10-Q 1 zion-20160930x10q.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 September 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 October 31, 2016
203,718,022 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,
2016
 
December 31,
2015
(Unaudited)
 
 
ASSETS
 
 
 
Cash and due from banks
$
553,152

 
$
798,319

Money market investments:
 
 
 
Interest-bearing deposits
1,489,134

 
6,108,124

Federal funds sold and security resell agreements
1,675,645

 
619,758

Investment securities:
 
 
 
Held-to-maturity, at amortized cost (approximate fair value $717,822 and $552,088)
715,279

 
545,648

Available-for-sale, at fair value
10,358,083

 
7,643,116

Trading account, at fair value
108,004

 
48,168

 
11,181,366

 
8,236,932

Loans held for sale
160,287

 
149,880

Loans and leases, net of unearned income and fees
42,539,720

 
40,649,542

Less allowance for loan losses
597,185

 
606,048

Loans held for investment, net of allowance
41,942,535

 
40,043,494

Other noninterest-bearing investments
894,110

 
848,144

Premises, equipment and software, net
986,553

 
905,462

Goodwill
1,014,129

 
1,014,129

Core deposit and other intangibles
10,329

 
16,272

Other real estate owned
8,358

 
7,092

Other assets
1,123,262

 
916,937

 
$
61,038,860

 
$
59,664,543

LIABILITIES AND SHAREHOLDERS’ EQUITY
 
 
 
Deposits:
 
 
 
Noninterest-bearing demand
$
22,710,778

 
$
22,276,664

Interest-bearing:
 
 
 
Savings and money market
25,502,628

 
25,672,356

Time
2,516,493

 
2,130,680

Foreign
118,762

 
294,391

 
50,848,661

 
50,374,091

Federal funds and other short-term borrowings
1,115,561

 
346,987

Long-term debt
570,385

 
812,366

Reserve for unfunded lending commitments
61,615

 
74,838

Other liabilities
763,331

 
548,742

Total liabilities
53,359,553

 
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 203,850,072 and 204,417,093 shares
4,747,912

 
4,766,731

Retained earnings
2,211,793

 
1,966,910

Accumulated other comprehensive income (loss)
10,001

 
(54,612
)
Total shareholders’ equity
7,679,307

 
7,507,519

 
$
61,038,860

 
$
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
September 30,
 
Nine Months Ended
September 30,
2016
 
2015
 
2016
 
2015
Interest income:
 
 
 
 
 
 
 
Interest and fees on loans
$
436,424

 
$
419,981

 
$
1,290,675

 
$
1,256,378

Interest on money market investments
4,934

 
6,018

 
17,527

 
17,021

Interest on securities
49,337

 
30,231

 
144,346

 
86,513

Total interest income
490,695

 
456,230

 
1,452,548

 
1,359,912

Interest expense:
 
 
 
 
 
 
 
Interest on deposits
12,549

 
12,542

 
36,263

 
36,967

Interest on short- and long-term borrowings
8,959

 
18,311

 
29,407

 
56,518

Total interest expense
21,508

 
30,853

 
65,670

 
93,485

Net interest income
469,187

 
425,377

 
1,386,878

 
1,266,427

Provision for loan losses
18,825

 
18,262

 
95,462

 
17,334

Net interest income after provision for loan losses
450,362

 
407,115

 
1,291,416

 
1,249,093

Noninterest income:
 
 
 
 
 
 
 
Service charges and fees on deposit accounts
44,490

 
43,196

 
127,859

 
126,006

Other service charges, commissions and fees
54,141

 
47,968

 
155,521

 
137,572

Wealth management income
9,973

 
7,496

 
26,715

 
23,271

Loan sales and servicing income
11,301

 
7,728

 
29,458

 
23,816

Capital markets and foreign exchange
5,726

 
6,624

 
15,938

 
19,400

Dividends and other investment income
9,045

 
8,449

 
19,910

 
27,164

Fair value and nonhedge derivative loss
(184
)
 
(1,555
)
 
(4,679
)
 
(799
)
Equity securities gains, net
8,441

 
3,630

 
10,600

 
11,822

Fixed income securities gains (losses), net
39

 
(53
)
 
92

 
(138,728
)
Other
1,915

 
2,461

 
5,951

 
9,076

Total noninterest income
144,887

 
125,944

 
387,365

 
238,600

Noninterest expense:
 
 
 
 
 
 
 
Salaries and employee benefits
242,251

 
242,023

 
741,930

 
736,675

Occupancy, net
33,536

 
29,477

 
92,936

 
88,911

Furniture, equipment and software, net
29,090

 
30,416

 
91,655

 
91,376

Other real estate expense, net
(137
)
 
(40
)
 
(1,993
)
 
(111
)
Credit-related expense
6,825

 
6,914

 
18,604

 
20,959

Provision for unfunded lending commitments
(3,165
)
 
1,428

 
(13,223
)
 
313

Professional and legal services
14,473

 
12,699

 
38,173

 
37,292

Advertising
5,985

 
6,136

 
16,881

 
19,622

FDIC premiums
11,673

 
8,500

 
28,407

 
25,228

Amortization of core deposit and other intangibles
1,951

 
2,298

 
5,944

 
6,974

Debt extinguishment cost

 

 
353

 
2,395

Other
60,810

 
51,429

 
161,092

 
153,620

Total noninterest expense
403,292

 
391,280

 
1,180,759

 
1,183,254

Income before income taxes
191,957

 
141,779

 
498,022

 
304,439

Income taxes
64,694

 
40,780

 
166,373

 
97,455

Net income
127,263

 
100,999

 
331,649

 
206,984

Dividends on preferred stock
(10,368
)
 
(16,761
)
 
(35,571
)
 
(48,567
)
Preferred stock redemption

 

 
(9,759
)
 

Net earnings applicable to common shareholders
$
116,895

 
$
84,238

 
$
286,319

 
$
158,417

Weighted average common shares outstanding during the period:
 
 
 
 
 
 
 
Basic shares
204,312

 
203,668

 
204,180

 
203,057

Diluted shares
204,714

 
204,155

 
204,425

 
203,511

Net earnings per common share:
 
 
 
 
 
 
 
Basic
$
0.57

 
$
0.41

 
$
1.39

 
$
0.77

Diluted
0.57

 
0.41

 
1.39

 
0.77

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)
2016
 
2015
 
2016
 
2015
 
 
 
 
 
 
 
 
Net income for the period
$
127,263

 
$
100,999

 
$
331,649

 
$
206,984

Other comprehensive income (loss), net of tax:
 
 
 
 
 
 
 
Net unrealized holding gains (losses) on investment securities
(10,711
)
 
11,268

 
54,316

 
4,460

Reclassification of held-to-maturity securities to available-for-sale securities

 

 

 
10,938

Reclassification to earnings for realized net fixed income securities losses (gains)
(24
)
 
33

 
(57
)
 
85,845

Net unrealized gains (losses) on other noninterest-bearing investments
2,158

 
(1,881
)
 
2,022

 
94

Net unrealized holding gains (losses) on derivative instruments
(3,336
)
 
10,607

 
14,415

 
12,941

Reclassification adjustment for increase in interest income recognized in earnings on derivative instruments
(1,738
)
 
(1,830
)
 
(5,418
)
 
(3,212
)
Pension and postretirement

 

 
(665
)
 

Other comprehensive income (loss)
(13,651
)
 
18,197

 
64,613

 
111,066

Comprehensive income
$
113,612

 
$
119,196

 
$
396,262

 
$
318,050

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
 
 
 
 
 
 
331,649

 
 
 
 
 
331,649

Other comprehensive income, net of tax
 
 
 
 
 
 
 
 
 
64,613

 
 
64,613

Preferred stock redemption
(118,889
)
 
 
 
2,504

 
(9,759
)
 
 
 
 
 
(126,144
)
Common stock redeemed and retired
 
 
(1,468,800
)
 
(45,029
)
 
 
 
 
 
 
 
(45,029
)
Net activity under employee plans and related tax benefits
 
 
901,779

 
23,706

 
 
 
 
 
 
 
23,706

Dividends on preferred stock


 
 
 
 
 
(35,571
)
 
 
 
 
 
(35,571
)
Dividends on common stock, $0.20 per share
 
 
 
 
 
 
(41,298
)
 
 
 
 
 
(41,298
)
Change in deferred compensation
 
 
 
 
 
 
(138
)
 
 
 
 
 
(138
)
Balance at September 30, 2016
$
709,601

 
203,850,072

 
$
4,747,912

 
$
2,211,793

 
 
$
10,001

 
 
$
7,679,307

 
 
 
 
 
 
 
 
 
 
 
 
 
 
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

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,
2016
 
2015
 
2016
 
2015
CASH FLOWS FROM OPERATING ACTIVITIES
 
 
 
 
 
 
 
Net income for the period
$
127,263

 
$
100,999

 
$
331,649

 
$
206,984

Adjustments to reconcile net income to net cash provided by operating activities:
 
 
 
 
 
 
 
Provision for credit losses
15,660

 
19,690

 
82,239

 
17,647

Depreciation and amortization
49,858

 
40,281

 
135,891

 
109,563

Fixed income securities losses (gains), net
(39
)
 
53

 
(92
)
 
138,728

Deferred income tax expense (benefit)
1,976

 
(10,027
)
 
(8,813
)
 
(51,056
)
Net decrease (increase) in trading securities
10,771

 
970

 
(59,836
)
 
(2,950
)
Net decrease (increase) in loans held for sale
(12,447
)
 
23,314

 
(9,190
)
 
3,263

Change in other liabilities
53,051

 
21,525

 
215,688

 
(14,738
)
Change in other assets
(4,477
)
 
31,178

 
(222,378
)
 
(1,991
)
Other, net
(13,337
)
 
(15,461
)
 
(2,313
)
 
(19,080
)
Net cash provided by operating activities
228,279

 
212,522

 
462,845

 
386,370

 
 
 
 
 
 
 
 
CASH FLOWS FROM INVESTING ACTIVITIES
 
 
 
 
 
 
 
Net decrease (increase) in money market investments
(389,351
)
 
1,181,378

 
3,563,103

 
680,209

Proceeds from maturities and paydowns of investment securities
held-to-maturity
33,312

 
26,875

 
65,763

 
87,785

Purchases of investment securities held-to-maturity
(35,206
)
 
(142
)
 
(235,508
)
 
(24,203
)
Proceeds from sales, maturities, and paydowns of investment securities available-for-sale
683,330

 
385,584

 
3,256,912

 
1,365,851

Purchases of investment securities available-for-sale
(1,606,852
)
 
(1,728,939
)
 
(5,973,805
)
 
(3,486,509
)
Loans purchased

 

 
(104,066
)
 

Net change in loans held for investment
(73,217
)
 
(122,868
)
 
(1,900,132
)
 
(74,974
)
Purchases of premises, equipment and software
(51,307
)
 
(38,747
)
 
(143,181
)
 
(106,115
)
Proceeds from sales of other real estate owned
6,405

 
8,019

 
15,146

 
16,592

Other, net
(23,654
)
 
17,610

 
(23,394
)
 
46,935

Net cash used in investing activities
(1,456,540
)
 
(271,230
)
 
(1,479,162
)
 
(1,494,429
)
 
 
 
 
 
 
 
 
CASH FLOWS FROM FINANCING ACTIVITIES
 
 
 
 
 
 
 
Net increase (decrease) in deposits
576,129

 
(16,977
)
 
496,528

 
1,072,072

Net change in short-term funds borrowed
845,306

 
45,267

 
768,574

 
28,168

Cash paid for preferred stock redemption

 

 
(126,144
)
 

Repayments of long-term debt
(128,910
)
 
(111,477
)
 
(243,993
)
 
(164,082
)
Proceeds from the issuance of common stock
4,661

 
13,599

 
8,147

 
19,631

Dividends paid on common and preferred stock
(30,891
)
 
(27,420
)
 
(81,107
)
 
(79,699
)
Repurchases of company common stock through buyback program
(45,029
)
 

 
(45,029
)
 

Other, net
(115
)
 
172

 
(5,826
)
 
(7,279
)
Net cash provided by (used in) financing activities
1,221,151

 
(96,836
)
 
771,150

 
868,811

Net decrease in cash and due from banks
(7,110
)
 
(155,544
)
 
(245,167
)
 
(239,248
)
Cash and due from banks at beginning of period
560,262

 
758,238

 
798,319

 
841,942

Cash and due from banks at end of period
$
553,152

 
$
602,694

 
$
553,152

 
$
602,694

 
 
 
 
 
 
 
 
Cash paid for interest
$
18,243

 
$
22,162

 
$
61,295

 
$
73,219

Net cash paid for income taxes
52,510

 
8,679

 
153,938

 
100,505

See accompanying notes to consolidated financial statements.

7


ZIONS BANCORPORATION AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(Unaudited)
September 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 nine months ended September 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 the option 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 do not expect this guidance will have a material impact 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 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.
 
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 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
September 30,
 
Nine Months Ended
September 30,
2016
 
2015
 
2016
 
2015
 
 
 
 
 
 
 
 
Loans held for investment transferred to other real estate owned
$
6,167

 
$
3,446

 
$
13,483

 
$
10,098

Loans held for sale reclassified to (from) loans held for investment, net
(40,017
)
 
22,299

 
(36,129
)
 
33,042

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:
 
 
September 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
 
$
1,675,645

 
$

 
$
1,675,645

 
$

 
$

 
$
1,675,645

Derivatives (included in other assets)
 
129,065

 

 
129,065

 
(20,419
)
 
(83
)
 
108,563

 
 
$
1,804,710

 
$

 
$
1,804,710

 
$
(20,419
)
 
$
(83
)
 
$
1,784,208

Liabilities:
 
 
 
 
 
 
 
 
 
 
 
 
Federal funds and other short-term borrowings
 
$
1,115,561

 
$

 
$
1,115,561

 
$

 
$

 
$
1,115,561

Derivatives (included in other liabilities)
 
111,929

 

 
111,929

 
(20,419
)
 
(86,478
)
 
5,032

 
 
$
1,227,490

 
$

 
$
1,227,490

 
$
(20,419
)
 
$
(86,478
)
 
$
1,120,593

 
 
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.
 
September 30, 2016
(In thousands)

Amortized
cost
 
Gross unrealized gains
 
Gross unrealized losses
 
Estimated
fair value
Held-to-maturity
 
 
 
 
 
 
 
Municipal securities
$
715,279

 
$
11,220

 
$
8,677

 
$
717,822

Available-for-sale
 
 
 
 
 
 
 
U.S. Government agencies and corporations:
 
 
 
 
 
 
 
Agency securities
1,834,034

 
23,104

 
687

 
1,856,451

Agency guaranteed mortgage-backed securities
5,438,880

 
42,437

 
7,028

 
5,474,289

Small Business Administration loan-backed securities
2,192,844

 
9,674

 
16,105

 
2,186,413

Municipal securities
768,875

 
10,575

 
1,205

 
778,245

Other debt securities
25,380

 
135

 
2,546

 
22,969

 
10,260,013

 
85,925

 
27,571

 
10,318,367

Money market mutual funds and other
39,607

 
109

 

 
39,716

 
10,299,620

 
86,034

 
27,571

 
10,358,083

Total
$
11,014,899

 
$
97,254

 
$
36,248

 
$
11,075,905

 
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 September 30, 2016 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
$
71,532

 
$
71,842

 
$
1,379,980

 
$
1,388,748

Principal return after one year through five years
266,665

 
269,636

 
4,161,930

 
4,184,444

Principal return after five years through ten years
219,770

 
223,701

 
3,010,430

 
3,034,823

Principal return after ten years
157,312

 
152,643

 
1,707,673

 
1,710,352

 
$
715,279

 
$
717,822

 
$
10,260,013

 
$
10,318,367

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, 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
$
7,911

 
$
261,162

 
$
766

 
$
11,845

 
$
8,677

 
$
273,007

Available-for-sale
 
 
 
 
 
 
 
 
 
 
 
U.S. Government agencies and corporations:
 
 
 
 
 
 
 
 
 
 
 
Agency securities
215

 
230,565

 
472

 
122,379

 
687

 
352,944

Agency guaranteed mortgage-backed securities
2,646

 
695,513

 
4,382

 
358,066

 
7,028

 
1,053,579

Small Business Administration loan-backed securities
3,256

 
510,834

 
12,849

 
678,139

 
16,105

 
1,188,973

Municipal securities
907

 
180,804

 
298

 
12,585

 
1,205

 
193,389

Other

 

 
2,546

 
12,457

 
2,546

 
12,457

 
7,024

 
1,617,716

 
20,547

 
1,183,626

 
27,571

 
2,801,342

Mutual funds and other

 

 

 

 

 

 
7,024

 
1,617,716

 
20,547

 
1,183,626

 
27,571

 
2,801,342

Total
$
14,935

 
$
1,878,878

 
$
21,313

 
$
1,195,471

 
$
36,248

 
$
3,074,349

 
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

At September 30, 2016 and December 31, 2015, respectively, 215 and 187 HTM and 814 and 709 AFS investment securities were in an unrealized loss position.

13


ZIONS BANCORPORATION AND SUBSIDIARIES

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 September 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 September 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 not likely that we would 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 2016.
The following is a tabular rollforward of the total amount of credit-related OTTI in 2015. We did not record any credit-related OTTI in the three and nine months ended 2016.
(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
$

 
$

 
$

 
$

 
$

 
$


14


ZIONS BANCORPORATION AND SUBSIDIARIES

The following summarizes gains and losses, including OTTI, that were recognized in the statement of income:
 
 
Three Months Ended
 
Nine Months Ended
 
 
September 30, 2016
 
September 30, 2015
 
September 30, 2016
 
September 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
$
12

 
$

 
$

 
$

 
$
12

 
$

 
$
1

 
$

 
Available-for-sale
29

 
2

 
6

 
59

 
89

 
9

 
8,366

 
147,572

 
Other noninterest-bearing investments
8,803

 
362

 
14,267

 
10,637

 
14,701

 
4,101

 
23,870

 
11,571

 
 
8,844

 
364

 
14,273

 
10,696

 
14,802

 
4,110

 
32,237

 
159,143

 
Net gains (losses)
 
 
$
8,480

 
 
 
$
3,577

 
 
 
$
10,692

 
 
 
$
(126,906
)
 
Statement of income information:
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
Equity securities gains, net
 
 
$
8,441

 
 
 
$
3,630

 
 
 
$
10,600

 
 
 
$
11,822

 
Fixed income securities gains (losses), net
 
 
39

 
 
 
(53
)
 
 
 
92

 
 
 
(138,728
)
 
Net gains (losses)
 
 
$
8,480

 
 
 
$
3,577

 
 
 
$
10,692

 
 
 
$
(126,906
)
Interest income by security type is as follows:
(In thousands)
Three Months Ended
September 30,
 2016
 
Nine Months Ended
September 30, 2016
 
Taxable
 
Nontaxable
 
Total
 
Taxable
 
Nontaxable
 
Total
Investment securities:
 
 
 
 
 
 
 
 
 
 
 
Held-to-maturity
$
2,572

 
$
3,318

 
$
5,890

 
$
7,748

 
$
9,202

 
$
16,950

Available-for-sale
39,784

 
2,987

 
42,771

 
117,968

 
7,523

 
125,491

Trading
676

 

 
676

 
1,905

 

 
1,905

 
$
43,032

 
$
6,305

 
$
49,337

 
$
127,621

 
$
16,725

 
$
144,346

(In thousands)
Three Months Ended
September 30,
 2015
 
Nine Months Ended
September 30, 2015
 
Taxable
 
Nontaxable
 
Total
 
Taxable
 
Nontaxable
 
Total
Investment securities:
 
 
 
 
 
 
 
 
 
 
 
Held-to-maturity
$
3,031

 
$
2,629

 
$
5,660

 
$
9,716

 
$
8,265

 
$
17,981

Available-for-sale
23,427

 
699

 
24,126

 
64,832

 
2,047

 
66,879

Trading
445

 

 
445

 
1,653

 

 
1,653

 
$
26,903

 
$
3,328

 
$
30,231

 
$
76,201

 
$
10,312

 
$
86,513

Investment securities with a carrying value of $1.5 billion at September 30, 2016 and $2.3 billion at December 31, 2015 were pledged to secure public and trust deposits, advances, and for other purposes as required by law. Securities are also pledged as collateral for security repurchase agreements.
Private Equity Investments
Effect of Volcker Rule
The Volcker Rule, as published pursuant to the Dodd-Frank Act in December 2013 and amended in January 2014, significantly restricted certain activities by covered bank holding companies, including restrictions on certain types of securities, proprietary trading, and private equity investing. The Company’s private equity investments (“PEIs”) consist of Small Business Investment Companies (“SBICs”) and non-SBICs. Following the sales of its CDO securities, the only prohibited investments under the Volcker Rule requiring divestiture by the Company were certain of its PEIs. Of the recorded PEIs of $143 million at September 30, 2016, approximately $7 million remain prohibited by the Volcker Rule.
As of September 30, 2016 we have sold a total of $18 million of PEIs during 2016 and 2015 as follows: $9 million during 2016 and $9 million during 2015. All of these sales were related to prohibited PEIs and resulted in

15


ZIONS BANCORPORATION AND SUBSIDIARIES

insignificant amounts of realized gains or losses. We will dispose of the remaining $7 million of prohibited PEIs before the required deadline, which has been extended to July 21, 2017. See other discussions in Notes 10 and 11.
As discussed in Note 11, we have $18 million at September 30, 2016 of unfunded commitments for PEIs, of which approximately $1 million relate to prohibited PEIs. Until we dispose of the prohibited PEIs, we expect to fund these commitments if and as the capital calls are made, as allowed under the Volcker Rule.
6.
LOANS AND ALLOWANCE FOR CREDIT LOSSES
Loans and Loans Held for Sale
Loans are summarized as follows according to major portfolio segment and specific loan class:
(In thousands)
September 30,
2016
 
December 31,
2015