Zions Bancorporation, N.A. — FY 2023 Form 10-K Summary
Business context and reporting period
Annual report for the fiscal year ended December 31, 2023, filed February 23, 2024. Zions 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, capital markets, and wealth management services. The Bank reported approximately $87.2 billion of assets, more than one million customers, 407 branches, and 9,679 full-time equivalent employees at year-end.
Key financial metrics
| Metric | 2023 | 2022 | Change |
|---|---|---|---|
| Total net revenue | $3.115 billion | $3.152 billion | (1%) |
| Net interest income | $2.438 billion | $2.520 billion | (3%) |
| Noninterest income | $677 million | $632 million | 7% |
| Provision for credit losses | $132 million | $122 million | 8% |
| Noninterest expense | $2.097 billion | $1.878 billion | 12% |
| Net income | $680 million | $907 million | (25%) |
| Net earnings applicable to common shareholders | $648 million | $878 million | (26%) |
| Diluted EPS | $4.35 | $5.79 | (25%) |
| Net interest margin | 3.02% | 3.06% | (4 bps) |
| Efficiency ratio | 62.9% | 58.8% | Higher expense burden |
| Return on average assets | 0.77% | 1.01% | Lower |
| Return on average common equity | 13.4% | 16.0% | Lower |
Loans and leases increased 4% to $57.8 billion, while deposits increased 5% to $75.0 billion. The loan-to-deposit ratio was 77%. Interest-bearing deposits rose 36% to $48.7 billion, while noninterest-bearing demand deposits declined 27% to $26.2 billion, reflecting migration into higher-yielding products.
Net charge-offs remained low at $36 million, or 0.06% of average loans, compared with $39 million, or 0.07%, in 2022. The allowance for credit losses increased to $729 million from $636 million, and the allowance-to-loans ratio rose to 1.26% from 1.14%. Nonperforming assets increased 53% to $228 million, or 0.39% of loans and leases plus OREO.
Cash provided by operating activities was $885 million and cash provided by investing activities was $2.370 billion. Financing activities used $3.196 billion, primarily reflecting a $6.038 billion reduction in short-term borrowings, dividends, and share repurchases. Cash and due from banks ended at $716 million.
Long-term debt was $542 million, down from $651 million following maturity of $128 million of senior notes. Short-term borrowings were $4.379 billion, down from $10.417 billion. Available liquidity totaled $40.6 billion, including $38.4 billion of remaining collateralized borrowing capacity and $2.2 billion of cash and interest-bearing deposits, equal to 122% of estimated uninsured deposits.
Capital strengthened during the year. CET1 capital was 10.3%, total risk-based capital was 12.8%, and the Tier 1 leverage ratio was 8.3%, all above well-capitalized requirements. Shareholders’ equity increased 16% to $5.7 billion, while tangible common equity was $4.2 billion, or 4.9% of tangible assets.
Material changes versus the prior comparable period
- Higher interest-earning asset yields were offset by sharply higher funding costs. Average interest-bearing liabilities increased 23%, while average noninterest-bearing deposits declined 26%.
- Net interest income fell despite a 51% increase in interest and fees on loans because interest expense increased substantially, particularly on deposits and borrowings.
- Noninterest expense increased $219 million. The increase included a $90 million fourth-quarter accrual for the FDIC special assessment related to the failures of Silicon Valley Bank and Signature Bank.
- Technology, telecommunications, and information-processing expense increased 15% to $240 million. Total technology spend increased 7% to $483 million as the Bank continued replacing its core loan and deposit systems.
- Commercial real estate loans increased 5% to $13.4 billion. Office CRE loans declined to $2.0 billion from $2.3 billion, but the office portfolio’s criticized, classified, nonaccrual, and delinquency ratios increased.
- Nonaccrual loans increased to $222 million from $149 million, primarily due to one $31 million commercial and industrial loan and two suburban office CRE loans totaling $46 million.
- Accumulated other comprehensive loss improved to $2.7 billion from $3.1 billion, mainly due to amortization and paydowns related to securities previously transferred from available-for-sale to held-to-maturity. The Bank stated it did not intend to sell securities with unrealized losses.
- The Bank repurchased approximately $50 million of common stock in the first quarter and suspended repurchases for the remainder of 2023. In February 2024, the Board authorized up to $35 million of 2024 repurchases and declared a $0.41 quarterly common dividend.
Fourth-quarter information, outlook, risks, and unusual items
Fourth-quarter 2023 net income was $126 million and diluted EPS was $0.78. Net interest income was $583 million, provision for credit losses was zero, noninterest income was $148 million, and noninterest expense was $581 million. The quarter included the $90 million FDIC special-assessment accrual, contributing to the elevated expense level.
Management did not provide a formal full-year earnings or revenue forecast in the supplied filing. Management expects remaining affiliate conversions under the core deposit-system replacement project to be completed in 2024. The Bank estimates that latent and emergent interest-rate sensitivity could cumulatively increase net interest income by approximately 2% under the assumptions described in the filing, but these are sensitivity estimates rather than forecasts.
Key risks include deposit runoff and rising deposit costs; changes in interest rates and deposit behavior; commercial real estate, particularly office exposure; economic deterioration and higher credit losses; reliance on collateralized and wholesale funding; regulatory changes, including potential Basel III Endgame requirements if assets reach $100 billion; cybersecurity, technology conversion, vendor, and operational risks; litigation; climate and catastrophic events; and geopolitical or market disruptions.
The Bank expects the FDIC special assessment to be collected over approximately eight quarterly assessment periods beginning in 2024, at an industry assessment rate of approximately 13.4 basis points. It also disclosed proposed rules that could require additional capital, long-term debt, and resolution-planning obligations if the Bank reaches $100 billion in assets. Material legal proceedings were disclosed, including two medical-products-related cases and a foreign-transaction-fee case; the estimated range of reasonably possible losses for matters where a meaningful estimate was possible was zero to approximately $10 million above accrued amounts.
Management concluded that internal control over financial reporting and disclosure controls were effective as of December 31, 2023. Ernst & Young issued unqualified opinions on the consolidated financial statements and internal control over financial reporting. The critical audit matter was the allowance for loan and lease losses, reflecting significant judgment over economic scenarios, model outputs, and qualitative adjustments.
Most important facts for investors to verify
- Whether deposit costs stabilize and whether the shift from noninterest-bearing to interest-bearing deposits continues to pressure net interest margin.
- Credit performance in commercial real estate, especially the $2.0 billion office portfolio and the approximately 26% scheduled to mature within 12 months.
- Whether the $729 million allowance for credit losses adequately reflects changing economic forecasts and portfolio-specific risks.
- Execution, cost, and operational impact of the remaining 2024 core deposit-system conversions.
- Liquidity availability, uninsured deposit levels, collateral usage, and dependence on FHLB, Federal Reserve, repo, and other secured funding sources.
- Potential effects of Basel III Endgame, long-term debt, resolution-planning, FDIC assessment, interchange-fee, consumer-fee, and other regulatory proposals.
- Future capital distributions, including the sustainability of the $0.41 quarterly dividend and the authorized 2024 share repurchases.
- Progress and potential financial exposure in the disclosed litigation and regulatory matters.
- Whether management’s interest-rate sensitivity assumptions remain appropriate as customer deposit behavior evolves.