10-Q 1 zion-20150930x10q.htm 10-Q 10-Q
    

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 September 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 November 2, 2015
204,294,516 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)
September 30,
2015
 
December 31,
2014
(Unaudited)
 
 
ASSETS
 
 
 
Cash and due from banks
$
602,694

 
$
841,942

Money market investments:
 
 
 
Interest-bearing deposits
6,558,678

 
7,178,097

Federal funds sold and security resell agreements
1,325,501

 
1,386,291

Investment securities:
 
 
 
Held-to-maturity, at amortized cost (approximate fair value $553,088 and $677,196)
544,168

 
647,252

Available-for-sale, at fair value
6,000,011

 
3,844,248

Trading account, at fair value
73,521

 
70,601

 
6,617,700

 
4,562,101

 
 
 
 
Loans held for sale
139,122

 
132,504

 
 
 
 
Loans and leases, net of unearned income and fees
40,113,123

 
40,063,658

Less allowance for loan losses
596,440

 
604,663

Loans, net of allowance
39,516,683

 
39,458,995

 
 
 
 
Other noninterest-bearing investments
851,225

 
865,950

Premises and equipment, net
873,800

 
829,809

Goodwill
1,014,129

 
1,014,129

Core deposit and other intangibles
18,546

 
25,520

Other real estate owned
12,799

 
18,916

Other assets
880,050

 
894,620

 
$
58,410,927

 
$
57,208,874

 
 
 
 
LIABILITIES AND SHAREHOLDERS’ EQUITY
 
 
 
Deposits:
 
 
 
Noninterest-bearing demand
$
21,572,022

 
$
20,529,124

Interest-bearing:
 
 
 
Savings and money market
24,690,359

 
24,583,636

Time
2,216,206

 
2,406,924

Foreign
441,560

 
328,391

 
48,920,147

 
47,848,075

 
 
 
 
Federal funds and other short-term borrowings
272,391

 
244,223

Long-term debt
944,752

 
1,092,282

Reserve for unfunded lending commitments
81,389

 
81,076

Other liabilities
554,153

 
573,688

Total liabilities
50,772,832

 
49,839,344

 
 
 
 
Shareholders’ equity:
 
 
 
Preferred stock, without par value, authorized 4,400,000 shares
1,004,159

 
1,004,011

Common stock, without par value; authorized 350,000,000 shares; issued and outstanding 204,278,594 and 203,014,903 shares
4,756,288

 
4,723,855

Retained earnings
1,894,623

 
1,769,705

Accumulated other comprehensive income (loss)
(16,975
)
 
(128,041
)
Total shareholders’ equity
7,638,095

 
7,369,530

 
$
58,410,927

 
$
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
September 30,
 
Nine Months Ended
September 30,
2015
 
2014
 
2015
 
2014
Interest income:
 
 
 
 
 
 
 
Interest and fees on loans
$
419,981

 
$
430,416

 
$
1,256,378

 
$
1,298,567

Interest on money market investments
6,018

 
5,483

 
17,021

 
15,501

Interest on securities
30,231

 
24,377

 
86,513

 
76,973

Total interest income
456,230

 
460,276

 
1,359,912

 
1,391,041

Interest expense:
 
 
 
 
 
 
 
Interest on deposits
12,542

 
12,313

 
36,967

 
37,188

Interest on short- and long-term borrowings
18,311

 
31,144

 
56,518

 
104,280

Total interest expense
30,853

 
43,457

 
93,485

 
141,468

Net interest income
425,377

 
416,819

 
1,266,427

 
1,249,573

Provision for loan losses
18,262

 
(54,643
)
 
17,334

 
(109,669
)
Net interest income after provision for loan losses
407,115

 
471,462

 
1,249,093

 
1,359,242

 
 
 
 
 
 
 
 
Noninterest income:
 
 
 
 
 
 
 
