Zions Bancorporation, N.A. — FY2022 Form 10-K Summary
Business context and reporting period
Zions Bancorporation, National Association is a Salt Lake City-based regional bank operating through seven affiliate banks across 11 Western and Southwestern states. It provides commercial and small-business banking, commercial real estate lending, retail banking, wealth management, capital markets, and related services. The filing covers the fiscal year ended December 31, 2022; fourth-quarter information is included where disclosed.
- More than one million customers, 416 branches, and 9,989 full-time equivalent employees at year-end.
- Total assets were approximately $89.5 billion at December 31, 2022.
- Net revenue was $3.2 billion for 2022, with approximately 80% generated by net interest income.
Financial performance and key metrics
| Metric | 2022 | 2021 | Change |
|---|---|---|---|
| Net interest income | $2.520 billion | $2.208 billion | +14% |
| Noninterest income | $632 million | $703 million | -10% |
| Total net revenue | $3.152 billion | $2.911 billion | +8% |
| Provision for credit losses | $122 million | $(276) million | Unfavorable $398 million change |
| Noninterest expense | $1.878 billion | $1.741 billion | +8% |
| Net income | $907 million | $1.129 billion | -20% |
| Net earnings applicable to common shareholders | $878 million | $1.100 billion | -20% |
| Diluted EPS | $5.79 | $6.79 | -15% |
| Net interest margin | 3.06% | 2.72% | +34 bps |
| Efficiency ratio | 58.8% | 60.8% | Improved |
| Return on average assets | 1.01% | 1.29% | Lower |
| Return on average common equity | 16.0% | 14.9% | Higher |
- Fourth-quarter 2022 net income was $284 million and diluted EPS was $1.84, compared with fourth-quarter 2021 net income of $213 million and diluted EPS of $1.34.
- Net interest income benefited from higher rates and a favorable mix of earning assets, despite a $188 million decline in PPP-loan interest income.
- Customer-related noninterest income increased 7% to $614 million, while noncustomer-related income declined primarily because of lower securities gains and investment valuation results.
- Salaries and benefits increased 10% to $1.235 billion, reflecting wage inflation, competitive labor-market conditions, higher incentive compensation, and increased headcount.
Balance sheet, credit, cash flow, debt, and liquidity
- Loans and leases increased 9% to $55.7 billion, driven principally by commercial and industrial, consumer residential mortgage, commercial real estate term, and municipal loans.
- Deposits declined 13% to $71.7 billion, primarily from reductions in larger-balance and rate-sensitive nonoperating deposits. The loan-to-deposit ratio increased to 78% from 61%.
- Noninterest-bearing demand deposits were $35.8 billion, or 49.9% of deposits. Estimated uninsured deposits were approximately $38 billion.
- Total allowance for credit losses increased to $636 million from $553 million; the allowance ratio was 1.15% of loans excluding PPP loans.
- Net charge-offs increased to $39 million, or 0.08% of average loans excluding PPP loans, from $6 million, or 0.01%, in 2021.
- Nonperforming assets declined 45% to $149 million, and nonaccrual loans declined from $271 million to $149 million.
- Operating cash flow was $1.470 billion. Investing activities provided $1.405 billion, primarily because of a reduction in money-market investments, while financing activities used $2.813 billion, principally because of deposit outflows and shareholder distributions.
- Cash and money-market investments declined to $4.4 billion from $13.0 billion. Management stated that liquidity remained above regulatory and internal limits.
- Short-term borrowings increased to $10.4 billion from $903 million, including $7.1 billion of FHLB borrowings. Long-term debt declined to $651 million from $1.012 billion after the redemption of $290 million of senior notes.
- Available additional FHLB and Federal Reserve borrowing capacity was approximately $13.4 billion at year-end, supported by pledged loans and securities.
- Basel III capital ratios remained above well-capitalized requirements: CET1 9.8%, Tier 1 risk-based 10.5%, total risk-based 12.2%, and Tier 1 leverage 7.7%.
