February 16, 2012
2012 Investor Day
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
I. Overview & Executive Summary
II. Capital, Liquidity, and TARP
III. Earnings
IV. Credit Quality
V. Commercial Real Estate—Deep Dive
VI. Credit Process Changes
VII. CDOs
VIII. Affiliate Bank Presentations
IX. Summary
X. Break-out Sessions
Agenda
§ Core franchise is intact—and stronger!
§ Capital levels are strong
§ Credit trends: improving & charge-offs below industry levels
§ Core risks have been significantly reduced
– Significantly reduced higher risk assets
– Substantially enhanced credit risk team and other risk controls
§ Profitability restored
– Capital structure modification should drive further ROE expansion
Executive Summary Key Takeaways
4
§ $53.1 billion in assets as of 12/31/2011
§ $3.1 billion market capitalization as of 2/14/2012
A Collection of Great Banks
5
§ Superior lending capacity relative to community banks
§ Superior local customer access to bank decision makers relative to big
nationals
nationals
§ Sharing best practices among banks
– CEOs & division managers meet frequently
§ Community bank feel - local marketing and branding
§ Centralization of processing and other non-customer facing elements of
the business
the business
§ Established market-leading small business lender
– Leading SBA and small business lender
– Superior treasury management products & services (Greenwich survey)
§ Strategic local “ownership” of market opportunities and challenges
Multi-Bank Model Competitive Strengths
6
What Others Say About Us
§ Thirteen 2011 Greenwich Excellence Awards in Small Business and
Middle Market Banking
Middle Market Banking
§ Nationally Ranked #5 in SBA Loan Originations 1
– #1 in 504 Originations
§ Top team of women bankers - American Banker2
§ Local awards included in bank affiliate presentations
7
1. Volume and number of loans
2. One of four winning teams
Balance Sheet Mix
Strengths include a high mix of loans and DDA funding
Strengths include a high mix of loans and DDA funding
8
Securities Portfolio Comparison
The lower concentration of securities, short-duration loans and higher cash balance
makes ZION particularly asset sensitive
The lower concentration of securities, short-duration loans and higher cash balance
makes ZION particularly asset sensitive
Source: SNL. ZION as of 4Q11; peers as of 3Q11
MBS securities include resi mortgage pass-through investments that are not guaranteed by the U.S. Government
§ Estimated option-adjusted duration of loan portfolio = 1.4 years
§ Estimated option-adjusted duration of cash & securities portfolio = 0.6 years
9
*Includes farm, home equity, consumer, and other loans
Loan Portfolio as of
4Q11
4Q11
§Commercial and CRE
Loans: 76%
Loans: 76%
§Retail & Other Loans:
24%
24%
10
Strong Focus on Business Banking - Loan Mix
Liquidity Profile: Superior Funding Mix
Zions ranks among the best of its peers for its noninterest bearing deposit concentration
Zions ranks among the best of its peers for its noninterest bearing deposit concentration
Source: SNL
11
Liquidity Position Comparison
Source: SNL Financial. ZION as of 4Q11; peers as of 3Q11
1. Demand deposits defined as noninterest bearing deposits
Banks with TARP outstanding
12
Zions Raised Substantially More Capital Than Peers
Source: Zions internal documentation and SNL; reconciliation in the appendix.
¹ Calculated as median across all U.S. banks that received TARP, excluding acquired or defunct companies, as well as companies that were acquirors in deals
greater than 10% of acquiror’s total equity as of Q3 2008; capital raised includes common and preferred issuances since receipt of TARP through redemption of
TARP for companies that redeemed TARP
greater than 10% of acquiror’s total equity as of Q3 2008; capital raised includes common and preferred issuances since receipt of TARP through redemption of
TARP for companies that redeemed TARP
0%
40%
60%
80%
100%
120%
140%
160%
180%
TARP received (Nov 2008): $1.4B
40%
52%
92%
100%
20%
(20%)
13
• Relative to TARP, Zions has raised 124% in common and 47% in preferred
stock, or a combined 171% of TARP received
stock, or a combined 171% of TARP received
Capital Levels are Strong
When considering all loss-absorbing capital & reserves, Zions is much stronger than peers
When considering all loss-absorbing capital & reserves, Zions is much stronger than peers
14
• Peer group includes U.S. regional banks with assets greater than $20 billion and less than $200 billion plus
footprint competitors WFC and USB
• Source: SNL
Despite CRE Concentrations in Distressed Geographies, Zions
Fared Better Than Many
Fared Better Than Many
Loan Weighted Average: 2.6%
15
Source: SNL
Credit Quality is Improving and is Again Better Than Peers
*Annualized
Source: SNL
16
Credit Quality Trends
Problem loans and NCOs continue to improve
Problem loans and NCOs continue to improve
(In millions)
17
* 1Q12 forecasted net charge-offs
Based on RAAP
(In millions)
Classified Loan Trends
Improvement in all loan types
Improvement in all loan types
18
Credit Quality Trends
Improvement in all Geographies
Based on outstanding balances
19
(In millions)
Credit Quality Trends
Classified loan loss severity is improving
Classified loan loss severity is improving
§ Severities have declined significantly and are generally stable to modestly improving
§ The worst is not to come: no adverse selection trend
Twelve month trailing loss rate
20
Credit Portfolio Risk has been Significantly Reduced
and Credit Management has been Improved
and Credit Management has been Improved
21
(In millions)
(In millions)
Due to Credit Improvement, Zions Returned to Profitability in 2011
Further credit improvement expected in 2012
Further credit improvement expected in 2012
* Excludes regular and accelerated discount amortization on sub debt and additional accretion of interest income
on FDIC loans
on FDIC loans
(In millions)
22
Income Trends: PPNR and ROA
23
1, 2, 3, 4, & 5 See detailed footnotes in appendix, slide 236
Primary Revenue Source: Net Interest Income has been
Stable, Adjusted for Cash Build Up
Stable, Adjusted for Cash Build Up
(In millions)
* Core net interest income excludes items that are one time or non-recurring in nature such as regular and accelerated discount amortization on convertible sub debt and additional accretion
of interest income on FDIC loans.
of interest income on FDIC loans.
• “Impact : Cash” refers to the adverse impact on the NIM due to the total balance of cash held in interest-bearing
accounts. Assumes 4.5% loan give-up yield.
24
Net Interest Margin is Strong, but Under Some Pressure
Source: SNL Financial. ZION as of 4Q11; peers as of 3Q11
1.NIM adjusted for accretion of interest income on FDIC loans and sub debt amortization expense, where applicable
2.Risk adjusted core NIM calculated as core net interest income less net charge-offs over interest earning assets
25
Banks with TARP outstanding
Efficiency Ratio and Core ROAA Impacted by Decision to Hold Cash
Instead of Investing in Long Duration Securities
Instead of Investing in Long Duration Securities
Source: SNL Financial. ZION as of 4Q11; peers as of 3Q11
1 and 2 see footnote detail in appendix slide 236
23
26
Banks with TARP outstanding
§ Core franchise is intact—and stronger!
§ Capital levels are strong
§ Credit trends: Improving & charge-offs below industry levels
§ Core risks have been significantly reduced
– Significantly reduced higher risk assets
– Substantially enhanced credit risk team and other risk controls
§ Profitability restored
– Capital structure modification should drive further ROE expansion
Key Takeaways
27
I. Overview & Executive Summary
II. Capital, Liquidity, and TARP
III. Earnings
IV. Credit Quality
V. Commercial Real Estate—Deep Dive
VI. Credit Process Changes
VII. CDOs
VIII. Affiliate Bank Presentations
IX. Summary
X. Break-out Sessions
Agenda
§ Core franchise is intact—and stronger!
§ Capital levels are strong
§ Credit Trends: Improving & charge-offs below industry levels
§ Core risks have been significantly reduced
– Significantly reduced higher risk assets
– Substantially enhanced credit risk team and other risk controls
§ Profit restored
– Earnings healthy at affiliate banks
– Capital, financing and credit costs still high
§ Capital and liquidity are there to repay TARP
§ ROE improvement opportunities
Key Takeaways
29
Issues (all under Fed review):
§ Capital planning, stress testing models and related process
governance
governance
§ Capital
§ Stress test results
§ Getting enough cash at the Parent to repay
Capital, Liquidity, and TARP Repayment
30
31
Capital Profile - Loss Absorbing Capital as a Percentage of Loans & Securities
Capital levels have improved from below peers to above peers
Capital Levels are Now Strong Relative to Peers
Source: SNL Financial. Zions as of 4Q11; peers as of 3Q11
1. Cash consists of cash & equivalents
2. Texas ratio defined as NPAs plus loans 90+ days past due (- accruing TDRs) / loss absorbing capital
32
§ Robust capital levels in line with best performing banks that have repaid TARP
and significantly better than those that have not
and significantly better than those that have not
Source: SNL, ZION as of 4Q11; peers as of 3Q11
Annualized charge-off ratio. Reserves include loan loss reserve plus reserve for unfunded lending commitments.
33
Comparatively Stronger Loan Loss Coverage
Banks with TARP outstanding
Basel III New Capital Proposal
Basel III ratios are estimates
§ If the new Basel III guidelines were effective today, Zions would meet the
minimum capital requirements
minimum capital requirements
34
What Happens if Things get Better?
AOCI Mark: Faster Prepays & Lower Rates Both Reduce AOCI
AOCI Mark: Faster Prepays & Lower Rates Both Reduce AOCI
4Q11 Assumptions:
• CPR:
• 3% for banks with assets less than $15B
• Banks with assets greater than $15B and are rated investment grade are assumed to prepay by the end of 2015
• Discount Rates:
• First Pay original AAA-rated: Libor + 6.5% (weighted average)
• Second Pay original AAA-rated: Libor + 6.8%
• Original A-rated: Libor + 17.6%
• Original BBB-rated: Libor + 33.3%
• Combined: Libor + 11.9%
35
Issues (all under Fed review):
§ Capital planning, stress testing models and related process
governance
governance
§ Capital
§ Stress test results
§ Getting enough cash at the Parent to repay
Capital, Liquidity, and TARP Repayment
36
Framing the “Zions Stress Scenario”
§ The Zions Stress Scenario does NOT reflect our expectation of actual losses
§ Forecast Zions’ Stress losses are based upon three models, equally weighted:
– 1/3 Historical loss rates by loan type and by geography
– 1/3 Historical loss rates by loan type on the aggregate portfolio
– 1/3 Loan-level loss rates
§ Model is believed to be conservatively biased, as changes to underwriting are not
reflected in first two models
reflected in first two models
§ Key inputs (IHS Global Scenario):
|
Variable
|
Zions Stress Scenario
|
Fed Supervisory Stress
Scenario |
|
Home price change - 2012
|
(19%)
|
(12%)
|
|
Home price change - 2013
|
(4%)
|
(9%)
|
|
Cumulative HP change
-- 12/312013 EOP
|
(22%)
|
(20%)
|
|
Unemployment - Peak
|
12%
|
13%
|
|
GDP Index - 12/31/13 EOP
(9/30/11 = 100) |
97.2
|
96.8
|
37
Zions’ Stress Scenario Losses Greatly Reduced from Concentration Risk
Management
Management
(In millions)
Actual Historical Loss
Zions’ Stress Scenario Loss
38
(In millions)
De-Risking: Historical Peak vs. Zions’ Stress SCENARIO
Actual Historical Loss (4Q08 - 4Q10)
Zions’ Stress Scenario Loss (4Q11 -
4Q13)
4Q13)
(In millions)
Loss Content Significantly Reduced
Common + Reserves significantly
enhanced
enhanced
39
Issues (all under Fed review):
§ Capital planning, stress testing models and related process
governance
governance
§ Capital
§ Stress test results
§ Getting enough cash at the Parent to repay
Capital, Liquidity, and TARP Repayment
40
Zions Raised Substantially More Capital Than Peers
Source: Zions internal documentation and SNL; reconciliation in the appendix.
