tranches | Par Amount | Amortized Cost | Carrying Value |
Performing CDOs | ||||
Predominantly Bank CDOs | 0 | $0 | $0 | $0 |
Insurance CDOs | 3 | 71 | 55 | 55 |
Other CDOs | 3 | 43 | 26 | 26 |
Total Performing CDOs | 6 | 114 | 81 | 81 |
Nonperforming CDOs | ||||
CDOs Credit Impaired Prior to Last 12 Months | 15 | 291 | 124 | 124 |
CDOs Credit Impaired During Last 12 Months | 12 | 226 | 78 | 78 |
Total Nonperforming CDOs | 27 | 517 | 202 | 202 |
Total CDOs | 33 | $631 | $283 | $283 |
CDO Sale Results
February 14, 2014 | ||||||
(Amounts in Millions) | # of Tranches | Par Amount | Amortized Cost | Loss Taken in 4Q13 | Sale Proceed | Realized Gain/Loss |
Performing CDOs | ||||||
Predominantly Bank CDOs | 0 | $0 | $0 | $0 | $0 | $0 |
Insurance CDOs | 3 | 71 | 55 | -16 | 55 | 0 |
Other CDOs | 3 | 43 | 26 | -8 | 28 | 3 |
Total Performing CDOs | 6 | 114 | 81 | -24 | 83 | 3 |
Nonperforming CDOs | ||||||
CDOs Credit Impaired Prior to Last 12 Months | 15 | 291 | 123 | -53 | 154 | 30 |
CDOs Credit Impaired During Last 12 Months | 12 | 226 | 78 | -60 | 111 | 33 |
Total Nonperforming CDOs | 27 | 517 | 201 | -113 | 265 | 63 |
Total CDOs | 33 | $631 | $282 | -$137 | $348 | $65 |
71
CDO Portfolio Composition & Values
Pro Forma for Sold CDOs*
Pro Forma for Sold CDOs*
72
*Does not reflect improvement observed in values on securities not sold
February 14, 2014 | |||||
(Amounts in Millions) | # of Tranches | Par Amount | Amortized Cost | Carrying Value* | Net Unrealized Losses Recognized in AOCI* |
Performing CDOs | |||||
Predominantly Bank CDOs | 23 | $687 | $617 | $499 | -$118 |
Insurance CDOs | 19 | 362 | 358 | 292 | -66 |
Other CDOs | 0 | 0 | 0 | 0 | 0 |
Total Performing CDOs | 42 | 1049 | 975 | 791 | -184 |
Nonperforming CDOs | |||||
CDOs Credit Impaired Prior to Last 12 Months | 17 | 323 | 245 | 161 | -84 |
CDOs Credit Impaired During Last 12 Months | 11 | 222 | 109 | 69 | -40 |
Total Nonperforming CDOs | 28 | 545 | 354 | 230 | -124 |
Total CDOs | 70 | $1,594 | $1,329 | $1,021 | -$308 |
Mezzanine CDO Value History: Recovery of value has been
significant, particularly on mezzanine (Original A Rated) securities
significant, particularly on mezzanine (Original A Rated) securities
73
Agenda
• Overview
• Return On Equity: Scenario Analysis
• Under the Hood: Net Interest Margin
• Fee Income Initiative
• Risk Oversight and Credit Management
• CDO Portfolio and Volcker Rule Update
• CCAR
• FutureCore
• Updated Guidance
• Appendix
74
CCAR, Volcker Rule, and CDO Sales
• Original CCAR submission projected over $600
million of capital stress from CDO portfolio under
severe stress scenarios due to Volcker Rule.
million of capital stress from CDO portfolio under
severe stress scenarios due to Volcker Rule.
• CDO sales and Volcker Rule revisions materially
reduce the adverse impact.
reduce the adverse impact.
• Zions expects to resubmit a revised CCAR stress
test and capital plan by late March / early April.
test and capital plan by late March / early April.
• Capital distributions are still likely to be
conservative in 2014.
conservative in 2014.
