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Financial Sector, Banking Industry NASDAQ

Zions Bancorporation

Date: 31 Dec 2016 Closing Price: $43.04 Recommendation: Hold Ticker: ZION Headquarters: Salt Lake City, UT Target Price: $43.18 1% Upside

Figure 1

Source: Company Website

Figure 2

Source: Company Filings, Bloomberg

EXECUTIVE SUMMARY

Zions Bancorporation (NASDAQ: “ZION”) is a mid-sized regional bank-holding corporation based in Salt Lake City, Utah. The company operates within the financial sector of the banking industry. Currently, shares are priced at $43.04 per share, with a market capitalization of $8.87billion and 203.6 million shares outstanding.Investment RecommendationWe issue a HOLD recommendation on Zions Bancorporation (“ZION”) with a target price of $43.18 using the price to earnings valuation method. With the dividend yield of 0.73%, this offers a 1.0% upside. ZION has benefited from a reenergized financial sector since the election results and recent Federal Reserve (“FED”) activity point towards regulation changes and a rising interest rate environment. ZION has been among the leaders of the sector with 93.1% growth in its equity value over the last 12 months, compared to the industry average of 43.2%. This is due to recent efforts to reduce its exposure to risky loans within its portfolio, consolidating its charters, and increased investor confidence tied to improved communication and data. We are optimistic about the company’s future but acknowledge that the market has appropriately responded and priced in the positive outlook which has led to outpacing its peersin the sector.Energy Risk Declining, Fee Income Focus, and Operations CentralizedThe three major factors we took into consideration in valuing ZION were its credit quality, operational expenses, and fee collections. ZION has recently enhanced its ability to streamline its processes, cut costs and add to the bottom line. Management has emphasized its focus on generating more fee income, primarily through building asset management offerings to currentand new customers. We acknowledge the appropriate goal management has placed on developing the asset management side of its operations, but understand the difficulty of this task to build assets under management in a highly competitive industry. Over the last few years the investments into the oil industry caused net charge-offs due to the decline in oil prices, but with the revival in oil price, the risk associated with these investments are stabilizing, thereby offering less charge-offs.Valuation ThesisUsing the Earnings Multiple Valuation Approach, Dividend Discount Model, and Monte Carlo simulations, we estimated the intrinsic value of ZION. We believe, the stock offers a modest upside through a strengthening financial sector and small business growth in the state of Utah specifically. With the recent surge in price since the Presidential Election and increased optimism following the FED’s interest rate increase and proposed future increases, we believe that the current $43.04 price has these elements priced in. As market corrections and changesto the banking industry occur, our $43.18 stock price will accurately forecast the 2017 value. Additionally, the potential for a higher upside price of $46.03 given our conservative estimations from our price model has led us to our recommendation. Limited Risks due to Regulatory EnvironmentZIONs downside risks are limited due to the fact that the interest rate and regulatory environments are both poised to improve in favor of the banking sector. If successful in eliminating the stress testing requirement that the Dodd-Frank Act requires of banks with assets over $50B, this would remove substantial costs they currently incur. The biggest risks lay in the deregulatory promises by the new administration falling through, or the FED not raising interest rates as planned. This reversal of sentiments would negate much of the recent gains ZION and the financial sector have experienced, but these scenarios seem unlikely to occur in the near-term. Figure3

Source: Team Calculations Source: Bloomberg

Figure 4

INVESTMENT SUMMARY

Business Description The corporation was founded in 1873 and has grown to hold many subsidiary banks throughout the western United States. Through its various subsidiaries, ZION provides a full range of banking and related services primarily in Utah, Arizona, and Nevada. Its primary holding is Zions First National Bank based in Salt Lake City.

The company has grown quickly since the early 1990s by acquiring other banks and expanding existing operations. Company stock is traded on NASDAQ, and is a member of the S&P 500. ZION went public in 1966 and has paid a dividend on their preferred shares every year since. Currently, it pays $0.08 per quarter on its common stock, and management has stated their plans to maintain this payout ratio.

Liquidity Benefits ZION’s Ownership ZION stock has experienced an average volume of 3.13 million shares per month, representing about 1.5% of shares outstanding, and a 200.08 million public float. For the size of the firm, the equity is quite liquid, benefiting the position of investors wishing to easily trade their shares on the market. The major shareholders include institutional investors, mutual fund companies, company insiders and individual investors. Figure 6 shows the ownership comparison between these different types of investors. The largest institutional investors include Vanguard Group, Invesco Ltd. and Invesco Advisors, Inc.

High EPS Growth Fueling ZION Ahead of its Competitors Of the valuation ratios, price to book value was 1.08, much lower than the industry average of 1.33. ZION’s P/E ratio of 23.23 is higher than the peer group average of 15.24. This higher P/E is not a concern because when looking at the PEG ratio, it has one of the lowest we observed among its peer group at 1.21, compared to the industry average of 2.02.

ZION's Reduction in Obligations Leaves Flexibility for Future Capital Investments Over the last few years, ZION has made a priority to pay down its long-term debt and preferred stock. This move has strategically positioned ZION to purchase long & short-term debt and service interest payments for new ventures. This gives it a competitive advantage against its peers as it will have greater leveraging capacity and lower interest/dividend payment obligations. In a rising interest rate environment and a president’s intentions of regulation changes of the financial industry, ZION is in a superior position to take advantage of this new banking climate. The reduction in the interest and dividend payments as well as its liabilities on its balance sheet give it a positive outlook as it heads into an optimistic financial industry future.

ZION’s Efficiency Leads to an Ability to Generate Yield Above Competitors. Data from the FDIC database shows ZION with higher yield on earning assets and net interest margin than industry peers.

ZION is a parent company with fourteen subsidiaries that have undergone extensive consolidation in the past three years. These include the institutions seen in figure 5 and a full list of subsidiaries in Appendix H. The majority of the revenue comes from Arizona, Nevada, Texas and California with Utah.

Leadership ZION has one Chairman/CEO, one President/COO and thirteen Executive VP’s with various oversights. Chairman Harris Simmons took over the company from his father, Roy Simmons, in 1998. The board has power over the succession of upper management and casts a vote to appoint new leadership. There have been multiple attempts to divide responsibilities between chairman and CEO. The board has consistently voted against the proposition and maintains to keep both responsibilities with one person. The company has undergone recent restructuring, beginning in June of 2013. The restructuring plan included provisions to cease all bank and subsidiary operations as separate entities, and to instead run them as one single company. The plan was implemented to cut $120 million in operating expenses.

Figure 5

Source: US Bank Locations

Figure 6

Source: MorningStar

Figure 7

Source: MorningStar

Figure 8

Source: Bloomberg

Management and Governance ZION management offers benefits to its shareholders through their ample amounts of experience in the banking industry (Appendix F). With new regulations recently put into place, the company has focused on building a management team to ensure continuing success. This motivation has led to a new CFO who has nearly 30 years’ experience in positions as treasurer and executive VP in the banking industry. ZION’s current CEO has spent his entire working career of 35 years with ZION. He has given extensive amounts of insight and understanding to position ZION competitively in the western region of the United States. Eleven of the thirteen of board members are independent per Nasdaq standards. Each member of the board has experience to assist in goals achievement according to the 2015 10K. The board members have great experience in real estate development, process streamlining, implementation, mergers & acquisitions, economics, and healthcare. The board has continued to see growth in individuals who can assist in investments made in Texas and oil as ZION has experienced a drop in credit quality in that specific sector.

Pay Scale Comparison Senior management’s pay scale compared to ZION asset peers is extremely low at $2.5 million for the CEO where the average total compensation is well above $7 million. Part of the reason for the lower pay is partly due to the lower cost of living in Utah along with the compensation committee’s evaluation of the CEO’s performance and efficiency ratios remain sub-par to its asset peers. Other executive officers are in line with their peer average. In accordance with the Dodd-Frank Act, ZIONs hired a new CFO to assist in the required stress testing.

The board’s compensation compared to the S&P 500 index companies is well below average. According to Bloomberg, the average pay is $251,000 while the average at ZION is $158,000. There is no indication of members of the board losing independence as their own personal salary is well above what they receive from sitting on the board.

INDUSTRY OVERVIEW AND COMPETITIVE POSITIONING

Industry Overview

ZION is a relatively small bank-holding corporation within this industry within the financial services sector of the banking industry. Its combined business entities and subsidiaries comprise 0.65% of the total industry, with only marginal growth in market share over the past five years. To give some perspective, big industry players such as Wells Fargo, Bank of America, and JPMorgan Chase currently possess 9.9%, 9.22%, and 8.63% respectively.

