10-Q 1 zion-20150331x10q.htm 10-Q ZION-2015.03.31-10Q
    

UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
FORM 10-Q
ý
QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934
For the quarterly period ended March 31, 2015
or
¨
TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934
For the transition period from         to                         
COMMISSION FILE NUMBER 001-12307
ZIONS BANCORPORATION
(Exact name of registrant as specified in its charter)
UTAH
87-0227400
(State or other jurisdiction of
incorporation or organization)
(I.R.S. Employer
Identification No.)
 
 
One South Main, 15th Floor
Salt Lake City, Utah
84133
(Address of principal executive offices)
(Zip Code)
Registrant’s telephone number, including area code: (801) 844-7637
Indicate by check mark whether the registrant (1) has filed all reports required to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during the preceding 12 months (or for such shorter period that the registrant was required to file such reports), and (2) has been subject to such filing requirements for the past 90 days.    Yes  ý    No  ¨
Indicate by check mark whether the registrant has submitted electronically and posted on its corporate Web site, if any, every Interactive Data File required to be submitted and posted pursuant to Rule 405 of Regulation S-T (§232.405 of this chapter) during the preceding 12 months (or for such shorter period that the registrant was required to submit and post such files).    Yes  ý    No  ¨
Indicate by check mark whether the registrant is a large accelerated filer, an accelerated filer, a non-accelerated filer, or a smaller reporting company. See the definitions of “large accelerated filer,” “accelerated filer” and “smaller reporting company” in Rule 12b-2 of the Exchange Act.
Large accelerated filer
ý
Accelerated filer
¨
 
 
 
 
Non-accelerated filer
¨
Smaller reporting company
¨
Indicate by check mark whether the registrant is a shell company (as defined in Rule 12b-2 of the Exchange Act).    Yes  ¨    No  ý
Indicate the number of shares outstanding of each of the issuer’s classes of common stock, as of the latest practicable date.
Common Stock, without par value, outstanding at April 30, 2015
203,209,100 shares



ZIONS BANCORPORATION AND SUBSIDIARIES
INDEX



2


PART I. FINANCIAL INFORMATION
ITEM 1.
FINANCIAL STATEMENTS (Unaudited)
ZIONS BANCORPORATION AND SUBSIDIARIES
CONSOLIDATED BALANCE SHEETS
(In thousands, except shares)

March 31,
2015
 
December 31,
2014
(Unaudited)
 
 
ASSETS
 
 
 
Cash and due from banks
$
720,858

 
$
841,942

Money market investments:
 
 
 
Interest-bearing deposits
6,791,762

 
7,178,097

Federal funds sold and security resell agreements
1,519,352

 
1,386,291

Investment securities:
 
 
 
Held-to-maturity, at amortized cost (approximate fair value $602,355 and $677,196)
590,950

 
647,252

Available-for-sale, at fair value
4,450,502

 
3,844,248

Trading account, at fair value
71,392

 
70,601

 
5,112,844

 
4,562,101

 
 
 
 
Loans held for sale
128,946

 
132,504

 
 
 
 
Loans and leases, net of unearned income and fees
40,180,114

 
40,063,658

Less allowance for loan losses
620,013

 
604,663

Loans, net of allowance
39,560,101

 
39,458,995

 
 
 
 
Other noninterest-bearing investments
870,125

 
865,950

Premises and equipment, net
844,900

 
829,809

Goodwill
1,014,129

 
1,014,129

Core deposit and other intangibles
23,162

 
25,520

Other real estate owned
17,256

 
18,916

Other assets
952,496

 
894,620

 
$
57,555,931

 
$
57,208,874

 
 
 
 
LIABILITIES AND SHAREHOLDERS’ EQUITY
 
 
 
Deposits:
 
 
 
Noninterest-bearing demand
$
20,854,630

 
$
20,529,124

Interest-bearing:
 
 
 
Savings and money market
24,540,927

 
24,583,636

Time
2,344,818

 
2,406,924

Foreign
382,985

 
328,391

 
48,123,360

 
47,848,075

 
 
 
 
Federal funds and other short-term borrowings
203,597

 
244,223

Long-term debt
1,089,321

 
1,092,282

Reserve for unfunded lending commitments
82,287

 
81,076

Other liabilities
603,068

 
573,688

Total liabilities
50,101,633

 
49,839,344

 
 
 
 
Shareholders’ equity:
 
 
 
Preferred stock, without par value, authorized 4,400,000 shares
1,004,032

 
1,004,011

Common stock, without par value; authorized 350,000,000 shares; issued
and outstanding 203,192,991 and 203,014,903 shares
4,728,556

 
4,723,855

Retained earnings
1,836,619

 
1,769,705

Accumulated other comprehensive income (loss)
(114,909
)
 
(128,041
)
Total shareholders’ equity
7,454,298

 
7,369,530

 
$
57,555,931

 
$
57,208,874

See accompanying notes to consolidated financial statements.

3


ZIONS BANCORPORATION AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF INCOME
(Unaudited)
(In thousands, except per share amounts)
Three Months Ended
March 31,
2015
 
2014
Interest income:
 
 
 
Interest and fees on loans
$
415,755

 
$
434,350

Interest on money market investments
5,218

 
5,130

Interest on securities
27,473

 
28,094

Total interest income
448,446

 
467,574

Interest expense:
 
 
 
Interest on deposits
12,104

 
12,779

Interest on short- and long-term borrowings
18,996

 
38,324

Total interest expense
31,100

 
51,103

Net interest income
417,346

 
416,471

Provision for loan losses
(1,494
)
 
(610
)
Net interest income after provision for loan losses
418,840

 
417,081

 
 
 
 
Noninterest income:
 
 
 
Service charges and fees on deposit accounts
41,194

 
41,199

Other service charges, commissions and fees
47,486

 
44,250

Wealth management income
7,615

 
7,077

Loan sales and servicing income
7,706

 
7,096

Capital markets and foreign exchange
5,501

 
5,043

Dividends and other investment income
9,372

 
7,864

Fair value and nonhedge derivative loss
(1,088
)
 
(8,539
)
Equity securities gains, net
3,353

 
912

Fixed income securities gains (losses), net
(239
)
 
30,914

Impairment losses on investment securities

 
(27
)
Less amounts recognized in other comprehensive income

 

Net impairment losses on investment securities

 
(27
)
Other
922

 
2,524

Total noninterest income
121,822

 
138,313

 
 
 
 
Noninterest expense:
 
 
 
Salaries and employee benefits
243,519

 
233,402

Occupancy, net
29,339

 
28,305

Furniture, equipment and software
29,713

 
27,944

Other real estate expense
374

 
1,607

Credit-related expense
5,939

 
6,947

Provision for unfunded lending commitments
1,211

 
(1,012
)
Professional and legal services
11,483

 
10,995

Advertising
6,975

 
6,398

FDIC premiums
8,119

 
7,922

Amortization of core deposit and other intangibles
2,358

 
2,882

Other
58,431

 
72,673

Total noninterest expense
397,461

 
398,063

Income before income taxes
143,201

 
157,331

Income taxes
51,176

 
56,121

Net income
92,025

 
101,210

Dividends on preferred stock
(16,746
)
 
(25,020
)
Net earnings applicable to common shareholders
$
75,279

 
$
76,190

 
 
 
 
Weighted average common shares outstanding during the period:
 
 
 
Basic shares
202,603

 
184,440

Diluted shares
202,944

 
185,123

Net earnings per common share:
 
 
 
Basic
$
0.37

 
$
0.41

Diluted
0.37

 
0.41

See accompanying notes to consolidated financial statements.