75
Major improvements in all CCAR principles
1. Foundation Risk Management
• Created CRO position, updated all major risk policies and risk appetite
framework
framework
2. Effective Loss Estimation
• Created loan level loss models for C&I and Resi
• Approximately 90% of loan portfolio modeled at loan level
3. Capital Resource Estimation
• Significant enhancement to revenue projection methods
• Model loan origination, prepayment, charge-off, amortization
• Loan growth and pricing estimated at major product level
4. Capital Adequacy Impact
• Integrated loss and revenue projection in ALM system
• Developed Bottom-up approach to forecast RWA
• Created CAP improvement group
76
Major improvements in all CCAR principles (Cont’d)
5. Comprehensive Capital Policy and Planning
• Rewritten Capital Policy
• Substantial improvements and documentation of procedures
6. Robust Internal Controls
• Improved Model Risk Management practice
• Increased control points in CAP procedures
• Expanded documentation
7. Effective Governance
• Increased level and standardization of Board reporting
• Established governance procedures for management overlays
• Enhanced guidelines for reviewing potential capital transactions
77
Agenda
• Overview
• Return On Equity: Scenario Analysis
• Under the Hood: Net Interest Margin
• Fee Income Initiative
• Risk Oversight and Credit Management
• CDO Portfolio and Volcker Rule Update
• CCAR
• FutureCore
• Updated Guidance
• Appendix
78
Systems Upgrade Overview
• FutureCore is a program initiated by Zions Bancorporation to replace
its core operating systems into a single application
its core operating systems into a single application
• Zions is working with TCS (Tata Consultancy Services) to implement
their BαNCS operating software
their BαNCS operating software
• Zions managed, but 3rd party oversight reports directly to the board
Current State
Future State
Systems Upgrade Benefits
Key benefits of FutureCore | How will this help? |
Real-time processing | -Transactions, balances and other information updated immediately -Less manual and more efficient processing |
Standardization of processes and data | -Reduced customization reduces cost -Significant improvement to customer profitability analysis -Better equipped for FR Y-14 stress test data |
Loans & deposits on one system | -360* view of our relationship with customer -Quicker to access customer information across multiple systems -Fewer systems to maintain & train |
Parameter-based | -Ability to quickly develop & introduce banking products |
Configurable | -Quicker and less costly system upgrades |
Agenda
• Overview
• Return On Equity: Scenario Analysis
• Under the Hood: Net Interest Margin
• Fee Income Initiative
• Risk Oversight and Credit Management
• CDO Portfolio and Volcker Rule Update
• CCAR
• FutureCore
• Updated Guidance
• Appendix
81
Key Takeaways: Medium to Long Term Outlook
82
Ø Return on Equity
§ Return on Tangible Common Equity can improve through loan growth, modest
amounts of asset duration extension, executing on the fee income initiative, and/or an
increase in interest rates
amounts of asset duration extension, executing on the fee income initiative, and/or an
increase in interest rates
Ø Significant Reduction in Risk Profile vs. Pre-Crisis
§ Sale of CDOs with highest risk weighting and greatest impact on stress test capital
§ Significant reduction of land acquisition and development and construction loans
Ø Significant Improvement in Risk Processes vs. Pre-Crisis
§ Upgraded data integrity and management information systems, streamlined processing
§ Comprehensive Risk Appetite Framework, including concentration limits
§ Stress testing capabilities greatly expanded, which is assisting in identifying and
mitigating elevated risk areas
mitigating elevated risk areas
§ Enabling loan growth, while carefully managing risk
Key Takeaways: Medium to Long Term Outlook (Cont’d)
83
Ø Net Interest Income: Playing for the Long Term
§ Will continue to avoid assuming risk we don’t know how to manage - namely, duration
extension risk from MBS, with a related shortage of funding for loan growth at precisely
the time when MBS prepayments are slowing
extension risk from MBS, with a related shortage of funding for loan growth at precisely
the time when MBS prepayments are slowing
§ May add receive fixed/pay float swaps to extend duration somewhat as rates rise -
“Zions may taper in, as the Fed tapers out”
“Zions may taper in, as the Fed tapers out”
§ Loan pricing on new production appears to be stabilizing, but at dilutive yields to book
yields
yields
Ø Fee Income Initiative
§ Significant opportunities to improve penetration rates for existing products, driven by
stronger focus and better cross-selling tools and effort
stronger focus and better cross-selling tools and effort
§ Infrastructure already in place in most cases
Ø Non-Interest Expense: Long Term Effort to Improve Efficiency
§ So-called “environmental costs” & FDIC indemnification asset expense reductions to
layer in over 12-24 months.
layer in over 12-24 months.
§ FutureCore and other systems upgrades will ultimately reduce costs and enable a more
streamlined organization, but not in the near term horizon.
streamlined organization, but not in the near term horizon.
