ZION-2014.09.30-10Q



UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
FORM 10-Q
ý
QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934
For the quarterly period ended September 30, 2014
or
¨
TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934
For the transition period from         to                         
COMMISSION FILE NUMBER 001-12307
ZIONS BANCORPORATION
(Exact name of registrant as specified in its charter)
UTAH
87-0227400
(State or other jurisdiction of
incorporation or organization)
(I.R.S. Employer
Identification No.)
 
 
One South Main, 15th Floor
Salt Lake City, Utah
84133
(Address of principal executive offices)
(Zip Code)
Registrant’s telephone number, including area code: (801) 844-7637
Indicate by check mark whether the registrant (1) has filed all reports required to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during the preceding 12 months (or for such shorter period that the registrant was required to file such reports), and (2) has been subject to such filing requirements for the past 90 days.    Yes  ý    No  ¨
Indicate by check mark whether the registrant has submitted electronically and posted on its corporate Web site, if any, every Interactive Data File required to be submitted and posted pursuant to Rule 405 of Regulation S-T (§232.405 of this chapter) during the preceding 12 months (or for such shorter period that the registrant was required to submit and post such files).    Yes  ý    No  ¨
Indicate by check mark whether the registrant is a large accelerated filer, an accelerated filer, a non-accelerated filer, or a smaller reporting company. See the definitions of “large accelerated filer,” “accelerated filer” and “smaller reporting company” in Rule 12b-2 of the Exchange Act.
Large accelerated filer
ý
Accelerated filer
¨
 
 
 
 
Non-accelerated filer
¨
Smaller reporting company
¨
Indicate by check mark whether the registrant is a shell company (as defined in Rule 12b-2 of the Exchange Act).    Yes  ¨    No  ý
Indicate the number of shares outstanding of each of the issuer’s classes of common stock, as of the latest practicable date.
Common Stock, without par value, outstanding at October 31, 2014
202,932,251 shares



ZIONS BANCORPORATION AND SUBSIDIARIES
INDEX

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Item 1A.
 
 
 
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2


Table of Contents

PART I. FINANCIAL INFORMATION
ITEM 1.
FINANCIAL STATEMENTS (Unaudited)
ZIONS BANCORPORATION AND SUBSIDIARIES
CONSOLIDATED BALANCE SHEETS
(In thousands, except shares)

September 30,
2014
 
December 31,
2013
(Unaudited)
 
 
ASSETS
 
 
 
Cash and due from banks
$
588,691

 
$
1,175,083

Money market investments:
 
 
 
Interest-bearing deposits
7,464,865

 
8,175,048

Federal funds sold and security resell agreements
355,844

 
282,248

Investment securities:
 
 
 
Held-to-maturity, at adjusted cost (approximate fair value $642,529 and $609,547)
609,758

 
588,981

Available-for-sale, at fair value
3,563,408

 
3,701,886

Trading account, at fair value
55,419

 
34,559

 
4,228,585

 
4,325,426

 
 
 
 
Loans held for sale
109,139

 
171,328

 
 
 
 
Loans and leases, net of unearned income and fees
39,739,795

 
39,043,365

Less allowance for loan losses
610,277

 
746,291

Loans, net of allowance
39,129,518

 
38,297,074

 
 
 
 
Other noninterest-bearing investments
855,743

 
855,642

Premises and equipment, net
811,127

 
726,372

Goodwill
1,014,129

 
1,014,129

Core deposit and other intangibles
28,160

 
36,444

Other real estate owned
27,418

 
46,105

Other assets
845,651

 
926,228

 
$
55,458,870

 
$
56,031,127

 
 
 
 
LIABILITIES AND SHAREHOLDERS’ EQUITY
 
 
 
Deposits:
 
 
 
Noninterest-bearing demand
$
19,770,405

 
$
18,758,753

Interest-bearing:
 
 
 
Savings and money market
23,742,911

 
23,029,928

Time
2,441,756

 
2,593,038

Foreign
310,264

 
1,980,161

 
46,265,336

 
46,361,880

 
 
 
 
Federal funds and other short-term borrowings
191,798

 
340,348

Long-term debt
1,113,677

 
2,273,575

Reserve for unfunded lending commitments
79,377

 
89,705

Other liabilities
486,523

 
501,056

Total liabilities
48,136,711

 
49,566,564

 
 
 
 
Shareholders’ equity:
 
 
 
Preferred stock, without par value, authorized 4,400,000 shares
1,004,006

 
1,003,970

Common stock, without par value; authorized 350,000,000 shares; issued
and outstanding 202,898,491 and 184,677,696 shares
4,717,295

 
4,179,024

Retained earnings
1,711,785

 
1,473,670

Accumulated other comprehensive income (loss)
(110,927
)
 
(192,101
)
Total shareholders’ equity
7,322,159

 
6,464,563

 
$
55,458,870

 
$
56,031,127

See accompanying notes to consolidated financial statements.