Demand Drivers The commercial banking industry has experienced an annual decline of 0.9% between 2011 and 2016, per the IBIS World Industry Report. However, according to the same report, the industry is projected to grow by 4% between 2016 and 2021. External drivers for banking performance are Federal Reserve Policy, laws and regulations, and overall macroeconomic strength.

Currently the Federal Funds Rate fluctuates minutely between 0.5 and 0.75%. Figure 12 outlines the probabilities for rate increases at each FED meeting date throughout 2017, along with probabilities for the ranges of where the rates should fall with each hike. This data is useful to project changes in the finance industry. For example, interest rates will affect loan and mortgage demand changes and how much interest income will be affected due to potential rate increases.

Figure 9

Source: Bloomberg

Figure 10

Source: Bloomberg

Figure 11

Source: Bloomberg

Figure 12 Forecasted FED Rate Probabilities

Source: Bloomberg

Figure 13 – Bank Security Valuations 2016

Source: S&P Dow Jones Indices

Figure 14

*DATA HAS BEEN BASED AT 100. Source: S&P Dow Jones Indices

Figure 15

Source: US Bank Location

Figure 16

Source: Desert News

Figure 17

Source: US Financial Services Conference 2016

With the new regulatory developments coming in the near future, there could be a boom for financial service firms. Additionally, the possibility of the Dodd-Frank Act being amended would lead to relaxed regulatory requirements and reduced expenses from scaling back certain oversight activities. These expectations have already had a positive effect on bank security valuations over the last quarter of 2016, specifically from November until now.

Figure 14 outlines the changes in the index values for the S&P Bank Index compared to the S&P 500. The banking industry experienced a large increase in value over the last year, but more so between November and January, drastically exceeding the S&P growth rate.

From a macroeconomic perspective, GDP growth is expected to remain strong and stable, driving bank earnings over the next few years.

Competitive Positioning and Strategies As of the end of 2015, ZION was the 23rd largest bank-holding company in terms of deposits. It is also listed on the S&P 500 and NASDAQ Top 100 financial firms. The company operates in 450 branches throughout the western and southwestern states. Currently, ZION’s management is making a concerted effort to expand its online offerings to match consumer preferences in the digital age.

Strategies ZION has four main long-term strategies:

§ Focus banking business in growth markets throughout the westernUnited States.

§ Highly decentralized in customer facing issues, providing a small-townbanking feel and autonomy to individual branches in terms of productofferings

§ Management believes they have achieved better economies of scale andrisk management practices over similar institutions

§ Centralized in non-customer facing issues, dealing in their own riskmanagement and operations behind the scenes

ZION Continues to Move Towards a Centralization Through the streamlining process, ZION continues to maintain customer facing operations with a small-town feel to keep the autonomous appearance. However, in the operational sense, they are rapidly centralizing to improve efficiency and decrease costs. It is also standardizing internal subsidiary payment system to lower operational expenses.

Efficiency Ratio As part of this strategy to decrease costs, ZION recently increased focus on the its efficiency ratio. In 2015 management set target goals to decrease noninterest expenses. ZION reached its 2015 goal of $1.6 billion, a decrease of 4% year-over-year. As of Q3 2016 it was in line to meet the target goal of $1.58 billion.

Reducing Risks The company continues making efforts to reduce risks, including selling off CDOs, buying high quality assets, and reducing the amount of oil and gas related exposure. The company’s general measures for capital, credit quality, and liquidity generally rank within the top quartile of regional bank peers.

Porter’s Five Forces To analyze the company’s current position and strategy in the banking sector, we built a Porter’s Five Forces model to asses ZION’s strength within the market in relation to industry influences. This model lays out five important factors affecting a company’s profitability and sustainability within a given industry. The five forces are: Threat of new entrants, supplier power, buyer power, competitive rivalry, and threat of substitution. Our model pertaining to ZION can be found in Figure 18 and Appendix G. Figure 18

Source: Team Calculations

VALUATION

P/E Valuation We used the Price-to-Earnings method to derive an estimated future price of $43.18 per common share. This method involved forecasting future earnings based on expected performance and multiplying it by the company’s current P/E ratio of 23.23.

Using the P/E method our forecasting model focused closely on expected changes to the major drivers of the business: Interest Earning Assets (IEA), Non-Interest Income (NII), and Interest Bearing Liabilities (IBL). We analyzed each driver’s historical performance and what industry or economic factors had the greatest impact on performance. We then researched expected future industry trends and from these made projections for the annual growth of each driver going out 5 years to 2020. For the IEA driver, we also added 3 scenarios to the model: Base, Upside, and Downside. The Base scenario assumes normal expected economic growth and keeps IEA forecasts in line with the general industry consensus. The Upside scenario assumes stronger economic conditions for the future

Commercial - The largest components are commercial and industrial (C&I) (62% of commercial) and owner occupied (33% of commercial). From 2011 to 2015 ZION’s commercial loans grew at an average rate of 3% annually, driven largely by C&I loans. Management has expressed expectations of slight-to-moderate loan growth for commercial loans. From this approach, ZION’s per share value can be broken down to a Base scenario value of $21.75, an Upside value of $16.11, and a Downside value of $6.36 for a total per share value of $43.18.

Loans and Other Interest-Earnings Assets We broke down the loan portfolio to the three largest groupings: Commercial (53.3%), Commercial Real Estate (25.3%), and Consumer (21.4%). We then assigned each loan category a growth rate considering historical performance and outlook.

Commercial Real Estate - CRE consists of construction and land development loans (22% of CRE), and term loans (78% of CRE). CRE has seen a small but steady level of attrition since 2011 averaging a less than 2% decrease per year. In 2015 management indicated their intention to limit construction and land development loan commitment growth to improve the risk profile of the company. However, we feel recent events such as interest rate increases and movement towards changes in bank regulation indicates a strong signal for growth in 2017.

Consumer - The largest components are home equity credit line (27% of consumer) and 1-4 family residential (61% of consumer). The average annual growth rate for the last 5 years has been 6%. This was driven primarily by 1-4 family residential loans which grew by 36% in the last 5 years. ZION’s plans to focus on ensuring and maintaining consistent growth in consumer loans.

Other Interest Earning Assets - As other IEA makes up a smaller portion of assets and there is little change in balances over time, we held each of these at a relatively constant level in line with the average balance for the last 5 years. Other assets make up about 25% of total interest-earning assets. This is broken down into money market investments (15%), investment securities (9.75%), and loans held for sale (0.25%).

Non-Interest Income Management has expressed a goal for 2017 to maintain mid-single digit rates in core fee income. As such, we applied a 5% growth rate to non-interest income going forward.

Non-Interest income (NII) accounts for an average of 20% of total revenue. Its two largest drivers are:

§ Service charges and fees on deposit accounts§ Other service charges, commission and fees

Over the last 5 years, instead of growing steadily NII has fluctuated around an average amount of $428.4 million. Recent increases were attributed to increased commercial credit card fees and fees generated on sales of swaps to clients. We believe that use of bank services will steadily increase leading to larger revenues from fees and commissions paid by customers based on bank regulation changes increasing in likelihood and a positive outlook for the financial sector overall.

Figure 19


Figure 20

Source: Company Filings

Figure 21

Source: US Financial Services Conference 2016

Figure 22

Source: Bloomberg

Figure 23


Figure 24

Source: Bloomberg

Figure 25 Bank Revenues and Banks EPS

Source: Bloomberg

Deposits and Interest-Bearing Liabilities Interest bearing liabilities (IBL) is broken down to 4 types: saving, money market and foreign (82%), time (11%), long-term debt (6%), and due to banks (1%). Much like interest-earning assets, we looked at the historical changes in balances to find the trends and drivers that affect interest-bearing liabilities. We then projected future changes based on the company’s goals and general economic outlook.

§ Saving, Money Market and Foreign - We assigned a growth rate of 2% toshort-term deposit accounts. Deposits to short term accounts at ZIONhas consistently increased by 2% annually for the last five years. We donot see a high probability of this changing in the near future. Increasedinterest rates in 2017, as has been indicated by the Federal ReserveBoard, is not likely to affect short-term deposit accounts in a large way. Itis more likely that long-term deposit accounts will see a greater change inuse from customers.

