10-K 1 zion-20171231x10k.htm 10-K Document

UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
FORM 10-K
ý ANNUAL REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934
For the fiscal year ended December 31, 2017
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)
 
(Internal Revenue Service Employer
Identification Number)
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
Securities registered pursuant to Section 12(b) of the Act:
Title of Each Class
 
Name of Each Exchange on Which Registered
Common Stock, without par value
The NASDAQ Stock Market LLC
Warrants to Purchase Common Stock (expiring May 22, 2020)
The NASDAQ Stock Market LLC
Warrants to Purchase Common Stock (expiring November 14, 2018)
The NASDAQ Stock Market LLC
Depositary Shares each representing a 1/40th ownership interest in a share of Series A Floating-Rate Non-Cumulative Perpetual Preferred Stock
New York Stock Exchange
Depositary Shares each representing a 1/40th ownership interest in a share of Series G Fixed/Floating-Rate Non-Cumulative Perpetual Preferred Stock
New York Stock Exchange
Depositary Shares each representing a 1/40th ownership interest in a share of Series H 5.75% Non-Cumulative Perpetual Preferred Stock
New York Stock Exchange
6.95% Fixed-to-Floating Rate Subordinated Notes due September 15, 2028
New York Stock Exchange
Securities registered pursuant to Section 12(g) of the Act: None.
Indicate by check mark if the registrant is a well-known seasoned issuer, as defined in Rule 405 of the Securities Act. Yes ý No ¨
Indicate by check mark if the registrant is not required to file reports pursuant to Section 13 or Section 15(d) of the Act. Yes ¨ No ý
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 if disclosure of delinquent filers pursuant to Item 405 of Regulation S-K (Section 229.405 of this chapter) is not contained herein, and will not be contained, to the best of registrant’s knowledge, in definitive proxy or information statements incorporated by reference in Part III of this Form 10-K or any amendment to this Form 10-K. ¨
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 ¨
Emerging growth 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
Aggregate Market Value of Common Stock Held by Non-affiliates at June 30, 2017
 
$8,745,683,795
Number of Common Shares Outstanding at February 9, 2018
 
196,514,295 shares
Documents Incorporated by Reference: Portions of the Company’s Proxy Statement – Incorporated into Part III

1




FORM 10-K TABLE OF CONTENTS

 
 
Page
 
 
 
 
 
 
 
 
 
 
 
 
 


2


PART I
FORWARD-LOOKING INFORMATION
This annual report includes forward-looking statements within the meaning of Section 21E of the Securities Exchange Act of 1934, as amended, or the Exchange Act. Statements in this Annual Report on Form 10-K that are based on other than historical data are forward-looking within the meaning of the Private Securities Litigation Reform Act of 1995. Forward-looking statements provide current expectations or forecasts of future events and include, among others:
statements with respect to the beliefs, plans, objectives, goals, targets, commitments, designs, guidelines, expectations, anticipations, and future financial condition, results of operations and performance of Zions Bancorporation (“the Parent”) and its subsidiaries (collectively “the Company,” “Zions,” “we,” “our,” “us”); and
statements preceded by, followed by, or that include the words “may,” “could,” “should,” “would,” “believe,” “anticipate,” “estimate,” “expect,” “intend,” “target,” “commit,” “design,” “plan,” “projects,” and the negative thereof and similar words and expressions.
These forward-looking statements are not guarantees of future performance, nor should they be relied upon as representing management’s views as of any subsequent date. Forward-looking statements by their nature address matters that are, to different degrees, uncertain, such as statements about future financial and operating results, the potential timing or consummation of the proposed transaction described in the presentation and receipt of regulatory approvals or determinations, or the anticipated benefits thereof, including without limitation, future financial and operating results. Actual results may differ materially from those presented, either expressed or implied, including, but not limited to, those presented in Management’s Discussion and Analysis (“MDA”). Important risk factors that may cause such material differences include, but are not limited to:
the Company’s ability to successfully execute its business plans, manage its risks, and achieve its objectives, including its restructuring and efficiency initiatives and its capital plan;
changes in local, national and international political and economic conditions, including without limitation the political and economic effects of the economic and fiscal imbalance in the United Sates and other countries, potential or actual downgrades in ratings of sovereign debt issued by the United States and other countries, and other major developments, including wars, military actions, and terrorist attacks;
changes in financial and commodity market prices and conditions, either internationally, nationally or locally in areas in which the Company conducts its operations, including without limitation rates of business formation and growth, commercial and residential real estate development, real estate prices, and oil and gas-related commodity prices;
changes in markets for equity, fixed income, commercial paper and other securities, commodities, including availability, market liquidity levels, and pricing;
any impairment of our goodwill or other intangibles, or any adjustment of valuation allowances on our deferred tax assets due to adverse changes in the economic environment, declining operations of the reporting unit, or a change to the corporate statutory tax rate or other similar changes if and as implemented by local and national governments, or other factors;
changes in interest rates, the quality and composition of the loan and securities portfolios, demand for loan products, deposit flows and competition;
the impact of acquisitions, dispositions, and corporate restructurings;
increases in the levels of losses, customer bankruptcies, bank failures, claims, and assessments;
changes in fiscal, monetary, regulatory, trade and tax policies and laws, and regulatory assessments and fees, including policies of the U.S. Department of Treasury, the OCC, the Board of Governors of the Federal Reserve System, the FDIC, the SEC, and the CFPB;

3


the impact of executive compensation rules under the Dodd-Frank Act and banking regulations, which may impact the ability of the Company and other American financial institutions to retain and recruit executives and other personnel necessary for their businesses and competitiveness;
the impact of the Dodd-Frank Act and Basel III, and rules and regulations thereunder, on our required regulatory capital and liquidity levels, governmental assessments on us (including, but not limited to, the Federal Reserve reviews of our annual capital plan), the scope of business activities in which we may engage, the manner in which we engage in such activities, the fees we may charge for certain products and services, and other matters affected by the Dodd-Frank Act and these international standards;
continuing consolidation in the financial services industry;
new legal claims against the Company, including litigation, arbitration and proceedings brought by governmental or self-regulatory agencies, or changes in existing legal matters;
success in gaining regulatory approvals, when required;
changes in consumer spending and savings habits;
increased competitive challenges and expanding product and pricing pressures among financial institutions;
inflation and deflation;
technological changes and the Company’s implementation of new technologies;
the Company’s ability to develop and maintain secure and reliable information technology systems;
legislation or regulatory changes which adversely affect the Company’s operations or business;
the Company’s ability to comply with applicable laws and regulations;
changes in accounting policies or procedures as may be required by the FASB or regulatory agencies; and
costs of deposit insurance and changes with respect to FDIC insurance coverage levels.
Except to the extent required by law, the Company specifically disclaims any obligation to update any factors or to publicly announce the result of revisions to any of the forward-looking statements included herein to reflect future events or developments.
AVAILABILITY OF INFORMATION
We also make available free of charge on our website, www.zionsbancorporation.com, annual reports on Form 10-K, quarterly reports on Form 10-Q, and current reports on Form 8-K and amendments to those reports filed or furnished pursuant to Section 13(a) or 15(d) of the Securities Exchange Act of 1934, as well as proxy statements, as soon as reasonably practicable after we electronically file such material with, or furnish it to, the U.S. Securities and Exchange Commission.
GLOSSARY OF ACRONYMS AND ABBREVIATIONS
ACL
Allowance for Credit Losses
CCAR
Comprehensive Capital Analysis and Review
AFS
Available-for-Sale
CET1
Common Equity Tier 1 (Basel III)
ALCO
Asset/Liability Committee
CFPB
Consumer Financial Protection Bureau
ALLL
Allowance for Loan and Lease Losses
CLTV
Combined Loan-to-Value Ratio
Amegy
Amegy Bank, a division of ZB, N.A.
CMC
Capital Management Committee
AOCI
Accumulated Other Comprehensive Income
Company
Zions Bancorporation and its subsidiaries
ASC
Accounting Standards Codification
COSO
Committee of Sponsoring Organizations of the Treadway Commission
ASU
Accounting Standards Update
CRA
Community Reinvestment Act
ATM
Automated Teller Machine
CRE
Commercial Real Estate
BHC Act
Bank Holding Company Act
CSA
Credit Support Annex
BOLI
Bank-Owned Life Insurance
CSV
Cash Surrender Value
bps
basis points
DFAST
Dodd-Frank Act Stress Test
CB&T
California Bank & Trust, a division of ZB, N.A.
Dodd-Frank Act
Dodd-Frank Wall Street Reform and Consumer Protection Act

4


DTA
Deferred Tax Asset
NIM
Net Interest Margin
EaR
Earnings at Risk
NRE
National Real Estate
EITF
Emerging Issues Task Force
NSB
Nevada State Bank, a division of ZB, N.A.
ERM
Enterprise Risk Management
NSFR
Net Stable Funding Ratio
ERMC
Enterprise Risk Management Committee
OCC
Office of the Comptroller of the Currency
EVE
Economic Value of Equity at Risk
OCI
Other Comprehensive Income
Exchange Act
Securities Exchange Act of 1934
OREO
Other Real Estate Owned
FAMC
Federal Agricultural Mortgage Corporation, or “Farmer Mac”
OTTI
Other-Than-Temporary Impairment
FASB
Financial Accounting Standards Board
PAGA
Private Attorney General Act
FDIC
Federal Deposit Insurance Corporation
Parent
Zions Bancorporation
FDICIA
Federal Deposit Insurance Corporation Improvement Act
PCAOB
Public Company Accounting Oversight Board
FHLB
Federal Home Loan Bank
PCI
Purchased Credit-Impaired
FHLMC
Federal Home Loan Mortgage Corporation, or “Freddie Mac”
PEI
Private Equity Investment
FINRA
Financial Industry Regulatory Authority
PPNR
Pre-provision Net Revenue
FRB
Federal Reserve Board
ROC
Risk Oversight Committee
FSOC
Financial Stability Oversight Council
RSU
Restricted Stock Unit
FTP
Funds Transfer Pricing
RULC
Reserve for Unfunded Lending Commitments
GAAP
Generally Accepted Accounting Principles
S&P
Standard and Poor's
GLB Act
Gramm-Leach-Bliley Act
SAB
Staff Accounting Bulletin
HCR
Horizontal Capital Review
SBA
Small Business Administration
HECL
Home Equity Credit Line
SBIC
Small Business Investment Company
HQLA
High-Quality Liquid Assets
SEC
Securities and Exchange Commission
HTM
Held-to-Maturity
SIFI
Systemically Important Financial Institution
IMG
International Manufacturing Group
SNC
Shared National Credit
KBW
Keefe, Bruyette & Woods, Inc.
TCBO
The Commerce Bank of Oregon, a division of ZB, N.A.
LCR
Liquidity Coverage Ratio
TCBW
The Commerce Bank of Washington, a division of ZB, N.A.
LGD
Loss Given Default
TDR
Troubled Debt Restructuring
LIBOR
London Interbank Offered Rate
The Act
Tax Cuts and Jobs Act of 2017
LNC
Large and Noncomplex
U.S.
United States
LSA
Loss Sharing Agreement
USA Patriot Act
Uniting and Strengthening of America by Providing Appropriate Tools Required to Intercept and Obstruct Terrorism Act of 2001
MD&A
Management’s Discussion and Analysis
Vectra
Vectra Bank Colorado, a division of ZB, N.A.
Municipalities
State and Local Governments
VIE
Variable Interest Entity
NASDAQ
National Association of Securities Dealers Automated Quotations
ZB, N.A.
ZB, National Association
NAV
Net Asset Value
Zions Bank
Zions Bank, a division of ZB, N.A.
NBAZ
National Bank of Arizona, a division of ZB, N.A.
 
 
ITEM 1.
BUSINESS
DESCRIPTION OF BUSINESS
Zions Bancorporation (“the Parent”) is a financial holding company organized under the laws of the State of Utah in 1955, and registered under the Bank Holding Company Act (“BHC Act”), as amended. The Parent owns and operates a commercial bank with a total of 433 branches at year-end 2017. The Parent and its subsidiaries (collectively “the Company”) provide a full range of banking and related services, primarily in Arizona, California, Colorado, Idaho, Nevada, New Mexico, Oregon, Texas, Utah, Washington, and Wyoming. The Company conducts its banking operations through seven separately managed and branded segments, which we sometimes refer to as

5


“affiliates” or by reference to their respective brands. Full-time equivalent employees totaled 10,083 at December 31, 2017. For further information about the Company’s industry segments, see “Business Segment Results” on page 46 in MD&A and Note 20 of the Notes to Consolidated Financial Statements. For information about the Company’s foreign operations, see “Foreign Exposure and Operations” on page 53 in MD&A. The “Executive Summary” on page 33 in MD&A provides further information about the Company.
PRODUCTS AND SERVICES
The Company focuses on providing community banking services by continuously strengthening its core business lines of (1) small and medium-sized business and corporate banking; (2) commercial and residential development, construction and term lending; (3) retail banking; (4) treasury cash management and related products and services; (5) residential mortgage servicing and lending; (6) trust and wealth management; (7) limited capital markets activities, including municipal finance advisory and underwriting; and (8) investment activities. It operates primarily through seven geographic regions, each with its own local branding, chief executive officer and management team.
In addition to providing a wide variety of commercial products and services, the Company provides a range of personal banking services to individuals, including home mortgages, bankcard, other installment loans, home equity lines of credit, checking accounts, savings accounts, certificates of deposit of various types and maturities, trust services, safe deposit facilities, and Internet and mobile banking. The Company provides services to key market segments through its Private Client Services and Executive Banking Groups. It offers self-directed brokerage services through Zions Direct and also offers comprehensive and personalized wealth management and investment services. 
The Company has built specialized lines of business in capital markets and public finance, and is a leader in small business administration (“SBA”) lending. The Company is one of the nation’s largest providers of SBA 7(a) and SBA 504 financing to small businesses. It owns an equity interest in FAMC and is its top originator of secondary market agricultural real estate mortgage loans. The Company provides finance advisory and corporate trust services for municipalities. The Company also provides bond transfer, stock transfer, and escrow services nationally in its corporate trust business.
COMPETITION
The Company operates in a highly competitive environment. The Company’s most direct competition for loans and deposits comes from other commercial banks, credit unions, and thrifts, including institutions that do not have a physical presence in our market footprint but solicit via the Internet and other means. In addition, the Company competes with finance companies, mutual funds, insurance companies, brokerage firms, securities dealers, investment banking companies, financial technology and other non-traditional lending and banking companies, and a variety of other types of companies. These companies may have fewer regulatory constraints and some have lower cost structures or tax burdens.
The primary factors in competing for business include the quality of service delivered, our local community knowledge, convenience of office locations, online banking functionality and other delivery methods, range of products offered, and pricing. The Company must compete effectively along all of these dimensions to remain successful.
SUPERVISION AND REGULATION
This section describes the material elements of selected laws and regulations applicable to the Company. The descriptions are not intended to be complete and are qualified in their entirety by reference to the full text of the statutes and regulations described. Changes in applicable laws or regulations, and in their application by regulatory agencies, cannot be predicted, but they may have a material effect on the business and results of the Company.
On November 20, 2017, we announced a proposal to streamline our corporate structure by merging the Parent into its bank subsidiary, ZB, N.A. and, in connection with the proposed restructuring, our intention to file an application

6


with the Financial Stability Oversight Council (“FSOC”) seeking a determination that the resulting banking organization is not "systemically important" as defined by provisions of the Dodd-Frank Act. The merger is contingent upon approval by the Office of the Comptroller of the Currency (“OCC”), Federal Deposit Insurance Corporation (“FDIC”), and the Company’s shareholders. Assuming the restructuring is completed and the application to FSOC is approved, the resulting banking organization would no longer be subject to duplicative examinations and other overlapping regulatory requirements, or the enhanced prudential standards established by the Board of Governors of the Federal Reserve System under Section 165 of the Dodd-Frank Act. The Company’s primarily regulator would be the OCC. The Company would continue to be subject to examinations by the CFPB with respect to consumer financial regulations.
There can be no assurance that the restructuring will be completed or that the FSOC application will be approved. Accordingly, the discussion below is based on the regulatory regime currently applicable to us and our current holding company structure. For a description of the material elements of the current regulatory regime applicable to us that would be eliminated if our proposals are successful, see “Regulatory Relief if Proposed Restructuring is Completed and FSOC Application is Approved” below.
The banking and financial services business in which we engage is highly regulated. Such regulation is intended, among other things, to improve the stability of banking and financial companies and to protect the interests of customers, including both loan customers and depositors, and taxpayers. These regulations are not, however, generally intended to protect the interests of our shareholders or creditors, and in fact may have the consequence of reducing returns to our shareholders. This regulatory framework has been materially revised and expanded since the 2008-2009 financial crisis and recession. In particular, the Dodd-Frank Act and regulations promulgated pursuant to it have given financial regulators expanded powers over nearly every aspect of the Company’s business. These include, among other things, new, higher regulatory capital requirements; regulation of dividends and other forms of capital distributions to shareholders through annual stress testing and capital planning processes; heightened liquidity and liquidity stress testing requirements, which include specific definitions of the types of investment securities that qualify as “high-quality liquid assets” and which effectively limit the portion of the Company’s balance sheet that can be used to meet the credit needs of its customers; specific limitations on mortgage lending products and practices; specific limits on certain consumer payment fees; and subjecting compensation practices to specific regulatory oversight and restrictions. Individually and collectively, these additional regulations have imposed and will continue to impose higher costs on the Company, and have reduced and may continue to reduce returns earned by shareholders. Some aspects of the Dodd-Frank Act continue to be subject to rulemaking, the majority of the rules that have been adopted may be subject to interpretation or clarification, and accordingly, the impact of such regulatory changes cannot be presently determined. Recent political developments, including the change in the executive administration of the United States, have increased uncertainty to the implementation, scope, and timing of regulatory reforms, including those related to the implementation of the Dodd-Frank Act. The Company is committed to both satisfying heightened regulatory expectations and providing attractive shareholder returns. However, given the still-changing regulatory environment and such uncertainty, the results of these efforts cannot yet be known.
In the first quarter of 2017, the President of the United States issued an executive order identifying “core principles” for the administration’s financial services regulatory policy and directing the Secretary of the Treasury, in consultation with the heads of other financial regulatory agencies, to evaluate how the current regulatory framework promotes or inhibits the principles and what actions have been, and are being, taken to promote the principles. In response to the executive order, on June 12, 2017, October 6, 2017 and October 26, 2017, respectively, the U.S. Department of the Treasury issued the first three of four reports recommending a number of comprehensive changes in the current regulatory system for U.S. depository institutions, the U.S. capital markets and the U.S. asset management and insurance industries. These recommendations, if implemented, could reduce some of the burdens and costs of the current regulatory framework.
General
The Parent is a bank holding company and a financial holding company as provided by the BHC Act, as modified by the GLB Act and the Dodd-Frank Act. These and other federal statutes provide the regulatory framework for

7


bank holding companies and financial holding companies, which have as their umbrella regulator the FRB. The supervision of ZB, N.A. and other regulated subsidiaries is conducted by each subsidiary’s primary functional regulator and the laws and regulations administered by those regulators. The GLB Act allows our subsidiary bank to engage in certain financial activities through financial subsidiaries. To qualify for and maintain status as a financial holding company, or to do business through a financial subsidiary, the Parent and its subsidiary bank must satisfy certain ongoing criteria. The Company currently engages in only limited activities for which financial holding company status is required.
ZB, N.A. is subject to the provisions of the National Bank Act and other statutes governing national banks, as well as the rules and regulations of the OCC, the Consumer Financial Protection Bureau (“CFPB”), and the FDIC. It is also subject to examination and supervision by the OCC and examination by the CFPB in respect of federal consumer financial regulations. In addition, Zions Bancorporation is subject to examination by the Federal Reserve Bank of San Francisco. Some of our nonbank subsidiaries are also subject to regulation by the Federal Reserve Board (“FRB”) and other federal and state agencies. These regulatory agencies may exert considerable influence over our activities through their supervisory and examination roles. Our brokerage and investment advisory subsidiaries are regulated by the SEC, Financial Industry Regulatory Authority (“FINRA”) and/or state securities regulators.
The Dodd-Frank Act
The most recent financial crisis led to numerous new laws in the United States and internationally for financial institutions. The Dodd-Frank Act, which was enacted in July 2010, is one of the most far reaching legislative actions affecting the financial services industry in decades and significantly restructured the financial regulatory regime in the United States. Implementation of the Dodd-Frank Act and related rulemaking activities continued in 2017.
The Dodd-Frank Act and regulations adopted under the Dodd-Frank Act broadly affect the financial services industry by creating new resolution authorities, requiring ongoing stress testing of our capital and liquidity, mandating higher capital and liquidity requirements, requiring divestiture of certain equity investments, increasing regulation of executive and incentive-based compensation, requiring banks to pay increased fees to regulatory agencies, and requiring numerous other provisions aimed at strengthening the sound operation of the financial services sector. Among other things affecting capital standards, the Dodd-Frank Act provides that:
the requirements applicable to large bank holding companies (those with consolidated assets of greater than $50 billion) be more stringent than those applicable to other financial companies;
standards applicable to bank holding companies be no less stringent than those applied to insured depository institutions; and
bank regulatory agencies implement countercyclical elements in their capital requirements.
Regulations promulgated under the Dodd-Frank Act require us to maintain greater levels of capital and liquid assets than was generally the case before the crisis and limit the forms of capital that we will be able to rely upon for regulatory purposes. In addition, in its supervisory role with respect to our stress testing and capital planning, our ability to deliver returns to our shareholders through dividends and stock repurchases is subject to prior non-objection by the FRB. The stress testing and capital plan processes also could substantially reduce our flexibility to respond to market developments and opportunities in such areas as capital raising and acquisitions.
The Dodd-Frank Act’s provisions and related regulations also affect the fees we must pay to regulatory agencies and the pricing of certain products and services, including the following:
The assessment base for federal deposit insurance was changed to consolidated assets less tangible capital instead of the amount of insured deposits.
The federal prohibition on the payment of interest on business transaction accounts was repealed.
The FRB was authorized to issue and did issue regulations governing debit card interchange fees.
The Dodd-Frank Act also created the CFPB, which is responsible for promulgating regulations designed to protect consumers’ financial interests and examining large financial institutions for compliance with, and enforcing, those

8


regulations. The Dodd-Frank Act adds prohibitions on unfair, deceptive or abusive acts and practices to the scope of consumer protection regulations overseen and enforced by the CFPB. The Dodd-Frank Act subjected national banks to the possibility of further regulation by restricting the preemption of state laws by federal laws. Restricting the scope of federal preemption could burden national banks with the requirement that they also comply with certain state laws covering matters already covered by federal law. In addition, the Dodd-Frank Act gives greater power to state attorneys general to pursue legal actions against banking organizations for violations of federal law.
The Dodd-Frank Act contains numerous provisions that limit or place significant burdens and costs on activities traditionally conducted by banking organizations, such as originating and securitizing mortgage loans and other financial assets, arranging and participating in swap and derivative transactions, proprietary trading and investing in private equity and other funds. For the affected activities, these provisions may result in increased compliance and other costs, increased legal risk, and decreased scope of product offerings and earning assets.
The Company is subject to the provisions of the Volcker Rule, issued pursuant to the Dodd-Frank Act. The Company has divested all but $3 million of private equity investments (“PEIs”) not permitted under the Volcker Rule. Such investments also provide for $4 million of potential capital calls, which the Company would fund, as allowed by the Volcker Rule, if and as the capital calls are made until the investments are sold. Nevertheless, because the remaining investments are comprised of funds that are in the later stages of their lifecycle, significant future funding requests are not anticipated. The Company continues to pursue the disposition of all non-compliant PEIs. In February 2017, the Federal Reserve Bank of San Francisco approved the Company’s application for an extended transition period of up to five years in which to dispose of its remaining PEIs in light of their illiquid nature.
The Company and other companies subject to the Dodd-Frank Act are subject to a number of requirements regarding the time, manner and form of compensation given to its key executives and other personnel receiving incentive compensation, which are being imposed through the supervisory process as well as published guidance and proposed rules. These restrictions imposed by the Dodd-Frank Act include documentation and governance, deferral, risk-balancing, and clawback requirements. Any deficiencies in compensation practices that are identified may be incorporated into the organization’s supervisory ratings, which can affect its ability to make acquisitions or engage in other activities, or could result in regulatory enforcement actions.
During the second quarter of 2016, the U.S. financial regulators, including the FRB and the SEC, proposed revised rules on incentive-based payment arrangements at specified regulated entities having at least $1 billion in total assets (including Zions). The proposed revised rules would establish general qualitative requirements applicable to all covered entities, additional specific requirements for entities with total consolidated assets of at least $50 billion, such as Zions, and further, more stringent requirements for those with total consolidated assets of at least $250 billion. The general qualitative requirements include: (i) prohibiting incentive arrangements that encourage inappropriate risks by providing excessive compensation; (ii) prohibiting incentive arrangements that encourage inappropriate risks that could lead to a material financial loss; (iii) establishing requirements for performance measures to appropriately balance risk and reward; (iv) requiring board of director oversight of incentive arrangements; and (v) mandating appropriate record-keeping. For larger financial institutions, including Zions, the proposed revised regulations would also introduce very prescriptive requirements relating to the types and percentages, the timing of the realization, and the risk of forfeiture of incentive compensation awarded to “senior executive officers” and “significant risk-takers.” The regulators have not yet issued any final rules.
Some aspects of the Dodd-Frank Act continue to be subject to rulemaking, and many of the rules that have been adopted may be subject to interpretation or clarification. In 2017, the U.S. House of Representatives approved a bill that would significantly amend the post-financial crisis regulatory framework implemented under the Dodd-Frank Act, and a bipartisan group of senators also introduced legislation that would revise various post-financial crisis regulatory requirements and provide targeted relief to certain financial institutions, which may include Zions. If passed, this legislative initiative could result in the Company no longer being deemed a systemically important financial institution (“SIFI”) or subject to the enhanced prudential supervision standards applicable to SIFIs. The

9


likelihood and impact of any regulatory and legislative changes are difficult to predict and cannot be presently determined.
Capital Standards - Basel Framework
In 2013, the FRB, FDIC, and OCC published final rules (the “Basel III capital rules”) establishing a new comprehensive capital framework for U.S. banking organizations. The Basel III capital rules effectively replaced the Basel I capital rules and implemented the Basel Committee’s December 2010 framework, commonly referred to as Basel III, for strengthening international capital standards as well as certain provisions of the Dodd-Frank Act. The Basel III capital rules substantially revised the risk-based capital requirements applicable to bank holding companies and depository institutions, including the Company, compared to the Basel I U.S. risk-based capital rules. The Basel III capital rules became effective for the Company on January 1, 2015 and were subject to phase-in periods for certain of their components. In November 2017, the FRB, FDIC and OCC published a final rule for non-advanced approaches banks that extends the regulatory capital treatment applicable during 2017 under the regulatory capital rules for certain items.
The Basel III capital rules define the components of capital and address other issues affecting the numerator in banking institutions’ regulatory capital ratios. The Basel III capital rules also address risk weights and other issues affecting the denominator in banking institutions’ regulatory capital ratios and replaced the risk-weighting approach derived from Basel I capital accords of the Basel Committee, with a more risk-sensitive approach based, in part, on the standardized approach in the Basel Committee’s 2004 Basel II capital accords. The Basel III capital rules also implemented the requirements of Section 939A of the Dodd-Frank Act to remove references to credit ratings from the federal banking agencies’ rules.
The Basel III capital rules, among other things, (i) introduced a new capital measure called “Common Equity Tier 1” (“CET1”), (ii) specified that Tier 1 capital consists of CET1 and “Additional Tier 1 capital” instruments meeting specified requirements, (iii) applied most deductions/adjustments to regulatory capital measures to CET1 and not to the other components of capital, thus potentially requiring higher levels of CET1 in order to meet minimum ratios, and (iv) expanded the scope of the deductions/adjustments from capital as compared to prior regulations.
Under the Basel III capital rules, the minimum capital ratios are as follows:
4.5% CET1 to risk-weighted assets;
6.0% Tier 1 capital (i.e., CET1 plus Additional Tier 1) to risk-weighted assets;
8.0% Total capital (i.e., Tier 1 plus Tier 2) to risk-weighted assets; and
4.0% Tier 1 capital to average consolidated assets as reported on consolidated financial statements (known as the “leverage ratio”).
When fully phased-in the Basel III capital rules will also require the Company and its subsidiary bank to maintain a 2.5% “capital conservation buffer” designed to absorb losses during periods of economic stress, composed entirely of CET1, on top of the minimum risk-weighted asset ratios, effectively resulting in minimum ratios of (i) CET1 to risk-weighted assets of at least 7.0%, (ii) Tier 1 capital to risk-weighted assets of at least 8.5%, and (iii) Total capital to risk-weighted assets of at least 10.5%. Banking institutions with a ratio of CET1 to risk-weighted assets above the minimum but below the capital conservation buffer will face constraints on dividends, equity repurchases, and compensation based on the amount of the shortfall. The implementation of the capital conservation buffer began on January 1, 2016 at the 0.625% level and progressively increases over time, as determined by regulation.
The Basel III capital rules also prescribed a standardized approach for calculating risk-weighted assets that expanded the risk-weighting categories from Basel I-derived categories (0%, 20%, 50% and 100%) to a much larger and more risk-sensitive number of categories, depending on the nature of the assets, generally ranging from 0% for U.S. Government and agency securities, to 600% for certain equity exposures, and resulting in higher risk weights for a variety of asset categories. In addition, the Basel III capital rules provided more advantageous risk weights for derivatives and repurchase-style transactions cleared through a qualifying central counterparty and increased the scope of eligible guarantors and eligible collateral for purposes of credit risk mitigation.

10


The Basel III capital rules provided for a number of deductions from and adjustments to CET1. These include, for example, the requirement that mortgage servicing rights, deferred tax assets (“DTAs”) dependent upon future taxable income, and significant investments in common equity issued by nonconsolidated financial entities be deducted from CET1 to the extent that any one such category exceeds 10% of CET1 or all such categories in the aggregate exceed 15% of CET1. The application of this part of the rule did not result in any deductions from CET1 for us.
Under prior Basel I capital standards, the effects of accumulated other comprehensive income (“AOCI”) items included in capital were excluded for purposes of determining regulatory capital and capital ratios. As a “non-advanced approaches banking organization,” we made a one-time permanent election as of January 1, 2015 to continue to exclude these items, as allowed under the Basel III capital rules.
Basel III also required additional regulatory capital disclosures to be made that are commonly referred to as “Pillar 3” disclosures. These disclosures require the Company to make prescribed regulatory disclosures on a quarterly basis regarding its capital structure adequacy and risk-weighted assets. The Company began publishing these Pillar 3 disclosures in 2015, and such disclosures are available on the Company’s website.
The Basel Committee has issued a series of updates that propose other changes to capital regulations. In one of these, the Basel Committee finalized a revised framework for calculating minimum capital requirements for market risk, which is expected to increase market risk capital requirements for most banking organizations. The Basel Committee has set an effective date for reporting under the revised framework for market risk capital of December 31, 2019. The U.S. federal bank regulatory agencies have not yet proposed rules implementing these revisions for U.S. banking organizations. The Company met all capital adequacy requirements under the Basel III capital rules as of December 31, 2017.
Capital Planning and Stress Testing
The Company is required by the Dodd-Frank Act to participate in annual stress tests known as the Dodd-Frank Act Stress Test (“DFAST”) and the FRB’s Horizontal Capital Review, also referred to as Comprehensive Capital Analysis and Review (“HCR/CCAR”). The Company submitted its 2017 capital plan and stress test results to the FRB on April 5, 2017. In its capital plan, the Company was required to forecast, under a variety of economic scenarios for nine quarters, its estimated regulatory capital ratios, and its generally accepted accounting principles (“GAAP”) tangible common equity ratio. On June 28, 2017, we announced that the FRB notified us that it did not object to the capital actions outlined in our 2017 capital plan. The plan included (1) the increase of the quarterly common dividend to $0.24 per share by the second quarter of 2018, following the path of $0.12 per share in the third quarter of 2017, $0.16 per share in the fourth quarter of 2017, $0.20 per share in the first quarter of 2018 and $0.24 per share in the second quarter of 2018; and (2) up to $465 million in total repurchases of common equity.
On June 22, 2017, we filed a Form 8-K with the SEC presenting the results of the 2017 DFAST. The results of the stress test demonstrated that the Company has sufficient capital to withstand a severe hypothetical economic downturn. Detailed disclosure of the stress test results can also be found on our website. In addition, we submitted on October 5, 2017, our mid-cycle company-run DFAST, based upon the Company’s June 30, 2017 financial position. Zions’ mid-cycle DFAST results, based on the hypothetical severely adverse scenario, indicate the Company would maintain capital ratios at sufficient levels throughout the nine-quarter forecasting horizon. As discussed in the mid-cycle press release, published October 5, 2017, Zions’ hypothetical severely adverse scenario was designed to create a stressful idiosyncratic environment, including a 10% unemployment rate and a 35% decline in commercial property values. During the nine-quarter projection period, the minimum CET1 ratio was 9.9%.
Zions has participated in the annual HCR/CCAR/DFAST exercise since 2014. Prior to 2017, the FRB could object to Zions’ capital plan on either quantitative or qualitative grounds. On January 30, 2017, the FRB announced a final rule for the 2017 cycle, removing from the qualitative assessment of the exercise those bank holding companies that have total consolidated assets of at least $50 billion but less than $250 billion, on-balance sheet foreign exposure of less than $10 billion, and nonbank assets of less than $75 billion (referred to as large and non-complex (“LNC”)

11


firms). However, the FRB may still object to a capital plan based on the results of its quantitative assessment. As an LNC firm, Zions will still be subject to regular supervisory assessments to examine the Company’s capital planning processes. Our annual capital plan is due by April each year, and the FRB will publish results of its supervisory HCR/CCAR review of our capital plan by June 30 of each year.
On February 17, 2014, the FRB published final rules to implement Section 165, Enhanced Supervision and Prudential Standards for Nonbank Financial Companies Supervised by the Board of Governors and Certain Bank Holding Companies, of the Dodd-Frank Act. The Company believes that it is in compliance with these rules.
Liquidity
Historically, regulation and monitoring of bank and bank holding company liquidity has been addressed as a supervisory matter, both in the United States and internationally, without required formulaic measures. However, in January 2016, Zions became subject to final rules adopted by the FRB and other banking regulators (“Final Liquidity Coverage Ratio (“LCR”) requirement Rule”) implementing a U.S. version of the Basel Committee’s LCR requirement. The LCR is intended to ensure that banks hold sufficient amounts of so-called HQLA to cover the anticipated net cash outflows during a hypothetical acute 30-day stress scenario. Zions is subject to the modified LCR, which is the ratio of an institution’s amount of HQLA (the numerator) over 70% of projected net cash out-flows over the 30-day horizon (the denominator), in each case, as calculated pursuant to the Final LCR Rule. The Final LCR Rule requires institutions subject to the modified LCR to maintain the modified ratio equal to at least 100% in order to satisfy this regulatory requirement. Only specific classes of assets, including U.S. Treasury securities, other U.S. government obligations and agency mortgage-backed securities, qualify under the rule as HQLA, with classes of assets deemed relatively less liquid and/or subject to greater degree of credit risk subject to certain haircuts and caps for purposes of calculating the numerator under the Final LCR Rule. The total assumed projected net cash outflows amount is determined under the rule by applying certain hypothetical outflow and inflow rates, which reflect certain standardized stressed assumptions, against the balances of the banking organization’s funding sources, obligations, transactions and assets over the 30-day stress period. Inflows that can be included to offset outflows are limited to 75% of outflows (which effectively means that banking organizations must hold HQLA equal to 25% of outflows even if outflows perfectly match inflows over the stress period).
The Basel III framework also included a second standard, referred to as the net stable funding ratio (“NSFR”), which is designed to promote more medium- and long-term funding of the assets and activities of banks over a one-year time horizon. In May 2016, the FRB and other federal banking regulators issued a proposed rule that would implement the NSFR for large U.S. banking organizations. Under the proposed rule, the most stringent requirements would apply to bank holding companies with $250 billion or more in total consolidated assets or $10 billion or more in on-balance sheet foreign exposure, and would require such organizations to maintain a minimum NSFR of 1.0 on an ongoing basis, calculated by dividing the organization’s available stable funding by its required stable funding. Bank holding companies with less than $250 billion, but more than $50 billion, in total consolidated assets and less than $10 billion in on-balance sheet foreign exposure, such as Zions, would be subject to a modified NSFR requirement which would require such bank holding companies to maintain a minimum NSFR of 0.7 on an ongoing basis. Under the proposed rule, a banking organization’s available stable funding would be calculated by applying specified standard weightings to its equity and liabilities based on their expected stability over a one-year time horizon and its required stable funding would be calculated by applying specified standardized weightings to its assets, derivative exposures and commitments based on their liquidity characteristics over the same one-year time horizon. The U.S. federal bank regulatory agencies have not released the final rule. We do not expect this to have a material impact on the Company.
Financial Privacy and Cyber Security
The federal banking regulators have adopted rules that limit the ability of banks and other financial institutions to disclose non-public information about consumers to non-affiliated third parties. These limitations require disclosure of privacy policies to consumers and, in some circumstances, allow consumers to prevent disclosure of certain personal information to a non-affiliated third party. These regulations affect how consumer information is transmitted through diversified financial companies and conveyed to outside vendors. In addition, consumers may

12


also prevent disclosure of certain information among affiliated companies that is assembled or used to determine eligibility for a product or service, such as that shown on consumer credit reports and asset and income information from applications. Consumers also have the option to direct banks and other financial institutions not to share information about transactions and experiences with affiliated companies for the purpose of marketing products or services. Federal law makes it a criminal offense, except in limited circumstances, to obtain or attempt to obtain customer information of a financial nature by fraudulent or deceptive means.
In October 2016, the federal banking regulators jointly issued an advance notice of proposed rulemaking on enhanced cyber risk management standards that are intended to increase the operational resilience of large and interconnected entities under their supervision. The advance notice of proposed rulemaking addressed five categories of cyber standards: (1) cyber risk governance; (2) cyber risk management; (3) internal dependency management; (4) external dependency management; and (5) incident response, cyber resilience, and situational awareness. The comment period expired in February 2017; however, the regulators have not yet issued any revised proposed rules or final rules.
Prompt Corrective Action
The Federal Deposit Insurance Corporation Improvement Act (“FDICIA”) requires each federal banking agency to take prompt corrective action to resolve the problems of insured depository institutions, including but not limited to those that fall below one or more prescribed minimum capital ratios. Pursuant to FDICIA, the FDIC promulgated regulations defining the following five categories in which an insured depository institution will be placed, based on the level of its capital ratios: well-capitalized, adequately capitalized, under-capitalized, significantly under-capitalized, and critically under-capitalized. Under the prompt corrective action provisions of FDICIA as modified by the Basel III capital rules, an insured depository institution generally will be classified as well-capitalized if it has a CET1 ratio of at least 6.5%, a Tier 1 capital ratio of at least 8%, a total capital ratio of at least 10% and a Tier 1 leverage ratio of at least 5%, and an insured depository institution generally will be classified as under-capitalized if its CET1 ratio is under 3%, its total risk-based capital ratio is less than 8%, its Tier 1 risk-based capital ratio is less than 6%, or its Tier 1 leverage ratio is less than 4%. An institution that, based upon its capital levels, is classified as “well-capitalized,” “adequately capitalized,” or “under-capitalized,” may be treated as though it were in the next lower capital category if the appropriate federal banking agency, after notice and opportunity for hearing, determines that an unsafe or unsound condition or an unsafe or unsound practice warrants such treatment. At each successive lower capital category, an insured depository institution is subject to more restrictions and prohibitions, including restrictions on growth, restrictions on interest rates paid on deposits, restrictions or prohibitions on payment of dividends and restrictions on the acceptance of brokered deposits. Furthermore, if a bank is classified in one of the under-capitalized categories, it is required to submit a capital restoration plan to the Federal bank regulator, and the holding company must guarantee the performance of that plan.
Other Regulations
The Company is subject to a wide range of other requirements and restrictions contained in both the laws of the United States and the states in which its banks and other subsidiaries operate. These regulations include but are not limited to the following:
Requirements that the Parent serve as a source of strength for its subsidiary bank. The FRB has a policy that a bank holding company is expected to act as a source of financial and managerial strength to its subsidiary bank and, under appropriate circumstances, to commit resources to support the subsidiary bank. The Dodd-Frank Act codified this policy as a statutory requirement.
Limitations on dividends payable by subsidiaries. A significant portion of the Parent’s cash, which is used to pay dividends on our common and preferred stock and to pay principal and interest on our debt obligations, is derived from dividends paid to the Parent by its subsidiary bank. These dividends are subject to various legal and regulatory restrictions. See Note 14 of the Notes to Consolidated Financial Statements.
Limitations on dividends payable to shareholders. The Parent’s ability to pay dividends on both its common and preferred stock may be subject to regulatory restrictions, including the requirement that they be included in a

13


stress test and capital plan to which the FRB has not objected. See discussion under “Liquidity Management Actions” on page 74.
Safety and soundness requirements. Federal law requires that our bank be operated in a safe and sound manner. We are subject to additional safety and soundness standards prescribed in the FDICIA, including standards related to internal controls, information systems, internal audit, loan documentation, credit underwriting, interest rate exposure, asset growth and compensation, as well as other operational and management standards deemed appropriate by the federal banking agencies. The safety and soundness requirements give bank regulatory agencies significant latitude in their supervisory authority over us.
Requirements for approval of acquisitions and activities and restrictions on other activities. Prior approval of the FRB is required under the BHC Act for a financial holding company to acquire or hold more than a 5% voting interest in any bank, to acquire substantially all the assets of a bank or to merge with another financial or bank holding company. The BHC Act also requires approval for certain non-banking acquisitions, restricts the activities of bank holding companies that are not financial holding companies to banking, managing or controlling banks and other activities that the FRB has determined to be so closely related to banking as to be a proper incident thereto, and restricts the non-banking activities of a financial holding company to those that are permitted for financial holding companies or that have been determined by the FRB to be financial in nature, incidental to financial activities, or complementary to a financial activity. Laws and regulations governing national banks contain similar provisions concerning acquisitions and activities.
Limitations on the amount of loans to a borrower and its affiliates.
Limitations on transactions with affiliates. The Dodd-Frank Act significantly expanded the coverage and scope of the limitations on affiliate transactions within a banking organization.
Restrictions on the nature and amount of any investments and ability to underwrite certain securities.
Requirements for opening of branches and the acquisition of other financial entities.
Fair lending and truth in lending requirements to provide equal access to credit and to protect consumers in credit transactions.
Broker-dealer and investment advisory regulations. One of our subsidiaries is a broker-dealer that is authorized to engage in securities underwriting and other broker-dealer activities. This company is registered with the SEC and is a member of FINRA. Another subsidiary is a registered investment adviser under the Investment Advisers Act of 1940, as amended, and as such is supervised by the SEC. Certain of our subsidiaries are also subject to various U.S. federal and state laws and regulations. These laws and regulations generally grant supervisory agencies broad administrative powers, including the power to limit or restrict the carrying on of business for failure to comply with such laws.
Provisions of the GLB Act and other federal and state laws dealing with privacy for non-public personal information of individual customers.
Community Reinvestment Act (“CRA”) requirements. The CRA requires banks to help serve the credit needs in their communities, including providing credit to low and moderate income individuals. If our bank subsidiary fails to adequately serve its communities, penalties may be imposed including denials of applications to add branches, relocate, add subsidiaries and affiliates, and merge with or purchase other financial institutions.
Anti-money laundering regulations. The Bank Secrecy Act, Title III of the Uniting and Strengthening of America by Providing Appropriate Tools Required to Intercept and Obstruct Terrorism Act of 2001 (“USA Patriot Act”), and other federal laws require financial institutions to assist U.S. Government agencies in detecting and preventing money laundering and other illegal acts by maintaining policies, procedures and controls designed to detect and report money laundering, terrorist financing, and other suspicious activity.
The Parent is subject to the disclosure and regulatory requirements of the Securities Act of 1933, as amended, and the Securities Exchange Act of 1934, as amended, both as administered by the SEC. As a company listed on the NASDAQ Global Select Market, the Parent is subject to NASDAQ listing standards for quoted companies.
The Company is subject to the Sarbanes-Oxley Act of 2002, the Dodd-Frank Act, and other federal and state laws and regulations which address, among other issues, corporate governance, auditing and accounting, executive

14


compensation, and enhanced and timely disclosure of corporate information. NASDAQ has also adopted corporate governance rules, which are intended to allow shareholders and investors to more easily and efficiently monitor the performance of companies and their directors.
The Board of Directors of the Parent has overseen management’s establishment of a comprehensive system of corporate governance and risk practices. This system includes policies and guidelines such as Corporate Governance Guidelines, a Code of Business Conduct and Ethics for Employees, a Directors Code of Conduct, a Related Party Transaction Policy, Stock Ownership and Retention Guidelines, a Compensation Clawback Policy, an insider trading policy including provisions prohibiting hedging and placing restrictions on the pledging of company stock by insiders, and charters for the Audit, Risk Oversight, Compensation, and Nominating and Corporate Governance Committees. More information on the Company’s corporate governance practices is available on the Company’s website at www.zionsbancorporation.com. (The Company’s website is not part of this Annual Report on Form 10-K).
The Company has adopted policies, procedures and controls to address compliance with the requirements of the banking, securities and other laws and regulations described above or otherwise applicable to the Company. The Company intends to make appropriate revisions to reflect any changes required.
Regulators, Congress, state legislatures, and international consultative bodies continue to enact rules, laws, and policies to regulate the financial services industry and public companies and to protect consumers and investors. The nature of these laws and regulations and the effect of such policies on future business and earnings of the Company cannot be predicted.
GOVERNMENT MONETARY POLICIES
The earnings and business of the Company are affected not only by general economic conditions, but also by policies adopted by various governmental authorities. The Company is particularly affected by the monetary policies of the FRB, which affect both short-term and long-term interest rates and the national supply of bank credit.
In view of the changing conditions in the economy and the effect of the FRB’s monetary policies, it is difficult to predict future changes in loan demand, deposit levels and interest rates, or their effect on the business and earnings of the Company. FRB monetary policies have had a significant effect on the operating results of commercial banks in the past and are expected to continue to do so in the future.
REGULATORY RELIEF IF PROPOSED RESTRUCTURING IS COMPLETED AND FSOC APPLICATION IS APPROVED
As discussed above, on November 20, 2017, we announced a proposal to streamline our corporate structure by merging the Parent into its bank subsidiary, ZB, N.A. In connection with the proposed restructuring, we also intend to file an application with FSOC (the “FSOC Appeal”) that, if successful, could potentially eliminate “enhanced” regulation of the “Company” as a SIFI.
If completed, the proposed restructuring would eliminate the bank holding company structure and associated regulatory framework and would result in ZB, N.A. becoming the top-level publicly-traded entity within our corporate structure. If the proposed restructuring and FSOC Appeal are successful, the Company expects that:
The Company would no longer be subject to duplicative examinations by both the FRB and OCC and instead would no longer be subject to examinations by the FRB. The Company would continue to be subject to examinations by the CFPB with respect to consumer financial regulations.
The Company would no longer be subject to “enhanced prudential supervision” by the FRB under Section 165 of the Dodd-Frank Act. There are a number of regulatory requirements that are applied to the Company under “enhanced prudential supervision,” which includes the annual HCR/CCAR process, as well as the LCR requirements applicable to “systemically important” organizations, as discussed above under “Capital Planning and Stress Testing” and “Liquidity,” respectively. The Company would continue to be subject to the OCC’s

15


heightened standards for national banks with assets of $50 billion or more, and the DFAST process, as described above under “Capital Planning and Stress Testing.”
The Company would no longer be subject to the prior non-objection requirement under HCR/CCAR for declaring any dividends or share repurchases, but would continue to be subject to the limitations on dividends and share repurchases pursuant to the National Bank Act and the OCC’s regulations.
In addition, if the restructuring is completed, the Company generally would no longer be subject to the Securities Law of 1933, but would remain subject to the requirements of the Securities Exchange Act of 1934, including the reporting requirements thereunder. However, the Company would be subject to OCC regulations governing securities offerings and make any filings required under the Securities Exchange Act with the OCC instead of the SEC.
ITEM 1A. RISK FACTORS
The Company’s growth strategy is driven by key factors while adhering to defined risk parameters. The key elements of Zions’ strategy reflect its prudent risk-taking philosophy. The Company generates revenue by taking prudent and appropriately priced risks. These factors are outlined in the Company’s Risk Appetite Framework.
The Company’s Board of Directors has established a Risk Oversight Committee of the Board, approved an Enterprise Risk Management Framework, and appointed an Enterprise Risk Management Committee (“ERMC”) to oversee and implement the Framework. The ERMC is comprised of senior management of the Company and is chaired by the Chief Risk Officer. The Company’s most significant risk exposure has traditionally come from the acceptance of credit risk inherent in prudent extension of credit to relationship customers. In addition to credit risk, these committees also monitor the following level one risk areas: market and interest rate risk, liquidity risk, strategic/business risk, operational/technology risk, model risk, capital/financial reporting risk, legal/compliance risk (including regulatory risk), and reputational risk as outlined in the Company’s risk taxonomy. In 2017, the Company also designated cyber risk a level one risk in its risk taxonomy, which places it at the highest level of oversight with its other top risks. Additional governance and oversight includes Board-approved policies and management committees with direct focus on these specific risk categories. Incorporated into each of these level one risks mentioned previously is third party vendor risk, which the Company views as critical in the management and oversight of vendor management.
Although not comprehensive, the following describes several risk factors that are significant to the Company:
Credit Risk
Credit quality has adversely affected us in the past and may adversely affect us in the future.
Credit risk is one of our most significant risks. A decline in the strength of the U.S. economy in general or the local economies in which we conduct operations could result in, among other things, deterioration in credit quality and/or reduced demand for credit, including a resultant adverse effect on the income from our loan portfolio, an increase in charge-offs and an increase in the allowance for loan and lease losses (“ALLL”).
We have concentrations of risk in our loan portfolio, including loans secured by real estate, leveraged and enterprise value lending, and oil and gas-related lending, which may have unique risk characteristics that may adversely affect our results. While oil and gas prices have stabilized over the last year and our lending exposure to this segment has been reduced, the oil and gas industry is still subject to volatility.
Concentration or counterparty risk could adversely affect the Company. Concentration risk across our loan and investment portfolios could pose significant additional credit risk to the Company due to exposures which perform in a similar fashion. Counterparty risk could also pose additional credit risk.
We engage in commercial construction and land acquisition and development lending, as well as commercial term lending, primarily in our western states footprint. The Company, as a whole, has relatively larger concentrations of such lending than many other peer institutions. In addition, we have a concentration in oil and gas-related lending, primarily in Texas. Both commercial real estate (“CRE”) and oil and gas-related lending are subject to specific

16


risks, including volatility and potential significant and prolonged declines in collateral-values and activity levels. In addition, our real estate lending is concentrated in the western states, and values there may behave differently than in other parts of the United States. We may have other unidentified concentrated or correlated risks in our loan portfolio.
Our business is highly correlated to local economic conditions in a specific geographic region of the United States.
As a regional bank holding company, the Company provides a full range of banking and related services through its local management teams and unique brands in Arizona, California, Colorado, Idaho, Nevada, New Mexico, Oregon, Texas, Utah, Washington, and Wyoming. Approximately 76% of the Company’s total net interest income relates to our banking operations in Utah, Texas, and California for the years ended December 31, 2017, and December 31, 2016, respectively. As a result of this geographic concentration, our financial results depend largely upon economic conditions in these market areas. Accordingly, adverse economic conditions affecting these three states in particular could significantly affect our consolidated operations and financial results. For example, our credit risk could be elevated to the extent that our lending practices in these three states focus on borrowers or groups of borrowers with similar economic characteristics, which are similarly affected by the same adverse economic events. At December 31, 2017, loan balances associated with our banking operations in Utah, Texas, and California comprised 80% of the Company’s commercial lending portfolio, 74% of the CRE lending portfolio, and 71% of the consumer lending portfolio.
Loans originated by our banking operations in Utah, Texas, and California are primarily to borrowers in those respective states, with the exception of the National Real Estate group, which co-originates or purchases primarily owner-occupied first-lien CRE loans from financial institutions throughout the country.
We have been and could continue to be negatively affected by adverse economic conditions.
Adverse economic conditions negatively affect the Company’s assets, including its loan and securities portfolios, capital levels, results of operations, and financial condition. The most recent financial crisis resulted in significant regulatory changes that continue to affect the Company. Although economic conditions have improved since the most recent financial crisis, it is possible that economic conditions may weaken. Economic and fiscal conditions in the United States and other countries may directly or indirectly adversely impact economic and market conditions faced by the Company and its customers. Any sustained weakness or further weakening in economic conditions would adversely affect the Company.
Market and Interest Rate Risks
Failure to effectively manage our interest rate risk and prolonged periods of low interest rates could adversely affect us.
Net interest income is the largest component of the Company’s revenue. Interest rate risk is managed by the Asset Liability Management Committee, which is established by the Company’s Board of Directors. Failure to effectively manage our interest rate risk could adversely affect the Company. Factors beyond the Company’s control can significantly influence the interest rate environment and increase the Company’s risk. These factors include competitive pricing pressures for our loans and deposits, adverse shifts in the mix of deposits and other funding sources, and volatile market interest rates resulting from general economic conditions and the policies of governmental and regulatory agencies, in particular the FRB.
The Company remains in an “asset-sensitive” interest rate risk position, which means that net interest income would be expected to increase if interest rates increase, and to decline if interest rates decrease. Most recently, the FRB decided to maintain the target range for the federal funds rate at 1.25% to 1.5%, and indicated that it will determine the timing and size of future rate adjustments by assessing realized and expected economic conditions relative to the objectives of maximum employment and 2% inflation.
Financial market participants have recently contemplated the possibility of negative interest rates. With the exception of brief money market disruptions in which some U.S. Treasury bills traded at negative rates, the U.S. has

17


not previously experienced a negative rate environment, although other developed economies have had prolonged periods of negative rates. Therefore, there are many unknown factors which could impact the Company in a negative rate environment. The ability to effectively charge customers interest on deposits will be determined largely by competition for deposits, but the Company’s deposit systems may require modification to allow for negative deposit rates. Asset allocation strategies would be reconsidered were the FRB to charge for excess reserves.
Our estimates of our interest rate risk position related to noninterest-bearing demand deposits are dependent on assumptions for which there is little historical experience, and the actual behavior of those deposits in a changing interest rate environment may differ materially from our estimates, which could materially affect our results of operations.
We have experienced a low interest rate environment for the past several years. Our views with respect to, among other things, the degree to which we are “asset-sensitive,” including our interest rate risk position for noninterest-bearing demand deposits, are dependent on modeled projections that rely on assumptions regarding changes in balances of such deposits in a changing interest rate environment. Because there is no modern precedent for the prolonged, extremely low interest rate environment that has prevailed for the last several years, there is little historical experience upon which to base such assumptions. If interest rates continue to increase, our assumptions regarding changes in balances of noninterest-bearing demand deposits and regarding the speed and degree to which other deposits are repriced may prove to be incorrect, and business decisions made in reliance on our modeled projections and underlying assumptions could prove to be unsuccessful. Because noninterest-bearing demand deposits are a significant portion of our deposit base, realized results which are different from our modeled projections and the underlying assumptions could materially affect our results of operations.
Liquidity Risk
As a regulated entity, we are subject to capital and liquidity requirements that may limit our operations and potential growth.
We are a bank holding company and, as such, we and our subsidiary bank are subject to the comprehensive, consolidated supervision and regulation of the FRB, the OCC and the FDIC, including risk-based and leverage capital ratio requirements, and Basel III liquidity requirements. Capital needs may rise above normal levels when we experience deteriorating earnings and credit quality, and our banking regulators may increase our capital requirements based on general economic conditions and our particular condition, risk profile and growth plans. In addition, we may be required to increase our capital levels even in the absence of actual adverse economic conditions or forecasts as a result of stress testing and capital planning based on hypothetical future adverse economic scenarios. Compliance with the capital requirements, including leverage ratios, may limit operations that require the intensive use of capital and could adversely affect our ability to expand or maintain present business levels. For a summary of the capital rules to which we are subject, see “Capital Standards – Basel Framework” on page 10 of this Annual Report on Form 10-K.
Liquidity regulations, including regulations establishing a minimum Liquidity Coverage Ratio and requiring monthly liquidity stress testing applicable to the Company may impact profitability.
The Company is subject to liquidity regulations, including a requirement that it conduct monthly liquidity stress tests that require it to maintain a modified LCR of at least 100%. The Company’s calculation of the modified LCR indicates that the Company is in compliance with the requirement. Such stress testing is subject to ongoing model and assumptions changes which could affect results.
In order to meet the requirements of these new regulations, the Company expects to continue to hold a higher portion of its assets in HQLA and a lower portion of its assets in loans than was generally the case prior to such regulation. HQLA generally have lower yields than loans of the type made by the Company.
We and/or the holders of our securities could be adversely affected by unfavorable rating actions from rating agencies.
Our ability to access the capital markets is important to our overall funding profile. This access is affected by the ratings assigned by rating agencies to us and particular classes of securities that we and our banking subsidiary

18


issue. The rates that we pay on our securities are also influenced by, among other things, the credit ratings that we and/or our securities receive from recognized rating agencies. Ratings downgrades to us or our securities could increase our costs or otherwise have a negative effect on our results of operations or financial condition or the market prices of our securities.
Strategic/Business Risks
Problems encountered by other financial institutions could adversely affect financial markets generally and have indirect adverse effects on us.
The commercial soundness of many financial institutions may be closely interrelated as a result of credit, trading, clearing or other relationships between the institutions. As a result, concerns about, or a default or threatened default by, one institution could lead to significant market-wide liquidity and credit problems, losses or defaults by other institutions. This is sometimes referred to as “systemic risk” and may adversely affect financial intermediaries, such as clearing agencies, clearing houses, banks, securities firms and exchanges, with which we interact on a daily basis, and therefore could adversely affect us. Information security and vendor management processes are in place to actively identify, manage and monitor actual and potential impacts.
The regulation of incentive compensation under the Dodd-Frank Act may adversely affect our ability to retain our highest performing employees.
The bank regulatory agencies have published guidance and proposed regulations which limit the manner and amount of compensation that banking organizations provide to employees. These regulations and guidance may adversely affect our ability to attract and retain key personnel. If we were to suffer such adverse effects with respect to our employees, our business, financial condition and results of operations could be adversely affected, perhaps materially.
We have made, and are continuing to make, significant changes to the Company that include, among other things, organizational restructurings, efficiency initiatives, and replacement or upgrades of certain core technological systems to improve our control environment, and operating efficiency. The ultimate success and completion of these changes, and their effect on the Company, may vary significantly from initial planning, which could materially adversely affect the Company.
Over the last several years, the Company has completed numerous improvement projects, including combining the legal charters of our seven affiliate banks into one, consolidating 15 loan operations sites into two, upgrading our accounting systems, installing a credit origination work flow system, streamlining our small business and retail lending, mortgage, wealth management and foreign exchange businesses, and investing in data quality and information security. Ongoing investment continues in a multi-year project to replace our core loan and deposit systems, a collection of customer-facing digital capabilities and a variety of other projects to simplify how we do business.
These changes continue to be implemented; some of the projects are fully completed, and some projects are in their early stages. By their very nature, projections of duration, cost, expected savings, expected efficiencies, and related items are subject to change and significant variability.
We may encounter significant adverse developments in the completion and implementation of these changes. These may include significant time delays, cost overruns, loss of key people, technological problems, processing failures, and other adverse developments. Any or all of these issues could result in disruptions to our systems, processes, control environment, procedures, and employees, which may adversely impact our customers and our ability to conduct business.
We have plans, policies and procedures designed to prevent or limit the negative effect of these potential adverse developments. However, there can be no assurance that any such adverse developments will not occur or, if they do occur, that they will be adequately remediated. The ultimate effect of any adverse development could subject us to additional regulatory scrutiny, or expose us to civil litigation and possible financial liability, any of which could materially affect the Company, including its control environment, operating efficiency, and results of operations.

19


Operational/Technology Risks
Catastrophic events including, but not limited to, hurricanes, tornadoes, earthquakes, fires, floods, and prolonged drought, may adversely affect the general economy, financial and capital markets, specific industries, and the Company.
The Company has significant operations and a significant customer base in Utah, Texas, California and other regions where natural and other disasters may occur. These regions are known for being vulnerable to natural disasters and other risks, such as hurricanes, tornadoes, earthquakes, fires, floods, and prolonged drought. These types of natural catastrophic events at times have disrupted the local economy, the Company’s business and customers, and have posed physical risks to the Company’s property. In addition, catastrophic events occurring in other regions of the world may have an impact on the Company’s customers and in turn on the Company. Although we have business continuity and disaster recovery programs in place, a significant catastrophic event could materially adversely affect the Company’s operating results.
We could be adversely affected by failure in our internal controls.
A failure in our internal controls could have a significant negative impact not only on our earnings, but also on the perception that customers, regulators and investors may have of the Company. We continue to devote a significant amount of effort, time and resources to improving our controls and ensuring compliance with complex accounting standards and regulations. These efforts also include the management of controls to mitigate operational risks for programs and processes across the Company.
We could be adversely affected by financial technology advancements and other non-traditional lending and banking sources.
The ability to successfully remain competitive is dependent upon our ability to maintain a critical technological capability and to identify and develop new, value-added products for existing and future customers. Failure to do so could impede our time to market, reduce customer product accessibility, and weaken our competitive position.
Cyber Risk
We are subject to a variety of system failure and cyber security risks that could adversely affect our business and financial performance.
We rely heavily on communications and information systems to conduct our business. We, our customers, and other financial institutions with which we interact, are subject to ongoing, continuous attempts to penetrate key systems by individual hackers, organized criminals, and in some cases, state-sponsored organizations. Information security risks for large financial institutions such as Zions have increased significantly in recent years in part because of the proliferation of new technologies, such as Internet and mobile banking to conduct financial transactions, and the increased sophistication and activities of cyber criminals. Any failure, interruption or breach in security of our information systems could result in failures or disruptions in our customer relationship management, general ledger, deposit, loan and other systems, misappropriation of funds, and theft, disclosure or misuse of proprietary Company or customer data. While we have significant internal resources, policies and procedures designed to prevent or limit the effect of the possible failure, interruption or security breach of our information systems, there can be no assurance that any such failure, interruption or security breach will not occur or, if they do occur, that they will be adequately addressed. As cyber threats continue to evolve, we may be required to expend significant additional resources to continue to modify or enhance our layers of defense or to investigate or remediate any information security vulnerabilities. The occurrence of any failure, interruption or security breach of our information systems could damage our reputation, result in a loss of customer business, subject us to additional regulatory scrutiny, or expose us to civil litigation and possible financial liability.
Model Risk
We increasingly use models in the management of the Company, and in particular in the required stress testing and capital plan. There is risk that these models are incorrect or inaccurate in various ways, which can cause us

20


to make non-optimal decisions, and this risk causes the Company to hold additional capital as a buffer against that risk.
We attempt to carefully develop, document, back test, and validate the models used in the management of the Company, including, for example, models used in the management of interest rate and liquidity risk, and those used in projecting stress losses in various segments of our credit and securities portfolios, and projecting net revenue under stress. Models are inherently imperfect for a number of reasons, however, and cannot perfectly predict outcomes. Management decisions based in part on such models, therefore, can be suboptimal. In addition, in determining the Company’s capital needs under stress testing, we attempt to specifically quantify the amounts by which model results could be incorrect, and we hold material additional amounts of capital as a buffer against this “model risk.”
Capital/Financial Reporting Risks
Stress testing and capital management under the Dodd-Frank Act may limit our ability to increase dividends, repurchase shares of our stock, and access the capital markets.
Under HCR/CCAR, we are required to submit to the FRB each year our capital plan for the applicable planning horizon, along with the results of required stress tests. Each annual capital plan will, among other things, specify our planned capital actions with respect to dividends, preferred stock redemptions, common stock repurchases or issuances, and similar matters and will be subject to the objection or non-objection by the FRB. Moreover, the HCR/CCAR process requires us to analyze the pro forma impact on our financial condition of various hypothetical future adverse economic scenarios selected by us and the FRB. We must maintain or raise capital sufficient to meet our risk management and regulatory expectations under such hypothetical scenarios. In connection with the annual HCR/CCAR process, we also participate in the DFAST on a semiannual basis. Under DFAST, a standardized strategy for capital actions (dividend payments held constant and other current capital obligations met) is implemented by all participating banks. As required by the Dodd-Frank Act, we also submit stress tests to the OCC for our subsidiary bank because it has assets in excess of $10 billion. Under both HCR/CCAR and DFAST, the FRB uses its proprietary models to analyze the Company’s stressed capital position. The severity of the hypothetical scenarios devised by the FRB and OCC and employed in these stress tests is undefined by law or regulation, and is thus subject solely to the discretion of the regulators. The stress testing and capital planning processes may, among other things, require us to increase our capital levels, limit our dividends or other capital distributions to shareholders, modify our business strategies, or decrease our exposure to various asset classes.
Under stress testing and capital management standards implemented by bank regulatory agencies under the Dodd-Frank Act, we may declare dividends, repurchase common stock, redeem preferred stock and debt, access capital markets for certain types of capital, make acquisitions, and enter into similar transactions only if included in a capital plan to which the FRB has not objected. Any similar transactions not contemplated in our annual capital plan, other than those with an inconsequential impact on actual or projected capital, may require a new stress test and capital plan, which is subject to FRB non-objection. These requirements may significantly limit our ability to respond to and take advantage of market developments.
Economic and other circumstances may require us to raise capital at times or in amounts that are unfavorable to the Company.
The Company and its subsidiary bank must maintain certain risk-based and leverage capital ratios, as required by its banking regulators, which can change depending upon general economic conditions, hypothetical future adverse economic scenarios, and the particular conditions, risk profiles and growth plans of the Company and its subsidiary bank. Compliance with capital requirements may limit the Company’s ability to expand and has required, and may require, the Company or its subsidiaries to raise additional capital, or may require additional capital investment from the Parent. These uncertainties and risks, including those created by legislative and regulatory uncertainties, may increase the Company’s cost of capital and other financing costs.
We could be adversely affected by accounting, financial reporting, and regulatory and compliance risk.
The Company is exposed to accounting, financial reporting, and regulatory/compliance risk. The Company provides to its customers, invests in, and uses for its own capital, funding, and risk management needs, a number of complex

21


financial products and services. Estimates, judgments, and interpretations of complex and changing accounting and regulatory policies are required in order to provide and account for these products and services. Changes in our accounting policies or in accounting standards could materially affect how we report our financial results and conditions. The level of regulatory/compliance oversight has been heightened in recent periods as a result of rapid changes in regulations that affect financial institutions. The administration of some of these regulations and related changes has required the Company to comply before their formal adoption. Therefore, identification, interpretation and implementation of complex and changing accounting standards as well as compliance with regulatory requirements pose an ongoing risk.
Our results of operations depend upon the performance of our subsidiaries.
We are a holding company that conducts substantially all of our operations through our banking subsidiary and other subsidiaries. The Parent receives substantially all of its revenues from dividends from its subsidiaries and primarily from its subsidiary bank. These dividends are a principal source of funds to pay dividends on our common and preferred stock and interest and principal on our debt. We and certain of our subsidiaries experienced periods of unprofitability or reduced profitability during the most recent recession of 2007-2009. The ability of the Company and its subsidiary bank to pay dividends is restricted by regulatory requirements, including profitability and the need to maintain required levels of capital. Lack of profitability or reduced profitability exposes us to the risk that regulators could restrict the ability of our subsidiary bank to pay dividends. It also increases the risk that the Company may have to establish a “valuation allowance” against its net DTA or have that asset disallowed for regulatory capital purposes.
The ability of our subsidiary bank to pay dividends or make other payments to us is also limited by its obligations to maintain sufficient capital and by other general regulatory restrictions on its dividends. If it does not satisfy these regulatory requirements, we may be unable to pay dividends or interest on our indebtedness. The OCC, the primary regulator of our subsidiary bank, has issued policy statements generally requiring insured banks to pay dividends only out of current earnings. In addition, if, in the opinion of the applicable regulatory authority, a bank under its jurisdiction is engaged in or is about to engage in an unsafe or unsound practice, which could include the payment of dividends, such authority may take actions requiring that such bank refrain from the practice. Payment of dividends could also be subject to regulatory limitations if a subsidiary bank were to become “under-capitalized” for purposes of the applicable federal regulatory “prompt corrective action” regulations.
The value of our goodwill may decline in the future.
As of December 31, 2017, the Company had $1 billion of goodwill that was allocated to Amegy, CB&T and Zions Bank. If the fair value of a reporting unit is determined to be less than its carrying value, the Company may have to take a charge related to the impairment of its goodwill. Such a charge would occur if the Company were to experience increases in the book value of a reporting unit in excess of the increase in the fair value of equity of a reporting unit. A significant decline in the Company’s expected future cash flows, a significant adverse change in the business climate, slower economic growth or a significant and sustained decline in the price of the Company’s common stock, any or all of which could be materially impacted by many of the risk factors discussed herein, may necessitate the Company taking charges in the future related to the impairment of its goodwill. Future regulatory actions could also have a material impact on assessments of the appropriateness of the goodwill carrying value. If the Company was to conclude that a future write-down of its goodwill is necessary, it would record the appropriate charge, which could have a material adverse effect on the Company’s results of operations.
The Company may not be able to utilize the significant DTA recorded on its balance sheet.
The Company’s balance sheet includes a significant DTA. We had net DTAs of $93 million at December 31, 2017, compared with $250 million at December 31, 2016. The largest components of this asset result from additions to our ALLL for purposes of GAAP in excess of loan losses actually taken for tax purposes. Our ability to continue to record this DTA is dependent on the Company’s ability to realize its value through net operating loss carrybacks or future projected earnings. Loss of part or all of this asset would adversely impact tangible capital. In addition, inclusion of this asset in determining regulatory capital is subject to certain limitations. Currently, no DTAs are disallowed for regulatory purposes either on a consolidated basis or at the Company’s subsidiary bank.

22


Legal/Compliance Risks
The Dodd-Frank Act imposes significant limitations on our business activities and subjects us to increased regulation and additional costs.
The Dodd-Frank Act has material implications for the Company and the entire financial services industry. The Dodd-Frank Act places significant additional regulatory oversight and requirements on financial institutions, particularly those with more than $50 billion of assets, including the Company. In addition, among other things, the Dodd-Frank Act:
affected the levels of capital and liquidity with which the Company must operate and how it plans capital and liquidity levels;
subjected the Company to new and/or higher fees paid to various regulatory entities, including but not limited to deposit insurance fees to the FDIC;
impacted the Company’s ability to invest in certain types of entities or engage in certain activities;
impacted a number of the Company’s business strategies;
required us to incur the cost of developing substantial heightened risk management policies and infrastructure;
regulated the pricing of certain of our products and services and restricted the revenue that the Company generates from certain businesses;
subjected the Company to capital planning actions, including stress testing or similar actions and timing expectations for capital raising;
subjected the Company to supervision by the CFPB, with very broad rule-making and enforcement authorities;
granted authority to state agencies to enforce state and federal laws against national banks;
subjected the Company to new and different litigation and regulatory enforcement risks; and
limited the manner and amount in which compensation is paid to executive officers and employees generally.
The Company and the entire financial services industry have incurred and will continue to incur substantial personnel, systems, consulting, and other costs in order to comply with new regulations promulgated under the Dodd-Frank Act, particularly with respect to stress testing and risk management. Some aspects of the Dodd-Frank Act continue to be subject to rulemaking, many of the rules that have been adopted will take effect over several additional years, and many of the rules that have been adopted may be subject to interpretation and clarification, and accordingly, the impact of such regulatory changes cannot be presently determined. Individually and collectively, regulations adopted under the Dodd-Frank Act may materially adversely affect the Company’s and the financial services industry’s business, financial condition (including the Company’s ability to compete effectively with less regulated financial services providers), and results of operations.
Other legislative and regulatory actions taken now or in the future may have a significant adverse effect on our operations and earnings.
In addition to the Dodd-Frank Act described previously, bank regulatory agencies and international regulatory consultative bodies have proposed or are considering new regulations and requirements, some of which may be imposed without formal promulgation. Our deposits are insured by the FDIC up to legal limits and, accordingly, we are subject to FDIC insurance assessments.
There can be no assurance that any or all of these regulatory changes or actions will ultimately be adopted. However, if adopted, some of these proposals could adversely affect the Company by, among other things: impacting after-tax returns earned by financial services firms in general; limiting the Company’s ability to grow; increasing taxes or fees on some of the Company’s funding or activities; limiting the range of products and services that the Company could offer; and requiring the Company to raise capital at inopportune times.
Recent political developments, including the change in the executive administration of the United States, could result in substantial changes in tax, international trade, immigration, and other policies. The extent and timing of any such changes are uncertain, as are the potential direct and indirect impacts, whether beneficial or adverse.

23


Regulations and laws may be modified or repealed and new legislation may be enacted that will affect us and our subsidiaries.
The ultimate impact of these proposals cannot be predicted as it is unclear which, if any, may be adopted.
We could be adversely affected by legal and governmental proceedings.
We are subject to risks associated with legal claims, litigation, and regulatory and other government proceedings. The Company’s exposure to these proceedings has increased and may further increase as a result of stresses on customers, counterparties and others arising from the past or current economic environments, new regulations promulgated under recently adopted statutes, the creation of new examination and enforcement bodies, and increasingly aggressive enforcement and legal actions against banking organizations. Any such matters may result in material adverse consequences to our results of operations, financial condition or ability to conduct our business, including adverse judgments, settlements, fines, penalties (including civil money penalties under applicable banking laws), injunctions, restrictions on our business activities or other relief. Our involvement in any such matters, even if the matters are ultimately determined in our favor, could also cause significant harm to our reputation and divert management attention from the operation of our business. In general, the amounts paid by financial institutions in settlement of proceedings or investigations, including those relating to anti-money laundering matters, have been increasing dramatically. In addition, any enforcement matters could impact our supervisory and CRA ratings, which may restrict or limit our activities.
Reputational Risk
The company is presented with various reputational risk issues that could stem from operational, compliance and legal risks.
A Reputational Risk Council was established to monitor, manage and develop strategies to effectively manage reputational risk which includes, but is not limited to, addressing communication logistics, legal and regulatory issues.
ITEM 1B.
UNRESOLVED STAFF COMMENTS
There are no unresolved written comments that were received from the SEC’s staff 180 days or more before the end of the Company’s fiscal year relating to its periodic or current reports filed under the Securities Exchange Act of 1934.
ITEM 2. PROPERTIES
At December 31, 2017, the Company operated 433 branches, of which 275 are owned and 158 are leased. The Company also leases its headquarters in Salt Lake City, Utah. Other operations facilities are either owned or leased. The annual rentals under long-term leases for leased premises are determined under various formulas and factors, including operating costs, maintenance and taxes. For additional information regarding leases and rental payments, see Note 15 of the Notes to Consolidated Financial Statements.
ITEM 3. LEGAL PROCEEDINGS
The information contained in Note 15 of the Notes to Consolidated Financial Statements is incorporated by reference herein.
ITEM 4. MINE SAFETY DISCLOSURES
None.

24


PART II
ITEM 5.
MARKET FOR REGISTRANT’S COMMON EQUITY, RELATED STOCKHOLDER MATTERS AND ISSUER PURCHASES OF EQUITY SECURITIES
MARKET INFORMATION
The Company’s common stock is traded on the NASDAQ Global Select Market under the symbol “ZION.” The last reported sale price of the common stock on NASDAQ on February 9, 2018 was $51.64 per share.
The following schedule sets forth, for the periods indicated, the high and low sale prices of the Company’s common stock, as quoted on NASDAQ:
 
2017
 
2016
 
High
 
Low
 
High
 
Low
 
 
 
 
 
 
 
 
1st Quarter
$
48.33

 
$
39.09

 
$
26.91

 
$
19.65

2nd Quarter
44.85

 
38.43

 
29.46

 
23.14

3rd Quarter
47.70

 
41.23

 
31.35

 
23.02

4th Quarter
52.20

 
43.50

 
44.15

 
30.07

PREFERRED STOCK REDEMPTIONS
During 2017, we redeemed all outstanding shares of our 7.9% Series F preferred stock for a cash payment of approximately $144 million. The total one-time reduction to net earnings applicable to common shareholders associated with the preferred stock redemption was $2 million due to the accelerated recognition of preferred stock issuance costs.
During 2016 we decreased our preferred stock by $118 million, including the purchase of $26 million of our Series I preferred stock, $59 million of our Series J preferred stock, and $33 million of our Series G preferred stock, for an aggregate cash payment of $126 million. The total one-time reduction to net earnings applicable to common shareholders associated with the preferred stock redemption was $10 million. These preferred stock redemptions benefit the Company by decreasing the amount of preferred dividends paid.
EQUITY CAPITAL AND DIVIDENDS
We have 4,400,000 authorized shares of preferred stock without par value and with a liquidation preference of $1,000 per share. As of December 31, 2017, 66,139, 138,390, 126,221, 98,555, and 136,368 of preferred shares series A, G, H, I, and J respectively, are outstanding. In general, preferred shareholders may receive asset distributions before common shareholders; however, preferred shareholders have only limited voting rights generally with respect to certain provisions of the preferred stock, the issuance of senior preferred stock, and the election of directors. Preferred stock dividends reduce earnings available to common shareholders and are paid quarterly or semiannually in arrears. The preferred stock redemption amount is computed at the per share liquidation preference plus any declared but unpaid dividends. All of the outstanding series of preferred stock are registered with the SEC. In addition, Series A, G, and H preferred stock are listed and traded on the New York Stock Exchange. See Note 13 of the Notes to Consolidated Financial Statements for further information regarding the Company’s preferred stock.
As of February 9, 2018, there were 4,353 holders of record of the Company’s common stock. The frequency and amount of common stock dividends paid during the last two years are as follows:
 
1st Quarter
 
2nd Quarter
 
3rd Quarter
 
4th Quarter
 
 
 
 
 
 
 
 
2017
$
0.08

 
$
0.08

 
$
0.12

 
$
0.16

2016
0.06

 
0.06

 
0.08

 
0.08

The Company’s Board of Directors approved a dividend of $0.20 per common share payable on February 22, 2018 to shareholders of record on February 15, 2018. The Company expects to continue its policy of paying regular cash

25


dividends on a quarterly basis, although there is no assurance as to future dividends because they depend on future earnings, capital requirements, financial condition, and regulatory approvals.
SHARE REPURCHASES
During 2017 we continued our common stock repurchase program and repurchased 7 million shares of common stock outstanding with a fair value $320 million at an average price of $45.66 per share. During the first quarter of 2018, the Company repurchased an additional 2 million shares of common stock outstanding with a fair value of $115 million at an average price of $53.46 per share, leaving $120 million of repurchase capacity remaining in the 2017 capital plan (which spans the timeframe of July 2017 to June 2018).
During 2016 we repurchased 3 million shares of common stock outstanding with a fair value of $90 million at an average price of $31.15 per share.
The following schedule summarizes the Company’s share repurchases for the fourth quarter of 2017:
Period
 
Total number
of shares
repurchased 1
 
Average
price paid
per share
 
Shares purchased as part of publicly announced plans or programs
 
Approximate dollar value
of shares that may yet be
purchased under the plan
 
 
 
 
 
 
 
 
 
 
 
 
 
October
 
935

 
$
47.19

 
 

 
 
 
$
350,000,045

 
November
 
1,019,801

 
48.07

 
 
1,019,240

 
 
 
301,000,280

 
December
 
1,302,618

 
50.74

 
 
1,300,777

 
 
 
235,000,750

 
Fourth quarter
 
2,323,354

 
49.57

 
 
2,320,017

 
 
 
 
 
1 
Represents common shares acquired from employees in connection with our stock compensation plan in addition to shares acquired under previously reported share repurchase plans. Shares were acquired from employees to pay for their payroll taxes and stock option exercise cost upon the vesting of restricted stock and restricted stock units, and the exercise of stock options, under provisions of an employee share-based compensation plan.
PERFORMANCE GRAPH
The following stock performance graph compares the five-year cumulative total return of Zions Bancorporation’s common stock with the Standard & Poor’s 500 Index and the Keefe, Bruyette & Woods, Inc. (“KBW”) Bank Index, both of which include Zions Bancorporation. The KBW Bank Index is a market capitalization-weighted bank stock index developed and published by KBW, a nationally recognized brokerage and investment banking firm specializing in bank stocks. The index is composed of 24 geographically diverse stocks representing national money center banks and leading regional financial institutions. The stock performance graph is based upon an initial investment of $100 on December 31, 2012 and assumes reinvestment of dividends.

26


PERFORMANCE GRAPH FOR ZIONS BANCORPORATION
INDEXED COMPARISON OF 5-YEAR CUMULATIVE TOTAL RETURNa201712315yearperform.jpg
 
2012
 
2013
 
2014
 
2015
 
2016
 
2017
 
 
 
 
 
 
 
 
 
 
 
 
Zions Bancorporation
100.0

 
140.6

 
134.6

 
129.8

 
206.7

 
246.6

KBW Bank Index
100.0

 
137.8

 
150.7

 
151.4

 
194.6

 
230.7

S&P 500
100.0

 
132.4

 
150.5

 
152.5

 
170.8

 
208.1

SECURITIES AUTHORIZED FOR ISSUANCE UNDER EQUITY COMPENSATION PLANS
The information contained in Item 12 of this Form 10-K is incorporated by reference herein.

27


ITEM 6.
SELECTED FINANCIAL DATA
FINANCIAL HIGHLIGHTS
(Dollar amounts in millions, except per share amounts)
2017/2016 Change
 
2017
 
2016
 
2015
 
2014
 
2013
For the Year
 
 
 
 
 
 
 
 
 
 
 
Net interest income
+11
 %
 
$
2,065

 
$
1,867

 
$
1,715

 
$
1,680

 
$
1,696

Noninterest income
+5
 %
 
544

 
516

 
357

 
493

 
327

Total revenue
+9
 %
 
2,609

 
2,383

 
2,072

 
2,173

 
2,023

Provision for loan losses
-74
 %
 
24

 
93

 
40

 
(98
)
 
(87
)
Noninterest expense
+4
 %
 
1,649

 
1,585

 
1,581

 
1,649

 
1,704

Income before income taxes
+33
 %
 
936

 
705

 
451

 
621

 
407

Income taxes
+46
 %
 
344

 
236

 
142

 
223

 
143

Net income
+26
 %
 
592

 
469

 
309

 
398

 
264

Net earnings applicable to common shareholders
+34
 %
 
550

 
411

 
247

 
327

 
294

Per Common Share
 
 
 
 
 
 
 
 
 
 
 
Net earnings – diluted
+31
 %
 
2.60

 
1.99

 
1.20

 
1.68

 
1.58

Net earnings – basic
+36
 %
 
2.71

 
2.00

 
1.20

 
1.68

 
1.58

Dividends declared
+57
 %
 
0.44

 
0.28

 
0.22

 
0.16

 
0.13

Book value 1
+6
 %
 
36.01

 
34.10

 
32.67

 
31.35

 
29.57

Market price – end
 
 
50.83

 
43.04

 
27.30

 
28.51

 
29.96

Market price – high
 
 
52.20

 
44.15

 
33.42

 
33.33

 
31.40

Market price – low
 
 
38.43

 
19.65

 
23.72

 
25.02

 
21.56

At Year-End
 
 
 
 
 
 
 
 
 
 
 
Assets
+5
 %
 
66,288

 
63,239

 
59,665

 
57,203

 
56,021

Net loans and leases
+5
 %
 
44,780

 
42,649

 
40,650

 
40,064

 
39,043

Deposits
-1
 %
 
52,621

 
53,236

 
50,374

 
47,848

 
46,363

Long-term debt
-28
 %
 
383

 
535

 
812

 
1,086

 
2,263

Federal funds and other short-term borrowings
+502
 %
 
4,976

 
827

 
347

 
244

 
340

Shareholders’ equity:


 
 
 
 
 
 
 
 
 
 
Preferred equity
-20
 %
 
566

 
710

 
829

 
1,004

 
1,004

Common equity
+3
 %
 
7,113

 
6,924

 
6,679

 
6,366

 
5,461

Performance Ratios
 
 
 
 
 
 
 
 
 
 
 
Return on average assets
 
 
0.91
%
 
0.78
%
 
0.53
%
 
0.71
%
 
0.48
%
Return on average common equity
 
 
7.7
%
 
6.0
%
 
3.8
%
 
5.4
%
 
5.7
%
Return on average tangible common equity
 
 
9.0
%
 
7.1
%
 
4.6
%
 
6.7
%
 
7.4
%
Net interest margin
 
 
3.45
%
 
3.37
%
 
3.19
%
 
3.26
%
 
3.36
%
Capital Ratios 1
 
 
 
 
 
 
 
 
 
 
 
Equity to assets
 
 
11.6
%
 
12.1
%
 
12.6
%
 
12.9
%
 
11.5
%
Common equity tier 1 (Basel III), tier 1 common
(Basel I) 2
 
 
12.1
%
 
12.1
%
 
12.2
%
 
11.9
%
 
10.2
%
Tier 1 leverage 2
 
 
10.5
%
 
11.1
%
 
11.3
%
 
11.8
%
 
10.5
%
Tier 1 risk-based capital 2
 
 
13.2
%
 
13.5
%
 
14.1
%
 
14.5
%
 
12.8
%
Total risk-based capital 2
 
 
14.8
%
 
15.2
%
 
16.1
%
 
16.3
%
 
14.7
%
Tangible common equity
 
 
9.3
%
 
9.5
%
 
9.6
%
 
9.5
%
 
8.0
%
Tangible equity
 
 
10.2
%
 
10.6
%
 
11.1
%
 
11.3
%
 
9.9
%
Selected Information
 
 
 
 
 
 
 
 
 
 
 
Weighted average diluted common shares outstanding
(in thousands)
 
 
209,653

 
204,269

 
203,698

 
192,789

 
184,297

Company common shares repurchased - from publicly announced plans (in thousands)
 
 
7,009

 
2,889

 

 

 

Common dividend payout ratio
 
 
16.05
%
 
14.04
%
 
18.30
%
 
9.56
%
 
8.20
%
Full-time equivalent employees
 
 
10,083

 
10,057

 
10,200

 
10,462

 
10,452

Commercial banking offices
 
 
431

 
436

 
450

 
460

 
469

1 
At year-end.
2 
For 2017, 2016, and 2015, ratios are based on Basel III. For years prior to 2015, ratios are based on Basel I.

28


ITEM 7.
MANAGEMENT’S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS
MANAGEMENT’S DISCUSSION AND ANALYSIS
GAAP to NON-GAAP RECONCILIATIONS
This Form 10-K presents non-GAAP financial measures, in addition to GAAP financial measures, to provide investors with additional information. The adjustments to reconcile from the applicable GAAP financial measures to the non-GAAP financial measures are presented in the following schedules. The Company considers these adjustments to be relevant to ongoing operating results and provide a meaningful base for period-to-period and company-to-company comparisons. These non-GAAP financial measures are used by management to assess the performance and financial position of the Company and for presentations of Company performance to investors. The Company further believes that presenting these non-GAAP financial measures will permit investors to assess the performance of the Company on the same basis as that applied by management.
Non-GAAP financial measures have inherent limitations, and are not required to be uniformly applied by individual entities. Although non-GAAP financial measures are frequently used by stakeholders to evaluate a company, they have limitations as an analytical tool and should not be considered in isolation or as a substitute for analysis of results reported under GAAP.
The following are the non-GAAP financial measures presented in this Form 10-K and a discussion of why management uses these non-GAAP measures:
Return on Average Tangible Common Equity – this schedule also includes “net earnings applicable to common shareholders, excluding the effects of the adjustments, net of tax” and “average tangible common equity.” Return on average tangible common equity is a non-GAAP financial measure that management believes provides useful information about the Company’s use of shareholders’ equity. Management believes the use of ratios that utilize tangible equity provides additional useful information because they present measures of those assets that can generate income.
Tangible Equity Ratio, Tangible Common Equity Ratio, and Tangible Book Value per Common Share – this schedule also includes “tangible equity,” “tangible common equity,” and “tangible assets.” Tangible equity ratio, tangible common equity ratio, and tangible book value per common share are non-GAAP financial measures that management believes provides additional useful information about the levels of tangible assets and tangible equity between each other and in relation to outstanding shares of common stock. Management believes the use of ratios that utilize tangible equity provides additional useful information because they present measures of those assets that can generate income.
Efficiency Ratio – this schedule also includes “adjusted noninterest expense,” “taxable-equivalent net interest income,” “adjusted taxable-equivalent revenue,” “pre-provision net revenue (“PPNR”) ,” and “adjusted PPNR.” The methodology of determining the efficiency ratio may differ among companies. Management makes adjustments to exclude certain items as identified in the subsequent schedule which it believes allows for more consistent comparability among periods. Management believes the efficiency ratio provides useful information regarding the cost of generating revenue. Adjusted noninterest expense provides a measure as to how well the Company is managing its expenses, and adjusted PPNR enables management and others to assess the Company’s ability to generate capital to cover credit losses through a credit cycle. Taxable-equivalent net interest income allows management to assess the comparability of revenue arising from both taxable and tax-exempt sources. The efficiency ratio and adjusted noninterest expense are the key metrics to which the Company announced it would hold itself accountable in its June 1, 2015 efficiency initiative, and to which executive compensation is tied.

29


Schedule 1
RETURN ON AVERAGE TANGIBLE COMMON EQUITY (NON-GAAP) – ANNUAL
 
 
Year Ended December 31,
(Dollar amounts in millions)
 
2017
 
2016
 
2015
Net earnings applicable to common shareholders (GAAP)
 
$
550

 
$
411

 
$
247

Adjustments, net of tax:
 
 
 
 
 
 
Amortization of core deposit and other intangibles
 
4

 
5

 
6

Net earnings applicable to common shareholders, excluding the effects of the adjustments, net of tax (non-GAAP)
(a)
$
554

 
$
416


$
253

Average common equity (GAAP)
 
$
7,148

 
$
6,915

 
$
6,581

Average goodwill
 
(1,014
)
 
(1,014
)
 
(1,014
)
Average core deposit and other intangibles
 
(5
)
 
(13
)
 
(21
)
Average tangible common equity (non-GAAP)
(b)
$
6,129

 
$
5,888

 
$
5,546

Return on average tangible common equity (non-GAAP)
(a/b)
9.0
%
 
7.1
%
 
4.6
%
Schedule 2
TANGIBLE EQUITY (NON-GAAP), TANGIBLE COMMON EQUITY (NON-GAAP), AND TANGIBLE BOOK VALUE PER COMMON SHARE (NON-GAAP)
(Dollar amounts in millions, except per share amounts)
 
December 31,
 
2017
 
2016
 
2015
Total shareholders’ equity (GAAP)
 
$
7,679

 
$
7,634

 
$
7,507

Goodwill
 
(1,014
)
 
(1,014
)
 
(1,014
)
Core deposit and other intangibles
 
(2
)
 
(8
)
 
(16
)
Tangible equity (non-GAAP)
(a)
6,663

 
6,612

 
6,477

Preferred stock
 
(566
)
 
(710
)
 
(829
)
Tangible common equity (non-GAAP)
(b)
$
6,097

 
$
5,902

 
$
5,648

Total assets (GAAP)
 
$
66,288

 
$
63,239

 
$
59,665

Goodwill
 
(1,014
)
 
(1,014
)
 
(1,014
)
Core deposit and other intangibles
 
(2
)
 
(8
)
 
(16
)
Tangible assets (non-GAAP)
(c)
$
65,272

 
$
62,217

 
$
58,635

Common shares outstanding (thousands)
(d)
197,532

 
203,085

 
204,417

Tangible equity ratio (non-GAAP)
(a/c)
10.2
%
 
10.6
%
 
11.0
%
Tangible common equity ratio (non-GAAP)
(b/c)
9.3
%
 
9.5
%
 
9.6
%
Tangible book value per common share (non-GAAP)
(b/d)
$30.87
 
$29.06
 
$27.63

30


Schedule 3
EFFICIENCY RATIO
(Dollar amounts in millions)
 
2017
 
2016
 
2015
 
 
 
 
 
 
 
Noninterest expense (GAAP)
(a)
$
1,649

 
$
1,585

 
$
1,581

Adjustments:
 
 
 
 
 
 
Severance costs
 
7

 
5

 
11

Other real estate expense, net
 
(1
)
 
(2
)
 
(1
)
Provision for unfunded lending commitments
 
(7
)
 
(10
)
 
(6
)
Debt extinguishment cost
 

 

 
3

Amortization of core deposit and other intangibles
 
6

 
8

 
9

Restructuring costs
 
4

 
5

 
4

Total adjustments
(b)
9

 
6

 
20

Adjusted noninterest expense (non-GAAP)
(a-b)=(c)
$
1,640

 
$
1,579

 
$
1,561

Net interest income (GAAP)
(d)
$
2,065

 
$
1,867

 
$
1,715

Fully taxable-equivalent adjustments
(e)
35

 
25

 
18

Taxable-equivalent net interest income (non-GAAP)1
(d+e)=(f)
2,100

 
1,892

 
1,733

Noninterest income (GAAP)
(g)
544

 
516

 
357

Combined income (non-GAAP)
(f+g)=(h)
2,644

 
2,408

 
2,090

Adjustments:
 
 
 
 
 
 
Fair value and nonhedge derivative income (loss)
 
(2
)
 
2

 

Securities gains (losses), net
 
14

 
7

 
(127
)
Total adjustments
(i)
12

 
9

 
(127
)
Adjusted taxable-equivalent revenue (non-GAAP)
(h-i)=(j)
$
2,632

 
$
2,399

 
$
2,217

Pre-provision net revenue (non-GAAP)
(h)-(a)
$
995

 
$
823

 
$
509

Adjusted pre-provision net revenue (non-GAAP)
(j-c)
992

 
820

 
656

Efficiency ratio (non-GAAP)
(c/j)
62.3
%
 
65.8
%
 
70.4
%
Company Overview
Zions Bancorporation (“the Parent”) and its subsidiaries (collectively “the Company,” “Zions,” “we,” “our,” “us”) together comprise a $66 billion financial holding company headquartered in Salt Lake City, Utah.
As of December 31, 2017, the Company was the 19th largest domestic bank holding company in terms of deposits and is included in the Standard and Poor’s (“S&P”) 500 and NASDAQ Financial 100 indices.
At December 31, 2017, the Company had banking operations through 433 domestic branches in eleven western states. Additionally, the Company currently has, and continues to develop its digital delivery capabilities. Revenues and profits are primarily derived from commercial customers and the Company also emphasizes mortgage banking, wealth management, municipal finance, and brokerage services.
The Company is consistently ranked among the best banks in the country to work with by its small and middle-market customers, as measured by the Greenwich Associates annual survey. Since the awards inception in 2009, only three other U.S. banks have consistently received as many Greenwich Excellence Awards as Zions Bancorporation.
The Company consistently wins awards for the best bank within its geography. Examples include the best bank awards given by local newspapers, business journals, or similar publications in Nevada, Arizona, and California: Orange County (four consecutive years) and San Diego County (seven consecutive years).
The long-term strategy of the Company is driven by key factors that include:
Continuing to execute on our community bank business model by doing business on a “local” basis, with significant local decision making for customer-facing elements of our business including product offerings, marketing, and pricing. We believe this provides a meaningful competitive advantage and an opportunity for growth over larger national banks whose loan and deposit products are often homogeneous. We are actively

31


engaged in community events and charitable efforts designed to give back to the people within our communities. In 2017, we believe this local, customized approach led to a strong showing with commercial customers as reflected in the Greenwich Awards referenced earlier, as well as a growth rate of loans that exceeded the domestic commercial banks’ rate by approximately three percentage points.
Achieving even greater efficiencies than currently reflected in our financial statements. We have improved the financial performance of the Company significantly during the past three years and we intend to continue to do so by creating value through the adoption of common practices, automation, and simplification of all of our front, middle and back-office processes.
We expect to achieve continued growth of revenue (net interest income plus noninterest income) in excess of noninterest expense—so-called positive operating leverage—which should result in annual PPNR growth in the high single digit rate and further improvement to the efficiency ratio.
Improving profitability ratios. Improved operating efficiency coupled with low credit costs as experienced in 2017 should lead to improved profitability ratios, such as the return on assets and equity. We expect to maintain or increase the return of shareholders’ equity due to stronger earnings and a lower risk profile than seen in stress testing results just a few years ago.
Maintaining a strong approach to risk management, having meaningfully improved our operational, credit, and financial risk management in the past several years.
Striving to be a “top employer of choice,” which means employees view Zions Bancorporation as one of the best places to work and grow.
We believe our scale gives us superior access to capital markets, more robust treasury management, and other product capabilities than smaller community banks. Looking forward for the next several years, we believe that digital delivery of products, including mobile banking, online banking and having a core processing system that is robust and prevents outages, is critical to remaining competitive. As such, we are investing a substantial amount to upgrade and replace systems and applications.
During the past several years we have taken significant actions to improve the Company’s risk profile, which include:
The reduction of an above-average concentration in CRE commitments, and within CRE, the concentration of land development commitments declined from more than 70% of total risk-based capital in 2007, to less than 5% at December 31, 2017;
Numerous changes made to the credit administration organization and processes to facilitate improved data collection on loans and monitoring of potential default and loss risk;
The higher-risk portfolio of collateralized debt obligation securities were sold and replaced with government and government agency securities;
A significant increase in the on-balance sheet storehouse of liquidity with the purchase of moderate duration securities with limited duration extension risk; i.e., management has generally purchased securities that within the context of a rising interest rate environment would not experience interest rate related losses;
The addition of five members of the Board of Directors;
The replacement and upgrade of management information and accounting systems to allow for a more complete view of the Company’s risks and opportunities;
The ongoing evaluation and classification of all known risks into approximately sixty unique risk categories, which are regularly monitored and reported in a process that flows from line-level employees through executive management to the Board of Directors;
The streamlining or elimination of redundant or inefficient processes, and the reduction of unnecessary complexity in product types;
With the improvement in the risk profile, along with improving profitability, the Company’s capital stress test results have markedly improved within the past few years, and as such, we have increased the return of capital to shareholders including increasing the common dividend from $0.16 per share in 2014 to $0.44 per share in 2017. Additionally, we repurchased $320 million of common stock during 2017. We believe we are carrying

32


excess capital, informed primarily by our stress test results, and have indicated that we intend to increase the leverage of the Company at a gradual pace as a result of moderate loan growth combined with total payout ratios generally similar to the current capital plan.
As part of our ongoing simplification and efficiency efforts, in December 2015, the Company consolidated its various banking charters into a single charter. Additionally, as previously discussed, in November 2017, the Company announced plans to change its structure to consolidate the holding company into the banking entity. This change, if approved by shareholders and regulators, will further reduce duplication of effort and simplify operations. For more information see, “Regulatory relief if proposed restructuring is completed and FSOC application is approved,” on page 15.
RESULTS OF OPERATIONS
Executive Summary
The Company reported net earnings applicable to common shareholders for 2017 of $550 million or $2.60 per diluted common share compared with $411 million or $1.99 per diluted common share for 2016. The improved financial performance reflects revenue growth, continued expense control and improved credit quality, particularly in the oil and gas-related loan portfolio. Net income increased in 2017 primarily due to a $198 million increase in net interest income, from growth in our lending and securities portfolios during the year, and short-term rate increases that positively impacted loan yields. Revenue also experienced a benefit from a $28 million increase related to noninterest income and credit costs, specifically the provision for loan losses, declined $69 million. These increases were partially offset by a $64 million increase in noninterest expense
Performance Relative to Previously Announced Initiatives
Efficiency Initiatives
In June 2015 we announced several initiatives to improve operational and financial performance along with some key financial targets. Our initiatives are designed to improve customer experience, to simplify the corporate structure and operations, and to make the Company a more efficient organization. Following is a brief discussion regarding our performance against these key financial targets:
Achieve an efficiency ratio in the low 60% range for fiscal year 2017. Our efficiency ratio for 2017 was 62.3%, which met our goal for the year, compared with 65.8% for 2016, representing a 351 bps improvement. Improvements in interest income from securities and loans, partially offset by an increase in adjusted noninterest expense, drove the significant improvement. See “GAAP to Non-GAAP Reconciliations” on page 29 for more information regarding the calculation of the adjusted efficiency ratio and why management uses this non-GAAP measure.
Maintain adjusted noninterest expense at less than $1.58 billion in 2016, with a modest increase of 2-3% in 2017. We met our target for fiscal year 2016, keeping adjusted noninterest expense to $1.579 billion. In 2017, total adjusted noninterest expense was $1.640 billion. Zions made a $12 million contribution to a charitable foundation in the fourth quarter of 2017, which was related in part to the Tax Cuts and Jobs Act. Excluding the impact of this one-time accelerated contribution, adjusted noninterest expense increased $49 million, or 3%, which was in line with our expectations. Adjusted noninterest expense excludes those same expense items excluded in arriving at the efficiency ratio (see “GAAP to Non-GAAP Reconciliations” on page 29 for more information regarding the calculation of the efficiency ratio).
Increase returns on tangible common equity to more than ten percent. Returns were 9.0%, 7.1%, and 4.6% for 2017, 2016, and 2015, respectively. Adjusting for the estimated net DTA write-off of $47 million through income tax expense associated with the decrease in the federal income tax rate from the passage of new legislation (see “Income Taxes” on page 45 for more information), and the $12 million charitable contribution, return on tangible common equity for 2017 would have been 9.9%. These year-over-year increases demonstrate our commitment to improving profitability, as we continue to work towards achieving this goal. See “GAAP to Non-GAAP Reconciliations” on page 29 for more information regarding the calculation of the adjusted efficiency ratio and why management uses this non-GAAP measure.

33


Achieve cumulative gross pretax cost savings of $120 million from operational expense initiatives by fiscal year 2017. Savings from technology initiatives, the consolidation of legal charters, and improved operational efficiency across the Company helped us achieve this goal by the end of 2017.
Highlights in 2017
Net interest income, which is more than three-quarters of our revenue, improved by $198 million to $2.1 billion compared with 2016. The average balance of our investment securities portfolio grew $5.4 billion, and the average rate on those securities expanded 9 bps due in part to a change in asset mix. Our average lending portfolio also grew by 3% or $1.4 billion; the average yield on the loan portfolio increased 14 bps, reflecting in part several increases in short-term benchmark rates. Although there was a decrease in the average balance of long-term debt in 2017 of $286 million, this was offset by increased average Federal Home Loan Bank (“FHLB”) and other short-term borrowings, which rose by $3.6 billion. Interest expense increased $40 million compared with 2016, almost entirely driven by the increase in wholesale funding. Interest expense on deposits increased only $10 million on more than $52 billion of average deposits. Some of the same factors that led to an increase in net interest income also resulted in net interest margin (“NIM”) expansion in 2017 relative to 2016, which was 3.45% and 3.37%, respectively.
Adjusted PPNR of $992 million in 2017 was up $172 million from 2016. This increase reflects operating leverage improvement resulting from loan growth and a more profitable average earning assets mix. Adjusted noninterest expense increased to $1.640 billion (or $1.628 billion, if excluding the charitable foundation contribution related to the Tax Cuts and Jobs Act) from $1.579 billion in 2017, however, this was more than offset by improved revenue. PPNR improvements during 2017 have driven an improvement in the Company’s efficiency ratio from 65.8% in 2016 to 62.3% in 2017.
Our lending portfolio grew $2.1 billion based on year-end balances, or 5% during 2017. We have seen widespread growth across most products and geographies, with particular strength in 1-4 family residential, commercial and industrial, and municipal lending. We saw a small decline in our National Real Estate (“NRE”) portfolio, and we actively managed decreases in our oil and gas-related and CRE term portfolios. We are currently comfortable with the concentrations in both the oil and gas-related and CRE term portfolios and we do not expect the attrition trend to continue.
Asset quality has been very favorable during 2017. Credit quality in the oil and gas-related portfolio continues to strengthen and it has remained strong in the rest of the lending portfolio. Overall criticized, classified, and nonaccrual loans declined by $292 million, $444 million, and $127 million, respectively.
We continue to increase the return on- and of-capital. As previously mentioned, the Company’s return on average tangible common equity increased substantially in 2017 relative to 2016. Regarding return of capital, during the year, the Company repurchased 7 million shares of common stock for $320 million. Dividends per common share were $0.44 in 2017, up from $0.28 in 2016. In June, 2017, we announced that the Federal Reserve did not object to the capital actions in the Company’s 2017 capital plan (the binding portion of which spans the timeframe of July 2017 to June 2018). The plan included stepped quarterly common dividend increases, rising to $0.24 per share by the second quarter of 2018, and up to $465 million in common stock repurchases. See “Capital Management” on page 77 for more information regarding the 2018 capital plan.
We announced in 2013 that we had started a project to replace our core loan and deposit banking systems (“Core Transformation Project”). We successfully implemented the first phase of the TCS BαNCS® core servicing system in mid-2017, replacing our consumer lending system. The second phase is focused on the replacement of our commercial and construction lending systems is expected to be completed in 2019. The replacement of the deposit system is the third phase of the project. As of December 31, 2017, the Company had $148 million of capitalized expenses associated with the Core Transformation Project. BαNCS® is a real time, parameter-driven servicing system that will provide long-term benefits to the Company by improving accessibility and functionality, allowing our bankers to better serve customers.

34


Areas Experiencing Challenges in 2017
Noninterest income from customer-related fees increased approximately 3% in 2017 from the prior year period, which was less than the targeted growth goal. We experienced strength in card activity (credit, debit, merchant), growth in the Company’s trust and wealth management initiatives, and increased foreign currency and derivative transactions made on behalf of customers. This growth was partially offset by a decline in loan sales and servicing income, which was mainly due to fewer sales of residential mortgages and a lower valuation adjustment on our agricultural loan servicing assets accounted for at fair value. We are targeting mid-single digit growth of customer-related fee income.
Noninterest expense increased to $1.649 billion from $1.585 billion in 2016, equivalent to a 4% increase. Adjusting for the one-time charitable contribution mentioned earlier, adjusted noninterest expense increased 3%, which is in line with announced forecasts. Employee costs, including salaries and benefits expenses, were higher in 2017 than in the prior year, partially due to a combination of higher incentive compensation and increased costs in the Company’s benefit plans. Depreciation and amortization expense was higher by $5 million, in part, because we placed into use a newly constructed office building at our Amegy affiliate and as previously mentioned we successfully implemented the first phase of our Core Transformation Project. FDIC premiums increased $13 million over the prior year, due in part to a surcharge assessed to large banks introduced by the FDIC in the third quarter of 2016 with the purpose of recapitalizing the deposit insurance fund.
Areas of Focus for 2018
In 2018, we are focused on the ongoing initiatives related to Company profitability and returns on equity. Major areas of emphasis include the following:
Achieve positive operating leverage
Maintain annual mid-single digit loan growth rates
Achieve mid-single digit growth rates in customer-related fee income
Maintain strong expense controls: we expect adjusted noninterest expense to increase slightly--a rate of growth in the low single digit percentage range
Annual PPNR growth in the high single digit rate and further improvement to the efficiency ratio
Continue simplification of all aspects of how we do business
Implement technology upgrade strategies
Increase the return on and maintain or increase the return of capital
Continue to execute on our Community Bank Model – doing business on a “local” basis
Merge the Parent into its bank subsidiary, ZB, N.A.

35


Schedule 4
KEY DRIVERS OF PERFORMANCE
2017 COMPARED TO 2016
Driver
 
2017
 
2016
 
Change
better/(worse)
 
 
 
 
 
 
 
 
 
(In billions)
 
 
Average net loans and leases
 
$
43.5

 
$
42.1

 
3
 %
Average money market investments
 
1.5

 
3.7

 
(59
)
Average total securities
 
15.7

 
10.3

 
52

Average noninterest-bearing deposits
 
23.8

 
22.5

 
6

Average total deposits
 
52.2

 
50.6

 
3

 
 
(In millions)
 
 
Net interest income
 
$
2,065

 
$
1,867

 
11
 %
Provision for loan losses
 
24

 
93

 
74

Noninterest income
 
544

 
516

 
5

Customer-related fee income 1
 
485

 
473

 
3

Noninterest expense
 
1,649

 
1,585

 
(4
)
Net interest margin
 
3.45
%
 
3.37
%
 
8 bps

Nonaccrual loans 2
 
414

 
569

 
27
 %
Ratio of net charge-offs to average loans and leases
 
0.17
%
 
0.31
%
 
14 bps

Ratio of nonperforming lending-related assets to net loans and leases and other real estate owned 2
 
0.93
%
 
1.34
%
 
41 bps

Ratio of total allowance for credit losses to net loans and leases outstanding
 
1.29
%
 
1.48
%
 
19 bps

1 Includes the following income statement line items: service charges and fees on deposit accounts, other service charges, commissions and fees, wealth management and trust income, capital markets and foreign exchange, and loan sales and servicing income.
2 Includes loans held for sale.
Net Interest Income
Net interest income is the difference between interest earned on interest-earning assets and interest paid on interest-bearing liabilities. Taxable-equivalent net interest income is the largest portion of our revenue. For 2017, taxable-equivalent net interest income was $2.1 billion, compared with $1.9 billion and $1.7 billion, in 2016 and 2015, respectively. The tax rate used for calculating all taxable-equivalent adjustments was 35% for all years presented. The increase over 2016, and the previous increase over 2015, were driven by several factors, including a larger average securities portfolio balance, loan growth, and increases in benchmark interest rates that impacted loan yields. We expect the size of the securities portfolio to be relatively stable during the next several quarters, and we are not assuming any further increases in benchmark rates in our forecasts. Therefore, we expect net interest income to increase at a moderate pace in 2018 when compared with 2017.
Net Interest Margin and Interest Rate Spreads in 2017 vs. 2016
The NIM was 3.45% and 3.37% for 2017 and 2016, respectively. Compared with 2016, changes in asset mix resulted in higher securities and loan balances, lower balances in money market investments, and higher balances of wholesale borrowings to fund overall balance sheet growth. Moving funds from money market investments to loans and securities had a positive impact on NIM, while funding balance sheet growth with wholesale borrowings reduced spreads and negatively impacted NIM, although it was accretive to net interest income. The NIM was also positively impacted by several increases in short-term interest rates. Average interest-earning assets increased $4.7 billion from 2016, with average rates improving 14 bps. Average interest-bearing liabilities increased $3.6 billion and average rates increased 8 bps over the same period.
The average loan portfolio increased $1.4 billion, or 3% from 2016, with the majority of growth coming from 1-4 family residential, commercial and industrial, and municipal lending. Yields on average balances increased overall, buoyed by increases of 16 bps and 26 bps in the commercial and CRE portfolios, respectively; yields on average

36


consumer balances were relatively flat during 2017. Much of the consumer growth was in consumer 1-4 family residential, where our yields are generally lower than on commercial loans. Benchmark interest rates increased several times beginning in the fourth quarter of 2015, which has had a positive impact on NIM and spreads, as our earning assets generally reprice more quickly than our funding sources. A portion of our variable-rate loans were not affected by these changes primarily due to longer reset frequency, or because a substantial portion of our earning assets are tied to longer-term rates indices, which rates were impacted by a relatively flat yield curve for much of 2017. Additionally, NIM benefited from FDIC-supported loans by approximately 3 bps and 4 bps in 2017 and 2016, respectively. We expect continued strong growth in residential mortgages, with moderate growth in both CRE and commercial and industrial loans.
Average available-for-sale (“AFS”) securities balances increased $5.4 billion during 2017 and yields were also up 17 bps due to the effect of rising interest rates on variable-rate securities, moderation in the amount of prepayments on agency-guaranteed, mortgage-backed securities, and investment in products providing a higher yield than the average portfolio. The purchases were funded by using lower-yielding average money market investments, which were reduced by $2.1 billion, and wholesale borrowing from the FHLB. The investment portfolio has now reached a generally appropriate size relative to the balance sheet.
Average noninterest-bearing demand deposits provided us with low-cost funding and comprised 45.6% of average total deposits, which totaled $52.2 billion in 2017, compared with 44.4% of average total deposits, which totaled $50.6 billion, for 2016. Average interest-bearing deposits increased only 1% in 2017, compared with 2016. Over the past 12 months the Federal Reserve has increased the overnight benchmark Federal Funds rate by 75 bps, while the rate paid on the Company’s interest-bearing deposits increased 3 bps. We have been selectively increasing deposit pricing in certain markets and with certain clients, but we have not generally experienced signific
ant pressure to broadly increase deposit rates. Although we consider a wide variety of sources when determining our funding needs, we benefit from access to deposits from a significant number of small to mid-sized business customers, which provide us with a low cost of funds and have a positive impact on our NIM. Including wholesale borrowings, the rate paid on interest-bearing liabilities increased 8 bps primarily due to borrowings increasing as a percentage of liabilities during 2017.
The average balance of long-term debt decreased $286 million compared with 2016, and although the average rate increased 61 bps in the current year, because remaining debt was at a higher average rate than the rate on debt that matured and was available to be called; overall interest expense thereon decreased $13 million. As mentioned previously, the Company has used short-term FHLB borrowings to fund some of its balance sheet growth. Average short-term debt grew $3.6 billion and the rate paid increased 78 bps. Further changes in short-term borrowings will be driven by balancing changes in deposits and loans as we do not foresee significant increases in investment security balances.
The spread on average interest-bearing funds was 3.27% and 3.23% for 2017 and 2016, respectively. The spread on average interest-bearing funds for these periods was affected by the same factors that had an impact on the NIM.
We expect the mix of interest-earning assets to continue to change over the next several quarters due to solid consumer loan growth, accompanied by moderate growth in CRE term loans, and non-oil and gas-related commercial and industrial loans. We anticipate this growth will be partially offset by continued modest reduction in the NRE portfolio.
Interest rate spreads and margin are impacted by the mix of assets we hold, the composition of our loan and securities portfolios and the type of funding used. Assuming no additional increases in the Federal Funds rate, we expect the yield on the securities portfolio to increase slightly, as the cash flow from the portfolio is redeployed into securities with yields that are slightly accretive to the overall portfolio. We expect the yield of the loan portfolio to increase somewhat due to the effects of rising interest rates in late 2017, partially offset by a continued modest change in the mix of the portfolio (increasing concentration in lower-yielding residential mortgages), as well as reduced income from higher-yielding loans purchased from the FDIC in 2009.

37


Our estimates of the Company’s interest rate risk position are highly dependent upon a number of assumptions regarding the repricing behavior of various deposit and loan types in response to changes in both short-term and long-term interest rates, balance sheet composition, and other modeling assumptions, as well as the actions of competitors and customers in response to those changes. In addition, our modeled projections for noninterest-bearing demand deposits, which are a substantial portion of our deposit balances, are particularly reliant on assumptions for which there is little historical experience due to the prolonged period of very low interest rates. Further detail on interest rate risk is discussed in “Interest Rate and Market Risk Management” on page 68.
Refer to the “Liquidity Risk Management” section beginning on page 72 for more information on how we manage liquidity risk.
Net Interest Margin and Interest Rate Spreads in 2016 vs. 2015
The NIM was 3.37% and 3.19% for 2016 and 2015, respectively. Market trends and competitive pricing led to generally flat or lower yields across loans and investments in 2016 compared with 2015. These yield adjustments were offset by changes in the Company’s asset mix, which in 2016 became less concentrated in lower-yielding money market investments, and more focused on higher-yielding agency securities and loans. Further contributing to the improvement was a decline in the Company’s cost of funds, due to higher amounts of noninterest-bearing deposits and tender offers, early calls and maturities of higher-rate debt, including the remaining trust preferred securities.
Average interest-earning assets increased $1.8 billion from 2015, with rates improving 12 bps. Average interest-bearing liabilities increased $769 million and rates decreased 11 bps over the same period.
Our average loan portfolio was $1.9 billion higher during 2016, compared with 2015, although the average interest rate earned on the loan portfolio was 8 bps lower than it was in 2015 due to competitive pricing pressure and depressed interest rates. The larger average loan base generated an additional $45 million of taxable-equivalent interest income during the year. The largest average growth in 2016 was in the CRE portfolio, which also saw the average yield decline by 22 bps. The decline in loan yields occurred as new loans were originated or existing loans reset or were modified. See “Interest Rate and Market Risk Management” on page 68 for further information regarding our interest rate sensitivity.
During 2016 we continued to purchase U.S. agency pass-through securities in order to alter the mix of our interest-earning assets that began in the second half of 2014. The average balance of AFS securities for 2016 increased by $4.4 billion or 84%, compared with 2015, and the average yield was flat at 1.93%. Average balances of money market investments over the same period declined $4.6 billion, with an average yield during 2016 of 0.59%. This asset movement had the largest impact on the improvement in NIM during 2016.
Average noninterest-bearing demand deposits provided us with low cost funding and comprised 44.4% of average total deposits for 2016, compared with 43.9% for 2015. Average interest-bearing deposit balances increased by 3% in 2016 compared with 2015; additionally, the rate paid was flat at 18 bps.
The average balance of long-term debt was $313 million lower for 2016 compared with 2015. The reduced balance was the result of tender offers, early calls and maturities. The average interest rate on long-term debt for 2016 decreased by 157 bps compared with 2015. This was due to the maturity of higher cost long-term debt in the latter part of 2015, which had a greater impact on the average rate during 2016.
The lower cost of funds in 2016, compared with 2015, and improved yields on average interest-earning assets, contributed to the higher NIM and to an improvement in spread from 2.99% in 2015 to 3.23% in 2016.
The following schedule summarizes the average balances, the amount of interest earned or incurred, and the applicable yields for interest-earning assets and the costs of interest-bearing liabilities that generate taxable-equivalent net interest income.

38


Schedule 5
DISTRIBUTION OF ASSETS, LIABILITIES, AND SHAREHOLDERS’ EQUITY
AVERAGE BALANCE SHEETS, YIELDS AND RATES
 
2017
 
2016
(Dollar amounts in millions)
Average
balance
 
Amount of
interest 1
 
Average
rate
 
Average
balance
 
Amount of
interest 1
 
Average
rate
ASSETS
 
 
 
 
 
 
 
 
 
 
 
Money market investments
$
1,539

 
$
19

 
1.23
%
 
$
3,664

 
$
21

 
0.59
%
Securities:
 
 
 
 
 
 
 
 
 
 
 
Held-to-maturity
776

 
31

 
3.95

 
675

 
30

 
4.40

Available-for-sale
14,907

 
313

 
2.10

 
9,546

 
184

 
1.93

Trading account
64

 
2

 
3.75

 
83

 
3

 
3.76

Total securities
15,747

 
346

 
2.20

 
10,304

 
217

 
2.11

Loans held for sale
87

 
3

 
3.56

 
140

 
5

 
3.36

Loans and leases 2
 
 
 
 
 
 
 
 
 
 
 
Commercial
22,116

 
964

 
4.36

 
21,748

 
913

 
4.20

Commercial Real Estate
11,184

 
504

 
4.50

 
11,131

 
472

 
4.24

Consumer
10,201

 
391

 
3.84

 
9,183

 
351

 
3.83

Total Loans and leases
43,501

 
1,859

 
4.27

 
42,062

 
1,736

 
4.13

Total interest-earning assets
60,874

 
2,227

 
3.66

 
56,170

 
1,979

 
3.52

Cash and due from banks
786

 
 
 
 
 
675

 
 
 
 
Allowance for loan losses
(548
)
 
 
 
 
 
(601
)
 
 
 
 
Goodwill
1,014

 
 
 
 
 
1,014

 
 
 
 
Core deposit and other intangibles
5

 
 
 
 
 
13

 
 
 
 
Other assets
2,985

 
 
 
 
 
2,779

 
 
 
 
Total assets
$
65,116

 
 
 
 
 
$
60,050

 
 
 
 
LIABILITIES
 
 
 
 
 
 
 
 
 
 
 
Interest-bearing deposits:
 
 
 
 
 
 
 
 
 
 
 
Saving and money market
$
25,453

 
39

 
0.15

 
$
25,672

 
37

 
0.15

Time
2,966

 
20

 
0.69

 
2,333

 
12

 
0.49

Foreign

 

 

 
128

 

 
0.28

Total interest-bearing deposits
28,419

 
59

 
0.21

 
28,133

 
49

 
0.18

Borrowed funds:
 
 
 
 
 
 
 
 
 
 
 
Federal funds purchased and other short-term borrowings
4,096

 
44

 
1.05

 
456

 
1

 
0.27

Long-term debt
417

 
24

 
5.79

 
703

 
37

 
5.18

Total borrowed funds
4,513

 
68

 
1.49

 
1,159

 
38

 
3.25

Total interest-bearing liabilities
32,932

 
127

 
0.38

 
29,292

 
87

 
0.30

Noninterest-bearing deposits
23,781

 
 
 
 
 
22,462

 
 
 
 
Other liabilities
624

 
 
 
 
 
625

 
 
 
 
Total liabilities
57,337

 
 
 
 
 
52,379

 
 
 
 
Shareholders’ equity:
 
 
 
 
 
 
 
 
 
 
 
Preferred equity
631

 
 
 
 
 
756

 
 
 
 
Common equity
7,148

 
 
 
 
 
6,915

 
 
 
 
Controlling interest shareholders’ equity
7,779

 
 
 
 
 
7,671

 
 
 
 
Noncontrolling interests

 
 
 
 
 

 
 
 
 
Total shareholders’ equity
7,779

 
 
 
 
 
7,671

 
 
 
 
Total liabilities and shareholders’ equity
$
65,116

 
 
 
 
 
$
60,050

 
 
 
 
Spread on average interest-bearing funds
 
 
 
 
3.27

 
 
 
 
 
3.23

Taxable-equivalent net interest income and net yield on interest-earning assets
 
 
$
2,100

 
3.45

 
 
 
$
1,892

 
3.37

1 Taxable-equivalent rates used where applicable. See “GAAP to Non-GAAP Reconciliations” on page 29 for more information regarding taxable-equivalent net interest income.
2 Net of unearned income and fees, net of related costs. Loans include nonaccrual and restructured loans.

39


2015
 
2014
 
2013
Average
balance
 
Amount of
interest 1
 
Average
rate
 
Average
balance
 
Amount of
interest 1
 
Average
rate
 
Average
balance
 
Amount of
interest 1
 
Average
rate
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
$
8,252

 
$
23

 
0.28
%
 
$
8,218

 
$
21

 
0.26
%
 
$
8,850

 
$
23

 
0.26
%
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
581

 
30

 
5.08

 
609

 
32

 
5.27

 
762

 
38

 
4.91

5,181

 
100

 
1.93

 
3,472

 
75

 
2.17

 
3,107

 
72

 
2.32

64

 
2

 
3.46

 
61

 
2

 
3.22

 
32

 
1

 
3.29

5,826

 
132

 
2.26

 
4,142

 
109

 
2.64

 
3,901

 
111

 
2.84

125

 
5

 
3.61

 
128

 
5

 
3.63

 
147

 
5

 
3.64

 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
21,419

 
903

 
4.22

 
21,125

 
922

 
4.36

 
20,186

 
940

 
4.65

10,178

 
454

 
4.46

 
10,337

 
484

 
4.68

 
10,386

 
557

 
5.36

8,574

 
334

 
3.91

 
8,060

 
328

 
4.06

 
7,537

 
321

 
4.25

40,171

 
1,691

 
4.21

 
39,522

 
1,734

 
4.39

 
38,109

 
1,818

 
4.77

54,374

 
1,851

 
3.40

 
52,010

 
1,869

 
3.59

 
51,007

 
1,957

 
3.84

642

 
 
 
 
 
894

 
 
 
 
 
1,014

 
 
 
 
(607
)
 
 
 
 
 
(690
)
 
 
 
 
 
(830
)
 
 
 
 
1,014

 
 
 
 
 
1,014

 
 
 
 
 
1,014

 
 
 
 
21

 
 
 
 
 
31

 
 
 
 
 
44

 
 
 
 
2,601