4


ZIONS BANCORPORATION AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF COMPREHENSIVE INCOME
(Unaudited)

 
 
Three Months Ended
March 31,
(In thousands)
 
2015
 
2014
 
 
 
 
 
Net income for the period
 
$
92,025

 
$
101,210

Other comprehensive income, net of tax:
 
 
 
 
Net unrealized holding gains on investment securities
 
486

 
73,907

Reclassification of HTM securities to AFS securities
 
10,938

 

Reclassification to earnings for realized net fixed income securities losses (gains)
 
148

 
(24,840
)
Reclassification to earnings for net credit-related impairment losses on investment securities
 

 
17

Accretion of securities with noncredit-related impairment losses not expected to be sold
 

 
286

Net unrealized losses on other noninterest-bearing investments
 
(364
)
 
(2,841
)
Net unrealized holding gains on derivative instruments
 
2,553

 
320

Reclassification adjustment for increase in interest income recognized in earnings on derivative instruments
 
(629
)
 
(210
)
Other comprehensive income
 
13,132

 
46,639

Comprehensive income
 
$
105,157

 
$
147,849

See accompanying notes to consolidated financial statements.

5


ZIONS BANCORPORATION AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF CHANGES IN SHAREHOLDERS’ EQUITY
(Unaudited)
(In thousands, except shares
and per share amounts)
Preferred
stock
 
Common stock
 
Retained earnings
 
Accumulated other
comprehensive income (loss)
 
Total
shareholders’ equity
Shares
 
Amount
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
Balance at December 31, 2014
$
1,004,011

 
203,014,903

 
$
4,723,855

 
$
1,769,705

 
 
$
(128,041
)
 
 
$
7,369,530

Net income for the period
 
 
 
 
 
 
92,025

 
 
 
 
 
92,025

Other comprehensive income, net of tax
 
 
 
 
 
 
 
 
 
13,132

 
 
13,132

Subordinated debt converted to preferred stock
21

 
 
 
(6
)
 
 
 
 
 
 
 
15

Net activity under employee plans and related tax benefits
 
 
178,088

 
4,707

 
 
 
 
 
 
 
4,707

Dividends on preferred stock


 
 
 
 
 
(16,746
)
 
 
 
 
 
(16,746
)
Dividends on common stock, $0.04 per share
 
 
 
 
 
 
(8,176
)
 
 
 
 
 
(8,176
)
Change in deferred compensation
 
 
 
 
 
 
(189
)
 
 
 
 
 
(189
)
Balance at March 31, 2015
$
1,004,032

 
203,192,991

 
$
4,728,556

 
$
1,836,619

 
 
$
(114,909
)
 
 
$
7,454,298

 
 
 
 
 
 
 
 
 
 
 
 
 
 
Balance at December 31, 2013
$
1,003,970

 
184,677,696

 
$
4,179,024

 
$
1,473,670

 
 
$
(192,101
)
 
 
$
6,464,563

Net income for the period
 
 
 
 
 
 
101,210

 
 
 
 
 
101,210

Other comprehensive income, net of tax
 
 
 
 
 
 
 
 
 
46,639

 
 
46,639

Net activity under employee plans and related tax benefits
 
 
217,486

 
6,489

 
 
 
 
 
 
 
6,489

Dividends on preferred stock


 
 
 
 
 
(25,020
)
 
 
 
 
 
(25,020
)
Dividends on common stock, $0.04 per share
 
 
 
 
 
 
(7,436
)
 
 
 
 
 
(7,436
)
Change in deferred compensation
 
 
 
 
 
 
(229
)
 
 
 
 
 
(229
)
Balance at March 31, 2014
$
1,003,970

 
184,895,182

 
$
4,185,513

 
$
1,542,195

 
 
$
(145,462
)
 
 
$
6,586,216

See accompanying notes to consolidated financial statements.

6


ZIONS BANCORPORATION AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF CASH FLOWS
(Unaudited)
(In thousands)

Three Months Ended
March 31,
2015
 
2014
CASH FLOWS FROM OPERATING ACTIVITIES
 
 
 
Net income for the period
$
92,025

 
$
101,210

Adjustments to reconcile net income to net cash provided by
operating activities:
 
 
 
Net impairment losses on investment securities

 
27

Provision for credit losses
(283
)
 
(1,622
)
Depreciation and amortization
34,169

 
32,404

Fixed income securities losses (gains), net
239

 
(30,914
)
Deferred income tax expense
3,402

 
78,278

Net increase in trading securities
(1,021
)
 
(21,862
)
Net decrease in loans held for sale
3,517

 
44,984

Change in other liabilities
25,566

 
(77,796
)
Change in other assets
(65,248
)
 
3,226

Other, net
(3,549
)
 
2,336

Net cash provided by operating activities
88,817

 
130,271

 
 
 
 
CASH FLOWS FROM INVESTING ACTIVITIES
 
 
 
Net decrease (increase) in money market investments
253,274

 
(80,851
)
Proceeds from maturities and paydowns of investment securities
held-to-maturity
39,323

 
18,935

Purchases of investment securities held-to-maturity
(22,576
)
 
(35,750
)
Proceeds from sales, maturities, and paydowns of investment securities available-for-sale
228,894

 
847,288

Purchases of investment securities available-for-sale
(784,856
)
 
(452,123
)
Net change in loans and leases
(100,442
)
 
(166,415
)
Net purchases of premises and equipment
(33,533
)
 
(76,916
)
Proceeds from sales of other real estate owned
3,401

 
11,825

Other, net
3,351

 
5,617

Net cash provided by (used in) investing activities
(413,164
)
 
71,610

 
 
 
 
CASH FLOWS FROM FINANCING ACTIVITIES
 
 
 
Net increase in deposits
275,285

 
170,422

Net change in short-term funds borrowed
(40,626
)
 
(60,511
)
Repayments of long-term debt
(8,185
)
 
(124,755
)
Proceeds from the issuance of common stock
962

 
2,880

Dividends paid on common and preferred stock
(23,234
)
 
(23,741
)
Other, net
(939
)
 
(303
)
Net cash provided by (used in) financing activities
203,263

 
(36,008
)
Net increase (decrease) in cash and due from banks
(121,084
)
 
165,873

Cash and due from banks at beginning of period
841,942

 
1,173,057

Cash and due from banks at end of period
$
720,858

 
$
1,338,930

 
 
 
 
Cash paid for interest
$
22,119

 
$
40,849

Net refunds received for income taxes
(500
)
 
(81
)
See accompanying notes to consolidated financial statements.