§ Time - We assigned an aggressive growth rate of 3% for time and long-term deposit accounts. In the last five years, ZION’s balances in long-term deposits, such as CD’s, have decreased at an average rate of 12%per year but this rate has slowed in recent years. As returns on long-termdeposits are tied almost exclusively to the FED and banks’ borrowingrates, we believe returns will increase as the FED increases rates in thenext few quarters similar to Q4 2016. This will drive greater demand forlong-term low-risk deposit accounts as banks begin offering slightlyhigher returns. Therefore, we believe not only will the trend of decreasingbalances stop, but will begin to increase.

§ Long-term debt - We projected long-term debt to grow at a conservativerate of 2%. In 2015 company management took significant actions topositively improve the company’s risk profile. This included reducinglong-term debt by more than half its balance in 2013. We suspect thiswas done in an effort to strengthen its CET1 and Tier 1 Capital ratios inlight of having failed the Federal Reserve Stress Test in 2014. We don’tbelieve will make significant changes to this balance in the near term.With the increasing likelihood of bank regulation changes on the horizon,it might be under less rigorous scrutiny which will give them the ability tohold more long-term debt.

§ Due to banks - Due to banks only makes up 1% of IBL. The averagebalance since 2013 was $245 million. Our forecast used the sameaverage for future years.

Non-Interest Expense We forecasted noninterest expense (NIE) for 2016 and 2017 as in line with the company’s target levels indicated in their 2015 10-K. ZION met their goal of holding NIE to below $1.6 billion in 2015. As of Q3 2016, ZION was in line to meet its goal to be under $1.58 billion for the year. These goals were part of an attempt to improve its efficiency ratio. The company had an efficiency ratio of 70% in 2015 and a 2016 goal of less than 66%. As of Q3, the NIE looked to be within reach of its goal. Actions ZION has taken to lower NIE consisted of:

• decreasing consulting fees by $13 million• consolidating 7 subsidiary banks, a trust company, and ZION service

company into a single bank• employing a new integrated system for loans and deposits using

improved technologyThese measures were undertaken with the aim of driving down costs. This emphasis on decreasing NIE and the results it has achieved allows us to confidently forecast levels in line with company goals for 2016 and 2017. In our model, for the years following, we set NIE as 71% of pre-provision net-revenue, which is 1% higher than the 2017 level.

Revenues and EPS Compared to industry peers, EPS seems low, but is on a healthy upward trend. Compared to its peer groups, the Best EPS average is $1.93/share, while the industry median is $2.23/share. While there is still plenty of room for improvement, this is less troubling since ZION recently retired large portions of its long-term debt (FIGURE XX), which would have reduced the EPS for the last few years. With less interest payments and repayments of debt, ZION will have more earnings to distribute to shareholders in the future, and that number will only increase if deregulation occurs and interest rates continue their climb. The year-over-year revenue growth also makes up for the lack in EPS, a healthy 13.40 percent compared to the industry median of 6.66 percent. This year-over-year growth with the other strategic positioning ZION has taken is a large contributor to ZION outpacing its peers’ stock growth.

Earnings After forecasting the growth of assets and expenses we projected the remaining elements of ZION income statement to arrive at earnings. We assumed a 35% tax rate, the average rate for the last five years. Preferred stock dividends were held at the levels indicated by management for 2016 and 2017. Weighted average shares were forecasted to grow at a rate consistent with growth over the last five years. We divided the weighted shares by net income to common to arrive at earnings per share which was then multiplied by ZION’s P/E ratio as of 1/12/17. This calculation was then done for all three scenarios:

• The Base scenario resulted in a price of $42.35 which was thenmultiplied by its assigned weight of probability, 50%, arriving at a value of$21.18.

• The Upside scenario resultant price was $46.03. With a weightedprobability of 35% the value derived is $16.11

• The Downside scenario price was $39.28 which when adjusted for a 15%probability gives a value of $5.89

Adding the three values together we arrived at our 2017 target price of $43.18. The models for this analysis can be viewed in Appendix D.

Dividend Discount Valuation Price to earnings was the main valuation approach we relied on for our forecast. In addition, we built a Dividend Discount Model (DDM). We built the DDM because the multiples approach makes certain assumptions that carry risk. For instance, the model assumes future growth is accounted for in the stock’s current price. Using the DDM, we arrived at a price of $36.82. Although we did not use this price as our target price we believe it does support our hold recommendation with our reasoning explained below.

We began by dividing our 2016 projected earnings by total dividends paid during the year to find the payout ratio of 18.86%. We then used that same payout ratio for the next four periods. We did this based on management’s expressed intention to keep future dividend rates at a relatively consistent level with earnings. We multiplied this rate by each periods’ projected earnings and then divided it by the projected weighted average shares to arrive at the dividend per share amount. This model and the fundamental ratios from that model can be found in Appendix E .

NPV When all discounted cash flows are added together the resulting stock price for 2017 is $36.82. Although this is not our recommended target price, we believe this value supports our hold recommendation. It could be argued the DDM price is adjusted for market sentiment and investors’ expectations which are already accounted for in the current share price of $43.04. Therefore, it reflects a more accurate market price for the value of ZION and all the company assets today (Appendix D).

Terminal Value - The terminal value was based on a dividend growth rateof 5.22% which is the time adjusted dividend growth from 2015-2020. This rate was used to calculate the dividend for 2021 which was then used to find terminal value price for 2020 using the Gordon Growth Model. Using that model, the required rate of return was found by dividing the 2017 projected dividend by ZIONs current stock price plus a growth rate of 4.6%. This growth rate came from multiplying ZIONs’ return on equity (5.67%) by 1 minus the 18.86% payout ratio. The terminal value price came out to $42.07. Finally, we added the dividend of $0.29 giving a total value of $42.36. Discounted Value - The terminal value for year 2020 and the dividend payments for 2019 and 2018 were then appropriately discounted to present value using the same required return rate of 5.32%.

Figure 26


Figure 27 Figure 28

Source: Team Calculations Source: Team Calculations

FINANCIAL ANALYSIS

We collected a five-year history of financial data including income statements (Appendix A), balance sheets (Appendix B), and statements of cash flows (Appendix C). We ran excel models to compare the company’s financial performance alongside similar companies in the industry. We extrapolated growth rates and formulated realistic assumptions based on historical performance. Bloomberg’s estimated earnings for ZION can be seen in Figure 31

Monte Carlo Simulation After mining historic data, we ran financial forecasts with a five-year outlook. Our assumptions were based partly on technical analysis, with alterations to account for possible changes in the industry or operational adjustments made by ZION. Our forecasts provide great insight into expected performance of the firm and our target price for 2017. We used the historical data to formulate important financial ratios that are key to performance. A Monte Carlo simulation was performed to iterate 10,000 different stock prices based on historical rates of return and standard deviations of returns. The standard deviation for this simulation of returns was wide (0.40), implying a high level of price volatility.

Figure 30 Monte Carlo Summary Statistics


Figure 29

Source:Bloomberg,TeamResearch

Figure 34 10-2 Spread

Source: Federal Reserve of St Louis

Figure 31

Source: Bloomberg

Figure 32 Beta Co-Efficients

Source: Bloomberg

Figure 33 Purchasing Managers Index

Source: ISM

ZION bank must stay in compliance with the minimum capital requirements as outlined in the Basel III framework. Non-compliance can result in regulators limiting ZION’s capital actions such as dividend payments and share buybacks. Such limitations can result in decreased investor confidence and a lower stock price.

Stress Tests In the 2016 Dodd-Frank Act Stress Test performed by the Federal Reserve, ZION met the required minimum levels for each capital ratio but generally performed lower than its industry peers. Most notably, the change to minimum CET1 ratio based on the severely adverse scenario was 5.6% compared to an industry median of 3.5%. Total projected loan loss rate was 6.3% compared to a 5.6% industry median. Pre-provision net revenue rate in the severely adverse scenario was 1.1% with a 2.4% industry median. Pre-tax net income rate was -3.7% while the industry median was only -1.5%.

Although ZION’s ratios met the minimum requirements as put out by the Basel committee, for each stressed scenario they consistently underperformed when compared to the 32 other banks also tested. The beginning ratios reported were generally stronger than most competitors but when put through the stress tests, the changes to its ratios were more extreme than the changes to most peers and the ending result were ratios lower than the industry median. This could signify ZION’s books contain riskier assets than its peers. The high equity beta of 1.6 compared to the industry beta of .9 is also an indication of its higher level of risk in relation to the market.

Overall Economic Health Indicators In assessing overall economic health, we analyzed two leading indicators used to estimate GDP growth. The first indicator is the Purchasing Managers’ Index (PMI). This index is provided by the nonprofit Institute for Supply Management, or ISM. The index measures overall purchasing trends for manufacturing companies, which is an indicator of production sentiment. The index is based around 50, with any figure approaching 50 or dropping below that level indicating a worsening viewpoint of economic health.

