10-Q 1 zion-20150630x10q.htm 10-Q ZION-2015.06.30-10Q
    

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 June 30, 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 July 31, 2015
204,170,220 shares



ZIONS BANCORPORATION AND SUBSIDIARIES
Table of Contents



2


PART I.
FINANCIAL INFORMATION
ITEM 1.
FINANCIAL STATEMENTS (Unaudited)
ZIONS BANCORPORATION AND SUBSIDIARIES
CONSOLIDATED BALANCE SHEETS
(In thousands, except shares)
June 30,
2015
 
December 31,
2014
(Unaudited)
 
 
ASSETS
 
 
 
Cash and due from banks
$
758,238

 
$
841,942

Money market investments:
 
 
 
Interest-bearing deposits
7,661,311

 
7,178,097

Federal funds sold and security resell agreements
1,404,246

 
1,386,291

Investment securities:
 
 
 
Held-to-maturity, at amortized cost (approximate fair value $578,327 and $677,196)
570,869

 
647,252

Available-for-sale, at fair value
4,652,415

 
3,844,248

Trading account, at fair value
74,519

 
70,601

 
5,297,803

 
4,562,101

 
 
 
 
Loans held for sale
152,448

 
132,504

 
 
 
 
Loans and leases, net of unearned income and fees
40,023,984

 
40,063,658

Less allowance for loan losses
609,375

 
604,663

Loans, net of allowance
39,414,609

 
39,458,995

 
 
 
 
Other noninterest-bearing investments
863,443

 
865,950

Premises and equipment, net
856,577

 
829,809

Goodwill
1,014,129

 
1,014,129

Core deposit and other intangibles
20,843

 
25,520

Other real estate owned
13,269

 
18,916

Other assets
908,543

 
894,620

 
$
58,365,459

 
$
57,208,874

 
 
 
 
LIABILITIES AND SHAREHOLDERS’ EQUITY
 
 
 
Deposits:
 
 
 
Noninterest-bearing demand
$
21,557,584

 
$
20,529,124

Interest-bearing:
 
 
 
Savings and money market
24,744,288

 
24,583,636

Time
2,263,146

 
2,406,924

Foreign
372,106

 
328,391

 
48,937,124

 
47,848,075

 
 
 
 
Federal funds and other short-term borrowings
227,124

 
244,223

Long-term debt
1,050,938

 
1,092,282

Reserve for unfunded lending commitments
79,961

 
81,076

Other liabilities
540,137

 
573,688

Total liabilities
50,835,284

 
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 203,740,914 and 203,014,903 shares
4,738,272

 
4,723,855

Retained earnings
1,823,043

 
1,769,705

Accumulated other comprehensive income (loss)
(35,172
)
 
(128,041
)
Total shareholders’ equity
7,530,175

 
7,369,530

 
$
58,365,459

 
$
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
June 30,
 
Six Months Ended
June 30,
2015
 
2014
 
2015
 
2014
Interest income:
 
 
 
 
 
 
 
Interest and fees on loans
$
420,642

 
$
433,802

 
$
836,397

 
$
868,151

Interest on money market investments
5,785

 
4,888

 
11,003

 
10,018

Interest on securities
28,809

 
24,502

 
56,282

 
52,596

Total interest income
455,236

 
463,192

 
903,682

 
930,765

Interest expense:
 
 
 
 
 
 
 
Interest on deposits
12,321

 
12,096

 
24,425

 
24,875

Interest on short- and long-term borrowings
19,211

 
34,812

 
38,207

 
73,136

Total interest expense
31,532

 
46,908

 
62,632

 
98,011

Net interest income
423,704

 
416,284

 
841,050

 
832,754

Provision for loan losses
566

 
(54,416
)
 
(928
)
 
(55,026
)
Net interest income after provision for loan losses
423,138

 
470,700

 
841,978

 
887,780

 
 
 
 
 
 
 
 
Noninterest income:
 
 
 
 
 
 
 
Service charges and fees on deposit accounts
41,616

 
41,400

 
82,810

 
82,600

Other service charges, commissions and fees
51,705

 
47,959

 
99,191

 
92,208

Wealth management income
8,160

 
7,980

 
15,775

 
15,057

Loan sales and servicing income
8,382

 
7,332

 
16,088

 
14,428

Capital markets and foreign exchange
7,275

 
5,875

 
12,776

 
10,919

Dividends and other investment income
9,343

 
7,995

 
18,715

 
15,859

Fair value and nonhedge derivative income (loss)
1,844

 
(1,934
)
 