¹ Calculated as median across all U.S. banks that received TARP, excluding acquired or defunct companies, as well as companies that were acquirors in deals
greater than 10% of acquiror’s total equity as of Q3 2008; capital raised includes common and preferred issuances since receipt of TARP through redemption of
TARP for companies that redeemed TARP
greater than 10% of acquiror’s total equity as of Q3 2008; capital raised includes common and preferred issuances since receipt of TARP through redemption of
TARP for companies that redeemed TARP
0%
40%
60%
80%
100%
120%
140%
160%
180%
TARP received (Nov 2008): $1.4B
40%
52%
92%
100%
20%
(20%)
41
§ Relative to TARP, Zions has raised 124% in common and 47% in preferred
stock, or a combined 171% of TARP received
stock, or a combined 171% of TARP received
42
TARP: Illustrative Parent Cash Flow
Constraints:
• TARP redemption is subject to approval by the Fed of Zions’ capital plan (CaPR), the
outcome of which is currently not known
outcome of which is currently not known
• Greater than 12 months to required funding at parent
• All subsidiaries T1C > 9%, T1 > 11%, Total RBC > 12% under Zions’ Stress scenario
(In millions)
I. Overview & Executive Summary
II. Capital, Liquidity, and TARP
III. Earnings
IV. Credit Quality
V. Commercial Real Estate—Deep Dive
VI. Credit Process Changes
VII. CDOs
VIII. Affiliate Bank Presentations
IX. Summary
X. Break-out Sessions
Agenda
§ Core franchise is intact—and stronger!
§ Capital levels are strong
§ Credit Trends: Improving & charge-offs below industry levels
§ Core risks have been significantly reduced
– Significantly reduced higher risk assets
– Substantially enhanced credit risk team and other risk controls
§ Profit restored
– Earnings healthy at affiliate banks
– Capital, financing and credit costs still high
§ Capital and liquidity are there to repay TARP
§ ROE improvement opportunities
– Reduce credit-related costs
– Rationalize capital and financing structure
Key Takeaways
44
Banks’ Earnings Stronger than Consolidated
2H 2011 Annualized
2H 2011 Annualized
|
|
ZFNB
|
Amegy
|
CB&T
|
NBA
|
NSB
|
Other
&
Eliminations |
Consolidated
|
|
Pre-Tax Income
|
$209
|
$289
|
$272
|
$45
|
$74
|
($78)
|
$811
|
|
Parent Debt Costs
|
|
|
|
|
|
|
($201)
|
|
Tax, etc.
|
|
|
|
|
|
|
($214)
|
|
Net Income After Tax
|
|
|
|
|
|
|
$ 396
|
|
Preferred Dividends
|
|
|
|
|
|
|
($177)
|
|
Net Income to
Common |
|
|
|
|
|
|
$219
|
45
ROE Improvement Opportunities:
Credit and “Other” Costs in “Core” Earnings
Credit and “Other” Costs in “Core” Earnings
|
|
2H 2011,
After-Tax,
Annualized
|
|
Normalize FDIC & OCC expense
|
$10.0
|
|
Reduce OREO and other credit related
expense by 75% |
60.0
|
|
Normal loan loss provision to 40 bps
|
(76.3)
|
|
Reduce net OTTI and fixed income securities
gains/losses to zero |
13.8
|
|
Cancel the Total Return Swap?
|
13.1
|
|
Adjust for 3 unusual items in 4Q11
|
18.6
|
|
Total credit-related improvements
|
$39.2
|
46
Capital Structure Cost Savings Opportunities:
2011-2015
|
Targeted Capital Issue - Repayment or Refinance
($ in millions, except per share figures)
|
Earliest Call or
Maturity Date |
AFTER-
Tax Rate |
Marginal
Savings to EPS |
Cumulative
Savings to EPS |
Cumulative
Principal Outstanding |
|
Series D Preferred Stock (TARP ~6.7% rate,
including warrant accretion) |
To Be
Determined |
7.0%
|
$0.52
|
$0.52
|
$1,400
|
|
Series B Trust Preferred (8.0% rate)
|
Currently
Callable @ Par |
4.9%
|
$0.08
|
$0.60
|
$1,694
|
|
Series E Preferred Stock (11.0% rate)
|
15 Jun 2012 @
Par |
11.0%
|
$0.09
|
$0.68
|
$1,836
|
|
Series C Preferred Stock (9.5% rate)
|
15 Sep 2013 @
Par |
9.5%
|
$0.37
|
$1.05
|
$2,545
|
|
Convertible Subordinated Debt - 5.65% May 2014
|
15 May 2014
(maturity) |
16.3%
|
$0.07
|
$1.12
|
$2,672
|
|
Convertible Subordinated Debt - 6.0% Sep 2015
|
15 Sep 2015
(maturity) |
13.9%
|
$0.10
|
$1.22
|
$2,903
|
|
Convertible Subordinated Debt - 5.5% Nov 2015
|
16 Nov 2015
(maturity) |
13.2%
|
$0.08
|
$1.30
|
$3,093
|
§ Significant repayment and/or refinancing opportunities on the horizon. The
table below assumes full repayment to illustrate maximum potential cost
savings.
table below assumes full repayment to illustrate maximum potential cost
savings.
§ All amounts as of 4Q 2011; Sub debt after-tax rates are high due to the significant difference between book value and par, as well as the non-cash regular
discount accretion. The table above does NOT include the effect of “accelerated” amortization expense, which occurs upon conversion. May not sum due to
rounding.
discount accretion. The table above does NOT include the effect of “accelerated” amortization expense, which occurs upon conversion. May not sum due to
rounding.
47
ROE Improvement Opportunities:
Complex, high-cost capital and financing structure
Complex, high-cost capital and financing structure
|
|
2H11 Annualized
After-Tax Savings
|
|
Repay TARP (cash cost)
|
$70.0
|
|
Preferred = 2% of RWA @ 9% dividend
|
29.5
|
|
Sub debt = 1% of RWA @ 7% interest
|
66.1
|
|
Sr debt = 2% of RWA @ 5% interest
|
15.0
|
|
Total improvement in capital & financing costs
|
$180.6
|
48
ROE Improvement Opportunities:
No change in RWA, revenue, or operating expense
No change in RWA, revenue, or operating expense
|
|
2H2011
Annualized
|
|
Net income to common
|
$219
|
|
Net change in credit-related, other costs
|
39
|
|
Net change in capital and financing costs
|
181
|
|
Normalized net income to common
|
439
|
|
Tier 1 common @ 9.57% (steady state)
|
4,121
|
|
Normalized return on tier 1 common
|
10.6%
|
|
Risk free rate (10-yr US Treasury yield)
|
~2.0%
|
49
§ Core franchise is intact—and stronger!
§ Capital levels are strong
§ Credit Trends: Improving & charge-offs below industry levels
§ Core risks have been significantly reduced
– Significantly reduced higher risk assets
– Substantially enhanced credit risk team and other risk controls
§ Profit restored
– Earnings healthy at affiliate banks
– Capital, financing and credit costs still high
§ Capital and liquidity are there to repay TARP
§ ROE improvement opportunities
– Reduce credit-related costs
– Rationalize capital and financing structure
§ Will net interest income remain stable?
Key Takeaways
50
Loan Growth Trends
Source: Zions earnings release
51
Steady Loan Production and Statistics
Zions Bancorp
Zions Bancorp
52
(In millions)
Weighted
Average
Grade
Average
Grade
1. Production includes new relationship loans and increased balances on existing loans. Does not include loans
that were renewed because of rate option reset dates.
that were renewed because of rate option reset dates.
New Loan Spread Narrowing But Stabilizing
Versus matched-maturity funds at transfer pricing rate
Versus matched-maturity funds at transfer pricing rate
Cost of Interest Bearing
Deposits
Deposits
Spread on Production:
New Business
New Business
53
Zions’ net interest margin excludes non-cash sub debt amortization expense and accretion on FDIC-acquired loans.
Peer group net interest margin adjusted for accretion of interest income on FDIC acquired loans, where applicable.
Peer group net interest margin adjusted for accretion of interest income on FDIC acquired loans, where applicable.
Source: SNL and company documents. Zions NIM as of 4Q11; peers NIM as of 3Q11
54
One of the Highest Net Interest Margins Comparatively
The Strong NIM is Not Achieved by Taking Excessive Credit Risk
But Is Due to A Focus on Small/Middle Market Banking and Strong Deposit Funding
But Is Due to A Focus on Small/Middle Market Banking and Strong Deposit Funding
55
Source: SNL and company documents. Zions data as of 4Q11; peers as of 3Q11
2008-2011 Average Loans Yield less NCOs. Yields
unadjusted for purchase accounting marks
unadjusted for purchase accounting marks
(In millions)
The NIM is Stable When Adjusted For Cash
56
* Core net interest income excludes items that are one time or non-recurring in nature such as regular and accelerated discount amortization on convertible sub debt and additional accretion
of interest income on FDIC loans.
of interest income on FDIC loans.
• “Impact : Cash” refers to the adverse impact on the NIM due to the total balance of cash held in interest-bearing
accounts. Assumes 4.5% loan give-up yield.
Floors: A Source of Support to NIM, But Eroding…
57
§ Cumulative benefit:
19 bps
19 bps
§ $6.4 billion of loans
in-the-money, wtd
avg 139 bps in the
money
in-the-money, wtd
avg 139 bps in the
money
§ Erosion (bps):
2012: 7
2013: 3
2014+: 9
Source: company documents as of 4Q11
Loan Maturity Year:
(In millions)
…But Zions Remains Significantly Asset Sensitive
§ Zions expects net interest sensitive income to increase between an estimated 7.7% and
10.3% if interest rates were to rise 200 bps* in the first year
10.3% if interest rates were to rise 200 bps* in the first year
§ Assumes a 41% ($6.6 billion) attrition of non-interest bearing balances and a 15% ($1.1
billion) attrition of savings and NOW balances, with such funding replaced using simulated
market rate funds.
billion) attrition of savings and NOW balances, with such funding replaced using simulated
market rate funds.
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); it 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
December 31, 2011
duration benchmark indices (e.g. Libor, U.S. Treasuries); it 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
December 31, 2011
58
NIM Outlook
§ New loan pricing now fairly stable
§ Two pressures on NIM: ~4 bp / quarter in total
– Rate resets on long reset loans made in ‘07 & ‘08
– Maturing of loans with in-the-money floors
§ Two offsets:
– Declining deposit costs - for a few more quarters
– Loan growth:
§ ~$500 million of net growth per quarter required to offset both NIM
pressures
pressures
§ Achievable by late 2012 if gross production remains stable, as C&D and FDIC-
supported loan attrition become negligible
supported loan attrition become negligible
§ We remain “asset sensitive”
59
I. Overview & Executive Summary
II. Capital, Liquidity, and TARP
III. Earnings
IV. Credit Quality
V. Commercial Real Estate—Deep Dive
VI. Credit Process Changes
VII. CDOs
VIII. Affiliate Bank Presentations
IX. Summary
X. Break-out Sessions
Agenda
Credit Quality Key Takeaways
§ Portfolio overview:
– Problem credit metrics continue to improve
– Major C&D risk has moderated
– Term CRE risk is acceptable
§ Functional process and staffing improvements in place
61
§ Portfolio overview:
§ Credit quality metrics have improved materially in:
– All loan types
– All geographies
§ Problem loan inflows continue to slow; most resolutions
are favorable; charge-offs are declining; loss severities
are declining
are favorable; charge-offs are declining; loss severities
are declining
§ Loan loss reserve is strong and charge-offs are declining
Credit Quality Key Takeaways
62
Credit Quality Improving - Total Portfolio
|
|
4Q10
|
3Q11
|
4Q11
|
|
Total Loan Balance ($B)
|
36.9
|
36.9
|
37.3
|
|
Total Delinquencies
|
3.5%
|
2.3%
|
2.0%
|
|
Nonperforming Loans
|
4.9%
|
2.9%
|
2.4%
|
|
Classified
|
9.5%
|
6.5%
|
5.6%
|
Total Loan Balance Key Statistics
Source: SNL
63
Credit Quality Improving in Commercial Real Estate
CRE Key Statistics
|
|
4Q10
|
3Q11
|
4Q11
|
|
Loan Balance ($B)
|
11.1
|
10.2
|
10.2
|
|
Delinquencies
|
4.9%
|
2.7%
|
2.4%
|
|
Nonperforming Loans
|
6.8%
|
4.3%
|
3.7%
|
|
Classified
|
15.6%
|
9.8%
|
8.6%
|
CRE Loan Balance
Collateral
12/31/2011
64
Source: SNL
Credit Quality Improving in Commercial and Industrial
C&I Key Statistics
|
|
4Q10
|
3Q11
|
4Q11
|
|
Loan Balance ($B)
|
18.2
|
18.9
|
19.2
|
|
Delinquencies
|
2.4%
|
2.0%
|
1.8%
|
|
Nonperforming Loans
|
4.1%
|
2.4%
|
1.9%
|
|
Classified
|
9.5%
|
5.8%
|
5.0%
|
Multi-Industry C&I 35%
Municipal 2%
Leasing 2%
Agriculture 2%
Total 42%
Other
65
Source: SNL
Credit Quality Improving in Consumer
Consumer Key Statistics
|
|
4Q10
|
3Q11
|
4Q11
|
|
Balance ($B)
|
6.4
|
6.8
|
6.9
|
|
Consumer Delinquencies
|
2.6%
|
2.0%
|
1.7%
|
|
Net Charge-offs
|
2.0%
|
0.9%
|
0.9%
|
66
Source: SNL
Asset Quality Improvement is Broad Based…
Source: company documents
67
… and Includes all Loan Types and Geographies
68
Source: company documents
Classified Asset to Capital Ratio Improving
69
Pass Grade Commercial Credits Have Improved and Compare
Well to Peers
Well to Peers
Source: company documents
* Pass grade or non-criticized/classified commercial loans held for investment, as reported by the companies in the
SEC documents. Includes C&I, commercial real estate, and owner-occupied; excludes consumer loans.
