ZIONS BANCORPORATION, NATIONAL ASSOCIATION /UT/ (ZION) FY 2021 MD&A

ITEM 7. MANAGEMENT’S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS

MANAGEMENT’S DISCUSSION AND ANALYSIS

GAAP to NON-GAAP RECONCILIATIONS

This Form 10-K presents non-GAAP financial measures, in addition to Generally Accepted Accounting Principles (“GAAP”) financial measures, to provide investors with additional information. The adjustments to reconcile from the applicable GAAP financial measures to the non-GAAP financial measures are presented in the following schedules. We consider these adjustments to be relevant to ongoing operating results as they provide a basis for period-to-period and company-to-company comparisons. We use these non-GAAP financial measures to assess our performance, financial position, and for presentations of our performance to investors. We believe that presenting these non-GAAP financial measures permits investors to assess our performance on the same basis as that applied by management.

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Non-GAAP financial measures have inherent limitations and are not necessarily comparable to similar measures that may be presented by other financial services companies. Although non-GAAP financial measures are frequently used by stakeholders to evaluate a company, they have limitations as an analytical tool and should not be considered in isolation or as a substitute for analysis of results reported under GAAP.

Tangible Common Equity and Related Measures

Tangible common equity and related measures are non-GAAP measures that exclude the impact of intangible assets. We believe these non-GAAP measures provide useful information about our use of shareholders’ equity and provide a basis for evaluating the performance of a company more consistently, whether acquired or developed internally.

Schedule 2

RETURN ON AVERAGE TANGIBLE COMMON EQUITY (NON-GAAP)

Schedule 3

TANGIBLE EQUITY RATIO, TANGIBLE COMMON EQUITY RATIO, AND TANGIBLE BOOK VALUE PER COMMON SHARE (ALL NON-GAAP MEASURES)

Efficiency Ratio and Adjusted Pre-Provision Net Revenue

The efficiency ratio is a measure of operating expense relative to revenue. We believe the efficiency ratio provides useful information regarding the cost of generating revenue. The methodology for determining the efficiency ratio may differ among companies. We make adjustments to exclude certain items that are not generally expected to recur frequently, as identified in the subsequent schedule, which we believe allow for more consistent comparability across periods. Adjusted noninterest expense provides a measure as to how well we are managing our expenses; adjusted pre-provision net revenue (“PPNR”) enables management and others to assess our ability to generate capital to cover credit losses through a credit cycle. Taxable-equivalent net interest income allows us to assess the comparability of revenue arising from both taxable and tax-exempt sources.

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Schedule 4

EFFICIENCY RATIO (NON-GAAP) AND ADJUSTED PRE-PROVISION NET REVENUE (NON-GAAP)

1 Represents the expense incurred to terminate our defined benefit pension plan during the second quarter of 2020, and a subsequent refund received during the first quarter of 2021.

2 The success fee accrual is associated with the gains/(losses) from our SBIC investments. The gains/(losses) related to these investments are excluded from the efficiency ratio through securities gains, net.

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Key Corporate Objectives

We conduct our operations through seven separately managed affiliates, each with its own local branding and management team. We focus our efforts and resources to maintain a competitive advantage and to achieve our desired growth objectives. In particular, we are strategically focused on four growth areas: small businesses, mid-sized commercial businesses, affluent customers, and capital markets. The graphic below illustrates these key corporate objectives.

We strive to achieve balanced growth of customers, PPNR, and earnings per share (“EPS”). Our incentive compensation plans are designed to support our growth objectives, as disclosed in our proxy statements. To facilitate the achievement of these objectives, we invest in the following five key areas, referred to as “strategic enablers”:

•Risk Management — we invest in enhanced risk management practices to ensure prudent risk taking and appropriate oversight.

•People and Empowerment — we invest in training our employees and providing them the tools and resources to build their capabilities, while promoting a diverse, inclusive, and equitable culture.

•Technology — we invest in technologies that will make us more efficient and enable us to remain competitive while helping to insulate us from the risks of bank-disrupting technology companies.

•Operational Excellence — we invest in and support ongoing improvements in how we safely and securely deliver value to our customers.

•Data and Analytics — we invest in advanced enterprise data and analytics to support local execution and prudent decision-making.

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RESULTS OF OPERATIONS

Navigating Through the Ongoing Pandemic

The COVID-19 pandemic continued to impact our operations throughout 2021, though its effects varied compared with the prior year.