7


ZIONS BANCORPORATION AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(Unaudited)
March 31, 2015

1.
BASIS OF PRESENTATION
The accompanying unaudited consolidated financial statements of Zions Bancorporation (“the Parent”) and its majority-owned subsidiaries (collectively “the Company,” “Zions,” “we,” “our,” “us”) have been prepared in accordance with U.S. generally accepted accounting principles (“GAAP”) for interim financial information and with the instructions to Form 10-Q and Article 10 of Regulation S-X. Accordingly, they do not include all of the information and footnotes required by GAAP for complete financial statements. In the opinion of management, all adjustments (consisting of normal recurring accruals) considered necessary for a fair presentation have been included. References to GAAP, including standards promulgated by the Financial Accounting Standards Board (“FASB”) are made according to sections of the Accounting Standards Codification (“ASC”) and to Accounting Standards Updates (“ASU”), which include consensus issues of the Emerging Issues Task Force (“EITF”). In certain cases, ASUs are issued jointly with International Financial Reporting Standards (“IFRS”). Certain prior period amounts have been reclassified to conform with the current period presentation. These reclassifications did not affect net income.
Operating results for the three months ended March 31, 2015 and 2014 are not necessarily indicative of the results that may be expected in future periods. The consolidated balance sheet at December 31, 2014 is from the audited financial statements at that date, but does not include all of the information and footnotes required by GAAP for complete financial statements. For further information, refer to the consolidated financial statements and footnotes thereto included in the Company’s 2014 Annual Report on Form 10-K.
The Company provides a full range of banking and related services through subsidiary banks in 11 Western and Southwestern states as follows: Zions First National Bank (“Zions Bank”), in Utah, Idaho and Wyoming; California Bank & Trust (“CB&T”); Amegy Corporation (“Amegy”) and its subsidiary, Amegy Bank, in Texas; National Bank of Arizona (“NBAZ”); Nevada State Bank (“NSB”); Vectra Bank Colorado (“Vectra”), in Colorado and New Mexico; The Commerce Bank of Washington (“TCBW”); and The Commerce Bank of Oregon (“TCBO”). Effective April 1, 2015, TCBO was merged into TCBW. The Parent and its subsidiary banks also own and operate certain nonbank subsidiaries that engage in financial services.

2.
RECENT ACCOUNTING PRONOUNCEMENTS
Standard
 
Description
 
Date of adoption
 
Effect on the financial statements or other significant matters
 
 
 
 
 
 
 
Standards not yet adopted by the Company
 
 
 
 
 
 
 
ASU 2015-05, Customer’s Accounting for Fees Paid in a Cloud Computing Arrangement (Subtopic 350-40)
 
The standard provides guidance to determine whether an arrangement includes a software license. If it does, the customer accounts for it the same way as for other software licenses. If no software license is included, the customer accounts for it as a service contract. Adoption may be retrospective or prospective. Early adoption is permitted.
 
January 1, 2016
 
We are currently evaluating the impact this new guidance may have on the Company’s financial statements.
 
 
 
 
 
 
 
ASU 2015-03, Simplifying the Presentation of Debt Issuance Costs (Subtopic 835-30)
 
The standard requires that debt issuance costs be presented in the balance sheet as a direct deduction from the carrying amount of the associated debt liability, consistent with debt discounts. Adoption is retrospective and early adoption is permitted.
 
January 1, 2016
 
We currently include debt issuance costs in other assets. The amount to be reclassified to the debt liability is not material to the Company’s financial statements.

8


ZIONS BANCORPORATION AND SUBSIDIARIES

Standard
 
Description
 
Date of adoption
 
Effect on the financial statements or other significant matters
 
 
 
 
 
 
 
Standards not yet adopted by the Company (continued)
 
 
 
 
 
 
 
ASU 2015-02, Amendments to the Consolidation Analysis (Topic 810)
 
The new standard changes certain criteria in the variable interest model and the voting model to determine whether certain legal entities are variable interest entities (“VIEs”) and whether they should be consolidated. Additional disclosures are required regarding entities not currently considered VIEs, but may become VIEs under the new guidance and may be subject to consolidation. Adoption may be retrospective or modified retrospective with a cumulative effect adjustment. Early adoption is permitted.
 
January 1, 2016
 
We currently do not consolidate any VIEs and do not expect this new guidance will have a material impact on the Company’s financial statements.
 
 
 
 
 
 
 
ASU 2014-09, Revenue from Contracts with Customers (Topic 606)
 
The core principle is that a company will recognize revenue when it transfers promised goods or services to customers in an amount that reflects the consideration to which the company expects to be entitled in exchange for those goods or services. The banking industry does not expect significant changes because major sources of revenue are from financial instruments that have been excluded from the scope of the new standard, (including loans, derivatives, debt and equity securities, etc.). However, the new standard affects other fees charged by banks, such as asset management fees, credit card interchange fees, deposit account fees, etc. Adoption may be made on a full retrospective basis with practical expedients, or on a modified retrospective basis with a cumulative effect adjustment. Early adoption is not permitted.
 
January 1, 2017 (FASB voted on April 1, 2015 to propose to defer effective date by one year from the above date).
 
While we currently do not expect this standard will have a significant impact on the Company’s financial statements, we are still in process of conducting our evaluation.
 
 
 
 
 
 
 
Standards adopted by the Company
 
 
 
 
 
 
 
ASU 2014-14, Classification of Certain Government-Guaranteed Mortgage Loans upon Foreclosure (Subtopic 310-40)
 
The standard addresses the classification of certain foreclosed mortgage loans fully or partially guaranteed under government programs. Under certain such programs, qualifying creditors can extend mortgage loans with a guarantee entitling the creditor to recover all or a portion of the unpaid principal balance from the government if the borrower defaults. A separate other receivable is established that is measured based on the amount of the loans expected to be recovered.
 
January 1, 2015
 
Our adoption of this standard had no impact on the accompanying financial statements.
 
 
 
 
 
 
 
ASU 2014-04, Reclassification of Residential Real Estate Collateralized
Consumer Mortgage Loans upon Foreclosure (Subtopic 310-40)
 
The standard clarifies that a creditor should be considered to have physical possession of a residential real estate property collateralizing a residential mortgage loan and thus would reclassify the loan to other real estate owned when certain conditions are satisfied. Additional financial statement disclosures will be required.
 
