Zions Bancorporation, N.A. — 2020 Form 10-K Summary
Business context and reporting period
Zions Bancorporation, National Association is a Salt Lake City-based regional bank serving customers through seven locally managed affiliates across 11 Western and Southwestern states. The filing covers the fiscal year ended December 31, 2020; fourth-quarter information is included in the unaudited quarterly data. The bank reported approximately $81.5 billion of assets, 422 branches, and 9,678 full-time-equivalent employees at year-end.
Key financial metrics
| Metric | 2020 | 2019 | Change |
|---|---|---|---|
| Total net revenue | $2.790 billion | $2.834 billion | (2%) |
| Net interest income | $2.216 billion | $2.272 billion | (2%) |
| Noninterest income | $574 million | $562 million | +2% |
| Provision for credit losses | $414 million | $39 million | +$375 million |
| Net income | $539 million | $816 million | (34%) |
| Net earnings applicable to common shareholders | $505 million | $782 million | (35%) |
| Diluted EPS | $3.02 | $4.16 | (27%) |
| Net interest margin | 3.15% | 3.54% | (39 bps) |
| Return on average assets | 0.71% | 1.17% | Down |
| Return on average common equity | 7.2% | 11.2% | Down |
| Adjusted efficiency ratio | 59.4% | 59.5% | Broadly stable |
Fourth-quarter 2020 net income was $284 million and diluted EPS was $1.66, compared with fourth-quarter 2019 net income of $183 million and diluted EPS of $0.97. The fourth quarter benefited from a $67 million credit to the provision for credit losses, compared with a $4 million provision in the prior-year quarter.
Balance sheet, liquidity, capital and cash flow
- Total assets increased 18% to $81.479 billion. Net loans and leases increased 10% to $53.476 billion, primarily from $5.572 billion of Paycheck Protection Program loans.
- Deposits increased 22% to $69.653 billion, including a 38% increase in noninterest-bearing demand deposits to $32.494 billion. The loan-to-total-deposit ratio declined to 77% from 85%.
- Long-term debt declined 22% to $1.336 billion, while federal funds and other short-term borrowings declined 23% to $1.572 billion. The bank repurchased and retired $429 million of debt during 2020.
- Cash, interest-bearing deposits, and security resell agreements totaled approximately $7.3 billion at year-end. Investment securities totaled $16.633 billion, and management stated that liquidity sources were adequate for reasonably foreseeable demands.
- Net cash provided by operating activities was $719 million. Investing activities used $12.204 billion, largely for loan growth and investment securities purchases, while financing activities provided $11.323 billion, primarily from deposit growth.
- Year-end CET1, Tier 1 risk-based, total risk-based, and Tier 1 leverage ratios were 10.8%, 11.8%, 14.1%, and 8.3%, respectively. The bank exceeded applicable well-capitalized thresholds and reported that internal stress testing supported adequate capital throughout the modeled nine-quarter horizon.
Material changes versus the prior comparable period
- Profitability deteriorated as the COVID-19 pandemic, low interest rates, and lower economic activity compressed asset yields and increased credit-loss provisioning.
- The allowance for credit losses increased to $835 million at December 31, 2020, from $526 million at January 1, 2020. The allowance-to-loans ratio was 1.56%, compared with 1.14% at December 31, 2019.
- Net charge-offs increased to $105 million, or 0.20% of average loans, from $37 million, or 0.08%. Nonaccrual loans rose to $367 million from $243 million, and nonperforming assets rose to $371 million from $251 million.
- Noninterest income increased modestly, supported by record residential mortgage originations of $3.5 billion and higher loan-related income, while card and retail banking fees declined because of reduced activity and pandemic-related fee waivers.
- Adjusted noninterest expense declined 2%. Reported expense included a $30 million charitable contribution and $28 million of pension termination-related expense.
- The bank originated PPP loans that assisted more than 47,000 customers and reported approximately $102 million of unamortized PPP origination fees at year-end. Approximately $1.3 billion of PPP loans had received SBA forgiveness during 2020.
- On January 1, 2020, the bank adopted CECL, resulting in an after-tax $20 million increase to retained earnings. The bank also adopted reference-rate reform guidance related to LIBOR.
Guidance, outlook, commentary, risks and unusual items
Management did not provide a specific quantitative earnings or revenue outlook in the filing. Management stated that the economic forecast used in the CECL model showed improvement continuing through 2021 and gradual stabilization by 2022, but emphasized that allowance volatility could continue as forecasts change.
- COVID-19 remains the principal near-term uncertainty. Management identified possible further defaults, collateral-value declines, reduced fee income, higher operating and cybersecurity risks, and additional regulatory scrutiny.
- At year-end, approximately $4.0 billion, or 8.4%, of non-PPP loans were in industries with elevated COVID-19 risk, including retail, hotels, entertainment, transportation, and consumer services. Approximately 29% of these balances had experienced payment deferrals or other modifications during 2020.
- Oil and gas-related credit exposure was approximately $4.2 billion, including $2.3 billion of loans and $1.9 billion of unfunded commitments. The oil and gas nonaccrual ratio increased to 2.7% from 0.7%.
- More than $38 billion of assets and more than $16 billion of derivative notional exposure referenced LIBOR at year-end. The transition to alternative reference rates, including SOFR, could affect contracts, systems, pricing, funding costs, and litigation risk.
- Interest-rate sensitivity increased. A modeled immediate 200-basis-point parallel rate increase was estimated to increase first-year net interest income by 18.0%, subject to significant assumptions regarding deposit behavior and repricing.
- Goodwill totaled approximately $1.0 billion. The 2020 impairment review identified no impairment, but management noted that adverse economic or market developments could produce future impairment charges.
- Aggregate reasonably possible legal losses, in excess of accrued amounts, were estimated at $0 to approximately $35 million for matters where a meaningful range could be developed. The filing states that this range is not the maximum potential exposure.
- Share repurchases were reduced substantially: $75 million in 2020 versus $1.1 billion in 2019. Repurchases were suspended beginning in the second quarter because of the pandemic. The board declared a $0.34 per-share quarterly dividend in February 2021.
Most important facts for investors to verify
- Whether credit performance, nonaccrual loans, charge-offs, criticized assets, and the CECL allowance improve or deteriorate as pandemic-related deferrals expire.
- The performance and forgiveness timing of the PPP portfolio, including recognition of the remaining $102 million of deferred fees.
- The sustainability of deposit growth and the resulting benefit to funding costs and liquidity.
- Net interest margin trends under prolonged low rates and under potential rate increases, including deposit migration and beta assumptions.
- Exposure to oil and gas, commercial real estate, hospitality, retail, and other stressed industries, particularly in Texas, California, Utah, and Idaho.
- Progress toward LIBOR remediation and the financial impact of replacement reference rates and contract modifications.
- Future regulatory limits or approvals affecting dividends, share repurchases, debt issuance, and CECL capital phase-in.
- Resolution and potential financial impact of the disclosed litigation and governmental matters.