•During 2020, credit concerns were high given the significant uncertainty of the depth and duration of the pandemic and the related shut-downs, which resulted in a significant increase in the allowance for credit losses. However, with strong government stimulus and the development of vaccines and treatments, consumer and business spending rebounded in 2021. As such, credit concerns abated significantly during 2021, resulting in significant releases of the credit loss reserves we added in 2020.

•Since the beginning of the pandemic, we funded $10.2 billion of Paycheck Protection Program (“PPP”) loans ($2.9 billion in 2021 and $7.3 billion in 2020) for approximately 77,000 customers, positively impacting loan balances and interest income. We ranked as the 10th largest originator of PPP loans by dollar volume of all the participating financial institutions, as disclosed by the U.S. Small Business Administration (“SBA”). In 2021, we continued to strengthen our relationships with more than 20,000 new-to-bank PPP customers, which resulted in additional revenue generating services. Total interest income from PPP loans during 2021 was $235 million, of which $138 million was related to accelerated recognition of net unamortized deferred fees on $6.5 billion of PPP loans forgiven by the SBA.

•Demand for loans softened considerably in 2020 as a result of increased uncertainty and reduced economic activity. Loan attrition continued in 2021, but reversed course during the latter half of the year. Excluding PPP, loan growth in the fourth quarter of 2021 was robust, reflecting one of our strongest growth rates in recent years.

•As with the prior year, we assisted our employees in adapting to a work-from-home environment, where applicable, to help limit the spread of COVID-19, by modifying operating hours, limiting lobby visits, and requiring masks, to help keep our employees and communities safe.

•The domestic money supply, as measured by the Federal Reserve, increased significantly in 2021. This increase, together with our ongoing efforts to deepen relationships with customers, positively affected our deposit growth.

•As 2021 progressed, we experienced elevated turnover rates in some of our entry-level jobs and found it increasingly difficult to fill employment vacancies, a challenge faced by many companies. In response, we have adjusted both cash and non-cash compensation and benefits to stem the turnover, which has generally normalized.

Our Financial Performance

This section and other sections provide information about our recent financial performance. For information about our results of operations for 2020 compared with 2019, see the respective sections in MD&A included in our 2020 Form 10-K.

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Relative to 2020, our financial performance for 2021 reflects:

•Stable net interest income, driven largely by significant increases in average interest-earning assets. Growth in these assets contributed to compression in the net interest margin (“NIM”), given an increased concentration in lower-yielding assets, and the low interest rate environment.

•Significant growth of $11.1 billion, or 16%, in average interest-earning assets, and an increase of $12.6 billion, or 20%, in average total deposits. This deposit growth funded increases of $8.0 billion and $4.2 billion in average money market investments and average investment securities, respectively. We actively managed our balance sheet in view of the low interest rate environment, and evaluated opportunities to deploy excess liquidity into short-to-medium duration assets. We balanced competing objectives of increasing income, maintaining asset sensitivity to benefit from rising rates, maintaining sufficient liquidity for changes in deposit trends, and supporting loan growth.

•A $129 million, or 22%, increase in total noninterest income. Increases in customer-related fees were primarily due to improved customer transaction volume, new client activity, and deepening of existing client relationships, specifically resulting in the growth of card, commercial account, and wealth management fees. Increases in noncustomer-related revenue were driven largely by net securities gains related to our Small Business Investment Company (“SBIC”) investment portfolio.

•An increase of $37 million, or 2%, in noninterest expense, arising from inflationary and competitive labor pressures on wages and higher profit sharing expense, as well as increases in professional and legal services expenses, mainly due to various technology-related and other outsourced services associated with ongoing investments in our core technology systems.

•Strong credit performance. Net loan and lease charge-offs were $6 million, or 0.01% of average loans (ex-PPP), in 2021, compared with net charge-offs of $105 million, or 0.22% of average loans (ex-PPP), in the prior year. The provision for credit losses was a negative $276 million in 2021, compared with a positive $414 million in 2020, reflecting improvements in economic forecasts, loan portfolio changes, and strong credit quality.

•A decrease of $2.6 billion, or 5%, in total loans and leases, due to the forgiveness of PPP loans and a decline in 1-4 family residential mortgage loans. Excluding PPP loans, total loans and leases increased $1.1 billion, or 2%, reflecting improving loan growth trends during the second half of 2021.