Conversely, a rising PMI above 50 indicates a positive outlook in purchasing trends, meaning production and GDP are expected to grow. The figure referenced shows the PMI levels over 2016. The level fluctuated, but never dropped below 50. The last quarter of the year proved to be optimistic for GDP growth with a rising PMI level above 54. We expect this positive trend to continue through December 2017, inferring stable GDP growth over the next year.

The second indicator we assessed is known as the 10-2 Spread. This spread tracks the trend in the 10 year US Treasury yield to maturity and compares it to the yield on 2 year US Treasuries. The line chart maps the 10 year yield and subtracts the 2 year yield. This gives the baseline of 0 to measure the overall spread. Historically, any time the 10-year yield drops below 0 and yields less than the 2 year treasuries, a recession follows. The recessions are indicated by the vertical gray shaded areas in the chart. By this measure, one could reasonably expect a recession 1-3 years after the spread falls below 0. This is a narrow area of focus, but has historically been a good indication of overall economic health. We believe it is worth monitoring as the negative spread has directly correlated with recessionary periods in the past. The spread has recently begun to widen once again since the final quarter of 2016, leading us to believe the macro-economy has stabilized and is improving.

Figure 35


Figure 36


Figure 36 Bank Capital to Total Assets

Source: Federal Reserve of St Louis

INVESTMENT RISKS

Regulatory Risk: Minimum Equity Requirements There is a risk that ZION may not be able to meet the Basel III minimum capital requirements. The company has failed to do so in the recent past, but are currently in compliance with all required ratios. Future economic and political landscape suggests this risk is not a major threat to ZION. President-elect Donald Trump has indicated his intentions to change banking regulations creating an optimistic prospect for the industry. This positive outlook appears to be priced in the equity of ZION and its competitors. A reversal of these intentions would likely lead to a significant downturn for ZION’s stock price and the banking sector. In the current political climate, we see a scale back of industry regulations. Risk lies in the uncertainty of what regulations will change and how this will affect a regional commercial bank like ZION.

Based on our analysis the best way for ZION to maintain or improve its capital ratios is to increase its equity balance. An efficient way is to minimize dividends paid to shareholders. Financial statements currently show it pays a lower dividend compared to its peers. It is one of the few banks in the financial sector not expected to increase its common dividend. Management indicated in their MD&A the intent to maintain quarterly dividends to common shareholders at $0.08.

Liquidity Risk: Downgrades from Credit Agencies ZION maintains a chance of a downgrade by major credit rating agencies leading to increased difficulty accessing capital markets and paying higher interest rates on borrowed capital. This would result in reduced company equity and greater difficulty maintaining minimum capital requirements, resulting in tighter capital controls by regulators. Moody’s rating agency recently upgraded ZION to Baa3 on November 2, 2016 meaning ZION is rated the lowest level of investment grade. This rating indicates the company is still subject to moderate credit risk.

To mitigate liquidity risk, ZION has focused the last year on increasing its holdings in high quality liquid assets. The Basel III Capital Rules require ZION have a 2.50% capital conservation buffer. It has reached 1.25% and is on schedule to achieve 2.50% by January 1, 2019. ZION is currently abiding by regulations and has passed the ongoing stress tests required. With ZION meeting regulatory standards and the current political climate aimed to alter regulations, liquidity risk is not a major factor for current and potential investors.

Credit Risk: Loans to Risky Borrowers Borrowers of loans issued by ZION always have a possibility of default. The largest segment of the company’s loan portfolio is commercial real estate. Economic downturns are uncontrollable and would result in defaults of commercial real estate loans. This being the majority of the loan portfolio, the negative impact could be severe. This requires ZION to increase its provision for loan losses; therefore, net loans would decrease, ultimately resulting in lower earnings.

As a regional bank, ZION’s exposure to credit risk is based on the economic strength of the regions where they have operations. The largest percentage of total assets are in Salt Lake City (33%), Houston (24%), and San Diego (20%). The other 23% is spread over four areas with the largest area holding less than 10% (Figure 36).

Catalysts to credit risk are insufficient requirements for credit standards used to vet loan applicants, and are major disruptors in industries of companies to which ZION offers loans. For instance, this was seen in 2014 with the major decline in oil prices adversely affecting ZION’s energy loan portfolio, resulting in large amounts of net charge offs of these loans.

As a way to minimize credit risk, ZION has worked to appropriately diversify loan portfolios to avoid overexposure to any one industry. Other ways to reduce credit risk are proper vetting of loan applicants to ensure credit worthiness and effectively managing risk weighted assets in relation to the amount of liquid capital available.

Appendix A

Zions Bankcorp - Model - Income StatementUSD $ in Millions Except Per Share and Per Unit Data

Inte re st-Ea rning Asse ts (IEA) a nd

Inte re st-Be a ring Lia b il itie s (IBL): Units FY11 FY12 FY13 FY14 FY15

INT EREST -EARNING ASSET S (IEA):

Gross Loans and Leases:

Commercial $M 19,006 19,394 20,186 21,125 21,419

Commercial Real Estate $M 11,088 10,533 10,386 10,337 10,178

Consumer $M 6,802 7,110 7,537 8,060 8,574

T o ta l Gro ss Lo a ns: $M 36,896 37,037 38,109 39,522 40,171

Money Market Investments $M 5,357 7,931 8,850 8,215 8,252

Investment Securities $M 4,771 3,845 3,901 4,142 5,826

Loans held for Sale $M 146 186 147 128 125

T o ta l Inte re st-Ea rning Asse ts (IEA) $M 47,170 48,999 51,007 52,007 54,374

Ave ra g e Inte re st-Ea rning Asse ts (IEA) $M 48,085 50,003 51,507 53,191

Inte re st Inco me Ea rne d On:


Commercial $M 1,074.4 991.6 940.8 922.6 903.2

Commercial Real Estate $M 644.5 575.6 556.4 483.7 453.5

Consumer $M 334.1 325.0 320.4 327.5 335.3

T o ta l Gro ss Lo a ns: $M 2,053.0 1,892.2 1,817.6 1,733.8 1,692.0

Money Market Investments $M 13.8 21.1 23.4 21.4 23.2

Investment Securities $M 136.3 137.2 110.7 109.4 131.7

Loans held for Sale $M 5.7 6.6 5.4 4.6 4.5

T o ta l Inte re st Ea rning Asse ts (IEA): $M 2,208.8 2,057.1 1,957.1 1,869.2 1,851.4

Ave ra g e Yie ld Ea rne d On:


Commercial % 5.7% 5.2% 4.8% 4.5% 4.2%

Commercial Real Estate % 5.8% 5.3% 5.3% 4.7% 4.4%

Consumer % 4.9% 4.7% 4.4% 4.2% 4.0%

T o ta l Gro ss Lo a ns: % 5.6% 5.1% 4.8% 4.5% 4.2%

Money Market Investments % 0.3% 0.3% 0.3% 0.3% 0.3%

Investment Securities % 2.9% 3.2% 2.9% 2.7% 2.6%

Loans held for Sale % 3.9% 4.0% 3.2% 3.3% 3.6%

T o ta l Inte re st Ea rning Asse ts (IEA): % 4.3% 3.9% 3.6% 3.5%

INT EREST -BEARING LIABILIT IES (IBL):

Saving, money market and foreign $M 22,991 23,554 24,553 24,174 24,998

Time $M 3,750 3,208 2,792 2,490 2,274

Due to Banks $M 832 499 278 223 235

Long-term debt $M 1,913 2,234 2,274 1,811 1,021

T o ta l Inte re st-Be a ring Lia b il itie s (IBL): $M 29,486 29,495 29,897 28,698 28,528

Avg . Inte re st-Be a ring Lia b il itie s (IBL): $M 29,491 29,696 29,298 28,613

Inte re st Exp e nse Pa id On:

Saving, money market and foreign $M (92.9) (57.0) (43.0) (38.2) (39.5)

Time $M (35.6) (23.1) (15.8) (11.5) (9.8)

Due to Banks $M (6.7) (1.4) (0.3) (0.3) (0.4)

Long-term debt $M (297.2) (225.2) (185.0) (123.0) (68.5)

T o ta l Inte re st-Be a ring Lia b il itie s (IBL): $M (432.4) (306.7) (244.1) (173.0) (118.2)

H is to rica l

-Based on our analysis we assigned the Base Scenario values a weight of 50%. We believe the Base Scenario growth rates are the most likely to occur after assessing the general state and direction of the market driving forces for the banking industry. Source: Team’s Estimates and Company’s Annual Report






Commercial $M 22,062 22,723 23,405 24,107 24,830


Consumer $M 9,088 9,634 10,212 10,824 11,474






Ave ra g e Inte re st-Ea rning Asse ts (IEA) $M 54405.04 55,137 56,548 58,069 59,713



Commercial $M 913.1 985.3 1,061.0 1,092.8 1,125.6


Consumer $M 362.1 402.5 446.5 473.3 501.7








Commercial % 4.2% 4.4% 4.6% 4.6% 4.6%


Consumer % 4.1% 4.3% 4.5% 4.5% 4.5%





T o ta l Inte re st Ea rning Asse ts (IEA): % 3.5% 3.7% 3.9% 3.9% 3.9%



Time $M 2,342 2,412 2,485 2,559 2,636

Due to Banks $M 245 245 245 245 245

Long-term debt $M 1,021 1,041 1,062 1,083 1,105


Avg . Inte re st-Be a ring Lia b il itie s (IBL): $M 28817.257 29,407 30,014 30,634 31,267



Time $M (11.6) (13.6) (16.1) (19.0) (22.4)

Due to Banks $M (0.4) (0.4) (0.4) (0.4) (0.4)

Long-term debt $M (78.8) (90.6) (104.2) (119.8) (137.8)


Pro je c te d (Ba se )

-Based on our analysis we assigned the Upside Scenario stock price a weight of 35%. We believe the Upside Scenario growth rates are less likely than the Base Scenario but more likely than the Downside Scenario. This was assumed after assessing the general state and direction of the market driving forces for the banking industry. Source: Team’s Estimates and Company’s Annual Report






Commercial $M 22,490 23,614 24,795 26,035 27,337


Consumer $M 9,260 10,001 10,801 11,665 12,598









Commercial $M 922.1 1,014.3 1,113.4 1,169.1 1,227.5


Consumer $M 365.6 414.1 468.0 505.5 545.9








Commercial % 4.2% 4.4% 4.6% 4.6% 4.6%


Consumer % 4.1% 4.3% 4.5% 4.5% 4.5%








Time $M 2,342 2,412 2,485 2,559 2,636

Due to Banks $M 245 245 245 245 245

Long-term debt $M 1,021 1,041 1,062 1,083 1,105





Time $M (11.6) (13.6) (16.1) (19.0) (22.4)

Due to Banks $M (0.4) (0.4) (0.4) (0.4) (0.4)

Long-term debt $M (78.8) (90.6) (104.2) (119.8) (137.8)


Pro je c te d (Up s id e )

-Based on our analysis we assigned the Downside Scenario stock price a weight of 15%. We believe the Downside Scenario growth rates are less likely than the Base Scenario and the Upside Scenario. This was assumed after assessing the general state and direction of the market driving forces for the banking industry. Source: Team’s Estimates and Company’s Annual Report






Commercial $M 21,740 22,066 22,397 22,733 23,074


Consumer $M 8,917 9,274 9,645 10,030 10,432









Commercial $M 906.3 963.7 1,022.7 1,038.0 1,053.6


Consumer $M 358.6 391.1 425.7 442.7 460.4








Commercial % 4.2% 4.4% 4.6% 4.6% 4.6%


Consumer % 4.1% 4.3% 4.5% 4.5% 4.5%








Time $M 2,342 2,412 2,485 2,559 2,636

Due to Banks $M 245 245 245 245 245

Long-term debt $M 1,021 1,041 1,062 1,083 1,105





Time $M (11.6) (13.6) (16.1) (19.0) (22.4)

Due to Banks $M (0.4) (0.4) (0.4) (0.4) (0.4)

Long-term debt $M (78.8) (90.6) (104.2) (119.8) (137.8)


Pro je c te d (Do wnsid e )


Inco me Sta te me nt Units FY16 FY17 FY18 FY19 FY20 FY16 FY17 FY18 FY19 FY20

Ne t Inte re st Inco me : $M

(+) Interest Income: $M 1,921.6 2,088.5 2,290.2 2,403.1 2,522.5 1,892.4 1,993.9 2,119.2 2,155.5 2,192.8

(-) Interest Expense: $M (134.2) (152.4) (173.3) (197.0) (224.2) (134.2) (152.4) (173.3) (197.0) (224.2)

T o ta l Ne t Inte re st Inco me : $M 1,787.5 1,936.0 2,116.9 2,206.0 2,298.3 1,758.2 1,841.5 1,946.0 1,958.4 1,968.6

10K Reconciliation 17.9 17.9 17.9 17.9 17.9 17.9 17.9 17.9 17.9 17.9

Re co nc ile d T o ta l Ne t Inte re st Inco me : $M 1,769.6 1,918.1 2,099.0 2,188.1 2,280.4 1,740.3 1,823.6 1,928.1 1,940.5 1,950.7

Noninterest Income $M 395.955 415.8 436.5 458.4 481.3 395.955 415.8 436.5 458.4 481.3

T o ta l Re ve nue $M 2,165.5 2,333.9 2,535.6 2,646.5 2,761.7 2,136.2 2,239.3 2,364.6 2,398.9 2,432.0

Provision for loan losses $M 40 50 60 70 80 40 50 60 70 80

Noninterest Expense $M 1,570.0 1,570 1,800 1,879 1,961 1,570.0 1,570 1,679 1,703 1,727

Pre -T a x Inco me : $M 555.5 713.9 675.3 697.5 720.9 526.2 619.3 625.7 625.7 625.3

Income Taxes $M 194.4 249.86 236.36 244.12 252.31 184.2 216.76 219.01 218.99 218.85

Ne t Inco me $M 361.1 464.0 439.0 453.4 468.6 342.1 402.6 406.7 406.7 406.4

Net loss applicable to noncontrolling interests $M - - - - - - - - - -

Preferred stock dividends $M (54.0) (45) (57) (58) (60) (54.0) (45) (52) (52) (52)

Preferred stock redemption - - - - - - - - - -

Ne t Inco me to Co mmo n $M 307.1 419.0 382.3 394.9 408.1 288.1 357.6 354.3 354.2 354.0

Weighted Average Shares: M Shares 203.7 209.4 215.2 221.2 227.3 203.7 209.4 215.2 221.2 227.3

Earnings Per Share (EPS): $ / Sha re 1.51 2.00 1.78 1.8 1.80 1.41 1.71 1.65 1.6 1.56

$M

Pro je cte d (Up s id e ) Pro je cte d (Do wnsid e )

Appendix B

Zions Bankcorp - Balance SheetUSD $ in Millions Except Per Share and Per Unit Data

Income Statement Units FY11 FY12 FY13 FY14 FY15Total Assets Cash & Cash Equivalents $M 1,224.4 1,841.9 1,175.1 841.9 798.3 Interbank Assets $M 7,123.1 8,754.3 8,457.3 8,564.4 6,727.9 ST And LT Investments $M 4,944.1 4,732.0 5,181.1 5,428.1 9,085.1 Total Commercial Loans $M 29,882.0 30,086.2 31,269.2 31,927.9 32,220.2 Commercial RE Loans $M 10,834.0 10,746.0 10,901.5 10,892.5 11,182.8 Other Commercial Loans $M 19,048.0 19,340.2 20,367.7 21,035.4 21,037.3 Total Consumer Loans $M 6,625.0 7,050.8 7,576.3 8,135.7 8,429.4 Total Loans $M 37,459.5 37,916.9 39,214.7 40,196.2 40,799.4 Reserve for Loan Losses $M 1,051.7 896.1 746.3 604.7 606.0 Net Loans $M 36,407.8 37,020.8 38,468.4 39,591.5 40,193.4 Net Fixed Assets $M 719.3 708.9 726.4 829.8 905.5 Total Intangible Assets $M 1,083.0 1,064.9 1,050.6 1,039.6 1,030.4 Total Deferred Tax Assets $M 955.0 824.0 637.0 462.4 437.5 Total Derivative Assets $M 92.0 - 65.7 66.4 77.6 Other Assets $M 600.6 565.1 269.6 384.7 413.9Total Assets $M 53,149.1 55,511.9 56,031.1 57,208.9 59,669.5