§ Ongoing expense management (e.g. branch office rationalization)
Topic | Outlook | Comment |
Loan Balances | Slightly to Moderately Increasing | • Prepayments remain volatile, making net loan growth difficult to forecast |
Net Interest Income | Moderately Declining | • FDIC Covered Loan income likely to experience further decline • Excluding interest income from covered loans, NII likely generally stable to slightly increasing, assuming moderate loan growth and debt reduction |
Provisions | Moderately Negative | • Includes Provisions for Loan Losses & Reserve for Unfunded Loan Commitment |
Fee Income | Increasing | • Excluding securities impairment charge, fee income initiatives likely to result in moderate increase |
Noninterest Expense | Decreasing | • 4Q13 NIE included $80 million from debt extinguishment and elevated expenses from professional services related to regulatory obligations (CCAR, living will) • Higher expenses stemming from loan/deposit/accounting systems upgrade, offset by reduced credit-related NIE and subsiding FDIC Indemnification Asset amortization |
Net Income Available to Common | Increasing | • 4Q13 included the significant effects from two items that are unlikely to reoccur, which resulted in a loss for the quarter. Excluding such items, GAAP Net Income Available to Common is likely to be stable to slightly higher. |
One-Year Outlook Summary
Relative to 4Q13 Results
Relative to 4Q13 Results
84
Agenda
• Overview
• Return On Equity: Scenario Analysis
• Under the Hood: Net Interest Margin
• Fee Income Initiative
• Risk Oversight and Credit Management
• CDO Portfolio and Volcker Rule Update
• CCAR
• FutureCore
• Updated Guidance
• Appendix
85
Calculation for Normalized Net Income in 4Q13
86
Right hand column reflects a tax rate of 38.75%
Systems Upgrade (“FutureCore” - core processing system upgrade, chart of accounts overhaul, and front-end
loan entry system upgrade): $28mm additional estimated, on average (This does not include the
approximately $18 mm annualized of systems upgrade expense recognized in 4Q13)
loan entry system upgrade): $28mm additional estimated, on average (This does not include the
approximately $18 mm annualized of systems upgrade expense recognized in 4Q13)
Item | Pre-Tax | After-Tax | ||
Net Income as Reported | -$59.4 | |||
OTTI | $141.7 | $86.8 | ||
Debt Extinguishment | $79.9 | $48.9 | ||
Professional & Legal | $10.0 | $6.1 | ||
Regulatory Related | $6.0 | $3.7 | ||
Credit Related | $3.0 | $1.8 | ||
Allowance for Unfunded | $3.0 | $1.8 | ||
Indemnification Asset Exp. | $19.9 | $12.2 | ||
FDIC Income | -$28.5 | -$17.5 | ||
Additional Expenses for Systems Upgrade* | -$7.0 | -$4.3 | ||
Adjusted Net Income | $80.3 |
A Collection of Great Banks
More than 70% of Assets in Utah / Texas / Coastal California
More than 70% of Assets in Utah / Texas / Coastal California
87
Subsidiary information as of 3Q13
§ Superior lending capacity relative
to community banks
to community banks
§ Superior local customer access to
bank decision makers relative to
big nationals
bank decision makers relative to
big nationals
§ Centralization of some processing
and other non-customer facing
elements of the business to
achieve efficiencies
and other non-customer facing
elements of the business to
achieve efficiencies
§ Strategic local “ownership” of
market opportunities and
challenges
market opportunities and
challenges
Awards: Nationally Recognized for Excellence
• Twelve (12) Greenwich Excellence Awards in Small Business and
Middle Market Banking (2013)
Middle Market Banking (2013)
• Including:
§ Excellence: Overall Satisfaction
§ Excellence: Likelihood to Recommend
§ Excellence: Treasury Management
§ Excellence: Financial Stability
Only 11 U.S. banks were awarded more than 10 Excellence awards in 2013; Zions has
been consistently awarded more than 10 awards per year for many years in a
row.
been consistently awarded more than 10 awards per year for many years in a
row.
• Nationally Ranked in the Top 10 in Small Business Loan production 1
• Top team of women bankers - American Banker2
88
1. Volume and number of loans, SBA fiscal year ended September 30, 2013
2. One of four winning teams, 2013, Zions Bank
§ Job Creation:
Jobs grew in Zions' footprint by 13.5% during the last 10 years, a full 8 percentage points
better than U.S. nonfarm payroll growth
better than U.S. nonfarm payroll growth
§ GDP Growth:
GDP growth in our footprint exceeded nominal U.S. GDP by an average of 1.3 percentage
points per year (compounded) over the last ten years
points per year (compounded) over the last ten years
Stronger Economic Growth than Overall U.S.