Material changes versus the prior comparable period
- Higher interest rates and asset growth increased net interest income and net interest margin, but deposit balances fell materially and borrowing costs increased.
- The provision for credit losses shifted from a $276 million benefit in 2021 to a $122 million expense in 2022 as loan balances grew and economic scenarios deteriorated.
- Total shareholders’ equity fell 34% to $4.9 billion, mainly because accumulated other comprehensive loss increased by $3.0 billion from unrealized losses on fixed-rate available-for-sale securities and derivatives.
- In the fourth quarter, the Bank transferred approximately $10.7 billion of fair value, or $13.1 billion of amortized cost, of mortgage-backed securities from available-for-sale to held-to-maturity.
- The Bank repurchased 3.6 million common shares for $200 million in 2022, compared with 13.5 million shares for $800 million in 2021.
- Net deferred tax assets increased to $1.1 billion from $0.1 billion, largely because of unrealized securities and derivative losses; no valuation allowance was recorded.
- Nevada State Bank acquired three Northern Nevada branches in July 2022, including approximately $430 million of deposits and $95 million of loans.
Outlook, management commentary, risks, contingencies, and unusual items
- The filing does not provide formal quantitative earnings or revenue guidance. Management expects deposit costs to increase in the near term because of competition for low-cost funding, while stating that overall funding costs should remain low relative to peers.
- Management modeled approximately 0.80% cost of total deposits for December 2023 without additional Federal Reserve rate hikes. Actual results may differ based on deposit pricing, runoff, the yield curve, market conditions, and competition.
- Management estimated that latent and emergent interest-rate sensitivity could reduce 2023 net interest income by approximately 2% relative to 2022 levels under the stated assumptions.
- Approximately $14.2 billion of loans, unfunded commitments, and securities referenced LIBOR at year-end, with nearly all remaining contracts expected to transition to alternative rates before June 2023. The filing identifies contract, operational, legal, and valuation risks associated with the transition.
- After-tax AOCI declined by $3.0 billion because of rising interest rates. Management stated that it did not intend to sell securities with unrealized losses and did not expect those losses to be recognized in earnings absent a sale or credit impairment.
- Key risks include deposit runoff and liquidity costs, rising interest rates, commercial real estate and other credit concentrations, economic deterioration, cybersecurity and technology disruption, third-party vendor failures, regulatory change, litigation, climate and catastrophic events, and model risk in credit-loss estimates.
- Material off-balance-sheet exposures included $29.6 billion of unfunded lending commitments, $851 million of standby letters of credit, and $23 million of mortgage-backed security purchase commitments.
- Estimated reasonably possible legal losses in excess of accrued amounts ranged from zero to approximately $5 million for matters that could be meaningfully estimated; management cautioned that actual outcomes could differ and some matters could be material.
- The annual goodwill impairment review identified no impairment. Ernst & Young issued unqualified opinions on the consolidated financial statements and internal control over financial reporting.
Important facts investors should verify
- Whether deposit outflows stabilize and how quickly deposit betas and funding costs rise.
- Whether loan growth, particularly in commercial real estate, commercial lending, and residential real estate, leads to higher charge-offs or additional allowance provisions.
- The fair value, duration, unrealized losses, and liquidity value of the securities portfolio after the AFS-to-HTM transfer.
- Whether the 2023 LIBOR transition is completed without material contract disputes, operational costs, or earnings effects.
- The sustainability of net interest margin, customer-related fee growth, and the 58.8% efficiency ratio under changing interest rates.
- Liquidity coverage, collateral availability, reliance on FHLB borrowings, and the concentration of uninsured deposits.
- The realizability of the $1.1 billion net deferred tax asset and the effect of future securities losses or taxable income assumptions.
- Subsequent changes in capital distributions, share repurchases, dividend capacity, and regulatory capital requirements.