SEC documents. Includes C&I, commercial real estate, and owner-occupied; excludes consumer loans.
70
Classified & Nonaccrual Loan Inflows Loan Inflows
Continue to Decline
Continue to Decline
Source: company documents
71
(In millions)
Classified Relative to Capital Improving
Source: SNL and company documents
72
Severity Rates are Stable to Improving & Favorable
Resolution Rates High
Resolution Rates High
Source: SNL and company documents
Classified loan loss severity is a twelve month trailing loss rate
1. Chart reflects problem credits that were $50k or greater in size; “Favorable” resolutions include loans changed
to accrual status, loans paid down/paid off, or proceeds from real estate sales. Unfavorable resolutions include
increases in balance, charge-offs, charge-downs, and valuation allowances on property held in REO. NPAs are
grossed-up for new nonaccrual loan inflows during the quarters.
to accrual status, loans paid down/paid off, or proceeds from real estate sales. Unfavorable resolutions include
increases in balance, charge-offs, charge-downs, and valuation allowances on property held in REO. NPAs are
grossed-up for new nonaccrual loan inflows during the quarters.
73
NCOs Continue Significant Step Down
74
* Forecasted
ACL Peer Group Coverage Ratios
75
§ 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 charge-offs are declining
Credit Quality Key Takeaways
76
I. Overview & Executive Summary
II. Capital, Liquidity, and TARP
III. Earnings
IV. Credit Quality
V. Commercial Real Estate—Deep Dive
VI. Credit Process Changes
VII. CDOs
VIII. Affiliate Bank Presentations
IX. Summary
X. Break-out Sessions
Agenda
Commercial C&D Key Takeaways
§ Strong improvement in problem loans
§ Reduced concentration in C&D
§ C&D old vintage nearly gone
– We didn’t kick the can down the road
§ Experiencing cautious growth of newly
underwritten C&D
underwritten C&D
78
C&D Balances Have Continued to Decline
Source: company documents
79
Majority of Remaining Construction in Healthy Markets
$954M Balance*
$1.9B Balance*
80
* Includes owner occupied, construction, and consumer lot loans
(In millions)
Continued Improvement in Classified C&D Loans
81
Source: company documents
Source: company earnings release
Nonaccrual and Net Charge-Offs Continue to Decline
C&D
C&D
82
(In millions)
• “Other” is comprised of FDIC acquired loans and loans that moved from HFS
• Converted to term value represents balance on loan in quarter before converting to term
• Source: Company documents, RAAP data
C&D Portfolio from 2007 Reduced 93% to $684M
83
$684M
$9B
• Converted to term value represents the balance on the 4Q07 loans in the quarter prior to converting to term between 4Q07 and 4Q11
• 54% of classified loans are current and accruing
• 99% of special mention loans are current and accruing
• Source: company documents
C&D Loans Converted to Term Loans Performing
84
$53M Special Mention
$1.3B
Pass: $749M
Classified: $62M
• “Other” is comprised of FDIC acquired loans and loans that moved from HFS
• Converted to term value represents balance on loan in quarter before converting to term
• Source: company documents
Majority of Today’s C&D Balance is Recent Production
85
Commercial C&D Key Takeaways
§ Strong improvement in problem loans
§ Reduced concentration in C&D
§ C&D old vintage nearly gone
– We didn’t kick the can down the road
§ Experiencing cautious growth of newly
underwritten C&D
underwritten C&D
86
Term CRE Key Takeaways
§ Portfolio is well diversified
§ Credit quality is improving
§ Underwriting metrics are strong
§ No wall of maturing underwater loans
87
Term CRE Predominately in Footprint
Portfolio Diversified by Geography and Property Type
Portfolio Diversified by Geography and Property Type
88
Location
Property Type
(In millions)
Term CRE Credit and Loss Severity Improving
89
1. Twelve month trailing loss rate. For example, the Dec. 2010 trailing loss rate is the sum of the losses during
Jan. - Dec. occurring on classified graded loans as of 1/1/2010, divided by the balances outstanding for the
similarly graded loans as of 1/1/2010.
Jan. - Dec. occurring on classified graded loans as of 1/1/2010, divided by the balances outstanding for the
similarly graded loans as of 1/1/2010.
Source: company earnings release
Term CRE & Owner Occupied Problems Improving
90
(In millions)
(In millions)
(In billions)
Updated Weighted Average LTV = 63%
• Sample data: (loans > $500k, 75% of dollars outstanding
• LTV’s were adjusted using PPR’s market level/property type value trend indices.
91
Term CRE Metrics are Solid
Percentage of loans within each bucket that are nonaccrual
Term CRE Debt Yield Ratio
92
(In millions)
• Sample data: (loans > $500k, 75% of dollars outstanding
Years of Term CRE Origination Well Diversified
93
Percentage of loans within each bucket that are nonaccrual
Years of Term CRE Maturities Well Diversified
(In billions)
94
Average loan balance (in millions) within each bucket
No Tsunami of Term CRE Problem Maturities
* LTV’s were adjusted using PPR’s market level/property type value trend indices.
(In billions)
95
I. Overview & Executive Summary
II. Capital, Liquidity, and TARP
III. Earnings
IV. Credit Quality
V. Commercial Real Estate—Deep Dive
VI. Credit Process Changes
VII. CDOs
VIII. Affiliate Bank Presentations
IX. Summary
X. Break-out Sessions
Agenda
Credit Risk Management Changes 2010-2011
§ Significant Corporate Credit Executive Upgrades
§ Dedicated Executives for CRE, C&I, Small Business/Consumer
§ Concentration Risk Manager
§ Credit Systems Initiative Executive
§ Credit Training Program Executive
§ Data Integrity and Reporting Executives
§ Four new, but experienced, chief credit officers in our eight banks
in the last year
in the last year
Enhanced Corporate Oversight
n Originations
n Account Management
n Analytics
7
97
Credit Risk Management Changes 2010-2011
Originations
n Concentration limits & process implemented
n Boundaries for overall & specific risk types
n New experienced concentrations executive in place
n Underwriting standardized
n C&I templates
n CRE templates and risk hurdle process
n Small business centralization and templates
n Enterprise credit training instituted
n Quality assurance reviews employed
n High risk products, industries and borrowers curtailed by
policy and approval process
policy and approval process
n New volume credit quality scrutinized
n High risk and new borrower reviews
7
98
Credit Risk Management Changes 2010-2011
Account Management
n Problem loan management upgraded and standardized
n Corporate oversight function created; Executive in place
n Workout practices
n Foreclosure procedures standardized
n TDR & Impairment process enhanced
n Appraisal management standardized
n Collateral monitoring, exception tracking system
enhancements
enhancements
n New exception tracking and reporting created to reduce risk
7
99
Credit Risk Management Changes 2010-2011
Analytics
n Stress testing and loss modeling expanded and improved
n More granular CRE product modeling
n Allowance for credit losses
n Risk grading processes enhanced
n System upgrades, expanded training, definitional
refinements
refinements
n Auto-grading
n 23 credit system projects initiated; 6 completed
7
100
101
n Concentration policy limits and organization established
n Formal board approved risk appetite and resulting limits; overall risk boundaries aligned with capital
planning
planning
n Concentration limit asset levels set conservatively lower than actual peak downturn
n Current portfolios significantly below concentration limits
n Risk assessment considers new production by market
n CRE high risk loan alerts provided to relationship managers
n CDO purchases prohibited by Board approved policy
Source: Zions internal documentation
Note: Portfolio exposure data as of Q2 2011; Regulatory Risk Based Capital represents year-end 2012 projection assuming TARP repayment
¹ Exposure is bank balance plus remaining commitment credit conversion factor of 100% for Construction, 50% for all other assets; Amegy energy risk limits are managed assuming 100% committed exposure;
additional total energy capacity as of Q3 11 was $922 million; Energy risk limits approved by Board of Directors December 12, 2011
additional total energy capacity as of Q3 11 was $922 million; Energy risk limits approved by Board of Directors December 12, 2011
2 Peak exposure from 2006 through 2011
3 Amegy Bank of Texas and Zions First National are the only banks with Leverage/Enterprise loan exposure greater than 20% of regulatory risk based capital. Exposure limits have been approved by Affiliate
Bank Board of Directors
Bank Board of Directors
Zions’ current reduced policy limits vs. current portfolio
Zions’ Concentration and Portfolio Management at
Parent…
Parent…
102
…and Locally at Each of Zions’ Banks
Source: Zions internal documentation, Excl. Commerce Bank of Washington, Commerce Bank of Oregon as not being material
Note: Portfolio exposure data as of Q2 2011; Regulatory Risk Based Capital represents year-end 2012 projection assuming TARP repayment
¹ Exposure is bank balance plus remaining commitment credit conversion factor of 100% for Construction, 50% for all other assets
2 Peak exposure from 2006 through 2011
Amegy Bank of Texas CRE (excl OO)
National Bank of Arizona CRE (excl OO)
Zions First National CRE (excl OO)
California Bank & Trust CRE (excl OO)
Nevada State Bank CRE (excl OO)
Vectra Bank of Colorado CRE (excl OO)
Affiliates’ exposures across the entire portfolio are significantly below concentration limits
300%
100%
30%
15%
300%
100%
30%
15%
300%
100%
30%
15%
300%
100%
30%
15%
300%
100%
30%
15%
300%
100%
30%
15%
Portfolio exposure¹ as a % of regulatory capital
Limit exposure as a % of regulatory capital
Actual peak downturn CRE exposure² as a % of regulatory capital
Bottom Up CRE Risk Evaluation
MSA & Product Hurdle Process
Why Risk Hurdles?
•Common enterprise-wide market view and framework to assess CRE lending
risk
risk
•Consistent methodology and data set to analyze and establish CRE risk appetite
•Lending Strike Zone -- aligns market views between credit and lenders
•Triggers for early warning signs and portfolio management - what to reduce,
what to increase
what to increase
What are Risk Hurdles?