89
Source: SNL, Bureau of Economic Analysis and Zions’ calculations as of 4Q13
Balance Sheet Mix
Strengths include a strong mix of loans and DDA funding
Strengths include a strong mix of loans and DDA funding
90
Source: Company documents as of 3Q13
Source: Company Documents for Zions as of 4Q13, SNL Financial for peers as of 3Q13
*Includes farm, home equity, consumer, and other loans
91
Strong Focus on Business Banking & Smaller-Sized Customers - Loan Mix
• Small Loans < $5M Commitment
• Large Loans > $5M Commitment
Small
Loans
Loans
Large
Loans
Loans
Loan Growth by Bank
Portfolio overview:
§Credit quality metrics have improved materially in:
– All loan types
– All geographies
§Problem loan inflows continue to slow; most resolutions
are favorable; charge-offs are declining; loss severities are
declining
are favorable; charge-offs are declining; loss severities are
declining
§Loan loss reserve is strong and problem loan coverage
improving
improving
Credit Quality Key Takeaways
93
Credit Quality - Total Portfolio
4Q13 | 3Q13 | 4Q12 | |
Total Loan Balance ($B) | 39.2 | 38.4 | 37.9 |
Total Delinquencies | 0.8% | 0.8% | 1.5% |
Total Non-Performing Loans | 1.0% | 1.2% | 1.7% |
Total Classifieds | 3.2% | 3.7% | 4.7% |
% of Classifieds Performing | 84.4% | 83.9% | 78.6% |
Total Net Charge-Offs | 0.2% | 0.1% | 0.2% |
Total Loan Balance
Total Loan Balance Key Statistics
94
Source: SNL and company documents
Loan growth is strong and charge offs remain low compared to Comm’l Banks
Rolling NCO rate gradually declined from 0.41% in 2012 Q4 to 0.13% in 2013 Q4
Credit quality metrics indicate improving trends
Rolling NCO rate gradually declined from 0.41% in 2012 Q4 to 0.13% in 2013 Q4
Credit quality metrics indicate improving trends
C&D Problem Loans Also Improving
*Commercial includes multi-family
**Based on gross charge-offs
Current Commercial C&D Balance - $1.5B (3.9% of Total Loans); Residential C&D - $713MM (1.8% of Total
Loans)
Loans)
Term CRE Portfolio Improving
Term CRE Key Statistics
4Q13 | 3Q13 | 4Q12 | |
Loan Balance ($B) | 8.0 | 8.2 | 8.1 |
Delinquencies | 1.1% | 0.8% | 1.8% |
Non-Performing Loans | 1.4% | 1.4% | 2.9% |
Classifieds | 3.3% | 3.7% | 4.9% |
% of Classifieds Performing | 90.8% | 89.0% | 80.9% |
Net Charge-Offs | 0.1% | 0.2% | 0.3% |
Collateral
96
Gradient Fill - 2013 % mix ↓from 2008
Solid Fill - 2013 % mix ↑ from 2008
Source: SNL and company documents
Current Term CRE Balance - $8.0B (21.0% of Total Loans)
Term CRE balances steady with improving NCO rate
Credit quality metrics for Term CRE show improving trends
Credit quality metrics for Term CRE show improving trends
Source: company documents and earnings releases
*Based on gross charge-offs
Term CRE Losses and Loss Severity Improving
97
• Left - Sample data: As of 4Q13; non-FDIC supported term loans > $500k balance
• Right - As of 4Q13; LTVs were adjusted using PPR’s market level/property type value trend indices
98
Term CRE Metrics are Solid
Term CRE collateral shows strong cash flow
99
(In billions)
• Sample data: As of 4Q13; term loans > $500k balance
Loans with high debt yield ratios have lower refinance risk.
