Zions Bancorporation, N.A. — Form 10-K Summary
Business context and reporting period
Zions Bancorporation, N.A. is a Salt Lake City-based regional bank operating through seven affiliates across 11 Western and Southwestern states. It provides commercial and retail banking, wealth management, capital markets, treasury, mortgage, and payment services. The filing covers the fiscal year ended December 31, 2021, with fourth-quarter information included. At year-end, the Bank had 418 branches, 9,685 full-time equivalent employees, more than one million customers, and $93.2 billion of assets.
Financial performance and condition
| Metric | 2021 | 2020 | Change |
|---|---|---|---|
| Net interest income | $2.208 billion | $2.216 billion | Flat |
| Noninterest income | $703 million | $574 million | +22% |
| Total net revenue | $2.911 billion | $2.790 billion | +4% |
| Provision for credit losses | $(276) million | $414 million | Significant release |
| Noninterest expense | $1.741 billion | $1.704 billion | +2% |
| Net income | $1.129 billion | $539 million | +109% |
| Net earnings applicable to common shareholders | $1.100 billion | $505 million | +118% |
| Diluted EPS | $6.79 | $3.02 | +125% |
| Net interest margin | 2.72% | 3.15% | Down 43 bps |
| Return on average assets | 1.29% | 0.71% | Up 58 bps |
| Return on average common equity | 14.9% | 7.2% | Up 7.7 points |
| Return on average tangible common equity | 17.3% | 8.4% | Up 8.9 points |
- Fourth-quarter 2021 net income was $213 million, and diluted EPS was $1.34, compared with $284 million and $1.66, respectively, in fourth-quarter 2020. Fourth-quarter 2021 included a $25 million provision for credit losses versus a $67 million release in the prior-year quarter, while noninterest income increased to $190 million from $166 million.
- Average interest-earning assets increased 16% to $82.3 billion, but the low-rate environment and greater holdings of lower-yielding money market investments and securities compressed NIM.
- Average deposits increased 20% to $76.3 billion. Year-end deposits rose 19% to $82.8 billion, including $41.1 billion of noninterest-bearing demand deposits.
- Year-end loans and leases declined 5% to $50.9 billion, primarily because of $6.5 billion of PPP loan forgiveness. Excluding PPP loans, loans increased approximately 2% during the year and fourth-quarter loan growth was described as robust.
- Net charge-offs declined to $6 million, or 0.01% of average loans excluding PPP, from $105 million, or 0.22%, in 2020. The allowance for credit losses declined to $553 million from $835 million; the ex-PPP allowance ratio declined to 1.13% from 1.74%.
- Noninterest income benefited from higher customer-related fees, a $31 million realized gain on an SBIC investment, a $23 million unrealized gain on Recursion Pharmaceuticals, and a $12 million gain on sales of bank-owned facilities.
- Noninterest expense increased because of wage inflation, competitive labor conditions, higher profit-sharing expense, and technology-related professional services. The adjusted efficiency ratio increased to 60.8% from 59.4%.
Cash flow, debt, liquidity, and capital
- Net cash provided by operating activities was $629 million in 2021, compared with $719 million in 2020. Investing activities used $11.6 billion, primarily for purchases of available-for-sale securities and money market investments. Financing activities provided $11.0 billion, principally from deposit growth.
- Cash, interest-bearing deposits, and securities resell agreements totaled approximately $12.9 billion at year-end. Investment securities totaled $24.9 billion; together, these liquid assets represented 41% of total assets.
- Long-term debt declined to $1.012 billion from $1.336 billion after the maturity of $281 million of senior notes. Borrowed funds declined by $993 million during 2021. Approximately $18.3 billion of additional FHLB and Federal Reserve borrowing capacity was available at year-end, and no FHLB or Federal Reserve borrowings were outstanding.
- Year-end CET1, Tier 1 risk-based, total risk-based, and Tier 1 leverage ratios were 10.2%, 10.9%, 12.8%, and 7.2%, respectively. The Bank met Basel III requirements and remained well capitalized.
- The Bank repurchased 13.5 million common shares for $800 million during 2021 and paid $232 million of common dividends. The common dividend was increased to $0.38 per share in the second half of 2021, and the Board declared the same quarterly dividend in January 2022.