756

 
(10,473
)
Equity securities gains, net
4,839

 
2,513

 
8,192

 
3,425

Fixed income securities gains (losses), net
(138,436
)
 
5,026

 
(138,675
)
 
35,940

Impairment losses on investment securities

 

 

 
(27
)
Less amounts recognized in other comprehensive income

 

 

 

Net impairment losses on investment securities

 

 

 
(27
)
Other
5,693

 
703

 
6,615

 
3,227

Total noninterest income
421

 
124,849

 
122,243

 
263,163

 
 
 
 
 
 
 
 
Noninterest expense:
 
 
 
 
 
 
 
Salaries and employee benefits
251,133

 
238,760

 
494,652

 
472,162

Occupancy, net
30,095

 
28,939

 
59,434

 
57,244

Furniture, equipment and software
31,247

 
27,986

 
60,960

 
55,930

Other real estate expense, net
(445
)
 
(266
)
 
(71
)
 
1,341

Credit-related expense
8,106

 
7,161

 
14,045

 
14,107

Provision for unfunded lending commitments
(2,326
)
 
6,779

 
(1,115
)
 
5,767

Professional and legal services
13,110

 
12,171

 
24,593

 
23,166

Advertising
6,511

 
6,803

 
13,486

 
13,201

FDIC premiums
8,609

 
8,017

 
16,728

 
15,939

Amortization of core deposit and other intangibles
2,318

 
2,736

 
4,676

 
5,618

Debt extinguishment cost
2,395

 

 
2,395

 

Other
53,347

 
66,941

 
111,778

 
139,615

Total noninterest expense
404,100

 
406,027

 
801,561

 
804,090

Income before income taxes
19,459

 
189,522

 
162,660

 
346,853

Income taxes
5,499

 
69,972

 
56,675

 
126,093

Net income
13,960

 
119,550

 
105,985

 
220,760

Dividends on preferred stock
(15,060
)
 
(15,060
)
 
(31,806
)
 
(40,080
)
Net earnings (loss) applicable to common shareholders
$
(1,100
)
 
$
104,490

 
$
74,179

 
$
180,680

 
 
 
 
 
 
 
 
Weighted average common shares outstanding during the period:
 
 
 
 
 
 
 
Basic shares
202,888

 
184,668

 
202,746

 
184,555

Diluted shares
202,888

 
185,286

 
203,295

 
185,202

Net earnings (loss) per common share:
 
 
 
 
 
 
 
Basic
$
(0.01
)
 
$
0.56

 
$
0.36

 
$
0.97

Diluted
(0.01
)
 
0.56

 
0.36

 
0.97

See accompanying notes to consolidated financial statements.

4


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

 
 
Three Months Ended
June 30,
 
Six Months Ended
June 30,
(In thousands)
 
2015
 
2014
 
2015
 
2014
 
 
 
 
 
 
 
 
 
Net income for the period
 
$
13,960

 
$
119,550

 
$
105,985

 
$
220,760

Other comprehensive income, net of tax:
 
 
 
 
 
 
 
 
Net unrealized holding gains (losses) on investment securities
 
(7,294
)
 
8,551

 
(6,808
)
 
82,458

Reclassification of HTM securities to AFS securities
 

 

 
10,938

 

Reclassification to earnings for realized net fixed income securities losses (gains)
 
85,664

 
(3,104
)
 
85,812

 
(27,944
)
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
 

 
273

 

 
559

Net unrealized gains (losses) on other noninterest-bearing investments
 
2,339

 
2,054

 
1,975

 
(787
)
Net unrealized holding gains (losses) on derivative instruments
 
(219
)
 
1,199

 
2,334

 
1,519

Reclassification adjustment for increase in interest income recognized in earnings on derivative instruments
 
(753
)
 
(348
)
 
(1,382
)
 
(558
)
Other comprehensive income
 
79,737

 
8,625

 
92,869

 
55,264

Comprehensive income
 
$
93,697

 
$
128,175

 
$
198,854

 
$
276,024

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
 
 
 
 
 
 
105,985

 
 
 
 
 
105,985

Other comprehensive income, net of tax
 
 
 
 
 
 
 
 
 
92,869

 
 