Real Estate Loan Portfolio Mix
Higher Risk Loans Declining, Growth in Apartment Loans
Higher Risk Loans Declining, Growth in Apartment Loans
100
Portfolio Mix Shifting Away From Risky Assets
Loan Balance Changes From 2008
RE Property Type | 4Q13 |
Residential | 30.3% |
Warehouse | 9.2% |
Other | 12.4% |
Office | 19.1% |
Retail | 10.4% |
Apartment | 6.4% |
Hospitality | 7.6% |
Land and Lots | 3.6% |
Unsecured | 1.2% |
Total | 100.0% |
4Q08 | 4Q13 | % Change | |
Apartment | 1.4 | 2.1 | 50.0% |
Office* | 5.1 | 2.8 | -45.1% |
Warehouse* | 2.5 | 4.2 | 68.0% |
Other Real Estate | 3.5 | 3.2 | -8.6% |
Hospitality | 2.2 | 1.7 | -22.7% |
Retail | 3.0 | 2.2 | -26.7% |
Residential | 9.0 | 7.9 | -12.2% |
Unsecured | 0.5 | 0.2 | -60.0% |
Land and Lots | 2.5 | 0.7 | -72.0% |
Grand Total | 29.7 | 25.0 | -15.8% |
Source: Company documents
*An internal collateral code classification was changed from office to warehouse in 2012; warehouse and office
collectively dropped 7.9% from 4Q08-4Q13
Current RE Balance - $25.0B (63.8% of Total Loans)
Portfolio Diversified by Geography and Property Type
Term CRE Predominately in Footprint
Term CRE Predominately in Footprint
10
1
1
Location
Property Type
Data as of 4Q13. Source: company documents
Sources of Interest Income from Diversified
Property Types and Industries
Property Types and Industries
102
Data as of 4Q13. Source: company documents
Credit Quality Improving in Commercial and Industrial
C&I Key Statistics
4Q13 | 3Q13 | 4Q12 | |
Loan Balance ($B) | 20.7 | 20.1 | 19.5 |
Delinquencies | 0.9% | 0.9% | 1.4% |
Non-Performing Loans | 1.2% | 1.3% | 1.6% |
Classifieds | 4.1% | 4.5% | 4.6% |
% of Classifieds Performing | 86.1% | 87.4% | 80.9% |
Net Charge-Offs | 0.1% | 0.1% | 0.2% |
C&I Loan Balance
10
3
3
Current C&I Balance - $20.7B (53.3% of Total Loans)
Source: SNL and company documents
C&I balances increasing with improving NCO rate
Credit quality metrics for C&I show uniformly improving trends
Credit quality metrics for C&I show uniformly improving trends
Source: Company Documents.
* Based on gross charge-offs
Owner Occupied Losses & Loss Severity Improving
10
4
4
Current C&I OO Balance - $7.7B (19.8% of Total Loans)
Increase attributable to
National Real Estate
grading methodology
change
National Real Estate
grading methodology
change
Credit Quality Improving in Consumer
Consumer Key Statistics
4Q13 | 3Q13 | 4Q12 | |
Balance ($B) | 7.7 | 7.5 | 7.3 |
% of Total Loan Portfolio | 19.6% | 19.7% | 19.3% |
Delinquencies | 0.7% | 0.8% | 1.2% |
Net Charge-Offs | 0.02% | 0.1% | 0.6% |
Consumer Loan Balance
10
5
5
Current Consumer Balance - $7.7B (19.8% of Total Loans)
Source: SNL and company documents
Consumer balances increasing with improving NCO rate
Credit quality metrics for Consumer show improving trends
Credit quality metrics for Consumer show improving trends
106
Source: company documents
*Sample covers 99% of portfolio
Data as of 4Q13
Majority of HECLs in Under 80% LTV Category
Current LTV- FICO Distribution on Mortgage Loans:
Very Limited Layering of Risk (e.g. high LTV, low FICO)
Very Limited Layering of Risk (e.g. high LTV, low FICO)
107
FICO Segments | ||||||
<= 600 | 600-650 | 650-700 | > 700 | Row Total | ||
LTV Segments | < 80 | 2% | 2% | 7% | 67% | 79% |
80-90 | 1% | 0% | 1% | 7% | 10% | |
90-100 | 0% | 0% | 1% | 4% | 5% | |
> 100 | 0% | 0% | 1% | 5% | 6% | |
Column Total | 3% | 4% | 10% | 83% | 100% |
FICO Segments | ||||||
<= 600 | 600-650 | 650-700 | > 700 | Row Total | ||
LTV Segments | < 80 | 2% | 2% | 6% | 81% | 90% |
80-90 | 0% | 0% | 0% | 4% | 5% | |
90-100 | 0% | 0% | 0% | 2% | 2% | |
> 100 | 0% | 0% | 0% | 2% | 2% | |
Column Total | 2% | 2% | 7% | 89% | 100% |
1st Lien Mortgages
Junior Lien Mortgages
Source: company documents
Data as of 4Q13
Affiliate Information
108
Amegy Bank of Texas
February 2014
• 15th largest economy in the world
• Population ranks 2nd in the U.S.