- Shareholders’ equity declined 5% to $7.463 billion, primarily because of share repurchases, preferred-stock redemption, and a $405 million decline in accumulated other comprehensive income related largely to lower available-for-sale securities values.
Material changes versus the prior comparable period
- Profitability improved substantially, driven primarily by the $690 million year-over-year swing from a $414 million credit-loss provision to a $276 million credit-loss release and by stronger fee income.
- Credit metrics improved materially: nonaccrual loans fell to $271 million from $367 million, and nonperforming assets declined to 0.53% of loans and OREO from 0.69%.
- Deposits expanded much faster than loans, lowering the loan-to-deposit ratio to 61% from 77% and increasing excess liquidity.
- Available-for-sale securities increased to $24.0 billion from $15.7 billion, while accumulated other comprehensive income moved from a $325 million gain to an $80 million loss because of interest-rate-related valuation changes.
- PPP activity remained material: the Bank originated $2.9 billion of PPP loans in 2021 and recognized $235 million of PPP interest income, including $138 million of accelerated deferred-fee recognition from forgiven loans.
- The Bank redeemed its $126 million Series H preferred stock and continued significant common-stock repurchases.
Guidance, outlook, commentary, risks, and unusual items
- The filing does not provide formal earnings or revenue guidance. Management emphasized continued loan-growth opportunities, customer relationship expansion, technology investment, and the need to balance excess liquidity, asset sensitivity, and future deposit behavior.
- The Bank is asset-sensitive in modeled rising-rate scenarios. A parallel 100-basis-point increase was estimated to increase one-year net interest income by 11.2%, while a 100-basis-point decrease was estimated to reduce it by 5.2%. Results depend heavily on deposit migration, deposit betas, prepayments, and other model assumptions.
- LIBOR transition remains material. Approximately $33 billion of loans, unfunded commitments, and securities referenced LIBOR at year-end, and LIBOR-referenced derivative notional exceeded $18 billion. The Bank expected customer migration or contractual fallback to alternative rates by June 2023.
- Key risks include commercial real estate, oil and gas, leveraged lending, geographic concentration in Utah/Idaho, Texas, and California, inflation and labor costs, COVID-19 effects, cybersecurity and technology execution, regulatory changes, liquidity and rating actions, and potential model error in credit-loss estimates.
- The CECL allowance is sensitive to economic assumptions. Management estimated that using only a baseline economic scenario would reduce the quantitative allowance by approximately $82 million, while downgrading all pass-graded loans by one internal risk grade would increase it by approximately $40 million.
- The Bank is completing a new Corporate Technology Center, replacing core deposit and loan systems, and expects the technology center to be completed in mid-2022. Management expects the campus to reduce related occupancy costs by more than 20%, but execution, cost, and operational disruption risks remain.
- Material legal matters include litigation related to alleged Ponzi schemes involving former customers and other borrower fraud claims. The estimated aggregate range of reasonably possible losses in matters for which a meaningful estimate was available was $0 to $40 million above accrued amounts; matters without a meaningful estimate are excluded from that range.
- On February 11, 2022, Nevada State Bank announced an agreement to acquire three Northern Nevada branches, approximately $480 million of deposits, and $110 million of commercial and consumer loans, subject to customary conditions and regulatory approval. Completion was expected in the third quarter of 2022.
- Ernst & Young issued unqualified opinions on the consolidated financial statements and internal control over financial reporting. Management reported no material weaknesses.
Most important facts for investors to verify
- Whether loan growth excluding PPP continues and whether deposit growth remains stable as monetary policy and competitive deposit pricing change.
- Whether the large 2021 credit-loss release is sustainable or reverses if economic forecasts, commercial real estate conditions, or other concentrated exposures deteriorate.
- The sensitivity of net interest income and tangible capital to rising rates, deposit migration, deposit betas, securities valuations, and AOCI changes.
- Progress, cost, and operational outcomes of the core banking-system replacement and Corporate Technology Center projects.
- Actual effects of the LIBOR transition on customer contracts, derivatives, funding costs, and net interest income.
- Remaining exposure to legal proceedings, contingent liabilities, unfunded lending commitments of $25.8 billion, and letters of credit totaling $864 million.
- Capital-distribution capacity after the $800 million share repurchase program, preferred-stock redemption, regulatory requirements, and future stress-test results.