92,869

Subordinated debt converted to preferred stock
21

 
 
 
(6
)
 
 
 
 
 
 
 
15

Net activity under employee plans and related tax benefits
 
 
726,011

 
14,423

 
 
 
 
 
 
 
14,423

Dividends on preferred stock


 
 
 
 
 
(31,806
)
 
 
 
 
 
(31,806
)
Dividends on common stock, $0.10 per share
 
 
 
 
 
 
(20,444
)
 
 
 
 
 
(20,444
)
Change in deferred compensation
 
 
 
 
 
 
(397
)
 
 
 
 
 
(397
)
Balance at June 30, 2015
$
1,004,032

 
203,740,914

 
$
4,738,272

 
$
1,823,043

 
 
$
(35,172
)
 
 
$
7,530,175

 
 
 
 
 
 
 
 
 
 
 
 
 
 
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
 
 
 
 
 
 
220,760

 
 
 
 
 
220,760

Other comprehensive income, net of tax
 
 
 
 
 
 
 
 
 
55,264

 
 
55,264

Subordinated debt converted to preferred stock
36

 
 
 
(5
)
 
 
 
 
 
 
 
31

Net activity under employee plans and related tax benefits
 
 
435,269

 
13,117

 
 
 
 
 
 
 
13,117

Dividends on preferred stock


 
 
 
 
 
(40,080
)
 
 
 
 
 
(40,080
)
Dividends on common stock, $0.08 per share
 
 
 
 
 
 
(14,873
)
 
 
 
 
 
(14,873
)
Change in deferred compensation
 
 
 
 
 
 
1,308

 
 
 
 
 
1,308

Balance at June 30, 2014
$
1,004,006

 
185,112,965

 
$
4,192,136

 
$
1,640,785

 
 
$
(136,837
)
 
 
$
6,700,090

See accompanying notes to consolidated financial statements.

6


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

Three Months Ended
June 30,
 
Six Months Ended
June 30,
2015
 
2014
 
2015
 
2014
CASH FLOWS FROM OPERATING ACTIVITIES
 
 
 
 
 
 
 
Net income for the period
$
13,960

 
$
119,550

 
$
105,985

 
$
220,760

Adjustments to reconcile net income to net cash provided by operating activities:
 
 
 
 
 
 
 
Provision for credit losses
(1,760
)
 
(47,637
)
 
(2,043
)
 
(49,259
)
Depreciation and amortization
35,113

 
31,150

 
69,282

 
63,554

Fixed income securities losses (gains), net
138,436

 
(5,026
)
 
138,675

 
(35,940
)
Deferred income tax expense
(44,431
)
 
(58,870
)
 
(41,029
)
 
19,408

Net increase in trading securities
(2,899
)
 
(247
)
 
(3,920
)
 
(22,109
)
Net decrease (increase) in loans held for sale
(23,568
)
 
(38,030
)
 
(20,051
)
 
6,954

Change in other liabilities
(61,829
)
 
19,279

 
(36,263
)
 
(58,517
)
Change in other assets
32,079

 
(16,686
)
 
(33,169
)
 
(13,460
)
Other, net
(70
)
 
9,910

 
(3,619
)
 
12,273

Net cash provided by operating activities
85,031

 
13,393

 
173,848

 
143,664

 
 
 
 
 
 
 
 
CASH FLOWS FROM INVESTING ACTIVITIES
 
 
 
 
 
 
 
Net decrease (increase) in money market investments
(754,443
)
 
1,672,416

 
(501,169
)
 
1,591,565

Proceeds from maturities and paydowns of investment securities
held-to-maturity
21,587

 
19,190

 
60,910

 
38,125

Purchases of investment securities held-to-maturity
(1,485
)
 
(27,514
)
 
(24,061
)
 
(63,264
)
Proceeds from sales, maturities, and paydowns of investment securities available-for-sale
751,373

 
194,973

 
980,267

 
1,042,261

Purchases of investment securities available-for-sale
(972,714
)
 
(221,701
)
 
(1,757,570
)
 
(673,824
)
Net change in loans and leases
148,336

 
(446,118
)
 
47,894

 
(612,533
)
Purchases of premises and equipment
(33,835
)
 
(35,815
)
 
(67,368
)
 
(112,731
)
Proceeds from sales of other real estate owned
5,172

 
17,087

 
8,573

 
28,912

Other, net
25,974

 
1,380

 
29,325

 
6,997

Net cash provided by (used in) investing activities
(810,035
)
 