• Leads the nation in job creation
• 5.6% unemployment rate
• 2012 housing starts exceeded 60,000
• Ranked 1st by export revenues in the
U.S.
U.S.
110
Houston…Operating in a Diversified Economy
• 3,700+ energy-related
entities
entities
• Home to 40 of the nation’s
145 publicly traded oil and
gas E&P firms, and 10 of the
top 25
145 publicly traded oil and
gas E&P firms, and 10 of the
top 25
• The nine refineries in the
Houston region produces
13.3% of total U.S. crude oil
capacity
Houston region produces
13.3% of total U.S. crude oil
capacity
• By 2021, the Eagle Ford Shale
should generate $90+ billion
in total economic output and
support 116,000 jobs
should generate $90+ billion
in total economic output and
support 116,000 jobs
• 106,000 employees
• Construction projects worth
$7B to be completed by 2014
$7B to be completed by 2014
• Creates $10 billion in
regional spending
regional spending
• 1,300+ acres; larger than
Chicago’s Inner Loop
Chicago’s Inner Loop
• 45.8MM sq. ft. of patient
care, education & research
space
care, education & research
space
• 54 institutions
• First in U.S. in foreign
tonnage; second in U.S. for
total tonnage; world’s tenth
largest
tonnage; second in U.S. for
total tonnage; world’s tenth
largest
• 7,700+ ships visit annually
• $15 billion petrochemical
complex; 2nd largest in the
world
complex; 2nd largest in the
world
• 3,500+ companies trade 180+
types of products in 183
countries
types of products in 183
countries
• Ship channel-related
businesses contribute 1MM+
jobs across Texas
businesses contribute 1MM+
jobs across Texas
Home of the world’s largest
health care complex
health care complex
Energy capital of the world
Port of Houston
111
Two Key Market Segments
Energy
• Economy has rebounded since
`08-`09 price volatility
`08-`09 price volatility
Commercial Real Estate
112
Source: Property and Portfolio Research (PPR)
Recent Significant Accomplishments
•#1 middle market bank* (lead
relationship share)
relationship share)
•#2 treasury management bank*
•#3 small business bank* (lead
relationship share)
relationship share)
•#2 SBA lender in Houston
•4.8% deposit market share (JPM,
BAC, WFC: 58% deposit market
share)
BAC, WFC: 58% deposit market
share)
•#7 in U.S. for EX-IM working
capital loans with Fast Track
Lending Authority
capital loans with Fast Track
Lending Authority
*Data based on 2011 full-year Greenwich Associates research
113
Core Earnings Remain Strong
114
($’s in millions)
Loan Portfolio…Becoming More Granular
115
Loans by Line of Business
Dec MTD Average
Expense Control…Remains a Key
116
Fee Income…Growth Opportunity Muted by Legislative and Economic
Conditions
Conditions
117
(1) 2008 Adjusted for $38mm swap
gain.
gain.
Net Charge-offs…Fared Better than Most
118
(1) Peer Group includes 64 publicly traded companies with assets > $10 Billion. Average is
weighted by Total Net Loans.
weighted by Total Net Loans.
(2) Analyst Peer Group consists of 19 publicly traded banks stock analysts deem Zions’
Peers. Average is weighted by Total Net Loans.
Peers. Average is weighted by Total Net Loans.
119
Amegy Bank of Texas…Well-positioned for the Future
120
Energy Loan Portfolio
Energy Cycle
Oil and Gas…A Historical Snapshot
122
US Rig Count - Oil/Gas
123
124
Credit Quality…Significant Improvement
Energy Service Exposure By Market Segment
$2.2 Billion in Commitments
125
Reserve-Based Underwriting
126
($ in millions)
Typical Oil & Gas Reserve based loan
$100 - value using NYMEX oil and gas prices
$ 85 - Amegy risk-adjusted reserves (i.e. collateral value)
$ 68 - apply Amegy prices (80% of NYMEX)
$ 51 - loan value 75% adv. rate (25% of reserves hedged)
$ 41 - loan value 60% adv. rate (no hedging)
Note
• Average utilization on reserve-based facilities ~54%.