3


Table of Contents

ZIONS BANCORPORATION AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF INCOME
(Unaudited)
(In thousands, except per share amounts)
Three Months Ended
September 30,
 
Nine Months Ended
September 30,
2014
 
2013
 
2014
 
2013
Interest income:
 
 
 
 
 
 
 
Interest and fees on loans
$
430,415

 
$
442,366

 
$
1,298,560

 
$
1,356,107

Interest on money market investments
5,483

 
6,175

 
15,501

 
17,378

Interest on securities
24,377

 
24,866

 
76,973

 
77,903

Total interest income
460,275

 
473,407

 
1,391,034

 
1,451,388

Interest expense:
 
 
 
 
 
 
 
Interest on deposits
12,313

 
14,506

 
37,188

 
45,291

Interest on short- and long-term borrowings
31,144

 
43,380

 
104,280

 
141,804

Total interest expense
43,457

 
57,886

 
141,468

 
187,095

Net interest income
416,818

 
415,521

 
1,249,566

 
1,264,293

Provision for loan losses
(54,643
)
 
(5,573
)
 
(109,669
)
 
(56,598
)
Net interest income after provision for loan losses
471,461

 
421,094

 
1,359,235

 
1,320,891

 
 
 
 
 
 
 
 
Noninterest income:
 
 
 
 
 
 
 
Service charges and fees on deposit accounts
44,941

 
44,701

 
130,408

 
132,610

Other service charges, commissions and fees
51,005

 
45,977

 
142,037

 
134,596

Wealth management income
7,438

 
7,120

 
22,495

 
21,846

Capital markets and foreign exchange
5,361

 
7,309

 
16,203

 
21,535

Dividends and other investment income
11,324

 
12,101

 
27,183

 
36,164

Loan sales and servicing income
6,793

 
8,464

 
19,602

 
30,138

Fair value and nonhedge derivative income (loss)
44

 
(4,403
)
 
(10,429
)
 
(12,805
)
Equity securities gains, net
440

 
3,165

 
3,865

 
8,206

Fixed income securities gains (losses), net
(13,901
)
 
1,580

 
22,039

 
3,726

Impairment losses on investment securities:
 
 
 
 
 
 
 
Impairment losses on investment securities

 
(10,470
)
 
(27
)
 
(46,873
)
Noncredit-related losses on securities not expected to be sold (recognized in other comprehensive income)

 
1,403

 

 
23,472

Net impairment losses on investment securities

 
(9,067
)
 
(27
)
 
(23,401
)
Other
2,627

 
5,243

 
5,865

 
15,942

Total noninterest income
116,072

 
122,190

 
379,241

 
368,557

 
 
 
 
 
 
 
 
Noninterest expense:
 
 
 
 
 
 
 
Salaries and employee benefits
245,520

 
229,185

 
717,690

 
686,302

Occupancy, net
28,495

 
28,230

 
85,739

 
83,570

Furniture, equipment and software
28,524

 
26,560

 
84,454

 
79,179

Other real estate expense
875

 
(831
)
 
2,216

 
2,736

Credit-related expense
6,475

 
7,265

 
20,520

 
27,144

Provision for unfunded lending commitments
(16,095
)
 
(19,935
)
 
(10,328
)
 
(22,662
)
Professional and legal services
16,588

 
16,462

 
39,754

 
44,082

Advertising
6,094

 
6,091

 
19,295

 
17,791

FDIC premiums
8,204

 
9,395

 
24,143

 
29,230

Amortization of core deposit and other intangibles
2,665

 
3,570

 
8,283

 
11,151

Debt extinguishment cost
44,422

 

 
44,422

 
40,282

Other
66,769

 
64,671

 
206,438

 
220,884

Total noninterest expense
438,536

 
370,663

 
1,242,626

 
1,219,689

Income before income taxes
148,997

 
172,621

 
495,850

 
469,759

Income taxes
53,109

 
61,107

 
179,202

 
164,832

Net income
95,888

 
111,514

 
316,648

 
304,927

Net loss applicable to noncontrolling interests

 

 

 
(336
)
Net income applicable to controlling interest
95,888

 
111,514

 
316,648

 
305,263

Preferred stock dividends
(16,761
)
 
(27,507
)
 
(56,841
)
 
(77,547
)
Preferred stock redemption

 
125,700

 

 
125,700

Net earnings applicable to common shareholders
$
79,127

 
$
209,707

 
$
259,807

 
$
353,416

 
 
 
 
 
 
 
 
Weighted average common shares outstanding during the period:
 
 
 
 
 
 
 
Basic shares
196,687

 
184,112

 
188,643

 
183,721

Diluted shares
197,271

 
184,742

 
189,260

 
184,144

Net earnings per common share:
 
 
 
 
 
 
 
Basic
$
0.40

 
$
1.13

 
$
1.36

 
$
1.90

Diluted
0.40

 
1.12

 
1.36

 
1.90

See accompanying notes to consolidated financial statements.

4


Table of Contents

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

 
 
Three Months Ended
September 30,
 
Nine Months Ended
September 30,
(In thousands)
 
2014
 
2013
 
2014
 
2013
 
 
 
 
 
 
 
 
 
Net income
 
$
95,888

 
$
111,514

 
$
316,648

 
$
304,927

Other comprehensive income (loss), net of tax:
 
 
 
 
 
 
 
 
Net unrealized holding gains (losses) on investment securities
 
18,265

 
(10,564
)
 
100,723

 
67,646

Noncredit-related impairment losses on securities not
expected to be sold
 

 
(867
)
 

 
(13,751
)
Reclassification to earnings for realized net fixed income securities losses (gains)
 
7,886

 
(976
)
 
(20,058
)
 
(2,301
)
Reclassification to earnings for net credit-related impairment losses on investment securities
 

 
5,588

 
17

 
14,136

Accretion of securities with noncredit-related impairment losses not expected to be sold
 
276

 
285

 
835

 
880

Net unrealized holding gains (losses) on derivative instruments
 
(508
)
 
239

 
1,011

 
236

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

 
(3,595
)
 
(333
)
 
(3,709
)
Reclassification adjustment for increase in interest income recognized in earnings on derivative instruments
 
(463
)
 
(57
)
 
(1,021
)
 
(1,483
)
Other comprehensive income (loss)
 
25,910

 
(9,947
)
 
81,174

 
61,654

Comprehensive income
 
121,798

 
101,567

 
397,822

 
366,581

Comprehensive loss applicable to noncontrolling interests
 

 

 

 
(336
)
Comprehensive income applicable to controlling interest
 
$
121,798

 
$
101,567

 
$
397,822

 
$
366,917

See accompanying notes to consolidated financial statements.

5


Table of Contents

ZIONS BANCORPORATION AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF CHANGES IN SHAREHOLDERS’ EQUITY
(Unaudited)
(In thousands, except shares
and per share amounts)
Preferred
stock
 
Common stock
 
Retained earnings
 
Accumulated other
comprehensive income (loss)
 
Noncontrolling interests
 
Total
shareholders’ equity
Shares
 
Amount
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
Balance at December 31, 2013
$
1,003,970

 
184,677,696

 
$
4,179,024

 
$
1,473,670

 
 
$
(192,101
)
 
 
 
$

 
 
$
6,464,563

Net income for the period
 
 
 
 
 
 
316,648

 
 
 
 
 
 
 
 
 
316,648

Other comprehensive income, net of tax
 
 
 
 
 
 
 
 
 
81,174

 
 
 
 
 
 
81,174

Issuance of common stock
 
 
17,617,450

 
515,856

 
 
 
 
 
 
 
 
 
 
 
515,856

Subordinated debt converted to preferred stock
36

 
 
 
(5
)
 
 
 
 
 
 
 
 
 
 
 
31

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

 
22,420

 
 
 
 
 
 
 
 
 
 
 
22,420

Dividends on preferred stock


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

 
 
 
 
 
 
 
 
 
1,347

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

 
202,898,491

 
$
4,717,295

 
$
1,711,785

 
 
$
(110,927
)
 
 
 
$

 
 
$
7,322,159

 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
Balance at December 31, 2012
$
1,128,302

 
184,199,198

 
$
4,166,109

 
$
1,203,815

 
 
$
(446,157
)
 
 
 
$
(3,428
)
 
 
$
6,048,641

Net income (loss) for the period
 
 
 
 
 
 
305,263

 
 
 
 
 
 
(336
)
 
 
304,927

Other comprehensive income, net of tax
 
 
 
 
 
 
 
 
 
61,654

 
 
 
 
 
 
61,654

Issuance of preferred stock
800,000

 
 
 
(15,627
)
 
 
 
 
 
 
 
 
 
 
 
784,373

Preferred stock redemption
(925,748
)
 
 
 
580

 
125,700

 
 
 
 
 
 
 
 
 
(799,468
)
Subordinated debt converted to preferred stock
1,416

 
 
 
(206
)
 
 
 
 
 
 
 
 
 
 
 
1,210

Net activity under employee plans and related tax benefits
 
 
400,807

 
26,197

 
 
 
 
 
 
 
 
 
 
 
26,197

Dividends on preferred stock


 
 
 
 
 
(77,547
)
 
 
 
 
 
 
 
 
 
(77,547
)
Dividends on common stock, $0.09 per share
 
 
 
 
 
 
(16,667
)
 
 
 
 
 
 
 
 
 
(16,667
)
Change in deferred compensation
 
 
 
 
 
 
(109
)
 
 
 
 
 
 
 
 
 
(109
)
Other changes in noncontrolling interests
 
 
 
 
(4,166
)
 
 
 
 
 
 
 
 
3,764

 
 
(402
)
Balance at September 30, 2013
$
1,003,970

 
184,600,005

 
$
4,172,887

 
$
1,540,455

 
 
$
(384,503
)
 
 
 
$

 
 
$
6,332,809

See accompanying notes to consolidated financial statements.

6


Table of Contents

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

Three Months Ended
September 30,
 
Nine Months Ended
September 30,
2014
 
2013
 
2014
 
2013
CASH FLOWS FROM OPERATING ACTIVITIES
 
 
 
 
 
 
 
Net income for the period
$
95,888

 
$
111,514

 
$
316,648

 
$
304,927

Adjustments to reconcile net income to net cash provided by
operating activities:
 
 
 
 
 
 
 
Debt extinguishment cost
44,422

 

 
44,422

 
40,282

Net impairment losses on investment securities

 
9,067

 
27

 
23,401

Provision for credit losses
(70,738
)
 
(25,508
)
 
(119,997
)
 
(79,260
)
Depreciation and amortization
33,860

 
42,667

 
97,414

 
102,860

Fixed income securities losses (gains), net
13,901

 
(1,580
)
 
(22,039
)
 
(3,726
)
Deferred income tax expense (benefit)
2,960

 
5,832

 
22,368

 
(612
)
Net decrease (increase) in trading securities
1,241

 
(11,876
)
 
(20,868
)
 
(10,005
)
Net decrease in loans held for sale
44,162

 
49,696

 
46,035

 
173,142

Change in other liabilities
33,619

 
28,047

 
(24,375
)
 
(17,463
)
Change in other assets
4,678

 
70,753

 
(8,904
)
 
243,428

Other, net
(5,745
)
 
(5,606
)
 
6,501

 
(14,174
)
Net cash provided by operating activities
198,248

 
273,006

 
337,232

 
762,800

 
 
 
 
 
 
 
 
CASH FLOWS FROM INVESTING ACTIVITIES
 
 
 
 
 
 
 
Net decrease (increase) in money market investments
(955,821
)
 
12,100

 
636,587

 
364,623

Proceeds from maturities and paydowns of investment securities
held-to-maturity
20,796

 
14,404

 
58,921

 
95,841

Purchases of investment securities held-to-maturity
(14,964
)
 
(8,121
)
 
(78,228
)
 
(128,089
)
Proceeds from sales, maturities, and paydowns of investment securities available-for-sale
374,973

 
246,147

 
1,417,234

 
864,643

Purchases of investment securities available-for-sale
(451,212
)
 
(408,333
)
 
(1,125,036
)
 
(1,019,454
)
Loans purchased
(251,325
)
 

 
(251,325
)
 

Net loan and lease collections (originations)
134,871

 
(107,808
)
 
(472,459
)
 
(697,132
)
Net purchases of premises and equipment
(26,153
)
 
(20,905
)
 
(138,884
)
 
(63,438
)
Proceeds from sales of other real estate owned
8,200

 
27,417

 
37,112

 
80,076

Net cash received from divestitures

 
3,786

 

 
3,786

Other, net
12,799

 
(62
)
 
19,796

 
19,972

Net cash provided by (used in) investing activities
(1,147,836
)
 
(241,375
)
 
103,718

 
(479,172
)
 
 
 
 
 
 
 
 
CASH FLOWS FROM FINANCING ACTIVITIES
 
 
 
 
 
 
 
Net increase (decrease) in deposits
594,722

 
653,311

 
(96,544
)
 
(463,707
)
Net change in short-term funds borrowed
(66,603
)
 
17,159

 
(148,550
)
 
(78,848
)
Proceeds from issuance of long-term debt

 
116,461

 

 
484,408

Repayments of long-term debt
(834,964
)
 
(153
)
 
(1,196,123
)
 
(570,167
)
Debt extinguishment costs paid
(35,435
)
 

 
(35,435
)
 
(23,305
)
Cash paid for preferred stock redemption

 
(799,468
)
 

 
(799,468
)
Proceeds from issuances of common and preferred stock
519,559

 
200,040

 
524,080

 
792,557

Dividends paid on common and preferred stock
(23,243
)
 
(34,935
)
 
(71,191
)
 
(94,214
)
Other, net
112

 
(2,061
)
 
(3,579
)
 
(7,709
)
Net cash provided by (used in) financing activities
154,148

 
150,354

 
(1,027,342
)
 
(760,453
)
Net increase (decrease) in cash and due from banks
(795,440
)
 
181,985

 
(586,392
)
 
(476,825
)
Cash and due from banks at beginning of period
1,384,131

 
1,183,097

 
1,175,083

 
1,841,907

Cash and due from banks at end of period
$
588,691

 
$
1,365,082

 
$
588,691

 
$
1,365,082

 
 
 
 
 
 
 
 
Cash paid for interest
$
41,138

 
$
45,134

 
$
122,807

 
$
149,047

Net cash paid for income taxes
58,645

 
32,453

 
181,301

 
156,456

See accompanying notes to consolidated financial statements.

7


Table of Contents

ZIONS BANCORPORATION AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(Unaudited)
September 30, 2014

1.
BASIS OF PRESENTATION
The accompanying unaudited consolidated financial statements of Zions Bancorporation (“the Parent”) and its majority-owned subsidiaries (collectively “the Company,” “Zions,” “we,” “our,” “us”) have been prepared in accordance with U.S. generally accepted accounting principles (“GAAP”) for interim financial information and with the instructions to Form 10-Q and Article 10 of Regulation S-X. Accordingly, they do not include all of the information and footnotes required by GAAP for complete financial statements. In the opinion of management, all adjustments (consisting of normal recurring accruals) considered necessary for a fair presentation have been included. References to GAAP, including standards promulgated by the Financial Accounting Standards Board (“FASB”) are made according to sections of the Accounting Standards Codification (“ASC”) and to Accounting Standards Updates (“ASU”), which include consensus issues of the Emerging Issues Task Force (“EITF”). In certain cases, ASUs are issued jointly with International Financial Reporting Standards (“IFRS”). Certain prior period amounts have been reclassified to conform with the current period presentation.

Operating results for the three and nine months ended September 30, 2014 and 2013 are not necessarily indicative of the results that may be expected in future periods. The consolidated balance sheet at December 31, 2013 is from the audited financial statements at that date, but does not include all of the information and footnotes required by GAAP for complete financial statements. For further information, refer to the consolidated financial statements and footnotes thereto included in the Company’s 2013 Annual Report on Form 10-K.

The Company provides a full range of banking and related services through subsidiary banks in 11 Western and Southwestern states as follows: Zions First National Bank (“Zions Bank”), in Utah, Idaho and Wyoming; California Bank & Trust (“CB&T”); Amegy Corporation (“Amegy”) and its subsidiary, Amegy Bank, in Texas; National Bank of Arizona (“NBAZ”); Nevada State Bank (“NSB”); Vectra Bank Colorado (“Vectra”), in Colorado and New Mexico; The Commerce Bank of Washington (“TCBW”); and The Commerce Bank of Oregon (“TCBO”). The Parent and its subsidiary banks also own and operate certain nonbank subsidiaries that engage in financial services.

2.
CERTAIN RECENT ACCOUNTING PRONOUNCEMENTS
In May 2014, the FASB issued ASU 2014-09, Revenue from Contracts with Customers. The new standard was issued jointly with IFRS and creates a single source of revenue recognition guidance across all companies in all industries. The core principle is that a company will recognize revenue when it transfers promised goods or services to customers in an amount that reflects the consideration to which the company expects to be entitled in exchange for those goods or services. The banking industry does not expect significant changes because major sources of revenue are from financial instruments that have been excluded from the scope of the new guidance, (including loans, derivatives, debt and equity securities, etc.). However, the new guidance affects other fees charged by banks, such as asset management fees, credit card interchange fees, deposit account fees, etc. For public companies, adoption is required for interim or annual periods beginning after December 15, 2016, with no early adoption permitted. Adoption may be made on a full retrospective basis with practical expedients, or on a modified retrospective basis with a cumulative effect adjustment. Management is currently evaluating the impact this new guidance may have on the Company’s financial statements.
In January 2014, the FASB issued ASU 2014-04, Reclassification of Residential Real Estate Collateralized Consumer Mortgage Loans upon Foreclosure. This new guidance under ASC 310-40, Receivables – Troubled Debt Restructurings by Creditors, clarifies that a creditor should be considered to have physical possession of a residential real estate property collateralizing a residential mortgage loan and thus would reclassify the loan to other real estate owned when certain conditions are satisfied. The new amendments will require additional financial

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statement disclosures and may be applied on either a prospective or a modified retrospective basis, with early adoption permitted. For public companies, adoption is required for interim or annual periods beginning after December 15, 2014. Management does not currently believe this new guidance will have a significant effect on the Company’s financial statement disclosures.
In January 2014, the FASB issued ASU 2014-01, Accounting for Investments in Qualified Affordable Housing Projects. This new accounting guidance under ASC 323, Investments – Equity Method and Joint Ventures, revised the conditions that an entity must meet to elect to use the effective yield method when accounting for qualified affordable housing project investments. The final consensus of the EITF changed the method of amortizing a Low-Income Housing Tax Credit (“LIHTC”) investment from the effective yield method to a proportional amortization method. The amortization would be proportional to the tax credits and tax benefits received but, under a practical expedient that would be available in certain circumstances, amortization could be proportional to only the tax credits. Reporting entities that invest in LIHTC investments through a limited liability entity could elect the proportional amortization method if certain conditions are met. The guidance would not extend to other types of tax credit investments. The final consensus would be applied retrospectively with early adoption and other adjustments permitted. For public companies, adoption is required for interim or annual periods beginning after December 15, 2014. Management does not currently believe this new guidance will have a significant effect on the Company’s financial statements.

3.
SUPPLEMENTAL CASH FLOW INFORMATION
Noncash activities are summarized as follows:
(In thousands)
Three Months Ended
September 30,
 
Nine Months Ended
September 30,
2014
 
2013
 
2014
 
2013
 
 
 
 
 
 
 
 
Loans and leases transferred to other real estate owned
$
8,954

 
$
12,098

 
$
20,197

 
$
52,916

Loans and leases transferred to (from) loans held for sale
(9,658
)
 
(113
)
 
(14,739
)
 
36,301

Beneficial conversion feature transferred from common stock to preferred stock as a result of subordinated debt conversions

 

 
5

 
206

Subordinated debt converted to preferred stock

 

 
31

 
1,210

Preferred stock transferred to common stock as a result of the
Series C preferred stock redemption

 
580

 

 
580

Preferred stock/beneficial conversion feature transferred to retained earnings as a result of the Series C preferred stock redemption

 
125,700

 

 
125,700


4.
OFFSETTING ASSETS AND LIABILITIES
Gross and net information for selected financial instruments in the balance sheet is as follows:
 
 
September 30, 2014
(In thousands)
 
 
 
 
 
 
 
Gross amounts not offset in the balance sheet
 
 
Description
 
Gross amounts recognized
 
Gross amounts offset in the balance sheet
 
Net amounts presented in the balance sheet
 
Financial instruments
 
Cash collateral received/pledged
 
Net amount
 
 
 
 
 
 
 
 
 
 
 
 
 
Assets:
 
 
 
 
 
 
 
 
 
 
 
 
Federal funds sold and security resell agreements
 
$
355,844

 
$

 
$
355,844

 
$

 
$

 
$
355,844

Derivatives (included in other assets)
 
54,720

 

 
54,720

 
(5,701
)
 
250

 
49,269

 
 
$
410,564

 
$

 
$
410,564

 
$
(5,701
)
 
$
250

 
$
405,113

Liabilities:
 
 
 
 
 
 
 
 
 
 
 
 
Federal funds and other short-term borrowings
 
$
191,798

 
$

 
$
191,798

 
$

 
$

 
$
191,798

Derivatives (included in other liabilities)
 
56,036

 

 
56,036

 
(5,701
)
 
(27,362
)
 
22,973

 
 
$
247,834

 
$

 
$
247,834

 
$
(5,701
)
 
$
(27,362
)
 
$
214,771


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December 31, 2013
(In thousands)
 
 
 
 
 
 
 
Gross amounts not offset in the balance sheet
 
 
Description
 
Gross amounts recognized
 
Gross amounts offset in the balance sheet
 
Net amounts presented in the balance sheet
 
Financial instruments
 
Cash collateral received/pledged
 
Net amount
 
 
 
 
 
 
 
 
 
 
 
 
 
Assets:
 
 
 
 
 
 
 
 
 
 
 
 
Federal funds sold and security resell agreements
 
$
282,248

 
$

 
$
282,248

 
$

 
$

 
$
282,248

Derivatives (included in other assets)
 
65,683

 

 
65,683

 
(11,650
)
 
2,210

 
56,243

 
 
$
347,931

 
$

 
$
347,931

 
$
(11,650
)
 
$
2,210

 
$
338,491

Liabilities:
 
 
 
 
 
 
 
 
 
 
 
 
Federal funds and other short-term borrowings
 
$
340,348

 
$

 
$
340,348

 
$

 
$

 
$
340,348

Derivatives (included in other liabilities)
 
68,397

 

 
68,397

 
(11,650
)
 
(26,997
)
 
29,750

 
 
$
408,745

 
$

 
$
408,745

 
$
(11,650
)
 
$
(26,997
)
 
$
370,098

Security resell and repurchase agreements are offset, when applicable, in the balance sheet according to master netting agreements. Security repurchase agreements are included with “Federal funds and other short-term borrowings.” Derivative instruments may be offset under their master netting agreements; however, for accounting purposes, we present these items on a gross basis in the Company’s balance sheet. See Note 7 for further information regarding derivative instruments.

5.
INVESTMENT SECURITIES 
Investment securities are summarized below. Note 10 discusses the process to estimate fair value for investment securities.
 
September 30, 2014
 
 
 
Recognized in OCI 1
 
 
 
Not recognized in OCI
 
 
(In thousands)

Amortized
cost
 
Gross
unrealized
gains
 
Gross
unrealized
losses
 
Carrying
value
 
Gross
unrealized
gains
 
Gross
unrealized
losses
 
Estimated
fair
value
Held-to-maturity
 
 
 
 
 
 
 
 
 
 
 
 
 
Municipal securities
$
570,527

 
$

 
$

 
$
570,527

 
$
14,096

 
$
829

 
$
583,794

Asset-backed securities:
 
 
 
 
 
 
 
 
 
 
 
 
 
Trust preferred securities – banks and insurance
79,302

 

 
40,171

2 
39,131

 
20,465

 
961

 
58,635

Other debt securities
100

 

 

 
100

 

 

 
100

 
649,929

 

 
40,171

 
609,758

 
34,561

 
1,790

 
642,529

Available-for-sale
 
 
 
 
 
 
 
 
 
 
 
 
 
U.S. Treasury securities
1,530

 
16

 

 
1,546

 
 
 
 
 
1,546

U.S. Government agencies and corporations:
 
 
 
 
 
 
 
 
 
 
 
 
 
Agency securities
617,844

 
1,992

 
7,861

 
611,975

 
 
 
 
 
611,975

Agency guaranteed mortgage-backed securities
465,516

 
10,593

 
596

 
475,513

 
 
 
 
 
475,513

Small Business Administration loan-backed securities
1,507,510

 
18,005

 
6,139

 
1,519,376

 
 
 
 
 
1,519,376

Municipal securities
187,792

 
1,300

 
731

 
188,361

 
 
 
 
 
188,361

Asset-backed securities:
 
 
 
 
 
 
 
 
 
 
 
 
 
Trust preferred securities – banks and insurance
708,716

 
9,071

 
129,284

 
588,503

 
 
 
 
 
588,503

Auction rate securities
5,596

 
118

 

 
5,714

 
 
 
 
 
5,714

Other
635

 
153

 

 
788

 
 
 
 
 
788

 
3,495,139

 
41,248

 
144,611

 
3,391,776

 
 
 
 

3,391,776

Mutual funds and other
173,863

 
55

 
2,286

 
171,632

 
 
 
 
 
171,632

 
3,669,002

 
41,303

 
146,897

 
3,563,408

 
 
 
 
 
3,563,408

Total
$
4,318,931

 
$
41,303

 
$
187,068

 
$
4,173,166

 
 
 
 
 
$
4,205,937


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December 31, 2013
 
 
 
Recognized in OCI 1
 
 
 
Not recognized in OCI
 
 
(In thousands) 

Amortized
cost
 
Gross
unrealized
gains
 
Gross
unrealized
losses
 
Carrying
value
 
Gross
unrealized
gains
 
Gross
unrealized
losses
 
Estimated
fair
value
Held-to-maturity
 
 
 
 
 
 
 
 
 
 
 
 
 
Municipal securities
$
551,055

 
$

 
$

 
$
551,055

 
$
11,295

 
$
4,616

 
$
557,734

Asset-backed securities:
 
 
 
 
 
 
 
 
 
 
 
 
 
Trust preferred securities – banks and insurance
79,419

 

 
41,593

2 
37,826

 
15,195

 
1,308

 
51,713

Other debt securities
100

 

 

 
100

 

 

 
100

 
630,574

 

 
41,593

 
588,981

 
26,490

 
5,924

 
609,547

Available-for-sale
 
 
 
 
 
 
 
 
 
 
 
 
 
U.S. Treasury securities
1,442

 
104

 

 
1,546

 
 
 
 
 
1,546

U.S. Government agencies and 
corporations:
 
 
 
 
 
 
 
 
 
 
 
 

Agency securities
517,905

 
1,920

 
901

 
518,924

 
 
 
 
 
518,924

Agency guaranteed mortgage-backed securities
308,687

 
9,926

 
1,237

 
317,376

 
 
 
 
 
317,376

Small Business Administration loan-backed securities
1,202,901

 
21,129

 
2,771

 
1,221,259

 
 
 
 
 
1,221,259

Municipal securities
65,425

 
1,329

 
490

 
66,264

 
 
 
 
 
66,264

Asset-backed securities:
 
 
 
 
 
 
 
 
 
 
 
 

Trust preferred securities – banks and insurance
1,508,224

 
13,439

 
282,843

 
1,238,820

 
 
 
 
 
1,238,820

Trust preferred securities – real estate investment trusts
22,996

 

 

 
22,996

 
 
 
 
 
22,996

Auction rate securities
6,507

 
118

 
26

 
6,599

 
 
 
 
 
6,599

Other
27,540

 
359

 

 
27,899

 
 
 
 
 
27,899

 
3,661,627

 
48,324

 
288,268

 
3,421,683

 
 
 
 
 
3,421,683

Mutual funds and other
287,603

 
21

 
7,421

 
280,203

 
 
 
 
 
280,203

 
3,949,230

 
48,345

 
295,689

 
3,701,886

 
 
 
 
 
3,701,886

Total
$
4,579,804

 
$
48,345

 
$
337,282

 
$
4,290,867

 
 
 
 
 
$
4,311,433

1 
Other comprehensive income
2 
The gross unrealized losses recognized in OCI on held-to-maturity (“HTM”) securities resulted from a previous transfer of available-for-sale (“AFS”) securities to HTM, and from OTTI.

The amortized cost and estimated fair value of investment debt securities are shown subsequently as of September 30, 2014 by expected maturity distribution for collateralized debt obligations (“CDOs”) and by contractual maturity for other debt securities. Actual maturities may differ from expected or contractual maturities because borrowers may have the right to call or prepay obligations with or without call or prepayment penalties.

 
Held-to-maturity
 
Available-for-sale
(In thousands)
Amortized
cost
 
Estimated
fair
value
 
Amortized
cost
 
Estimated
fair
value
 
 
 
 
 
 
 
 
Due in one year or less
$
77,219

 
$
77,458

 
$
528,660

 
$
519,418

Due after one year through five years
199,307

 
205,355

 
1,328,670

 
1,323,839

Due after five years through ten years
139,558

 
143,066

 
805,257

 
797,432

Due after ten years
233,845

 
216,650

 
832,552

 
751,087

 
$
649,929

 
$
642,529

 
$
3,495,139

 
$
3,391,776



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The following is a summary of the amount of gross unrealized losses for investment securities and the estimated fair value by length of time the securities have been in an unrealized loss position:
 
September 30, 2014
 
Less than 12 months
 
12 months or more
 
Total
(In thousands)
 
Gross
unrealized
losses
 
Estimated
fair
value
 
Gross
unrealized
losses
 
Estimated
fair
value
 
Gross
unrealized
losses
 
Estimated
fair
value
Held-to-maturity
 
 
 
 
 
 
 
 
 
 
 
Municipal securities
$
275

 
$
15,546

 
$
554

 
$
17,334

 
$
829

 
$
32,880

Asset-backed securities:
 
 
 
 
 
 
 
 

 
 
Trust preferred securities – banks and insurance
54

 
92

 
41,078

 
58,543

 
41,132

 
58,635

 
329

 
15,638

 
41,632

 
75,877

 
41,961

 
91,515

Available-for-sale
 
 
 
 
 
 
 
 
 
 
 
U.S. Government agencies and corporations:
 
 
 
 
 
 
 
 
 
 
 
Agency securities
6,936

 
336,846

 
925

 
25,295

 
7,861

 
362,141

Agency guaranteed mortgage-backed securities
264

 
87,575

 
332

 
15,809

 
596

 
103,384

Small Business Administration loan-backed securities
3,741

 
426,197

 
2,398

 
127,107

 
6,139

 
553,304

Municipal securities
164

 
23,538

 
567

 
4,381

 
731

 
27,919

Asset-backed securities:
 
 
 
 
 
 
 
 

 


Trust preferred securities – banks and insurance

 

 
129,284

 
507,065

 
129,284

 
507,065

Auction rate securities

 

 

 

 

 

 
11,105

 
874,156

 
133,506

 
679,657

 
144,611

 
1,553,813

Mutual funds and other
664

 
27,817

 
1,622

 
48,471

 
2,286

 
76,288

 
11,769

 
901,973

 
135,128

 
728,128

 
146,897

 
1,630,101

Total
$
12,098

 
$
917,611

 
$
176,760

 
$
804,005

 
$
188,858

 
$
1,721,616


 
 
December 31, 2013
 
 
Less than 12 months
 
12 months or more
 
Total
 
(In thousands)
 
Gross
unrealized
losses
 
Estimated
 fair
 value
 
Gross
unrealized
losses
 
Estimated
 fair
 value
 
Gross
unrealized
losses
 
Estimated
 fair
 value
 
 
 
Held-to-maturity
 
 
 
 
 
 
 
 
 
 
 
 
Municipal securities
$
4,025

 
$
70,400

 
$
591

 
$
9,103

 
$
4,616

 
$
79,503

 
Asset-backed securities:
 
 
 
 
 
 
 
 
 
 
 
 
Trust preferred securities – banks and insurance

 

 
42,901
<