―High - highest risk; falling rents/values; rising vacancy; high historical losses
―Medium - moderate risk; specific issues addressed
―Low - lowest risk; balanced supply/demand; stable to rising rents/values
103
Credit Quality Key Takeaways
§ Credit quality metric have improved materially in:
– All loan types
– All geographies
§ Problem loan inflows continue to slow; most resolutions are favorable
§ Loan loss reserve is strong and charge-offs are declining
§ Strong improvement in problem loans
§ C&D risk well managed and under control
– Reduced concentration in C&D
– C&D old vintage nearly gone
§ Term CRE risk is diversified
– Portfolio is well diversified and conservatively underwritten
– No wall of maturing underwater loans
§ Process improvement
§ Concentration management formalized w/ Board review
§ Credit oversight processes and overhaul largely in place
104
I. Overview & Executive Summary
II. Capital, Liquidity, and TARP
III. Earnings
IV. Credit Quality
V. Commercial Real Estate—Deep Dive
VI. Credit Process Changes
VII. CDOs
VIII. Affiliate Bank Presentations
IX. Summary
X. Break-out Sessions
Agenda
What We Told You Last Time (Analyst Day 2010)
§ The FDIC has limited resources: they closed the larger banks first in
the crisis, and are now moving on to smaller banks
the crisis, and are now moving on to smaller banks
§ Zions tends to have less exposure to smaller banks in our Bank Trups
CDO portfolio
CDO portfolio
– Smaller banks were less likely to issue trust preferred securities
– For smaller banks that did issue trust preferred securities the aggregate collateral
exposure tends to be much smaller
exposure tends to be much smaller
§ Even if the number of bank closures remains elevated, the impact of
those closures should continue to diminish
those closures should continue to diminish
106
CDO Takeaways
§ Significant tangible common equity tied up due to high discount rates
§ Deferring banks have a choice: repay; declare bankruptcy; sell
§ We are Seeing:
– Fewer and smaller failures
– Reduced exposure to failures
– Actual re-performance
§ We believe there is more upside potential vs. downside risk
107
The CDO Portfolio is Fairly and Conservatively Valued
nAmortized cost of the CDO portfolio
reflects $453 million of impairment
(OTTI) and valuation adjustments
already taken
reflects $453 million of impairment
(OTTI) and valuation adjustments
already taken
nOTTI estimates are based on
conservative in-house models,
which:
conservative in-house models,
which:
nAre based on predicted default
rates by underlying individual
institutions;
rates by underlying individual
institutions;
nHave been assessed by a 3rd party;
and
and
nHave consistently over predicted
defaults
defaults
nDifferences between amortized cost
and carrying values of ~$1 billion
AOCI reflect current market spreads,
which are expected to narrow with
time
and carrying values of ~$1 billion
AOCI reflect current market spreads,
which are expected to narrow with
time
16
108
Total Bank Failures and Failures in Zions’ CDOs are Declining
109
Our CDO Model is Consistently Over Predicting Defaults
Fewer total U.S. bank failures per year, and Zions has fewer exposures to those failures
Source: Zions internal documentation
¹ Zions Base scenario estimate
94%
73%
44%
Zions actual CDO U.S. bank failures vs. predicted
Zions actual
CDO U.S. bank
failures vs.
predicted
CDO U.S. bank
failures vs.
predicted
1
110
Most Failures in 2011 Carried a 99% or Higher Probability of Default
Prior to the Failure
Prior to the Failure
* Management for this bank ($20mm aggregate exposure) currently
appealing closure, given strength of capital ratios prior to closing
appealing closure, given strength of capital ratios prior to closing
111
Modeled Probabilities of Default are Improving - (5 Year Cumulative)
112
Increase in
performing bank
average PDs in
3Q11 and 4Q11
caused by adding
PD floors
performing bank
average PDs in
3Q11 and 4Q11
caused by adding
PD floors
OTTI: But what if the Economy Gets Worse?
|
|
Additional:
|
|
|
Total Bank
Failures (3) |
OTTI
($ in millions)
|
|
|
Additional Stress (1)
|
≈660
|
$318
|
|
Zions Stress (2)
|
≈530
|
$172
|
|
Zions Base
|
≈290
|
$0
|
(1) Additional stress to get to the approximately 15% cumulative default rate observed during the 1987-1993 period of the S&L Crisis
(2) During 2012-13 key economic indicator worst points as follows: Unemployment 11.8%; FHFA housing price index down 28%; GDP
down 5%
down 5%
(3) Additional bank failures implied from 2012-2016
113
New Bank Deferrals in Zions’ CDOs are Trending
Downward
Downward
114
Total Banks in Deferral Appear to Have Peaked
As of 12-31-11
115
Deferring Bank Re-performance has Increased
As of 12-31-11
116
What Happens if Things get Better?
OTTI: Increased CPR Speed Results in a Modest Increase in OTTI*
OTTI: Increased CPR Speed Results in a Modest Increase in OTTI*
4Q11 Assumptions:
• CPR:
• 3% for banks with assets less than $15B
• Banks with assets greater than $15B and are rated investment grade are assumed to prepay by the end of 2015
• Discount Rates:
• First Pay original AAA-rated: Libor + 6.5% (weighted average)
• Second Pay original AAA-rated: Libor + 6.8%
• Original A-rated: Libor + 17.6%
• Original BBB-rated: Libor + 33.3%
• Combined: Libor + 11.9%
117
* OTTI would be partially offset by securities gains from more senior tranches being paid
down at par (Lockhart securities purchased at a discount)
down at par (Lockhart securities purchased at a discount)
What Happens if Things get Better?
AOCI Mark: Faster Prepays & Lower Rates Both Reduce AOCI
AOCI Mark: Faster Prepays & Lower Rates Both Reduce AOCI
4Q11 Assumptions:
• CPR:
• 3% for banks with assets less than $15B
• Banks with assets greater than $15B and are rated investment grade are assumed to prepay by the end of 2015
• Discount Rates:
• First Pay original AAA-rated: Libor + 6.5% (weighted average)
• Second Pay original AAA-rated: Libor + 6.8%
• Original A-rated: Libor + 17.6%
• Original BBB-rated: Libor + 33.3%
• Combined: Libor + 11.9%
118
What Happens if Things get Better?
A Net Positive Impact to TCE/Share
A Net Positive Impact to TCE/Share
• CPR:
• 3% for banks with assets less than $15B
• Banks with assets greater than $15B and are rated investment grade are assumed to prepay by the end of 2015
• Discount Rates:
• First Pay original AAA-rated: Libor + 6.5% (weighted average)
• Second Pay original AAA-rated: Libor + 6.8%
• Original A-rated: Libor + 17.6%
• Original BBB-rated: Libor + 33.3%
• Combined: Libor + 11.9%
|
|
CPR Speed
|
Discount Spread
|
|
Scenario 1
|
6%
|
20% Better
|
|
Scenario 2
|
9%
|
40% Better
|
|
Scenario 3
|
12%
|
60% Better
|
|
After-tax TCE per Share Impact by Scenario
|
||||
|
|
From
OTTI |
From
AOCI |
Total
Net |
%TCE/Share
|
|
Scenario 1
|
$(0.20)
|
$0.64
|
$0.44
|
2.3%
|
|
Scenario 2
|
$(0.32)
|
$1.33
|
$1.01
|
5.3%
|
|
Scenario 3
|
$(0.40)
|
$2.10
|
$1.70
|
8.9%
|
119
* OTTI would be partially offset by securities gains from more senior tranches being paid
down at par (Lockhart securities purchased at a discount)
down at par (Lockhart securities purchased at a discount)
CDO Takeaways
§ Significant tangible common equity tied up due to high discount rates
§ Deferring banks have a choice: Repay; Declare Bankruptcy; Sell
§ We are Seeing:
– Fewer, and smaller failures
– Reduced exposure to failures
– Actual re-performance
§ We believe there is more upside potential vs. downside risk
120
I. Overview & Executive Summary
II. Capital, Liquidity, and TARP
III. Earnings
IV. Credit Quality
V. Commercial Real Estate—Deep Dive
VI. Credit Process Changes
VII. CDOs
VIII. Affiliate Bank Presentations
IX. Summary
X. Break-out Sessions
Agenda
February 2012
Utah Economy
Utah
Employment
• Ranks third of the 50 states as measured by the growth rate of
employment
employment
• Economy has regained roughly half of jobs lost in late 2008 through
early 2010
early 2010
• Increasing economic diversification - five major employment sectors
each added at least 5,000 net new jobs in past 12 months
each added at least 5,000 net new jobs in past 12 months
Housing
• 2011 home sales at highest level in three years (up 9% over 2010)
• Inventory levels down nearly 24% in 2011 - current inventory supply
of 7.2 months, compared to 10.5 months
of 7.2 months, compared to 10.5 months
• Prices down 8% compared to 2010
• Foreclosures down 32% compared to 2010
Climate
• Forbes magazine - Best State for Business (last two years)
• Projected state budget surplus of $400 million ($280 ongoing/$120
one-time)
one-time)
123
Idaho Economy
Idaho
Employment
• Average total employment during 2011 slightly exceeded 2010 - the
first calendar year increase since 2007
first calendar year increase since 2007
• Unemployment at lowest level in two years
Housing
• Boise (Ada County) inventory levels down 31.5% in 2011 - current
inventory supply of 4.4 months, compared to 8.0 months
inventory supply of 4.4 months, compared to 8.0 months
• Prices up 1.8% compared to 2010
• Foreclosures down 40% compared to 2010
Climate
• Economic climate ranks 10th nationally
• 5th lowest cost of business
• Ranked 4th in entrepreneurial activity by the Kauffman Foundation
124
Utah and Idaho Economy
|
|
Utah
|
Idaho
|
||
|
Peak
|
2011
|
Peak
|
2011
|
|
|
Employment (in 000s)
|
1,331.3
|
1,260.2
|
731.9
|
698.4
|
|
Unemployment rate
|
8.0%
|
6.0%
|
9.7%
|
8.4%
|
|
Retail sales growth
|
12.0%
|
4.8%
|
8.0%
|
2.5%
|
|
Housing starts
|
24,000
|
8,700
|
19,000
|
5,500
|
|
Population growth
(2011 v. 2010)
|
1.9% (#3 in nation)
|
0.9%
|
||
125
Revenue Summary
126
Pre-tax Core Earnings Summary
Adjusted Pre-Tax Income
Adjusted Pre-Tax Pre-Provision Income
* Adjusted for securities gains (losses).
* Adjusted for credit-related expenses and securities gains (losses).