Liabilit ies & Shareholders' Equity Demand Deposits $M 16,110.9 18,469.5 18,758.8 20,529.1 22,276.7 Interest Bearing Deposits $M 26,764.8 27,663.6 27,603.1 27,319.0 28,097.4 Saving Deposits $M 21,775.8 22,896.6 23,029.9 24,583.6 25,672.4 Time Deposits $M 4,988.9 4,767.0 4,573.2 2,735.3 2,425.1 Total Deposits $M 42,875.6 46,133.1 46,361.9 47,848.1 50,374.1 ST Borrowings & Repos $M 722.9 370.9 801.2 244.2 347.0 LT Debt $M 2,056.9 2,425.6 1,902.5 1,173.4 892.2 Pension Liabilities 49.2 46.5 14.2 27.4 26.8 Total Deferred Tax Liabilities - - 332.7 238.2 234.4 Total Derivative Liabilities 94.8 89.1 68.4 66.1 72.6 Other Liabilities 366.6 398.1 85.9 242.0 214.9Total Liabilit ies $M 46,165.9 49,463.3 49,566.6 49,839.3 52,162.0

Equity Preferred Equity $M 2,337.6 1,128.3 1,004.0 1,004.0 828.3 Share Capital & APIC $M 4,163.2 4,166.1 4,179.0 4,723.9 4,766.9 Retained Earnings $M 1,036.6 1,203.8 1,473.7 1,769.7 1,966.9 Other Equity $M (592.1) (446.2) (192.4) (128.0) (54.6)Equity before Minority Interest $M 6,985.3 6,052.1 6,464.6 7,369.5 7,507.5 Minority/Non Controlling Interest $M (2.1) (3.4) - - - Total Equity $M 6,983.2 6,048.6 6,464.6 7,369.5 7,507.5Total Liabilit ies & Equity $M 53,149.1 55,511.9 56,031.1 57,208.9 59,669.5

Historical

Source: Team’s Estimates and Company’s Annual Report

Zions Bankcorp - Balance SheetUSD $ in Millions Except Per Share and Per Unit Data

Income Statement Units FY16 FY17 FY18 FY19 FY20Total Assets Cash & Cash Equivalents $M 1,176.3 1,176.3 1,176.3 1,176.3 1,176.3 Interbank Assets $M 8,100.0 8,170.4 7,925.4 7,925.4 7,925.4 ST And LT Investments $M 5,784.1 5,784.1 5,784.1 5,784.1 5,784.1 Total Commercial Loans $M 32,392.2 33,209.0 34,048.0 34,909.8 35,795.1 Commercial RE Loans $M 10,330.7 10,485.6 10,642.9 10,802.6 10,964.6 Other Commercial Loans $M 22,061.6 22,723.4 23,405.1 24,107.3 24,830.5 Total Consumer Loans $M 9,088.4 9,633.7 10,211.8 10,824.5 11,473.9 Total Loans $M 41,480.7 42,842.8 44,259.8 45,734.3 47,269.0 Reserve for Loan Losses $M 700.0 725.0 750.0 775.0 800.0 Net Loans $M 40,780.7 42,117.8 43,509.8 44,959.3 46,469.0 Net Fixed Assets $M 1,000.0 1,150.0 1,300.0 1,300.0 1,025.0 Total Intangible Assets $M 1,030.0 1,053.7 1,053.7 1,053.7 1,053.7 Total Deferred Tax Assets $M 475.0 550.0 663.0 663.0 663.0 Total Derivative Assets $M 75.0 75.0 75.0 75.0 75.0 Other Assets $M 446.8 446.8 446.8 446.8 446.8Total Assets $M 58,867.9 60,524.1 61,934.1 63,383.6 64,618.3

Liabilit ies & Shareholders' Equity Demand Deposits $M 22,557.2 24,000.0 25,000.0 26,000.0 27,000.0 Interest Bearing Deposits $M 27,489.6 27,489.6 27,489.6 27,489.6 27,489.6 Saving Deposits $M 25,498.0 26,007.9 26,528.1 27,058.6 27,599.8 Time Deposits $M 2,342.2 2,412.5 2,484.9 2,559.4 2,636.2 Total Deposits $M 50,046.8 51,489.6 52,489.6 53,489.6 54,489.6 ST Borrowings & Repos $M 497.0 497.0 497.0 497.0 497.0 LT Debt $M 900.0 1,100.0 1,300.0 1,400.0 1,400.0 Pension Liabilities 32.8 32.8 32.8 32.8 32.8 Total Deferred Tax Liabilities 210.0 190.0 170.0 150.0 114.0 Total Derivative Liabilities 78.2 78.2 78.2 78.2 78.2 Other Liabilities 261.5 261.5 261.5 261.5 261.5Total Liabilit ies $M 52,026.3 53,649.1 54,829.1 55,909.1 56,873.1

Equity Preferred Equity $M 900.0 900.0 900.0 900.0 900.0 Share Capital & APIC $M 4,100.0 4,100.0 4,100.0 4,229.1 4,399.8 Retained Earnings $M 1,966.6 2,100.0 2,159.6 2,400.0 2,500.0 Other Equity $M (125.0) (225.0) (54.6) (54.6) (54.6)Equity before Minority Interest $M 6,841.6 6,875.0 7,105.0 7,474.5 7,745.2 Minority/Non Controlling Interest $M - - - - - Total Equity $M 6,841.6 6,875.0 7,105.0 7,474.5 7,745.2Total Liabilit ies & Equity $M 58,867.9 60,524.1 61,934.1 63,383.6 64,618.3

Projected

Appendix C

Zions Bankcorp - Statement of Cash FlowsUSD $ in Millions Except Per Share and Per Unit Data

Income Statement Units FY11 FY12 FY13 FY14 FY15 Cash from Operat ing Act ivit ies Net Income $M 323.8 349.5 263.8 398.5 309.5 Depreciation & Amortization $M 299.9 185.2 130.6 128.6 151.1 Provision for Loan Losses $M 65.2 18.6 (104.2) (106.7) 33.8 Non-Cash Items $M 207.2 103.1 222.5 39.7 97.4 Gain on Sale of Secs & Loans $M - 106.5 165.1 (10.4) 139.0 Deferred Income Taxes $M 115.6 9.8 (60.1) 25.9 (29.8) Other Non-Cash Adjustments $M 91.6 (13.2) 117.5 24.1 (11.8) Net Ch in Operating Capital $M 232.1 79.7 327.6 (5.8) (56.5) Trading Assets & Liab $M 8.4 12.0 (6.3) (36.0) 22.5 Net Ch in Operating Loans $M 50.7 (31.4) 80.3 38.6 (6.0) Other Op Assets/Liab $M 173.0 99.2 253.5 (8.3) (73.0) Cash from Operat ing Act ivit ies $M 1,128.21 736.20 840.27 454.32 535.2

Cash from Invest ing Act ivit ies Net Change in Fixed Assets $M (77.7) (68.9) (88.6) (175.8) (157.4) Net Change in Investments $M (1,580.9) (1,309.8) 51.0 (71.5) (3,769.9) Decrease in Investments $M 2,328.2 1,340.3 1,532.0 1,887.7 1,804.5 Dec in HTM Investments $M 101.9 128.3 130.9 108.4 123.2 Dec in AFS Investments $M 2,206.9 1,212.0 1,104.0 1,779.3 1,681.3 Dec in Other Investments $M 19.4 - 297.0 - - Increase in Investments $M (3,909.1) (2,650.1) (1,481.0) (1,959.2) (5,574.4) Inc in HTM Investments $M (69.2) (86.8) (155.3) (164.7) (61.0) Inc in AFS Investments $M (1,423.1) (932.0) (1,325.7) (1,794.5) (5,513.4) Inc in Other Investments $M (2,416.7) (1,631.3) - - - Net Ch in Loans & Interbank $M (1,227.5) (725.8) (1,452.2) (1,184.2) 1,202.9 Net Ch in Customer Loans $M (1,245.2) (792.0) (1,452.2) (1,079.2) (633.6) Net Ch in Interbank Assets $M - - - (105.1) 1,836.5 Cash from Invest ing Act ivit ies $M (2,523.6) (1,879.5) (1,356.9) (1,342.5) (2,650.7)

Cash from Financing Act ivit ies Dividends Paid $M (156.1) (133.6) (119.7) (96.1) (108) Cash From (Repayment) Debt $M (111.1) 14.5 (243.8) (1,319.4) (185.0) Cash From (Repay) ST Debt $M (208.5) (370.3) (12.3) (96.1) 102.8 Cash From LT Debt $M 106.1 757.6 646.4 - - Repayments of LT Debt $M (8.7) (372.9) (877.9) (1,223.3) (287.8) Cash (Repurchase) of Equity $M 25.7 143.2 794.1 526.4 (153.3) Increase in Capital Stock $M 25.7 143.2 794.1 526.4 22.4 Decrease in Capital Stock $M - - - - (175.7) Net Change In Deposits $M 1,940.7 3,286.8 228.8 1,485.2 2,526.0 Other Financing Activities $M (3.5) (1,550.0) (809.7) (39.0) (7.8) Cash from Financing Act ivit ies $M 1,695.6 1,760.9 (150.2) 557.1 2,071.9

Net Changes in Cash $M 300.2 617.6 (666.8) (331.1) (43.6)

Historical


Zions Bankcorp - Statement of Cash FlowsUSD $ in Millions Except Per Share and Per Unit Data

Income Statement Units FY16 FY17 FY18 FY19 FY20 Cash from Operat ing Act ivit ies Net Income $M 350.8 430.5 421.3 427.6 434.0 Depreciation & Amortization $M 179.1 179.1 179.1 179.1 179.1

Provision for Loan Losses $M 40 50 60 70 80 Non-Cash Items $M 178.9 180.8 176.9 179.6 182.3 Gain on Sale of Secs & Loans $M 119.3 107.6 105.3 106.9 108.5 Deferred Income Taxes $M 10.5 12.9 12.6 12.8 13.0 Other Non-Cash Adjustments $M 49.1 60.3 59.0 59.9 60.8 Net Ch in Operating Capital $M 122.8 150.7 147.4 149.7 151.9 Trading Assets & Liab $M 10.5 12.9 12.6 12.8 13.0 Net Ch in Operating Loans $M 24.55 30.1 29.5 29.9 30.4 Other Op Assets/Liab $M 87.7 107.6 105.3 106.9 108.5 Cash from Operat ing Act ivit ies $M 699.9 739.7 742.6 757.4 772.4

Cash from Invest ing Act ivit ies Net Change in Fixed Assets $M (127.0) (127.0) (127.0) (127.0) (127.0) Net Change in Investments $M (3,069.3) (1,422.6) 208.6 208.6 208.6 Decrease in Investments $M 3,715.6 1,712.4 1,712.4 1,712.4 1,712.4 Dec in HTM Investments $M 115.6 115.6 115.6 115.6 115.6 Dec in AFS Investments $M 3,600.0 1,596.7 1,596.7 1,596.7 1,596.7 Dec in Other Investments $M - - - - - Increase in Investments $M (6,784.9) (3,134.9) (1,503.8) (1,503.8) (1,503.8) Inc in HTM Investments $M (134.9) (134.9) (134.9) (134.9) (134.9) Inc in AFS Investments $M (6,000.0) (3,000.0) (1,368.9) (1,368.9) (1,368.9) Inc in Other Investments $M (650.0) - - - - Net Ch in Loans & Interbank $M (80.0) (716.0) (1,155.2) (1,097.4) (1,042.6) Net Ch in Customer Loans $M (1,280.0) (1,216.0) (1,155.2) (1,097.4) (1,042.6) Net Ch in Interbank Assets $M 1,200.0 500.0 - - - Cash from Invest ing Act ivit ies $M (3,276.3) (2,265.6) (1,073.6) (1,015.8) (961.0)

Cash from Financing Act ivit ies Dividends Paid $M (107.0) (110.7) (119.1) (120.1) (121.1) Cash From (Repayment) Debt $M 495.0 (100.0) (45.0) 4.3 49.7 Cash From (Repay) ST Debt $M 875.0 200.0 160.0 128.0 102.4 Cash From LT Debt $M - 100.0 115.0 132.3 152.1 Repayments of LT Debt $M (380.0) (400.0) (320.0) (256.0) (204.8) Cash (Repurchase) of Equity $M (240.0) - 100.0 150.0 200.0 Increase in Capital Stock $M 10.0 50.0 100.0 150.0 200.0 Decrease in Capital Stock $M (250.0) (50.0) - - - Net Change In Deposits $M 1,800.0 1,800.0 1,800.0 1,800.0 1,800.0 Other Financing Activities $M (145.00) (45.70) (45.70) (45.70) (45.70) Cash from Financing Act ivit ies $M 1,803.0 1,543.6 1,690.2 1,788.4 1,882.9

Net Changes in Cash $M (773.4) 17.7 1,359.2 1,530.0 1,694.3

Projected

Appendix D


Zions Bankcorp - Operat ing Model - Dividend Discount ModelUSD $ in Millions Except Per Share and Per Unit Data

2011 2012 2013 2014 2015 2016 2017 2018 2019 2020Div Payout Ratio 4.80% 4.14% 8.20% 9.56% 18.30% 18.31% 18.31% 18.31% 18.31% 18.31%Net Income 153.40 178.6 293.4 326.6 246.6 296.8 385.5 366.9 372.4 378.0Dividend 7.36 7.39 24.06 31.22 45.13 54.33 70.58 67.17 68.18 69.20 # common shares 182.4 183 183.8 192.2 203.3 209.0 214.8 220.7 226.9 233.2DIV/Share 0.04 0.04 0.13 0.16 0.22 0.26 0.33 0.30 0.30 0.30

2016 2017 2018 2019 2020 2016 2017 2018 2019 2020Div Payout Ratio 18.86% 18.86% 18.86% 18.86% 18.86% 17.69% 17.69% 17.69% 17.69% 17.69%Net Income 288.1 357.6 354.3 354.2 354.0 307.1 419.0 382.3 394.9 408.1Dividend 54.33 67.43 66.81 66.81 66.76 54.33 74.13 67.64 69.86 72.20 # common shares 209.0 214.8 220.7 226.9 233.2 209.0 214.8 220.7 226.9 233.2DIV/Share 0.26 0.31 0.30 0.29 0.29 0.26 0.35 0.31 0.31 0.31

Projected (Downside) Projected (Upside)

Historical Projected (Base)

FundamentalsRisk Free Rate 1.57% 2016 2017 2018 2019 2020 2021ROE 5.67% DIV/Share 0.26 0.33 0.30 0.30 0.30 0.31 Payout Ratio 18.31% Terminal Value 41.97 Retention Rate 81.69% TV + DIV 42.26 Growth Rate 4.63% Present Value 0.33 0.29 0.27 36.11Required Return 5.38% NPV $36.67Div Growth 5.98%

Dividend Discount

Appendix E Financial Ratios

Source: Bloomberg

Ratio Analysis ZIONS New York Comm East West People's United Synovus Signature Regions Suntrust Keycorp Citizens Financial AverageValuation MultiplesPrice to Earnings 19.77 15.92 17.27 20.72 19.56 17.09 15.58 15.42 14.92 16.98 17.32 Price to Book Value 1.29 1.35 2.17 1.22 1.81 2.29 1.10 1.20 1.34 0.94 1.47

Solvency RatiosDebt to Equity 16.51 265.36 39.24 NA 78.79 122.32 49.63 59.26 103.09 67.79 NADebt to Capital 14.17 72.63 28.18 53.05 44.07 55.02 33.17 37.21 50.76 40.40 42.87 Debt to Assets 2.08 31.30 3.79 13.75 8.21 10.57 6.63 7.28 11.66 9.64 10.49 Financial Leverage 8.96 8.44 10.22 8.00 9.66 11.28 7.74 8.66 9.05 7.01 8.90

Profitability RatiosNet Interest Margin 3.19 3.35 2.88 3.19 3.26 3.14 2.91 2.88 3.10 Net Profit Margin 14.79 (7.62) 33.93 20.25 20.64 36.78 19.75 24.07 21.67 17.41 20.17 Operating Profit Margin 21.60 (21.33) 51.04 30.40 32.74 61.93 28.45 33.70 28.90 26.18 29.36 Pretax Margin 21.60 (21.33) 51.04 30.40 32.74 61.93 28.45 33.70 28.90 26.18 29.36 Return on Assets (ROA) 0.73 (0.05) 1.28 0.71 0.82 1.11 0.92 0.97 0.68 0.70 0.79 Operating Return on Assets 1.08 (0.18) 1.74 1.05 1.28 1.84 1.32 1.38 0.87 1.03 1.14 Return on Total Capital 4.73 (0.11) 10.47 2.89 4.53 6.87 4.83 4.81 3.09 2.96 4.51 Return on Equity 5.51 (0.45) 12.80 5.74 7.99 12.07 6.74 8.00 6.00 4.94 6.93 Basic EPS 1.20 (0.11) 2.67 0.86 1.63 7.35 0.76 3.62 1.06 1.55 2.06 Diluted EPS 1.20 (0.11) 2.66 0.86 1.62 7.27 0.75 3.58 1.05 1.55 2.04

Free Cash FlowFree Cash Flow to Equity (45.73) 1,066.69 576.25 866.20 506.78 2,038.11 3,750.00 (5,390.00) 3,334.00 (507.00) 619.53

Dupont AnalysisTax Burden 58.02 29.73 73.77 67.39 61.00 60.10 65.92 67.69 76.20 66.85 62.67 Asset Turnover 0.04 0.04 0.04 0.04 0.04 0.04 0.05 0.05 0.04 0.04 0.04 Leverage Ratio 8.96 8.44 10.22 8.00 9.66 11.28 7.74 8.66 9.05 7.01 8.90 Adjusted Return on Equity 5.61 8.83 12.80 5.71 8.45 12.07 6.81 7.69 7.71 4.84 8.05 5 Year Average Adj ROE 4.86 8.53 5.15 9.81 13.15 6.08 7.20 8.98 7.97 Payout Ratio 18.30 77.03 25.65 - 30.07 25.50 27.35 29.13 Sustainable Growth Rate 3.09 8.98 1.28 5.55 13.85 4.40 6.31 6.21 3.20 5.87

Source: Bloomberg and FDIC

Appendix F Board Members

Source: 2016 Proxy Statement

Nam e Title Background Tenure Independent

Harris H. Simmons Chairman and CEO and member of the Executive Committee

Mr. Simmons' over 40 years of experience in banking and leadership of the company. During his tenure as President and then Charman and CEO, we have grown from $3 billion in assets to our present $60 billion.

27 No

Jerry C. Atkin Chairman of the Compensation Committee and member of Executive and Nominating

& Corporate Governance Committees

Mr. Atkin has skills and experience as the head of a publicly traded company for 40 years as well as an accounting background. At SkyWest, he led the company's growth from annual revenue of less than $1 million to more than $3 billion.

23 Yes

Patricia Frobes Lead Director, Chairman of the Executive Committee and member of the Nominating

& Corporate Governance Committee

Ms. Frobes brings a strong real estate and legal background, as well as broad knowledge of the California market. She has specialties in real estate development and financing matters.

13 Yes

Suren K. Gupta Member of the Risk Oversight Committee Mr. Gupta's deep experience in technology, operations, and business strategy adds depth to our Board's knowledge about data, technology, and security, areas of evolving and increasing risk to the financial services industry.

1 Yes

J. David Heaney Member of the Audit and Nominating & Corporate Governance Committees

Mr. Heaney contributes financial and legal expertise, and broad knowledge of the Texas market. He was founding director of Amegy Bancorporation, Inc., which we acquired in December 2005.

11 Yes

Vivian S. Lee Member of the Audit Committee Dr. Lee brings a wealth of experience as a CEO focused on streamlining processes and improving efficiency in the highly regulated and rapidly evolving health care industry. She is responsible for an annual budget of more than $2.4 billion, and leads a healthcare system comprising four hospitals, numerous clinical and research specialty centers, neighborhood health centers, an insurance plan, and more than 1,200 board-certified physicians.

1 Yes

Edward F. Murphy Chairman of the Audit Committee and member of the Executive and Risk

Oversight Committees

Mr. Murphy is a Certified Public Accountant who contributes significant expertise in accounting and financial reporting in the banking industry, as well as extensive experience in operational risk management and internal control processes.

2 Yes

Roger B. Porter Member of the Compensation and Nominating & Corporate Governance

Committees

Dr. Porter brings to the Board his broad knowledge of business-government relations and economics. He has served for more than a decade in senior economic policy positions in the White House, including as assistant to the president for economic and domestic policy from 1989 to 1993.

23 Yes

Stephen D. Quinn Member of the Audit and Risk Oversight Committees

Mr. Quinn contributes financial and investment banking expertise. At Goldman Sachs, he specialized in corporate finance, spending two decades structuring mergers and acquisitions, debt and equity financings, and other transactions for some of America's best-known corporations.

14 Yes

L. E. Simmons Board Member Mr. Simmons brings extensive finance, investment, and merger and acquisition experience. Prior to founding SCF, Mr. Simmons co-founded Simmons & Company International, an investment banking firm to oil field service companies. Mr. Simmons also benefits the Board through his broad knowledge of the energy industry and of the Texas market.

38 No

Shelley Thomas Williams

Member of the Risk Oversight and Compensation Committees

Ms. Williams' wide-ranging experience in media and public relations is a tremendous resource. She was senior director of communications for the Huntsman Cancer Institute at the University of Utah, a senior vice president for the Olympic Winter Games of 2002, vice president for public affairs of Smith's Food & Drug Centers, Inc., now part of Kroger Corporation, and a director of The Regence Group, which is privately held.

18 Yes

John C. Erickson Former Chairman of the Risk Oversight Committee and member of Executive and

Audit Committees

Mr. Erickson resigned from the Board and its committess in April 2016 to accept a senior executive positions with another financial institution and is not standing for reelection at the 2016 Annual Meeting. The appointment of a new Chair for the Risk Oversight Committee is pending.

2 Yes

Steven C. Wheelwright

Former Chairman of the Nominating & Corporate Governance Committee and

member of Executive and Compensation Committees

Mr. Wheelwright reached retirement age as specified in the Company's Corporate Governance Guidelines and therefore has not been nominated to stand for reelection at the 2016 Annual Meeting

12 Yes

Appendix G Five Forces Analysis on ZION’s core business elements.

Threat of New Entrants - Minimal The current regulatory atmosphere is not conducive for bank startups. It is highly unlikely a bank will be able to enter the market and viably compete against ZION Supplier Power - High Threat We categorized ZION’s supplier as the FED who holds high power as it controls rates and the supply of money. Individual customers also supply ZION with deposits but have minimal influence beyond the ability to select who their financial services provider. Finally, other banks can loan ZION money but have minimal power given their influence is tied to the Prime Rate. Buyer Power - Moderate Threat Customers, considered individual borrowers, have no control once the loan is signed. Their only power is consumer discretion in deciding who to borrow from. They have myriad of choices and can invest their money with competitors instead. Businesses come to ZION for loans and have the same discretion as the individual borrowers. Competitive Rivalry - High Threat The financial sector is highly competitive, with banks constantly vying to offer the best products, services and rates. ZION’s management must ensure they can adapt with technological changes in the industry, such as making concerted pushes into online and mobile banking. The industry is filled with regional banks, national banks, and credit unions all competing for market share. Each of these institutions is increasing their reach through online platforms, enhancing the aggressive atmosphere all while opening each institution to a wider customer base. Threat of Substitution - High Threat There are numerous companies offering the same services as ZION. As such, there are multiple banks and financial firms that consumers and businesses can turn to for their financing needs. The services and investment products ZIONs offers can easily be replicated, often with more attractive interest rates or other benefits. For this reason ZION has made stronger efforts to enhance their online capabilities and improve their own services.

Appendix H Subsidiaries by State ZION has expanded its size and market share through organic growth as well as acquisitions. It has grown to 14 subsidiaries. Recently ZION has focused on consolidating its subsidiaries into a single charter while still operating under regional brand names according to geographic location.

Source: Company’s Annual Report

Disclosures:Ownershipandmaterialconflictsofinterest:Theauthor(s),oramemberoftheirhousehold,ofthisreportdoesnotholdafinancialinterestinthesecuritiesofthiscompany.Theauthor(s),oramemberoftheirhousehold,ofthisreportdoesnotknowoftheexistenceofanyconflictsofinterestthatmightbiasthecontentorpublicationofthisreport.Receiptofcompensation:Compensationoftheauthor(s)ofthisreportisnotbasedoninvestmentbankingrevenue.Positionasaofficerordirector:Theauthor(s),oramemberoftheirhousehold,doesnotserveasanofficer,directororadvisoryboardmemberofthesubjectcompany.Marketmaking:Theauthor(s)doesnotactasamarketmakerinthesubjectcompany’ssecurities.Disclaimer:Theinformationsetforthhereinhasbeenobtainedorderivedfromsourcesgenerallyavailabletothepublicandbelievedbytheauthor(s)tobereliable,buttheauthor(s)doesnotmakeanyrepresentationorwarranty,expressorimplied,astoitsaccuracyorcompleteness.Theinformationisnotintendedtobeusedasthebasisofanyinvestmentdecisionsbyanypersonorentity.Thisinformationdoesnotconstituteinvestmentadvice,norisitanofferorasolicitationofanoffertobuyorsellanysecurity.ThisreportshouldnotbeconsideredtobearecommendationbyanyindividualaffiliatedwithCFASocietyofSaltLake,CFAInstituteortheCFAInstituteResearchChallengewithregardtothiscompany’sstock.

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