1,173,898

 
(1,223,199
)
 
1,245,508

 
 
 
 
 
 
 
 
CASH FLOWS FROM FINANCING ACTIVITIES
 
 
 
 
 
 
 
Net increase (decrease) in deposits
813,764

 
(861,165
)
 
1,089,049

 
(690,743
)
Net change in short-term funds borrowed
23,527

 
(21,436
)
 
(17,099
)
 
(81,947
)
Repayments of long-term debt
(44,420
)
 
(236,404
)
 
(52,605
)
 
(361,159
)
Proceeds from the issuance of common stock
5,070

 
1,641

 
6,032

 
4,521

Dividends paid on common and preferred stock
(29,045
)
 
(24,207
)
 
(52,279
)
 
(47,948
)
Other, net
(6,512
)
 
(3,388
)
 
(7,451
)
 
(3,691
)
Net cash provided by (used in) financing activities
762,384

 
(1,144,959
)
 
965,647

 
(1,180,967
)
Net increase (decrease) in cash and due from banks
37,380

 
42,332

 
(83,704
)
 
208,205

Cash and due from banks at beginning of period
720,858

 
1,338,930

 
841,942

 
1,173,057

Cash and due from banks at end of period
$
758,238

 
$
1,381,262

 
$
758,238

 
$
1,381,262

 
 
 
 
 
 
 
 
Cash paid for interest
$
28,938

 
$
40,820

 
$
51,057

 
$
81,669

Net cash paid for income taxes
92,326

 
122,737

 
91,826

 
122,656

See accompanying notes to consolidated financial statements.

7


ZIONS BANCORPORATION AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(Unaudited)
June 30, 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 and six months ended June 30, 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; Amegy Corporation (“Amegy”) and its subsidiary, Amegy Bank, in Texas; California Bank & Trust (“CB&T”); National Bank of Arizona (“NBAZ”); Nevada State Bank (“NSB”); Vectra Bank Colorado (“Vectra”), in Colorado and New Mexico; and The Commerce Bank of Washington (“TCBW”), in Washington and Oregon. Effective April 1, 2015, The Commerce Bank of Oregon (“TCBO”) was merged into TCBW. The Parent and its subsidiary banks also own and operate certain nonbank subsidiaries that engage in financial services. On June 1, 2015, the Company announced certain efficiency and restructuring initiatives that included, among other things, the consolidation of its seven bank charters into one bank charter. This change is subject to regulatory approval and is currently expected to be completed within the next 6 to 12 months.

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 2015-07, Disclosures for Investments in Certain Entities That Calculate Net Asset Value per Share (or its Equivalent), (Topic 820)
 
The guidance eliminates the current requirement to categorize within the fair value hierarchy investments whose fair values are measured at net asset value (“NAV”) using the practical expedient in ASC 820. Fair value disclosure of these investments will be made to facilitate reconciliation to amounts reported on the balance sheet. Other related disclosures will continue when the NAV practical expedient is used. Adoption is retrospective and early adoption is permitted.
 
January 1, 2016
 
We do not currently expect this new disclosure guidance will have a material impact on 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 2015-05, 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.
 
 
 
 
 
 
 
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 may be made as of the current effective date, assuming deferral is enacted.
 
January 1, 2017 (FASB announced on July 9, 2015 a one-year deferral from effective date shown above; ASU still to be issued.)
 
While we currently do not expect this standard will have a material 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.

9


ZIONS BANCORPORATION AND SUBSIDIARIES

Standard
 
Description
 
Date of adoption
 
Effect on the financial statements or other significant matters
 
 
 
 
 
 
 
Standards adopted by the Company (continued)
 
 
 
 
 
 
 
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 material impact on the accompanying financial statements.