127
Credit Quality Trends
Net charge-offs & nonaccrual loans
Net charge-offs & nonaccrual loans
Charge-offs
128
Credit Quality Trends
Classified assets
Classified assets
Classified Assets
Classified / Tier 1 + Reserve
(includes classified securities)
129
Core Lending Growth
Annual loan growth (reduction) by category
Annual loan growth (reduction) by category
130
Lessons Learned In This Cycle
The need to be disciplined with concentrations of credit
• Both by product and geography
The need to enhance diversification of revenue
• Non-interest income v. net interest income
• Less capital intensive revenue stream
The need to carefully monitor “irrational” market trends
• MSAs experiencing real property valuation well in excess of the national rate
for extended period should be avoided
for extended period should be avoided
The need for enhanced underwriting discipline
• Real equity v. perceived equity
• Cannot be complacent in thinking we have collateral value to cover the debt
• Willingness to walk away from transactional deals
131
What We Did Right In This Cycle
Commitment to relationship banking
• We know and understand our clients - the people side of underwriting
Problem asset intervention and disposition
• Early identification and aggressive action to speed problem asset resolution
Aggressive and effective management of reputation
• Officers “out on the street” actively communicating with clients
• American Banker survey conducted by Reputation Institute ranked Zions
Bank as the 2nd most reputable U.S. Bank (one of only two banks to score
over 70)
Bank as the 2nd most reputable U.S. Bank (one of only two banks to score
over 70)
132
2012 Business Initiatives
Focus on revenue growth
• Aggressive cross-sell efforts
• Treasury Services (expanded small business package)
• Insurance
• Private Banking / Wealth Management
• Interest rate management
• Consumer checking account changes
• Overhauled checking account offering to partially recoup lost revenue
from Durbin Amendment
from Durbin Amendment
Focused loan growth initiatives
• Small business lending (no one does it better)
• Residential mortgage
• Bankcard
• Corporate lending
133
2012 Business Initiatives, continued
Focus on expenses
• Rationalize use of delivery channels
• Enhanced efficiency through electronic delivery
• E-Statements - current penetration = 32.1%; target = 50%
• E-Notices - current penetration = 9.7%; target = 50%
• Self-service Internet Bank / Mobile Banking
• FTE Efficiency
Maintain focus on risk
• Regulatory risk
• Credit risk
• Interest rate risk
134
Key Operating Expense Comparisons
|
($ in 000s)
|
2007
|
2011
|
% change
|
|
Salaries and Benefits
|
$201,697
|
$202,087
|
0.2%
|
|
# FTE
|
2,668
|
2,487
|
(6.8%)
|
|
Net Occupancy
|
$15,177
|
$15,006
|
(1.1%)
|
|
# Branches
|
139
|
131
|
(5.8%)
|
|
Supplies, Postage & Shipping
|
$12,925
|
$9,142
|
(29.3%)
|
|
Legal & Professional
|
$9,132
|
$7,439
|
(18.5%)
|
135
Significant Expense Opportunities
|
($ in 000s)
|
2007
|
2011
|
|
FDIC Premiums
|
$2,464
|
$21,231
|
|
OREO
|
$2,638
|
$35,897
|
|
Credit-Related Expense
|
$4,843
|
$29,973
|
136
• Utah “Best of State”
• Best Bank (7th consecutive year)
• Economic Development (2nd consecutive year)
• American Banker - 25 Most Powerful Women in Banking
• Top Women Banking Team Award
• LeeAnne Linderman, EVP, Branch Banking - #23 Most Powerful Women in Banking
• U.S. Small Business Administration
• Utah top provider of SBA 7(a) loans (18th consecutive year)
• Idaho top provider of SBA 7(a) loans (10th consecutive year)
• Nation’s top provider of SBA 504 loans
• Financial Services Champion of the Year - Harris Simmons, Chairman
• Women in Business Champion of the Year - Diana Kirk, EVP, Private Client Services
• Greenwich Associates
• Excellence in Small Business and Middle Market Banking (13 awards)
• American Banker Reputation Institute Study
• 2nd most reputable U.S. Bank (one of only two banks to score over 70)
2011 Awards and Recognition
137
Amegy Bank of Texas
February 2012
Houston Economy…One Of The Nation’s Strongest
• Population: 5.9 million…ranks 4th
• Employment: 2.6 million jobs
• Unemployment rate: 7.3%
• Gross area product: $363 billion
• 2011 Housing starts: 20,000
• 25 Fortune 500 companies are headquartered in
Houston
Houston
139
Operating In A Diversified Economy
• 3,700+ energy-related
establishments
establishments
• Home to 42 of the nation’s 137
publicly traded oil and gas E&P
firms, and 11 of the top 25
publicly traded oil and gas E&P
firms, and 11 of the top 25
• The nine refineries in the
Houston region produce 13.8%
of the total U.S. capacity.
Houston region produce 13.8%
of the total U.S. capacity.
• 142,600+ jobs
• Construction projects worth $7+
billion slated for completion by
2014
billion slated for completion by
2014
• Creates $14 billion in regional
spending
spending
• 1,000+ acres; larger than
Chicago’s Inner Loop
Chicago’s Inner Loop
• 33.8 MM sq. ft. of patient care,
education and research space
education and research space
• 49 institutions
• First in U.S. in foreign tonnage;
second in U.S. for total
tonnage; world’s tenth largest
(2007)
second in U.S. for total
tonnage; world’s tenth largest
(2007)
• 7,000+ ships visit annually
• $15 billion petrochemical
complex; second largest in the
world
complex; second largest in the
world
• 3,500+ companies trade 180+
types of products in 183
countries
types of products in 183
countries
Home of the world’s largest
health care complex
health care complex
Energy capital of the world
Port of Houston
140
Core Earnings Remain Strong
|
|
|
|
|
|
|
|
|
|
|
Balance Sheet Items
|
|
2008
|
|
2009
|
|
2010
|
|
2011
|
|
|
|
|
|
|
|
|
|
|
|
Loans
|
|
$ 9,124
|
|
$ 8,417
|
|
$ 7,523
|
|
$ 7,889
|
|
|
|
|
|
|
|
|
|
|
|
Demand Deposits
|
|
$ 2,640
|
|
$ 3,937
|
|
$ 4,335
|
|
$ 5,276
|
|
Interest Bearing Deposits
|
|
5,858
|
|
5,303
|
|
4,500
|
|
4,407
|
|
Total Deposits
|
|
$ 8,498
|
|
$ 9,240
|
|
$ 8,835
|
|
$ 9,683
|
|
|
|
|
|
|
|
|
|
|
|
Income Statement Items
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net Interest Income
|
|
$ 370
|
|
$ 386
|
|
$ 392
|
|
$ 384
|
|
Non Interest Income
|
|
155*
|
|
129
|
|
143
|
|
145
|
|
Total Revenue
|
|
525
|
|
515
|
|
535
|
|
529
|
|
Direct Expenses
|
|
228
|
|
231
|
|
250
|
|
242***
|
|
Total Expenses
|
|
283
|
|
293
|
|
314
|
|
316
|
|
Pre-Tax/Pre-Provision
|
|
242
|
|
222
|
|
221
|
|
219
|
|
Provision
|
|
72
|
|
443
|
|
126
|
|
(41)
|
|
Net Income after Tax
|
|
$ 86
|
|
$ (149)**
|
|
$ 59
|
|
$ 162
|
|
|
|
|
|
|
|
|
|
|
|
Ratios
|
|
|
|
|
|
|
|
|
|
Net Interest Margin
|
|
3.92%
|
|
3.90%
|
|
3.98%
|
|
3.91%
|
|
Fee Income Ratio
|
|
29%
|
|
25%
|
|
27%
|
|
27%
|
|
Cash ROTE
|
|
16%
|
|
-15%
|
|
5%
|
|
12%
|
|
Cash Efficiency Ratio
|
|
53%
|
|
56%
|
|
58%
|
|
59%
|
|
Tangible Common Equity Ratio
|
|
7.14%
|
|
8.63%
|
|
9.07%
|
|
9.65%
|
|
FTEs
|
|
1,743
|
|
1,584
|
|
1,604
|
|
1,633
|
*Adjusted for $38mm in swap gain in ’08
** Adjusted for $632mm goodwill charge in ’09
***Excluding prior period BOLI adjustment
141
Credit Quality…Significant Improvement
0.29%
1.64%
2.01%
0.93%
0.13%
142
Classified & REO as a % of Tier 1 + ACL
143
2008 - 4Q2011
16 Qtrs Annlzd
1.21%
1.56%
1.97%
2.11%
2.69 %
2.86 %
1.88 %
Net Charge-offs…Fared Better Than Most
*Peer Averages are not weighted, Peer Group includes 48 publicly traded companies with assets > $10 Billion.
* Zions Analyst Peer Group consists of 19 publicly traded banks stock analysts deem Zion’s Peer.
2010
1.98%
1.96%
2.56%
2.26%
3.58%
3.68%
2.25%
Amegy Bank
Peer Average
Zions Bancorporation
Zions Peer Group
JPMorgan Chase
Bank of America
Wells Fargo
2009
1.64%
2.08%
2.28%
2.76%
3.36%
3.40%
2.10%
2008
.32%
1.04%
.96%
1.42%
1.67%
1.72%
1.84%
2011
.93%
1.10%
1.26%
1.45%
1.76%
2.30%
1.41%
144
What We Learned This Cycle
Problem
Credit Forecasting
Segmented Workout
Activity
Activity
Concentration
Management
Management
Pass
Credit
Reviews
Out of
Market
Lending
145
What We Did Right In This Cycle
Stable “Core”
Revenue/Earnings
Laser Focused on
problem loan resolution
Focused enhancements to
credit process
Culture Matters
Strong Calling Program
+
Market Leader in Loan Pricing
+
Focus on cross-selling
+
FTE/Expense Discipline
=
146
Moving Forward…Solid Loan Production Mix
2011 Outstanding Balances ($000,000)
($100)
($200)
($300)
($400)
($500)
($181)
($83)
($412)
$435
C&I
Energy
Consumer
Coml Constr
Land A&D
Term/Other RE
Total Bank
147
Moving Forward…Fee Income Growth Potential
|
Base Fee Income
|
|
$ 103,000
|
|
|
|
|
|
|
|
High Growth Opportunities
|
|
|
|
|
Factoring
|
$ 11,000
|
|
|
|
|
|
|
|
|
Retail Products*
|
$ 9,300
|
|
|
|
|
|
|
|
|
Residential Mortgage
|
$ 7,100
|
|
|
|
|
|
|
|
|
Foreign Exchange
|
$ 6,600
|
|
|
|
|
|
|
|
|
Investment / Brokerage
|
$ 4,300
|
|
|
|
|
|
|
|
|
Purchasing Cards
|
$ 2,500
|
|
|
|
|
|
|
|
|
Merchant Services
|
$ 1,400
|
|
|
|
|
|
|
|
|
Subtotal:
|
|
$ 42,200
|
|
|
Total 2011 Fee Income*:
|
|
$ 145,200
|
|
*Debit card income adjusted to reflect annual impact of Durbin
Amendment. Actual 2011 Fee Income similarly adjusted.
Amendment. Actual 2011 Fee Income similarly adjusted.
In millions
148
Moving Forward…Disciplined Expense Control
|
|
|
|
|
|
|
|
|
|
($'s in millions)
|
2008
|
|
2009
|
|
2010
|
|
2011
|
|
|
Actual
|
|
Actual
|
|
Actual
|
|
Actual
|
|
|
|
|
|
|
|
|
|
|
Total Revenue
|
$ 525.1*
|
|
$ 514.3
|
|
$ 535.3
|
|
$ 529.6
|
|
|
|
|
|
|
|
|
|
|
Controllable Expenses
|
221.1
|
|
200.6
|
|
204.9
|
|
220.6**
|
|
|
|
|
|
|
|
|
|
|
Credit-Related Expenses
|
|
|
|
|
|
|
|
|
FDIC insurance assessment
|
4.6
|
|
21.6
|
|
25.9
|
|
12.0
|
|
Appraisal, recording and filing fees
|
1.7
|
|
3.2
|
|
8.1
|
|
6.4
|
|
Other real estate expense
|
1.0
|
|
5.4
|
|
10.7
|
|
3.3
|
|
|
|
|
|
|
|
|
|
|
Subtotal
|
7.4
|
|
30.3
|
|
44.7
|
|
21.7
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total direct expenses
|
$ 228.5
|
|
$ 230.8
|
|
$ 249.6
|
|
$ 241.3
|
|
|
|
|
|
|
|
|
|
|
FTE
|
1,743
|
|
1,584
|
|
1,604
|
|
1,633
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
*Adj for $38mm swap gain
**Excluding prior period BOLI adjustment
|
|
|
|
|
|
|
|
149
Opportunity…“Just Getting Started”
• First 21 years…1 location, 20 employees and $50 million in
assets to 81 locations, 2,000 employees and $12 billion in
assets
assets to 81 locations, 2,000 employees and $12 billion in
assets
• 5% deposit share vs. 62% deposit share of JPMC, WFC, BAC
• 2nd largest regional bank in Texas to Frost
• #1 middle market (lead relationship share)
• #3 SBA lender in Houston
• #7 in U.S. for Ex-Im working capital commitments
• Record year in mortgage production
• Strong, diversified loan portfolio with strength in commercial,
corporate, energy, CRE, and small business
corporate, energy, CRE, and small business
• Solid fee income potential
150
Energy Loan Portfolio
Energy Cycle
Oil and Gas: A Historical Snapshot
153
Rigs Transitioning To Oil/Liquids
154
Credit Quality
Energy Services
Reserve Based, Midstream and Other
Energy Service Exposure By Market Segment
$2.1 Billion in Commitments
• Consolidation trend
continues
continues
• Underwriting with
strong equity and short
amortization
strong equity and short
amortization
• Significant private
equity involvement
equity involvement
156
Reserve-Based Underwriting
Typical Oil & Gas Reserve Based Loan
($ in millions)
$100 - value using NYMEX oil and gas prices at PV 10%
$ 85 - Amegy risk-adjusted reserves (i.e. collateral value)
$ 68 - apply Amegy prices (75-100% of NYMEX)
$ 51 - loan value 75% adv. rate (25% of projected production hedged)
$ 41 - loan value 60% adv. rate (no hedging)
Note
• Average utilization on facilities ~55%.
