Form 10-Q
Table of Contents

 

 

UNITED STATES

SECURITIES AND EXCHANGE COMMISSION

Washington, D.C. 20549

 

 

FORM 10-Q

 

 

 

x QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934

For the quarterly period ended June 30, 2011

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) 524-4787

 

 

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  x    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  x    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  x      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  x

Indicate the number of shares outstanding of each of the issuer’s classes of common stock, as of the latest practicable date.

 

Common Stock, without par value, outstanding at July 29, 2011

184,304,666 shares

 

 

 


Table of Contents

ZIONS BANCORPORATION AND SUBSIDIARIES

INDEX

 

              Page  

PART  I.     FINANCIAL INFORMATION

  
  ITEM 1.    Financial Statements (Unaudited)   
     Consolidated Balance Sheets      3   
     Consolidated Statements of Income      4   
     Consolidated Statements of Changes in Shareholders’ Equity and Comprehensive Income      5   
     Consolidated Statements of Cash Flows      6   
     Notes to Consolidated Financial Statements      7   
  ITEM 2.    Management’s Discussion and Analysis of Financial Condition and Results of Operations      53   
  ITEM 3.    Quantitative and Qualitative Disclosures About Market Risk      96   
  ITEM 4.    Controls and Procedures      96   

PART II.    OTHER INFORMATION

  
  ITEM 1.    Legal Proceedings      96   
  ITEM 1A.    Risk Factors      96   
  ITEM 2.    Unregistered Sales of Equity Securities and Use of Proceeds      97   
  ITEM 6.    Exhibits      97   

SIGNATURES

     100   


Table of Contents

PART I. FINANCIAL INFORMATION

ITEM 1. FINANCIAL STATEMENTS (Unaudited)

ZIONS BANCORPORATION AND SUBSIDIARIES

CONSOLIDATED BALANCE SHEETS

 

(In thousands, except share amounts)

 

   June 30,
2011
    December 31,
2010
    June 30,
2010
 
     (Unaudited)           (Unaudited)  

ASSETS

      

Cash and due from banks

   $ 1,035,028      $ 924,126      $ 1,068,755   

Money market investments:

      

Interest-bearing deposits

     4,924,992        4,576,008        4,861,871   

Federal funds sold and security resell agreements

     123,132        130,305        103,674   

Investment securities:

      

Held-to-maturity, at adjusted cost (approximate fair value $762,998, $788,354, and $802,370)

     829,702        840,642        852,606   

Available-for-sale, at fair value

     4,084,963        4,205,742        3,416,448   

Trading account, at fair value

     51,152        48,667        85,707   
  

 

 

   

 

 

   

 

 

 
     4,965,817        5,095,051        4,354,761   

Loans held for sale

     158,943        206,286        189,376   

Loans:

      

Loans and leases excluding FDIC-supported loans

     36,092,361        35,896,395        36,920,355   

FDIC-supported loans

     853,937        971,377        1,208,362   
  

 

 

   

 

 

   

 

 

 
     36,946,298        36,867,772        38,128,717   

Less:

      

Unearned income and fees, net of related costs

     122,721        120,341        125,779   

Allowance for loan losses

     1,237,733        1,440,341        1,563,753   
  

 

 

   

 

 

   

 

 

 

Loans and leases, net of allowance

     35,585,844        35,307,090        36,439,185   

Other noninterest-bearing investments

     858,678        858,367        866,970   

Premises and equipment, net

     722,600        720,985        705,372   

Goodwill

     1,015,161        1,015,161        1,015,161   

Core deposit and other intangibles

     77,346        87,898        100,425   

Other real estate owned

     238,990        299,577        413,336   

Other assets

     1,654,883        1,814,032        2,028,409   
  

 

 

   

 

 

   

 

 

 
   $ 51,361,414      $ 51,034,886      $ 52,147,295   
  

 

 

   

 

 

   

 

 

 

LIABILITIES AND SHAREHOLDERS’ EQUITY

      

Deposits:

      

Noninterest-bearing demand

   $ 14,475,383      $ 13,653,929      $ 14,071,456   

Interest-bearing:

      

Savings and NOW

     6,555,306        6,362,138        6,030,986   

Money market

     14,948,065        15,090,833        15,562,664   

Time under $100,000

     1,782,573        1,941,211        2,155,366   

Time $100,000 and over

     1,992,836        2,232,238        2,509,479   

Foreign

     1,437,067        1,654,651        1,683,925   
  

 

 

   

 

 

   

 

 

 
     41,191,230        40,935,000        42,013,876   

Securities sold, not yet purchased

     42,709        42,548        81,511   

Federal funds purchased and security repurchase agreements

     630,058        722,258        892,025   

Other short-term borrowings

     147,945        166,394        218,589   

Long-term debt

     1,879,669        1,942,622        1,934,410   

Reserve for unfunded lending commitments

     100,264        111,708        96,795   

Other liabilities

     456,448        467,142        488,987   
  

 

 

   

 

 

   

 

 

 

Total liabilities

     44,448,323        44,387,672        45,726,193   
  

 

 

   

 

 

   

 

 

 

Shareholders’ equity:

      

Preferred stock, without par value, authorized 4,400,000 shares

     2,329,370        2,056,672        1,806,877   

Common stock, without par value; authorized 350,000,000 shares; issued and outstanding 184,311,290, 182,784,086, and 173,331,281 shares

     4,158,369        4,163,619        3,964,140   

Retained earnings

     931,345        889,284        1,083,845   

Accumulated other comprehensive income (loss)

     (504,491     (461,296     (433,020
  

 

 

   

 

 

   

 

 

 

Controlling interest shareholders’ equity

     6,914,593        6,648,279        6,421,842   

Noncontrolling interests

     (1,502     (1,065     (740
  

 

 

   

 

 

   

 

 

 

Total shareholders’ equity

     6,913,091        6,647,214        6,421,102   
  

 

 

   

 

 

   

 

 

 
   $ 51,361,414      $ 51,034,886      $ 52,147,295   
  

 

 

   

 

 

   

 

 

 

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
June 30,
    Six Months Ended
June 30,
 
    2011     2010     2011     2010  

Interest income:

       

Interest and fees on loans

  $ 523,741      $ 547,662      $ 1,041,898      $ 1,095,298   

Interest on money market investments

    3,199        2,601        6,042        4,040   

Interest on securities:

       

Held-to-maturity

    9,009        11,300        17,673        19,193   

Available-for-sale

    22,179        21,518        44,455        44,210   

Trading account

    538        657        990        1,132   
 

 

 

   

 

 

   

 

 

   

 

 

 

Total interest income

    558,666        583,738        1,111,058        1,163,873   
 

 

 

   

 

 

   

 

 

   

 

 

 

Interest expense:

       

Interest on deposits

    34,257        52,753        70,741        108,829   

Interest on short-term borrowings

    1,783        3,486        3,963        6,553   

Interest on long-term debt

    106,454        114,153        196,326        179,845   
 

 

 

   

 

 

   

 

 

   

 

 

 

Total interest expense

    142,494        170,392        271,030        295,227   
 

 

 

   

 

 

   

 

 

   

 

 

 

Net interest income

    416,172        413,346        840,028        868,646   

Provision for loan losses

    1,330        228,663        61,330        494,228   
 

 

 

   

 

 

   

 

 

   

 

 

 

Net interest income after provision for loan losses

    414,842        184,683        778,698        374,418   
 

 

 

   

 

 

   

 

 

   

 

 

 

Noninterest income:

       

Service charges and fees on deposit accounts

    42,878        51,909        87,408        103,517   

Other service charges, commissions and fees

    43,958        43,395        85,643        82,437   

Trust and wealth management income

    7,179        7,021        13,933        14,630   

Capital markets and foreign exchange

    8,358        10,733        15,572        19,272   

Dividends and other investment income

    17,239        8,879        25,267        16,579   

Loan sales and servicing income

    9,836        5,617        15,849        12,049   

Fair value and nonhedge derivative income (loss)

    4,195        (1,552     5,415        636   

Equity securities losses, net

    (1,636     (1,500     (739     (4,665

Fixed income securities gains (losses), net

    (2,396     530        (2,455     1,786   

Impairment losses on investment securities:

       

Impairment losses on investment securities

    (6,339     (19,557     (9,444     (68,127

Noncredit-related losses on securities not expected to be sold (recognized in other comprehensive income)

    1,181        1,497        1,181        18,804   
 

 

 

   

 

 

   

 

 

   

 

 

 

Net impairment losses on investment securities

    (5,158     (18,060     (8,263     (49,323

Gain on subordinated debt exchange

                         14,471   

Other

    3,896        2,441        24,862        5,634   
 

 

 

   

 

 

   

 

 

   

 

 

 

Total noninterest income

    128,349        109,413        262,492        217,023   
 

 

 

   

 

 

   

 

 

   

 

 

 

Noninterest expense:

       

Salaries and employee benefits

    222,138        205,776        437,148        410,109   

Occupancy, net

    27,588        27,822        55,598        56,310   

Furniture and equipment

    26,153        25,703        51,815        50,699   

Other real estate expense

    17,903        42,444        42,070        75,092   

Credit related expense

    17,124        17,658        32,037        34,483   

Provision for unfunded lending commitments

    (1,904     483        (11,444     (19,650

Legal and professional services

    8,432        8,887        15,121        18,863   

Advertising

    5,962        5,772        12,873        12,146   

FDIC premiums

    15,232        26,438        39,333        50,648   

Amortization of core deposit and other intangibles

    4,855        6,414        10,556        12,991   

Other

    72,773        62,958        139,524        117,790   
 

 

 

   

 

 

   

 

 

   

 

 

 

Total noninterest expense

    416,256        430,355        824,631        819,481   
 

 

 

   

 

 

   

 

 

   

 

 

 

Income (loss) before income taxes

    126,935        (136,259     216,559        (228,040

Income taxes (benefit)

    54,325        (22,898     91,358        (51,542
 

 

 

   

 

 

   

 

 

   

 

 

 

Net income (loss)

    72,610        (113,361     125,201        (176,498

Net income (loss) applicable to noncontrolling interests

    (265     (368     (491     (3,295
 

 

 

   

 

 

   

 

 

   

 

 

 

Net income (loss) applicable to controlling interest

    72,875        (112,993     125,692        (173,203

Preferred stock dividends

    (43,837     (25,342     (81,887     (51,653

Preferred stock redemption

           3,107               3,107   
 

 

 

   

 

 

   

 

 

   

 

 

 

Net earnings (loss) applicable to common shareholders

  $ 29,038      $ (135,228   $ 43,805      $ (221,749
 

 

 

   

 

 

   

 

 

   

 

 

 

Weighted average common shares outstanding during the period:

       

Basic shares

    182,472        161,810        182,092        156,471   

Diluted shares

    182,728        161,810        182,365        156,471   

Net earnings (loss) per common share:

       

Basic

  $ 0.16      $ (0.84   $ 0.24      $ (1.42

Diluted

    0.16        (0.84     0.24        (1.42

See accompanying notes to consolidated financial statements.

 

 

4


Table of Contents

ZIONS BANCORPORATION AND SUBSIDIARIES

CONSOLIDATED STATEMENTS OF CHANGES IN SHAREHOLDERS’ EQUITY AND COMPREHENSIVE INCOME

(Unaudited)

 

(In thousands, except 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, 2010

  $ 2,056,672        182,784,086      $ 4,163,619      $ 889,284      $ (461,296   $ (1,065   $ 6,647,214   

Comprehensive income:

             

Net gain (loss) for the period

          125,692          (491     125,201   

Other comprehensive income (loss), net of tax:

             

Net realized and unrealized holding losses on investments

            (36,060    

Reclassification for net losses on investments included in earnings

            6,590       

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

            (729    

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

            99       

Net unrealized losses on derivative instruments

            (13,095    
         

 

 

     

Other comprehensive loss

            (43,195       (43,195
             

 

 

 

Total comprehensive income

                82,006   

Subordinated debt converted to preferred stock

    262,062          (37,744           224,318   

Issuance of common stock

      1,067,540        25,048              25,048   

Net activity under employee plans and related tax benefits

      459,664        7,446              7,446   

Dividends on preferred stock

    10,636            (81,887         (71,251

Dividends on common stock, $0.02 per share

          (3,653         (3,653

Change in deferred compensation

          1,909            1,909   

Other changes in noncontrolling interests

              54        54   
 

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

 

Balance at June 30, 2011

  $ 2,329,370        184,311,290      $ 4,158,369      $ 931,345      $ (504,491   $ (1,502   $ 6,913,091   
 

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

 

Balance at December 31, 2009

  $ 1,502,784        150,425,070      $ 3,318,417      $ 1,308,356      $ (436,899   $ 17,599      $ 5,710,257   

Comprehensive loss:

             

Net loss for the period

          (173,203       (3,295     (176,498

Other comprehensive income (loss), net of tax:

             

Net realized and unrealized holding gains on investments

            4,880       

Reclassification for net losses on investments included in earnings

            29,341       

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

            (11,612    

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

            70       

Net unrealized losses on derivative instruments

            (18,737    

Pension and postretirement

            (63    
         

 

 

     

Other comprehensive income

            3,879          3,879   
             

 

 

 

Total comprehensive loss

                (172,619

Subordinated debt converted to preferred stock

    160,270          (22,612           137,658   

Issuance of preferred stock

    142,500          (3,830           138,670   

Preferred stock exchanged for common stock

    (8,615     224,903        5,508        3,107              

Issuance of common stock warrants

        179,020              179,020   

Subordinated debt exchanged for common stock

      2,165,391        46,902              46,902   

Issuance of common stock

      20,037,657        432,900              432,900   

Net activity under employee plans and related tax benefits

      478,260        7,835              7,835   

Dividends on preferred stock

    9,938            (51,653         (41,715

Dividends on common stock, $0.02 per share

          (3,146         (3,146

Change in deferred compensation

          384            384   

Other changes in noncontrolling interests

              (15,044     (15,044
 

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

 

Balance at June 30, 2010

  $ 1,806,877        173,331,281      $ 3,964,140      $ 1,083,845      $ (433,020   $ (740   $ 6,421,102   
 

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

 

Total comprehensive income (loss) for the three months ended June 30, 2011 and 2010 was $67,282 and $(118,240), respectively.

See accompanying notes to consolidated financial statements.

 

5


Table of Contents

ZIONS BANCORPORATION AND SUBSIDIARIES

CONSOLIDATED STATEMENTS OF CASH FLOWS

(Unaudited)

 

(In thousands)

 

   Three Months Ended
June 30,
    Six Months Ended
June 30,
 
     2011     2010     2011     2010  

CASH FLOWS FROM OPERATING ACTIVITIES

        

Net income (loss) for the period

   $ 72,610      $ (113,361   $ 125,201      $ (176,498

Adjustments to reconcile net income (loss) to net cash provided by operating activities:

        

Net impairment losses on investment securities

     5,158        18,060        8,263        49,323   

Gain on subordinated debt exchange

                          (14,471

Provision for credit losses

     (574     229,146        49,886        474,578   

Depreciation and amortization

     105,790        96,262        195,596        142,516   

Deferred income tax expense (benefit)

     33,913        (15,795     87,703        (51,958

Net decrease (increase) in trading securities

     5,397        (35,009     (2,485     (62,164

Net decrease (increase) in loans held for sale

     41,041        (14,242     69,512        10,739   

Net write-down of and losses from sales of other real estate owned

     14,363        38,146        34,113        65,258   

Change in other liabilities

     29,928        1,920        (6,896     338,695   

Change in other assets

     41,334        (112,227     59,488        (8,854

Other, net

     (2,734     (4,887     (4,934     (8,607
  

 

 

   

 

 

   

 

 

   

 

 

 

Net cash provided by operating activities

     346,226        88,013        615,447        758,557   
  

 

 

   

 

 

   

 

 

   

 

 

 

CASH FLOWS FROM INVESTING ACTIVITIES

        

Net increase in short-term investments

     (291,604     (1,437,786     (341,811     (4,234,040

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

     12,923        58,055        42,031        84,706   

Purchases of investment securities held-to-maturity

     (21,316     (7,502     (26,809     (30,386

Proceeds from sales, maturities, and paydowns of investment securities available-for-sale

     277,419        152,406        579,669        562,167   

Purchases of investment securities available-for-sale

     (238,577     (139,336     (518,463     (335,884

Proceeds from sales of loans and leases

     16,182        57,197        17,264        92,360   

Net loan and lease collections (originations)

     (492,134     500,702        (536,945     1,289,579   

Proceeds from surrender of bank-owned life insurance contracts

            175,632               175,632   

Net decrease (increase) in other noninterest-bearing investments

     5,522        (3,059     10,318        13,554   

Net purchases of premises and equipment

     (19,295     (17,038     (39,480     (32,587

Proceeds from sales of other real estate owned

     95,036        131,896        186,877        237,877   
  

 

 

   

 

 

   

 

 

   

 

 

 

Net cash used in investing activities

     (655,844     (528,833     (627,349     (2,177,022
  

 

 

   

 

 

   

 

 

   

 

 

 

CASH FLOWS FROM FINANCING ACTIVITIES

        

Net increase (decrease) in deposits

     598,817        (81,816     256,275        175,605   

Net change in short-term funds borrowed

     (190,675     11,998        (110,583     241,422   

Proceeds from issuance of long-term debt

     30,250        22,768        30,250        62,466   

Repayments of long-term debt

     (175     (65,293     (331     (65,436

Proceeds from the issuance of preferred stock, common stock, and common stock warrants

     195        600,814        25,407        750,722   

Dividends paid on common and preferred stock

     (40,303     (21,979     (74,904     (44,861

Other, net

     (2,603     (2,308     (3,310     (2,887
  

 

 

   

 

 

   

 

 

   

 

 

 

Net cash provided by financing activities

     395,506        464,184        122,804        1,117,031   
  

 

 

   

 

 

   

 

 

   

 

 

 

Net increase (decrease) in cash and due from banks

     85,888        23,364        110,902        (301,434

Cash and due from banks at beginning of period

     949,140        1,045,391        924,126        1,370,189   
  

 

 

   

 

 

   

 

 

   

 

 

 

Cash and due from banks at end of period

   $ 1,035,028      $ 1,068,755      $ 1,035,028      $ 1,068,755   
  

 

 

   

 

 

   

 

 

   

 

 

 

Cash paid for interest

   $ 51,039      $ 89,653      $ 142,320      $ 192,325   

Net cash paid (refund received) for income taxes

     536        28,181        428        (324,572

See accompanying notes to consolidated financial statements.

 

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ZIONS BANCORPORATION AND SUBSIDIARIES

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

(Unaudited)

June 30, 2011

 

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 as 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”). Certain prior period amounts have been reclassified to conform to the current period presentation.

Operating results for the three- and six-month periods ended June 30, 2011 are not necessarily indicative of the results that may be expected in future periods. The consolidated balance sheet at December 31, 2010 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 2010 Annual Report on Form 10-K.

The Company provides a full range of banking and related services through banking subsidiaries in ten Western and Southwestern states as follows: Zions First National Bank (“Zions Bank”), in Utah and Idaho; California Bank & Trust (“CB&T”); Amegy Corporation (“Amegy”) and its subsidiary, Amegy Bank, in Texas; National Bank of Arizona (“NBA”); 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 also owns and operates certain nonbank subsidiaries that engage in wealth management and other financial related services.

 

2. CERTAIN RECENT ACCOUNTING PRONOUNCEMENTS

In June 2011, the FASB issued ASU 2011-05, Presentation of Comprehensive Income. This new accounting guidance under ASC 220, Comprehensive Income, provides more convergence to International Financial Reporting Standards (“IFRS”) and no longer allows presentation of other comprehensive income (“OCI”) in the statement of changes in shareholders’ equity. Companies may present OCI in a continuous statement of comprehensive income or in a separate statement consecutive to the statement of income. For public entities, the new guidance is effective on a retrospective basis for interim and annual periods beginning after December 15, 2011. Management is currently evaluating the impact this new guidance will have on the disclosures in the Company’s financial statements.

In May 2011, the FASB issued ASU 2011-04, Amendments to Achieve Common Fair Value Measurement and Disclosure Requirements in U.S. GAAP and IFRSs. This new accounting guidance under ASC 820, Fair Value Measurement, also provides more convergence to IFRS and amends fair value measurement and disclosure guidance. Among other things, new disclosures will be required for qualitative information and sensitivity analysis regarding Level 3 measurements. For public entities, the new guidance is effective for interim and annual periods beginning after December 15, 2011. Management is currently evaluating the impact this new guidance will have on the disclosures in the Company’s financial statements.

 

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In April 2011, the FASB issued ASU 2011-03, Reconsideration of Effective Control for Repurchase Agreements. The primary feature of this new accounting guidance under ASC 860, Transfers and Servicing, relates to the criteria that determine whether a sale or a secured borrowing occurred based on the transferor’s maintenance of effective control over the transferred financial assets. The new guidance focuses on the transferor’s contractual rights and obligations with respect to the transferred financial assets and not on the transferor’s ability to perform under those rights and obligations. Accordingly, the collateral maintenance requirement is eliminated by ASU 2011-3 from the assessment of effective control. The new guidance will take effect prospectively for interim and annual periods beginning after December 15, 2011. Early adoption is not permitted. Management is currently evaluating the impact this new guidance may have on the Company’s financial statements.

Additional recent accounting pronouncements are discussed where applicable in the Notes to Consolidated Financial Statements.

 

3. SUPPLEMENTAL CASH FLOW INFORMATION

Noncash activities are summarized as follows:

 

(In thousands)

 

   Three Months Ended
June 30,
     Six Months Ended
June 30,
 
     2011      2010      2011      2010  

Loans transferred to other real estate owned

   $ 85,129       $ 179,667       $ 174,658       $ 340,692   

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

     23,139         19,034         37,744         22,612   

Subordinated debt exchanged for common stock

                             46,902   

Subordinated debt converted to preferred stock

     134,468         116,624         224,318         137,658   

 

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4. INVESTMENT SECURITIES

Investment securities are summarized as follows:

 

     June 30, 2011  
            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

   $ 567,354       $       $       $ 567,354       $ 9,545       $ 2,204       $ 574,695   

Asset-backed securities:

                    

Trust preferred securities – banks and insurance

     263,622                 23,749         239,873         320         67,183         173,010   

Other

     26,145                 3,770         22,375         466         7,648         15,193   

Other debt securities

     100                         100                         100   
  

 

 

    

 

 

    

 

 

    

 

 

    

 

 

    

 

 

    

 

 

 
   $ 857,221       $       $ 27,519       $ 829,702       $ 10,331       $ 77,035       $ 762,998   
  

 

 

    

 

 

    

 

 

    

 

 

    

 

 

    

 

 

    

 

 

 

Available-for-sale

                    

U.S. Treasury securities

   $ 705,586       $ 473       $       $ 706,059             $ 706,059   

U.S. Government agencies and corporations:

                    

Agency securities

     176,823         6,642         119         183,346               183,346   

Agency guaranteed mortgage-backed securities

     598,401         16,149         256         614,294               614,294   

Small Business Administration loan-backed securities

     1,020,849         6,658         10,135         1,017,372               1,017,372   

Municipal securities

     135,819         2,829         474         138,174               138,174   

Asset-backed securities:

                    

Trust preferred securities – banks and insurance

     1,860,088         13,397         774,996         1,098,489               1,098,489   

Trust preferred securities – real estate investment trusts

     40,260                 21,129         19,131               19,131   

Auction rate securities

     92,103         445         1,444         91,104               91,104   

Other

     69,926         1,232         17,684         53,474               53,474   
  

 

 

    

 

 

    

 

 

    

 

 

          

 

 

 
     4,699,855         47,825         826,237         3,921,443               3,921,443   

Mutual funds and stock

     163,414         106                 163,520               163,520   
  

 

 

    

 

 

    

 

 

    

 

 

          

 

 

 
   $ 4,863,269       $ 47,931       $ 826,237       $ 4,084,963             $ 4,084,963   
  

 

 

    

 

 

    

 

 

    

 

 

          

 

 

 

 

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     June 30, 2010  
            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

   $ 588,079       $       $       $ 588,079       $ 9,411       $ 2,733       $ 594,757   

Asset-backed securities:

                    

Trust preferred securities – banks and insurance

     264,704                 25,412         239,292         247         49,729         189,810   

Other

     29,595                 4,460         25,135         635         8,067         17,703   

Other debt securities

     100                         100                         100   
  

 

 

    

 

 

    

 

 

    

 

 

    

 

 

    

 

 

    

 

 

 
   $ 882,478       $       $ 29,872       $ 852,606       $ 10,293       $ 60,529       $ 802,370   
  

 

 

    

 

 

    

 

 

    

 

 

    

 

 

    

 

 

    

 

 

 

Available-for-sale

                    

U.S. Treasury securities

   $ 38,682       $ 351       $ 2       $ 39,031             $ 39,031   

U.S. Government agencies and corporations:

                    

Agency securities

     221,598         6,688         100         228,186               228,186   

Agency guaranteed mortgage-backed securities

     348,294         14,095         31         362,358               362,358   

Small Business Administration loan-backed securities

     807,167         4,319         12,110         799,376               799,376   

Municipal securities

     220,409         4,448         435         224,422               224,422   

Asset-backed securities:

                    

Trust preferred securities – banks and insurance

     1,976,889         59,637         723,442         1,313,084               1,313,084   

Trust preferred securities – real estate investment trusts

     52,590                 29,097         23,493               23,493   

Auction rate securities

     156,450         1,030         402         157,078               157,078   

Other

     110,369         1,332         26,865         84,836               84,836   
  

 

 

    

 

 

    

 

 

    

 

 

          

 

 

 
     3,932,448         91,900         792,484         3,231,864               3,231,864   

Other securities:

                    

Mutual funds and stock

     184,467         117                 184,584               184,584   
  

 

 

    

 

 

    

 

 

    

 

 

          

 

 

 
   $ 4,116,915       $ 92,017       $ 792,484       $ 3,416,448             $ 3,416,448   
  

 

 

    

 

 

    

 

 

    

 

 

          

 

 

 

 

1 

The gross unrealized losses recognized in OCI on held-to-maturity (“HTM”) securities primarily resulted from a transfer of available-for-sale (“AFS”) securities to HTM in 2008.

The amortized cost and estimated fair value of investment debt securities are shown subsequently as of June 30, 2011 by expected maturity distribution for structured asset-backed security collateralized debt obligations (“ABS CDOs”) and by contractual maturity distribution 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

   $ 52,731       $ 53,321       $ 1,046,949       $ 1,039,966   

Due after one year through five years

     225,208         222,660         976,937         934,725   

Due after five years through ten years

     167,983         157,162         759,044         669,828   

Due after ten years

     411,299         329,855         1,916,925         1,276,924   
  

 

 

    

 

 

    

 

 

    

 

 

 
   $ 857,221       $ 762,998       $ 4,699,855       $ 3,921,443   
  

 

 

    

 

 

    

 

 

    

 

 

 

The following is a summary of the amount of gross unrealized losses for debt securities and the estimated fair value by length of time the securities have been in an unrealized loss position:

 

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     June 30, 2011  
     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

   $ 196       $ 9,756       $ 2,008       $ 23,628       $ 2,204       $ 33,384   

Asset-backed securities:

                 

Trust preferred securities – banks and insurance

                     90,932         173,010         90,932         173,010   

Other

                     11,418         15,193         11,418         15,193   
  

 

 

    

 

 

    

 

 

    

 

 

    

 

 

    

 

 

 
   $ 196       $ 9,756       $ 104,358       $ 211,831       $ 104,554       $ 221,587   
  

 

 

    

 

 

    

 

 

    

 

 

    

 

 

    

 

 

 

Available-for-sale

                 

U.S. Government agencies and corporations:

                 

Agency securities

   $ 95       $ 10,176       $ 24       $ 936       $ 119       $ 11,112   

Agency guaranteed mortgage-backed securities

     256         69,019                         256         69,019   

Small Business Administration loan-backed securities

     5,362         406,522         4,773         218,718         10,135         625,240   

Municipal securities

     367         14,040         107         2,561         474         16,601   

Asset-backed securities:

                 

Trust preferred securities – banks and insurance

     4,801         70,453         770,195         838,552         774,996         909,005   

Trust preferred securities – real estate investment trusts

                     21,129         19,131         21,129         19,131   

Auction rate securities

     1,444         53,786                         1,444         53,786   

Other

     12         25,065         17,672         20,368         17,684         45,433   
  

 

 

    

 

 

    

 

 

    

 

 

    

 

 

    

 

 

 
   $ 12,337       $ 649,061       $ 813,900       $ 1,100,266       $ 826,237       $ 1,749,327   
  

 

 

    

 

 

    

 

 

    

 

 

    

 

 

    

 

 

 

 

     June 30, 2010  
     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

   $ 56       $ 11,439       $ 2,677       $ 30,070       $ 2,733       $ 41,509   

Asset-backed securities:

                 

Trust preferred securities – banks and insurance

                     75,141         189,810         75,141         189,810   

Other

                     12,527         17,704         12,527         17,704   
  

 

 

    

 

 

    

 

 

    

 

 

    

 

 

    

 

 

 
   $ 56       $ 11,439       $ 90,345       $ 237,584       $ 90,401       $ 249,023   
  

 

 

    

 

 

    

 

 

    

 

 

    

 

 

    

 

 

 

Available-for-sale

                 

U.S. Treasury securities

   $ 2       $ 25,994       $       $       $ 2       $ 25,994   

U.S. Government agencies and corporations:

                 

Agency securities

     61         8,425         39         1,544         100         9,969   

Agency guaranteed mortgage-backed securities

     24         5,177         7         932         31         6,109   

Small Business Administration loan-backed securities

     1,849         84,692         10,261         438,242         12,110         522,934   

Municipal securities

     414         13,839         21         1,150         435         14,989   

Asset-backed securities:

                 

Trust preferred securities – banks and insurance

     1,085         13,923         722,357         905,642         723,442         919,565   

Trust preferred securities – real estate investment trusts

                     29,097         23,493         29,097         23,493   

Auction rate securities

     155         10,314         247         18,030         402         28,344   

Other

     735         2,739         26,130         69,121         26,865         71,860   
  

 

 

    

 

 

    

 

 

    

 

 

    

 

 

    

 

 

 
   $ 4,325       $ 165,103       $ 788,159       $ 1,458,154       $ 792,484       $ 1,623,257   
  

 

 

    

 

 

    

 

 

    

 

 

    

 

 

    

 

 

 

At June 30, 2011 and 2010, respectively, 58 and 86 HTM and 526 and 562 AFS investment securities were in an unrealized loss position.

We conduct a formal review of investment securities under ASC 320, Investments – Debt and Equity Securities, on a quarterly basis for the presence of other-than-temporary impairment (“OTTI”). We assess whether OTTI is present when the fair value of a debt security is less than its amortized cost basis at the

 

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balance sheet date. Under these circumstances, OTTI is considered to have occurred if (1) we intend to sell the security; (2) it is “more likely than not” we will be required to sell the security before recovery of its amortized cost basis; or (3) the present value of expected cash flows is not sufficient to recover the entire amortized cost basis. The “more likely than not” criteria is a lower threshold than the “probable” criteria under previous guidance.

Credit-related OTTI is recognized in earnings while noncredit-related OTTI on securities not expected to be sold is recognized in OCI. Noncredit-related OTTI is based on other factors, including illiquidity. Presentation of OTTI is made in the statement of income on a gross basis with an offset for the amount of OTTI recognized in OCI. For securities classified as HTM, the amount of noncredit-related OTTI recognized in OCI is accreted to the credit-adjusted expected cash flow amounts of the securities over future periods.

Our 2010 Annual Report on Form 10-K describes in more detail our OTTI evaluation process. The following summarizes the conclusions from our OTTI evaluation for those security types that have significant gross unrealized losses at June 30, 2011:

Municipal securities

The HTM securities are purchased directly from the municipalities and are generally not rated by a credit rating agency. The AFS securities are rated as investment grade by various credit rating agencies. Both the HTM and AFS securities are at fixed and variable rates with maturities from one to 25 years. Fair value changes of these securities are largely driven by interest rates. We perform credit quality reviews on these securities at each reporting period. Because the decline in fair value is not attributable to credit quality, no OTTI was recorded for these securities at June 30, 2011.

Asset-backed securities

Trust preferred securities – banks and insurance: These CDO securities are interests in variable rate pools of trust preferred securities related to banks and insurance companies (“collateral issuers”). They are rated by one or more Nationally Recognized Statistical Rating Organizations (“NRSROs”), which are rating agencies registered with the Securities and Exchange Commission (“SEC”). They were purchased generally at par. The primary drivers that have given rise to the unrealized losses on CDOs with bank collateral are listed below:

 

  i. Market yield requirements for bank CDO securities remain very high. The credit crisis resulted in significant utilization of both the unique five-year deferral option each collateral issuer maintains during the life of the CDO and the ability of junior bonds to defer the payment of current interest. The resulting increase in the rate of return demanded by the market for trust preferred CDOs remains dramatically higher than the effective interest rates. All structured product fair values, including bank CDOs, deteriorated significantly during the credit crisis, generally reaching a low in mid-2009. Prices for some structured products, other than bank CDOs, have since rebounded as the crucial unknowns related to value became resolved and as trading increased in these securities. Unlike these other structured products, CDO tranches backed by bank trust preferred securities continue to have unresolved questions surrounding collateral behavior, specifically including, but not limited to, the future number, size and timing of bank failures, and of allowed deferrals and subsequent resumption of payment of contractual interest.

 

  ii.

Structural features of the collateral make these CDO tranches difficult for market participants to model. The first feature unique to bank CDOs is the interest deferral feature previously discussed. During the credit crisis starting in 2008, certain banks within our CDO pools have exercised this prerogative. The extent to which these deferrals either transition to default or alternatively come current prior to the five-year deadline is extremely difficult for market participants to assess. Our

 

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  CDO pools include banks which first exercised this deferral option in the second quarter of 2008. A few of these banks have already come current after a period of deferral, while others are still deferring but remain within the allowed deferral period.

A second structural feature that is difficult to model is the payment in kind (“PIK”) feature which provides that upon reaching certain levels of collateral default or deferral, certain junior CDO tranches will not receive current interest but will instead have the interest amount that is unpaid be capitalized or deferred. The cash flow that would otherwise be paid to the junior CDO securities and the income notes is instead used to pay down the principal balance of the most senior CDO securities. If the current market yield required by market participants equaled the effective interest rate of a security, a market participant should be indifferent between receiving current interest and capitalizing and compounding interest for later payment. However, given the difference between current market rates and effective interest rates of the securities, market participants are not indifferent. The delay in payment caused by PIKing results in lower security fair values even if PIKing is projected to be fully cured. This feature is difficult to model and assess. It increases the risk premium the market applies to these securities.

 

  iii. Ratings are generally below-investment-grade for even some of the most senior tranches. Rating agency opinions can vary significantly on a CDO tranche. The presence of a below-investment-grade rating by even a single rating agency will severely limit the pool of buyers, which causes greater illiquidity and therefore most likely a higher implicit discount rate/lower price with regard to that CDO tranche.

 

  iv. There is a lack of consistent disclosure by each CDO’s trustee of the identity of collateral issuers; in addition, complex structures make projecting tranche return profiles difficult for non-specialists in the product.

 

  v. At purchase, the expectation of cash flow variability was limited. As a result of the credit crisis, we have seen extreme variability of collateral performance both compared to expectations and between different pools.

Our ongoing review of these securities in accordance with the previous discussion determined that OTTI should be recorded at June 30, 2011.

Trust preferred securities – real estate investment trusts (“REITs”): These CDO securities are variable rate pools of trust preferred securities primarily related to REITs, and are rated by one or more NRSROs. They were purchased generally at par. Unrealized losses were caused mainly by severe deterioration in mortgage REITs and homebuilder credit, collateral deterioration, widening of credit spreads for ABS securities, and general illiquidity in the CDO market. Based on our review, no OTTI was recorded for these securities at June 30, 2011.

Other asset-backed securities: Most of these CDO securities were purchased in 2009 from Lockhart Funding LLC at their carrying values and were then adjusted to fair value. Certain of these CDOs consist of ABS CDOs (also known as diversified structured finance CDOs). Unrealized losses since acquisition were caused mainly by deterioration in collateral quality, widening of credit spreads for asset backed securities, and ratings downgrades of the underlying residential mortgage-backed securities (“RMBS”) collateral. Our ongoing review of these securities in accordance with the previous discussion determined that OTTI should be recorded at June 30, 2011.

 

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U.S. Government agencies and corporations

Small Business Administration (“SBA”) loan-backed securities: These securities were generally purchased at premiums with maturities from five to 25 years and have principal cash flows guaranteed by the SBA. Because the decline in fair value is not attributable to credit quality, no OTTI was recorded for these securities at June 30, 2011.

The following is a tabular rollforward of the total amount of credit-related OTTI, including amounts recognized in earnings:

 

(In thousands)

 

   Three Months Ended
June 30, 2011
    Six Months Ended
June 30, 2011
 
   HTM     AFS     Total     HTM     AFS     Total  

Balance of credit-related OTTI at beginning of period

   $ (5,357   $ (312,353   $ (317,710   $ (5,357   $ (335,682   $ (341,039

Additions recognized in earnings during the period:

            

Credit-related OTTI not previously recognized 1

                                          

Credit-related OTTI previously recognized when there is no intent to sell and no requirement to sell before recovery of amortized cost basis 2

            (5,158     (5,158            (8,263     (8,263
  

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

 

Subtotal of amounts recognized in earnings

            (5,158     (5,158            (8,263     (8,263

Reductions for securities sold during the period

       27,302        27,302          53,736        53,736   
  

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

 

Balance of credit-related OTTI at end of period

   $ (5,357   $ (290,209   $ (295,566   $ (5,357   $ (290,209   $ (295,566
  

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

 

 

(In thousands)

 

   Three Months Ended
June 30, 2010
    Six Months Ended
June 30, 2010
 
   HTM     AFS     Total     HTM     AFS     Total  

Balance of credit-related OTTI at beginning of period

   $ (5,218   $ (300,502   $ (305,720   $ (5,206   $ (269,251   $ (274,457

Additions recognized in earnings during the period:

            

Credit-related OTTI not previously recognized 1

                                 (866     (866

Credit-related OTTI previously recognized when there is no intent to sell and no requirement to sell before recovery of amortized cost basis 2

     (139     (17,921     (18,060     (151     (48,306     (48,457
  

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

 

Subtotal of amounts recognized in earnings

     (139     (17,921     (18,060     (151     (49,172     (49,323

Reductions for securities sold during the period

                      
  

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

 

Balance of credit-related OTTI at end of period

   $ (5,357   $ (318,423   $ (323,780   $ (5,357   $ (318,423   $ (323,780
  

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

 

 

1 

Relates to securities not previously impaired.

2 

Relates to additional impairment on securities previously impaired.

To determine the credit component of OTTI for all security types, we utilize projected cash flows as the best estimate of fair value. These cash flows are credit adjusted using, among other things, assumptions for default probability assigned to each portion of performing collateral. The credit adjusted cash flows are discounted at a security specific coupon rate to identify any OTTI, and then at a market rate for valuation purposes.

The amounts of noncredit-related OTTI recognized in OCI that are included in the statements of income related to AFS securities for all periods presented.

During the three and six months ended June 30, nontaxable interest income on securities was $5.4 million and $11.2 million in 2011, and $6.9 million and $14.0 million in 2010, respectively.

The following summarizes gains and losses, including OTTI, that were recognized in the statement of

 

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income:

 

    Three Months Ended     Six Months Ended  
    June 30, 2011     June 30, 2010     June 30, 2011     June 30, 2010  

(In thousands)

 

  Gross
gains
     Gross
losses
    Gross
gains
     Gross
losses
    Gross
gains
     Gross
losses
    Gross
gains
     Gross
losses
 

Investment securities:

                   

Held-to-maturity

  $ 71       $      $       $ 139      $ 117       $      $       $ 151   

Available-for-sale

    4,063         11,688        530         17,921        7,582         18,417        1,814         49,200   

Other noninterest-bearing investments:

                   

Nonmarketable equity securities

            1,636        2,002         3,504        1,067         1,636        4,074         8,741   

Other

                   2                1         171        2           
 

 

 

    

 

 

   

 

 

    

 

 

   

 

 

    

 

 

   

 

 

    

 

 

 
    4,134         13,324        2,534         21,564        8,767         20,224        5,890         58,092   
 

 

 

    

 

 

   

 

 

    

 

 

   

 

 

    

 

 

   

 

 

    

 

 

 

Net losses

     $ (9,190      $ (19,030      $ (11,457      $ (52,202
    

 

 

      

 

 

      

 

 

      

 

 

 

Statement of income information:

                   

Net impairment losses on investment securities

     $ (5,158      $ (18,060      $ (8,263      $ (49,323

Equity securities losses, net

       (1,636        (1,500        (739        (4,665

Fixed income securities gains (losses), net

       (2,396        530           (2,455        1,786   
    

 

 

      

 

 

      

 

 

      

 

 

 

Net losses

     $ (9,190      $ (19,030      $ (11,457      $ (52,202
    

 

 

      

 

 

      

 

 

      

 

 

 

Gains and losses on the sale of securities are recognized using the specific identification method and recorded in noninterest income.

Securities with a carrying value of $1.4 billion and $1.7 billion at June 30, 2011 and 2010, respectively, were pledged to secure public and trust deposits, advances, and for other purposes as required by law. Securities are also pledged as collateral for security repurchase agreements.

 

5. LOANS AND ALLOWANCE FOR CREDIT LOSSES

ASU 2010-20, Disclosures about the Credit Quality of Financing Receivables and the Allowance for Credit Losses, requires certain additional disclosures under ASC 310, Receivables, which became effective at December 31, 2010. Certain other disclosures were required beginning March 31, 2011 and relate to additional detail for the rollforward of the allowance for credit losses and for impaired loans. The new guidance is incorporated in the following discussion. It relates only to financial statement disclosures and does not affect the Company’s financial condition or results of operations.

Additional accounting guidance and disclosures for troubled debt restructurings (“TDRs”) will be required for the Company beginning September 30, 2011 in accordance with ASU 2011-02, A Creditor’s Determination of Whether a Restructuring Is a Troubled Debt Restructuring. ASU 2011-02 was issued April 5, 2011 and supersedes the deferral granted by ASU 2011-01 of the effective date of disclosures about TDRs which were included in ASU 2010-20. ASU 2011-02 provides criteria to evaluate if a TDR exists based on whether (1) the restructuring constitutes a concession by the creditor and (2) the debtor is experiencing financial difficulty. Management is currently evaluating the impact this new guidance may have on the Company’s financial statements.

 

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Loans and Loans Held for Sale

Loans are summarized as follows according to major portfolio segment and specific loan class:

 

(In thousands)

 

   June 30,
2011
     December 31,
2010
     June 30,
2010
 

Loans held for sale

   $ 158,943       $ 206,286       $ 189,376   
  

 

 

    

 

 

    

 

 

 

Commercial:

        

Commercial and industrial

     9,573,444         9,167,001         9,149,305   

Leasing

     405,532         410,174         441,424   

Owner occupied

     8,426,563         8,217,363         8,334,169   

Municipal

     449,414         438,985         321,105   
  

 

 

    

 

 

    

 

 

 

Total commercial

     18,854,953         18,233,523         18,246,003   

Commercial real estate:

        

Construction and land development

     2,757,589         3,499,103         4,483,873   

Term

     7,721,827         7,649,494         7,567,132   
  

 

 

    

 

 

    

 

 

 

Total commercial real estate

     10,479,416         11,148,597         12,051,005   

Consumer:

        

Home equity credit line

     2,139,527         2,141,740         2,138,687   

1-4 family residential

     3,801,428         3,499,149         3,548,866   

Construction and other consumer real estate

     308,222         343,257         379,421   

Bankcard and other revolving plans

     280,185         296,936         285,397   

Other

     228,630         233,193         270,976   
  

 

 

    

 

 

    

 

 

 

Total consumer

     6,757,992         6,514,275         6,623,347   

FDIC-supported loans

     853,937         971,377         1,208,362   
  

 

 

    

 

 

    

 

 

 

Total loans

   $ 36,946,298       $ 36,867,772       $ 38,128,717   
  

 

 

    

 

 

    

 

 

 

FDIC-supported loans were acquired during 2009 and are indemnified by the FDIC under loss sharing agreements. The FDIC-supported loan balances presented in the accompanying schedules include purchased loans accounted for under ASC 310-30 at their carrying values rather than their outstanding balances. See subsequent discussion under purchased loans.

Owner occupied and commercial real estate loans include unamortized premiums of approximately $80.5 million at June 30, 2011 and $88.4 million at December 31, 2010.

Municipal loans generally include loans to municipalities with the debt service being repaid from general funds or pledged revenues of the municipal entity, or to private commercial entities or 501(c)(3) not-for-profit entities utilizing a pass-through municipal entity to achieve favorable tax treatment.

Loans with a carrying value of approximately $20.9 billion at June 30, 2011 and $20.4 billion at December 31, 2010 have been made available for pledging at the Federal Reserve and various FHLBs as collateral for current and potential borrowings.

We sold loans totaling $392 million and $850 million for the three and six months ended June 30, 2011 that were previously classified as loans held for sale. Amounts added to loans held for sale during these same periods were $353 million and $788 million. Income from loans sold, excluding servicing, for these same periods was $9.1 million and $14.3 million.

Allowance for Credit Losses

The allowance for credit losses (“ACL”) consists of the allowance for loan and lease losses (“ALLL,” also referred to as the allowance for loan losses) and the reserve for unfunded lending commitments (“RULC”).

 

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Allowance for Loan and Lease Losses: The ALLL represents our estimate of probable and estimable losses inherent in the loan and lease portfolio as of the balance sheet date. Losses are charged to the ALLL when recognized. Generally, commercial loans are charged off or charged down at the point at which they are determined to be uncollectible in whole or in part, or when 180 days past due unless the loan is well secured and in the process of collection. Consumer loans are either charged off or charged down to net realizable value no later than the month in which they become 180 days past due. Closed-end loans that are not secured by residential real estate are either charged off or charged down to net realizable value no later than the month in which they become 120 days past due. We establish the amount of the ALLL by analyzing the portfolio at least quarterly, and we adjust the provision for loan losses so the ALLL is at an appropriate level at the balance sheet date.

The methodologies we use to estimate the ALLL depend upon the impairment status and portfolio segment of the loan. For the commercial and commercial real estate segments, we use a comprehensive loan grading system to assign probability of default and loss given default grades to each loan. The credit quality indicators discussed subsequently are based on this grading system. Probability of default and loss given default grades are based on both financial and statistical models and loan officers’ judgment. We create groupings of these grades for each subsidiary bank and loan class and calculate historic loss rates using a loss migration analysis that attributes historic realized losses to historic loan grades over the time period of the loss migration analysis, ranging from the previous 6 to 60 months.

For the consumer loan segment, we use roll rate models to forecast probable inherent losses. Roll rate models measure the rate at which consumer loans migrate from one delinquency bucket to the next worse delinquency bucket, and eventually to loss. We estimate roll rates for consumer loans using recent delinquency and loss experience. These roll rates are then applied to current delinquency levels to estimate probable inherent losses.

For FDIC-supported loans purchased with evidence of credit deterioration, we determine the ALLL according to ASC 310-30. The accounting for these loans, including the allowance calculation, is described in the purchased loans section following.

After applying historic loss experience, as described above, we review the quantitatively derived level of ALLL for each segment using qualitative criteria. We track various risk factors that influence our judgment regarding the level of the ALLL across the portfolio segments. Primary qualitative factors that may not be reflected in our quantitative models include:

 

   

Asset quality trends

 

   

Risk management and loan administration practices

 

   

Risk identification practices

 

   

Effect of changes in the nature and volume of the portfolio

 

   

Existence and effect of any portfolio concentrations

 

   

National economic and business conditions

 

   

Regional and local economic and business conditions

 

   

Data availability and applicability

We review changes in these factors to ensure that changes in the level of the ALLL are consistent with changes in these factors. The magnitude of the impact of each of these factors on our qualitative assessment of the ALLL changes from quarter to quarter according to the extent these factors are already reflected in historic loss rates and according to the extent these factors diverge from one another. We also consider the

 

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uncertainty inherent in the estimation process when evaluating the ALLL.

Reserve for Unfunded Lending Commitments: The Company also estimates a reserve for potential losses associated with off-balance sheet commitments and standby letters of credit. We determine the RULC using the same procedures and methodologies that we use for the ALLL. The loss factors used in the RULC are the same as the loss factors used in the ALLL, and the qualitative adjustments used in the RULC are the same as the qualitative adjustments used in the ALLL. We adjust the Company’s unfunded lending commitments that are not unconditionally cancelable to an outstanding amount equivalent using credit conversion factors and we apply the loss factors to the outstanding equivalents.

Changes in ACL Assumptions: During the second quarter of 2011, we did not change any assumptions in our loss migration model that we use to estimate the ALLL and RULC for the commercial and commercial real estate segments. During the first quarter of 2011, we changed certain assumptions in our loss migration model by expanding the loss look-back periods for the commercial and commercial real estate segments to include losses as far back as 60 months. Prior to the first quarter of 2011, we used loss migration models based on the most recent 18 months of loss data to estimate probable losses for the portions of the segments that were collectively evaluated for impairment. The expansion of the look-back periods to a maximum of 60 months during the first quarter of 2011 increased the quantitative portion of the ACL by approximately $63 million as of March 31, 2011 over what it would have been had the previous assumptions been used. We considered these assumption changes in assessing our qualitative adjustments to the ACL. The change was made so we could continue to capture the inherent risks in the portfolio, as we believe the high level of loss severity rates that occurred during the longer periods are still relevant to estimating probable inherent losses in those segments. Our quantitative models serve as the starting point for our estimation of the appropriate level of the ACL, and therefore we utilize the qualitative portion of the ACL to capture these risks not captured in the quantitative models.

 

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Changes in the allowance for credit losses are summarized as follows:

 

     Three Months Ended June 30, 2011  

(In thousands)

 

   Commercial     Commercial
real estate
    Consumer     FDIC-
supported
    Total  

Allowance for loan losses:

          

Balance at beginning of period

   $ 694,090      $ 480,514      $ 148,110      $ 27,086      $ 1,349,800   

Additions:

          

Provision for loan losses

     9,825        (33,567     21,990        3,082        1,330   

Change in allowance covered by FDIC indemnification

                          (1,228     (1,228

Deductions:

          

Gross loan and lease charge-offs

     (49,673     (64,811     (23,611     (4,349     (142,444

Net charge-offs recoverable from FDIC

                          1,066        1,066   

Recoveries

     13,404        10,716        3,284        1,805        29,209   
  

 

 

   

 

 

   

 

 

   

 

 

   

 

 

 

Net loan and lease charge-offs

     (36,269     (54,095     (20,327     (1,478     (112,169
  

 

 

   

 

 

   

 

 

   

 

 

   

 

 

 

Balance at end of period

   $ 667,646      $ 392,852      $ 149,773      $ 27,462      $ 1,237,733   
  

 

 

   

 

 

   

 

 

   

 

 

   

 

 

 

Reserve for unfunded lending commitments:

          

Balance at beginning of period

   $ 74,429      $ 26,300      $ 1,439      $      $ 102,168   

Provision charged (credited) to earnings

     653        (2,448     (109            (1,904
  

 

 

   

 

 

   

 

 

   

 

 

   

 

 

 

Balance at end of period

   $ 75,082      $ 23,852      $ 1,330      $      $ 100,264   
  

 

 

   

 

 

   

 

 

   

 

 

   

 

 

 

Total allowance for credit losses:

          

Allowance for loan losses

   $ 667,646      $ 392,852      $ 149,773      $ 27,462      $ 1,237,733   

Reserve for unfunded lending commitments

     75,082        23,852        1,330               100,264   
  

 

 

   

 

 

   

 

 

   

 

 

   

 

 

 

Total allowance for credit losses

   $ 742,728      $ 416,704      $ 151,103      $ 27,462      $ 1,337,997   
  

 

 

   

 

 

   

 

 

   

 

 

   

 

 

 

 

     Six Months Ended June 30, 2011  

(In thousands)

 

   Commercial     Commercial
real estate
    Consumer     FDIC-
supported
    Total  

Allowance for loan losses:

          

Balance at beginning of period

   $ 761,107      $ 487,235      $ 154,326      $ 37,673      $ 1,440,341   

Additions:

          

Provision for loan losses

     (9,900     28,295        37,946        4,989        61,330   

Change in allowance covered by FDIC indemnification

                          (10,276     (10,276

Deductions:

          

Gross loan and lease charge-offs

     (109,056     (138,191     (49,932     (13,233     (310,412

Net charge-offs recoverable from FDIC

                          5,600        5,600   

Recoveries

     25,495        15,513        7,433        2,709        51,150   
  

 

 

   

 

 

   

 

 

   

 

 

   

 

 

 

Net loan and lease charge-offs

     (83,561     (122,678     (42,499     (4,924     (253,662
  

 

 

   

 

 

   

 

 

   

 

 

   

 

 

 

Balance at end of period

   $ 667,646      $ 392,852      $ 149,773      $ 27,462      $ 1,237,733   
  

 

 

   

 

 

   

 

 

   

 

 

   

 

 

 

Reserve for unfunded lending commitments:

          

Balance at beginning of period

   $ 83,352      $ 26,373      $ 1,983      $      $ 111,708   

Provision credited to earnings

     (8,270     (2,521     (653            (11,444
  

 

 

   

 

 

   

 

 

   

 

 

   

 

 

 

Balance at end of period

   $ 75,082      $ 23,852      $ 1,330      $      $ 100,264   
  

 

 

   

 

 

   

 

 

   

 

 

   

 

 

 

Total allowance for credit losses:

          

Allowance for loan losses

   $ 667,646      $ 392,852      $ 149,773      $ 27,462      $ 1,237,733   

Reserve for unfunded lending commitments

     75,082        23,852        1,330               100,264   
  

 

 

   

 

 

   

 

 

   

 

 

   

 

 

 

Total allowance for credit losses

   $ 742,728      $ 416,704      $ 151,103      $ 27,462      $ 1,337,997   
  

 

 

   

 

 

   

 

 

   

 

 

   

 

 

 

 

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The ALLL and outstanding loan balances according to the Company’s impairment method are summarized as follows:

 

     June 30, 2011  

(In thousands)

 

   Commercial      Commercial
real estate
     Consumer      FDIC-
supported
     Total  

Allowance for loan losses:

              

Individually evaluated for impairment

   $ 33,145       $ 23,754       $ 8,236       $ 560       $ 65,695   

Collectively evaluated for impairment

     634,501         369,098         141,537         18,955         1,164,091   

Purchased loans with evidence of credit deterioration

                             7,947         7,947   
  

 

 

    

 

 

    

 

 

    

 

 

    

 

 

 

Total

   $ 667,646       $ 392,852       $ 149,773       $ 27,462       $ 1,237,733   
  

 

 

    

 

 

    

 

 

    

 

 

    

 

 

 

Outstanding loan balances:

              

Individually evaluated for impairment

   $ 484,147       $ 842,376       $ 116,373       $ 4,861       $ 1,447,757   

Collectively evaluated for impairment

     18,370,806         9,637,040         6,641,619         714,548         35,364,013   

Purchased loans with evidence of credit deterioration

                             134,528         134,528   
  

 

 

    

 

 

    

 

 

    

 

 

    

 

 

 

Total

   $ 18,854,953       $ 10,479,416       $ 6,757,992       $ 853,937       $ 36,946,298   
  

 

 

    

 

 

    

 

 

    

 

 

    

 

 

 

 

     December 31, 2010  

(In thousands)

 

   Commercial      Commercial
real estate
     Consumer      FDIC-
supported
     Total  

Allowance for loan losses:

              

Individually evaluated for impairment

   $ 53,237       $ 37,545       $ 6,335       $       $ 97,117   

Collectively evaluated for impairment

     707,870         449,690         147,991         30,684         1,336,235   

Purchased loans with evidence of credit deterioration

                             6,989         6,989   
  

 

 

    

 

 

    

 

 

    

 

 

    

 

 

 

Total

   $ 761,107       $ 487,235       $ 154,326       $ 37,673       $ 1,440,341   
  

 

 

    

 

 

    

 

 

    

 

 

    

 

 

 

Outstanding loan balances:

              

Individually evaluated for impairment

   $ 544,243       $ 1,003,402       $ 137,928       $       $ 1,685,573   

Collectively evaluated for impairment

     17,689,280         10,145,195         6,376,347         791,587         35,002,409   

Purchased loans with evidence of credit deterioration

                             179,790         179,790   
  

 

 

    

 

 

    

 

 

    

 

 

    

 

 

 

Total

   $ 18,233,523       $ 11,148,597       $ 6,514,275       $ 971,377       $ 36,867,772   
  

 

 

    

 

 

    

 

 

    

 

 

    

 

 

 

Nonaccrual and Past Due Loans

Loans are generally placed on nonaccrual status when payment in full of principal and interest is not expected, or the loan is 90 days or more past due as to principal or interest, unless the loan is both well secured and in the process of collection. Factors we consider in determining whether a loan is on nonaccrual include delinquency status, collateral value, borrower or guarantor financial statement information, bankruptcy status, and other information which would indicate that the full and timely collection of interest and principal is uncertain.

A nonaccrual loan may be returned to accrual status when all delinquent interest and principal become current in accordance with the terms of the loan agreement; the loan, if secured, is well secured; the borrower has paid according to the contractual terms for a minimum of six months; and analysis of the borrower indicates a reasonable assurance of the ability to maintain payments. Payments received on nonaccrual loans are applied as a reduction to the principal outstanding.

Closed-end loans with payments scheduled monthly are reported as past due when the borrower is in arrears

 

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for two or more monthly payments. Similarly, open-end credit such as charge-card plans and other revolving credit plans are reported as past due when the minimum payment has not been made for two or more billing cycles. Other multipayment obligations (i.e., quarterly, semiannual, etc.), single payment, and demand notes are reported as past due when either principal or interest is due and unpaid for a period of 30 days or more.

Nonaccrual loans are summarized as follows:

 

(In thousands)

 

   June 30,
2011
     December 31,
2010
     June 30,
2010
 

Loans held for sale

   $ 17,282       $       $   
  

 

 

    

 

 

    

 

 

 

Commercial:

        

Commercial and industrial

   $ 186,792       $ 224,499       $ 317,558   

Leasing

     635         801         8,161   

Owner occupied

     314,047         342,467         437,984   

Municipal

     5,861         2,002           
  

 

 

    

 

 

    

 

 

 

Total commercial

     507,335         569,769         763,703   

Commercial real estate:

        

Construction and land development

     343,843         493,445         743,832   

Term

     233,073         264,305         281,537   
  

 

 

    

 

 

    

 

 

 

Total commercial real estate

     576,916         757,750         1,025,369   

Consumer:

        

Home equity credit line

     12,244         14,047         13,280   

1-4 family residential

     109,126         124,470         136,148   

Construction and other consumer real estate

     16,397         23,719         19,957   

Bankcard and other revolving plans

     702         958         533   

Other

     3,302         2,156         3,323   
  

 

 

    

 

 

    

 

 

 

Total consumer loans

     141,771         165,350         173,241   

FDIC-supported loans

     30,414         35,837         171,764   
  

 

 

    

 

 

    

 

 

 

Total

   $ 1,256,436       $ 1,528,706       $ 2,134,077   
  

 

 

    

 

 

    

 

 

 

 

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ZIONS BANCORPORATION AND SUBSIDIARIES

 

Past due loans (accruing and nonaccruing) are summarized as follows:

 

    June 30, 2011  

(In thousands)

 

  Current     30-89 days
past due
    90+ days
past due
    Total
past due
    Total
loans
    Accruing
loans

90+ days
past due
    Nonaccrual
loans

that are
current 1
 

Loans held for sale

  $ 151,723      $ 225      $ 6,995      $ 7,220      $ 158,943      $      $ 10,288   
 

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

 

Commercial:

             

Commercial and industrial

  $ 9,410,066      $ 62,114      $ 101,264      $ 163,378      $ 9,573,444      $ 2,576      $ 68,432   

Leasing

    404,582        776        174        950        405,532        70        402   

Owner occupied

    8,160,101        75,449        191,013        266,462        8,426,563        2,954        105,076   

Municipal

    449,414                             449,414               5,861   
 

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

 

Total commercial

    18,424,163        138,339        292,451        430,790        18,854,953        5,600        179,771   

Commercial real estate:

             

Construction and land development

    2,530,175        36,236        191,178        227,414        2,757,589        4,795        124,586   

Term

    7,570,166        51,130        100,531        151,661        7,721,827        2,463        119,144   
 

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

 

Total commercial real estate

    10,100,341        87,366        291,709        379,075        10,479,416        7,258        243,730   

Consumer:

             

Home equity credit line

    2,124,276        8,693        6,558        15,251        2,139,527               2,950   

1-4 family residential

    3,701,321        26,017        74,090        100,107        3,801,428        4,467        32,234   

Construction and other consumer real estate

    295,684        5,971        6,567        12,538        308,222        696        9,526   

Bankcard and other revolving plans

    276,053        2,752        1,380        4,132        280,185        1,123        262   

Other

    223,545        3,260        1,825        5,085        228,630        51        323   
 

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

 

Total consumer loans

    6,620,879        46,693        90,420        137,113        6,757,992        6,337        45,295   

FDIC-supported loans

    722,443        21,602        109,892        131,494        853,937        89,554        9,994   
 

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

 

Total

  $ 35,867,826      $ 294,000      $ 784,472      $ 1,078,472      $ 36,946,298      $ 108,749      $ 478,790   
 

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

 
    December 31, 2010  

(In thousands)

 

  Current     30-89 days
past due
    90+ days
past due
    Total
past due
    Total
loans
    Accruing
loans

90+ days
past due
    Nonaccrual
loans

that are
current 1
 

Loans held for sale

  $ 206,286      $      $      $      $ 206,286      $      $   
 

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

 

Commercial:

             

Commercial and industrial

  $ 8,938,120      $ 100,119      $ 128,762      $ 228,881      $ 9,167,001      $ 7,533      $ 77,406   

Leasing

    408,015        1,352        807        2,159        410,174        66        23   

Owner occupied

    7,905,193        83,658        228,512        312,170        8,217,363        3,876        91,527   

Municipal

    438,985                             438,985               2,002   
 

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

 

Total commercial

    17,690,313        185,129        358,081        543,210        18,233,523        11,475        170,958   

Commercial real estate:

             

Construction and land development

    3,172,537        57,891        268,675        326,566        3,499,103        1,916        200,864   

Term

    7,436,222        85,595        127,677        213,272        7,649,494        4,757        112,447   
 

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

 

Total commercial real estate

    10,608,759        143,486        396,352        539,838        11,148,597        6,673        313,311   

Consumer:

             

Home equity credit line

    2,126,505        7,494        7,741        15,235        2,141,740               2,224   

1-4 family residential

    3,383,420        26,345        89,384        115,729        3,499,149        2,966        34,425   

Construction and other consumer real estate

    322,341        8,261        12,655        20,916        343,257        532        10,089   

Bankcard and other revolving plans

    290,879        3,912        2,145        6,057        296,936        1,572        311   

Other

    227,654        4,586        953        5,539        233,193               959   
 

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

 

Total consumer loans

    6,350,799        50,598        112,878        163,476        6,514,275        5,070        48,008   

FDIC-supported loans

    804,760        27,256        139,361        166,617        971,377        118,760        15,136   
 

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

 

Total

  $ 35,454,631      $ 406,469      $ 1,006,672      $ 1,413,141      $ 36,867,772      $ 141,978      $ 547,413   
 

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

 

 

1 

Represents nonaccrual loans that are not past due more than 30 days; however, full payment of principal and interest is still not expected.

 

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