January 1, 2015
 
Our adoption of this standard added a nominal amount of additional disclosure to Note 6.
 
 
 
 
 
 
 
ASU 2014-01, Accounting for Investments in Qualified Affordable Housing
Projects (Topic 323)
 
The standard revised conditions an entity must meet to elect the effective yield method when accounting for qualified affordable housing project investments. The EITF final consensus changed the method of amortizing a Low-Income Housing Tax Credit (“LIHTC”) investment from the effective yield method to a proportional amorti-zation method. Amortization would be proportional to the tax credits and tax benefits received but, under a practical expedient available in certain circumstances, amortization could be proportional to only the tax credits. Reporting entities that invest in LIHTC investments through a limited liability entity could elect the proportional amortization method if certain conditions are met.
 
January 1, 2015
 
Our adoption of this standard did not have a significant effect on the accompanying financial statements.


9


ZIONS BANCORPORATION AND SUBSIDIARIES

3.
SUPPLEMENTAL CASH FLOW INFORMATION
Noncash activities are summarized as follows:
(In thousands)
Three Months Ended
March 31,
2015
 
2014
 
 
 
 
Loans and leases transferred to other real estate owned
$
3,568

 
$
6,338

Loans held for sale reclassified as loans and leases
13,138

 
3,789

Amortized cost of HTM securities reclassified as AFS securities
79,276

 


4.
OFFSETTING ASSETS AND LIABILITIES
Gross and net information for selected financial instruments in the balance sheet is as follows:
 
 
March 31, 2015
(In thousands)
 
 
 
 
 
 
 
Gross amounts not offset in the balance sheet
 
 
Description
 
Gross amounts recognized
 
Gross amounts offset in the balance sheet
 
Net amounts presented in the balance sheet
 
Financial instruments
 
Cash collateral received/pledged
 
Net amount
 
 
 
 
 
 
 
 
 
 
 
 
 
Assets:
 
 
 
 
 
 
 
 
 
 
 
 
Federal funds sold and security resell agreements
 
$
1,519,352

 
$

 
$
1,519,352

 
$

 
$

 
$
1,519,352

Derivatives (included in other assets)
 
83,978

 

 
83,978

 
(5,121
)
 

 
78,857

 
 
$
1,603,330

 
$

 
$
1,603,330

 
$
(5,121
)
 
$

 
$
1,598,209

Liabilities:
 
 
 
 
 
 
 
 
 
 
 
 
Federal funds and other short-term borrowings
 
$
203,597

 
$

 
$
203,597

 
$

 
$

 
$
203,597

Derivatives (included in other liabilities)
 
81,123

 

 
81,123

 
(5,121
)
 
(38,833
)
 
37,169

 
 
$
284,720

 
$

 
$
284,720

 
$
(5,121
)
 
$
(38,833
)
 
$
240,766

 
 
December 31, 2014
(In thousands)
 
 
 
 
 
 
 
Gross amounts not offset in the balance sheet
 
 
Description
 
Gross amounts recognized
 
Gross amounts offset in the balance sheet
 
Net amounts presented in the balance sheet
 
Financial instruments
 
Cash collateral received/pledged
 
Net amount
 
 
 
 
 
 
 
 
 
 
 
 
 
Assets:
 
 
 
 
 
 
 
 
 
 
 
 
Federal funds sold and security resell agreements
 
$
1,386,291

 
$

 
$
1,386,291

 
$

 
$

 
$
1,386,291

Derivatives (included in other assets)
 
66,420

 

 
66,420

 
(3,755
)
 

 
62,665

 
 
$
1,452,711

 
$

 
$
1,452,711

 
$
(3,755
)
 
$

 
$
1,448,956

Liabilities:
 
 
 
 
 
 
 
 
 
 
 
 
Federal funds and other short-term borrowings
 
$
244,223

 
$

 
$
244,223

 
$

 
$

 
$
244,223

Derivatives (included in other liabilities)
 
66,064

 

 
66,064

 
(3,755
)
 
(31,968
)
 
30,341

 
 
$
310,287

 
$

 
$
310,287

 
$
(3,755
)
 
$
(31,968
)
 
$
274,564

Security resell and repurchase agreements are offset, when applicable, in the balance sheet according to master netting agreements. Security repurchase agreements are included with “Federal funds and other short-term borrowings.” Derivative instruments may be offset under their master netting agreements; however, for accounting purposes, we present these items on a gross basis in the Company’s balance sheet. See Note 7 for further information regarding derivative instruments.


10


ZIONS BANCORPORATION AND SUBSIDIARIES

5.
INVESTMENTS 
Investment Securities
Investment securities are summarized below. Note 10 discusses the process to estimate fair value for investment securities.
 
March 31, 2015
(In thousands)

Amortized
cost
 
Gross
unrealized
gains
 
Gross
unrealized
losses
 
Estimated fair
value
Held-to-maturity
 
 
 
 
 
 
 
Municipal securities
$
590,950

 
$
12,208

 
$
803

 
$
602,355

 
 
 
 
 
 
 
 
Available-for-sale
 
 
 
 
 
 
 
U.S. Government agencies and corporations:
 
 
 
 
 
 
 
Agency securities
631,603

 
1,406

 
7,139

 
625,870

Agency guaranteed mortgage-backed securities
1,417,843

 
16,441

 
614

 
1,433,670

Small Business Administration loan-backed securities
1,588,562

 
15,677

 
8,558

 
1,595,681

Municipal securities
175,017

 
1,282

 
689

 
175,610

Asset-backed securities:
 
 
 
 
 
 
 
Trust preferred securities – banks and insurance
611,836

 
99

 
150,418

 
461,517

Other
5,229

 
235

 

 
5,464

 
4,430,090

 
35,140

 
167,418

 
4,297,812

Mutual funds and other
153,235

 
101

 
646

 
152,690

 
4,583,325

 
35,241

 
168,064

 
4,450,502

Total
$
5,174,275

 
$
47,449

 
$
168,867

 
$
5,052,857


 
December 31, 2014
 
 
 
Recognized in OCI 1
 
 
 
Not recognized in OCI
 
 
(In thousands) 

Amortized
cost
 
Gross
unrealized
gains
 
Gross
unrealized
losses
 
Carrying
value
 
Gross
unrealized
gains
 
Gross
unrealized
losses
 
Estimated
fair
value
Held-to-maturity
 
 
 
 
 
 
 
 
 
 
 
 
 
Municipal securities
$
607,675

 
$

 
$

 
$
607,675

 
$
13,018

 
$
804

 
$
619,889

Asset-backed securities:
 
 
 
 
 
 
 
 
 
 
 
 
 
Trust preferred securities – banks and insurance
79,276

 

 
39,699

 
39,577

 
18,393

 
663

 
57,307

 
686,951

 

 
39,699

 
647,252

 
31,411

 
1,467

 
677,196

Available-for-sale
 
 
 
 
 
 
 
 
 
 
 
 
 
U.S. Government agencies and 
corporations:
 
 
 
 
 
 
 
 
 
 
 
 

Agency securities
607,523

 
1,572

 
8,343

 
600,752

 
 
 
 
 
600,752

Agency guaranteed mortgage-backed securities
935,164

 
12,132

 
2,105

 
945,191

 
 
 
 
 
945,191

Small Business Administration loan-backed securities
1,544,710

 
16,446

 
8,891

 
1,552,265

 
 
 
 
 
1,552,265

Municipal securities
189,059

 
1,143

 
945

 
189,257

 
 
 
 
 
189,257

Asset-backed securities:
 
 
 
 
 
 
 
 
 
 
 
 

Trust preferred securities – banks and insurance
537,589

 
103

 
121,984

 
415,708

 
 
 
 
 
415,708

Other
5,252

 
207

 
7

 
5,452

 
 
 
 
 
5,452

 
3,819,297

 
31,603

 
142,275

 
3,708,625

 
 
 
 
 
3,708,625

Mutual funds and other
136,591

 
76

 
1,044

 
135,623

 
 
 
 
 
135,623

 
3,955,888

 
31,679

 
143,319

 
3,844,248

 
 
 
 
 
3,844,248

Total
$
4,642,839

 
$
31,679

 
$
183,018

 
$
4,491,500

 
 
 
 
 
$
4,521,444

1 
Other comprehensive income


11


ZIONS BANCORPORATION AND SUBSIDIARIES

During the first quarter of 2015, we reclassified all of the remaining held-to-maturity (“HTM”) collateralized debt obligation (“CDO”) securities, or approximately $79 million at amortized cost, to available-for-sale (“AFS”) securities. The reclassification reduced existing unrealized losses in OCI of $40 million on HTM securities by approximately $18 million pretax. These existing unrealized losses resulted from a previous reclassification of AFS securities to HTM, and from OTTI. We took this action as a result of the most recent Dodd-Frank Act stress test results and the treatment of the CDO securities under the new Basel III capital and risk weighting rules that became effective January 1, 2015. The reclassification provides the Company with greater flexibility in the management of these securities. Current accounting guidance allows for the reclassification of HTM to AFS securities, without calling into question the entity’s intent to hold other debt securities to maturity, when there has been a significant increase in the risk weights of debt securities used for regulatory risk-based capital purposes. No gain or loss was recognized in the statement of income at the time of reclassification.

The amortized cost and estimated fair value of investment debt securities are shown subsequently as of March 31, 2015 by contractual maturity, except for CDOs, Small Business Administration (“SBA”) loan-backed securities, agency guaranteed mortgage-backed securities, and certain agency and municipal securities, where expected maturity is used. Actual maturities may differ from contractual or expected maturities because borrowers may have the right to call or prepay obligations with or without call or prepayment penalties.
 
Held-to-maturity
 
Available-for-sale
(In thousands)
Amortized
cost
 
Estimated
fair
value
 
Amortized
cost
 
Estimated
fair
value
 
 
 
 
 
 
 
 
Due in one year or less
$
96,220

 
$
97,409

 
$
639,077

 
$
638,407

Due after one year through five years
188,507

 
191,799

 
1,719,501

 
1,718,550

Due after five years through ten years
158,244

 
164,415

 
1,155,325

 
1,146,764

Due after ten years
147,979

 
148,732

 
916,187

 
794,091

 
$
590,950

 
$
602,355

 
$
4,430,090

 
$
4,297,812


The following is a summary of the amount of gross unrealized losses for investment securities and the estimated fair value by length of time the securities have been in an unrealized loss position:
 
March 31, 2015
 
Less than 12 months
 
12 months or more
 
Total
(In thousands)
 
Gross
unrealized
losses
 
Estimated
fair
value
 
Gross
unrealized
losses
 
Estimated
fair
value
 
Gross
unrealized
losses
 
Estimated
fair
value
Held-to-maturity
 
 
 
 
 
 
 
 
 
 
 
Municipal securities
$
722

 
$
93,203

 
$
81

 
$
3,831

 
$
803

 
$
97,034

 
 
 
 
 
 
 
 
 
 
 
 
Available-for-sale
 
 
 
 
 
 
 
 
 
 
 
U.S. Government agencies and corporations:
 
 
 
 
 
 
 
 
 
 
 
Agency securities
2,631

 
139,038

 
4,508

 
287,134

 
7,139

 
426,172

Agency guaranteed mortgage-backed securities
438

 
178,832

 
176

 
12,750

 
614

 
191,582

Small Business Administration loan-backed securities
4,551

 
460,629

 
4,007

 
264,312

 
8,558

 
724,941

Municipal securities
129

 
28,134

 
560

 
2,916

 
689

 
31,050

Asset-backed securities:
 
 
 
 
 
 
 
 

 


Trust preferred securities – banks and insurance

 

 
150,418

 
446,038

 
150,418

 
446,038

 
7,749

 
806,633

 
159,669

 
1,013,150

 
167,418

 
1,819,783

Mutual funds and other
646

 
72,296

 

 

 
646

 
72,296

 
8,395

 
878,929

 
159,669

 
1,013,150

 
168,064

 
1,892,079

Total
$
9,117

 
$
972,132

 
$
159,750

 
$
1,016,981

 
$
168,867

 
$
1,989,113



12


ZIONS BANCORPORATION AND SUBSIDIARIES

 
 
December 31, 2014
 
 
Less than 12 months
 
12 months or more
 
Total
 
(In thousands)
 
Gross
unrealized
losses
 
Estimated
 fair
 value
 
Gross
unrealized
losses
 
Estimated
 fair
 value
 
Gross
unrealized
losses
 
Estimated
 fair
 value
 
 
 
Held-to-maturity
 
 
 
 
 
 
 
 
 
 
 
 
Municipal securities
$
527

 
$
62,762

 
$
277

 
$
14,003

 
$
804

 
$
76,765

 
Asset-backed securities:
 
 
 
 
 
 
 
 
 
 
 
 
Trust preferred securities – banks and insurance
53

 
122

 
40,309

 
57,186

 
40,362

 
57,308

 
 
580

 
62,884

 
40,586

 
71,189

 
41,166

 
134,073

 
Available-for-sale
 
 
 
 
 
 
 
 
 
 
 
 
U.S. Government agencies and corporations:
 
 
 
 
 
 
 
 
 
 
 
 
Agency securities
4,510

 
295,694

 
3,833

 
101,188

 
8,343

 
396,882

 
Agency guaranteed mortgage-backed securities
1,914

 
425,114

 
191

 
12,124

 
2,105

 
437,238

 
Small Business Administration loan-backed securities
5,869

 
495,817

 
3,022

 
175,523

 
8,891

 
671,340

 
Municipal securities
258

 
36,551

 
687

 
4,616

 
945

 
41,167

 
Asset-backed securities:
 
 
 
 
 
 
 
 
 
 
 
 
Trust preferred securities – banks and insurance

 

 
121,984

 
405,605

 
121,984

 
405,605

 
Other
7

 
1,607

 

 

 
7

 
1,607

 
 
12,558

 
1,254,783

 
129,717

 
699,056

 
142,275

 
1,953,839

 
Mutual funds and other
1,044

 
71,907

 

 

 
1,044

 
71,907

 
 
13,602

 
1,326,690

 
129,717

 
699,056

 
143,319

 
2,025,746

 
Total
$
14,182

 
$
1,389,574

 
$
170,303

 
$
770,245

 
$
184,485

 
$
2,159,819


At March 31, 2015 and December 31, 2014, respectively, 188 and 153 HTM and 433 and 458 AFS investment securities were in an unrealized loss position.

Other-Than-Temporary Impairment
Ongoing Policy
We conduct a formal review of investment securities on a quarterly basis for the presence of other-than-temporary impairment (“OTTI”). We assess whether OTTI is present when the fair value of a debt security is less than its amortized cost basis at the balance sheet date (the vast majority of the investment portfolio are debt securities). Under these circumstances, OTTI is considered to have occurred if (1) we have formed a documented intent to sell identified securities or initiated such sales; (2) it is “more likely than not” we will be required to sell the security before recovery of its amortized cost basis; or (3) the present value of expected cash flows is not sufficient to recover the entire amortized cost basis.

Noncredit-related OTTI in securities we intend to sell is recognized in earnings as is any credit-related OTTI in securities, regardless of our intent. Noncredit-related OTTI on AFS securities not expected to be sold is recognized in OCI. The amount of noncredit-related OTTI in a security is quantified as the difference in a security’s amortized cost after adjustment for credit impairment, and its lower fair value. Presentation of OTTI is made in the statement of income on a gross basis with an offset for the amount of OTTI recognized in OCI.

CDO Sales and Paydowns
During the first quarter of 2015, sales, paydowns and payoffs of CDO securities, along with net gains/losses, were not significant. During the first quarter of 2014, we recorded a total of $993 million par amount of sales and paydowns of CDO securities, resulting in net gains of approximately $31 million. These sales were made in part as a result of the Volcker Rule.

13


ZIONS BANCORPORATION AND SUBSIDIARIES

OTTI Conclusions
Our 2014 Annual Report on Form 10-K describes in more detail our OTTI evaluation process. The following summarizes the conclusions from our OTTI evaluation by each security type that has significant gross unrealized losses at March 31, 2015:

OTTI – Asset-Backed Securities
Trust preferred securities – banks and insurance: These CDO securities are interests in variable rate pools of trust preferred securities issued by trusts related to bank holding companies and insurance companies (“collateral issuers”). They are rated by one or more Nationally Recognized Statistical Rating Organizations (“NRSROs”), which are rating agencies registered with the Securities and Exchange Commission (“SEC”). The more junior securities were purchased generally at par, while the senior securities were purchased from Lockhart Funding LLC (“Lockhart”), a previously consolidated qualifying special-purpose entity securities conduit, at their carrying values (generally par) and then adjusted to their lower fair values.

The primary driver of unrealized losses on CDOs with bank only or bank and insurance collateral are market yield requirements for bank and bank and insurance CDO securities. The financial crisis and economic downturn resulted in significant utilization of both the unique five-year deferral option, which each collateral issuer maintains during the life of the CDO, and the payment in kind (“PIK”) feature of junior priority securities. The PIK feature provides that upon the CDO reaching certain levels of collateral default or deferral, certain junior CDO tranches will not receive current interest but will instead have the unpaid interest amount capitalized. The rate of return demanded by the market for trust preferred CDOs remains substantially higher than the contractual interest rates. CDO tranches backed by bank trust preferred securities continue to be characterized by uncertainty surrounding collateral behavior, specifically including but not limited to, prepayments; the future number, size and timing of bank failures; holding company bankruptcies; and allowed deferrals and subsequent resumption of payment or default due to nonpayment of contractual interest.

Our ongoing review of these securities determined that no OTTI should be recorded in the first quarter of 2015.

OTTI – U.S. Government Agencies and Corporations
Agency securities: These securities were issued by the Federal Agricultural Mortgage Corporation (“FAMC”) and the Export-Import Bank of the U.S. These securities are floating rate and were purchased at premiums or discounts. They have maturity dates from 1 to 25 years and have contractual cash flows guaranteed by agencies of the U.S. Government. Unrealized losses relate to changes in interest rates subsequent to purchase and are not attributable to credit. At March 31, 2015, we did not have an intent to sell identified securities with unrealized losses or initiate such sales, and we believe it is more likely than not we would not be required to sell such securities before recovery of their amortized cost basis. Therefore, we did not record OTTI for these securities during the first quarter of 2015.

Small Business Administration Loan-Backed Securities: These securities were generally purchased at premiums with maturities from 5 to 25 years and have principal cash flows guaranteed by the SBA. Unrealized losses relate to changes in interest rates subsequent to purchase and are not attributable to credit. At March 31, 2015, we did not have an intent to sell identified SBA securities with unrealized losses or initiate such sales, and we believe it is more likely than not we would not be required to sell such securities before recovery of their amortized cost basis. Therefore, we did not record OTTI for these securities during the first quarter of 2015.


14


ZIONS BANCORPORATION AND SUBSIDIARIES

The following is a tabular rollforward of the total amount of credit-related OTTI:
(In thousands)

Three Months Ended
March 31, 2015
 
Three Months Ended
March 31, 2014
HTM

AFS

Total

HTM
 
AFS
 
Total
 
 
 
 
 
 
 
 
 
 
 
 
Balance of credit-related OTTI at beginning
of period
$
(9,079
)
 
$
(95,472
)
 
$
(104,551
)
 
$
(9,052
)
 
$
(176,833
)
 
$
(185,885
)
Additional credit-related OTTI on securities previously impaired

 

 

 
(27
)
 

 
(27
)
Reductions for securities sold or paid off during the period

 
1,313

 
1,313

 

 
12,919

 
12,919

Reclassification of securities from HTM to AFS
9,079

 
(9,079
)
 

 

 

 

Balance of credit-related OTTI at end of period
$

 
$
(103,238
)
 
$
(103,238
)
 
$
(9,079
)
 
$
(163,914
)
 
$
(172,993
)

To determine the credit component of OTTI for all security types, we utilize projected cash flows. These cash flows are credit adjusted using, among other things, assumptions for default probability and loss severity. Certain other unobservable inputs such as prepayment rate assumptions are utilized. In addition, certain internal and external models may be utilized. See Note 10 for further discussion. To determine the credit-related portion of OTTI in accordance with applicable accounting guidance, we use the security-specific effective interest rate when estimating the present value of cash flows.