3.
SUPPLEMENTAL CASH FLOW INFORMATION
Noncash activities are summarized as follows:
(In thousands)
Three Months Ended
June 30,
 
Six Months Ended
June 30,
2015
 
2014
 
2015
 
2014
 
 
 
 
 
 
 
 
Loans and leases transferred to other real estate owned
$
3,084

 
$
4,905

 
$
6,652

 
$
11,243

Loans held for sale reclassified as (from) loans and leases
(2,395
)
 
1,292

 
10,743

 
5,081

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:
 
 
June 30, 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
 
$
1,704,246

 
$
(300,000
)
 
$
1,404,246

 
$

 
$

 
$
1,404,246

Derivatives (included in other assets)
 
63,962

 

 
63,962

 
(6,224
)
 

 
57,738

 
 
$
1,768,208

 
$
(300,000
)
 
$
1,468,208

 
$
(6,224
)
 
$

 
$
1,461,984

Liabilities:
 
 
 
 
 
 
 
 
 
 
 
 
Federal funds and other short-term borrowings
 
$
527,124

 
$
(300,000
)
 
$
227,124

 
$

 
$

 
$
227,124

Derivatives (included in other liabilities)
 
60,245

 

 
60,245

 
(6,224
)
 
(27,091
)
 
26,930

 
 
$
587,369

 
$
(300,000
)
 
$
287,369

 
$
(6,224
)
 
$
(27,091
)
 
$
254,054


10


ZIONS BANCORPORATION AND SUBSIDIARIES

 
 
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.

5.
INVESTMENTS 
Investment Securities
Investment securities are summarized below. Note 10 discusses the process to estimate fair value for investment securities.
 
June 30, 2015
(In thousands)

Amortized
cost
 
Gross
unrealized
gains
 
Gross
unrealized
losses
 
Estimated fair
value
Held-to-maturity
 
 
 
 
 
 
 
Municipal securities
$
570,869

 
$
9,584

 
$
2,126

 
$
578,327

 
 
 
 
 
 
 
 
Available-for-sale
 
 
 
 
 
 
 
U.S. Government agencies and corporations:
 
 
 
 
 
 
 
Agency securities
661,118

 
1,214

 
11,875

 
650,457

Agency guaranteed mortgage-backed securities
2,001,120

 
9,741

 
9,281

 
2,001,580

Small Business Administration loan-backed securities
1,653,333

 
16,828

 
7,931

 
1,662,230

Municipal securities
202,372

 
796

 
511

 
202,657

Other debt securities
25,519

 
219

 
1,923

 
23,815

 
4,543,462

 
28,798

 
31,521

 
4,540,739

Money market mutual funds and other
111,608

 
68

 

 
111,676

 
4,655,070

 
28,866

 
31,521

 
4,652,415

Total
$
5,225,939

 
$
38,450

 
$
33,647

 
$
5,230,742



11


ZIONS BANCORPORATION AND SUBSIDIARIES

 
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

Money market 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
CDO Sales and Paydowns
During the second quarter of 2015, we sold the remaining portfolio of our collateralized debt obligation (“CDO”) securities, or $574 million at amortized cost, and realized net losses of approximately $137 million. Unrealized losses included in OCI at March 31, 2015 were $148 million. We also received approximately $13 million in paydowns and payoffs of CDO securities during the quarter prior to the sale of the CDOs.

During the first quarter of 2015, we reclassified all of the remaining held-to-maturity (“HTM”) CDO securities, or approximately $79 million at amortized cost, to available-for-sale (“AFS”) securities. The reclassification resulted from increased risk weights for these securities under the new Basel III capital rules, and was made in accordance with applicable accounting guidance that allows for such reclassifications when increased risk weights of debt securities must be used for regulatory risk-based capital purposes. No gain or loss was recognized in the statement of income at the time of reclassification.

During the first half of 2014, we recorded a total of $1,018 million par amount of sales and paydowns of CDO securities, resulting in net gains of approximately $36 million. These sales were made in part as a result of the Volcker Rule (“VR”).

Maturities
The amortized cost and estimated fair value of investment debt securities are shown subsequently as of June 30, 2015 by expected timing of principal payments. Actual principal payments may differ from contractual or expected principal payments because borrowers may have the right to call or prepay obligations with or without call or prepayment penalties.