• PDNP reserves limited to 25%.
• 75% producing reserves.
127
Gas Shale Plays: A New Dimension
Outlook
128
Industry Condition
• Consolidation has resulted in larger companies with stronger
balance sheets and access to multiple capital sources
balance sheets and access to multiple capital sources
Price Outlook
• Continued Price Volatility
• Increased Global Oil & Gas Demand
• Increased production costs and tight supply will provide upward
price pressure
price pressure
Amegy’s Energy Team
• Experienced Team
• Conservative Underwriting Standards
• Active use of Hedging
• Diversified Energy Portfolio
Page *
California Bank & Trust
Investor Day
David Blackford
February 13, 2014
Investor Day
David Blackford
February 13, 2014
Page *
Loan Portfolio - December 2013
Page *
2013 Loan Growth
$ Growth (in MM) | % Growth | |
C&I | $374 | +21% |
Owner Occupied | $19 | +1% |
CRE - Construction | $164 | +34% |
CRE - Term | -$13 | -1% |
1-4 Family | -$29 | -2% |
HECL | -$20 | -9% |
Other Consumer | -$22 | -3% |
Total - Core | $493 | +6% |
FDIC Supported | -$178 | -35% |
Total - Net | $315 | +4% |
Growth in monthly average balances from December 2012 to December 2013
Page *
Net Interest Margin
Page *
FDIC Supported Loan Recap
($ in millions) | 2009-13 | 2014F |
Bargain Purchase Gain | 172 | 0 |
Recoveries | 14 | 0 |
Excess Accretion | 265 | 33 |
IA Amortization Expense | 212 | 21 |
Provision, Net | 22 | 0 |
Pretax Benefit | 217 | 12 |
Ending FDIC Loans | 321 | 219 |
Classified Cmmt | 20 | 57 |
Ending IA Balance | 26 | ~0-4 |
® Acquired $2.4 billion in unpaid principal balances in 2009
® Loss share coverage for non-single family loans ends in 2014
® Recovery period is 3 years (includes expense reimbursement for loans with charge-
offs during loss share period)
offs during loss share period)
® Accounting for Indemnification Asset on track for orderly resolution
Excess accretion is defined as discount accretion above fair value yields determined at time of acquisition
Classified commitments increase in 2014 due to expiration of loss share coverage
Page *
Real Estate Division Originations Year-Over-Year
Page *
2013 Real Estate Division
Originations by Location
71% of originations in SF Bay, Los Angeles and Orange County
Page *
LTV | Cml Land | Industrial | Multi- family | Office | Res Lots | Res Prod | Retail | % LTV Segment |
< =50% | 0.0% | 22.3% | 18.3% | 34.4% | 55.8% | 27.2% | 19.3% | 25.7% |
50.1% - 60% | 100.0% | 55.9% | 55.3% | 18.1% | 44.2% | 25.1% | 24.7% | 38.1% |
60.1% - 70% | 0.0% | 15.9% | 24.9% | 24.0% | 0.0% | 33.4% | 56.0% | 27.7% |
>70.1% | 0.0% | 5.9% | 1.4% | * 23.5% | 0.0% | ** 14.3% | 0.0% | 8.6% |
% Total New Orig. | 0.5% | 10.5% | 32.4% | 20.0% | 5.2% | 19.6% | 11.7% | 100.0% |
LTV 2013 Real Estate Division Originations
* Office > 70% consists of three term loans, one of which repaid.
** Res Prod > 70% includes completed building repositioned as for-sale condos with
substantive guarantor.
Page *
Credit Quality
® Credit quality improved steadily throughout 2013
® The majority of remaining non-performing loans consist of small
business and SBA 504 loans, which have smaller average balances and
longer resolution periods
business and SBA 504 loans, which have smaller average balances and
longer resolution periods
2012 | 2013 | |
NCO/Average Loans | 0.30% | -0.003% |
NPAs/Loans + OREO | 1.66% | 1.27% |
Classified Loans/Loans | 3.26% | 2.24% |
ACL/Loans | 1.99% | 1.57% |
Page *
Recap of CBT Strategic Objectives for 2014
® Expand core non-interest income
® Grow loans while maintaining desired product mix, geographic
diversification, and risk profile
diversification, and risk profile
® Increase core operating deposit accounts, with cross sell of fee
income services
income services
® Manage expenses carefully with continued focus on branch
repositioning
repositioning
® Continue strong risk management practices