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The result of the items discussed above yielded a 118% increase in net earnings applicable to common shareholders and a 125% increase in earnings per diluted share from the prior year.

The following schedule presents additional selected financial highlights. Prior period amounts have been reclassified to conform with the current period presentation, where applicable.

Schedule 5

SELECTED FINANCIAL HIGHLIGHTS 1

1This table includes certain non-GAAP measures. See “GAAP to Non-GAAP Reconciliations” on page 22 for more information.

2The common dividend payout ratio is equal to common dividends paid divided by net earnings applicable to common shareholders.

3 This ratio is the common dividends paid plus share repurchases for the year, divided by net earnings applicable to common shareholders.

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Net Interest Income and Net Interest Margin

Net interest income is the difference between interest earned on interest-earning assets and interest paid on interest-bearing liabilities and is approximately 76% of our net revenue (net interest income plus noninterest income) for the year. The NIM is derived from both the amount of interest-earning assets and interest-bearing liabilities and their respective yields and rates.

Schedule 6

NET INTEREST INCOME AND NET INTEREST MARGIN

1 Rates are calculated using amounts in thousands and a tax rate of 21% for the periods presented.

Net interest income remained relatively stable at $2.2 billion in 2021, relative to the prior year, and was driven largely by a significant increase in average interest-earning assets. Growth in these assets had a dilutive effect on the NIM, given an increased concentration in lower-yielding assets and the low interest rate environment.

Average interest-earning assets increased $11.1 billion, or 16%, driven by growth in average money market investments and investment securities. These increases were partially offset by declines in consumer mortgage loans. Average money market investments, including short-term deposits held at the Federal Reserve, increased to 13.4% of average interest-earning assets, compared with 4.3%. Average securities increased to 23.3% of average interest-earning assets, compared with 21.1%, as we have actively deployed excess liquidity into short-to-medium duration assets.

The NIM was 2.72%, compared with 3.15%. The yield on average interest-earning assets was 2.79% in 2021, a decrease of 58 basis points (“bps”). The yield on total loans decreased 13 bps to 3.76%, compared with 3.89%. Excluding PPP loans, the yield on loans decreased 33 bps. The yield on securities decreased 42 bps, primarily due to lower yields on re-investment of principal payments and other purchases throughout 2021.

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Average loans and leases decreased $1.0 billion, or 2%, from $53.0 billion in 2020, primarily due to a decrease in 1-4 family residential mortgage loans. The decline in our mortgage loan portfolio is partly due to the low interest rate environment and refinancing activity. We generally originate residential mortgage loans and sell them to government-sponsored entities as part of our interest rate risk management efforts to limit our balance sheet exposure to long-term assets.

Since early 2020, we provided assistance to many small businesses through the SBA PPP and originated a total of $10.2 billion in PPP loans. During 2021 and 2020, PPP loans totaling $6.5 billion and $1.3 billion, respectively, were forgiven by the SBA. The yield on these loans was 5.16% and 3.22% for 2021 and 2020, respectively, and was positively impacted by accelerated amortization of deferred fees on paid off or forgiven PPP loans of $138 million and $26 million. At December 31, 2021 and 2020, the remaining unamortized net origination fees on these loans totaled $45 million and $102 million, respectively.

Average total deposits increased $12.6 billion to $76.3 billion at an average cost of 0.04% in 2021, from $63.7 billion at an average cost of 0.17% in 2020. Average interest-bearing liabilities increased $2.5 billion, or 7%, and the average rate paid on interest-bearing liabilities decreased 26 bps to 0.14%. The rate paid on total deposits and interest-bearing liabilities was 0.07%, a significant decrease from 0.22% during 2020, which was primarily due to low interest-bearing deposit rates and strong noninterest-bearing deposit growth.

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Average available-for-sale (“AFS”) securities balances increased $4.2 billion, or 29%, in 2021, from $14.2 billion in 2020, mainly due to an increase in our mortgage-backed securities portfolio.

Average borrowed funds decreased $1.4 billion in 2021, with average short-term borrowings decreasing $1.1 billion, and average long-term borrowings decreasing $0.3 billion. The average rate paid on short-term borrowings decreased 45 bps; the rate paid on long-term debt decreased 9 bps from the prior year, primarily due to senior debt that matured during 2021. We continued to rely less on borrowed funds due to strong deposit growth during the year.

Refer to the “Interest Rate and Market Risk Management” section on page 57 for more information on how we manage interest rate risk, and the “Liquidity Risk Management” section beginning on page 62 for more information on how we manage liquidity risk.

The following schedule summarizes the average balances, the amount of interest earned or paid, and the applicable yields for interest-earning assets and the costs of interest-bearing liabilities.

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Schedule 7 - AVERAGE BALANCE SHEETS, YIELDS, AND RATES

1 Rates are calculated using amounts in thousands and tax rates of 21% for 2021, 2020, 2019 and 2018, and 35% for 2017. The taxable-equivalent rates used are the rates that were applicable at the time of each respective reporting period.

2 Interest on total securities included $118 million and $111 million of taxable-equivalent premium amortization for 2021 and 2020, respectively.

3 Net of unearned income and fees, net of related costs. Loans include nonaccrual and restructured loans.

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The following schedule presents year-to-year changes in net interest income on a fully taxable-equivalent basis for the years indicated. For purposes of calculating the yields in this schedule, the average loan balances also include the principal amounts of nonaccrual and restructured loans. Interest payments received on nonaccrual loans are not recognized into interest income, but are applied as a reduction to the principal outstanding. In addition, interest on restructured loans is generally accrued at modified rates.

In the analysis of taxable-equivalent net interest income changes due to volume and rate, changes are allocated to volume with the following exceptions: when volume and rate both increase, the variance is allocated proportionately to both volume and rate; when the rate increases and volume decreases, the variance is allocated to rate.

Schedule 8

ANALYSIS OF TAXABLE-EQUIVALENT NET INTEREST INCOME CHANGES DUE TO VOLUME AND RATE

1 Taxable-equivalent rates used where applicable.

2 Net of unearned income and fees, net of related costs. Loans include nonaccrual and restructured loans.

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Provision for Credit Losses

The allowance for credit losses (“ACL”) is the combination of both the allowance for loan and lease losses (“ALLL”) and the reserve for unfunded lending commitments (“RULC”). The ALLL represents the estimated current expected credit losses related to the loan and lease portfolio as of the balance sheet date. The RULC represents the estimated reserve for current expected credit losses associated with off-balance sheet commitments. Changes in the ALLL and RULC, net of charge-offs and recoveries, are recorded as the provision for loan and lease losses and the provision for unfunded lending commitments, respectively, in the income statement. The ACL for debt securities is estimated separately from loans.

On January 1, 2020, we adopted Accounting Standards Update (“ASU”) 2016-13, Credit Losses (Topic 326): Measurement of Credit Losses on Financial Instruments, and its subsequent updates, often referred to as the Current Expected Credit Loss (“CECL”) model. Upon adoption of this ASU, we recorded the full amount of the ACL for loans and leases of $526 million, resulting in an after-tax increase to retained earnings of $20 million. The impact of the adoption of CECL for our securities portfolio was less than $1 million. As a result of the CECL accounting standard, the ACL is subject to economic forecasts that may change materially from period to period.

The provision for credit losses, which is the combination of both the provision for loan losses and the provision for unfunded lending commitments, was a negative $276 million in 2021, compared with a positive $414 million in 2020. The ACL decreased $282 million to $553 million at December 31, 2021. The ratio of ACL to net loans and leases (ex-PPP) at December 31, 2021 and 2020 was 1.13% and 1.74%, respectively. The provision for security losses was less than $1 million during 2021 and 2020.

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The ACL was $553 million at December 31, 2021, compared with $835 million at December 31, 2020. The bar chart above shows the broad categories of change in the ACL from the prior year period. The second bar represents changes in economic forecasts and current economic conditions, which decreased the ACL by $220 million from the prior year due to improvements in both realized economic results and economic forecasts, compared with the economic stress caused by the COVID-19 pandemic in the prior year, and was partially offset by the expected impact of the resurgence of COVID-19 cases resulting from the Omicron variant.

The third bar represents changes in credit quality factors and includes risk-grade migration and specific reserves against loans, which, when combined, decreased the ACL by $25 million, indicating significant improvements in credit quality. Net loan and lease charge-offs were $6 million, or 0.01% of average loans (ex-PPP) in 2021, compared with $105 million, or 0.22% of average loans (ex-PPP) in the prior year, reflecting strong credit performance.

The fourth bar represents loan portfolio changes, driven by changes in portfolio mix, the aging of the portfolio, and other risk factors; all of which resulted in a $37 million reduction in the ACL. See Note 6 of the Notes to Consolidated Financial Statements for more information on how we determine the appropriate level of the ALLL and the RULC.