The following summarizes gains and losses, including OTTI, that were recognized in the statement of income:
 
 
Three Months Ended
 
 
March 31, 2015
 
March 31, 2014
 
(In thousands)
Gross gains
 
Gross losses
 
Gross gains
 
Gross losses
 
 
Investment securities:
 
 
 
 
 
 
 
 
Held-to-maturity
$
1

 
$

 
$

 
$
27

 
Available-for-sale
958

 
1,198

 
72,561

 
41,647

 
 
 
 
 
 
 
 
 
 
Other noninterest-bearing investments
3,595

 
242

 
912

 

 
 
4,554

 
1,440

 
73,473

 
41,674

 
Net gains
 
 
$
3,114

 
 
 
$
31,799

 
 
 
 
 
 
 
 
 
 
Statement of income information:
 
 
 
 
 
 
 
 
Net impairment losses on investment securities
 
 
$

 
 
 
$
(27
)
 
Equity securities gains, net
 
 
3,353

 
 
 
912

 
Fixed income securities gains (losses), net
 
 
(239
)
 
 
 
30,914

 
Net gains
 
 
$
3,114

 
 
 
$
31,799


Interest income by security type is as follows:
(In thousands)
Three Months Ended
March 31, 2015
 
Three Months Ended
March 31, 2014
 
Taxable
 
Nontaxable
 
Total
 
Taxable
 
Nontaxable
 
Total
Investment securities:
 
 
 
 
 
 
 
 
 
 
 
Held-to-maturity
$
3,592

 
$
2,862

 
$
6,454

 
$
3,828

 
$
2,836

 
$
6,664

Available-for-sale
19,768

 
653

 
20,421

 
20,424

 
524

 
20,948

Trading
598

 

 
598

 
482

 

 
482

 
$
23,958

 
$
3,515

 
$
27,473

 
$
24,734

 
$
3,360

 
$
28,094


Investment securities with a carrying value of $1.3 billion at March 31, 2015 and $1.4 billion at December 31, 2014 were pledged to secure public and trust deposits, advances, and for other purposes as required by law. Securities are also pledged as collateral for security repurchase agreements.

15


ZIONS BANCORPORATION AND SUBSIDIARIES


Private Equity Investments
Effect of Volcker Rule (“VR”)
The VR, as published pursuant to the Dodd-Frank Act in December 2013 and amended in January 2014, significantly restricted certain activities by covered bank holding companies, including restrictions on certain types of securities, proprietary trading, and private equity investing. As of December 31, 2014, the only prohibited investments under the VR requiring divestiture by the Company were certain of its private equity investments (“PEIs”). Of the recorded PEIs of $132 million at March 31, 2015 (consisting of Small Business Investment Companies (“SBICs”) and non-SBICs), approximately $33 million were prohibited by the VR.

As discussed in Note 11, we have $35 million of unfunded commitments for PEIs, of which approximately $8 million relate to prohibited PEIs. Until we dispose of the prohibited PEIs, we expect to fund these commitments if and as the capital calls are made, as allowed under the VR.

During the first quarter of 2015, we recorded approximately $5 million in sales of PEIs resulting in insignificant amounts of net realized gains. All of these sales related to prohibited PEIs. During 2014 since the final issuance of the VR, we have sold approximately $8.3 million of prohibited PEIs. We anticipate disposing of the remainder of these prohibited PEIs before the required deadline. However, the required deadline has been extended to July 21, 2016 from July 21, 2015 and the Federal Reserve has announced its intention to act in 2015 to grant an additional one-year extension to July 21, 2017. See other discussions in Notes 10 and 11.

6.
LOANS AND ALLOWANCE FOR CREDIT LOSSES
Loans and Loans Held for Sale
Loans are summarized as follows according to major portfolio segment and specific loan class:
(In thousands)
March 31,
2015
 
December 31,
2014
 
 
 
 
Loans held for sale
$
128,946

 
$
132,504

 
 
 
 
Commercial:
 
 
 
Commercial and industrial
$
13,264,092

 
$
13,162,955

Leasing
407,137

 
408,974

Owner occupied
7,309,639

 
7,351,548

Municipal
555,122

 
520,887

Total commercial
21,535,990

 
21,444,364

Commercial real estate:
 
 
 
Construction and land development
2,044,641

 
1,986,408

Term
8,088,430

 
8,126,600

Total commercial real estate
10,133,071

 
10,113,008

Consumer:
 
 
 
Home equity credit line
2,314,806

 
2,321,150

1-4 family residential
5,212,963

 
5,200,882

Construction and other consumer real estate
373,335

 
370,542

Bankcard and other revolving plans
406,723

 
401,352

Other
203,226

 
212,360

Total consumer
8,511,053

 
8,506,286

Total loans
$
40,180,114

 
$
40,063,658

Loan balances are presented net of unearned income and fees, which amounted to $142.8 million at March 31, 2015 and $144.7 million at December 31, 2014.

Owner occupied and commercial real estate (“CRE”) loans include unamortized premiums of approximately $33.7 million at March 31, 2015 and $36.5 million at December 31, 2014.

16


ZIONS BANCORPORATION AND SUBSIDIARIES

Municipal loans generally include loans to municipalities with the debt service being repaid from general funds or pledged revenues of the municipal entity, or to private commercial entities or 501(c)(3) not-for-profit entities utilizing a pass-through municipal entity to achieve favorable tax treatment.
Land development loans included in the construction and land development loan class were $462.7 million at March 31, 2015 and $484.9 million at December 31, 2014.
Loans with a carrying value of approximately $22.6 billion at March 31, 2015 and $22.5 billion at December 31, 2014 have been pledged at the Federal Reserve and various Federal Home Loan Banks (“FHLBs”) as collateral for current and potential borrowings. Note 8 presents the balance of FHLB advances made to the Company against this pledged collateral.
We sold loans with a carrying value of $300.4 million and $337.6 million for the three months ended March 31, 2015 and 2014, respectively, that were classified as loans held for sale. The sold loans were derecognized from the balance sheet. Loans classified as loans held for sale primarily consist of conforming residential mortgages and the guaranteed portion of SBA loans. The principal balance of sold loans for which we retain servicing was approximately $1.2 billion at both March 31, 2015 and December 31, 2014.