Service charges and fees on deposit accounts
43,196

 
43,468

 
126,006

 
126,068

Other service charges, commissions and fees
52,837

 
51,639

 
152,028

 
143,847

Wealth management income
7,496

 
7,438

 
23,271

 
22,495

Loan sales and servicing income
7,728

 
7,592

 
23,816

 
22,020

Capital markets and foreign exchange
6,624

 
5,400

 
19,400

 
16,319

Dividends and other investment income
8,449

 
11,324

 
27,164

 
27,183

Fair value and nonhedge derivative income (loss)
(1,555
)
 
44

 
(799
)
 
(10,429
)
Equity securities gains, net
3,630

 
440

 
11,822

 
3,865

Fixed income securities gains (losses), net
(53
)
 
(13,901
)
 
(138,728
)
 
22,039

Impairment losses on investment securities

 

 

 
(27
)
Less amounts recognized in other comprehensive income

 


 

 

Net impairment losses on investment securities

 

 

 
(27
)
Other
2,461

 
2,627

 
9,076

 
5,854

Total noninterest income
130,813

 
116,071

 
253,056

 
379,234

 
 
 
 
 
 
 
 
Noninterest expense:
 
 
 
 
 
 
 
Salaries and employee benefits
242,023

 
245,518

 
736,675

 
717,680

Occupancy, net
29,477

 
28,495

 
88,911

 
85,739

Furniture, equipment and software
30,416

 
28,524

 
91,376

 
84,454

Other real estate expense, net
(40
)
 
875

 
(111
)
 
2,216

Credit-related expense
6,914

 
6,508

 
20,959

 
20,615

Provision for unfunded lending commitments
1,428

 
(16,095
)
 
313

 
(10,328
)
Professional and legal services
12,699

 
16,588

 
37,292

 
39,754

Advertising
6,136

 
6,094

 
19,622

 
19,295

FDIC premiums
8,500

 
8,204

 
25,228

 
24,143

Amortization of core deposit and other intangibles
2,298

 
2,665

 
6,974

 
8,283

Debt extinguishment cost

 
44,422

 
2,395

 
44,422

Other
56,298

 
66,738

 
168,076

 
206,353

Total noninterest expense
396,149

 
438,536

 
1,197,710

 
1,242,626

Income before income taxes
141,779

 
148,997

 
304,439

 
495,850

Income taxes
40,780

 
53,109

 
97,455

 
179,202

Net income
100,999

 
95,888

 
206,984

 
316,648

Dividends on preferred stock
(16,761
)
 
(16,761
)
 
(48,567
)
 
(56,841
)
Net earnings applicable to common shareholders
$
84,238

 
$
79,127

 
$
158,417

 
$
259,807

 
 
 
 
 
 
 
 
Weighted average common shares outstanding during the period:
 
 
 
 
 
 
 
Basic shares
203,668

 
196,687

 
203,057

 
188,643

Diluted shares
204,155

 
197,271

 
203,511

 
189,260

Net earnings per common share:
 
 
 
 
 
 
 
Basic
$
0.41

 
$
0.40

 
$
0.77

 
$
1.36

Diluted
0.41

 
0.40

 
0.77

 
1.36

See accompanying notes to consolidated financial statements.

4


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

 
 
Three Months Ended
September 30,
 
Nine Months Ended
September 30,
(In thousands)
 
2015
 
2014
 
2015
 
2014
 
 
 
 
 
 
 
 
 
Net income for the period
 
$
100,999

 
$
95,888

 
$
206,984

 
$
316,648

Other comprehensive income, net of tax:
 
 
 
 
 
 
 
 
Net unrealized holding gains on investment securities
 
11,268

 
18,265

 
4,460

 
100,723

Reclassification of HTM securities to AFS securities
 

 

 
10,938

 

Reclassification to earnings for realized net fixed income securities losses (gains)
 
33

 
7,886

 
85,845

 
(20,058
)
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
 

 
276

 

 
835

Net unrealized gains (losses) on other noninterest-bearing investments
 
(1,881
)
 
454

 
94

 
(333
)
Net unrealized holding gains (losses) on derivative instruments
 
10,607

 
(508
)
 
12,941

 
1,011

Reclassification adjustment for increase in interest income recognized in earnings on derivative instruments
 
(1,830
)
 
(463
)
 
(3,212
)
 
(1,021
)
Other comprehensive income
 
18,197

 
25,910

 
111,066

 
81,174

Comprehensive income
 
$
119,196

 
$
121,798

 
$
318,050

 
$
397,822

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
 
 
 
 
 
 
206,984

 
 
 
 
 
206,984

Other comprehensive income, net of tax
 
 
 
 
 
 
 
 
 
111,066

 
 
111,066

Subordinated debt converted to preferred stock
148

 
 
 
(44
)
 
 
 
 
 
 
 
104

Net activity under employee plans and related tax benefits
 
 
1,263,691

 
32,477

 
 
 
 
 
 
 
32,477

Dividends on preferred stock


 
 
 
 
 
(48,567
)
 
 
 
 
 
(48,567
)
Dividends on common stock, $0.16 per share
 
 
 
 
 
 
(32,785
)
 
 
 
 
 
(32,785
)
Change in deferred compensation
 
 
 
 
 
 
(714
)
 
 
 
 
 
(714
)
Balance at September 30, 2015
$
1,004,159

 
204,278,594

 
$
4,756,288

 
$
1,894,623

 
 
$
(16,975
)
 
 
$
7,638,095

 
 
 
 
 
 
 
 
 
 
 
 
 
 
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
 
 
 
 
 
 
316,648

 
 
 
 
 
316,648

Other comprehensive income, net of tax
 
 
 
 
 
 
 
 
 
81,174

 
 
81,174

Issuance of common stock
 
 
17,617,450

 
515,856

 
 
 
 
 
 
 
515,856

Subordinated debt converted to preferred stock
36

 
 
 
(5
)
 
 
 
 
 
 
 
31

Net activity under employee plans and related tax benefits
 
 
603,345

 
22,420

 
 
 
 
 
 
 
22,420

Dividends on preferred stock


 
 
 
 
 
(56,841
)
 
 
 
 
 
(56,841
)
Dividends on common stock, $0.12 per share
 
 
 
 
 
 
(23,039
)
 
 
 
 
 
(23,039
)
Change in deferred compensation
 
 
 
 
 
 
1,347

 
 
 
 
 
1,347

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

 
202,898,491

 
$
4,717,295

 
$
1,711,785

 
 
$
(110,927
)
 
 
$
7,322,159

See accompanying notes to consolidated financial statements.

6


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

Three Months Ended
September 30,
 
Nine Months Ended
September 30,
2015
 
2014
 
2015
 
2014
CASH FLOWS FROM OPERATING ACTIVITIES
 
 
 
 
 
 
 
Net income for the period
$
100,999

 
$
95,888

 
$
206,984

 
$
316,648

Adjustments to reconcile net income to net cash provided by operating activities:
 
 
 
 
 
 
 
Debt extinguishment cost

 
44,422

 
2,395

 
44,422

Provision for credit losses
19,690

 
(70,738
)
 
17,647

 
(119,997
)
Depreciation and amortization
40,281

 
33,860

 
109,563

 
97,414

Fixed income securities losses (gains), net
53

 
13,901

 
138,728

 
(22,039
)
Deferred income tax expense (benefit)
(10,027
)
 
2,960

 
(51,056
)
 
22,368

Net decrease (increase) in trading securities
970

 
1,241

 
(2,950
)
 
(20,868
)
Net decrease in loans held for sale
23,314

 
53,820

 
3,263

 
60,774

Change in other liabilities
21,525

 
33,919

 
(14,738
)
 
(24,598
)
Change in other assets
31,178

 
4,739

 
(1,991
)
 
(8,721
)
Other, net
(15,461
)
 
(5,745
)
 
(21,475
)
 
6,528

Net cash provided by operating activities
212,522

 
208,267

 
386,370

 
351,931

 
 
 
 
 
 
 
 
CASH FLOWS FROM INVESTING ACTIVITIES
 
 
 
 
 
 
 
Net decrease (increase) in money market investments
1,181,378

 
(955,971
)
 
680,209

 
635,594

Proceeds from maturities and paydowns of investment securities
held-to-maturity
26,875

 
20,796

 
87,785

 
58,921

Purchases of investment securities held-to-maturity
(142
)
 
(14,964
)
 
(24,203
)
 
(78,228
)
Proceeds from sales, maturities, and paydowns of investment securities available-for-sale
385,584

 
374,973

 
1,365,851

 
1,417,234

Purchases of investment securities available-for-sale
(1,728,939
)
 
(451,212
)
 
(3,486,509
)
 
(1,125,036
)
Net change in loans and leases
(122,868
)
 
(126,173
)
 
(74,974
)
 
(738,706
)
Purchases of premises and equipment
(38,747
)
 
(26,153
)
 
(106,115
)
 
(138,884
)
Proceeds from sales of other real estate owned
8,019

 
8,200

 
16,592

 
37,112

Other, net
17,610

 
12,799

 
46,935

 
19,796

Net cash provided by (used in) investing activities
(271,230
)
 
(1,157,705
)
 
(1,494,429
)
 
87,803

 
 
 
 
 
 
 
 
CASH FLOWS FROM FINANCING ACTIVITIES
 
 
 
 
 
 
 
Net increase (decrease) in deposits
(16,977
)
 
594,422

 
1,072,072

 
(96,321
)
Net change in short-term funds borrowed
45,267

 
(66,603
)
 
28,168

 
(148,550
)
Repayments of long-term debt
(111,477
)
 
(834,964
)
 
(164,082
)
 
(1,196,123
)
Debt extinguishment costs paid

 
(35,435
)
 
(2,395
)
 
(35,435
)
Proceeds from the issuance of common stock
13,599

 
519,559

 
19,631

 
524,080

Dividends paid on common and preferred stock
(27,420
)
 
(23,243
)
 
(79,699
)
 
(71,191
)
Other, net
172

 
112

 
(4,884
)
 
(3,579
)
Net cash provided by (used in) financing activities
(96,836
)
 
153,848

 
868,811

 
(1,027,119
)
Net decrease in cash and due from banks
(155,544
)
 
(795,590
)
 
(239,248
)
 
(587,385
)
Cash and due from banks at beginning of period
758,238

 
1,381,262

 
841,942

 
1,173,057

Cash and due from banks at end of period
$
602,694

 
$
585,672

 
$
602,694

 
$
585,672

 
 
 
 
 
 
 
 
Cash paid for interest
$
22,162

 
$
41,138

 
$
73,219

 
$
122,807

Net cash paid for income taxes
8,679

 
58,645

 
100,505

 
181,301

See accompanying notes to consolidated financial statements.

7


ZIONS BANCORPORATION AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(Unaudited)
September 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 nine months ended September 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 mergers of its seven subsidiary banks into Zions Bank, whose name will be changed to ZB, N.A. Regional brand names according to geographic location will continue to be used. The Company has received approvals from the Office of the Comptroller of the Currency and the Federal Deposit Insurance Corporation and expects to complete the mergers following the close of business on December 31, 2015.

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 for 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 of the guidance is permitted as of January 1, 2017.
 
January 1, 2018, as extended in August 2015 by ASU 2015-14
 
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
September 30,
 
Nine Months Ended
September 30,
2015
 
2014
 
2015
 
2014
 
 
 
 
 
 
 
 
Loans and leases transferred to other real estate owned
$
3,446

 
$
8,954

 
$
10,098

 
$
20,197

Loans held for sale reclassified as loans and leases
22,299

 
9,658

 
33,042

 
14,739

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:
 
 
September 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
 
$
1,325,501

 
$

 
$
1,325,501

 
$

 
$

 
$
1,325,501

Derivatives (included in other assets)
 
103,119

 

 
103,119

 
(17,207
)
 

 
85,912

 
 
$
1,428,620

 
$

 
$
1,428,620

 
$
(17,207
)
 
$

 
$
1,411,413

Liabilities:
 
 
 
 
 
 
 
 
 
 
 
 
Federal funds and other short-term borrowings
 
$
272,391

 
$

 
$
272,391

 
$

 
$

 
$
272,391

Derivatives (included in other liabilities)
 
86,363

 

 
86,363

 
(17,207
)
 
(37,109
)
 
32,047

 
 
$
358,754

 
$

 
$
358,754

 
$
(17,207
)
 
$
(37,109
)
 
$
304,438


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.
 
September 30, 2015
(In thousands)

Amortized
cost
 
Gross
unrealized
gains
 
Gross
unrealized
losses
 
Estimated fair
value
Held-to-maturity
 
 
 
 
 
 
 
Municipal securities
$
544,168

 
$
9,976

 
$
1,056

 
$
553,088

 
 
 
 
 
 
 
 
Available-for-sale
 
 
 
 
 
 
 
U.S. Government agencies and corporations:
 
 
 
 
 
 
 
Agency securities
1,102,978

 
7,147

 
578

 
1,109,547

Agency guaranteed mortgage-backed securities
2,805,901

 
12,989

 
5,619

 
2,813,271

Small Business Administration loan-backed securities
1,815,766

 
14,177

 
10,779

 
1,819,164

Municipal securities
212,698

 
1,059

 
359

 
213,398

Other debt securities
25,485

 
187

 
2,905

 
22,767

 
5,962,828

 
35,559

 
20,240

 
5,978,147

Money market mutual funds and other
21,773

 
91

 

 
21,864

 
5,984,601

 
35,650

 
20,240

 
6,000,011

Total
$
6,528,769

 
$
45,626

 
$
21,296

 
$
6,553,099



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.

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 nine months of 2014, we recorded a total of $1,294 million par amount of sales and paydowns of CDO securities, resulting in net gains of approximately $22 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 September 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
$
88,169

 
$
88,714

 
$
822,647

 
$
824,744

Principal return after one year through five years
168,734

 
171,164

 
2,314,091

 
2,319,836

Principal return after five years through ten years
152,942

 
158,331

 
1,857,898

 
1,862,624

Principal return after ten years
134,323

 
134,879

 
968,192

 
970,943

 
$
544,168

 
$
553,088

 
$
5,962,828

 
$
5,978,147

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:
 
September 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
$
901

 
$
55,763

 
$
155

 
$
11,681

 
$
1,056

 
$
67,444

 
 
 
 
 
 
 
 
 
 
 
 
Available-for-sale
 
 
 
 
 
 
 
 
 
 
 
U.S. Government agencies and corporations:
 
 
 
 
 
 
 
 
 
 
 
Agency securities
65

 
34,737

 
513

 
137,964

 
578

 
172,701

Agency guaranteed mortgage-backed securities
5,361

 
1,330,271

 
258

 
15,351

 
5,619

 
1,345,622

Small Business Administration loan-backed securities
4,550

 
453,651

 
6,229

 
452,275

 
10,779

 
905,926

Municipal securities
305

 
34,703

 
54

 
4,125

 
359

 
38,828

Other debt securities

 

 
2,905

 
12,097

 
2,905

 
12,097

 
10,281

 
1,853,362

 
9,959

 
621,812

 
20,240

 
2,475,174

Total
$
11,182

 
$
1,909,125

 
$
10,114

 
$
633,493

 
$
21,296

 
$
2,542,618

 
 
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 September 30, 2015 and December 31, 2014, respectively, 146 and 153 HTM and 460 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 September 30, 2015:

OTTI – U.S. Government Agencies and Corporations
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 September 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 third 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 September 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 third 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
September 30, 2015
 
Nine Months Ended
September 30, 2015
HTM

AFS

Total

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

 
$

 
$

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

 

 

 

 
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
September 30, 2014
 
Nine Months Ended
September 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

 
44,929

 
44,929

 

 
57,848

 
57,848

Balance of credit-related OTTI at end of period
$
(9,079
)
 
$
(118,985
)
 
$
(128,064
)
 
$
(9,079
)
 
$
(118,985
)
 
$
(128,064
)

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