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Rating Action:

Moody's upgrades Zions' deposit rating to A2/Prime-1; stable outlook

28 May 2019

Zions' issuer rating also upgraded to Baa2

New York, May 28, 2019 -- Moody's Investors Service ("Moody's") has upgraded the ratings and assessments of Zions Bancorporation, National Association ("Zions"). Zions' long- and short-term deposit ratings were upgraded to A2/Prime-1 from A3/Prime-2, while its issuer rating was upgraded to Baa2 from Baa3. This follows the upgrade of its baseline credit assessment (BCA) to baa1 from baa2. Its long-term counterparty risk assessment and counterparty risk rating were upgraded to A3(cr) and Baa1 from Baa1(cr) and Baa2, respectively. The bank's short-term counterparty risk assessment of Prime-2(cr) and its short-term counterparty risk rating of Prime-2 were affirmed.

The rating upgrades reflect Moody's view of the bank's stronger credit profile and expectation of better sustainability of Zions' financial performance through the economic cycle, resulting from its strengthened risk management capabilities. Following this action, the outlook is stable.

Upgrades:

..Issuer: Zions Bancorporation

....Pref. Stock Non-cumulative, Upgraded to Ba1 (hyb) from Ba2 (hyb)

..Issuer: Zions Bancorporation, National Association

.... Adjusted Baseline Credit Assessment, Upgraded to baa1 from baa2

.... Baseline Credit Assessment, Upgraded to baa1 from baa2

.... LT Counterparty Risk Assessment, Upgraded to A3(cr) from Baa1(cr)

.... LT Counterparty Risk Rating, Upgraded to Baa1 from Baa2

.... LT Issuer Rating, Upgraded to Baa2, Stable, from Baa3, Positive

.... ST Deposit Rating, Upgraded to P-1 from P-2

.... LT Deposit Rating, Upgraded to A2, Stable, from A3, Positive

Affirmations:

..Issuer: Zions Bancorporation, National Association

.... ST Counterparty Risk Assessment, Affirmed P-2(cr)

.... ST Counterparty Risk Rating, Affirmed P-2

Outlook Actions:

..Issuer: Zions Bancorporation, National Association

....Outlook, Changed To Stable From Positive

RATING RATIONALE

The upgrade of Zions' BCA and its ratings is based on the strength of Zions' balance sheet and recurring profitability, and Moody's expectation of better sustainability of its financial performance through the economic cycle relative to Zions' historical track record. The rating agency expects Zions' enhancements to managing its asset concentrations and its post-crisis risk limits to reduce earnings volatility over the long-term. For the last several years, Zions has kept its commercial real estate (CRE) loan portfolio equal to just less than twice its Moody's tangible common equity (TCE) and the construction component, which was a source of outsized losses, equals only 50% of TCE or 7% of loans at year-end 2018. At its peak, Zions' commercial real estate equaled more than six time its TCE, with more than half in construction. Additionally, Zions has shown conservativism in its average loan growth, which was about 5% over the last year.

Zions reported problem loans of 0.7% of loans and no net charge-offs in the first quarter of 2019 and has maintained strong asset quality performance, following a modest worsening of some metrics in 2016 because of its energy exposure. Even with this, its aggregate net charge offs were a low 0.31% in 2016, with energy losses offset by the strength of the remainder of the portfolio. Net charge-offs were 0.17% in 2017 and -0.04% in 2018 as some of these energy losses were recovered.

Moody's views Zions' solid pre-provision earnings as sustainable over the next 12 to 18 months, though it expects some modest pressure on net interest income and net interest margin (NIM) from a likely absence of future interest rate increases. Zions had an above-average NIM of 3.68% in Q1 2019 relative to large regional bank peers. Its NIM benefits from a granular and low cost deposit base. Its cumulative total deposit beta since the first rate increase in late 2015 was 15%, and its average cost of total deposits was 0.43% in the first quarter, both strong metrics relative to large peers. A key support is its noninterest bearing deposits, which accounted for 43% of its total average deposits as of 31 March 2019. Zions also continues to demonstrate expense discipline, despite ongoing expenses for digital and technology investments.

Moody's noted that Zions has an above average capital position relative to peers with a common equity tier 1 (CET1) ratio of 11.3% as of 31 March 2019. However, it also had a high payout of approximately 160% of earnings in the first quarter and is likely to continue at such levels leading to lower capitalization over the next 12 to 18 months. Moody's has incorporated this expectation in its ratings upgrade and the stable outlook.

WHAT COULD MOVE THE RATINGS UP/DOWN

An upgrade of the BCA and ratings could occur if Zions achieves better asset risk, capitalization, and profitability relative to higher-rated peers over the long-term.

A downgrade of the BCA is possible if there is a rebuilding of asset concentrations, a significant decline in capital, or if asset quality improvements reverse. Weakening of Zions' strong funding and liquidity would also be negative for the BCA and the ratings.

The principal methodology used in these ratings was Banks published in August 2018. Please see the Rating Methodologies page on www.moodys.com for a copy of this methodology.

REGULATORY DISCLOSURES

For ratings issued on a program, series or category/class of debt, this announcement provides certain regulatory disclosures in relation to each rating of a subsequently issued bond or note of the same series or category/class of debt or pursuant to a program for which the ratings are derived exclusively from existing ratings in accordance with Moody's rating practices. For ratings issued on a support provider, this announcement provides certain regulatory disclosures in relation to the credit rating action on the support provider and in relation to each particular credit rating action for securities that derive their credit ratings from the support provider's credit rating. For provisional ratings, this announcement provides certain regulatory disclosures in relation to the provisional rating assigned, and in relation to a definitive rating that may be assigned subsequent to the final issuance of the debt, in each case where the transaction structure and terms have not changed prior to the assignment of the definitive rating in a manner that would have affected the rating. For further information please see the ratings tab on the issuer/entity page for the respective issuer on www.moodys.com.

For any affected securities or rated entities receiving direct credit support from the primary entity(ies) of this credit rating action, and whose ratings may change as a result of this credit rating action, the associated regulatory disclosures will be those of the guarantor entity. Exceptions to this approach exist for the following disclosures, if applicable to jurisdiction: Ancillary Services, Disclosure to rated entity, Disclosure from rated entity.

Regulatory disclosures contained in this press release apply to the credit rating and, if applicable, the related rating outlook or rating review.

Please see www.moodys.com for any updates on changes to the lead rating analyst and to the Moody's legal entity that has issued the rating.

Please see the ratings tab on the issuer/entity page on www.moodys.com for additional regulatory disclosures for each credit rating.

Rita Sahu, CFA
VP - Senior Credit Officer
Financial Institutions Group
Moody's Investors Service, Inc.
250 Greenwich Street
New York, NY 10007
U.S.A.
JOURNALISTS: 1 212 553 0376
Client Service: 1 212 553 1653

M. Celina Vansetti-Hutchins
MD - Banking
Financial Institutions Group
JOURNALISTS: 1 212 553 0376
Client Service: 1 212 553 1653

Releasing Office:
Moody's Investors Service, Inc.
250 Greenwich Street
New York, NY 10007
U.S.A.
JOURNALISTS: 1 212 553 0376
Client Service: 1 212 553 1653

No Related Data.
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