• PDNP reserves limited to 25%
• Base case-loan must repay with 40% of reserves remaining
• Sensitivity-75% of base price with no future increase. Loan must repay in life of
reserves.
reserves.
157
Gas Shale Plays: A New Dimension
158
Natural Gas Exposure…Very Manageable
*Excluding midstream and downstream
159
Outlook
Industry Condition
• Consolidation has resulted in larger companies with stronger balance
sheets and access to multiple capital sources
sheets and access to multiple capital sources
• Significant private equity firm involvement
• Low gas price will naturally reset over time
• Complexity of drilling techniques will only increase
Amegy’s Energy Team
• Experienced team
• Conservative underwriting standards
• Active use of hedging
• Diversified energy portfolio
160
California Bank & Trust
David Blackford
February 2012
David Blackford
February 2012
California’s Economic Engine
Gross State Product = $1.9 trillion, 13% of Total US economy1
Gross State Product = $1.9 trillion, 13% of Total US economy1
• Measured independently, CA would
rank as 8th largest in the world
rank as 8th largest in the world
• State attracts 50% of all Venture
Capital investment $2
Capital investment $2
• California contains 3 of top 10
“super zips” - 95 - 99th percentile
combined wealth/education index
“super zips” - 95 - 99th percentile
combined wealth/education index
• 5 of top 10 public universities in CA
3
3
• Consumer electronics and
social media unique bright
spots in difficult economy
social media unique bright
spots in difficult economy
• Significant multiplier impact on
communications, tech sales
communications, tech sales
• Growing and transformative
influence on biotech, health
care, entertainment, financial
services
influence on biotech, health
care, entertainment, financial
services
• 2011 exports eclipsed 11 year-
old record
old record
• $159 billion in exports was
11.2% increase over prior year
11.2% increase over prior year
• Led by sales of high-tech
products
products
Home to many of world’s
leading technology companies
leading technology companies
Capital and talent magnet
California sets export record
(1) 2010 data
(2): 2006-11, Price Waterhouse Cooper
(3) U.S. News ranking
162
CA Economy
Ø Unemployment rate of 11.1%
Ø 2nd highest in U.S., but down from
12.5% a year ago
Ø Varies greatly by region
• SF/San Mateo: 7.3%
• Orange County: 7.8%
• San Diego: 8.9%
• Inland Empire: 12.2%
• Fresno: 16.2%
Ø Multifamily construction leads
homebuilding
homebuilding
163
Revenue and Pre-tax Core Earnings Summary
(1) Excludes securities losses and bargain purchase gains on FDIC assisted acquisitions. Net Interest
Income for 2010-11 includes discount accretion on FDIC supported loans that is 80% offset by
Indemnification Asset Amortization included in Non-interest Expense
Income for 2010-11 includes discount accretion on FDIC supported loans that is 80% offset by
Indemnification Asset Amortization included in Non-interest Expense
164
Credit Quality
%=CBT NCO as % of CBT total loans (excluding FDIC-
supported loans)
supported loans)
165
Credit Quality1
(1) Based on outstanding loan balances, excludes FDIC Supported
Assets
Assets
166
What We Learned This Cycle
Ø Late-cycle lending requires extraordinary care and discipline
Ø 85% of CRE losses in past 12 years originated in 2005-2007
Ø Margin for error is diminished: Loans with two or more
Ø Housing sector performance has strong impact on commercial RE and
non-Real Estate credit products and industries
non-Real Estate credit products and industries
Ø Retailers and retail rents/vacancies
Ø Mortgage companies, suppliers, design firms
Ø Also translates to office vacancies and rent declines
Ø High reliance of small businesses on home price appreciation
Ø Transactions outside of core competencies and markets, although
limited, have disproportionate impact on loss rates
limited, have disproportionate impact on loss rates
167
What We Did Right This Cycle
Ø Disciplined growth and attention to creating shareholder value
throughout business cycle
throughout business cycle
Ø Strong credit culture with very experienced lenders and high-
accountability approval process
accountability approval process
Ø Avoided sub-prime mortgage products
Ø Early and aggressive problem asset disposition reduced loss and
problem asset levels
problem asset levels
Ø Maintained strong core earnings to absorb ALLL build
Ø Successfully executed two FDIC-supported acquisitions with
significant financial contribution
significant financial contribution
168
State of the Bank
Ø 2011 Highlights
Ø Organic loan growth in 2H, with $300M of growth since March 2011 (excluding
FDIC supported loans)
FDIC supported loans)
Ø Record year for mortgage production and international banking revenue
Ø Added high quality mini-perm transactions - Average LTV 59-64% with
concentration in coastal markets (92% of CA originations)
concentration in coastal markets (92% of CA originations)
Ø Much lower credit losses from Vineyard acquisition contributed to high discount
accretion - however this will reduce in 2012-13 as portfolio pays down
accretion - however this will reduce in 2012-13 as portfolio pays down
Ø Steady improvement in all credit quality measures each quarter
Ø Current State of the Bank
Ø Strong capital - Dividends resumed, paying $42.5M in 2H11
Ø Valuable core deposit base - cost of 17 bps in 4Q11
Ø Among the highest NIMs in the industry - 4.96% reported, 4.30% core in 4Q11
Ø Net charge-offs at pre-crisis levels - 24 bps in 4Q11
169
Ø Achieved desired balance sheet diversification in recent years
Ø Targeted focus on resilient markets with rebounding economies
Ø Supported by key business partners: Cash Mgmt, International (Trade and FX), Wealth
Management, Leasing, Bankcard
Management, Leasing, Bankcard
Ø Better positioned to grow after exiting a significant number of relationships
Major Business Lines
|
|
Total Loans
|
|
San Diego Division: Super-community bank with expertise in small
business, lower middle market, private banking, and RE lending |
$1.5B
|
|
Business and Personal Banking: Small business, executive
banking, and high-end retail banking north of SD |
$1.2B
|
|
Commercial Banking: Targeting middle market throughout CA
|
$1.4B
|
|
Real Estate Lending: Focus on high quality developers and
investors with emphasis on mini-perm and bridge loans |
$1.5B
|
|
Mortgage Lending: Relationship-deepening business, focus on
conservative jumbo ARM lending |
$1.1B
|
|
SBA Lending: General purpose SBA 504 and conservative SBA 7a
equipment and RE in CA |
$0.8B
|
170
2012 Business Initiatives
Ø Improve Performance of Branch Network
Ø New executive hired to run branches and small business banking north of
San Diego
San Diego
Ø Continue branch repositioning strategy
o Closed 5 branches in 15 months while retaining 80% of deposits to date; 2
additional closures scheduled for April
additional closures scheduled for April
o Reinvesting a portion of savings in stronger markets
Ø Revamp delivery to small business
o Restructure certain credit products based on lessons learned
o Review sales/marketing structure, delivery of credit, and deposit offerings
Ø Capitalize on strength of Bay Area and Silicon Valley
o Opened S.F. real estate lending office in 2011
o Experienced commercial banking team already in place
Ø Strong focus on cross sell and fee income replacement/expansion
171
Key Operating Expense Comparison
|
($ in millions)
|
2007
|
2009
|
2011
|
|
Salary and Benefits
|
128.2
|
140.6
|
148.7
|
|
Occupancy and FFE
|
36.2
|
37.1
|
37.3
|
|
FDIC Ins/Regulatory Exp
|
0.4
|
20.6
|
15.1
|
|
OREO
|
0
|
9.2
|
3.7
|
|
Other Direct
|
42.2
|
43.7
|
44.1
|
|
Allocated Expenses
|
16.9
|
39.0
|
48.9
|
|
Subtotal
|
223.9
|
290.3
|
297.9
|
|
IA Amortization
|
0
|
0
|
54.2
|
|
Total
|
223.9
|
290.3
|
352.1
|
|
Average FTE
|
1,603
|
1,571
|
1,591
|
Source: Internal Management Financials
Systems converted to Bancorp platform in Aug 2007
Alliance and Vineyard Acquisitions were completed in 2009
172
Significant Expense Reduction Opportunities
Ø Credit expenses will come down due to lower problem asset levels
and activity
and activity
Ø Less staffing, legal, appraisal, and collateral preservation expenses
Ø OREO costs have already been reduced to $3.7 million in 2011 from peak
of $9.2 million in 2009
of $9.2 million in 2009
Ø FDIC insurance expense expected to decline by $7 million in 2012
Ø FTE down by 69 since Dec. 2010. Additional benefit of this decline
expected in 2012
expected in 2012
Ø Further reductions expected from initiative to improve
performance of branch network
performance of branch network
173
National Bank of Arizona
February 2012
Arizona Economy
Slowly Improving - Employment Increasing
Public Sector Drag
Housing Overhang
Ø 200,000+ Vacant Units Phoenix (14%)
Ø Half of Homes have Negative Equity to Mortgage
Ø Mortgage Delinquency 11%
Ø Strategic Defaults
Slow Population Growth
Ø Population Mobility Lowest Since 1948
Business Spending/Hiring Remain on Hold
175
Arizona Economy
|
|
Peak
|
Now
|
|
Population Growth
|
3.5%
|
.5%
|
|
Employment
|
2.95M
|
2.88M
|
|
Retail Sales
|
$55B
|
$48B
|
|
Housing Starts
|
90,000
|
14,000
|
176
Revenue and Pre-tax Core Earnings Summary
Core Earnings = Pre-tax Income + Credit Related Expenses +
Goodwill Impairment + Gain/Loss on Securities
Goodwill Impairment + Gain/Loss on Securities
Adjusted Pre-Tax = Pre-Tax Income + Goodwill Impairment +
Gain/Loss on Securities
Gain/Loss on Securities
177
Nonaccrual Loans & Net Charge-offs
178
Classified Loans & Oreo / Tier 1 + Reserves
179
What We Learned This Cycle
Improve Diversification of Revenue and Loan
Portfolio
Portfolio
Be Disciplined with Concentrations of Credit
• Custom Lot Financing
• Higher Risk A&D
Quality and Depth of Real Estate Project Equity
180
What We Did Right In This Cycle
Local Level Asset Disposition
LTV/LTC Discipline Helped Mitigate Loss
Early and Aggressive Problem Asset
Intervention/Disposition
Intervention/Disposition
181
2012 Business Initiative #1
Private Banking/Wealth Management
Ø Integrated Executive Banking, Private Banking and Wealth
Management into a new division, Wealth Strategies
Management into a new division, Wealth Strategies
Ø Physically consolidated and relocated Wealth Strategies to
Gainey Ranch Office, creating a full-service team
Gainey Ranch Office, creating a full-service team
Ø Wealth Strategies Team participated in and completed the
Cannon Training for Wealth Strategist - Sales and Practice
Management Skills
Cannon Training for Wealth Strategist - Sales and Practice
Management Skills
Ø Developed and Launched Marketing efforts for Specialty
Banking for Medical Professionals
Banking for Medical Professionals
182
Corporate Banking Group
• 2010 - 2011 Commitments: $308 million
• 2010 - 2011 Outstandings: $139 million
Commercial Real Estate Group / CB&T
• 2011 Commitments: $357 million
• 2011 Outstandings : $209 million
2012 Business Initiative #2
183
Key Operating Expense Comparison
|
|
2007
|
2011
|
|
Salary and Benefits
|
$68,098
|
$60,854
|
|
#FTE
|
1,137
|
926
|
|
Occupancy
|
$12,039
|
$11,887
|
|
# Branches
|
80
|
74*
|
|
Supplies and Postage
|
$3,452
|
$2,084
|
|
Marketing
|
$2,625
|
$1,951
|
|
Armored Car
|
$2,032
|
$718
|
184
Significant Expense Opportunities
|
|
2007
|
2011
|
|
FDIC Premium
|
$1,281
|
$6,204
|
|
OREO
|
$1,537
|
$18,900
|
|
Credit Related Expense
|
$1,620
|
$7,756
|
185
• #1 Bank - Ranking Arizona 2011 - Ranking Arizona Magazine
(Voted #1 Bank - 9 of the last 11 years / 5 years in a row)
(Voted #1 Bank - 9 of the last 11 years / 5 years in a row)
• Best of the Best - Ranking Arizona 2011 - Ranking Arizona Magazine
• Best of the Valley - Best Private Bank 2011 - Arizona Foothills Magazine
• Top 25 Workplaces for Women 2011 AZ Magazine
• Best of Business Award (National Commercial Banks)
Flagstaff 2011 Small Business Commerce Association
• Corporate Partner of the Year 2011 - NAWBO
• Best of Tucson - Best Bank 2011 - Arizona Foothills Magazine
• Arizona's Most Admired Companies Award 2011
Arizona Business Magazine
Arizona Business Magazine
• Best Companies AZ - ULBC Corporation of the Year 2011
United Latino Business Coalition
2011 Awards
186
Nevada State Bank
February 2012
Nevada Economy
Signs of improvement - after two + years of contraction:
Employment
Ø 1.4% increase in 2011, 2.1% projected for 2012 (unemployment at 12.5%)
Consumer Spending/Visitor Volume
Ø 2011 taxable sales up 7.2% over 2010
Ø 2011 Gaming revenues up 2.5% over 2010
Ø 2011 Visitor volume up 3.2% over 2010
Challenges remain
Real Estate Overhang
Ø 60,000+ vacant housing units in Las Vegas (8%)
Ø Approximately 58% of homes are under water
Ø Mortgage delinquency 2x national average, but down to 12.66% (peaked
16.19%)
16.19%)
Ø Office market vacancy at 25.3%, up from 23.8% one year ago
Significant Business Spending/Hiring Remain on Hold
188
Net Interest and Noninterest Income Summary
* - Excludes REO losses, acquisition gains and
income from swaps/hedges
income from swaps/hedges
189
Credit Costs and Gross Revenues Summary
190
Pre-tax Core and Unadjusted Earnings Summary
* - Represents pre-tax income, adjusted for provisions for credit losses
and REO losses
and REO losses
191
Nonaccrual Loans & Net Charge-offs
192
Nonaccrual Loan Inflows
193
Classified Assets & Classified Assets / Tier 1+Reserves
194
Lessons Learned
More Diversification of Revenue Sources and Loan
Portfolio
Portfolio
Be Disciplined with Concentrations of Credit
• Higher Risk A&D
Enhance assessment/understanding of Global Cash
Flow
Flow
Focus on relationship lending with limited
participation in syndicated deals
participation in syndicated deals
195
What We Did Right In This Cycle
Local Level Asset Disposition
Early and Aggressive Problem Asset Intervention/
Disposition
Disposition
Diversified revenue streams with growth in controllable
fee income and C&I/Consumer loan balances
fee income and C&I/Consumer loan balances
Enhanced Credit Culture with investment in personnel,
training and infrastructure
training and infrastructure
196
2012 Business Initiatives
Focused Loan Growth Initiatives
Ø Business Center hub strategy
Ø Competitively priced consumer loans
Ø Increased loan growth production incentives
Fee income
Ø Continued growth in products-per-client and cross-sell ratio
Excess Cash Deployment
Ø Continued purchase of SBA pools, municipal bonds/loans/leases
and other high-grade investments
and other high-grade investments
Expense Reduction Initiatives
Ø Exit unprofitable relationships
Ø Significant decreases in foreclosure/troubled loans FTE
Ø Reduce branch expenses with reduced hours and emphasis on
electronic and mobile banking
electronic and mobile banking
197
Key Operating Expense Comparison
|
|
2007
Actual |
2011
Actual |
2012
Budget |
|
Salaries and benefits*
|
$49,778
|
$55,995
|
$55,040
|
|
#FTE
|
854
|
827
|
789
|
|
Occupancy & FF&E
|
$15,584
|
$14,387
|
$14,823
|
|
# Branches
|
74
|
53
|
51
|
|
Legal/Pro, Supplies,
Advertising |
$7,381
|
$6,574
|
$6,384
|
|
Other operating
|
$14,820
|
$13,849
|
$12,784
|
* - Growth from ‘07 - ’11 due to staffing specifically related to three FDIC-assisted transactions, Special
Assets and Credit Admin staff additions, certain reversals in 2007, and declines in FAS 91 deferrals
due to lower loan originations
Assets and Credit Admin staff additions, certain reversals in 2007, and declines in FAS 91 deferrals
due to lower loan originations
198
Significant Expense Opportunities
|
|
2007
|
2011
|
|
FDIC Premium
|
$640
|
$5,920
|
|
OREO
|
$0
|
$7,743
|
|
Credit Related Expense
|
$154
|
$3,482
|
199
Vectra Bank Colorado
February 2012
Colorado Economy
• Colorado Entered Recession Late and is Emerging Late, but
Strengthening
Strengthening
• Housing Inventory Lowest Since 2007 (3.3 month supply)
• Foreclosures Lowest in Three Years
◦ Decreased 30% in 2011 (16,755)
• Well-Balanced Economy. Growth Industries Include:
◦ Tourism
◦ Technology
◦ Oil & Gas
◦ Alternative Energy
◦ Aerospace
• State Budget Under Pressure
◦ Revenues Down (Sales & Property Taxes)
◦ Expenses Increasing (K-12 Education & Medicaid)
201
|
Economic Indicator
|
Peak
|
2011
|
|
Population Growth
(Y/Y Rate)
|
3.4%
(1992)
|
1.3% *
(2010)
|
|
Job Growth
|
2.1%
(2007)
|
1.1%
|
|
Retail Sales
|
4.0%
(2004)
|
1.2%
|
|
Housing Starts
|
22,000
(2004)
|
5,900
|
|
Existing Home Sales
|
54,012
(2004)
|
39,387
|
|
Unemployment Rate
|
8.9%
(2010)
|
7.8%
|
Metro Denver
*Total population for Denver MSA was 2.8MM and 5.1MM for Colorado in 2010.
Colorado Economy
202
Revenue & Pre-Tax Core Earnings Summary
Note: Adjustments include goodwill, debt
extinguishment and securities
extinguishment and securities
Note: Non Interest Income excludes gains and losses on
securities ($28.9MM CDO in 2011) and OREO
securities ($28.9MM CDO in 2011) and OREO
203
Revenue & Pre-Tax Core Earnings Summary
Adjusted Pre-Tax Income (Pre-Credit)
204
Key Operating Expense Comparisons
|
Expense Category ($000)
|
2007
|
2011
|
|
Salary and Benefits
|
$42,711
|
$43,141
|
|
#FTE
|
551
|
530
|
|
Occupancy and FF&E
|
$11,093
|
$10,377
|
|
# Branches
|
41
|
39
|
|
Supplies and Postage
|
$2,927
|
$1,313
|
|
Operational Losses
|
$576
|
$243
|
|
FDIC Premium
|
$198
|
$3,190
|
|
OREO
|
($62)
|
$7,817
|
|
Credit Related Expenses
|
$668
|
$2,250
|
205
Nonaccrual Loans & Gross Charge-offs
206
Classified Assets
Classified Assets + OREO/
Tier 1 + ACL
207
Lessons Learned This Cycle
• 2011 Charge-Off Levels Still Too High
▫ External Factor: Colorado Economy Emerging Late from Recession
▫ Internal Factor: Should Have Addressed Certain Problem Credits Sooner
• Exposure in Specific Industry Categories
▫ Should Have Avoided or Lessened Exposure to Certain Industry Categories:
▫ Indirect Lenders
▫ High-End SFR Real Estate in Mountain Resort Markets
▫ Land/A&D
▫ Contractors
• Needed an Integrated Approach to Mortgage Lending to Achieve:
▫ Reduced Costs
▫ Enhanced Controls
▫ Consistent Processes
208
What We Did Right This Cycle
• Focused Approach to Asset Liability Management
▫ Solid Margins on Loans (Use of Floors)
▫ Regular Repricing of Deposits
▫ Net Interest Margin is One of the Best in the Company (4.82% for 2011)
• Attentive & Thorough Approach to Risk Management
▫ BSA/AML
▫ Mortgage Compliance
▫ Loan Grading
▫ Past Due Management
▫ Regular Review of Loan Status Reports & Problem Loan Reports
• Local Management of Problem Loans
• Refined & Disciplined Sales Management Process
209
2012 Business Initiatives
Continue Disciplined Sales Management
Retail/Branches
• Leverage New Leadership Team to Execute Comprehensive Process
Including:
Including:
▫ Sales and Product Training
▫ Sales Promotions & Incentives
▫ Oversight & Performance Accountability Standards
Commercial & Industrial/Real Estate
• Continue Disciplined Sales Management Process Including:
▫ Pipeline Management & Reporting (Sales Force)
▫ Sales Training
▫ Oversight & Performance Accountability Standards
• Execute on targeted niche sales plans (charter schools, municipal finance,
urban renewal, aviation, outdoor industry, government contractors, medical
devices, Oil & Gas/Energy)
urban renewal, aviation, outdoor industry, government contractors, medical
devices, Oil & Gas/Energy)
210
Improve Non Interest Income
• Loan Fee Income
• Wealth Management
• Customer Interest Rate Protection (Swaps)
• Foreign Exchange (Amegy Partnership)
• Treasury Management
• Credit and Debit Cards
• Factoring (Amegy Partnership)
• Annual Competitive Fee Review
Improve Efficiency Ratio
• Continued Expense Discipline
• Review of System/Process Efficiencies to Identify Staff Reduction Opportunities
• Continued Margin Discipline
• Adjust Product Suite to Improve Profitability
2012 Business Initiatives
211
I. Overview & Executive Summary
II. Capital, Liquidity, and TARP
III. Earnings
IV. Credit Quality
V. Commercial Real Estate—Deep Dive
VI. Credit Process Changes
VII. CDOs
VIII. Affiliate Bank Presentations
IX. Summary
X. Break-out Sessions
Agenda
One-Year Outlook Summary
|
Topic
|
Outlook
|
|
Loan Balances
|
Stable to Moderately Higher
|
|
Credit Trends
|
Improving
|
|
Reserve Release
|
Continue at a Moderate Rate
|
|
Core Net Interest Income
|
Stable to Slightly Lower
|
|
Core Noninterest Income
|
Stable to Slightly Higher
|
|
Noninterest Expense
|
Slightly Declining
|
|
Risk-Based Capital Ratios
|
Improving
|
|
TARP Repayment
|
Under Fed Review
|
213
Appendix
The Allowance for Credit Loss is Skewed to the C&I and
Owner-Occupied Portfolios
Owner-Occupied Portfolios
215
Superior Reserve Coverage
Construction Loan Overview
Granularity of Residential Portfolio
Granularity of Residential Portfolio
217
Construction Loan Overview
Granularity of Commercial Portfolio
Granularity of Commercial Portfolio
218
Credit Quality
Consumer Balances & TTM NCO (ex-FDIC)
Segment Balances & TTM NCO Rates (Excludes FDIC-covered Assets)
219
- 63% bal high-risk 2004-2008 vintages
- No pmt shock bomb (<$200M start amort soon)
Credit Quality
HELOC Vintage & Payment Shock Risk
HELOC Vintage & Payment Shock Risk
During initial 10 yrs, HELOCs are in draw period, making i/o pmts
220
Credit Quality
HELOC Estimated LTVs
Current Estimated LTVs by State (sample covers 97% of portfolio)
221
C&I Balances by Industry
• Highly diversified C&I portfolio
222
20 Largest Relationship Commitments
*Grades 1 thru 10 qualify as “Pass” grades
As of December 31, 2011
|
#
|
Bank
|
Relationship
Name |
Commitment
|
Outstanding
|
Description
|
Wtd
Avg Risk Grade |
|
1
|
ZFNB
|
Borrower 1
|
$157,345
|
$118,424
|
Steel Fabrication / Trucking
|
7
|
|
2
|
AMEGY
|
Borrower 2
|
$126,000
|
$44,067
|
Oil and Gas Field Machinery and Equipment Manufacturing
|
6
|
|
3
|
AMEGY
|
Borrower 3
|
$125,417
|
$95,010
|
Crude Petroleum and Natural Gas Extraction
|
6
|
|
4
|
AMEGY
|
Borrower 4
|
$118,298
|
$108,573
|
Land Subdivision
|
8
|
|
5
|
ZFNB
|
Borrower 5
|
$100,185
|
$22,779
|
Oil refining, Wholesale/Retail
|
7
|
|
6
|
ZFNB
|
Borrower 6
|
$100,083
|
$71,340
|
Auto Dealer/Utah Jazz
|
6
|
|
7
|
AMEGY
|
Borrower 7
|
$98,400
|
$43,400
|
Pipeline Transportation of Crude Oil
|
4
|
|
8
|
ZFNB
|
Borrower 8
|
$95,949
|
$74,581
|
Com'l RE Development.