Noninterest Income

Noninterest income represents revenue we earn from products and services that generally have no associated interest rate or yield and is classified as either customer-related fees or noncustomer-related revenue. Customer-related fees exclude items such as securities gains and losses, dividends, insurance-related income, and mark-to-market adjustments on certain derivatives.

Total noninterest income increased $129 million, or 22%, in 2021. Noninterest income accounted for 24% and 21% of net revenue during 2021 and 2020, respectively. The following schedule presents a comparison of the major components of noninterest income.

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Schedule 9

NONINTEREST INCOME

1 Wealth management fees for 2020 and 2019 included certain retirement service-related fees of $3 million in both periods. Beginning in 2021, those fees, which totaled $4 million, were reported in other customer-related fees.

Customer-related Fees

Customer-related fee income growth is a result of our focus on our key corporate objectives. By providing high-quality treasury management products, wealth management advisory services, and capital market solutions, we seek to deepen existing relationships with our commercial and small business customers.

Total customer-related fees increased $26 million, or 5%, in 2021, largely driven by improved customer transaction volume and new client activity during the year, compared with the more-stressed economic activity impacted by the COVID-19 pandemic in the prior year.

Key drivers impacting customer-related fees include:

•Card fees increased $13 million, or 16%, in 2021, due to increased economic activity and transaction volume. Commercial account fees increased $9 million or 7%, for similar reasons.

•Wealth management fee income increased $6 million, or 14%, resulting from continued growth in assets and further adoption of wealth and advisory services from our customer base. Consequently, our assets under management increased $2.3 billion, or 26%, to $11.0 billion at December 31, 2021, which included meaningful increases in net new assets.

•Loan-related fees and income decreased $14 million or 13%, in 2021, primarily due to a decline in mortgage banking income, particularly lower margins on loan sales.

•Capital markets and foreign exchange income decreased $4 million, or 5%, primarily due to reduced interest rate swap sales. During the prior year, as a result of the low interest rate environment, many commercial customers purchased interest rate swaps from us to effectively fix the interest rate on their variable-rate loans. The decrease was partially offset by an increase in loan syndication fees.

Noncustomer-related Revenue

Total noncustomer-related revenue increased $103 million in 2021, primarily due to a $64 million increase in net securities gains and losses, which was largely driven by net gains related to our SBIC investment portfolio. During the fourth quarter of 2021, we recognized a $31 million realized gain resulting from the sale of one of our SBIC investments. During 2021, we also recognized a net $23 million unrealized gain related to our investment in Recursion Pharmaceuticals, Inc., which completed an initial public offering (“IPO”) in the second quarter of 2021.

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Fair value and nonhedge derivative income increased $20 million, due to recognized net gains related to credit valuation adjustments (“CVA”) on client-related interest rate swaps, compared with net CVA losses in the prior year period. The CVA may fluctuate from period to period based on the credit quality of our clients and changes in interest rates, which impact the value of, and our credit exposure to, the client-related interest rate swaps.

Dividends and other income increased $19 million, or 79%, primarily due to a $12 million gain on sale of certain bank-owned facilities during 2021. These sales related to the consolidation of a substantial portion of our technology and operations facilities in advance of occupying our new Corporate Technology Center, which is expected to be completed in mid-2022.

Noninterest Expense

The following schedule presents a comparison of the major components of noninterest expense.

Schedule 10

NONINTEREST EXPENSE

Noninterest expense increased $37 million, or 2%, in 2021, relative to the prior year, primarily due to salaries and benefits expense, which represented the largest component, or 65% and 64%, of total noninterest expense during the same time periods, respectively. The following schedule presents detail of the major segments of salaries and employee benefits expense.

Schedule 11

SALARIES AND EMPLOYEE BENEFITS

Salaries and benefits expense increased $40 million, or 4%, primarily due to inflationary and competitive labor pressures on wages and higher profit sharing expense as a result of improved profitability. We had 9,685 full-time equivalent employees at December 31, 2021, which remained relatively flat when compared with the prior year. We believe that inflation and the competitive labor market may continue to impact our salaries and benefits expense.

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Professional and legal services expense increased $16 million, or 31%, mainly due to various technology-related and other outsourced services related to our ongoing investment in our core technology systems.

Other noninterest expense decreased $24 million, or 10%, primarily due to higher expenses in the prior year, including a $30 million charitable contribution (compared with $10 million in 2021) and a $28 million pension termination-related expense in 2020. The decrease in expense was partially offset by an increase of $14 million in software licenses and maintenance and a $7 million increase in success fee accruals associated with net gains on our SBIC investments in 2021.

Adjusted noninterest expense increased $64 million, or 4%, primarily due to the increases in noninterest expense previously discussed. The efficiency ratio was 60.8%, compared with 59.4%. For information on non-GAAP financial measures, including differences between noninterest expense and adjusted noninterest expense, see page 22.

Income Taxes

The following schedule summarizes the income tax expense and effective tax rates for the periods presented.

Schedule 12

INCOME TAXES

The income tax rates for the tax years presented above were reduced by nontaxable municipal interest income and nontaxable income from certain bank-owned life insurance (“BOLI”), and were increased by the nondeductibility of FDIC premiums, certain executive compensation, and other fringe benefits. The tax rate for 2020 was also reduced as a result of the proportional increase in nontaxable items and tax credits relative to pretax book income, as compared with 2021 and 2019. Our investments in technology initiatives, low-income housing, and municipal securities during 2021, 2020, and 2019, generated tax credits and nontaxable income that benefited the tax rate for each respective year.

We had a net deferred tax asset (“DTA”) of $96 million at December 31, 2021, compared with a net deferred tax liability (“DTL”) of $3 million at December 31, 2020. The increase to a DTA from a DTL resulted primarily from an increase in unrealized losses in accumulated other comprehensive income (“AOCI”) associated with investment securities and the capitalization of expenses related to intangible assets, and was partially offset by significant negative provisions for credit losses during 2021.

We had no valuation allowance at December 31, 2021. See Note 20 of the Notes to Consolidated Financial Statements for more information about the factors that impacted our effective tax rate, significant components of our DTAs and DTLs, and our assessment of any potential additional valuation allowances.

Preferred Stock Dividends

Preferred stock dividends totaled $29 million in 2021, and $34 million in both 2020 and 2019. The decrease in preferred dividends was due to the redemption of the outstanding shares of our Series H preferred stock during the second quarter of 2021. See further details in Note 14 of the Notes to Consolidated Financial Statements.

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BUSINESS SEGMENT RESULTS

We manage our operations through seven affiliate banks located in different geographic markets, each with its own local branding and management team. These affiliate banks comprise our primary business segments and include: Zions Bank, Amegy Bank (“Amegy”), California Bank & Trust (“CB&T”), National Bank of Arizona (“NBAZ”), Nevada State Bank (“NSB”), Vectra Bank Colorado (“Vectra”), and The Commerce Bank of Washington (“TCBW”). In maintaining alignment with our key corporate objectives, we emphasize local authority, responsibility, and pricing, with customization of certain products (as applicable) to maximize customer satisfaction and strengthen community relations.

We allocate the cost of centrally provided services to the business segments based upon estimated or actual usage of those services. We also allocate capital based on the risk-weighted assets held at each business segment. We use an internal Funds Transfer Pricing (“FTP”) allocation process to report results of operations for business segments. This process is continually refined. Where applicable, prior period amounts have been revised to reflect the impact of these changes had they been instituted for the periods presented. See Note 22 of the Notes to Consolidated Financial Statements for more information on our FTP allocations, the Other segment, and more performance information including net interest income, noninterest income, and noninterest expense by segment.

The following schedule summarizes selected financial information of our business segments. Ratios are calculated based on amounts in thousands.

Schedule 13

SELECTED SEGMENT INFORMATION

Zions Bank

Zions Bank is headquartered in Salt Lake City, Utah, and conducts operations in Utah, Idaho, and Wyoming. If it were a separately chartered bank, it would be the second largest full-service commercial bank in Utah and the seventh largest in Idaho, as measured by domestic deposits in these states.

Zions Bank’s income before income taxes increased $86 million, or 29%, during 2021. The increase was primarily due to a $93 million decrease in the provision for credit losses, and a $27 million increase in noninterest income, partially offset by an $18 million increase in noninterest expense. The loan portfolio decreased $981 million during 2021, which consisted of decreases of $897 million and $108 million in commercial and CRE loans, respectively, partially offset by an increase of $24 million in consumer loans. The ratio of ACL to net loans and leases decreased to 1.08% at December 31, 2021, compared with 1.21%. Nonperforming lending-related assets decreased $8 million, or 8%, from the prior year. Deposits increased 25% in 2021.

Amegy Bank

Amegy Bank is headquartered in Houston, Texas. If it were a separately chartered bank, it would be the ninth largest full-service commercial bank in Texas as measured by domestic deposits in the state.

Amegy’s income before income taxes increased $185 million, or 104%, during 2021. The increase was primarily due to a $207 million decrease in the provision for credit losses, and an $8 million increase in noninterest income, partially offset by an $8 million increase in noninterest expense. The loan portfolio decreased $998 million during 2021, which consisted of decreases of $471 million, $427 million, and $100 million, in commercial, consumer, and CRE loans, respectively. The ratio of ACL to net loans and leases decreased to 1.05% at December 31, 2021,

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compared with 1.60%. Nonperforming lending-related assets decreased $41 million, or 31%, from the prior year. Deposits increased 18% in 2021.

California Bank & Trust

California Bank & Trust is headquartered in San Diego, California. If it were a separately chartered bank, it would be the 17th largest full-service commercial bank in California as measured by domestic deposits in the state.

CB&T’s income before income taxes increased $224 million, or 123%, during 2021. The increase was primarily due to a $198 million decrease in the provision for credit losses, and a $7 million increase in noninterest income, partially offset by a $6 million increase in noninterest expense. The loan portfolio increased $22 million during 2021, which consisted of increases of $242 million and $10 million in CRE and consumer loans, respectively, and a decrease of $230 million in commercial loans. The ratio of ACL to net loans and leases decreased to 0.70% at December 31, 2021, compared with 1.28%. Nonperforming lending-related assets decreased $15 million, or 27%, from the prior year. Deposits increased 11% in 2021.

National Bank of Arizona

National Bank of Arizona is headquartered in Phoenix, Arizona. If it were a separately chartered bank, it would be the fifth largest full-service commercial bank in Arizona as measured by domestic deposits in the state.

NBAZ’s income before income taxes increased $52 million, or 69%, during 2021. The increase was primarily due to a $62 million decrease in the provision for credit losses, and a $5 million increase in noninterest income, partially offset by an increase of $4 million in noninterest expense. The loan portfolio decreased $438 million during 2021, which consisted of decreases of $291 million, $104 million, and $43 million, in commercial, consumer, and CRE loans, respectively. The ratio of ACL to net loans and leases decreased to 0.78% at December 31, 2021, compared with 1.18%. Nonperforming lending-related assets decreased $6 million, or 35%, from the prior year. Deposits increased 26% in 2021.

Nevada State Bank

Nevada State Bank is headquartered in Las Vegas, Nevada. If it were a separately chartered bank, it would be the sixth largest full-service commercial bank in Nevada as measured by domestic deposits in the state.

NSB’s income before income taxes increased $79 million, or 718%, during 2021. The increase was primarily due to a $72 million decrease in the provision for credit losses, and an increase of $7 million in noninterest income, partially offset by an increase of $1 million in noninterest expense. The loan portfolio decreased $415 million during 2021, which consisted of decreases of $394 million and $59 million in commercial and consumer loans, respectively, partially offset by an increase of $38 million in CRE loans. The ratio of ACL to net loans and leases decreased to 0.86% at December 31, 2021, compared with 1.90%. Nonperforming lending-related assets decreased $16 million, or 40%, from the prior year. Deposits increased 27% in 2021.

On February 11, 2022, NSB announced that it has entered into an agreement to purchase three Northern Nevada branches and their associated deposit, credit card, and loan accounts. In addition to the three branches, the purchase includes approximately $480 million in deposits and $110 million in commercial and consumer loans. The transaction is expected to be completed by the third quarter of 2022, subject to customary closing conditions and regulatory approval.

Vectra Bank Colorado

Vectra Bank Colorado is headquartered in Denver, Colorado. If it were a separately chartered bank, it would be the tenth largest full-service commercial bank in Colorado as measured by domestic deposits in the state.

Vectra’s income before income taxes increased $43 million, or 179%, during 2021. The increase was primarily due to a $46 million decrease in the provision for credit losses, and an increase of $1 million in noninterest income, partially offset by a $5 million increase in noninterest expense. The loan portfolio decreased $15 million during 2021, which consisted of decreases of $42 million and $18 million in consumer and CRE loans, respectively,

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partially offset by an increase of $45 million in commercial loans. The ratio of ACL to net loans and leases decreased to 1.08% at December 31, 2021, compared with 1.38%. Nonperforming lending-related assets decreased $1 million, or 5%, from the prior year. Deposits increased 10% in 2021.

The Commerce Bank of Washington

The Commerce Bank of Washington is headquartered in Seattle, Washington, and operates in Washington under The Commerce Bank of Washington name and in Portland, Oregon, under The Commerce Bank of Oregon name. Its business strategy focuses primarily on serving the financial needs of commercial businesses, including professional services firms. If it were a separately chartered bank, it would be the 24th largest full-service commercial bank in Washington and the 35th largest in Oregon, as measured by domestic deposits in these states.

TCBW’s income before income taxes increased $14 million, or 50%, during 2021. The increase was primarily due to a $10 million decrease in the provision for credit losses. The loan portfolio increased $71 million during 2021, which consisted of increases of $84 million and $12 million in CRE and commercial loans, respectively, partially offset by a decrease of $25 million in consumer loans. The ratio of ACL to net loans and leases decreased to 0.51% at December 31, 2021, compared with 0.75%. Nonperforming lending-related assets decreased $7 million, or 88%, from the prior year. Deposits increased 20% in 2021.

BALANCE SHEET ANALYSIS

Interest-earning Assets

Interest-earning assets are assets that have associated interest rates or yields, and generally consist of money market investments, securities, loans, and leases. We strive to maintain a high level of interest-earning assets relative to total assets. For more information regarding the average balances, associated revenue generated, and the respective yields of our interest-earning assets, see Schedule 7 on page 32.

AVERAGE OUTSTANDING LOANS AND DEPOSITS

(at December 31)

Investment Securities Portfolio

We invest in securities to generate interest income and to actively manage liquidity, interest rate, and credit risk. Refer to the “Liquidity Risk Management” section on page 62 for additional information about how we manage our liquidity risk. The following schedule presents the components of our investment securities portfolio. See Note 3

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and Note 5 of the Notes to Consolidated Financial Statements for more information on fair value measurements and the accounting for our investment securities portfolio.

Schedule 14

INVESTMENT SECURITIES PORTFOLIO

The amortized cost of investment securities increased 54% from the prior year, and approximately 11% of the total investment securities are floating rate at December 31, 2021, compared with 23% at December 31, 2020.

The investment securities portfolio includes $443 million of net premium that is distributed across various asset classes. Total premium amortization for our investment securities was $110 million in 2021, compared with $105 million in 2020.

At December 31, 2021, based on the GAAP fair value hierarchy, 0.6% and 99.4% of the AFS securities portfolio was valued at Level 1 and Level 2, respectively, compared with 1.2% and 98.8% at December 31, 2020. None of the AFS securities portfolio was valued at Level 3 for either period. See Note 3 of the Notes to Consolidated Financial Statements for further discussion of fair value accounting.

Exposure to Municipalities

We provide products and services to state and local governments (referred to collectively as “municipalities”), including deposit services, loans, and investment banking services. We also invest in securities issued by municipalities. Schedule 15 summarizes our exposure to state and local municipalities:

Schedule 15

MUNICIPALITIES

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The municipal loan and lease portfolio is primarily secured by general obligations of municipal entities. Other types of collateral also include real estate, revenue pledges, or equipment. Our municipal loans and securities primarily relate to municipalities located within our geographic footprint. At December 31, 2021, no municipal loans were on nonaccrual. Municipal securities are internally graded, similar to loans, using risk-grading systems which vary based on the size and type of credit risk exposure. The internal risk grades assigned to our municipal securities follow our definitions of Pass, Special Mention, and Substandard, which are consistent with published definitions of regulatory risk classifications. At December 31, 2021, all municipal securities were graded as Pass. See Notes 5 and 6 of the Notes to Consolidated Financial Statements for additional information about the credit quality of these municipal loans and securities.

Loan and Lease Portfolio

At December 31, 2021 and 2020, the ratio of loans and leases to total assets was 55% and 66%, respectively. The largest loan category was commercial and industrial loans, which constituted 27% and 25% of our total loan portfolio for the same time periods.

Schedule 16 presents our outstanding loan portfolio by type and contractual maturity. This schedule also reflects the repricing characteristics of these loans. In a small number of cases, we have hedged the repricing characteristics of our variable-rate loans as more fully described in “Interest Rate Risk” on page 60.

Schedule 16

LOAN AND LEASE PORTFOLIO BY TYPE AND MATURITY