Amounts added to loans held for sale during these periods were $309.7 million and $295.5 million, respectively. Income from loans sold, excluding servicing, for these same periods was $4.6 million and $3.5 million.

Since 2009, CB&T and NSB have had loss sharing agreements with the Federal Deposit Insurance Corporation (“FDIC”), which provided indemnification for credit losses of acquired loans and foreclosed assets up to specified thresholds. The last of the agreements for commercial loans, which comprised the major portion of the acquired portfolio, expired as of September 30, 2014. The agreements for 1-4 family residential loans will expire in 2019. In previous periods, the FDIC-supported loan balances were presented separately in this footnote and in other disclosures, and included purchased credit-impaired (“PCI”) loans, as subsequently discussed in Purchased Loans. Due to declining balances, for all periods presented herein, the FDIC-supported/PCI loans have been reclassified to their respective loan segments and classes.

Allowance for Credit Losses
The allowance for credit losses (“ACL”) consists of the allowance for loan and lease losses (“ALLL”) (also referred to as the allowance for loan losses) and the reserve for unfunded lending commitments (“RULC”).

Allowance for Loan and Lease Losses
The ALLL represents our estimate of probable and estimable losses inherent in the loan and lease portfolio as of the balance sheet date. Losses are charged to the ALLL when recognized. Generally, commercial loans are charged off or charged down when they are determined to be uncollectible in whole or in part, or when 180 days past due unless the loan is well secured and in the process of collection. Consumer loans are either charged off or charged down to net realizable value no later than the month in which they become 180 days past due. Closed-end consumer loans that are not secured by residential real estate are either charged off or charged down to net realizable value no later than the month in which they become 120 days past due. We establish the amount of the ALLL by analyzing the portfolio at least quarterly, and we adjust the provision for loan losses so the ALLL is at an appropriate level at the balance sheet date.

We determine our ALLL as the best estimate within a range of estimated losses. The methodologies we use to estimate the ALLL depend upon the impairment status and portfolio segment of the loan. The methodology for impaired loans is discussed subsequently. For the commercial and CRE segments, we use a comprehensive loan grading system to assign probability of default (“PD”) and loss given default (“LGD”) grades to each loan. The credit quality indicators discussed subsequently are based on this grading system. In addition, loan officers utilize their experience and judgment in assigning PD and LGD grades, subject to confirmation of the PD and LGD by either credit risk or credit examination. We create groupings of these grades for each subsidiary bank and loan class

17


ZIONS BANCORPORATION AND SUBSIDIARIES

and calculate historic loss rates using a loss migration analysis that attributes historic realized losses to these loan grade groupings over the period of January 2008 through the most recent full quarter.
For the consumer loan segment, we use roll rate models to forecast probable inherent losses. Roll rate models measure the rate at which consumer loans migrate from one delinquency category to the next worse delinquency category, and eventually to loss. We estimate roll rates for consumer loans using recent delinquency and loss experience by segmenting our consumer loan portfolio into separate pools based on common risk characteristics and separately calculating historical delinquency and loss experience for each pool. These roll rates are then applied to current delinquency levels to estimate probable inherent losses. Roll rates incorporate housing market trends inasmuch as these trends manifest themselves in charge-offs and delinquencies. In addition, our qualitative and environmental factors discussed subsequently incorporate the most recent housing market trends.
The current status and historical changes in qualitative and environmental factors may not be reflected in our quantitative models. Thus, after applying historical loss experience, as described above, we review the quantitatively derived level of ALLL for each segment using qualitative criteria and use those criteria to determine our estimate within the range. We track various risk factors that influence our judgment regarding the level of the ALLL across the portfolio segments. These factors primarily include:
Asset quality trends
Risk management and loan administration practices
Risk identification practices
Effect of changes in the nature and volume of the portfolio
Existence and effect of any portfolio concentrations
National economic and business conditions
Regional and local economic and business conditions
Data availability and applicability
Effects of other external factors
The magnitude of the impact of these factors on our qualitative assessment of the ALLL changes from quarter to quarter according to changes made by management in its assessment of these factors, the extent these factors are already reflected in historic loss rates, and the extent changes in these factors diverge from one to another. We also consider the uncertainty inherent in the estimation process when evaluating the ALLL.

Reserve for Unfunded Lending Commitments
We also estimate a reserve for potential losses associated with off-balance sheet commitments, including standby letters of credit. We determine the RULC using the same procedures and methodologies that we use for the ALLL. The loss factors used in the RULC are the same as the loss factors used in the ALLL, and the qualitative adjustments used in the RULC are the same as the qualitative adjustments used in the ALLL. We adjust the Company’s unfunded lending commitments that are not unconditionally cancelable to an outstanding amount equivalent using credit conversion factors, and we apply the loss factors to the outstanding equivalents.

18


ZIONS BANCORPORATION AND SUBSIDIARIES

Changes in the allowance for credit losses are summarized as follows:

 
Three Months Ended March 31, 2015
(In thousands)
Commercial
 
Commercial
real estate
 
Consumer
 
Total
Allowance for loan losses:
 
 
 
 
 
 
 
Balance at beginning of period
$
412,514

 
$
145,009

 
$
47,140

 
$
604,663

Additions:
 
 
 
 
 
 
 
Provision for loan losses
24,934

 
(26,887
)
 
459

 
(1,494
)
Adjustment for FDIC-supported/PCI loans
(38
)
 

 

 
(38
)
Deductions:
 
 
 
 
 
 
 
Gross loan and lease charge-offs
(15,951
)
 
(626
)
 
(3,611
)
 
(20,188
)
Recoveries
20,613

 
14,119

 
2,338

 
37,070

Net loan and lease charge-offs
4,662

 
13,493

 
(1,273
)
 
16,882

Balance at end of period
$
442,072

 
$
131,615

 
$
46,326

 
$
620,013

 
 
 
 
 
 
 
 
Reserve for unfunded lending commitments:
 
 
 
 
 
 
 
Balance at beginning of period
$
58,931

 
$
21,517

 
$
628

 
$
81,076

Provision charged (credited) to earnings
3,844

 
(2,580
)
 
(53
)
 
1,211

Balance at end of period
$
62,775

 
$
18,937

 
$
575

 
$
82,287

 
 
 
 
 
 
 
 
Total allowance for credit losses at end of period:
 
 
 
 
 
 
 
Allowance for loan losses
$
442,072

 
$
131,615

 
$
46,326

 
$
620,013

Reserve for unfunded lending commitments
62,775

 
18,937

 
575

 
82,287

Total allowance for credit losses
$
504,847

 
$
150,552

 
$
46,901

 
$
702,300


 
Three Months Ended March 31, 2014
(In thousands)
Commercial

Commercial
real estate

Consumer

Total
Allowance for loan losses: