10-Q 1 zion-20160630x10q.htm 10-Q Document


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, 2016
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 29, 2016
205,110,866 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,
2016
 
December 31,
2015
(Unaudited)
 
 
ASSETS
 
 
 
Cash and due from banks
$
560,262

 
$
798,319

Money market investments:
 
 
 
Interest-bearing deposits
2,154,959

 
6,108,124

Federal funds sold and security resell agreements
620,469

 
619,758

Investment securities:
 
 
 
Held-to-maturity, at amortized cost (approximate fair value $720,991 and $552,088)
713,392

 
545,648

Available-for-sale, at fair value
9,477,089

 
7,643,116

Trading account, at fair value
118,775

 
48,168

 
10,309,256

 
8,236,932

Loans held for sale
146,512

 
149,880

Loans and leases, net of unearned income and fees
42,501,575

 
40,649,542

Less allowance for loan losses
608,345

 
606,048

Loans held for investment, net of allowance
41,893,230

 
40,043,494

Other noninterest-bearing investments
850,578

 
848,144

Premises and equipment, net
955,540

 
905,462

Goodwill
1,014,129

 
1,014,129

Core deposit and other intangibles
12,281

 
16,272

Other real estate owned
8,354

 
7,092

Other assets
1,117,422

 
916,937

 
$
59,642,992

 
$
59,664,543

LIABILITIES AND SHAREHOLDERS’ EQUITY
 
 
 
Deposits:
 
 
 
Noninterest-bearing demand
$
22,276,600

 
$
22,276,664

Interest-bearing:
 
 
 
Savings and money market
25,540,525

 
25,672,356

Time
2,336,088

 
2,130,680

Foreign
117,708

 
294,391

 
50,270,921

 
50,374,091

Federal funds and other short-term borrowings
270,255

 
346,987

Long-term debt
698,712

 
812,366

Reserve for unfunded lending commitments
64,780

 
74,838

Other liabilities
711,941

 
548,742

Total liabilities
52,016,609

 
52,157,024

Shareholders’ equity:
 
 
 
Preferred stock, without par value, authorized 4,400,000 shares
709,601

 
828,490

Common stock, without par value; authorized 350,000,000 shares; issued and outstanding 205,103,566 and 204,417,093 shares
4,783,061

 
4,766,731

Retained earnings
2,110,069

 
1,966,910

Accumulated other comprehensive income (loss)
23,652

 
(54,612
)
Total shareholders’ equity
7,626,383

 
7,507,519

 
$
59,642,992

 
$
59,664,543

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,
2016
 
2015
 
2016
 
2015
Interest income:
 
 
 
 
 
 
 
Interest and fees on loans
$
433,743

 
$
420,642

 
$
854,251

 
$
836,397

Interest on money market investments
5,564

 
5,785

 
12,593

 
11,003

Interest on securities
47,645

 
28,809

 
95,009

 
56,282

Total interest income
486,952

 
455,236

 
961,853

 
903,682

Interest expense:
 
 
 
 
 
 
 
Interest on deposits
11,869

 
12,321

 
23,714

 
24,425

Interest on short- and long-term borrowings
10,234

 
19,211

 
20,448

 
38,207

Total interest expense
22,103

 
31,532

 
44,162

 
62,632

Net interest income
464,849

 
423,704

 
917,691

 
841,050

Provision for loan losses
34,492

 
566

 
76,637

 
(928
)
Net interest income after provision for loan losses
430,357

 
423,138

 
841,054

 
841,978

Noninterest income:
 
 
 
 
 
 
 
Service charges and fees on deposit accounts
42,108

 
41,616

 
83,369

 
82,810

Other service charges, commissions and fees
51,906

 
46,602

 
101,380

 
89,604

Wealth management income
8,788

 
8,160

 
16,742

 
15,775

Loan sales and servicing income
10,178

 
8,382

 
18,157

 
16,088

Capital markets and foreign exchange
4,545

 
7,275

 
10,212

 
12,776

Dividends and other investment income
6,226

 
9,343

 
10,865

 
18,715

Fair value and nonhedge derivative income (loss)
(1,910
)
 
1,844

 
(4,495
)
 
756

Equity securities gains, net
2,709

 
4,839

 
2,159

 
8,192

Fixed income securities gains (losses), net
25

 
(138,436
)
 
53

 
(138,675
)
Other
1,142

 
5,693

 
4,036

 
6,615

Total noninterest income
125,717

 
(4,682
)
 
242,478

 
112,656

Noninterest expense:
 
 
 
 
 
 
 
Salaries and employee benefits
241,341

 
251,133

 
499,679

 
494,652

Occupancy, net
29,621

 
30,095

 
59,400

 
59,434

Furniture, equipment and software
30,550

 
31,247

 
62,565

 
60,960

Other real estate expense, net
(527
)
 
(445
)
 
(1,856
)
 
(71
)
Credit-related expense
5,845

 
8,106

 
11,779

 
14,045

Provision for unfunded lending commitments
(4,246
)
 
(2,326
)
 
(10,058
)
 
(1,115
)
Professional and legal services
12,229

 
13,110

 
23,700

 
24,593

Advertising
5,268

 
6,511

 
10,896

 
13,486

FDIC premiums
9,580

 
8,609

 
16,734

 
16,728

Amortization of core deposit and other intangibles
1,979

 
2,318

 
3,993

 
4,676

Debt extinguishment cost
106

 
2,395

 
353

 
2,395

Other
50,148

 
48,244

 
100,282

 
102,191

Total noninterest expense
381,894

 
398,997

 
777,467

 
791,974

Income before income taxes
174,180

 
19,459

 
306,065

 
162,660

Income taxes
60,231

 
5,499

 
101,679

 
56,675

Net income
113,949

 
13,960

 
204,386

 
105,985

Dividends on preferred stock
(13,543
)
 
(15,060
)
 
(25,203
)
 
(31,806
)
Preferred stock redemption
(9,759
)
 

 
(9,759
)
 

Net earnings applicable to common shareholders
$
90,647

 
$
(1,100
)
 
$
169,424

 
$
74,179

Weighted average common shares outstanding during the period:
 
 
 
 
 
 
 
Basic shares
204,236

 
202,888

 
204,113

 
202,746

Diluted shares
204,536

 
202,888

 
204,317

 
203,295

Net earnings per common share:
 
 
 
 
 
 
 
Basic
$
0.44

 
$
(0.01
)
 
$
0.82

 
$
0.36

Diluted
0.44

 
(0.01
)
 
0.82

 
0.36

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)
 
2016
 
2015
 
2016
 
2015
 
 
 
 
 
 
 
 
 
Net income for the period
 
$
113,949

 
$
13,960

 
$
204,386

 
$
105,985

Other comprehensive income, net of tax:
 
 
 
 
 
 
 
 
Net unrealized holding gains (losses) on investment securities
 
32,859

 
(7,294
)
 
65,027

 
(6,808
)
Reclassification of HTM securities to AFS securities
 

 

 

 
10,938

Reclassification to earnings for realized net fixed income securities losses (gains)
 
(16
)
 
85,664

 
(33
)
 
85,812

Net unrealized gains (losses) on other noninterest-bearing investments
 
(566
)
 
2,339

 
(136
)
 
1,975

Net unrealized holding gains (losses) on derivative instruments
 
4,850

 
(219
)
 
17,751

 
2,334

Reclassification adjustment for increase in interest income recognized in earnings on derivative instruments
 
(1,822
)
 
(753
)
 
(3,680
)
 
(1,382
)
Pension and postretirement
 

 

 
(665
)
 

Other comprehensive income
 
35,305

 
79,737

 
78,264

 
92,869

Comprehensive income
 
$
149,254

 
$
93,697

 
$
282,650

 
$
198,854

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, 2015
$
828,490

 
204,417,093

 
$
4,766,731

 
$
1,966,910

 
 
$
(54,612
)
 
 
$
7,507,519

Net income for the period
 
 
 
 
 
 
204,386

 
 
 
 
 
204,386

Other comprehensive income, net of tax
 
 
 
 
 
 
 
 
 
78,264

 
 
78,264

Preferred stock redemption
(118,889
)
 
 
 
2,504

 
(9,759
)
 
 
 
 
 
(126,144
)
Net activity under employee plans and related tax benefits
 
 
686,473

 
13,826

 
 
 
 
 
 
 
13,826

Dividends on preferred stock


 
 
 
 
 
(25,203
)
 
 
 
 
 
(25,203
)
Dividends on common stock, $0.12 per share
 
 
 
 
 
 
(24,753
)
 
 
 
 
 
(24,753
)
Change in deferred compensation
 
 
 
 
 
 
(1,512
)
 
 
 
 
 
(1,512
)
Balance at June 30, 2016
$
709,601

 
205,103,566

 
$
4,783,061

 
$
2,110,069

 
 
$
23,652

 
 
$
7,626,383

 
 
 
 
 
 
 
 
 
 
 
 
 
 
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

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,
2016
 
2015
 
2016
 
2015
CASH FLOWS FROM OPERATING ACTIVITIES
 
 
 
 
 
 
 
Net income for the period
$
113,949

 
$
13,960

 
$
204,386

 
$
105,985

Adjustments to reconcile net income to net cash provided by operating activities:
 
 
 
 
 
 
 
Provision for credit losses
30,246

 
(1,760
)
 
66,579

 
(2,043
)
Depreciation and amortization
45,297

 
35,113

 
86,033

 
69,282

Fixed income securities losses (gains), net
(25
)
 
138,436

 
(53
)
 
138,675

Deferred income tax benefit
(6,109
)
 
(44,431
)
 
(10,789
)
 
(41,029
)
Net increase in trading securities
(52,937
)
 
(2,899
)
 
(70,607
)
 
(3,920
)
Net decrease (increase) in loans held for sale
(35,309
)
 
(23,568
)
 
3,257

 
(20,051
)
Change in other liabilities
144,867

 
(61,829
)
 
162,637

 
(36,263
)
Change in other assets
(225,202
)
 
32,079

 
(217,901
)
 
(33,169
)
Other, net
(2,973
)
 
(70
)
 
11,024

 
(3,619
)
Net cash provided by operating activities
11,804

 
85,031

 
234,566

 
173,848

 
 
 
 
 
 
 
 
CASH FLOWS FROM INVESTING ACTIVITIES
 
 
 
 
 
 
 
Net decrease (increase) in money market investments
1,850,874

 
(754,443
)
 
3,952,454

 
(501,169
)
Proceeds from maturities and paydowns of investment securities
held-to-maturity
10,415

 
21,587

 
32,451

 
60,910

Purchases of investment securities held-to-maturity
(92,161
)
 
(1,485
)
 
(200,302
)
 
(24,061
)
Proceeds from sales, maturities, and paydowns of investment securities available-for-sale
475,056

 
751,373

 
2,573,582

 
980,267

Purchases of investment securities available-for-sale
(1,243,709
)
 
(972,714
)
 
(4,366,953
)
 
(1,757,570
)
Loans purchased
(104,066
)
 

 
(104,066
)
 

Other net change in loans held for investment
(1,018,557
)
 
148,336

 
(1,826,915
)
 
47,894

Purchases of premises and equipment
(51,859
)
 
(33,835
)
 
(91,874
)
 
(67,368
)
Proceeds from sales of other real estate owned
4,437

 
5,172

 
8,741

 
8,573

Other, net
10,825

 
25,974

 
260

 
29,325

Net cash used in investing activities
(158,745
)
 
(810,035
)
 
(22,622
)
 
(1,223,199
)
 
 
 
 
 
 
 
 
CASH FLOWS FROM FINANCING ACTIVITIES
 
 
 
 
 
 
 
Net increase (decrease) in deposits
406,633

 
813,764

 
(79,601
)
 
1,089,049

Net change in short-term funds borrowed
38,067

 
23,527

 
(76,732
)
 
(17,099
)
Cash paid for preferred stock redemption
(126,144
)
 

 
(126,144
)
 

Repayments of long-term debt
(104,447
)
 
(44,420
)
 
(115,083
)
 
(52,605
)
Proceeds from the issuance of common stock
2,948

 
5,070

 
3,486

 
6,032

Dividends paid on common and preferred stock
(22,795
)
 
(29,045
)
 
(50,216
)
 
(52,279
)
Other, net
(4,862
)
 
(6,512
)
 
(5,711
)
 
(7,451
)
Net cash provided by (used in) financing activities
189,400

 
762,384

 
(450,001
)
 
965,647

Net increase (decrease) in cash and due from banks
42,459

 
37,380

 
(238,057
)
 
(83,704
)
Cash and due from banks at beginning of period
517,803

 
720,858

 
798,319

 
841,942

Cash and due from banks at end of period
$
560,262

 
$
758,238

 
$
560,262

 
$
758,238

 
 
 
 
 
 
 
 
Cash paid for interest
$
24,622

 
$
28,938

 
$
43,052

 
$
51,057

Net cash paid for income taxes
101,512

 
92,326

 
101,428

 
91,826

See accompanying notes to consolidated financial statements.

7


ZIONS BANCORPORATION AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(Unaudited)
June 30, 2016
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”). Changes to the ASC are made with Accounting Standards Updates (“ASU”) that include consensus issues of the Emerging Issues Task Force (“EITF”). In certain cases, ASUs are issued jointly with International Financial Reporting Standards (“IFRS”).
Operating results for the three and six months ended June 30, 2016 and 2015 are not necessarily indicative of the results that may be expected in future periods. In preparing the consolidated financial statements, we are required to make estimates and assumptions that affect the amounts reported in the financial statements and accompanying notes. Actual results could differ from those estimates. The consolidated balance sheet at December 31, 2015 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 2015 Annual Report on Form 10-K. Certain prior period amounts have been reclassified to conform with the current period presentation. These reclassifications did not affect net income or shareholders’ equity.
Zions Bancorporation is a financial holding company headquartered in Salt Lake City, Utah, and with its subsidiaries, provides a full range of banking and related services. Following the close of business on December 31, 2015, the Company completed the merger of its subsidiary banks and other subsidiaries into a single bank, ZB, N.A. The Company continues to manage its banking operations through seven separately managed and branded segments in 11 Western and Southwestern states as follows: Zions Bank, in Utah, Idaho and Wyoming; Amegy Bank (“Amegy”), 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. Pursuant to a Board resolution adopted November 21, 2014, The Commerce Bank of Oregon merged into TCBW following the close of business on March 31, 2015.



8


ZIONS BANCORPORATION AND SUBSIDIARIES

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 2016-09, Stock Compensation (Topic 718): Improvements to Share-Based Payment Accounting
 
The standard requires entities to recognize the income tax effects of share-based payment awards in the income statement when the awards vest or are settled (i.e. the additional paid-in capital pools will be eliminated). The guidance on employers’ accounting for an employee’s use of shares to satisfy the employer’s statutory income tax withholding obligation and for forfeitures is changing. The standard also provides an entity to make an entity-wide accounting policy election to either estimate the number of awards that are expected to vest or account for forfeitures when they occur.
 
January 1, 2017
 
We are currently evaluating the potential impact of this new guidance on the Company’s financial statements.
 
 
 
 
 
 
 
ASU 2016-01, Financial Instruments – Overall (Subtopic 825-10): Recognition and Measurement of Financial Assets and Financial Liabilities
 
The standard provides revised accounting guidance related to the accounting for and reporting of financial instruments. Some of the main provisions include:
– Equity investments that do not result in consolidation and are not accounted for under the equity method would be measured at fair value through net income, unless they qualify for the proposed practicability exception for investments that do not have readily determinable fair values.
– Changes in instrument-specific credit risk for financial liabilities that are measured under the fair value option would be recognized in other comprehensive income.
– Elimination of the requirement to disclose the methods and significant assumptions used to estimate the fair value of financial instruments carried at amortized cost. However it will require the use of exit price when measuring the fair value of financial instruments measured at amortized cost for disclosure purposes.
 
January 1, 2018
 
We do not currently 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), and subsequent related ASUs


 
The core principle of the new guidance 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, these new standards affect 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
 
While we currently do not expect these standards will have a material impact on the Company’s financial statements, we are still in process of conducting our evaluation.
 
 
 
 
 
 
 
ASU 2016-02, Leases (Topic 842)
 
The standard requires that a lessee recognize assets and liabilities for leases with lease terms of more than 12 months. The recognition, measurement, and presentation of expenses and cash flows arising from a lease by a lessee primarily will depend on its classification as a finance or operating lease. However, the standard will require both types of leases to be recognized on the balance sheet. It also requires disclosures to better understand the amount, timing, and uncertainty of cash flows arising from leases. These disclosures include qualitative and quantitative requirements, providing additional information about the amounts recorded in the financial statements.
 
January 1, 2019
 
We are currently evaluating the potential impact of this new guidance on the Company’s financial statements.

9


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 2016-13,
Credit Losses (Topic 326): Measurement of Credit Losses on Financial Instruments
 
The standard significantly changes how entities will measure credit losses for most financial assets and certain other instruments that are not measured at fair value through net income. The standard replaces today’s “incurred loss” approach with an “expected loss” model for instruments such as loans and held-to-maturity securities that are measured at amortized cost. The standard requires credit losses relating to available-for-sale debt securities to be recorded through an allowance for credit losses rather than a reduction of the carrying amount. It also changes the accounting for purchased credit-impaired debt securities and loans. The standard retains many of the current disclosure requirements in current GAAP and expands certain disclosure requirements. Early adoption of the guidance is permitted as of January 1, 2019.
 
January 1, 2020
 
While we 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 2015-02, Consolidation (Topic 810): Amendments to the Consolidation Analysis
 
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.
 
January 1, 2016
 
We currently do not consolidate any VIEs and our adoption of this standard did not have a material impact on the Company’s financial statements.
 
 
 
 
 
 
 
ASU 2015-03, Interest – Imputation of Interest (Subtopic 835-30): Simplifying the Presentation of Debt Issuance Costs
 
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.
 
January 1, 2016
 
Our adoption of this standard did not have a material impact on the accompanying financial statements.
 
 
 
 
 
 
 
ASU 2015-05, Intangibles – Goodwill and Other – Internal-Use Software (Subtopic 350-40): Customer’s Accounting for Fees Paid in a Cloud Computing Arrangement
 
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.
 
January 1, 2016
 
We adopted this standard on a prospective basis and it did not have a material impact on the accompanying financial statements.
 
 
 
 
 
 
 
ASU 2015-07, Fair Value Measurement (Topic 820): Disclosures for Investments in Certain Entities That Calculate Net Asset Value per Share (or its Equivalent)
 
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.
 
January 1, 2016
 
Our adoption of this standard did not have a material impact on the accompanying financial statements.

10


ZIONS BANCORPORATION AND SUBSIDIARIES

3.
SUPPLEMENTAL CASH FLOW INFORMATION
Noncash activities are summarized as follows:
(In thousands)
Three Months Ended
June 30,
 
Six Months Ended
June 30,
2016
 
2015
 
2016
 
2015
 
 
 
 
 
 
 
 
Loans held for investment transferred to other real estate owned
$
1,318

 
$
3,084

 
$
7,316

 
$
6,652

Loans held for sale reclassified to (from) loans held for investment
1,912

 
(2,395
)
 
3,888

 
10,743

Adjusted 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, 2016
(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
 
$
620,469

 
$

 
$
620,469

 
$

 
$

 
$
620,469

Derivatives (included in other assets)
 
152,466

 

 
152,466

 
(28,496
)
 

 
123,970

 
 
$
772,935

 
$

 
$
772,935

 
$
(28,496
)
 
$

 
$
744,439

Liabilities:
 
 
 
 
 
 
 
 
 
 
 
 
Federal funds and other short-term borrowings
 
$
270,255

 
$

 
$
270,255

 
$

 
$

 
$
270,255

Derivatives (included in other liabilities)
 
127,757

 

 
127,757

 
(28,496
)
 
(89,151
)
 
10,110

 
 
$
398,012

 
$

 
$
398,012

 
$
(28,496
)
 
$
(89,151
)
 
$
280,365

 
 
December 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
 
$
619,758

 
$

 
$
619,758

 
$

 
$

 
$
619,758

Derivatives (included in other assets)
 
77,638

 

 
77,638

 
(6,990
)
 

 
70,648

 
 
$
697,396

 
$

 
$
697,396

 
$
(6,990
)
 
$

 
$
690,406

Liabilities:
 
 
 
 
 
 
 
 
 
 
 
 
Federal funds and other short-term borrowings
 
$
346,987

 
$

 
$
346,987

 
$

 
$

 
$
346,987

Derivatives (included in other liabilities)
 
72,568

 

 
72,568

 
(6,990
)
 
(60,923
)
 
4,655

 
 
$
419,555

 
$

 
$
419,555

 
$
(6,990
)
 
$
(60,923
)
 
$
351,642

Security repurchase and reverse repurchase (“resell”) 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.


11


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.
 
June 30, 2016
(In thousands)

Amortized
cost
 
Gross unrealized gains
 
Gross unrealized losses
 
Estimated
fair value
Held-to-maturity
 
 
 
 
 
 
 
Municipal securities
$
713,392

 
$
12,522

 
$
4,923

 
$
720,991

Available-for-sale
 
 
 
 
 
 
 
U.S. Government agencies and corporations:
 
 
 
 
 
 
 
Agency securities
1,668,158

 
28,570

 
600

 
1,696,128

Agency guaranteed mortgage-backed securities
4,869,173

 
46,097

 
4,827

 
4,910,443

Small Business Administration loan-backed securities
2,092,969

 
11,383

 
14,930

 
2,089,422

Municipal securities
659,432

 
14,144

 
309

 
673,267

Other debt securities
25,402

 
141

 
3,987

 
21,556

 
9,315,134

 
100,335

 
24,653

 
9,390,816

Money market mutual funds and other
86,156

 
117

 

 
86,273

 
9,401,290

 
100,452

 
24,653

 
9,477,089

Total
$
10,114,682

 
$
112,974

 
$
29,576

 
$
10,198,080

 
December 31, 2015
(In thousands) 

Amortized
cost
 
Gross unrealized gains
 
Gross unrealized losses
 
Estimated
fair value
Held-to-maturity
 
 
 
 
 
 
 
Municipal securities
$
545,648

 
$
11,218

 
$
4,778

 
$
552,088

Available-for-sale
 
 
 
 
 
 
 
U.S. Government agencies and corporations:
 
 
 
 
 
 
 
Agency securities
1,231,740

 
4,313

 
2,658

 
1,233,395

Agency guaranteed mortgage-backed securities
3,964,593

 
7,919

 
36,037

 
3,936,475

Small Business Administration loan-backed securities
1,932,817

 
12,602

 
14,445

 
1,930,974

Municipal securities
417,374

 
2,177

 
856

 
418,695

Other debt securities
25,454

 
152

 
2,665

 
22,941

 
7,571,978

 
27,163

 
56,661

 
7,542,480

Money market mutual funds and other
100,612

 
61

 
37

 
100,636

 
7,672,590

 
27,224

 
56,698

 
7,643,116

Total
$
8,218,238

 
$
38,442

 
$
61,476

 
$
8,195,204

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.
Maturities
The amortized cost and estimated fair value of investment debt securities are shown subsequently as of June 30, 2016 by expected timing of principal payments. Actual principal payments may differ from contractual or expected

12


ZIONS BANCORPORATION AND SUBSIDIARIES

principal payments 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
 
 
 
 
 
 
 
 
Principal return in one year or less
$
72,693

 
$
72,938

 
$
1,295,398

 
$
1,305,827

Principal return after one year through five years
247,119

 
251,539

 
3,773,685

 
3,801,514

Principal return after five years through ten years
234,328

 
239,120

 
2,720,386

 
2,753,721

Principal return after ten years
159,252

 
157,394

 
1,525,665

 
1,529,754

 
$
713,392

 
$
720,991

 
$
9,315,134

 
$
9,390,816

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, 2016
 
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
$
4,280

 
$
145,639

 
$
643

 
$
12,387

 
$
4,923

 
$
158,026

Available-for-sale
 
 
 
 
 
 
 
 
 
 
 
U.S. Government agencies and corporations:
 
 
 
 
 
 
 
 
 
 
 
Agency securities
87

 
23,856

 
513

 
125,850

 
600

 
149,706

Agency guaranteed mortgage-backed securities
1,004

 
271,185

 
3,823

 
386,971

 
4,827

 
658,156

Small Business Administration loan-backed securities
4,256

 
582,167

 
10,674

 
552,261

 
14,930

 
1,134,428

Municipal securities
45

 
24,682

 
264

 
13,879

 
309

 
38,561

Other

 

 
3,987

 
11,016

 
3,987

 
11,016

 
5,392

 
901,890

 
19,261

 
1,089,977

 
24,653

 
1,991,867

Mutual funds and other

 

 

 

 

 

 
5,392

 
901,890

 
19,261

 
1,089,977

 
24,653

 
1,991,867

Total
$
9,672

 
$
1,047,529

 
$
19,904

 
$
1,102,364

 
$
29,576

 
$
2,149,893

 
December 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
$
4,521

 
$
122,197

 
$
257

 
$
13,812

 
$
4,778

 
$
136,009

Available-for-sale
 
 
 
 
 
 
 
 
 
 
 
U.S. Government agencies and corporations:
 
 
 
 
 
 
 
 
 
 
 
Agency securities
2,176

 
559,196

 
482

 
131,615

 
2,658

 
690,811

Agency guaranteed mortgage-backed securities
34,583

 
3,639,824

 
1,454

 
65,071

 
36,037

 
3,704,895

Small Business Administration loan-backed securities
5,348

 
567,365

 
9,097

 
535,376

 
14,445

 
1,102,741

Municipal securities
735

 
102,901

 
121

 
5,733

 
856

 
108,634

Other

 

 
2,665

 
12,337

 
2,665

 
12,337

 
42,842

 
4,869,286

 
13,819

 
750,132

 
56,661

 
5,619,418

Mutual funds and other
37

 
35,488

 

 

 
37

 
35,488

 
42,879

 
4,904,774

 
13,819

 
750,132

 
56,698

 
5,654,906

Total
$
47,400

 
$
5,026,971

 
$
14,076

 
$
763,944

 
$
61,476

 
$
5,790,915


13


ZIONS BANCORPORATION AND SUBSIDIARIES

At June 30, 2016 and December 31, 2015, respectively, 135 and 187 HTM and 470 and 709 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 other comprehensive income (“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 2015 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, 2016:
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, 2016, 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 2016.
The following is a tabular rollforward of the total amount of credit-related OTTI:
(In thousands)

Three Months Ended
June 30, 2016
 
Six Months Ended
June 30, 2016
HTM

AFS

Total

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

 
$

 
$

 
$

 
$

 
$

Reductions for securities sold or paid off during the period

 

 

 

 

 

Reclassification of securities from HTM to AFS

 

 

 

 

 

Balance of credit-related OTTI at end of period
$

 
$

 
$

 
$

 
$

 
$

(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
$

 
$

 
$

 
$

 
$

 
$



14


ZIONS BANCORPORATION AND SUBSIDIARIES

The following summarizes gains and losses, including OTTI, that were recognized in the statement of income:
 
 
Three Months Ended
 
Six Months Ended
 
 
June 30, 2016
 
June 30, 2015
 
June 30, 2016
 
June 30, 2015
 
(In thousands)
Gross gains
 
Gross
losses
 
Gross gains
 
Gross losses
 
Gross gains
 
Gross
losses
 
Gross gains
 
Gross losses
 
 
Investment securities:
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
Held-to-maturity
$

 
$

 
$

 
$

 
$

 
$

 
$
1

 
$

 
Available-for-sale
30

 
5

 
7,402

 
146,315

 
60

 
7

 
8,360

 
147,513

 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
Other noninterest-bearing investments
2,711

 
2

 
6,008

 
692

 
5,898

 
3,739

 
9,603

 
934

 
 
2,741

 
7

 
13,410

 
147,007

 
5,958

 
3,746

 
17,964

 
148,447

 
Net gains (losses)
 
 
$
2,734

 
 
 
$
(133,597
)
 
 
 
$
2,212

 
 
 
$
(130,483
)
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
Statement of income information:
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
Equity securities gains, net
 
 
$
2,709

 
 
 
$
4,839

 
 
 
$
2,159

 
 
 
$
8,192

 
Fixed income securities gains (losses), net
 
 
25

 
 
 
(138,436
)
 
 
 
53

 
 
 
(138,675
)
 
Net gains (losses)
 
 
$
2,734

 
 
 
$
(133,597
)
 
 
 
$
2,212

 
 
 
$
(130,483
)
Interest income by security type is as follows:
(In thousands)
Three Months Ended
June 30, 2016
 
Six Months Ended
June 30, 2016
 
Taxable
 
Nontaxable
 
Total
 
Taxable
 
Nontaxable
 
Total
Investment securities:
 
 
 
 
 
 
 
 
 
 
 
Held-to-maturity
$
2,572

 
$
3,158

 
$
5,730

 
$
5,176

 
$
5,884

 
$
11,060

Available-for-sale
38,577

 
2,581

 
41,158

 
78,184

 
4,536

 
82,720

Trading
757

 

 
757

 
1,229

 

 
1,229

 
$
41,906

 
$
5,739

 
$
47,645

 
$
84,589

 
$
10,420

 
$
95,009

(In thousands)
Three Months Ended
June 30, 2015
 
Six Months Ended
June 30, 2015
 
Taxable