|
7
|
|
9
|
ZFNB
|
Borrower 9
|
$95,408
|
$83,422
|
High End Residential Development
|
9
|
|
10
|
CB&T
|
Borrower 10
|
$88,867
|
$88,867
|
Real Estate Developer/Investor
|
9
|
|
11
|
ZFNB
|
Borrower 11
|
$84,000
|
$0
|
Reinsurance Carriers
|
6
|
|
12
|
CB&T
|
Borrower 12
|
$83,450
|
$80,938
|
Real Estate Developer/Investor
|
8
|
|
13
|
ZFNB
|
Borrower 13
|
$82,953
|
$60,694
|
Multi Family Owner/Operator
|
5
|
|
14
|
ZFNB
|
Borrower 14
|
$72,235
|
$54,850
|
Operators of Non-residential Buildings
|
7
|
|
15
|
ZFNB
|
Borrower 15
|
$68,529
|
$67,000
|
Petroleum marketing company
|
7
|
|
16
|
ZFNB
|
Borrower 16
|
$68,500
|
$63,960
|
Com'l RE Development
|
6
|
|
17
|
AMEGY
|
Borrower 17
|
$67,823
|
$56,865
|
New Multifamily Housing Construction (except Operative Builders)
|
5
|
|
18
|
NSB
|
Borrower 18
|
$65,571
|
$65,571
|
Other RE Operators and Servicers, Nonclassifiable Establishments
|
8
|
|
19
|
CB&T
|
Borrower 19
|
$64,661
|
$21,774
|
Real Estate Developer/Investor
|
7
|
|
20
|
ZFNB
|
Borrower 20
|
$64,576
|
$39,576
|
Regional Airline
|
7
|
|
|
|
Top 20
Relationships Total |
$1,828,252
|
$1,261,691
|
|
|
|
|
|
% of
Commitment Outstanding |
|
69.0%
|
|
|
223
20 Largest Nonperforming Borrowers
As of December 31, 2011
|
#
|
Bank
|
Borrower
|
Principal
Balance |
Commitment
|
Interest
Rate |
Collateral
|
Current
(Y/N/P) |
|
1
|
AMEGY
|
Borrower 1
|
$20,789
|
$22,351
|
4.00%
|
Regional Shopping Center
|
Y
|
|
2
|
ZFNB
|
Borrower 2
|
$13,772
|
$13,772
|
5.00%
|
Commercial Land Developed - Retail
|
Y
|
|
3
|
AMEGY
|
Borrower 3
|
$12,278
|
$13,484
|
5.00%
|
Stand-alone Retail Facility (spa, shops and stores, real estate sales)
|
Y
|
|
4
|
AMEGY
|
Borrower 4
|
$11,868
|
$11,868
|
6.00%
|
Commerical Land Held for Development - Retail
|
N
|
|
5
|
AMEGY
|
Borrower 5
|
$11,499
|
$11,769
|
4.25%
|
Residential Land in development - Single Family
|
N
|
|
6
|
AMEGY
|
Borrower 6
|
$8,000
|
$8,139
|
5.00%
|
Regional Shopping Center
|
N
|
|
7
|
AMEGY
|
Borrower 7
|
$7,892
|
$7,892
|
5.50%
|
Commercial Land Held for Development - Other
|
Y
|
|
8
|
VBC
|
Borrower 8
|
$7,357
|
$7,357
|
6.00%
|
Commercial Land in Development - Industrial
|
N
|
|
9
|
AMEGY
|
Borrower 9
|
$7,049
|
$7,049
|
6.00%
|
Residential Land in development - Single Family
|
N
|
|
10
|
VBC
|
Borrower 10
|
$6,773
|
$6,773
|
4.50%
|
Assignment of Note and Trust deed
|
Y
|
|
11
|
CB&T
|
Borrower 11
|
$6,645
|
$6,645
|
6.25%
|
Industrial - Warehouse/Manufacturing (storage and/or assembling of a
product) |
Y
|
|
12
|
AMEGY
|
Borrower 12
|
$6,404
|
$7,307
|
6.00%
|
Accounts Receivable Only - with borrowing base
|
Y
|
|
13
|
ZFNB
|
Borrower 13
|
$6,368
|
$6,368
|
5.41%
|
Commercial Land Developed - Other
|
N
|
|
14
|
AMEGY
|
Borrower 14
|
$6,351
|
$6,351
|
2.55%
|
Single family - Townhouse/Condominium
|
N
|
|
15
|
VBC
|
Borrower 15
|
$6,060
|
$6,060
|
7.00%
|
Stand-alone Retail Facility (spa, shops and stores, real estate sales)
|
Y
|
|
16
|
NSB
|
Borrower 16
|
$6,044
|
$6,044
|
4.00%
|
Industrial - R and D/Flex (majority office some warehouse)
|
Y
|
|
17
|
NSB
|
Borrower 17
|
$5,953
|
$5,953
|
3.25%
|
Commercial Land Held for Development - Industrial
|
Y
|
|
18
|
CB&T
|
Borrower 18
|
$5,880
|
$5,880
|
5.50%
|
Medical office building/Office Building(s)
|
Y
|
|
19
|
AMEGY
|
Borrower 19
|
$5,672
|
$5,672
|
6.00%
|
Residential Land Held for Development - Single Family
|
Y
|
|
20
|
NSB
|
Borrower 20
|
$5,655
|
$5,655
|
3.25%
|
Regional Shopping Center
|
Y
|
|
|
|
Top 20 Total
|
$168,308
|
$172,389
|
|
|
|
|
|
|
Amount That
is Current |
$109,817
|
|
|
|
|
|
|
|
Current
Percentage |
65.2%
|
|
|
|
|
224
225
226
227
228
Capital Ratios as of 4Q11:
§Tier 1 Common: 9.6%
§Tier 1 Risk-Based: 16.1%
§Total Risk-Based: 18.0%
Tier 1 Common
Plus Reserves as a Percentage of Risk-Weighted Assets
• Peer group includes U.S. regional banks with assets greater than $20 billion and less than $200 billion plus
footprint competitors WFC and USB
• ZION as of 4Q11, peers as of 3Q11 (4Q11 data not yet available)
229
Fee Income is Comparatively Small and is a Focus of Growth
Net revenue defined as the sum of net interest income before provisions plus noninterest income
Fee income excludes gains on sale of OREO
230
• Adjusting for Lockhart
Funding (off balance sheet
assets), today’s total
liquidity position has
improved by 116%
Funding (off balance sheet
assets), today’s total
liquidity position has
improved by 116%
|
|
12/31/07
|
|
12/31/11
|
|
Money Market Investments & Cash
|
$ 2,582
|
|
$ 8,245
|
|
Fed Funds Sold
|
102
|
|
102
|
|
Fed Funds Purchased
|
(2,463)
|
|
(214)
|
|
Remaining Borrowing Capacity at FHLB & FRB
|
12,492
|
|
14,729
|
|
Lockhart Funding Liability
|
(2,124)
|
|
-
|
|
Total Liquidity (cash + borrowing capacity)
|
$ 10,588
|
|
$ 22,862
|
Liquidity Profile: Significantly Improved
(In millions)
231
On the surface, asset quality is in line with those that have repaid
TARP…not all NPLs are created equal.
TARP…not all NPLs are created equal.
232
Source: SNL . ZION as of 4Q11; peers as of 3Q11
1. Averaged quarterly NCO / NPL ratio weighted by NPLs for years 2009 & 2010
Banks with TARP outstanding
Expenses Are Low When Measured as a Percentage of
Loans and Core Deposits
Loans and Core Deposits
233
Noninterest expense annualized
Source: SNL. Zions as of 4Q11; peers as of 3Q11
The Efficiency Ratio is Elevated in Part due to Zions’
Significant Cash Position, a Low Yielding Asset
Significant Cash Position, a Low Yielding Asset
234
Mortgage and non-mortgage intensive are weighted average efficiency ratios.
Median of residential loan and securities percentage used to determine intensive and non-intensive groups
Capital Actions - New Equity Issued
2008: $268 million common stock issued; $47 million 9.50% fixed-rate non-
cumulative perpetual preferred stock issued
cumulative perpetual preferred stock issued
2009: $487 million common stock issued; $101 million of Series A preferred stock
redemption (resulted in a gain, not counted in this analysis); $64 million of
sub debt converted into preferred stock; $72 million of Series A preferred
stock was exchanged for $38.5 million of common stock issued (resulted in
a gain, not counted in this analysis)
redemption (resulted in a gain, not counted in this analysis); $64 million of
sub debt converted into preferred stock; $72 million of Series A preferred
stock was exchanged for $38.5 million of common stock issued (resulted in
a gain, not counted in this analysis)
2010: $640 million common stock issued; $47 million of common stock issued in
exchange for $56 million in non-convertible sub debt; $343 million of sub
debt converted into preferred stock; $214 million common stock warrants;
$143 million Series E 11% non-cumulative perpetual preferred stock issued;
$9 million of Series A preferred stock exchanged for $5.5 million common
stock issued (resulted in a gain, not counted in this analysis)
exchange for $56 million in non-convertible sub debt; $343 million of sub
debt converted into preferred stock; $214 million common stock warrants;
$143 million Series E 11% non-cumulative perpetual preferred stock issued;
$9 million of Series A preferred stock exchanged for $5.5 million common
stock issued (resulted in a gain, not counted in this analysis)
2011: $38 million common stock issued; $241 million sub debt converted into
preferred stock
preferred stock
235
Core Pre-tax, Pre-Credit and Core ROAA Footnotes
1. Excludes income and expense related to subordinated debt modification and
discount amortization.
discount amortization.
2. Excludes accretion of interest income on FDIC acquired loans and related
amortization of indemnification asset.
amortization of indemnification asset.
3. Excludes gains/losses on securities
4. Excludes fair value and non-hedge derivative income, including the cost
associated with the Total Rate of Return Swap
associated with the Total Rate of Return Swap
5. Excludes additional items considered by management to be
unusual/infrequent. Examples include fees to underwriters or specific
consulting project costs, legal settlements, gains/losses on the sale of
businesses or other asset sales not generally considered part of normal
operations.
unusual/infrequent. Examples include fees to underwriters or specific
consulting project costs, legal settlements, gains/losses on the sale of
businesses or other asset sales not generally considered part of normal
operations.
236