12


ZIONS BANCORPORATION AND SUBSIDIARIES

 
Held-to-maturity
 
Available-for-sale
(In thousands)
Amortized
cost
 
Estimated
fair
value
 
Amortized
cost
 
Estimated
fair
value
 
 
 
 
 
 
 
 
Principal return in one year or less
$
89,799

 
$
90,840

 
$
686,832

 
$
687,548

Principal return after one year through five years
183,910

 
186,348

 
1,901,910

 
1,902,874

Principal return after five years through ten years
155,474

 
159,795

 
1,419,932

 
1,418,243

Principal return after ten years
141,686

 
141,344

 
534,788

 
532,074

 
$
570,869

 
$
578,327

 
$
4,543,462

 
$
4,540,739

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:
 
June 30, 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
$
2,036

 
$
150,067

 
$
90

 
$
3,818

 
$
2,126

 
$
153,885

 
 
 
 
 
 
 
 
 
 
 
 
Available-for-sale
 
 
 
 
 
 
 
 
 
 
 
U.S. Government agencies and corporations:
 
 
 
 
 
 
 
 
 
 
 
Agency securities
5,823

 
162,727

 
6,052

 
291,372

 
11,875

 
454,099

Agency guaranteed mortgage-backed securities
8,960

 
1,497,852

 
321

 
19,035

 
9,281

 
1,516,887

Small Business Administration loan-backed securities
3,622

 
347,566

 
4,309

 
330,790

 
7,931

 
678,356

Municipal securities
492

 
57,736

 
19

 
1,627

 
511

 
59,363

Other debt securities

 

 
1,923

 
13,080

 
1,923

 
13,080

 
18,897

 
2,065,881

 
12,624

 
655,904

 
31,521

 
2,721,785

Total
$
20,933

 
$
2,215,948

 
$
12,714

 
$
659,722

 
$
33,647

 
$
2,875,670

 
 
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

 
Money market 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



13


ZIONS BANCORPORATION AND SUBSIDIARIES

At June 30, 2015 and December 31, 2014, respectively, 287 and 153 HTM and 545 and 458 AFS investment securities were in an unrealized loss position.

Other-Than-Temporary Impairment
Ongoing Policy
We review 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 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.
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 June 30, 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 June 30, 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 second quarter of 2015.

Agency Guaranteed Mortgage-Backed Securities: These pass-through securities are comprised largely of fixed and floating-rate residential mortgage-backed securities issued by the Government National Mortgage Association (“GNMA”), the Federal National Mortgage Association, or the Federal Home Loan Mortgage Corporation. They were generally purchased at premiums with maturity dates from 10 to 15 years for fixed-rate securities and 30 years for floating-rate securities. These securities benefit from certain guarantee provisions or, in the case of GNMA, direct U.S. government guarantees. Unrealized losses relate to changes in interest rates subsequent to purchase and are not attributable to credit. At June 30, 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 second quarter of 2015.

Small Business Administration (“SBA”) 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 June 30, 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 second 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
June 30, 2015
 
Six Months Ended
June 30, 2015
HTM

AFS

Total

HTM
 
AFS
 
Total
 
 
 
 
 
 
 
 
 
 
 
 
Balance of credit-related OTTI at beginning
of period
$

 
$
(103,238
)
 
$
(103,238
)
 
$
(9,079
)
 
$
(95,472
)
 
$
(104,551
)
Reductions for securities sold or paid off during the period

 
103,238

 
103,238

 

 
104,551

 
104,551

Reclassification of securities from HTM to AFS

 

 

 
9,079

 
(9,079
)
 

Balance of credit-related OTTI at end of period
$

 
$

 
$

 
$

 
$

 
$


(In thousands)

Three Months Ended
June 30, 2014
 
Six Months Ended
June 30, 2014
HTM
 
AFS
 
Total
 
HTM
 
AFS
 
Total
 
 
 
 
 
 
 
 
 
 
 
 
Balance of credit-related OTTI at beginning
of period
$
(9,079
)
 
$
(163,914
)
 
$
(172,993
)
 
$
(9,052
)
 
$
(176,833
)
 
$
(185,885
)
Additions recognized in earnings during the period:
 
 
 
 
 
 
 
 
 
 
 
Additional credit-related OTTI on securities previously impaired

 

 

 
(27
)
 

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

 

 

 

 
12,919

 
12,919

Balance of credit-related OTTI at end of period
$
(9,079
)
 
$
(163,914
)
 
$
(172,993
)
 
$
(9,079
)
 
$
(163,914
)
 
$
(172,993
)

The following summarizes gains and losses, including OTTI, that were recognized in the statement of income:
 
 
Three Months Ended
 
Six Months Ended
 
 
June 30, 2015
 
June 30, 2014
 
June 30, 2015
 
June 30, 2014
 
(In thousands)
Gross gains
 
Gross
losses
 
Gross gains
 
Gross losses
 
Gross gains
 
Gross
losses
 
Gross gains
 
Gross losses
 
 
Investment securities: