0000109380zions:CommercialAndIndustrialMember2019-01-012019-06-30
UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
FORM 10-Q
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ý | QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934 |
☒ QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934 For the quarterly period ended SeptemberJune 30, 20172019
or
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¨ | TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934 |
☐ 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, NATIONAL ASSOCIATION
(Exact name of registrant as specified in its charter)
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UTAHUnited States of America | 87-022740087-0189025 | |
(State or other jurisdiction of
incorporation or organization)
| (I.R.S. Employer
Identification No.)
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One South Main 15th Floor | | |
| Salt Lake City, Utah | 8413384133-1109 | |
| (Address of principal executive offices) | (Zip Code) | |
Registrant’s telephone number, including area code: (801) 844-7637
Securities registered pursuant to Section 12(b) of the Act:
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| Title of Each Class | Trading Symbol | Name of Each Exchange on Which Registered |
| Common Stock, par value $0.001 | ZION | The NASDAQ Stock Market LLC |
| Warrants to Purchase Common Stock (expiring May 22, 2020) | ZIONW | The NASDAQ Stock Market LLC |
| Depositary Shares each representing a 1/40th ownership interest in a share of: | | |
| Series A Floating-Rate Non-Cumulative Perpetual Preferred Stock | ZB/A | New York Stock Exchange |
| Series G Fixed/Floating-Rate Non-Cumulative Perpetual Preferred Stock | ZB/G | New York Stock Exchange |
| Series H 5.75% Non-Cumulative Perpetual Preferred Stock | ZB/H | New York Stock Exchange |
| 6.95% Fixed-to-Floating Rate Subordinated Notes due September 15, 2028 | ZBK | New York Stock Exchange |
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, or an emerging growth company. See the definitions of “large accelerated filer,” “accelerated filer”filer,” “smaller reporting company,” and “smaller reporting“emerging growth company” in Rule 12b-2 of the Exchange Act.
Large accelerated filer ý Accelerated filer ¨ Non-accelerated filer ¨ Smaller reporting company ☐ Emerging growth company ¨ |
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Large accelerated filer | ý | Accelerated filer | ¨ |
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Non-accelerated filer | ¨ | Smaller reporting company | ¨ |
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| | Emerging growth company | ¨ |
If an emerging growth company, indicate by check mark if the registrant has elected not to use the extended transition period for complying with any new or revised financial accounting standards provided pursuant to Section 13(a) of the Exchange Act. ¨
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.
Number of common shares outstanding at July 31, 2019 176,962,996 shares
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Common Stock, without par value, outstanding at October 31, 2017 | 199,743,776 shares |
ZIONS BANCORPORATION, NATIONAL ASSOCIATION AND SUBSIDIARIES
Table of Contents
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ZIONS BANCORPORATION, NATIONAL ASSOCIATION AND SUBSIDIARIES
PART I. FINANCIAL INFORMATION
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PART I. | FINANCIAL INFORMATION |
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ITEM 2. | MANAGEMENT’S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS |
ITEM 2. MANAGEMENT’S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS
FORWARD-LOOKING INFORMATION
Statements in thisThis Quarterly Report on Form 10-Q includes "forward-looking statements" as that are based on other than historical data are forward-looking within the meaning ofterm is defined in the Private Securities Litigation Reform Act of 1995. Forward-lookingThese statements provideare based on management’s current expectations or forecasts ofregarding future events or determinations, all of which are subject to known and unknown risks, uncertainties and other factors that may cause our actual results, performance or achievements, market trends, industry results or regulatory outcomes to differ materially from those expressed or implied by such forward-looking statements. Forward-looking statements include, among others:
•statements with respect to the beliefs, plans, objectives, goals, targets, commitments, designs, guidelines, expectations, anticipations, and future financial condition, results of operations and performance of Zions Bancorporation, (“the Parent”)National Association and its subsidiaries (collectively “Zions Bancorporation, N.A.,” “the Company,” “Zions,Bank,” “we,” “our,” “us”); and
•statements preceded by, followed by, or that include the words “may,” "might," "can," “could,” “should,” “would,” “believe,” “anticipate,” “estimate,” “expect,” “intend,” “target,” “commit,” “design,” “plan,” “projects,” or"will," and the negative thereof and similar words and expressions.
Zions Bancorporation, National Association is the successor to Zions Bancorporation by merger of Zions Bancorporation into ZB, N.A. on September 30, 2018. References to “Zions Bancorporation, N.A.,” “the Bank,” “we,” “our,” and “us” are intended to refer to Zions Bancorporation and its subsidiaries for periods prior to the merger and to Zions Bancorporation, National Association, and its subsidiaries for periods on and after the merger.
These forward-looking statements are not guarantees of future performance, nor should they be relied upon as representing management’s views as of any subsequent date. Forward-looking statements involve significant risksby their nature address matters that are, to different degrees, uncertain, such as statements about future financial and uncertaintiesoperating results. Actual results and actual resultsoutcomes may differ materially from those presented, either expressed or implied, including, but not limited to, those presented in Management’s Discussion and Analysis. FactorsImportant risk factors that mightmay cause such material differences include, but are not limited to:
•the Company’sBank’s ability to successfully execute its business plans, manage its risks, and achieve its objectives, including its restructuringoperating leverage;
•the impact of acquisitions, dispositions, and efficiency initiatives;corporate restructurings;
•increases in the levels of losses, customer bankruptcies, bank failures, claims, and assessments;
•the ability of the Bank to retain and recruit executives and other personnel necessary for their businesses and competitiveness;
•changes in local, national and international political and economic conditions, including without limitation the political and economic effects of the economic and fiscal imbalancesimbalance in the United States (“U.S.”) and other countries, potential or actual downgrades in ratings of sovereign debt issued by the United States and other countries, and other major developments, including wars, military actions, and terrorist attacks;
•changes in financial and commodity market prices and conditions, either internationally, nationally or locally in areas in which the CompanyBank conducts its operations, including without limitation rates of business formation and growth, commercial and residential real estate development, real estate prices, agricultural-related commodity prices, and oil and gas-related commodity prices;
•changes in markets for equity, fixed income, commercial paper and other securities, commodities, including availability, market liquidity levels, and pricing;
•changes in interest rates, the quality and composition of the loan and securities portfolios, demand for loan products, deposit flows and competition;
ZIONS BANCORPORATION, NATIONAL ASSOCIATION AND SUBSIDIARIES
•uncertainty regarding the future of the London Interbank Offered Rate ("LIBOR"), and the potential transition away from LIBOR toward new interest rate benchmarks;
•the rate of change of the Bank’s interest-sensitive assets and liabilities relative to changes in benchmark interest rates;
•changes in fiscal, monetary, regulatory, trade and tax policies and laws, and regulatory assessments and fees, including policies of the U.S. Department of Treasury, the Office of the Comptroller of the Currency (“OCC”), the Board of Governors of the Federal Reserve System, the Federal Deposit Insurance Corporation (“FDIC”), the Securities and Exchange Commission (“SEC”), and the Consumer Financial Protection Bureau (“CFPB”);
•changes in consumer spending and savings habits;
•inflation and deflation;
•increased competitive challenges and expanding product and pricing pressures among financial institutions;
•legislation or regulatory changes which adversely affect the Bank’s operations or business;
•the Bank’s ability to comply with applicable laws and regulations;
•costs of deposit insurance and changes with respect to FDIC insurance coverage levels;
•any impairment of our goodwill or other intangibles, or any adjustment of valuation allowances on our deferred tax assets (“DTAs”) due to adverse changes in the economic environment, declining operations of the reporting unit, or a change to the corporate statutory tax rate or other similar changes if and as implemented by local and national governments, or other factors;
changes in interest rates, the quality and composition of the loan and securities portfolios, demand for loan products, deposit flows and competition;
acquisitions and integration of acquired businesses;
increases in the levels of losses, customer bankruptcies, bank failures, claims, and assessments;
changes in fiscal, monetary, regulatory, trade and tax policies and laws, and regulatory assessments and fees, including policies of the U.S. Department of Treasury, the OCC, the Board of Governors of the Federal Reserve Board System, the FDIC, the SEC, and the CFPB;
•the impact of executive compensation rules under the Dodd-Frank Act and banking regulations which may impact the ability of the Company and other American financial institutions to retain and recruit executives and other personnel necessary for their businesses and competitiveness;
ZIONS BANCORPORATION AND SUBSIDIARIES
the impact of the Dodd-Frank Act and Basel III, and rules and regulations thereunder, on our required regulatory capital and liquidity levels, governmental assessments on us, (including, but not limited to, the Federal Reserve reviews of our annual capital plan), the scope of business activities in which we may engage, the manner in which we engage in such activities, and the fees we may charge for certain products and services,services;
•uncertainties related to the application of the National Bank Act of 1863, 12 U.S.C. 38 (the “National Bank Act”) and other matters affectedOCC regulations to the Bank’s corporate affairs as more fully described under “Risk Factors” in our 2018 Annual Report on Form 10-K;
•changes in accounting policies or procedures as may be required by the Dodd-Frank ActFinancial Accounting Standards Board (“FASB”) or regulatory agencies;
•risks and these international standards;uncertainties related to the ability to obtain shareholder and regulatory approvals when required, or the possibility that such approvals may be delayed;
continuing consolidation in the financial services industry;
•new legal claims against the Company,Bank, including litigation, arbitration and proceedings brought by governmental or self-regulatory agencies, or changes in existing legal matters;
success in gaining regulatory approvals, when required;
changes in consumer spending•economies of scale attendant to the development of digital and savings habits;
increased competitive challengesother technologies by much larger bank and expanding product and pricing pressures among financial institutions;
inflation and deflation;
technological changesnon-bank competitors, and the Company’s implementationpossible entry of new technologies;technology “platform” companies into the financial services business;
•the Company’sBank’s ability to develop and maintain secure and reliable information technology systems;systems, including as necessary to guard against fraud, cybersecurity and privacy risks; and
legislation or regulatory changes which adversely affect •the Company’s operations or business;
the Company’s ability to comply with applicable laws and regulations;
changes in accounting policies or procedures as may be required by the FASB or regulatory agencies; and
costsBank’s implementation of deposit insurance and changes with respect to FDIC insurance coverage levels.new technologies.
Except to the extent required by law, the CompanyBank specifically disclaims any obligation to update any factors or to publicly announce the result of revisions to any of the forward-looking statements included herein to reflect future events or developments.
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| ACL | Allowance for Credit Losses | CSVAOCI | Cash Surrender ValueAccumulated Other Comprehensive Income |
| AFS | Available-for-Sale | DFASTASC | Dodd-Frank Act Stress TestAccounting Standards Codification |
| ALCO | Asset/Liability Committee | ASU | Accounting Standards Update |
| ALLL | Allowance for Loan and Lease Losses | ATM | Automated Teller Machine |
| Amegy | Amegy Bank, a division of Zions Bancorporation, National Association | bps | basis points |
ZIONS BANCORPORATION, NATIONAL ASSOCIATION AND SUBSIDIARIES
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| CB&T | California Bank & Trust, a division of Zions Bancorporation, National Association | NM | Not Meaningful |
| CFPB | Consumer Financial Protection Bureau | NSB | Nevada State Bank, a division of Zions Bancorporation, National Association |
| CLTV | Combined Loan-to-Value Ratio | OCC | Office of the Comptroller of the Currency |
| COSO | Committee of Sponsoring Organizations of the Treadway Commission | OCI | Other Comprehensive Income |
| CRE | Commercial Real Estate | OREO | Other Real Estate Owned |
| Dodd-Frank Act | Dodd-Frank Wall Street Reform and Consumer Protection Act | OTTI | Other-Than-Temporary Impairment |
ALLLDTA | Allowance for Loan and Lease Losses | DTA | Deferred Tax Asset | PAGA | Private Attorney General Act |
AmegyEaR | Amegy Bank, a division of ZB, N.A. | EaR | Earnings at Risk | PEI | Private Equity Investment |
AOCIERM | Accumulated Other Comprehensive Income | EITF | Emerging Issues Task Force |
ASC | Accounting Standards Codification | ERM | Enterprise Risk Management | PPNR | Pre-provision Net Revenue |
ASUEVE | Accounting Standards Update | ERMC | Enterprise Risk Management Committee |
BHC | Bank Holding Company | EVE | Economic Value of Equity at Risk | ROC | Risk Oversight Committee |
BOLIFASB | Bank-Owned Life Insurance | FAMC | Federal Agricultural Mortgage Corporation, or “Farmer Mac” |
bps | basis points | FASB | Financial Accounting Standards Board | ROU | Right-of-Use |
CB&TFDIC | California Bank & Trust, a division of ZB, N.A. | FDIC | Federal Deposit Insurance Corporation | RULC | Reserve for Unfunded Lending Commitments |
CCARFDICIA | Comprehensive Capital Analysis and Review | FDICIA | Federal Deposit Insurance Corporation Improvement Act | S&P | Standard and Poor's |
CDFHLB | Certificate of Deposit | FHLB | Federal Home Loan Bank | SBA | Small Business Administration |
CET1FTP | Common Equity Tier 1 (Basel III) | FHLMC | Federal Home Loan Mortgage Corporation, or “Freddie Mac” |
CFPB | Consumer Financial Protection Bureau | FRB | Federal Reserve Board |
CLTV | Combined Loan-to-Value Ratio | FTP | Funds Transfer Pricing | SBIC | Small Business Investment Company |
CMCGAAP | Capital Management Committee | GAAP | Generally Accepted Accounting Principles | SEC | Securities and Exchange Commission |
COSOHECL | Committee of Sponsoring Organizations of the Treadway Commission | HCR | Horizontal Capital Review |
CRA | Community Reinvestment Act | HECL | Home Equity Credit Line |
CRE | Commercial Real EstateTCBW | HQLA | High-Quality Liquid Assets |
CSA | Credit Support Annex | HTM | Held-to-Maturity |
ZIONS BANCORPORATION AND SUBSIDIARIES
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IFRS | International Financial Reporting Standards | PEI | Private Equity Investment |
LCR | Liquidity Coverage Ratio | PPNR | Pre-provision Net Revenue |
LIBOR | London Interbank Offered Rate | ROC | Risk Oversight Committee |
MD&A | Management’s Discussion and Analysis | RSU | Restricted Stock Unit |
NAV | Net Asset Value | RULC | Reserve for Unfunded Lending Commitments |
NBAZ | National Bank of Arizona, a division of ZB, N.A. | S&P | Standard and Poor's |
NIM | Net Interest Margin | SBA | Small Business Administration |
NM | Not Meaningful | SBIC | Small Business Investment Company |
NRE | National Real Estate | SEC | Securities and Exchange Commission |
NSB | Nevada State Bank, a division of ZB, N.A. | SNC | Shared National Credit |
NSFR | Net Stable Funding Ratio | TCBO | The Commerce Bank of Oregon, a division of ZB, N.A. |
OCC | Office of the Comptroller of the Currency | TCBW | The Commerce Bank of Washington, a division of ZB, N.A.Zions Bancorporation, National Association |
OCIHTM | Other Comprehensive IncomeHeld-to-Maturity | TDR | Troubled Debt Restructuring |
OREOIMG | Other Real Estate OwnedInternational Manufacturing Group | VectraTier 1 | Common Equity Tier 1 (Basel III) |
| LIBOR | London Interbank Offered Rate | Topic 842 | ASU 2016-02, “Leases” |
| Municipalities | State and Local Governments | U.S. | United States |
| NASDAQ | National Association of Securities Dealers Automated Quotations | Vectra | Vectra Bank Colorado, a division of ZB, N.A.Zions Bancorporation, National Association |
OTTINBAZ | Other-Than-Temporary Impairment | ZB, N.A. | ZB,National Bank of Arizona, a division of Zions Bancorporation, National Association | Zions Bancorporation, N.A. | Zions Bancorporation, National Association |
ParentNIM | Zions BancorporationNet Interest Margin | Zions Bank | Zions Bank, a division of ZB, N.A. |
PCI | Purchased Credit-Impaired | ZMSC | Zions Management Services CompanyBancorporation, National Association |
CRITICAL ACCOUNTING POLICIES AND SIGNIFICANT ESTIMATES
The CompanyBank has made no significant changes in its critical accounting policies and significant estimates from those disclosed in its 20162018 Annual Report on Form 10-K.
Accounting and Reporting Developments In June 2016, the FASB issued Accounting Standards Update (“ASU”) 2016-13, Credit Losses (Topic 326): Measurement of Credit Losses on Financial Instruments. This new standard, including subsequent updates, significantly changes how entities will measure credit losses for virtually all financial assets. The standard replaces today’s “incurred loss” approach with an “expected loss” model for instruments such as loans and held-to-maturity (“HTM”) securities that are measured at amortized cost. The standard requires credit losses relating to available-for-sale (“AFS”) debt securities to be recorded through an allowance rather than a reduction of the carrying amount and replaces the historically required other-than-temporary impairment (“OTTI”) analysis. It also changes the accounting for purchased credit-impaired debt securities and loans. The standard retains many of the current disclosure requirements in U.S. generally accepted accounting principles (“GAAP”) and expands other disclosure requirements. The new guidance is effective for calendar year-end public companies beginning January 1, 2020.
ZIONS BANCORPORATION, NATIONAL ASSOCIATION AND SUBSIDIARIES
Our implementation team, led jointly by our internal Credit, Treasury, and Accounting groups, has developed models to meet the new standard. We continue to analyze the results of our models. Next steps include establishing and testing controls, further challenging model results, finalizing the qualitative allowance process, and developing disclosures.
Based upon our modeling-to-date, we expect more volatility in the credit loss estimate and less comparability among banks when this new standard becomes effective. Comparability will be impacted by, among other items, varying expectations for macroeconomic trends over the near term and loan portfolio composition differences, including expected loan lives. The impact at adoption of this standard is dependent upon the nature and characteristics of our assets in scope of the guidance, macroeconomic conditions and forecasts, as well as other management judgments.
GAAP to NON-GAAP RECONCILIATIONS
This Form 10-Q presents non-GAAP financial measures, in addition to GAAP financial measures, to provide investors with additional information. The adjustments to reconcile from the applicable GAAP financial measures to the non-GAAP financial measures are presented in the following schedules. The CompanyBank considers these adjustments to be relevant to ongoing operating results and provide a meaningful base for period-to-period and company-to-company comparisons. These non-GAAP financial measures are used by management to assess the performance and financial position of the CompanyBank and for presentations of CompanyBank performance to investors. The CompanyBank further believes that presenting these non-GAAP financial measures will permit investors to assess the performance of the CompanyBank on the same basis as that applied by management.
Non-GAAP financial measures have inherent limitations, and are not required to be uniformly applied by individual entities. Although non-GAAP financial measures are frequently used by stakeholders to evaluate a company, they have limitations as an analytical tool and should not be considered in isolation or as a substitute for analysis of results reported under GAAP.
The following are the non-GAAP financial measures presented in this Form 10-Q and a discussion of whythe reasons for which management uses these non-GAAP measures:
Return on Average Tangible Common Equity – this schedule also includes “net earnings applicable to common shareholders, excluding the effects of the adjustments,adjustment, net of tax” and “average tangible common equity.” Return on average tangible common equity is a non-GAAP financial measure that management believes provides useful information to management and others about the Company’sBank’s use of shareholders’ equity. Management believes the use of ratios that utilize tangible equity provides additional useful information because they present measures of those assets that can generate income.
RETURN ON AVERAGE TANGIBLE COMMON EQUITY (NON-GAAP)
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| | Three Months Ended | | | | | | |
| (Dollar amounts in millions) | | June 30,
2019 | | March 31,
2019 | | December 31,
2018 | | June 30,
2018 |
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| Net earnings applicable to common shareholders (GAAP) | | $ | 189 | | $ | 205 | | $ | 217 | | $ | 187 |
| Adjustment, net of tax: | | | | | | | | |
| Amortization of core deposit and other intangibles | | — | | — | | — | | — |
| Net earnings applicable to common shareholders, excluding the effects of the adjustment, net of tax (non-GAAP) | (a) | $ | 189 | | $ | 205 | | $ | 217 | | $ | 187 |
| Average common equity (GAAP) | | $ | 6,988 | | $ | 7,005 | | $ | 6,938 | | $ | 7,072 |
| Average goodwill and intangibles | | (1,014) | | (1,014) | | (1,015) | | (1,016) |
| Average tangible common equity (non-GAAP) | (b) | $ | 5,974 | | $ | 5,991 | | $ | 5,923 | | $ | 6,056 |
| Number of days in quarter | (c) | 91 | | 90 | | 92 | | 91 |
| Number of days in year | (d) | 365 | | 365 | | 365 | | 365 |
| Return on average tangible common equity (non-GAAP) | (a/b/c)*d | | 12.7 | % | | 13.9 | % | | 14.5 | % | | 12.4 | % |
ZIONS BANCORPORATION, NATIONAL ASSOCIATION AND SUBSIDIARIES
Tangible Equity Ratio, Tangible Common Equity Ratio, and Tangible Book Value per Common Share – this schedule also includes “tangible equity,” “tangible common equity,” and “tangible assets.” Tangible equity ratio, tangible common equity ratio, and tangible book value per common share are non-GAAP financial measures that management believes provides additional useful information about the levels of tangible assets and tangible equity between each other and in relation to outstanding shares of common stock. Management believes the use
ZIONS BANCORPORATION AND SUBSIDIARIES
of ratios that utilize tangible equity provides additional useful information to management and others about capital adequacy because they present measures of those assets that can generate income.
TANGIBLE EQUITY RATIO, TANGIBLE COMMON EQUITY RATIO, AND TANGIBLE BOOK VALUE PER COMMON SHARE (ALL NON-GAAP MEASURES)
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| (Dollar amounts in millions, except per share amounts) | | June 30,
2019 | | March 31,
2019 | | December 31,
2018 | | June 30,
2018 |
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| Total shareholders’ equity (GAAP) | | $ | 7,599 | | $ | 7,588 | | $ | 7,578 | | $ | 7,621 |
| Goodwill and intangible | | (1,014) | | (1,014) | | (1,015) | | (1,015) |
| Tangible equity (non-GAAP) | (a) | 6,585 | | 6,574 | | 6,563 | | 6,606 |
| Preferred stock | | (566) | | (566) | | (566) | | (566) |
| Tangible common equity (non-GAAP) | (b) | $ | 6,019 | | $ | 6,008 | | $ | 5,997 | | $ | 6,040 |
| Total assets (GAAP) | | $ | 70,065 | | $ | 69,195 | | $ | 68,746 | | $ | 66,457 |
| Goodwill and intangible | | (1,014) | | (1,014) | | (1,015) | | (1,015) |
| Tangible assets (non-GAAP) | (c) | $ | 69,051 | | $ | 68,181 | | $ | 67,731 | | $ | 65,442 |
| Common shares outstanding (thousands) | (d) | | 176,935 | | 182,513 | | 187,554 | | 195,392 |
| Tangible equity ratio (non-GAAP) | (a/c) | | 9.54 | % | | 9.64 | % | | 9.69 | % | | 10.09 | % |
| Tangible common equity ratio (non-GAAP) | (b/c) | | 8.72 | % | | 8.81 | % | | 8.85 | % | | 9.23 | % |
| Tangible book value per common share (non-GAAP) | (b/d) | | $ | 34.02 | | $ | 32.92 | | $ | 31.97 | | $ | 30.91 |
Efficiency Ratio and Adjusted Pre-Provision Net Revenue – this schedule also includes “adjusted noninterest expense,” “taxable-equivalent net interest income,” “adjusted taxable-equivalent revenue,” and “adjusted pre-provision“pre-provision net revenue (“PPNR”).,” and “adjusted PPNR.” The methodology of determining the efficiency ratio may differ among companies. Management makes adjustments to exclude certain items as identified in the subsequent schedule which it believes allows for more consistent comparability among periods. Management believes the efficiency ratio provides useful information regarding the cost of generating revenue. Adjusted noninterest expense provides a measure as to how well the CompanyBank is managing its expenses, and adjusted PPNR enables management and others to assess the Company’sBank’s ability to generate capital to cover credit losses through a credit cycle. Taxable-equivalent net interest income allows management to assess the comparability of revenue arising from both taxable and tax-exempt sources. The efficiency ratio and adjusted noninterest expense are the key metrics to which the Company announced it would hold itself accountable in its June 1, 2015 efficiency initiative, and to which executive compensation is tied.
RETURN ON AVERAGE TANGIBLE COMMON EQUITY (NON-GAAP)
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| | | Three Months Ended |
| (Dollar amounts in millions) | | September 30,
2017 | | June 30,
2017 | | March 31,
2017 | | September 30,
2016 |
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| Net earnings applicable to common shareholders (GAAP) | | $ | 152 |
| | $ | 154 |
| | $ | 129 |
| | $ | 117 |
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| Adjustment, net of tax: | | | | | | | | |
| Amortization of core deposit and other intangibles | | 1 |
| | 1 |
| | 1 |
| | 1 |
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| Net earnings applicable to common shareholders, excluding the effects of the adjustment, net of tax (non-GAAP) | (a) | $ | 153 |
| | $ | 155 |
| | $ | 130 |
| | $ | 118 |
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| Average common equity (GAAP) | | $ | 7,230 |
| | $ | 7,143 |
| | $ | 6,996 |
| | $ | 6,986 |
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| Average goodwill | | (1,014 | ) | | (1,014 | ) | | (1,014 | ) | | (1,014 | ) |
| Average core deposit and other intangibles | | (4 | ) | | (6 | ) | | (8 | ) | | (11 | ) |
| Average tangible common equity (non-GAAP) | (b) | $ | 6,212 |
| | $ | 6,123 |
| | $ | 5,974 |
| | $ | 5,961 |
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| Number of days in quarter | (c) | 92 |
| | 91 |
| | 90 |
| | 92 |
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| Number of days in year | (d) | 365 |
| | 365 |
| | 365 |
| | 366 |
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| Return on average tangible common equity (non-GAAP) | (a/b/c)*d | 9.8 | % | | 10.2 | % | | 8.8 | % | | 7.9 | % |
TANGIBLE EQUITY (NON-GAAP) AND TANGIBLE COMMON EQUITY (NON-GAAP)
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| (Dollar amounts in millions, except per share amounts) | | September 30,
2017 | | June 30,
2017 | | March 31,
2017 | | September 30,
2016 |
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| Total shareholders’ equity (GAAP) | | $ | 7,761 |
| | $ | 7,749 |
| | $ | 7,730 |
| | $ | 7,679 |
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| Goodwill | | (1,014 | ) | | (1,014 | ) | | (1,014 | ) | | (1,014 | ) |
| Core deposit and other intangibles | | (3 | ) | | (5 | ) | | (7 | ) | | (10 | ) |
| Tangible equity (non-GAAP) | (a) | 6,744 |
| | 6,730 |
| | 6,709 |
| | 6,655 |
|
| Preferred stock | | (566 | ) | | (566 | ) | | (710 | ) | | (710 | ) |
| Tangible common equity (non-GAAP) | (b) | $ | 6,178 |
| | $ | 6,164 |
| | $ | 5,999 |
| | $ | 5,945 |
|
| Total assets (GAAP) | | $ | 65,564 |
| | $ | 65,446 |
| | $ | 65,463 |
| | $ | 61,039 |
|
| Goodwill | | (1,014 | ) | | (1,014 | ) | | (1,014 | ) | | (1,014 | ) |
| Core deposit and other intangibles | | (3 | ) | | (5 | ) | | (7 | ) | | (10 | ) |
| Tangible assets (non-GAAP) | (c) | $ | 64,547 |
| | $ | 64,427 |
| | $ | 64,442 |
| | $ | 60,015 |
|
| Common shares outstanding (thousands) | (d) | 199,712 |
| | 202,131 |
| | 202,595 |
| | 203,850 |
|
| Tangible equity ratio (non-GAAP) | (a/c) | 10.45 | % | | 10.45 | % | | 10.41 | % | | 11.09 | % |
| Tangible common equity ratio (non-GAAP) | (b/c) | 9.57 | % | | 9.57 | % | | 9.31 | % | | 9.91 | % |
| Tangible book value per common share (non-GAAP) | (b/d) | $ | 30.93 |
| | $ | 30.50 |
| | $ | 29.61 |
| | $ | 29.16 |
|
ZIONS BANCORPORATION, NATIONAL ASSOCIATION AND SUBSIDIARIES
EFFICIENCY RATIO (NON-GAAP) AND ADJUSTED PRE-PROVISION NET REVENUE (NON-GAAP)
| | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | |
| | Three Months Ended | | | | | | Six Months Ended | | | | Year Ended |
| (Dollar amounts in millions) | | June 30,
2019 | | March 31,
2019 | | June 30,
2018 | | June 30,
2019 | | June 30,
2018 | | December 31,
2018 |
| | | | | | | | | | | | |
| Efficiency Ratio | | | | | | | | | | | | |
| Noninterest expense (GAAP) | (a) | $ | 424 | | $ | 430 | | $ | 421 | | $ | 854 | | $ | 840 | | $ | 1,679 |
| Adjustments: | | | | | | | | | | | | |
| Severance costs | | 1 | | — | | 1 | | 1 | | (1) | | 3 |
| Other real estate expense, net | | — | | (1) | | — | | (1) | | 1 | | 1 |
| | | | | | | | | | | | |
| Amortization of core deposit and other intangibles | | — | | — | | — | | 1 | | 1 | | 1 |
| Restructuring costs | | — | | — | | — | | — | | — | | 2 |
| Total adjustments | (b) | 1 | | (1) | | 1 | | 1 | | 1 | | 7 |
| Adjusted noninterest expense (non-GAAP) | (a-b)=(c) | $ | 423 | | $ | 431 | | $ | 420 | | $ | 853 | | $ | 839 | | $ | 1,672 |
| Net interest income (GAAP) | (d) | $ | 569 | | $ | 576 | | $ | 548 | | $ | 1,145 | | $ | 1,090 | | $ | 2,230 |
| Fully taxable-equivalent adjustments | (e) | 7 | | 6 | | 5 | | 13 | | 10 | | 22 |
Taxable-equivalent net interest income (non-GAAP)1 | (d+e)=f | 576 | | 582 | | 553 | | 1,158 | | 1,100 | | 2,252 |
| Noninterest income (GAAP) | g | 132 | | 132 | | 138 | | 264 | | 276 | | 552 |
| Combined income (non-GAAP) | (f+g)=(h) | 708 | | 714 | | 691 | | 1,422 | | 1,376 | | 2,804 |
| Adjustments: | | | | | | | | | | | | |
| Fair value and nonhedge derivative income (loss) | | (6) | | (3) | | — | | (8) | | 2 | | (1) |
| Securities gains (losses), net | | (3) | | 1 | | 1 | | (2) | | 1 | | 1 |
| Total adjustments | (i) | (9) | | (2) | | 1 | | (10) | | 3 | | — |
| Adjusted taxable-equivalent revenue (non-GAAP) | (h-i)=(j) | $ | 717 | | $ | 716 | | $ | 690 | | $ | 1,432 | | $ | 1,373 | | $ | 2,804 |
| Pre-provision net revenue (PPNR) (non-GAAP) | (h)-(a) | $ | 284 | | $ | 284 | | $ | 270 | | $ | 568 | | $ | 536 | | $ | 1,125 |
| Adjusted PPNR (non-GAAP) | (j-c)=(k) | 294 | | 285 | | 270 | | 579 | | 534 | | 1,132 |
| Efficiency ratio (non-GAAP) | (c/j) | | 59.0 | % | | 60.2 | % | | 60.9 | % | | 59.6 | % | | 61.1 | % | | 59.6 | % |
Adjusted Pre-Provision Net Revenue per Diluted Common Share – this schedule uses “adjusted PPNR” ascalculated in the efficiency ratio, which is divided by the weighted average diluted common shares for the period. As mentioned previously, Management believes that adjusted PPNR enables management and others to assess theBank’s ability to generate capital to cover credit losses through a credit cycle. Dividing this amount by the weightedaverage diluted common shares outstanding provides a shareholder’s perspective of PPNR growth.
| | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | |
| | | | | | | | | | | | |
| | Three Months Ended | | | | | | Six Months Ended | | | | Year Ended |
| (Dollar amounts in millions) | | June 30,
2019 | | March 31,
2019 | | June 30,
2018 | | June 30,
2019 | | June 30,
2018 | | December 31,
2018 |
| Adjusted PPNR per diluted common share | | | | | | | | | | | | |
| Adjusted PPNR (non-GAAP) | (k) | | $ | 294 | | $ | 285 | | $ | 270 | | $ | 579 | | $ | 534 | | $ | 1,132 |
| Weighted average diluted common shares outstanding (in thousands) | (l) | | 189,098 | | 195,241 | | 209,247 | | 192,206 | | 209,859 | | 206,501 |
| Adjusted PPNR per diluted common share (non-GAAP) | (k)/(l) | | $ | 1.55 | | $ | 1.46 | | $ | 1.29 | | $ | 3.01 | | $ | 2.54 | | $ | 5.48 |
|
| | | | | | | | | | | | | | | | | | | | | | | | |
| (Dollar amounts in millions) | | Three Months Ended | | Nine Months Ended | | Year Ended |
| | September 30,
2017 | | June 30,
2017 | | September 30,
2016 | | September 30,
2017 | | September 30,
2016 | | December 31,
2016 |
| | | | | | | | | | | | | |
| Noninterest expense (GAAP) | (a) | $ | 413 |
| | $ | 405 |
| | $ | 403 |
| | $ | 1,232 |
| | $ | 1,181 |
| | $ | 1,585 |
|
| Adjustments: | | | | | | | | | | | | |
| Severance costs | | 1 |
| | — |
| | — |
| | 6 |
| | 4 |
| | 5 |
|
| Other real estate expense, net | | (1 | ) | | — |
| | — |
| | (1 | ) | | (2 | ) | | (2 | ) |
| Provision for unfunded lending commitments | | (4 | ) | | 3 |
| | (3 | ) | | (6 | ) | | (13 | ) | | (10 | ) |
| Amortization of core deposit and other intangibles | | 2 |
| | 2 |
| | 2 |
| | 5 |
| | 6 |
| | 8 |
|
| Restructuring costs | | 1 |
| | 1 |
| | — |
| | 3 |
| | 1 |
| | 5 |
|
| Total adjustments | (b) | (1 | ) | | 6 |
| | (1 | ) | | 7 |
| | (4 | ) | | 6 |
|
| Adjusted noninterest expense (non-GAAP) | (a-b)= (c) | $ | 414 |
| | $ | 399 |
| | $ | 404 |
| | $ | 1,225 |
| | $ | 1,185 |
| | $ | 1,579 |
|
| Net interest income (GAAP) | (d) | $ | 522 |
| | $ | 528 |
| | $ | 469 |
| | $ | 1,539 |
| | $ | 1,386 |
| | $ | 1,867 |
|
| Fully taxable-equivalent adjustments | | 9 |
| | 9 |
|
| 7 |
| | 26 |
| | 19 |
| | 26 |
|
Taxable-equivalent net interest income (non-GAAP)1 | (d+e)=f | 531 |
| | 537 |
| | 476 |
| | 1,565 |
| | 1,405 |
| | 1,893 |
|
| Noninterest income (GAAP) | g | 139 |
| | 132 |
| | 145 |
| | 404 |
| | 388 |
| | 515 |
|
| Combined income (non-GAAP) | (f+g)= (h) | 670 |
| | 669 |
| | 621 |
| | 1,969 |
| | 1,793 |
| | 2,408 |
|
| Adjustments: | | | | | | | | | | | | |
| Fair value and nonhedge derivative income (loss) | | — |
| | — |
| | — |
| | (1 | ) | | (5 | ) | | 2 |
|
| Securities gains, net | | 5 |
| | 2 |
| | 8 |
| | 13 |
| | 11 |
| | 7 |
|
| Total adjustments | (i) | 5 |
| | 2 |
| | 8 |
| | 12 |
| | 6 |
| | 9 |
|
| Adjusted taxable-equivalent revenue (non-GAAP) | (h-i)= (j) | $ | 665 |
| | $ | 667 |
| | $ | 613 |
| | $ | 1,957 |
| | $ | 1,787 |
| | $ | 2,399 |
|
| Pre-provision net revenue | (h)-(a) | $ | 257 |
| | $ | 264 |
| | $ | 218 |
| | $ | 737 |
| | $ | 612 |
| | $ | 823 |
|
| Adjusted PPNR (non-GAAP) | (j-c) | 251 |
| | 268 |
| | 209 |
| | 732 |
| | 602 |
| | 820 |
|
| Efficiency ratio (non-GAAP) | (c/j) | 62.3 | % | | 59.8 | % | | 65.9 | % | | 62.6 | % | | 66.3 | % | | 65.8 | % |
ZIONS BANCORPORATION, NATIONAL ASSOCIATION AND SUBSIDIARIES
RESULTS OF OPERATIONS
Executive Summary
NetThe Bank reported net earnings applicable to common shareholders for the third quarter of 2017 were $152$189 million, or $0.72$0.99 per diluted common share for the second quarter of 2019, compared with net earnings applicable to common shareholders of $154$187 million, or $0.73$0.89 per diluted common share for the second quarter of 2017, and $117 million, or $0.572018. The improvement in diluted earnings per diluted common share forwas primarily due to a reduction in diluted shares, resulting largely from common our share repurchases. The financial performance in the thirdsecond quarter of 2016. Interest2019 reflects strong loan growth, moderate customer-related fee improvement, expense control, and stable credit quality, partially offset by a slightly lower net interest income and net interest margin compression. The second quarter of $5572019 presented some challenges as our net interest margin decreased as a result of lower loan yields, increased deposit costs, and change in our funding mix. During the first quarter of 2019, the Bank successfully implemented the second phase of its three-phase multi-year project to replace its core loan and deposit systems. With this milestone reached, we now have substantially all our retail, commercial, and commercial real estate (“CRE”) loans on a new modern core platform.
Net income increased by $1 million from $197 million in the thirdsecond quarter of 2017 improved $662018 to $198 million overin the second quarter of 2019, primarily due to a $21 million increase in net interest income, a $5 million increase in customer-related fees, and a $8 million decrease in FDIC premiums. These improvements to net income were partially offset by a $9 million increase in the provision for credit losses, a $8 million increase in salaries and employee benefits, a $5 million decrease in other noninterest income, and a $4 million decrease in securities gains.
Net income for the first six months of 2019 was $411 million, compared with $435 million for the first six months of 2018. The provision for credit losses increased by $60 million during this same time period to $25 million from ($35) million and was the primary reason for the decrease in net income. The negative provision for credit losses for the first six months of 2018 was primarily due to improving credit quality, particularly in the oil and gas portfolio, and minimal incurred losses from Hurricane Harvey. The increase in the provision for credit losses was partially offset by a $55 million increase in net interest income from the first six months of 2018 to the first six months of 2019.
Net interest income increased from the second quarter of 2018 to the second quarter of 2019 primarily from loan growth and increases in short-term interest rates, partially offset by an increase in interest expense. The provision for credit losses increased from $12 million in the second quarter of 2018 to $21 millionin the second quarter of 2019, reflecting loan growth and generally stable credit quality in the total loan portfolio.
When comparing the second quarter of 2019 with the second quarter of 2018, customer-related fees increased by $5 million, or 4%, primarily due to an increase in other service charges, commissions and fees. Salaries and employee benefits increased $8 million during this same time period due to increases in base salaries from annual salary merit increases and headcount, and a decline in deferred salaries. FDIC premiums decreased by $8 million from the second quarter of 2018 to the second quarter of 2019.
Adjusted PPNR of $294 million for the second quarter of 2019 was up $24 million, or 9%, from the second quarter of 2018. The increase in PPNR reflects operating leverage improvement resulting from the same prior year period, mainly duefactors previously discussed. Noninterest expense increased by $3 million, or 1%, from the second quarter of 2018 to growth in our loans and securities portfolios and short-term rate increases that positively impacted loan yields. Net interest margin (“NIM”)the second quarter of 2019.The Bank’s efficiency ratio was 3.45%59.0% in the most recentsecond quarter of 2019 compared with 3.36%60.9% in the thirdsecond quarter of 2016.
Performance Against Previously Announced Initiatives
In June 2015, we announced several initiatives2018 and 60.2% in the first quarter of 2019. The Bank is committed to improve operational and financial performance along with some key financial targets. Our initiatives are designed to improve customer experience, to simplifyfurther improvement of the corporate structure and operations, and to make the Company a more efficient organization. Following is a brief discussion regarding current performance against these key financial targets.
Achieve an efficiency ratio in the low 60% range for fiscal year 2017. Our efficiency ratio for the third quarter of 2017 was 62.3%, a 365 bps improvement over the same prior year period efficiency ratio of 65.9%. Our year-
ZIONS BANCORPORATION AND SUBSIDIARIES
to-date efficiency ratio of 62.6% is also a large improvement over the same prior year period, which was 66.3%. Improvements in interest income from securities and loans, partially offset by increases in adjusted noninterest expense, resulted in the significant improvement.2019. See “GAAP to Non-GAAP Reconciliations” on page 5 for more information regarding the calculation of the efficiency ratio and why management uses this non-GAAP measure.
Maintain adjusted noninterest expense at less than $1.58 billion in 2016, with a modest increase of 2-3% in 2017. We met our target for fiscal year 2016, keeping adjusted noninterest expense to $1.579 billion. Through September 30, 2017, adjusted noninterest expense was $1.225 billion, compared with $1.185 billion for the same prior year period. In the most recent quarter, we incurred $6 million of non-recurring expenses due to Hurricane Harvey’s impact on the Houston area. Despite these additional expenses, our adjusted noninterest expense should increase by 2-3% in 2017.
Highlights from the Third Quarter and First Nine Months of 2017
Net interest income, which is more than three-quarters of our revenue, was $522 million in the third quarter of 2017 and $469 million in the third quarter of 2016. This 11.3% increase over the same prior year period is due to our efforts to change the mix of interest-earning assets from lower-yielding money market investments into higher-yielding investment securities and loans. Net interest margin was 3.45% in the third quarter of 2017, compared with 3.36% in the third quarter of 2016. Year-to-date net interest income was $1.5 billion in 2017 and $1.4 billion for the same prior year period. The 11.0% increase between the two periods was mainly impacted by growth in our loans and securities portfolios and short-term rate increases that positively impacted loan yields.
Adjusted PPNR of $251 million for the third quarter of 2017 was up $42 million, or 20.1%, from the third quarter of 2016, primarily as a result of increases in net interest income. Although adjusted noninterest expense also increased over the same period, from $404 million in the third quarter of 2016 to $414 million in the most recent quarter, increases in income more than offset the increase in expense. The higher adjusted PPNR in the third quarter of 2017, compared with the same prior year period, drove an improvement in the Company’s efficiency ratio from 65.9% in the third quarter of 2016 to 62.3% in the current quarter. Year-to-date adjusted PPNR was $732 million in 2017 and $602 million in 2016, representing a 21.6% increase. Increases were driven by similar factors to those previously discussed. See “GAAP to Non-GAAP Reconciliations” on page 56 for more information regarding the calculation of adjusted PPNR.
Asset quality for the totalOur average loan portfolio continues to strengthen. Classified and nonaccrual loans improved as a percentage of outstanding balances by 97 bps and 27 bps, respectively, between the third quarters of 2016 and 2017. In recent quarters, asset quality in our oil and gas-related portfolio has been substantially weaker than it has been in non-oil and gas-related loans. At the same time, the Company has reduced its oil and gas-related exposure by $253 millionincreased $3.1 billion, or 7%, since the thirdsecond quarter of 2016 and oil prices2018. We have stabilized since their low point in early 2016. Classified and nonaccrual balances in the oil and gas-related portfolio have decreased since the third quarter of 2016 by 35.8% and 39.6%, respectively. These improvements have been the drivers of a lower provision for credit losses, which was $1 million in the current quarter and $16 million in the same prior year period.
Loans have grown $1.6 billion, or 3.8% since the third quarter of 2016, despite targeted declines in certain areas due to portfolio and concentration risk management. Aside from declines in our national real estate (“NRE”), oil and gas-related, and commercial real estate (“CRE”) portfolios, thisseen widespread loan growth has been widespread across most other products and geographies, with particular strength in 1-4 family residential loans, and essentially all categories of commercial and industrial,commercial real estate loans. Asset quality during the second quarter of 2019 was generally stable when compared with the first quarter of 2019, but improved when compared with the second quarter of 2018. Credit quality in the oil and municipal lending.gas-related portfolio continues to strengthen and it has
ZIONS BANCORPORATION, NATIONAL ASSOCIATION AND SUBSIDIARIES
remained strong in the rest of the lending portfolio. Overall, from the second quarter of 2018 to the second quarter of 2019, criticized, classified, and nonaccrual loans declined by $232 million, $177 million, and $94 million, respectively.
Areas of focus for 2019
In 2019, we are focused on ongoing initiatives related to Bank profitability, reducing earnings volatility, and returns on- and of-equity. We are working to achieve earnings growth through positive operating leverage and achieved an 9% growth in adjusted PPNR from the second quarter of 2018 to the second quarter of 2019. With headwinds on revenue expected in the near future as a result of falling interest rates, we are focusing even more on expense control. We continue to implement technology upgrades and process simplification to ensure current and future performance, with emphasis on automation and simple, easy, fast, safe processes.
We are also focused on reducing potential earnings volatility and are actively adjusting our interest rate risk profile to move towards a more neutral interest-rate sensitive position and to protect net income against a decline in interest rates. During the first six months of 2019, we added $3.5 billion of interest rate floors and $1.6 billion of interest rate swaps, and have $3.5 billion of interest rate floors and $2.7 billion of interest rate swaps outstanding as of June 30, 2019. Shortly after the end of the second quarter, the Bank modified all of its floors to reduce the strike rate from 1.5% to 1% while doubling the notional amount from $3.5 billion to $7.0 billion. The modification did not result in any additional costs to the Bank. See “Interest Rate and Market Risk Management” on page 27 for further information regarding our interest rate risk management and Note 7 of the Notes to the Consolidated Financial Statements for further information regarding our use of derivative instruments.
We continue to increasefocus on the return onon- and of- capital. During the last 12 months we have repurchased $985 million, or 20.0 million shares, of capital. Returncommon stock which is equivalent to 10.2% of common stock outstanding as of June 30, 2018. The share repurchases have resulted in higher returns being provided to shareholders. For example, return on average tangible common equity was 9.8%, up 189 bps from the same prior year period. During the quarter, the Company repurchased 2.5 million shares of common stock under its 2017 capital plan (which spans the timeframe of July 2017 to June 2018). Dividends per common share were $0.1212.7% in the third quarter of 2017, compared with $0.08 for the prior quarter and the same prior year period. In June 2017, we announced the Federal Reserve did not object to the Company’s 2017 capital plan. The plan included stepped quarterly common dividend increases, rising to $0.24 per share by the second quarter of 2018,
ZIONS BANCORPORATION AND SUBSIDIARIES
and up30 basis points (“bps”) from the second quarter of 2018. Also, capital distributed as a percentage of net earnings applicable to $465 million in common stock repurchases. See “Capital Management” on page 39 for more information regarding the 2017 capital plan.
Challenges in the Third Quarter and the First Nine Months of 2017
Noninterest expenseshareholders increased to $413 million from $403 million for174% during the same prior year period, representing a 2.5% increase, which is generally in line with announced forecasts. Incentive compensation expense was higher this quarter than in the same prior year period. These increases were partially offset by a decline in other noninterest expense primarily due to legal accruals that occurred in the thirdsecond quarter of 2016. Adjusted noninterest expense, which excludes severance and some other items as explained in2019 from 89% during the “GAAPsecond quarter of 2018. During July 2019, the Board approved a plan to Non-GAAP Reconciliations” section on page 5, increased 2.5% over the same period. We expect to achieve our goalrepurchase $275 million of limiting adjusted noninterest expense growth to 2-3% in 2017 when compared with 2016.
Further impacting noninterest expenseBank common stock during the third quarter of 2017 was $6 million2019 and declared a dividend of noninterest expense related to property damage and community and employee support as$0.34 per common share during the third quarter of 2019. See “Areas of focus for 2019” in our 2018 Annual Report on Form 10-K for a resultmore detailed discussion of Hurricane Harvey. Additionally, we provided a $34 million qualitative increasethe major areas of emphasis in the allowance for credit losses (“ACL”) due to potential losses caused by the hurricane.2019.
Net Interest Income
Net interest income is the difference between interest earned on interest-earning assets and interest paid on interest-bearing liabilities. Taxable-equivalent netNet interest income isincreased to $569 million in the largest portion of our revenue. For the thirdsecond quarter of 2017, taxable-equivalent2019 from $548 million in the second quarter of 2018, and was driven by loan growth. The $21 million, or 4%, increase in net interest income was $531primarily due to a $67 million compared with $537increase in interest and fees on loans, resulting from growth across all loan segments, partially offset by an increase in interest expense.
Interest expense increased $57 million forfrom the second quarter of 2017 and $476 million for the third quarter of 2016. The linked quarter decrease was primarily due2018 to $16 million of interest income recoveries in the prior quarter, which did not repeat. Between the third quarters of 2016 and 2017, taxable-equivalent net interest income increased $55 million, which was driven by a larger securities portfolio, growth in the lending portfolio, and increases in short-term rates, which improved loan yields. We expect the size of the securities portfolio to be relatively stable during the next several quarters and we are not assuming any further increases in benchmark interest rates. Therefore, we expect net interest income to increase only moderately over the next twelve months.
Net interest margin and Interest Rate Spreads in 2017 vs. 2016
The NIM was 3.45% and 3.36% for the third quarters of 2017 and 2016, respectively, and 3.52% for the second quarter of 2017.2019 due to an increase in short-term interest rates and an increase in short- and long-term borrowings. The Bank’s cost of total deposits and interest-bearing liabilities increased NIM forfrom 0.40% to 0.75% and the thirdBank’s use of short- and long-term borrowings increased $1.7 billion, or 32%.
Net Interest Margin and Interest Rate Spreads
The net interest margin (“NIM”) decreased to 3.54% in the second quarter of 2019, compared with 3.68% in the first quarter of 2019, and 3.56% in the same prior year period, resultedperiod. The decrease in NIM from the combinationprior year period was a result of several factors. During 2016, we continuedincreased costs of deposits and borrowed funds, which more than offset improved loan and securities yields. NIM decreased from the first quarter of 2019 primarily due to makethe increase in the cost of deposits and a decline in loan yields, both of which were due to changes in asset mix, by moving funds from lower-yielding money market investments to purchase investment securities, coupled with our loan growth.competitive pricing pressure and portfolio composition. The NIM was also positively impacted by increases in short-term interest rates. These factors have been somewhat offset because recently we have also used wholesale borrowingscontinues to fund somebenefit from the stability of the balance sheet growth. noninterest-bearing demand deposits.
ZIONS BANCORPORATION, NATIONAL ASSOCIATION AND SUBSIDIARIES
Average interest-earning assets increased $4.9$2.9 billion from the thirdsecond quarter of 2016,2018 to the second quarter of 2019, with average rates improving 1531 bps. Average interest-bearing liabilities increased $3.9$3.7 billion overin the same periodsecond quarter of 2019 compared with the second quarter of 2018. The average rate on interest-bearing liabilities increased 53 bps from the second quarter of 2018 to the second quarter of 2019 due to rising interest rates and averageincreased rates increased 12 bps.paid on deposits and federal funds purchased and other short-term borrowings.
The average loan portfolio increased $1.3$3.1 billion, or 3.2%7%, between the thirdsecond quarter of 20172018 and the thirdsecond quarter of 2016. Most of the average2019, with growth was in the consumer 1-4 family residential portfolio, where Company yields are generally lower than on commercial loans.across all loan segments. The average loan yield increased 1628 bps over the same period, with increases in the average rates for commercial, CRE, and consumer loans of 1726 bps, 2728 bps, and 530 bps, respectively. WeBenchmark interest rates have experienced some improvement in interest income in response to short-term rate increases.increased several times during the last year, which has had a positive impact on NIM, as our earning assets generally reprice quicker than our funding sources. A portion of our variable-rate loans were not affected by these changes in those indicesprimarily due to interest rate floors,having longer reset frequency,frequencies, or indicesbecause a substantial portion of our earning assets are tied to longer-term rate indices. The longer-term rates which rates have beenwere impacted by a flattening of therelatively flat yield curve in recentduring the last several quarters. WeOver the next four quarters, we expect continued strong growth in residential mortgages, with moderate growth in both CRE and commercial and industrial loans.total loan growth.
Average available-for-sale (“AFS”)AFS securities balances for the third quarter of 2017 increased by $5.5 billionwere flat compared with the same prior year period.second quarter of 2018. Yields on average AFS securities increased by 3029 bps over the same period.period, and were primarily a result of reinvesting principal cash flows from fixed-rate securities at higher rates and rising market interest rates on variable-rate securities.
ZIONS BANCORPORATION AND SUBSIDIARIES
Average noninterest-bearing demand deposits were generally stable and provided us with low cost funding and comprised 45.8%approximately 42% and 45% of average total deposits which totaled $51.9for the second quarters of 2019 and 2018, respectively. Average total deposits were $54.3 billion for the thirdsecond quarter of 2017,2019 compared with 44.3% of average total deposits, which totaled $50.7$52.9 billion for the thirdsecond quarter of 2016.2018. Average interest-bearing deposits increased by 0.3%were $31.3 billion in the thirdsecond quarter of 2017,2019, compared with $29.3 billion for the same prior year period,period. The daily average benchmark Federal Funds target rate increased from 1.79% to 2.50% between the second quarter of 2018 and the averagesecond quarter of 2019, or 71 bps, while the rate paid on the Bank’s average interest-bearing deposits increased 3 bps.Over the past twelve months we have seen46 bps, implying a deposit beta of approximately 3%65%, which isand the rate paid on total average deposits increased 27 bps. We refer to “deposit beta” as a relatively low value formeasure of the current environment. changes in rates paid to customers compared with changes in the average benchmark interest rates.
We are actively monitoring and managing deposit rates, and have been selectively increasing deposit pricing as a result of competitive pricing pressure. During the initial stages of the rising rate cycle, deposit pricing increases lagged changes in certain markets and with certain clients, butbenchmark rates. As we approach the end of the rising rate cycle, we have not generally experienced significantobserved continued upward pressure to increaseon deposit rates.rates in spite of benchmark rates no longer rising.
Although we consider a wide variety of sources when determining our funding needs, we benefit from access to deposits from a significant number of small to mid-sized business customers, particularly noninterest-bearing deposits, thatwhich provide us with a low cost of funds and have a positive impact on our NIM. Including wholesale borrowings, the rate paid on interest-bearing liabilities increased 53 bps from the second quarter of 2018 to the second quarter of 2019. Further detail oninformation regarding deposit betasassumptions is discussed in “Interest Rate and Market Risk Management” on page 30.27.
TheAverage borrowed funds increased $1.7 billion, with average balance ofshort-term borrowings increasing $0.9 billion and average long-term debt was $297 million lower for the third quarter of 2017borrowings increasing by $0.8 billion, compared with the same prior year period, as a result of early calls and maturities. Thethe average interest rate paid on long-term debtborrowed funds increased by 5857 bps between the same periods because remaining debt was atas a higher average rate than the debt that matured and was called. Averageresult of rising short-term borrowings increased $4.3 billion. Further changes in short-term borrowing will be driven by balancing changes in deposits and loans as we do not foresee significant increases in investment security balances.interest rates.
The spread on average interest-bearing funds was 3.26%3.04% and 3.23%3.26% for the thirdsecond quarters of 20172019 and 2016,2018, respectively. The spread on average interest-bearing funds for these periods was affected by the same factors that had an impact on the NIM. While the spread on average interest-bearing funds decreased by 22 bps, the NIM decreased only 2 bps as a result of the increasing value of noninterest-bearing deposits in a higher-rate environment. Because of the nature of our deposits being operating accounts for businesses and households, we expect our noninterest-bearing deposits to remain a competitive advantage.
Interest rate spreads and margin are impacted by the mix of assets we hold, the composition of our loan and securities portfolios, and the type of funding we use.used. Additionally, as interest rates increase, our noninterest-bearing deposits become more valuable. In the second quarter of 2019, our noninterest-bearing sources of funds contributed
ZIONS BANCORPORATION, NATIONAL ASSOCIATION AND SUBSIDIARIES
50 bps to the margin, compared with 30 bps in the second quarter of 2018. We expect some modest resistance to increased spreads due to both a change in the mix of interest-earning assets to continue to change over the portfolio (increasing concentrationnext four quarters primarily due to moderate-to-strong growth in lower-yielding1-4 family residential, mortgages), as well as older, higher-yieldingmunicipal, commercial and industrial, and owner-occupied loans, maturing or paying down and being replaced with new, lower-yielding loans. Generally, the new loans are of a higher credit quality than the maturing loans, which has resultedstable-to-moderate growth in lower-yieldingoil and gas and commercial real estate loans.
Our estimates of the Company’sBank’s interest rate risk position are highly dependent upon a number of assumptions regarding the repricing behavior of various deposit and loan types in response to changes in both short-term and long-term interest rates, balance sheet composition, and other modeling assumptions, as well as the actions of competitors and customers in response to those changes. In addition,Although the federal funds target rate has increased 150 bps during the past couple of years, we have not experienced significant migration of our modeled projections for noninterest-bearing demand deposits which are a substantial portionwe attribute to the operating nature of many of our deposit balances, are particularly reliant on assumptions for which there is little historical experience due to the prolonged period of very low interest rates.accounts. Further detail on interest rate risk is discussed in “Interest Rate and Market Risk Management” on page 30.
Refer to the “Liquidity Risk Management” section beginning on page 34 for more information on how we manage liquidity risk.27.
The following schedule summarizes the average balances, the amount of interest earned or incurred, and the applicable yields for interest-earning assets and the costs of interest-bearing liabilities that generate taxable-equivalent net interest income.
ZIONS BANCORPORATION, NATIONAL ASSOCIATION AND SUBSIDIARIES
CONSOLIDATED AVERAGE BALANCE SHEETS, YIELDS AND RATES
(Unaudited)
| | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | |
| Three Months Ended
June 30, 2019 | | | | | | Three Months Ended
June 30, 2018 | | | | |
| (Dollar amounts in millions) | Average
balance | | Amount of interest 1 | | Average
yield/rate | | Average
balance | | Amount of interest 1 | | Average
yield/rate |
| ASSETS | | | | | | | | | | | |
| Money market investments | $ | 1,261 | | $ | 8 | | 2.64 | % | | $ | 1,317 | | $ | 7 | | 2.02 | % |
| Securities: | | | | | | | | | | | |
| Held-to-maturity | 687 | | 6 | | 3.69 | | | 780 | | 7 | | 3.60 | |
| Available-for-sale | 14,750 | | 90 | | 2.43 | | | 14,745 | | 78 | | 2.14 | |
| Trading account | 172 | | 2 | | 4.48 | | | 179 | | 2 | | 4.06 | |
Total securities 2 | 15,609 | | 98 | | 2.51 | | | 15,704 | | 87 | | 2.23 | |
| Loans held for sale | 71 | | — | | 2.18 | | | 72 | | 1 | | 4.18 | |
Loans and leases 3 | | | | | | | | | | | |
| Commercial | 24,977 | | 308 | | 4.94 | | | 23,275 | | 272 | | 4.68 | |
| Commercial real estate | 11,777 | | 153 | | 5.22 | | | 11,075 | | 136 | | 4.94 | |
| Consumer | 11,570 | | 124 | | 4.28 | | | 10,892 | | 108 | | 3.98 | |
| Total loans and leases | 48,324 | | 585 | | 4.85 | | | 45,242 | | 516 | | 4.57 | |
| Total interest-earning assets | 65,265 | | 691 | | 4.24 | | | 62,335 | | 611 | | 3.93 | |
| Cash and due from banks | 592 | | | | | | 546 | | | | |
| Allowance for loan losses | (496) | | | | | | (480) | | | | |
| Goodwill and intangibles | 1,014 | | | | | | 1,016 | | | | |
| Other assets | 3,480 | | | | | | 3,088 | | | | |
| Total assets | $ | 69,855 | | | | | | $ | 66,505 | | | | |
| LIABILITIES AND SHAREHOLDERS’ EQUITY | | | | | | | | | | | |
| Interest-bearing deposits: | | | | | | | | | | | |
| Savings and money market | $ | 26,262 | | 41 | | 0.63 | % | | $ | 25,479 | | 17 | | 0.26 | % |
| Time | 5,025 | | 25 | | 2.02 | | | 3,807 | | 12 | | 1.27 | |
| | | | | | | | | | | |
| Total interest-bearing deposits | 31,287 | | 66 | | 0.85 | | | 29,286 | | 29 | | 0.39 | |
| Borrowed funds: | | | | | | | | | | | |
| Federal funds purchased and other short-term borrowings | 5,795 | | 37 | | 2.53 | | | 4,927 | | 24 | | 1.92 | |
| Long-term debt | 1,230 | | 12 | | 3.84 | | | 383 | | 5 | | 5.77 | |
| Total borrowed funds | 7,025 | | 49 | | 2.76 | | | 5,310 | | 29 | | 2.19 | |
| Total interest-bearing liabilities | 38,312 | | 115 | | 1.20 | | | 34,596 | | 58 | | 0.67 | |
| Noninterest-bearing deposits | 23,060 | | | | | | 23,610 | | | | |
| Other liabilities | 929 | | | | | | 661 | | | | |
| Total liabilities | 62,301 | | | | | | 58,867 | | | | |
| Shareholders’ equity: | | | | | | | | | | | |
| Preferred equity | 566 | | | | | | 566 | | | | |
| Common equity | 6,988 | | | | | | 7,072 | | | | |
| Total shareholders’ equity | 7,554 | | | | | | 7,638 | | | | |
| Total liabilities and shareholders’ equity | $ | 69,855 | | | | | | $ | 66,505 | | | | |
| Spread on average interest-bearing funds | | | | | 3.04 | % | | | | | | 3.26 | % |
| Impact of net noninterest-bearing sources of funds | | | | | 0.50 | | | | | | | 0.30 | |
| Net interest margin | | | $ | 576 | | 3.54 | | | | | $ | 553 | | 3.56 | |
| Memo: total cost of deposits | | | | | 0.49 | | | | | | | 0.22 | |
| Memo: total deposits and interest-bearing liabilities | $ | 61,372 | | 115 | | 0.75 | | | $ | 58,206 | | 58 | | 0.40 | |
1 Rates are calculated using amounts in thousands and taxable-equivalent rates used where applicable. The taxable-equivalent rates used are the rates that were applicable at the time of each respective reporting period.
2 Interest on total securities includes $31 million and $36 million of taxable-equivalent premium amortization for the second quarters of 2019 and 2018, respectively.
3 Net of unearned income and fees, net of related costs. Loans include nonaccrual and restructured loans.
|
| | | | | | | | | | | | | | | | | | | | | |
| | Three Months Ended
September 30, 2017 | | Three Months Ended
September 30, 2016 |
| (Dollar amounts in millions) | Average balance | | Amount of interest 1 | | Average yield/rate | | Average balance | | Amount of interest 1 | | Average yield/rate |
| ASSETS | | | | | | | | | | | |
| Money market investments | $ | 1,246 |
| | $ | 5 |
| | 1.44 | % | | $ | 3,140 |
| | $ | 5 |
| | 0.63 | % |
| Securities: | | | | | | | | | | | |
| Held-to-maturity | 750 |
| | 7 |
| | 3.96 |
| | 706 |
| | 8 |
| | 4.33 |
|
| Available-for-sale | 15,197 |
| | 81 |
| | 2.12 |
| | 9,698 |
| | 44 |
| | 1.82 |
|
| Trading account | 43 |
| | — |
| | 3.73 |
| | 80 |
| | 1 |
| | 3.34 |
|
Total securities 2 | 15,990 |
| | 88 |
| | 2.21 |
| | 10,484 |
| | 53 |
| | 2.00 |
|
| Loans held for sale | 52 |
| | 1 |
| | 4.29 |
| | 133 |
| | 1 |
| | 3.34 |
|
Loans and leases 3 | | | | | | | | | | | |
| Commercial | 22,261 |
| | 245 |
| | 4.36 |
| | 21,816 |
| | 230 |
| | 4.19 |
|
| Commercial real estate | 11,192 |
| | 126 |
| | 4.46 |
| | 11,331 |
| | 119 |
| | 4.19 |
|
| Consumer | 10,379 |
| | 101 |
| | 3.86 |
| | 9,340 |
| | 89 |
| | 3.81 |
|
| Total loans and leases | 43,832 |
| | 472 |
| | 4.27 |
| | 42,487 |
| | 438 |
| | 4.11 |
|
| Total interest-earning assets | 61,120 |
| | 566 |
| | 3.67 |
| | 56,244 |
| | 497 |
| | 3.52 |
|
| Cash and due from banks | 767 |
| | | | | | 556 |
| | | | |
| Allowance for loan losses | (540 | ) | | | | | | (609 | ) | | | | |
| Goodwill | 1,014 |
| | | | | | 1,014 |
| | | | |
| Core deposit and other intangibles | 4 |
| | | | | | 11 |
| | | | |
| Other assets | 2,974 |
| | | | | | 2,846 |
| | | | |
| Total assets | $ | 65,339 |
| | | | | | $ | 60,062 |
| | | | |
| LIABILITIES AND SHAREHOLDERS’ EQUITY | | | | | | | | | | |
| Interest-bearing deposits: | | | | | | | | | | | |
| Savings and money market | $ | 25,190 |
| | 10 |
| | 0.16 | % | | $ | 25,683 |
| | 9 |
| | 0.15 | % |
| Time | 2,933 |
| | 5 |
| | 0.70 |
| | 2,409 |
| | 3 |
| | 0.51 |
|
| Foreign | — |
| | — |
| | — |
| | 117 |
| | — |
| | 0.30 |
|
| Total interest-bearing deposits | 28,123 |
| | 15 |
| | 0.21 |
| | 28,209 |
| | 12 |
| | 0.18 |
|
| Borrowed funds: | | | | | | | | | | | |
| Federal funds and other short-term borrowings | 4,609 |
| | 14 |
| | 1.17 |
| | 343 |
| | — |
| | 0.22 |
|
| Long-term debt | 383 |
| | 6 |
| | 5.71 |
| | 680 |
| | 9 |
| | 5.13 |
|
| Total borrowed funds | 4,992 |
| | 20 |
| | 1.52 |
| | 1,023 |
| | 9 |
| | 3.48 |
|
| Total interest-bearing liabilities | 33,115 |
| | 35 |
| | 0.41 |
| | 29,232 |
| | 21 |
| | 0.29 |
|
| Noninterest-bearing deposits | 23,798 |
| | | | | | 22,466 |
| | | | |
| Other liabilities | 630 |
| | | | | | 668 |
| | | | |
| Total liabilities | 57,543 |
| | | | | | 52,366 |
| | | | |
| Shareholders’ equity: | | | | | | | | | | | |
| Preferred equity | 566 |
| | | | | | 710 |
| | | | |
| Common equity | 7,230 |
| | | | | | 6,986 |
| | | | |
| Total shareholders’ equity | 7,796 |
| | | | | | 7,696 |
| | | | |
| Total liabilities and shareholders’ equity | $ | 65,339 |
| | | | | | $ | 60,062 |
| | | | |
| Spread on average interest-bearing funds | | | | | 3.26 | % | | | | | | 3.23 | % |
| Taxable-equivalent net interest income and net yield on interest-earning assets | | | $ | 531 |
| | 3.45 | % | | | | $ | 476 |
| | 3.36 | % |
| |
1
| Taxable-equivalent rates used where applicable. |
| |
2
| Quarter-to-date interest on total securities includes $34 million and $29 million of premium amortization, as of September 30, 2017 and September 30, 2016, respectively. |
| |
3
| Net of unearned income and fees, net of related costs. Loans include nonaccrual and restructured loans. |
ZIONS BANCORPORATION, NATIONAL ASSOCIATION AND SUBSIDIARIES
| | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | |
| Six Months Ended
June 30, 2019 | | | | | | Six Months Ended
June 30, 2018 | | | | |
| (Dollar amounts in millions) | Average
balance | | Amount of interest 1 | | Average
yield/rate | | Average
balance | | Amount of interest 1 | | Average
yield/rate |
| ASSETS | | | | | | | | | | | |
| Money market investments | $ | 1,264 | | $ | 17 | | 2.69 | % | | $ | 1,406 | | $ | 13 | | 1.85 | % |
| Securities: | | | | | | | | | | | | |
| Held-to-maturity | 758 | | 14 | | 3.71 | | | 784 | | 14 | | 3.57 | |
| Available-for-sale | 14,737 | | 180 | | 2.46 | | | 14,846 | | 159 | | 2.16 | |
| Trading account | 140 | | 3 | | 4.49 | | | 141 | | 3 | | 4.03 | |
Total securities 2 | 15,635 | | 197 | | 2.54 | | | 15,771 | | 176 | | 2.24 | |
| Loans held for sale | 67 | | 1 | | 1.96 | | | 62 | | 1 | | 4.08 | |
Loans and leases 3 | | | | | | | | | | | |
| Commercial | 24,703 | | 612 | | 4.99 | | | 23,158 | | 538 | | 4.69 | |
| Commercial real estate | 11,557 | | 301 | | 5.26 | | | 11,070 | | 264 | | 4.81 | |
| Consumer | 11,490 | | 244 | | 4.29 | | | 10,826 | | 212 | | 3.96 | |
| Total loans and leases | 47,750 | | 1,157 | | 4.89 | | | 45,054 | | 1,014 | | 4.54 | |
| Total interest-earning assets | 64,716 | | 1,372 | | 4.27 | | | 62,293 | | 1,204 | | 3.90 | |
| Cash and due from banks | 574 | | | | | | 569 | | | | |
| Allowance for loan losses | (498) | | | | | | (501) | | | | |
| Goodwill and intangibles | 1,014 | | | | | | 1,016 | | | | |
| Other assets | 3,417 | | | | | | 3,059 | | | | |
| Total assets | $ | 69,223 | | | | | | $ | 66,436 | | | | |
| LIABILITIES AND SHAREHOLDERS’ EQUITY | | | | | | | | | | | |
| Interest-bearing deposits: | | | | | | | | | | | |
| Savings and money market | $ | 26,142 | | 76 | | 0.59 | % | | $ | 25,388 | | 28 | | 0.22 | % |
| Time | 4,851 | | 47 | | 1.96 | | | 3,545 | | 20 | | 1.15 | |
| | | | | | | | | | | |
| Total interest-bearing deposits | 30,993 | | 123 | | 0.80 | | | 28,933 | | 48 | | 0.34 | |
| Borrowed funds: | | | | | | | | | | | |
| Federal funds purchased and other short-term borrowings | 5,543 | | 70 | | 2.55 | | | 5,315 | | 45 | | 1.71 | |
| Long-term debt | 1,056 | | 21 | | 3.94 | | | 383 | | 11 | | 5.80 | |
| Total borrowed funds | 6,599 | | 91 | | 2.77 | | | 5,698 | | 56 | | 1.99 | |
| Total interest-bearing liabilities | 37,592 | | 214 | | 1.15 | | | 34,631 | | 104 | | 0.61 | |
| Noninterest-bearing deposits | 23,140 | | | | | | 23,514 | | | | |
| Other liabilities | 929 | | | | | | 658 | | | | |
| Total liabilities | 61,661 | | | | | | 58,803 | | | | |
| Shareholders’ equity: | | | | | | | | | | | |
| Preferred equity | 566 | | | | | | 566 | | | | |
| Common equity | 6,996 | | | | | | 7,067 | | | | |
| Total shareholders’ equity | 7,562 | | | | | | 7,633 | | | | |
| Total liabilities and shareholders’ equity | $ | 69,223 | | | | | | $ | 66,436 | | | | |
| Spread on average interest-bearing funds | | | | | 3.12 | % | | | | | | 3.29 | % |
| Impact of net noninterest-bearing sources of funds | | | | | 0.49 | | | | | | | 0.27 | |
| Net interest margin | | | $ | 1,158 | | 3.61 | | | | | $ | 1,100 | | 3.56 | |
| Memo: total cost of deposits | | | | | 0.46 | | | | | | | 0.19 | |
| Memo: total deposits and interest-bearing liabilities | $ | 60,732 | | 214 | | 0.70 | | | $ | 58,145 | | 104 | | 0.36 | |
1 Rates are calculated using amounts in thousands and taxable-equivalent rates used where applicable. The taxable-equivalent rates used are the rates that were applicable at the time of each respective reporting period.
2 Interest on total securities includes $63 million and $68 million of taxable-equivalent premium amortization for the first six months of 2019 and 2018, respectively.
3 Net of unearned income and fees, net of related costs. Loans include nonaccrual and restructured loans.
|
| | | | | | | | | | | | | | | | | | | | | |
| | Nine Months Ended
September 30, 2017 | | Nine Months Ended
September 30, 2016 |
| (Dollar amounts in millions) | Average balance | | Amount of interest 1 | | Average yield/rate | | Average balance | | Amount of interest 1 | | Average yield/rate |
| ASSETS | | | | | | | | | | | |
| Money market investments | $ | 1,598 |
| | $ | 14 |
| | 1.15 | % | | $ | 4,099 |
| | $ | 18 |
| | 0.57 | % |
| Securities: | | | | | | | | | | | |
| Held-to-maturity | 795 |
| | 23 |
| | 3.94 |
| | 646 |
| | 22 |
| | 4.53 |
|
| Available-for-sale | 14,873 |
| | 236 |
| | 2.12 |
| | 8,889 |
| | 130 |
| | 1.95 |
|
| Trading account | 61 |
| | 2 |
| | 3.61 |
| | 71 |
| | 2 |
| | 3.59 |
|
Total securities 2 | 15,729 |
| | 261 |
| | 2.22 |
| | 9,606 |
| | 154 |
| | 2.13 |
|
| Loans held for sale | 95 |
| | 2 |
| | 3.42 |
| | 133 |
| | 4 |
| | 3.61 |
|
Loans and leases 3 | | | | | | | | | | | |
| Commercial | 21,920 |
| | 712 |
| | 4.34 |
| | 21,791 |
| | 684 |
| | 4.20 |
|
| Commercial real estate | 11,222 |
| | 377 |
| | 4.49 |
| | 11,020 |
| | 350 |
| | 4.24 |
|
| Consumer | 10,076 |
| | 289 |
| | 3.84 |
| | 9,057 |
| | 261 |
| | 3.86 |
|
| Total loans and leases | 43,218 |
| | 1,378 |
| | 4.26 |
| | 41,868 |
| | 1,295 |
| | 4.13 |
|
| Total interest-earning assets | 60,640 |
| | 1,655 |
| | 3.65 |
| | 55,706 |
| | 1,471 |
| | 3.53 |
|
| Cash and due from banks | 844 |
| | | | | | 601 |
| | | | |
| Allowance for loan losses | (551 | ) | | | | | | (605 | ) | | | | |
| Goodwill | 1,014 |
| | | | | | 1,014 |
| | | | |
| Core deposit and other intangibles | 6 |
| | | | | | 13 |
| | | | |
| Other assets | 2,967 |
| | | | | | 2,751 |
| | | | |
| Total assets | $ | 64,920 |
| | | | | | $ | 59,480 |
| | | | |
| LIABILITIES AND SHAREHOLDERS’ EQUITY | | | | | | | | | | |
| Interest-bearing deposits: | | | | | | | | | | | |
| Savings and money market | $ | 25,515 |
| | 28 |
| | 0.15 | % | | $ | 25,605 |
| | 28 |
| | 0.15 | % |
| Time | 2,946 |
| | 15 |
| | 0.65 |
| | 2,230 |
| | 8 |
| | 0.47 |
|
| Foreign | — |
| | — |
| | — |
| | 163 |
| | — |
| | 0.28 |
|
| Total interest-bearing deposits | 28,461 |
| | 43 |
| | 0.20 |
| | 27,998 |
| | 36 |
| | 0.17 |
|
| Borrowed funds: | | | | | | | | | | | |
| Federal funds and other short-term borrowings | 3,951 |
| | 29 |
| | 0.98 |
| | 386 |
| | 1 |
| | 0.22 |
|
| Long-term debt | 428 |
| | 18 |
| | 5.81 |
| | 759 |
| | 29 |
| | 5.06 |
|
| Total borrowed funds | 4,379 |
| | 47 |
| | 1.45 |
| | 1,145 |
| | 30 |
| | 3.43 |
|
| Total interest-bearing liabilities | 32,840 |
| | 90 |
| | 0.37 |
| | 29,143 |
| | 66 |
| | 0.30 |
|
| Noninterest-bearing deposits | 23,694 |
| | | | | | 22,064 |
| | | | |
| Other liabilities | 609 |
| | | | | | 615 |
| | | | |
| Total liabilities | 57,143 |
| | | | | | 51,822 |
| | | | |
| Shareholders’ equity: | | | | | | | | | | | |
| Preferred equity | 653 |
| | | | | | 772 |
| | | | |
| Common equity | 7,124 |
| | | | | | 6,886 |
| | | | |
| Total shareholders’ equity | 7,777 |
| | | | | | 7,658 |
| | | | |
| Total liabilities and shareholders’ equity | $ | 64,920 |
| | | | | | $ | 59,480 |
| | | | |
| Spread on average interest-bearing funds | | | | | 3.28 | % | | | | | | 3.23 | % |
| Taxable-equivalent net interest income and net yield on interest-earning assets | | | $ | 1,565 |
| | 3.45 | % | | | | $ | 1,405 |
| | 3.37 | % |
| |
1
| Taxable-equivalent rates used where applicable. |
| |
2
| Year-to-date interest on total securities includes $101 million and $73 million of premium amortization, as of September 30, 2017 and September 30, 2016, respectively. |
| |
3
| Net of unearned income and fees, net of related costs. Loans include nonaccrual and restructured loans. |
ZIONS BANCORPORATION, NATIONAL ASSOCIATION AND SUBSIDIARIES
Provision for Credit Losses
The provision for credit losses is the combination of both the provision for loan losses and the provision for unfunded lending commitments. The provision for loan losses is the amount of expense that, in our judgment, is required to maintain the allowance for loan and lease losses (“ALLL”) at an adequate level based on the inherent risks in the loan portfolio. The provision for unfunded lending commitments is used to maintain the reserve for unfunded lending commitments (“RULC”) at an adequate level based on the inherent risks associated with such commitments. In determining adequate levels of the ALLL and RULC, we perform periodic evaluations of our various loan portfolios, the levels of actual charge-offs, credit trends, and external factors. See Note 6 of our 20162018 Annual Report on Form 10-K and “Credit Risk Management” on page 20 for more21 contains information on how we determine the appropriate level for the ALLLallowance for loan and lease losses (“ALLL”) and the RULC.reserve for unfunded lending commitments (“RULC”).
The provision for credit losses was $21 million in the second quarter of 2019, compared with $12 million in the second quarter of 2018. The increased provision for credit losses reflects loan growth, increased net charge-offs, and an increase in the qualitative portion related to general economic indicators. Classified and nonaccrual loans in the total portfolio declined by $177 million and $94 million, respectively, from the second quarter of 2018 to the second quarter of 2019. During the second quarter of 2019, there were $14 million of net charge-offs, compared with net recoveries of $12 million during the second quarter of 2018.
The provision for loan losses was $20 million during the second quarter of 2019, compared with $5 million induring the thirdsecond quarter of 2017, compared with $19 million in2018. This increase was primarily as a result of the same prior year period. Strong overall credit quality, including steady improvement in the oilpreviously mentioned loan growth, charge-offs, and gas-related portfolio have led to lower modeled reserves, requiring a lower provision. Nonaccrual and classified loans both decreased between the two periods by $98 million and $367 million, respectively. Net charge offs also declined $22 million over the same timeframe. The Company has roughly $8 billion of loan balances in the geographic area impacted by Hurricane Harvey. We have reached out to many of our customers to understand their concerns and to offer reasonable assistance. Using multiple top-down and bottom-up analyses to estimate losses resulting from the hurricane, we have added a qualitative allowance of $34 million.adjustments.
During the thirdsecond quarter of 2017,2019, we recorded a $(4)$1 million provision for unfunded lending commitments, compared with a $(3)$7 million provision in the thirdsecond quarter of 2016.2018. This decrease is primarily due to certain portfolios that experienced growth or contraction in unfunded lending commitments relative to the same prior year period. From quarter to quarter, the provision for unfunded lending commitments may be subject to sizable fluctuations due to changes in the timing and volume of loan commitments, originations, fundings, and changes in credit quality.
The ACL,allowance for credit losses (“ACL”), which is the combination of both the ALLL and the RULC, decreased $59increased $15 million, when compared with the thirdsecond quarter of 2016. Even with2018. This was mainly due to the loan growth and the above-mentioned hurricane impact, robust credit quality and decreased net charge-offsincreases in the total loan portfolio were responsible for much of this reduction. Further, declining oil and gas-related exposure and increasing non-oil and gas-related C&I and 1-4 family residential mortgage exposure improved the risk profile of the portfolio.qualitative adjustments described previously.
Noninterest Income
|
| | | | | | | | | | | | | | | | | | | | | |
| | Three Months Ended
September 30, | | Percent change | | Nine Months Ended
September 30, | | Percent change |
| (Dollar amounts in millions) | 2017 | | 2016 | | | 2017 | | 2016 | |
| | | | | | | | | | | | |
| Service charges and fees on deposit accounts | $ | 42 |
| | $ | 45 |
| | (6.7 | )% | | $ | 127 |
| | $ | 128 |
| | (0.8 | )% |
| Other service charges, commissions and fees | 55 |
| | 54 |
| | 1.9 |
| | 160 |
| | 156 |
| | 2.6 |
|
| Wealth management income | 11 |
| | 10 |
| | 10.0 |
| | 30 |
| | 27 |
| | 11.1 |
|
| Loan sales and servicing income | 6 |
| | 11 |
| | (45.5 | ) | | 19 |
| | 29 |
| | (34.5 | ) |
| Capital markets and foreign exchange | 8 |
| | 6 |
| | 33.3 |
| | 21 |
| | 16 |
| | 31.3 |
|
| Customer-related fees | 122 |
| | 126 |
| | (3.2 | ) | | 357 |
| | 356 |
| | 0.3 |
|
| Dividends and other investment income | 9 |
| | 9 |
| | — |
| | 31 |
| | 20 |
| | 55.0 |
|
| Securities gains, net | 5 |
| | 8 |
| | (37.5 | ) | | 13 |
| | 11 |
| | 18.2 |
|
| Other | 3 |
| | 2 |
| | 50.0 |
| | 3 |
| | 1 |
| | 200.0 |
|
| Total noninterest income | $ | 139 |
| | $ | 145 |
| | (4.1 | ) | | $ | 404 |
| | $ | 388 |
| | 4.1 |
|
Noninterest income represents revenues we earn for products and services that have no associated interest rate or yield. For the third quarter of 2017, noninterest income decreased $6 million, or 4.1% compared with the third quarter of 2016. Through September 30, 2017, year-to-date noninterest income increased $16 million, or 4.1%, compared with the first nine months of 2016. Noninterest income decreased compared with the third quarter of 2016 due to lower loan sales volume, decreased deposit fees, and a decline in net securities gains.
ZIONS BANCORPORATION AND SUBSIDIARIES
We believe a subtotal of customer-related fees provides a bettergood view of income over which we have more direct control. It excludes items such as dividends, insurance-related income, mark-to-market adjustments on certain derivatives, and securities gains and losses. For the second quarter of 2019, noninterest income decreased $6 million, or 4%, compared with the second quarter of 2018. The following schedule presents a comparison of the major components of noninterest income.
NONINTEREST INCOME
| | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | |
| Three Months Ended
June 30, | | | | Amount
change | | Percent
change | | Six Months Ended
June 30, | | | | Amount
change | | Percent
change |
| (Dollar amounts in millions) | 2019 | | 2018 | | | | | | 2019 | | 2018 | | | | |
| | | | | | | | | | | | | | | |
| Service charges and fees on deposit accounts | $ | 41 | | $ | 42 | | $ | (1) | | (2) | % | | $ | 81 | | $ | 84 | | $ | (3) | | (4) | % |
| Other service charges, commissions and fees | 58 | | 55 | | 3 | | 5 | | | 113 | | 110 | | 3 | | 3 | |
| Wealth management and trust income | 13 | | 14 | | (1) | | (7) | | | 26 | | 25 | | 1 | | 4 | |
| Loan sales and servicing income | 9 | | 7 | | 2 | | 29 | | | 14 | | 13 | | 1 | | 8 | |
| Capital markets and foreign exchange | 9 | | 7 | | 2 | | 29 | | | 16 | | 15 | | 1 | | 7 | |
| Customer-related fees | 130 | | 125 | | 5 | | 4 | | | 250 | | 247 | | 3 | | 1 | |
| Dividends and other investment income | 9 | | 11 | | (2) | | (18) | | | 18 | | 22 | | (4) | | (18) | |
| Securities gains (losses), net | (3) | | 1 | | (4) | | NM | | | (2) | | 1 | | (3) | | NM | |
| Other | (4) | | 1 | | (5) | | NM | | | (2) | | 6 | | (8) | | NM | |
| Total noninterest income | $ | 132 | | $ | 138 | | $ | (6) | | (4) | | | $ | 264 | | $ | 276 | | $ | (12) | | (4) | |
ZIONS BANCORPORATION, NATIONAL ASSOCIATION AND SUBSIDIARIES
Customer-related fees decreased $4increased $5 million, or 4%, from the thirdsecond quarter of 2016. Service2018 to the second quarter of 2019 and was largely attributable to an increase of $3 million in other service charges, commissions and fees as a result of increased lending activity, including syndication fees, and capital markets product sales. Securities losses were $3 million during the second quarter of 2019 compared to securities gains of $1 million during the second quarter of 2018 primarily as a result of changes in the market values of the Bank’s Small Business Investment Company (“SBIC”) investments. Other noninterest income decreased by $5 million, primarily due to a $6 million valuation adjustment on client-related interest rate swaps in the second quarter of 2019. As a result of the decline in interest rates during the second quarter of 2019, these client-related interest rate swaps significantly increased in value, resulting in a larger exposure to the Bank and a $6 million valuation adjustment.
Customer-related fees increased $3 million, or 1%, from the first six months of 2018 to the first six months of 2019. The only other significant item impacting noninterest income for the first six months of 2019 not previously discussed was a $3 million decrease in service charges and fees on deposit accounts. The decrease in service charges and fees on deposit accounts decreased largelywas primarily due to increasedan unfavorable impact from the earnings credits on analyzedcredit rate associated with noninterest-bearing demand deposits and softness in retail and small business accounts. Loan sales and servicing income declined primarily because loan sales volume was down from an unusually high amount in the third quarter of 2016 and a $2 million loss on a loan classified as held for sale in the most recent period. The year-to-date decline in loan sales and servicing income was due to similar factors. We continue to see steady improvement in credit card interchange fees and are growing our wealth management and trust businesses. We expect moderate growth in customer-related fees over the next twelve months.service charges.
Noninterest Expense
Noninterest expense increased by $3 million, or 1%, from the second quarter of 2018 to the second quarter of 2019. As discussed subsequently, adjusted noninterest expense also increased $3 million, or 1%, over the same period. This 1% increase is within our targeted growth rate of low single-digit percentage range relative to the prior year. As mentioned previously, with the potential headwinds on revenue expected in the near future as a result of falling interest rates, we are focused even more on expense control, while continuing to invest in technology and process simplification initiatives. As previously mentioned, during the first quarter of 2019, the Bank successfully implemented the second phase of its three-phase multi-year project to replace its core loan and deposit systems, upgrading its commercial loans core system. The Bank continues to work on upgrading its primary deposit system. The following schedule presents a comparison of the major components of noninterest expense. |
| | | | | | | | | | | | | | | | | | | | | |
| | Three Months Ended
September 30, | | Percent change | | Nine Months Ended
September 30, | | Percent change |
| (Dollar amounts in millions) | 2017 | | 2016 | | | 2017 | | 2016 | |
| | | | | | | | | | | | |
| Salaries and employee benefits | $ | 253 |
| | $ | 242 |
| | 4.5 | % | | $ | 756 |
| | $ | 742 |
| | 1.9 | % |
| Occupancy, net | 35 |
| | 33 |
| | 6.1 |
| | 101 |
| | 93 |
| | 8.6 |
|
| Furniture, equipment and software, net | 32 |
| | 29 |
| | 10.3 |
| | 96 |
| | 92 |
| | 4.3 |
|
| Other real estate expense, net | (1 | ) | | — |
| | NM |
| | (1 | ) | | (2 | ) | | 50.0 |
|
| Credit-related expense | 7 |
| | 7 |
| | — |
| | 23 |
| | 19 |
| | 21.1 |
|
| Provision for unfunded lending commitments | (4 | ) | | (3 | ) | | (33.3 | ) | | (6 | ) | | (13 | ) | | 53.8 |
|
| Professional and legal services | 14 |
| | 14 |
| | — |
| | 42 |
| | 38 |
| | 10.5 |
|
| Advertising | 6 |
| | 6 |
| | — |
| | 17 |
| | 17 |
| | — |
|
| FDIC premiums | 15 |
| | 12 |
| | 25.0 |
| | 40 |
| | 28 |
| | 42.9 |
|
| Amortization of core deposit and other intangibles | 2 |
| | 2 |
| | — |
| | 5 |
| | 6 |
| | (16.7 | ) |
| Other | 54 |
| | 61 |
| | (11.5 | ) | | 159 |
| | 161 |
| | (1.2 | ) |
| Total noninterest expense | $ | 413 |
| | $ | 403 |
| | 2.5 |
| | $ | 1,232 |
| | $ | 1,181 |
| | 4.3 |
|
Adjusted noninterest expense 1 | $ | 414 |
| | $ | 404 |
| | 2.5 |
| | $ | 1,225 |
| | $ | 1,185 |
| | 3.4 |
|
| | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | |
| Three Months Ended
June 30, | | | | Amount
change | | Percent
change | | Six Months Ended
June 30, | | | | Amount
change | | Percent
change |
| (Dollar amounts in millions) | 2019 | | 2018 | | | | | | 2019 | | 2018 | | | | |
| | | | | | | | | | | | | | | |
| Salaries and employee benefits | $ | 274 | | $ | 266 | | $ | 8 | | 3 | % | | $ | 562 | | $ | 535 | | $ | 27 | | 5 | % |
| Occupancy, net | 32 | | 32 | | — | | — | | | 65 | | 63 | | 2 | | 3 | |
| Furniture, equipment and software, net | 35 | | 32 | | 3 | | 9 | | | 67 | | 65 | | 2 | | 3 | |
| Other real estate expense, net | — | | — | | — | | NM | | | (1) | | 1 | | (2) | | NM | |
| Credit-related expense | 8 | | 7 | | 1 | | 14 | | | 13 | | 13 | | — | | — | |
| Professional and legal services | 13 | | 14 | | (1) | | (7) | | | 23 | | 26 | | (3) | | (12) | |
| Advertising | 5 | | 7 | | (2) | | (29) | | | 11 | | 13 | | (2) | | (15) | |
| FDIC premiums | 6 | | 14 | | (8) | | (57) | | | 12 | | 26 | | (14) | | (54) | |
| Other | 51 | | 49 | | 2 | | 4 | | | 102 | | 98 | | 4 | | 4 | |
| Total noninterest expense | $ | 424 | | $ | 421 | | $ | 3 | | 1 | | | $ | 854 | | $ | 840 | | $ | 14 | | 2 | |
Adjusted noninterest expense 1 | $ | 423 | | $ | 420 | | $ | 3 | | 1 | | | $ | 853 | | $ | 839 | | $ | 14 | | 2 | |
1 For information on non-GAAP financial measures see “GAAP to Non-GAAP Reconciliations” on page 5
We have previously forecast increases in noninterest expense for 2017. Noninterest expense increased by $10 million over the third quarter of 2016 and $51 million compared with the first nine months of 2016. Expenses increased in most areas, but were most impacted by higher FDIC premiums, salaries and benefits, and occupancy costs.6
Salary and employee benefits expense was up $11$8 million fromin the thirdsecond quarter of 2016, and $14 million year to date. Elevated noninterest expense in2019, compared with the thirdsecond quarter of 20162018. This increase was primarily due to a $7 million increase in base salaries resulting from annual salary merit increases partially influenced by employee headcount, and a $3 million decline in deferred salaries. The increase was partially offset by a lower accrual for incentive compensation; this reduction did not occur in the most recent quarter. In 2017, we have also experienced a higher volume of medical claims in the Company’s self-funded healthcare plan.
Occupancy expense increased $2 million fromdecrease in incentive compensation. Furniture, equipment and software, net, increased by $3 million, primarily as a result of the third quartersuccessful implementation of 2016, and increased $8 million compared with the first nine months of 2016. The increase was primarily dueour Core Transformation Project to damage to buildings caused by Hurricane Harvey. Inreplace our commercial loan systems, which occurred in the first quarter of 2017, we also placed a newly constructed office building into operation2019, and has subsequently resulted in Houston and have incurred additional depreciation and other transition expenses as a result. The Company has several signed leases with tenants, and as those tenants move in, we expect additional rental income to mostly offset the increase we have observed thus far in 2017.increased amortization.
We implemented the first release of the TCS BαNCS core servicing system during the second quarter. Associated amortization of the costs capitalized during development caused most of the $3 million variance from the third quarter of 2017 in furniture, equipment and software expense.
The Company’s provision for unfunded lending commitments has remained relatively steady over the past twelve months. We released $1 million more of our reserve through the provision for unfunded lending commitments
ZIONS BANCORPORATION, NATIONAL ASSOCIATION AND SUBSIDIARIES
The aforementioned increases in noninterest expense were offset by a $8 million decrease in FDIC premiums. The decrease in FDIC premiums is primarily due to the elimination of the FDIC surcharge for large banks because the required Deposit Insurance Fund reserve ratio has been met in addition to the Bank issuing more unsecured debt which results in lower FDIC premiums.
The Bank’s efficiency ratio was 59.0% in the second quarter of 2019 compared with 60.9% in the thirdsecond quarter of 2016,2018 and released $7 million less compared with60.2% in the first nine monthsquarter of 2016. Credit concerns in2019. Adjusted noninterest expense for the oil and gas-related portfolio have stabilized as oil prices have rebounded. Refer to the Provision for Credit Losses section above for more details.
FDIC premium expensesecond quarter of 2019 increased $3 million, or 25.0% from the third quarter of 2016, and $12 million, or 42.9%1%, compared with the first nine months of 2016. Expense increased in both cases due to a higher deposit base and the FDIC surcharge. The FDIC approved a change in deposit insurance assessments that implemented a Dodd-Frank Act provision requiring banks with over $10 billion in assets to recapitalize the FDIC insurance fund to 1.35% over an eight-quarter period, after it reached a 1.15% reserve ratio. The 1.15% threshold was reached at the end of the second quarter of 2016 and the increased premium has been effective since then.
Other noninterest expense decreased $7 million over the third quarter of 2016 and $2$423 million, compared with $420 million for the first nine months of 2016. A limited increase in losses due to Hurricane Harvey in the most recent quarter was more than offset by lower operational losses and legal reserves. No single item had a significant impact on the year-to-date variance.
Our goal is to limit adjusted noninterest expense growth to 2-3% in 2017 as we continue to invest in people and technology. For the first nine months of 2017, adjusted noninterest expense was $1.225 billion and we are committed to achieving our target.same prior year period. To arrive at adjusted noninterest expense, GAAP noninterest expense is adjusted to exclude certain expense items, which are the same as those items excluded in arriving at the efficiency ratio (see “GAAP to Non-GAAP Reconciliations” on page 56 for more information regarding the calculation of the efficiency ratio). We expect adjusted noninterest expense for 2019 to experience an increase in the low single-digit percentage range relative to the prior year.
Noninterest expense increased by $14 million, or 2%, from the first six months of 2018 to the first six months of 2019. This increase was a result of the same factors as the increase from the second quarter of 2018 to the second quarter of 2019.
Income Taxes
Income tax expense for the thirdsecond quarter of 20172019 was $83$58 million compared with $65$56 million for the same prior year period. The effective income tax rates were 34.2%22.7% and 33.9%22.1% for the thirdsecond quarters of 20172019 and 2016,2018, respectively. Income tax expense for the first six months of 2019 was $207$119 million compared with $126 million for the first nine monthssame prior year period. The effective income tax rate for both year-to-date periods was 22.5%. Note 13 of 2017the Notes to Consolidated Financial Statements contains additional information about the factors that influenced the income tax rates and $166 million for the first nine months of 2016.information about deferred income tax assets and liabilities. The effective tax ratesrate for these year-to-date periods were 30.6% and 33.3%2019 is expected to be approximately 23%, respectively. Tax rates generally benefited fromincluding the nontaxabilityeffects of certain income items. 2017 rates were further impacted by the following factors:
We reevaluated our state tax positions in the first quarter of 2017, which resulted in a one-time $14 million tax benefit.
We reduced income tax expense by $4 million in the second quarter of 2017 due to changes in the carrying value of various state deferred tax items.
We recorded an $8 million benefit in the first nine months of 2017, from the implementation of new accounting guidance related to stock-based compensation.
We had a net deferred tax asset (“DTA”) balance of $207 million at September 30, 2017, compared with $250 million at December 31, 2016. The decrease in the DTA resulted primarily from net charge-offs exceeding the provision for loan losses, the payout of accrued compensation, and the reduction of unrealized losses in other comprehensive income (“OCI”) related to securities. A decrease in deferred tax liabilities during 2017, which related to premises and equipment and the deferred gain on a prior period debt exchange, offset some of the overall decrease in DTA.Preferred Stock Dividends
Preferred Dividends
Our preferredstock dividends decreased $2have been consistent over the past year and were $9 million when compared with the third quarter of 2016 and $6$10 million compared with the first nine months of 2016. Induring the second quarters of 20172019 and 2016, the Company redeemed preferred stock of $144 million2018, respectively, and $118 million, respectively. The total one-time reduction to net earnings applicable to common shareholders associated with preferred stock redemptions was $2$17 million for the 2017 redemption and $10 million for the 2016 redemption, primarily due to the accelerated recognition of preferred stock issuance costs.
ZIONS BANCORPORATION AND SUBSIDIARIES
As a result of these transactions, preferred dividends are expected to be $10 million in the fourth quarter of 2017 and the second quarter of 2018, and $8 million inboth the first six months of 2019 and third quarters of 2018.
BALANCE SHEET ANALYSIS
Interest-Earning Assets
Interest-earning assets are those assets that have interest rates or yields associated with them. One of our goals is to maintain a high level of interest-earning assets relative to total assets while keeping nonearning assets at a minimum. Interest-earning assets consist of money market investments, securities, loans, and leases.
Another goal is to maintain a higher-yielding mix of interest-earning assets, such as loans, relative to lower-yielding assets, while maintaining adequate levels of highly liquid assets. As a result of this goal we redeployed funds from lower-yielding money market investments, in addition to using wholesale borrowings, to purchase agency securities.
For information regarding the average balances of our interest-earning assets, the amount of revenue generated by them, and their respective yields, see the average balance sheet on page 11.13.
Average interest-earning assets were $60.6$64.7 billion for the first ninesix months of 2017,2019, compared with $55.7$62.3 billion for the first ninesix months of 2016.2018. Average interest-earning assets as a percentage of total average assets were 94% for both the first ninesix months of 20172019 and 2016 were 93.4% and 93.7%, respectively.2018.
Average loans were $43.2$47.8 billion and $41.9$45.1 billion for the first ninesix months of 20172019 and 2016,2018, respectively. Average loans as a percentage of total average assets for the first ninesix months of 20172019 were 66.6%69%, compared with 70.4%68% in the same prior year period.
Average money market investments, consisting of interest-bearing deposits, federal funds sold, and security resell agreements, decreased by 61.0%10% to $1.6$1.3 billion for the first ninesix months of 2017,2019, compared with $4.1$1.4 billion for the first ninesix months of 2016.2018. Average securities increaseddecreased by 63.7%$1% for the first ninesix months of 2017,2019, compared with the first ninesix months of 2016.2018.
ZIONS BANCORPORATION, NATIONAL ASSOCIATION AND SUBSIDIARIES
Investment Securities Portfolio
We invest in securities to actively manage liquidity and interest rate risk, in addition to generating revenue for the Company.Bank. Refer to the “Liquidity Risk Management” section on page 3430 for additional information on management of liquidity and funding and compliance with Basel III and Liquidity Coverage Ratio (“LCR”) requirements.funding. The following schedule presents a profile of our investment securities portfolio. The amortized cost amounts represent the original cost of the investments, adjusted for related accumulated amortization or accretion of any yield adjustments, and for impairment losses, including credit-related impairment. The estimated fair value measurement levels and methodology are discussed in Note 203of our 20162018 Annual Report on Form 10-K.
ZIONS BANCORPORATION AND SUBSIDIARIES
INVESTMENT SECURITIES PORTFOLIO
| | | | September 30, 2017 | | December 31, 2016 | | June 30, 2019 | | | December 31, 2018 | |
| (In millions) | Par value | | Amortized cost | | Estimated fair value | | Par value | | Amortized cost | | Estimated fair value | (In millions) | Par value | | Amortized
cost | | | Estimated
fair
value | | Par value | | Amortized
cost | | | Estimated
fair
value |
| Held-to-maturity | | | | | | | | | | | | Held-to-maturity | | | | | | | | | | | | | |
| Municipal securities | $ | 747 |
| | $ | 746 |
| | $ | 743 |
| | $ | 868 |
| | $ | 868 |
| | $ | 850 |
| Municipal securities | $ | 695 | | $ | 695 | | | $ | 698 | | $ | 774 | | $ | 774 | | | $ | 767 |
| | Available-for-sale | | | | | | | | | | | | Available-for-sale | | | | | | | | | | | | | |
| U.S. Treasury securities | 25 |
| | 25 |
| | 25 |
| | — |
| | — |
| | — |
| U.S. Treasury securities | 40 | | 40 | | | 40 | | 40 | | 40 | | | 40 |
| U.S. Government agencies and corporations: | | | | | | | | | | | | U.S. Government agencies and corporations: | | | | | |
| Agency securities | 1,839 |
| | 1,839 |
| | 1,840 |
| | 1,847 |
| | 1,846 |
| | 1,839 |
| Agency securities | 1,372 | | 1,372 | | | 1,373 | | 1,395 | | 1,394 | | | 1,375 |
| Agency guaranteed mortgage-backed securities | 9,537 |
| | 9,748 |
| | 9,683 |
| | 7,745 |
| | 7,986 |
| | 7,883 |
| Agency guaranteed mortgage-backed securities | 9,981 | | 10,110 | | | 10,133 | | 10,093 | | 10,236 | | | 10,014 |
| Small Business Administration loan-backed securities | 2,055 |
| | 2,281 |
| | 2,291 |
| | 2,066 |
| | 2,298 |
| | 2,288 |
| Small Business Administration loan-backed securities | 1,645 | | 1,790 | | | 1,751 | | 1,871 | | 2,042 | | | 1,996 |
| Municipal securities | 1,141 |
| | 1,281 |
| | 1,291 |
| | 1,048 |
| | 1,182 |
| | 1,154 |
| Municipal securities | 1,203 | | 1,322 | | | 1,350 | | 1,178 | | 1,303 | | | 1,291 |
| Other debt securities | 25 |
| | 25 |
| | 25 |
| | 25 |
| | 25 |
| | 24 |
| Other debt securities | 25 | | 25 | | | 25 | | 25 | | 25 | | | 21 |
| | 14,622 |
| | 15,199 |
| | 15,155 |
| | 12,731 |
| | 13,337 |
| | 13,188 |
| |
| Money market mutual funds and other | 87 |
| | 87 |
| | 87 |
| | 184 |
| | 184 |
| | 184 |
| |
| | 14,709 |
| | 15,286 |
| | 15,242 |
| | 12,915 |
| | 13,521 |
| | 13,372 |
| |
| Total | $ | 15,456 |
| | $ | 16,032 |
| | $ | 15,985 |
| | $ | 13,783 |
| | $ | 14,389 |
| | $ | 14,222 |
| |
| | Total available-for-sale | | Total available-for-sale | 14,266 | | 14,659 | | | 14,672 | | 14,602 | | 15,040 | | | 14,737 |
| Total investment securities | | Total investment securities | $ | 14,961 | | $ | 15,354 | | | $ | 15,370 | | $ | 15,376 | | $ | 15,814 | | | $ | 15,504 |
The amortized cost of investment securities at SeptemberJune 30, 2017 increased2019 decreased by 11.4%3% from the balances at December 31, 2016, due to purchases2018. Approximately 34% of agency guaranteed mortgage-backed securities.the investment securities are floating rate as of June 30, 2019.
The investment securities portfolio includes $576$393 million of net premium that is distributed across various asset classes as illustrated in the preceding schedule. The purchase premiums and discountsPremium amortization for both held-to-maturity (“HTM”) and AFS securities are amortized and accreted at a constant effective yield to the contractual maturity date and no assumption is made concerning prepayments. As principal prepayments occur, the portion of the unamortized premium or discount associated with the principal reduction is recognized as interest income in the period the principal is reduced. For the three and ninesix months ended SeptemberJune 30, 2017, premium amortization reduced2019, was approximately $31 million, compared with approximately $36 million for the same period in 2018, reducing the yield on securities by 89 and 9081 bps respectively, compared with a 117 bps and 11092 bps impact for the same periodsperiod in 2016. The lower level of premium amortization was attributable to slower prepayment speeds. In addition, yields of floating-rate securities, primarily Small Business Administration (“SBA”) loan-backed securities, benefited from increases in reference indices.2018.
As of SeptemberJune 30, 2017,2019, under the GAAP fair value accounting hierarchy, 0.7%0.3% of the $15.2$14.7 billion fair value of the AFS securities portfolio was valued at Level 1, 99.3%99.7% was valued at Level 2, and there were no Level 3 AFS securities. At December 31, 2016, 1.4%2018, 0.3% of the $13.4$14.7 billion fair value of AFS securities portfolio was valued at Level 1, 98.6%99.7% was valued at Level 2, and there were no Level 3 AFS securities. See Note 203 of our 20162018 Annual Report on Form 10-K for further discussion of fair value accounting.
Exposure to State and Local Governments
We provide multiple products and services to state and local governments (referred to collectively as “municipalities”), including deposit services, loans, and investment banking services, and we invest in securities issued by the municipalities.
ZIONS BANCORPORATION, NATIONAL ASSOCIATION AND SUBSIDIARIES
The following schedule summarizes our exposure to state and local municipalities:
MUNICIPALITIES
| | | (In millions) | September 30,
2017 | | December 31,
2016 | (In millions) | June 30,
2019 | | December 31,
2018 |
| | | | | | | | |
| Loans and leases | $ | 1,073 |
| | $ | 778 |
| Loans and leases | $ | 2,059 | | $ | 1,661 |
| Held-to-maturity – municipal securities | 746 |
| | 868 |
| Held-to-maturity – municipal securities | 695 | | 774 |
| Available-for-sale – municipal securities | 1,292 |
| | 1,154 |
| Available-for-sale – municipal securities | 1,350 | | 1,291 |
| | Trading account – municipal securities | 55 |
| | 112 |
| Trading account – municipal securities | 122 | | 89 |
| Unfunded lending commitments | 156 |
| | 182 |
| Unfunded lending commitments | 157 | | 144 |
| Total direct exposure to municipalities | $ | 3,322 |
| | $ | 3,094 |
| Total direct exposure to municipalities | $ | 4,383 | | $ | 3,959 |
At SeptemberJune 30, 2017,2019, one municipal loan with a balance of approximately $1 million was on nonaccrual. A significant amountMost of the municipal loan and lease portfolio is secured by real estate, and equipment, and 80.6%or is a general obligation of the outstanding credits were originated by CB&T, Zions Bank, and Vectra.a municipal entity. See Note 6 of the Notes to Consolidated Financial Statements for additional information about the credit quality of these municipal loans.
Growth in municipal exposure came primarily from increases in loans and leases and municipal AFS securities portfolio. AFS securities generally consist of securities with investment-grade ratings from one or more major credit rating agencies.
Foreign Exposure and Operations
Our credit exposure to foreign sovereign risks and total foreign credit exposure is not significant. We also do not have significant foreign exposure to derivative counterparties. We had no foreign deposits at SeptemberJune 30, 20172019 and December 31, 2016.2018.
Loan Portfolio
For the first ninesix months of 20172019 and 2016,2018, average loans accounted for 66.6%69% and 70.4%68%, respectively, of total average assets. As presented in the following schedule, the largest category was commercial and industrial loans, which constituted 31.8%31% of our loan portfolio at SeptemberJune 30, 2017.
ZIONS BANCORPORATION AND SUBSIDIARIES
2019.
LOAN PORTFOLIO
| | | | | | | | | | | | | | | | | | | | | | | |
| June 30, 2019 | | | | December 31, 2018 | | |
| (Dollar amounts in millions) | Amount | | % of
total loans | | Amount | | % of
total loans |
| Commercial: | | | | | | | |
| Commercial and industrial | $ | 14,883 | | 30.6 | % | | $ | 14,513 | | 31.0 | % |
| Leasing | 337 | | 0.7 | | | 327 | | 0.7 | |
| Owner-occupied | 7,828 | | 16.1 | | | 7,661 | | 16.4 | |
| Municipal | 2,059 | | 4.2 | | | 1,661 | | 3.6 | |
| Total commercial | 25,107 | | 51.6 | | | 24,162 | | 51.7 | |
| Commercial real estate: | | | | | | | |
| Construction and land development | 2,609 | | 5.4 | | | 2,186 | | 4.7 | |
| Term | 9,218 | | 19.0 | | | 8,939 | | 19.1 | |
| Total commercial real estate | 11,827 | | 24.4 | | | 11,125 | | 23.8 | |
| Consumer: | | | | | | | |
| Home equity credit line | 2,929 | | 6.0 | | | 2,937 | | 6.3 | |
| 1-4 family residential | 7,440 | | 15.3 | | | 7,176 | | 15.4 | |
| Construction and other consumer real estate | 644 | | 1.3 | | | 643 | | 1.4 | |
| Bankcard and other revolving plans | 502 | | 1.0 | | | 491 | | 1.0 | |
| Other | 168 | | 0.4 | | | 180 | | 0.4 | |
| Total consumer | 11,683 | | 24.0 | | | 11,427 | | 24.5 | |
| Total net loans | $ | 48,617 | | 100.0 | % | | $ | 46,714 | | 100.0 | % |
|
| | | | | | | | | | | | | |
| | September 30, 2017 | | December 31, 2016 |
| (Dollar amounts in millions) | Amount | | % of total loans | | Amount | | % of total loans |
| Commercial: | | | | | | | |
| Commercial and industrial | $ | 14,041 |
| | 31.8 | % | | $ | 13,452 |
| | 31.5 | % |
| Leasing | 343 |
| | 0.8 |
| | 423 |
| | 1.0 |
|
| Owner-occupied | 7,082 |
| | 16.0 |
| | 6,962 |
| | 16.3 |
|
| Municipal | 1,073 |
| | 2.4 |
| | 778 |
| | 1.8 |
|
| Total commercial | 22,539 |
| | 51.0 |
| | 21,615 |
| | 50.6 |
|
| Commercial real estate: | | | | | | | |
| Construction and land development | 2,170 |
| | 4.9 |
| | 2,019 |
| | 4.7 |
|
| Term | 8,944 |
| | 20.3 |
| | 9,322 |
| | 21.9 |
|
| Total commercial real estate | 11,114 |
| | 25.2 |
| | 11,341 |
| | 26.6 |
|
| Consumer: | | | | | | | |
| Home equity credit line | 2,745 |
| | 6.2 |
| | 2,645 |
| | 6.2 |
|
| 1-4 family residential | 6,522 |
| | 14.8 |
| | 5,891 |
| | 13.8 |
|
| Construction and other consumer real estate | 558 |
| | 1.3 |
| | 486 |
| | 1.2 |
|
| Bankcard and other revolving plans | 490 |
| | 1.1 |
| | 481 |
| | 1.1 |
|
| Other | 188 |
| | 0.4 |
| | 190 |
| | 0.5 |
|
| Total consumer | 10,503 |
| | 23.8 |
| | 9,693 |
| | 22.8 |
|
| Total net loans | $ | 44,156 |
| | 100.0 | % | | $ | 42,649 |
| | 100.0 | % |
Loan portfolio growth during the first ninesix months of 2017 was2019 continued to be widespread across loan products and geographies with particular strength inmunicipal, construction and land development, consumer 1-4 family
ZIONS BANCORPORATION, NATIONAL ASSOCIATION AND SUBSIDIARIES
residential, and commercial and industrial loans. The impact of these increases was partially offset by a decreasegrowth in our CRE term portfolio.
Commercial owner-occupied loans also increasedthe loan portfolio during the first ninesix months of 2017; however, we experienced continued runoff2019 was primarily at Amegy Bank (“Amegy”) and attrition of the National Real Estate portfolio. The National Real Estate business is a wholesale business that depends on loan referrals from other community banking institutions. Due to generally soft loan demand nationally, many community banking institutions are retaining, rather than selling, their loan production.Zions Bank.
Other Noninterest-Bearing Investments
During the first ninesix months of 2017,2019, the CompanyBank increased its short-term borrowings with the Federal Home Loan Bank (“FHLB”) by $2.8 billion.$450 million. This increase required a further investmentalso led to an increase in FHLB activity stock, which consequently increased by $110$18 million during the year. Aside from this increase, other noninterest-bearing investments remained relatively stable as set forth in the following schedule.
OTHER NONINTEREST-BEARING INVESTMENTS
|
| | | | | | | |
| (In millions) | September 30,
2017 | | December 31,
2016 |
| | | | |
| Bank-owned life insurance | $ | 504 |
| | $ | 497 |
|
| Federal Home Loan Bank stock | 140 |
| | 30 |
|
| Federal Reserve stock | 184 |
| | 181 |
|
| Farmer Mac stock | 42 |
| | 34 |
|
| Small Business Investment Company investments | 123 |
| | 124 |
|
| Non-Small Business Investment Company investment funds | 12 |
| | 15 |
|
| Other | 3 |
| | 3 |
|
| | $ | 1,008 |
| | $ | 884 |
|
ZIONS BANCORPORATION AND SUBSIDIARIES
| | | | | | | | | | | |
| (In millions) | June 30,
2019 | | December 31,
2018 |
| | | |
| Bank-owned life insurance | $ | 522 | | $ | 516 |
| Federal Home Loan Bank stock | 208 | | 190 |
| Federal Reserve stock | 123 | | 139 |
| Farmer Mac stock | 51 | | 54 |
| SBIC investments | 139 | | 132 |
| Non-SBIC investment funds | 10 | | 12 |
| Other | 3 | | 3 |
| Total other noninterest-bearing investments | $ | 1,056 | | $ | 1,046 |
Premises, Equipment, and Software
Net premises, equipment, and software increased $63$9 million, or 6.2%0.8%, during the first ninesix months of 2019. In 2017, primarily duethe Bank implemented the first phase of our core lending and deposit systems replacement project, which replaced the Bank’s primary consumer lending systems. During the first quarter of 2019, the Bank successfully implemented the second phase of this project by replacing its primary commercial and commercial real estate lending systems. With this milestone reached, we now have substantially all our retail, commercial and commercial real estate loans on a new modern core platform. The Bank is well underway with the project to convert its deposit servicing system by 2022. The total core replacement project spend amount is comprised of both capitalized amounts and amounts that are expensed as incurred. The useful life for most of the capitalized costs associated withis 10 years. The following schedule shows the developmenttotal amount of a new corporate facilitycosts capitalized, less accumulated depreciation, by phase for Amegy Bank in Texas, major software purchases, and the capitalization of eligible costs related to the development of new lending, deposit and reporting systems.core replacement project.
| | | | | | | | | | | | | | | | | | | | | | | |
| June 30, 2019 | | | | | | |
| (In millions) | Phase 1 | | Phase 2 | | Phase 3 | | Total |
| Capitalized costs for the core replacement project | | | | | | | |
| Total amount capitalized, less accumulated depreciation | $ | 59 | | $ | 86 | | $ | 46 | | $ | 191 |
Deposits
Deposits, both interest-bearing and noninterest-bearing, are a primary source of funding for the Company.Bank. Average total deposits for the first ninesix months of 20172019 increased by 4.2%3%, compared with the first ninesix months of 2016,2018, with average interest-bearing deposits increasing by 3.9%7% and average noninterest-bearing deposits increasingdecreasing by 7.4%2%. The increases in interest and noninterest-bearing deposits were driven by increases in both personal and business customer balances. The ending interest-bearing deposits balance at September 30, 2017 decreased by 0.4% to $28.1 billion from $28.2 billion at June 30, 2017. The decrease in ending balance is mainly due to the natural daily volatility of deposits and certain customers sweeping funds off of our balance sheet to take advantage of higher rates in the capital markets. The average interest rate paid for interest-bearing deposits was 346 bps higher during the first ninesix months of 2017,2019, compared with the first ninesix months of 2016.
Deposits at September 30, 2017, excluding time deposits $100,000 and over and brokered deposits, decreased slightly to $50.4 billion from $51.4 billion at December 31, 2016. The decrease was mainly due to a decrease in interest-bearing domestic savings and money market deposits.2018.
Demand, and savings, and money market deposits were 94.4%91% and 94.8%92% of total deposits at SeptemberJune 30, 20172019 and December 31, 2016,2018, respectively. At SeptemberJune 30, 20172019 and December 31, 2016,2018, total deposits included $1.3$2.4 billion and $0.9$2.2 billion, respectively, of brokered deposits.
See “Liquidity Risk Management” on page 3430 for additional information on funding and borrowed funds.
ZIONS BANCORPORATION, NATIONAL ASSOCIATION AND SUBSIDIARIES
RISK ELEMENTS
Since risk is inherent in substantially all of the Company’sBank’s operations, management of risk is an integral part of its operations and is also a key determinant of its overall performance. The Board of Directors has appointed a Risk Oversight Committee (“ROC”) that consists of appointed Board members who oversee the Company’sBank’s risk management processes. The ROC meets on a regular basis to monitor and review Enterprise Risk Management (“ERM”) activities. As required by its charter, the ROC performs oversight for various ERM activities and approves ERM policies and activities as detailed in the ROC charter.
Management applies various strategies to reduce the risks to which the Company’sBank’s operations are exposed, including credit, interest rate and market, liquidity, and operational risks. These risks are overseen by the various management committees of which the Enterprise Risk Management Committee (“ERMC”) is the focal point for the monitoring and review of enterprise risk.
Credit Risk Management
Credit risk is the possibility of loss from the failure of a borrower, guarantor, or another obligor to fully perform under the terms of a credit-related contract. Credit risk arises primarily from our lending activities, as well as from off-balance sheet credit instruments.
The Board of Directors, through the ROC, is responsible for approving the overall credit policies relating to the management of the credit risk of the Company. In addition, the ROC oversees and monitors adherence to key credit policies and the credit risk appetite as defined in the Risk Appetite Framework. Additionally, the Board has established the Credit Administration Committee, chaired by the Chief Credit Officer and consisting of members of management, to which it has delegated the responsibility for managing credit risk for the Company and approving changes to the Company’s credit policies.
ZIONS BANCORPORATION AND SUBSIDIARIES
Centralized oversight For a more comprehensive discussion of credit risk is provided through credit policies, credit risk management, and credit examination functions. Our credit polices place emphasissee “Credit Risk Management” in our 2018 Annual Report on strong underwriting standards and early detection of potential problem credits in order to develop and implement action plans on a timely basis to mitigate any potential losses. These formal credit policies and procedures provide the Company with a framework for consistent underwriting and a basis for sound credit decisions at the local banking affiliate level.Form 10-K.
Our credit risk management function is separate from the lending function and strengthens control over, and the independent evaluation of, credit activities. In addition, we have a well-defined set of standards for regularly evaluating our loan portfolio, and we utilize a comprehensive loan risk-grading system to determine the risk potential in the portfolio. Furthermore, the internal credit examination department, which is independent of the lending function, periodically conducts examinations of the Company’s lending departments and credit activities. These examinations are designed to review credit quality, adequacy of documentation, appropriate loan risk-grading administration, and compliance with credit policies. New, expanded, or modified products and services, as well as new lines of business, are approved by the New Initiative Review Committee.
Our credit risk management strategy includes diversification of our loan portfolio. We attempt to avoid the risk of an undue concentration of credits in a particular collateral type or with an individual customer or counterparty. Generally, our loan portfolio is well diversified; however, due to the nature of our geographical footprint, there are certain significant concentrations, primarily in CRE and oil and gas-related lending. We have adopted and adhere to concentration limits on leveraged lending, municipal lending, oil and gas-related lending, and various types of CRE lending, particularly construction and land development lending. All of these limits are continually monitored and revised as necessary. The recent growth in construction and land development loan commitments is within the established concentration limits. Our business activity is primarily with customers located within the geographical footprint of our banking affiliates.
As we continue to monitor our concentration risk, the composition of our loan portfolio has slightly changed. Oil and gas-related loans represented 4.6% of the total loan portfolio at September 30, 2017, compared with 5.1% at December 31, 2016. Total commercial and CRE loans were 51.0% and 25.2% of the total portfolio at September 30, 2017, compared with 50.6% and 26.6%, at December 31, 2016, respectively. Consumer loans have grown to represent 23.8% of the total loan portfolio at September 30, 2017, compared with 22.8% at December 31, 2016.
Government Agency Guaranteed Loans
We participate in various guaranteed lending programs sponsored by U.S. government agencies, such as the SBA,Small Business Administration (“SBA”), Federal Housing Authority, Veterans’ Administration, Export-Import Bank of the U.S., and the U.S. Department of Agriculture. As of SeptemberJune 30, 2017,2019, the principal balance of these loans was $533$575 million, and the guaranteed portion of these loans was $403$432 million. Most of these loans were guaranteed by the SBA.
The following schedule presents the composition of government agency guaranteed loans.
GOVERNMENT GUARANTEES
| | | | | | | | | | | | | | | | | | | | | | | |
| (Dollar amounts in millions) | June 30,
2019 | | Percent
guaranteed | | December 31,
2018 | | Percent
guaranteed |
| | | | | | | |
| Commercial | $ | 553 | | 75 | % | | $ | 537 | | 75 | % |
| Commercial real estate | 14 | | 79 | | | 14 | | 79 | |
| Consumer | 8 | | 100 | | | 9 | | 100 | |
| Total loans | $ | 575 | | 75 | | | $ | 560 | | 76 | |
|
| | | | | | | | | | | | | |
| (Dollar amounts in millions) | September 30, 2017 | | Percent
guaranteed | | December 31, 2016 | | Percent
guaranteed |
| | | | | | | | |
| Commercial | $ | 502 |
| | 75 | % | | $ | 519 |
| | 75 | % |
| Commercial real estate | 15 |
| | 74 |
| | 18 |
| | 75 |
|
| Consumer | 16 |
| | 92 |
| | 17 |
| | 92 |
|
| Total loans | $ | 533 |
| | 76 |
| | $ | 554 |
| | 76 |
|
ZIONS BANCORPORATION, NATIONAL ASSOCIATION AND SUBSIDIARIES
Commercial Lending
The following schedule provides selected information regarding lending concentrations to certain industries in our commercial lending portfolio.
ZIONS BANCORPORATION AND SUBSIDIARIES
COMMERCIAL LENDING BY INDUSTRY GROUP
| | | | | | | | | | | | | | | | | | | | | | | |
| June 30, 2019 | | | | December 31, 2018 | | |
| (Dollar amounts in millions) | Amount | | Percent | | Amount | | Percent |
| | | | | | | |
| Real estate, rental and leasing | $ | 2,707 | | 10.8 | % | | $ | 2,636 | | 10.9 | % |
Retail trade 1 | 2,540 | | 10.1 | | | 2,434 | | 10.0 | |
| Manufacturing | 2,227 | | 8.9 | | | 2,145 | | 8.9 | |
| Finance and insurance | 1,813 | | 7.2 | | | 2,036 | | 8.4 | |
| Healthcare and social assistance | 1,799 | | 7.2 | | | 1,695 | | 7.0 | |
| Wholesale trade | 1,597 | | 6.4 | | | 1,527 | | 6.3 | |
Utilities 2 | 1,424 | | 5.7 | | | 1,163 | | 4.8 | |
| Transportation and warehousing | 1,416 | | 5.6 | | | 1,328 | | 5.5 | |
| Mining, quarrying, and oil and gas extraction | 1,242 | | 4.9 | | | 1,206 | | 5.0 | |
| Construction | 1,217 | | 4.8 | | | 1,194 | | 4.9 | |
| Public Administration | 989 | | 3.9 | | | 806 | | 3.4 | |
| Hospitality and food services | 986 | | 3.9 | | | 1,005 | | 4.2 | |
| Professional, scientific, and technical services | 943 | | 3.8 | | | 859 | | 3.6 | |
| Other Services (except Public Administration) | 854 | | 3.4 | | | 887 | | 3.7 | |
Other 3 | 3,353 | | 13.4 | | | 3,241 | | 13.4 | |
| Total | $ | 25,107 | | 100.0 | % | | $ | 24,162 | | 100.0 | % |
1 At June 30, 2019 and December 31, 2018, 84% and 83% of retail trade consist of motor vehicle and parts dealers, gas stations, grocery stores, building material suppliers, and direct-to-consumer retailers, respectively.
2 Includes primarily utilities, power, and renewable energy.
3 No other industry group exceeds 3.2%.
ZIONS BANCORPORATION, NATIONAL ASSOCIATION AND SUBSIDIARIES
|
| | | | | | | | | | | | | |
| | September 30, 2017 | | December 31, 2016 |
| (Dollar amounts in millions) | Amount | | Percent | | Amount | | Percent |
| | | | | | | | |
| Real estate, rental and leasing | $ | 2,726 |
| | 12.1 | % | | $ | 2,624 |
| | 12.1 | % |
Retail trade 1 | 2,269 |
| | 10.0 |
| | 2,145 |
| | 9.9 |
|
| Manufacturing | 2,158 |
| | 9.6 |
| | 2,161 |
| | 10.0 |
|
| Finance and insurance | 1,758 |
| | 7.8 |
| | 1,462 |
| | 6.8 |
|
| Wholesale trade | 1,456 |
| | 6.5 |
| | 1,444 |
| | 6.7 |
|
| Healthcare and social assistance | 1,444 |
| | 6.4 |
| | 1,538 |
| | 7.1 |
|
| Transportation and warehousing | 1,341 |
| | 6.0 |
| | 1,300 |
| | 6.0 |
|
| Mining, quarrying and oil and gas extraction | 1,270 |
| | 5.6 |
| | 1,403 |
| | 6.5 |
|
| Construction | 1,111 |
| | 4.9 |
| | 1,076 |
| | 5.0 |
|
| Accommodation and food services | 973 |
| | 4.3 |
| | 925 |
| | 4.3 |
|
| Other Services (except Public Administration) | 939 |
| | 4.2 |
| | 881 |
| | 4.1 |
|
Utilities 2 | 885 |
| | 3.9 |
| | 783 |
| | 3.6 |
|
| Professional, scientific, and technical services | 859 |
| | 3.8 |
| | 875 |
| | 4.0 |
|
Other 3 | 3,350 |
| | 14.9 |
| | 2,998 |
| | 13.9 |
|
| Total | $ | 22,539 |
| | 100.0 | % | | $ | 21,615 |
| | 100.0 | % |
| |
1
| At September 30, 2017, 82% of retail trade consist of motor vehicle and parts dealers, gas stations, grocery stores, building material suppliers, and direct-to-consumer retailers. For additional detail on our CRE retail exposure, see the Commercial Real Estate Loans section on page 25. |
| |
2
| Includes primarily utilities, power, and renewable energy. |
| |
3
| No other industry group exceeds 3.5%. |
Oil and Gas-Related Exposure
Various industries represented in the previous schedule, including mining, quarrying and oil and gas extraction, manufacturing, and transportation and warehousing, contain certain loans we categorize as oil and gas-related. At September 30, 2017 and December 31, 2016, we had approximately $3.8 billion and $3.9 billion, respectively, of total oil and gas-related credit exposure. The distribution of oil and gas-related loans by customer market segment is shown in the following schedule:
ZIONS BANCORPORATION AND SUBSIDIARIES
OIL AND GAS-RELATED EXPOSURE 1
|
| | | | | | | | | | | | | | | | | | | | | | | | | |
| | | | | | | | 3Q17 - 4Q16 | | 3Q17 - 3Q16 |
| (Dollar amounts in millions) | September 30,
2017 | | December 31,
2016 | | September 30,
2016 | | $ | | % | | $ | | % |
| Loans and leases | | |
|
| | | | | | | | | | |
| Upstream – exploration and production | $ | 784 |
| | $ | 733 |
| | $ | 752 |
| | $ | 51 |
| | 7 | % | | $ | 32 |
| | 4 | % |
| Midstream – marketing and transportation | 601 |
| | 598 |
| | 623 |
| | 3 |
| | 1 |
| | (22 | ) | | (4 | ) |
| Downstream – refining | 100 |
| | 137 |
| | 123 |
| | (37 | ) | | (27 | ) | | (23 | ) | | (19 | ) |
| Other non-services | 40 |
| | 38 |
| | 44 |
| | 2 |
| | 5 |
| | (4 | ) | | (9 | ) |
| Oilfield services | 412 |
| | 500 |
| | 596 |
| | (88 | ) | | (18 | ) | | (184 | ) | | (31 | ) |
| Oil and gas service manufacturing | 109 |
| | 152 |
| | 176 |
| | (43 | ) | | (28 | ) | | (67 | ) | | (38 | ) |
Total loan and lease balances 2 | 2,046 |
| | 2,158 |
| | 2,314 |
| | (112 | ) | | (5 | ) | | (268 | ) | | (12 | ) |
| Unfunded lending commitments | 1,799 |
| | 1,722 |
| | 1,784 |
| | 77 |
| | 4 |
| | 15 |
| | 1 |
|
| Total oil and gas credit exposure | $ | 3,845 |
| | $ | 3,880 |
| | $ | 4,098 |
| | $ | (35 | ) | | (1 | ) | | $ | (253 | ) | | (6 | ) |
| Private equity investments | $ | 4 |
| | $ | 7 |
| | $ | 6 |
| | $ | (3 | ) | | (43 | ) | | $ | (2 | ) | | (33 | ) |
Credit quality measures 2 | | | | | | | | | | | | | |
| Criticized loan ratio | 29.8 | % | | 37.8 | % | | 41.8 | % | | | | | | | | |
| Classified loan ratio | 24.0 | % | | 31.6 | % | | 33.1 | % | | | | | | | | |
| Nonaccrual loan ratio | 10.2 | % | | 13.6 | % | | 15.0 | % | | | | | | | | |
| Ratio of nonaccrual loans that are current | 67.9 | % | | 86.1 | % | | 87.3 | % | | | | | | | | |
Net charge-off ratio, annualized 3 | 1.2 | % | | 3.0 | % | | 7.1 | % | | | | | | | | |
| |
1
| Because many borrowers operate in multiple businesses, judgment has been applied in characterizing a borrower as oil and gas-related, including a particular segment of oil and gas-related activity, e.g., upstream or downstream; typically, 50% of revenues coming from the oil and gas sector is used as a guide. |
2 Total loan and lease balances and the credit quality measures do not include oil and gas loans held for sale at period end.
| |
3
| Calculated as the ratio of annualized net charge-offs to the beginning loan balances for each respective period. |
During the third quarter of 2017, our overall balance of oil and gas-related loans decreased by $112 million, or 5.2%, from year-end 2016, and decreased by $268 million, or 11.6%, from the third quarter of 2016. Oil and gas-related loans represented 4.6% of the total loan portfolio at September 30, 2017, compared with 5.1% at December 31, 2016 and 5.4% at September 30, 2016. Unfunded oil and gas-related lending commitments increased by $77 million, or 4.5% during the third quarter of 2017, from year-end 2016, and increased by $15 million, or 0.8%, from the third quarter of 2016. The increase in unfunded oil and gas-related lending commitments was primarily in the midstream portfolio.
Classified oil and gas-related credits decreased to $492 million at September 30, 2017, from $681 million at December 31, 2016. Oil and gas-related loan net charge-offs were $6 million in the third quarter of 2017, predominantly in the oil and gas services portfolio, compared with $16 million in the fourth quarter of 2016 and $41 million in the third quarter of 2016.
Nonaccruing oil and gas-related loans decreased by $85 million from the fourth quarter of 2016, primarily in the oil and gas services portfolio. Approximately 68% of oil and gas-related nonaccruing loans were current as to principal and interest payments at September 30, 2017, which declined from 86% at December 31, 2016.
Risk Management of the Oil and Gas-Related Portfolio
The oil and gas-related portfolio is comprised of three primary segments: upstream, midstream, and oil and gas services. Upstream exploration and production loan borrowers have relatively balanced production between oil and gas. Midstream loans are made to companies that gather, transport, treat and blend oil and natural gas, or that provide services to similar companies. Oil and gas services loans, which include oilfield services and oil and gas service manufacturing, include borrowers that have a concentration of revenues in the oil and gas industry. However, many of these borrowers provide a broad range of products and services to the oil and gas industry and
ZIONS BANCORPORATION AND SUBSIDIARIES
are diversified geographically. For a more comprehensive discussion of these segments, refer to our 2016 Annual Report on Form 10-K.
We apply concentration limits and disciplined underwriting to the entire oil and gas-related loan portfolio to limit our risk exposure. As an indicator of the diversity in the size of our oil and gas-related portfolio, the average amount of our commitments is approximately $6 million, with approximately 68% of the commitments less than $30 million. Additionally, there are instances where we have commitments to companies with a common sponsor, which, if combined, would result in higher commitment levels than $30 million. The portfolio contains only senior loans – no junior or second lien positions; additionally, we cautiously approach making first-lien loans to borrowers that employ excessive leverage through the use of junior lien loans or unsecured layers of debt. Approximately 87% of the total oil and gas-related portfolio is secured by reserves, equipment, real estate, and other collateral, or a combination of collateral types.
We participate as a lender in loans and commitments designated as Shared National Credits (“SNCs”), which generally consist of larger and more diversified borrowers that have better access to capital markets. SNCs are loans or loan commitments of at least $20 million that are shared by three or more federally supervised institutions. The percentage of SNCs is 80% of the upstream portfolio, 80% of the midstream portfolio, and 46% of the oil and gas services portfolio. Our bankers have direct access and contact with the management of these SNC borrowers, and as such, are active participants. In many cases, we provide ancillary banking services to these borrowers, further evidencing this direct relationship. The results of the recent SNC exam are reflected in our financial statements.
As a secondary source of support, many of our oil and gas-related borrowers have access to capital markets and private equity sources. Private sponsors tend to be large funds, often with assets under management of more than $1 billion, managed by individuals with a great deal of oil and gas expertise and experience and who have successfully managed investments through previous oil and gas price cycles. The investors in the funds are primarily institutional investors, such as large pensions, foundations, trusts, and high net worth family offices.
When establishing the level of the ACL, we consider multiple factors, including reduced drilling activity and additional capital raises by borrowers and their sponsors. The ACL related to the oil and gas portfolio remains above 7% for the third quarter of 2017.
ZIONS BANCORPORATION AND SUBSIDIARIES
Commercial Real Estate Loans
Selected information indicative of credit quality regarding our CRE loan portfolio is presented in the following schedule.
COMMERCIAL REAL ESTATE PORTFOLIO BY LOAN TYPE AND COLLATERAL LOCATION
| | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | |
| (Dollar amounts in millions) | | | | Collateral Location | | | | | | | | | | | | | | | | | | |
| Loan type | | As of
date | | Arizona | | California | | Colorado | | Nevada | | Texas | | Utah/
Idaho | | Wash-ington | | Other 1 | | Total | | % of
total
CRE |
| Commercial term | | | | | | | | | | | | | | | | | | | | | | |
| Balance outstanding | | 6/30/2019 | | $ | 1,221 | | $ | 2,969 | | $ | 605 | | $ | 577 | | $ | 1,566 | | $ | 1,314 | | $ | 397 | | $ | 569 | | $ | 9,218 | | 77.9 | % |
| % of loan type | | | | 13.2 | % | | 32.2 | % | | 6.6 | % | | 6.3 | % | | 17.0 | % | | 14.2 | % | | 4.3 | % | | 6.2 | % | | 100.0 | % | | |
Delinquency rates 2: | | | | | | | | | | | | | | | | | | | | | | |
| 30-89 days | | 6/30/2019 | | 0.2 | % | | — | % | | — | % | | — | % | | — | % | | 0.3 | % | | — | % | | 0.4 | % | | 0.1 | % | | |
| | 3/31/2019 | | 0.3 | % | | 0.2 | % | | 0.2 | % | | — | % | | 0.1 | % | | 0.1 | % | | — | % | | 0.3 | % | | 0.2 | % | | |
| ≥ 90 days | | 6/30/2019 | | — | % | | 0.1 | % | | — | % | | — | % | | 0.1 | % | | 0.1 | % | | — | % | | — | % | | 0.1 | % | | |
| | 3/31/2019 | | — | % | | 0.1 | % | | — | % | | — | % | | 0.1 | % | | 0.1 | % | | — | % | | — | % | | 0.1 | % | | |
| Accruing loans past due 90 days or more | | 6/30/2019 | | $ | — | | $ | — | | $ | — | | $ | — | | $ | — | | $ | — | | $ | — | | $ | — | | $ | — | | |
| | 3/31/2019 | | — | | — | | — | | — | | — | | 1 | | — | | — | | 1 | | |
| Nonaccrual loans | | 6/30/2019 | | $ | 2 | | $ | 6 | | $ | — | | $ | — | | $ | 4 | | $ | 5 | | $ | — | | $ | 14 | | $ | 31 | | |
| | 3/31/2019 | | 2 | | 6 | | — | | — | | 4 | | 5 | | — | | 15 | | 32 | | |
| Residential construction and land development | | | | | | | | | | | | | | | | | | | | | | |
| Balance outstanding | | 6/30/2019 | | $ | 40 | | $ | 336 | | $ | 76 | | $ | 1 | | $ | 190 | | $ | 53 | | $ | 10 | | $ | 9 | | $ | 715 | | 6.1 | % |
| % of loan type | | | | 5.6 | % | | 47.0 | % | | 10.6 | % | | 0.1 | % | | 26.6 | % | | 7.4 | % | | 1.4 | % | | 1.3 | % | | 100.0 | % | | |
Delinquency rates 2: | | | | | | | | | | | | | | | | | | | | | | |
| 30-89 days | | 6/30/2019 | | — | % | | — | % | | — | % | | — | % | | — | % | | — | % | | — | % | | — | % | | — | % | | |
| | 3/31/2019 | | — | % | | — | % | | — | % | | — | % | | — | % | | — | % | | — | % | | — | % | | — | % | | |
| ≥ 90 days | | 6/30/2019 | | — | % | | — | % | | — | % | | — | % | | — | % | | — | % | | — | % | | — | % | | — | % | | |
| | 3/31/2019 | | — | % | | — | % | | — | % | | — | % | | — | % | | — | % | | — | % | | — | % | | — | % | | |
| Accruing loans past due 90 days or more | | 6/30/2019 | | $ | — | | $ | — | | $ | — | | $ | — | | $ | — | | $ | — | | $ | — | | $ | — | | $ | — | | |
| | 3/31/2019 | | — | | — | | — | | — | | — | | — | | — | | — | | — | | |
| Nonaccrual loans | | 6/30/2019 | | $ | — | | $ | — | | $ | — | | $ | — | | $ | — | | $ | — | | $ | — | | $ | — | | $ | — | | |
| | 3/31/2019 | | — | | — | | — | | — | | — | | — | | — | | — | | — | | |
| Commercial construction and land development | | | | | | | | | | | | | | | | | | | | | | |
| Balance outstanding | | 6/30/2019 | | $ | 154 | | $ | 319 | | $ | 79 | | $ | 112 | | $ | 466 | | $ | 512 | | $ | 209 | | $ | 43 | | $ | 1,894 | | 16.0 | % |
| % of loan type | | | | 8.1 | % | | 16.9 | % | | 4.2 | % | | 5.9 | % | | 24.6 | % | | 27.0 | % | | 11.0 | % | | 2.3 | % | | 100.0 | % | | |
Delinquency rates 2: | | | | | | | | | | | | | | | | | | | | | | |
| 30-89 days | | 6/30/2019 | | — | % | | 3.5 | % | | — | % | | — | % | | — | % | | — | % | | 5.8 | % | | — | % | | 1.2 | % | | |
| | 3/31/2019 | | — | % | | 1.1 | % | | — | % | | — | % | | 0.3 | % | | 1.1 | % | | — | % | | — | % | | 0.6 | % | | |
| ≥ 90 days | | 6/30/2019 | | — | % | | — | % | | — | % | | — | % | | — | % | | 1.2 | % | | — | % | | — | % | | 0.3 | % | | |
| | 3/31/2019 | | — | % | | — | % | | — | % | | — | % | | — | % | | 0.2 | % | | — | % | | — | % | | 0.1 | % | | |
| Accruing loans past due 90 days or more | | 6/30/2019 | | $ | — | | $ | — | | $ | — | | $ | — | | $ | — | | $ | 5 | | $ | — | | $ | — | | $ | 5 | | |
| | 3/31/2019 | | — | | — | | — | | — | | — | | 1 | | — | | — | | 1 | | |
| Nonaccrual loans | | 6/30/2019 | | $ | — | | $ | — | | $ | — | | $ | — | | $ | — | | $ | 1 | | $ | — | | $ | — | | $ | 1 | | |
| | 3/31/2019 | | — | | — | | — | | — | | — | | 1 | | — | | — | | 1 | | |
| Total construction and land development | | 6/30/2019 | | $ | 194 | | $ | 655 | | $ | 155 | | $ | 113 | | $ | 656 | | $ | 565 | | $ | 219 | | $ | 52 | | $ | 2,609 | | |
| Total commercial real estate | | 6/30/2019 | | $ | 1,415 | | $ | 3,624 | | $ | 760 | | $ | 690 | | $ | 2,222 | | $ | 1,879 | | $ | 616 | | $ | 621 | | $ | 11,827 | | 100.0 | % |
|
| | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | |
| (Dollar amounts in millions) | | Collateral Location | | | | |
| Loan type | | As of date | | Arizona | | California | | Colorado | | Nevada | | Texas | | Utah/ Idaho | | Wash-ington | | Other 1 | | Total | | % of total CRE |
| Commercial term | | | | | | | | | | | | | | | | | | | | | | |
| Balance outstanding | | 9/30/2017 | | $ | 1,042 |
| | $ | 2,987 |
| | $ | 430 |
| | $ | 567 |
| | $ | 1,642 |
| | $ | 1,325 |
| | $ | 419 |
| | $ | 532 |
| | $ | 8,944 |
| | 80.5 | % |
| % of loan type | | | | 11.7 | % | | 33.4 | % | | 4.8 | % | | 6.3 | % | | 18.4 | % | | 14.8 | % | | 4.7 | % | | 5.9 | % | | 100.0 | % | | |
Delinquency rates 2: | | | | | | | | | | | | | | | | | | | | | | |
| 30-89 days | | 9/30/2017 | | 0.1 | % | | — | % | | — | % | | 0.2 | % | | 0.1 | % | | 0.1 | % | | — | % | | 0.6 | % | | 0.1 | % | | |
| | | 12/31/2016 | | 0.1 | % | | — | % | | — | % | | 0.7 | % | | — | % | | 0.1 | % | | 0.1 | % | | 0.1 | % | | 0.1 | % | | |
| ≥ 90 days | | 9/30/2017 | | 0.2 | % | | 0.1 | % | | — | % | | — | % | | 0.1 | % | | 0.1 | % | | 0.2 | % | | 0.5 | % | | 0.1 | % | | |
| | | 12/31/2016 | | 0.2 | % | | 0.4 | % | | — | % | | — | % | | — | % | | 0.1 | % | | — | % | | 1.2 | % | | 0.2 | % | | |
| Accruing loans past due 90 days or more | | 9/30/2017 | | $ | — |
| | $ | 2 |
| | $ | — |
| | $ | — |
| | $ | — |
| | $ | — |
| | $ | — |
| | $ | — |
| | $ | 2 |
| | |
| | | 12/31/2016 | | — |
| | 10 |
| | — |
| | — |
| | — |
| | 2 |
| | — |
| | — |
| | 12 |
| | |
| Nonaccrual loans | | 9/30/2017 | | $ | 7 |
| | $ | 8 |
| | $ | 1 |
| | $ | 3 |
| | $ | 17 |
| | $ | 1 |
| | $ | 1 |
| | $ | 3 |
| | $ | 41 |
| | |
| | | 12/31/2016 | | 8 |
| | 11 |
| | — |
| | 2 |
| | 1 |
| | — |
| | 7 |
| | — |
| | 29 |
| | |
| Residential construction and land development | | | | | | | | | | | | | | | | |
| Balance outstanding | | 9/30/2017 | | $ | 30 |
| | $ | 286 |
| | $ | 54 |
| | $ | 4 |
| | $ | 225 |
| | $ | 36 |
| | $ | 5 |
| | $ | 5 |
| | $ | 645 |
| | 5.8 | % |
| % of loan type | | | | 4.6 | % | | 44.3 | % | | 8.4 | % | | 0.6 | % | | 34.9 | % | | 5.6 | % | | 0.8 | % | | 0.8 | % | | 100.0 | % | | |
Delinquency rates 2: | | | | | | | | | | | | | | | | | | | | | | |
| 30-89 days | | 9/30/2017 | | — | % | | 0.1 | % | | — | % | | — | % | | 1.6 | % | | — | % | | — | % | | — | % | | 0.6 | % | | |
| | | 12/31/2016 | | 1.8 | % | | — | % | | — | % | | — | % | | 0.3 | % | | — | % | | — | % | | — | % | | 0.2 | % | | |
| ≥ 90 days | | 9/30/2017 | | — | % | | — | % | | — | % | | — | % | | 0.6 | % | | — | % | | — | % | | — | % | | 0.2 | % | | |
| | | 12/31/2016 | | — | % | | — | % | | — | % | | — | % | | — | % | | — | % | | — | % | | — | % | | — | % | | |
| Accruing loans past due 90 days or more | | 9/30/2017 | | $ | — |
| | $ | — |
| | $ | — |
| | $ | — |
| | $ | 1 |
| | $ | — |
| | $ | — |
| | $ | — |
| | $ | 1 |
| | |
| | | 12/31/2016 | | — |
| | — |
| | — |
| | — |
| | — |
| | — |
| | — |
| | — |
| | — |
| | |
| Nonaccrual loans | | 9/30/2017 | | $ | — |
| | $ | — |
| | $ | — |
| | $ | — |
| | $ | — |
| | $ | — |
| | $ | — |
| | $ | — |
| | $ | — |
| | |
| | | 12/31/2016 | | — |
| | — |
| | — |
| | — |
| | — |
| | — |
| | — |
| | — |
| | — |
| | |
| Commercial construction and land development | | | | | | | | | | | | | | | | |
| Balance outstanding | | 9/30/2017 | | $ | 116 |
| | $ | 315 |
| | $ | 108 |
| | $ | 94 |
| | $ | 486 |
| | $ | 260 |
| | $ | 102 |
| | $ | 44 |
| | $ | 1,525 |
| | 13.7 | % |
| % of loan type | | | | 7.6 | % | | 20.6 | % | | 7.1 | % | | 6.2 | % | | 31.9 | % | | 17.0 | % | | 6.7 | % | | 2.9 | % | | 100.0 | % | | |
Delinquency rates 2: | | | | | | | | | | | | | | | | | | | | | | |
| 30-89 days | | 9/30/2017 | | — | % | | 0.8 | % | | — | % | | — | % | | — | % | | — | % | | — | % | | — | % | | 0.2 | % | | |
| | | 12/31/2016 | | — | % | | — | % | | — | % | | 0.9 | % | | — | % | | 2.5 | % | | — | % | | — | % | | 0.5 | % | | |
| ≥ 90 days | | 9/30/2017 | | — | % | | — | % | | — | % | | — | % | | — | % | | 1.9 | % | | — | % | | — | % | | 0.3 | % | | |
| | | 12/31/2016 | | — | % | | — | % | | — | % | | — | % | | 0.4 | % | | — | % | | — | % | | — | % | | 0.2 | % | | |
| Accruing loans past due 90 days or more | | 9/30/2017 | | $ | — |
| | $ | — |
| | $ | — |
| | $ | — |
| | $ | — |
| | $ | — |
| | $ | — |
| | $ | — |
| | $ | — |
| | |
| | | 12/31/2016 | | — |
| | — |
| | — |
| | — |
| | — |
| | — |
| | — |
| | — |
| | — |
| | |
| Nonaccrual loans | | 9/30/2017 | | $ | — |
| | $ | — |
| | $ | — |
| | $ | — |
| | $ | — |
| | $ | 5 |
| | $ | — |
| | $ | — |
| | $ | 5 |
| | |
| | | 12/31/2016 | | — |
| | — |
| | — |
| | — |
| | 2 |
| | 5 |
| | — |
| | — |
| | 7 |
| | |
| Total construction and land development | | 9/30/2017 | | $ | 146 |
|
| $ | 601 |
|
| $ | 162 |
|
| $ | 98 |
|
| $ | 711 |
|
| $ | 296 |
|
| $ | 107 |
|
| $ | 49 |
| | $ | 2,170 |
| | |
| Total commercial real estate | | 9/30/2017 | | $ | 1,188 |
|
| $ | 3,588 |
|
| $ | 592 |
|
| $ | 665 |
|
| $ | 2,353 |
|
| $ | 1,621 |
|
| $ | 526 |
|
| $ | 581 |
| | $ | 11,114 |
| | 100.0 | % |
| |
12 Delinquency rates include nonaccrual loans. | No other geography exceeds $67 million for all three loan types. |
| |
2
| Delinquency rates include nonaccrual loans. |
Approximately 21%9% of the CRE term loans consist of mini-perm loans as of SeptemberJune 30, 2017.2019. For such loans, construction has been completed and the project has stabilized to a level that supports the granting of a mini-perm loan in accordance with our underwriting standards. Mini-perm loans generally have initial maturities of three to
ZIONS BANCORPORATION, NATIONAL ASSOCIATION AND SUBSIDIARIES
sevenfive years. The remaining 79%91% of CRE loans are term loans with initial maturities generally of 5 to 20 years. The stabilization criteria for a project to qualify for a term loan differ by product type and include criteria related to the cash flow generated by the project, loan-to-value ratio, and occupancy rates.
Approximately $134$210 million, or 9%8%, of the commercial construction and land development portfolio at SeptemberJune 30, 20172019 consists of land acquisition and development loans. Most of these land acquisition and development loans are secured by specific retail, apartment, office, or other projects.
OfFor a more comprehensive discussion of commercial real estate loans, see the total CRE loan portfolio we categorize $1.9 billion as retail property. At September 30, 2017, approximately $339 million, or 18%, of the retail CRE loans are secured by regional shopping centers.
Underwriting on commercial properties is primarily based on the economic viability of the project with heavy consideration given to the creditworthiness and experience of the sponsor. We generally require that the owner’s equity be injected prior to bank advances. Remargining requirements (required equity infusions upon a decline in value or cash flow of the collateral) are often included in the loan agreement along with guarantees of the sponsor. Recognizing that debt is paid via cash flow, the projected cash flows of the project are critical in the underwriting because these determine the ultimate value of the property and its ability to service debt. Therefore, in most projects (with the exception of multifamily and hospitality construction projects), we require substantial pre-leasing/leasing“Commercial Real Estate Loans” section in our underwriting and we generally require a minimum projected stabilized debt service coverage ratio of 1.20 or higher, depending2018 Annual Report on the project asset class.Form 10-K.
Within the residential construction and development sector, many of the requirements previously mentioned, such as creditworthiness and experience of the developer, up-front injection of the developer’s equity, principal curtailment requirements, and the viability of the project are also important in underwriting a residential development loan. Significant consideration is given to the forecasted market acceptance of the product, location, strength of the developer, and the ability of the developer to stay within budget. Progress inspections by qualified independent inspectors are routinely performed before disbursements are made.
Real estate appraisals are ordered in accordance with regulatory guidelines and are validated independent of the loan officer and the borrower, generally by our internal appraisal review function, which is staffed by licensed appraisers. In some cases, reports from automated valuation services are used or internal evaluations are performed. A new appraisal or evaluation is required when a loan deteriorates to a certain level of credit weakness.
Advance rates (i.e., loan commitments) will vary based on the viability of the project and the creditworthiness of the sponsor, but our guidelines generally limit advances to 50% for raw land, 65% for land development, 65% for finished commercial lots, 75% for finished residential lots, 80% for pre-sold homes, 75% for models and homes not under contract, and 75% for commercial properties. Exceptions may be granted on a case-by-case basis.
Loan agreements require regular financial information on the project and the sponsor in addition to lease schedules, rent rolls and, on construction projects, independent progress inspection reports. The receipt of this financial information is monitored and calculations are made to determine adherence to the covenants set forth in the loan agreement.
The existence of a guarantee that improves the likelihood of repayment is taken into consideration when analyzing CRE loans for impairment. If the support of the guarantor is quantifiable and documented, it is included in the potential cash flows and liquidity available for debt repayment, and our impairment methodology takes this repayment source into consideration.
When we modify or extend a loan, we also give consideration to whether the borrower is in financial difficulty, and whether we have granted a concession. In determining if an interest rate concession has been granted, we consider whether the interest rate on the modified loan is equivalent to current market rates for new debt with similar risk characteristics. If the rate in the modification is less than current market rates, it may indicate that a concession was granted and impairment exists. However, if additional collateral is obtained, or if a guarantor exists who has
ZIONS BANCORPORATION AND SUBSIDIARIES
capacity and willingness to support the loan on an extended basis, we also consider the nature and amount of the additional collateral and guarantees in the ultimate determination of whether a concession has been granted.
In general, we obtain and consider updated financial information for the guarantor as part of our determination to extend a loan. The quality and frequency of financial reporting collected and analyzed varies depending on the contractual requirements for reporting, the size of the transaction, and the strength of the guarantor.
Complete underwriting of the guarantor includes, but is not limited to, an analysis of the guarantor’s current financial statements, leverage, liquidity, global cash flow, global debt service coverage, contingent liabilities, etc. The assessment also includes a qualitative analysis of the guarantor’s willingness to perform in the event of a problem and demonstrated history of performing in similar situations. Additional analysis may include personal financial statements, tax returns, liquidity (brokerage) confirmations, and other reports, as appropriate.
A qualitative assessment is performed on a case-by-case basis to evaluate the guarantor’s experience, performance track record, reputation, and willingness to work with us. We also utilize market information sources, rating, and scoring services in our assessment. This qualitative analysis coupled with a documented quantitative ability to support the loan may result in a higher-quality internal loan grade, which may reduce the level of allowance we estimate. Previous documentation of the guarantor’s financial ability to support the loan is discounted if there is any indication of a lack of willingness by the guarantor to support the loan.
In the event of default, we evaluate the pursuit of any and all appropriate potential sources of repayment, which may come from multiple sources, including the guarantee. A number of factors are considered when deciding whether or not to pursue a guarantor, including, but not limited to, the value and liquidity of other sources of repayment (collateral), the financial strength and liquidity of the guarantor, possible statutory limitations (e.g., single action rule on real estate) and the overall cost of pursuing a guarantee compared with the ultimate amount we may be able to recover. In other instances, the guarantor may voluntarily support a loan without any formal pursuit of remedies.
A decrease in oil and gas prices could potentially produce an adverse impact on our CRE loan portfolio within Texas. However, based upon generally strong equity and cash flow coverage levels, and sponsor support for the various properties, we do not expect a material amount of losses within this portfolio for the remainder of 2017. Our largest CRE credit exposures in Texas are to the multi-family, office, and retail sectors. As of September 30, 2017, the CRE loan portfolio mix in Texas is 68% commercial term, 19% commercial construction, 10% residential construction, and 3% land development.
Consumer Loans
We have mainly been an originator of first and second mortgages, generally considered to be of prime quality. We generally hold variable-rate loans in our portfolio and sell “conforming” fixed-rate loans to third parties, including Federal National Mortgage Association and Federal Home Loan Mortgage Corporation, for which we make representations and warranties that the loans meet certain underwriting and collateral documentation standards.
We are also engaged in Home Equity Credit Line (“HECL”) lending. At Septemberboth June 30, 2017,2019 and December 31, 2018, our HECL portfolio totaled $2.7 billion, compared with $2.6 billion at December 31, 2016.$2.9 billion. The following schedule describes the composition of our HECL portfolio by lien status.
HECL PORTFOLIO BY LIEN STATUS
| | | (In millions) | September 30, 2017 | | December 31, 2016 | (In millions) | June 30,
2019 | | December 31,
2018 |
| | | | | | | | |
| Secured by first deeds of trust | $ | 1,396 |
| | $ | 1,383 |
| Secured by first deeds of trust | $ | 1,417 | | $ | 1,458 |
| Secured by second (or junior) liens | 1,349 |
| | 1,262 |
| Secured by second (or junior) liens | 1,512 | | 1,479 |
| Total | $ | 2,745 |
| | $ | 2,645 |
| Total | $ | 2,929 | | $ | 2,937 |
At SeptemberJune 30, 2017,2019, loans representing approximatelyless than 1% of the outstanding balance in the HECL portfolio were estimated to have combined loan-to-value ratios (“CLTV”) above 100%. An estimated CLTV ratio is the ratio of our loan plus any prior lien amounts divided by the estimated current collateral value. At origination,
ZIONS BANCORPORATION AND SUBSIDIARIES
underwriting standards for the HECL portfolio generally include a maximum 80% CLTV with high credit scores at origination.
Approximately 91%88% of our HECL portfolio is still in the draw period, and approximately 24%15% of those loans are scheduled to begin amortizing within the next five years. We regularly analyze the risk of borrower default in the event of a loan becoming fully amortizing and the risk of higher interest rates. The analysis indicates that the risk of loss from this factor is minimal in the current economic environment. The annualized ratio of net charge-offs to average balances for the first ninesix months of 20172019 and 20162018 for the HECL portfolio was (0.01)(0.02)% and 0.02%0.01%, respectively. See Note 6 of the Notes to Consolidated Financial Statements for additional information on the credit quality of this portfolio.
Nonperforming Assets
Nonperforming assets as a percentage of loans and leases and other real estate owned (“OREO”) decreased to 1.06%0.52% at SeptemberJune 30, 2017,2019, compared with 1.34%0.55% at December 31, 2016.2018.
Total nonaccrual loans at SeptemberJune 30, 20172019 decreased $104$4 million from December 31, 2016,2018, primarily in the commercial and industrial loan portfolio. However, nonaccrual loans slightly increased in the commercial owner-occupied andterm commercial real estate term loan portfolios.portfolio. The largest total decrease in nonaccrual loans occurred at Amegy.Amegy, mainly due to improvements in the oil and gas-related portfolio.
The balance of nonaccrual loans can decrease due to paydowns, charge-offs, and the return of loans to accrual status under certain conditions. If a nonaccrual loan is refinanced or restructured, the new note is immediately placed on nonaccrual. If a restructured loan performs under the new terms for at least a period of six months, the loan can be considered for return to accrual status. See “Restructured Loans” following for more information. CompanyBank policy does not allow for the conversion of nonaccrual construction and land development loans to CRE term loans. See Note 6 of the Notes to Consolidated Financial Statements for more information on nonaccrual loans.
ZIONS BANCORPORATION, NATIONAL ASSOCIATION AND SUBSIDIARIES
The following schedule sets forth our nonperforming assets:
NONPERFORMING ASSETS
| | | | | | | | | | | |
| (Dollar amounts in millions) | June 30,
2019 | | December 31,
2018 |
| | | |
Nonaccrual loans 1 | $ | 248 | | $ | 252 |
| Other real estate owned | 5 | | 4 |
| Total nonperforming assets | $ | 253 | | $ | 256 |
Ratio of nonperforming assets to net loans and leases1 and other real estate owned | 0.52 | % | | 0.55 | % |
| Accruing loans past due 90 days or more | $ | 17 | | $ | 10 |
Ratio of accruing loans past due 90 days or more to loans and leases1 | 0.03 | % | | 0.02 | % |
| Nonaccrual loans and accruing loans past due 90 days or more | $ | 265 | | $ | 262 |
Ratio of nonaccrual loans and accruing loans past due 90 days or more to loans and leases1 | 0.54 | % | | 0.56 | % |
| Accruing loans past due 30-89 days | $ | 99 | | $ | 65 |
Nonaccrual loans1 current as to principal and interest payments | 60.1 | % | | 58.5 | % |
|
| | | | | | | |
| (Dollar amounts in millions) | September 30,
2017 | | December 31,
2016 |
| | | | |
Nonaccrual loans 1 | $ | 465 |
| | $ | 569 |
|
| Other real estate owned | 3 |
| | 4 |
|
| Total nonperforming assets | $ | 468 |
| | $ | 573 |
|
Ratio of nonperforming assets to net loans and leases1 and other real estate owned | 1.06 | % | | 1.34 | % |
| Accruing loans past due 90 days or more | $ | 30 |
| | $ | 36 |
|
Ratio of accruing loans past due 90 days or more to loans and leases1 | 0.07 | % | | 0.08 | % |
| Nonaccrual loans and accruing loans past due 90 days or more | $ | 495 |
| | $ | 605 |
|
Ratio of nonaccrual loans and accruing loans past due 90 days or more to loans and leases1 | 1.12 | % | | 1.41 | % |
| Accruing loans past due 30-89 days | $ | 99 |
| | $ | 126 |
|
Nonaccrual loans1 current as to principal and interest payments | 57 | % | | 74 | % |
1 Includes loans held for sale.
Restructured Loans
Troubled debt restructurings (“TDRs”) are loans that have been modified to accommodate a borrower who is experiencing financial difficulties, and for whom we have granted a concession that we would not otherwise consider. TDRs decreased $3$26 million, or 1.2%13%, during the first ninesix months of 2017.2019, primarily due to payments and payoffs. Commercial loans may be modified to provide the borrower more time to complete the project, to achieve a higher lease-up percentage, to sell the property, or for other reasons. Consumer loan TDRs represent loan modifications in which a concession has been granted to the borrower who is unable to refinance the loan with another lender, or who is experiencing economic hardship. Such consumer loan TDRs may include first-lien residential mortgage loans and home equity loans.
If the restructured loan performs for at least six months according to the modified terms, and an analysis of the customer’s financial condition indicates that we are reasonably assured of repayment of the modified principal and interest, the loan may be returned to accrual status. The borrower’s payment performance prior to and following the restructuring is taken into account to determine whether a loan should be returned to accrual status.
ZIONS BANCORPORATION AND SUBSIDIARIES
ACCRUING AND NONACCRUING TROUBLED DEBT RESTRUCTURED LOANS
| | | (In millions) | September 30,
2017 | | December 31,
2016 | (In millions) | June 30,
2019 | | December 31,
2018 |
| | | | | | | | |
| Restructured loans – accruing | $ | 133 |
| | $ | 151 |
| Restructured loans – accruing | $ | 97 | | $ | 112 |
| Restructured loans – nonaccruing | 115 |
| | 100 |
| Restructured loans – nonaccruing | 79 | | 90 |
| Total | $ | 248 |
| | $ | 251 |
| Total | $ | 176 | | $ | 202 |
In the periods following the calendar year in which a loan was restructured, a loan may no longer be reported as a TDR if it is on accrual, is in compliance with its modified terms, and yields a market rate (as determined and documented at the time of the modification or restructure). See Note 6 of the Notes to Consolidated Financial Statements for additional information regarding TDRs.
ZIONS BANCORPORATION, NATIONAL ASSOCIATION AND SUBSIDIARIES
TROUBLED DEBT RESTRUCTURED LOANS ROLLFORWARD
| | | | Three Months Ended
September 30, | | Nine Months Ended
September 30, | | Three Months Ended
June 30, | | | Six Months Ended
June 30, | |
| (In millions) | 2017 | | 2016 | | 2017 | | 2016 | (In millions) | 2019 | | 2018 | | 2019 | | 2018 | |
| | | | | | | | | | | | | | | | | |
| Balance at beginning of period | $ | 304 |
| | $ | 315 |
| | $ | 251 |
| | $ | 297 |
| Balance at beginning of period | $ | 174 | | $ | 229 | | $ | 202 | | $ | 226 | |
| New identified TDRs and principal increases | 7 |
| | 40 |
| | 163 |
| | 142 |
| New identified TDRs and principal increases | 14 | | 18 | | 20 | | 69 | |
| Payments and payoffs | (45 | ) | | (35 | ) | | (117 | ) | | (107 | ) | Payments and payoffs | (11) | | (54) | | (39) | | (88) | |
| Charge-offs | (4 | ) | | (24 | ) | | (17 | ) | | (29 | ) | Charge-offs | (1) | | (2) | | (5) | | (3) | |
| No longer reported as TDRs | — |
| | — |
| | (4 | ) | | (7 | ) | No longer reported as TDRs | — | | (7) | | — | | (18) | |
| Sales and other | (14 | ) | | (1 | ) | | (28 | ) | | (1 | ) | Sales and other | — | | (3) | | (2) | | (5) | |
| Balance at end of period | $ | 248 |
| | $ | 295 |
| | $ | 248 |
| | $ | 295 |
| Balance at end of period | $ | 176 | | $ | 181 | | $ | 176 | | $ | 181 | |
Allowance for Credit Losses
In analyzing the adequacy of the ALLL, we utilize a comprehensive loan grading system to determine the risk potential in the portfolio and also consider the results of independent internal credit reviews. To determine the adequacy of the allowance, our loan and lease portfolio is broken into segments based on loan type.
ZIONS BANCORPORATION AND SUBSIDIARIES
The following schedule shows the changes in the allowance for loan losses and a summary of loan loss experience:
SUMMARY OF LOAN LOSS EXPERIENCE
| | | (Dollar amounts in millions) | Nine Months Ended September 30, 2017 | | Twelve Months Ended December 31, 2016 | | Nine Months Ended September 30, 2016 | (Dollar amounts in millions) | Six Months
Ended
June 30, 2019 | | Twelve Months
Ended
December 31, 2018 | | Six Months
Ended
June 30, 2018 |
| | | | | | | | | | | | |
| Loans and leases outstanding (net of unearned income) | $ | 44,156 |
| | $ | 42,649 |
| | $ | 42,540 |
| Loans and leases outstanding (net of unearned income) | $ | 48,617 | | $ | 46,714 | | $ | 45,230 |
| Average loans and leases outstanding (net of unearned income) | $ | 43,218 |
| | $ | 42,062 |
| | $ | 41,868 |
| Average loans and leases outstanding (net of unearned income) | $ | 47,750 | | $ | 45,425 | | $ | 45,054 |
| Allowance for loan losses: | | | | | | Allowance for loan losses: | | | | | |
| Balance at beginning of period | $ | 567 |
| | $ | 606 |
| | $ | 606 |
| Balance at beginning of period | $ | 495 | | $ | 518 | | $ | 518 |
| Provision charged to earnings | 35 |
| | 93 |
| | 95 |
| |
| Provision for loan losses | | Provision for loan losses | 22 | | (39) | | (35) |
| | Charge-offs: | | | | | | Charge-offs: | |
| Commercial | (98 | ) | | (170 | ) | | (138 | ) | Commercial | 27 | | 46 | | 30 |
| Commercial real estate | (6 | ) | | (12 | ) | | (10 | ) | Commercial real estate | 1 | | 5 | | — |
| Consumer | (13 | ) | | (16 | ) | | (11 | ) | Consumer | 7 | | 18 | | 9 |
| Total | (117 | ) | | (198 | ) | | (159 | ) | Total | 35 | | 69 | | 39 |
| Recoveries: | | | | | | Recoveries: | | | | | |
| Commercial | 36 |
| | 43 |
| | 36 |
| Commercial | 12 | | 68 | | 38 |
| Commercial real estate | 12 |
| | 14 |
| | 12 |
| Commercial real estate | 3 | | 9 | | 5 |
| Consumer | 8 |
| | 9 |
| | 7 |
| Consumer | 6 | | 8 | | 3 |
| Total | 56 |
| | 66 |
| | 55 |
| Total | 21 | | 85 | | 46 |
| Net loan and lease charge-offs | (61 | ) | | (132 | ) | | (104 | ) | |
| Net loan and lease charge-offs (recoveries) | | Net loan and lease charge-offs (recoveries) | 14 | | (16) | | (7) |
| Balance at end of period | $ | 541 |
| | $ | 567 |
| | $ | 597 |
| Balance at end of period | $ | 503 | | $ | 495 | | $ | 490 |
| Ratio of annualized net charge-offs to average loans and leases | 0.19 | % | | 0.31 | % | | 0.33 | % | Ratio of annualized net charge-offs to average loans and leases | 0.06 | % | | (0.04) | % | | (0.03) | % |
| Ratio of allowance for loan losses to net loans and leases, at period end | 1.23 | % | | 1.33 | % | | 1.40 | % | Ratio of allowance for loan losses to net loans and leases, at period end | 1.03 | % | | 1.06 | % | | 1.08 | % |
| Ratio of allowance for loan losses to nonaccrual loans, at period end | 120 | % | | 107 | % | | 103 | % | Ratio of allowance for loan losses to nonaccrual loans, at period end | 203 | % | | 201 | % | | 143 | % |
| Ratio of allowance for loan losses to nonaccrual loans and accruing loans past due 90 days or more, at period end | 112 | % | | 100 | % | | 98 | % | Ratio of allowance for loan losses to nonaccrual loans and accruing loans past due 90 days or more, at period end | 190 | % | | 193 | % | | 141 | % |
The total ALLL decreasedincreased during the first ninesix months of 20172019 by $26$8 million as a result of credit quality improvementsloan growth, increased net charge-offs, and an increase in the total loan portfolio.qualitative portion related to general economic indicators.
The RULC represents a reserve for potential losses associated with off-balance-sheetoff-balance sheet commitments and standby letters of credit. The reserve is separately shown in the balance sheet and any related increases or decreases in the reserve are shown separately in the statement of income. At SeptemberJune 30, 2017,2019, the reserve decreased by $6 million compared with December 31, 2016, also as a result of credit quality improvements in the total loan portfolio, and decreasedincreased by $3 million from SeptemberDecember 31, 2018, and increased by $2 million from June 30, 2016.2018.
ZIONS BANCORPORATION, NATIONAL ASSOCIATION AND SUBSIDIARIES
See Note 6 of the Notes to Consolidated Financial Statements for additional information related to the ACL and credit trends experienced in each portfolio segment.
Interest Rate and Market Risk Management
Interest rate and market risk are managed centrally. Interest rate risk is the potential for reduced net interest income and other rate sensitiverate-sensitive income resulting from adverse changes in the level of interest rates. Market risk is the potential for loss arising from adverse changes in the fair value of fixed income securities, equity securities, other earning assets, and derivative financial instruments as a result of changes in interest rates or other factors. As a financial institution that engages in transactions involving an array of financial products, we are exposed to both interest rate risk and market risk.
The Company’sBank’s Board of Directors is responsible for approving the overall policies relating to the management of the financial risk of the Company,Bank, including interest rate and market risk management. The Board has established the Asset/Liability Committee (“ALCO”) consisting of members of management, to which it has delegated the
ZIONS BANCORPORATION AND SUBSIDIARIES
responsibility of managing interest rate and market risk for the Company.Bank. ALCO establishes and periodically revises policy limits and reviews with the ROC the limits and limit exceptions reported by management.
Interest Rate Risk
Interest rate risk is one of the most significant risks to which we are regularly exposed. In general, our goal in managing interest rate risk is to manage balance sheet sensitivity to reduce net income volatility due to changes in interest rates.
Over the course of the last year,several years, we have actively reduced the level of asset sensitivity through the purchase of short-to-medium duration agency pass-through securities and funding these purchases by reducing money market investments and increasing short-term borrowings. This repositioning of the investment portfolio has increased current net interest income while dampening the impact of higherlower rates on net interest income growth.contraction. We continue to anticipate highermoderately lower net interest income in a risingfalling rate environment as our assets reprice more quickly than our liabilities.
As most of our liabilities are comprised of indeterminate maturity and managed rate deposits, behavioral assumptions for these deposits have a significant impact on our projected interest rate risk. We have historically reported two sets of deposit assumptions, fast and slow, to reflect the uncertainty of deposit behavior and its impact on interest rate risk. We have recently updated Furthermore, as our deposit modelsrates changes tend to lag changes in our assets, we anticipate a reduction in current interest income in a stable rate environment as asset yields level off and now disclose interest rate risk for only a single set of deposit behavioral assumptions. The newly implemented method differs from prior methods primarily in the way we treat commercial checking deposits and in the manner by which we determine the portion of deposits that are core deposits. For commercial checking deposits, we have separated the balances into a core amount that is operational or that compensates for billed services, and a complementary excess balance. The excess balance is modeled with a high attrition rate, whereas the core balance runs off more slowly. For other deposit types, the core balance is determined by the average balance over a longer-term horizon, typically 24rates continue to 48 months, and excess balances are modeled with a high attrition rate.increase slightly.
Interest Rate Risk Measurement
We monitor interest rate risk through the use of two complementary measurement methods: net interest income simulation, or Earnings at Risk (“EaR”), and Economic Value of Equity at Risk (“EVE”). Earnings at RiskEaR analyzes the expected change in near term (one year) net interest income in response to changes in interest rates. In the EVE method, we measure the expected changes in the fair value of equity in response to changes in interest rates.
Earnings at RiskEaR is an estimate of the change in total net interest income that would be recognized under different rate environments. Earnings at Riskenvironments over a one-year period. EaR is measured assumingsimulating net interest income under several different scenarios including parallel and nonparallel interest rate shifts across the yield curve, taking into account deposit repricing assumptions and estimates of the possible exercise of embedded options within the portfolio (e.g., a borrower’s ability to refinance a loan under a lower ratelower-rate environment). Our policy contains a trigger for a 10% decline in rate sensitiverate-sensitive income as well as a risk capacity of a 13% decline if rates were to immediately rise or fall in parallel by 200 bps. As of December 31, 2018 the EaR declined by 12% for a 200 bps decline in rates. This trigger violation informed our decision to move to a less asset-sensitive position throughout 2019. As of June 30, 2019 the EaR declined by 8% for a 200 bps decline in rates.
EVE is calculated as the fair value of all assets minus the fair value of liabilities. We measure changes in the dollar amount of EVE for parallel shifts in interest rates. Due to embedded optionality and asymmetric rate risk, changes in EVE can be useful in quantifying risks not apparent for small rate changes. Examples of such risks may include out-of-the-money interest rate caps (or limits) on loans, which have little effect under small rate movements but may become important if large rate changes were to occur, or substantial prepayment deceleration for low-rate mortgages in a higher-rate environment. Our policy contains a trigger for an 8% decline in EVE as well as a risk capacity of a
ZIONS BANCORPORATION, NATIONAL ASSOCIATION AND SUBSIDIARIES
10% decline if rates were to immediately rise or fall in parallel by 200 bps. Exceptions to the EVE limits are subject to notification and approval by the ROC.
Estimating the impact on net interest income and EVE requires that we assess a number of variables and make various assumptions in managing our exposure to changes in interest rates. The assessments address deposit withdrawals and deposit product migration (e.g., customers moving money from checking accounts to certificates of deposit), competitive pricing (e.g., existing loans and deposits are assumed to roll into new loans and deposits at
ZIONS BANCORPORATION AND SUBSIDIARIES
similar spreads relative to benchmark interest rates), loan and security prepayments, and the effects of other similar embedded options. As a result of uncertainty about the maturity and repricing characteristics of both deposits and loans, we also calculate the sensitivity of EaR and EVE results to key assumptions. TheAs most of our liabilities are comprised of indeterminate maturity and managed rate deposits, the modeled results are highly sensitive to the assumptions used for these deposits, that do not have specific maturities, such as checking, savings and money market accounts, and also to prepayment assumptions used for loans with prepayment options. We use historical regression analysis as a guide tofor setting such assumptions; however, due to the current low interest rate environment, which has little historical precedent, estimated deposit behavior may not reflect actual future results. Additionally, competition for funding in the marketplace has and may again result in changes to deposit pricing on interest-bearing accounts that are greater or less than changes in benchmark interest rates such as LIBOR or the federal funds rate.
Under most rising interest rate environments, we would expect some customers to move balances from demand deposits to interest-bearing accounts such as money market, savings, or CDs.certificates of deposit. The models are particularly sensitive to the assumption about the rate of such migration.
In addition, we assume certain correlation rates, often referred to as a “deposit beta,” of interest-bearing deposits, wherein the rates paid to customers change at a different pace when compared towith changes in average benchmark interest rates. Generally, certificates of deposit are assumed to have a high correlation rate, while interest-on-checking accounts are assumed to have a lower correlation rate. Actual results may differ materially due to factors including the shape of the yield curve, competitive pricing, money supply, credit worthiness of the Company,Bank, and so forth; however, we use our historical experience as well as industry data to inform our assumptions.
The aforementioned migration and correlation assumptions result in deposit durations presented in the following schedule.
DEPOSIT ASSUMPTIONS
| | | | | September 30, 2017 | | | | | | | | | | | | | | |
| | | New Deposit Method | | June 30, 2019 | |
| Product | | Effective duration (unchanged) | | Effective duration (+200 bps) | Product | | Effective duration (unchanged) | | | Effective duration
(+200 bps) | |
| | | | | | | | | | |
| Demand deposits | | 3.3 | % | | 3.3 | % | Demand deposits | | 3.1 | % | | 3.1 | % |
| Money market | | 1.5 | % | | 1.3 | % | Money market | | 4.0 | % | | 1.6 | % |
| Savings and interest-on-checking | | 2.7 | % | | 2.4 | % | Savings and interest-on-checking | | 3.3 | % | | 2.4 | % |
As of the dates indicated and incorporating the assumptions previously described, the following schedule shows EaR, or percentage change in net interest income, based on a static balance sheet size, in the first year after the interest rate change if interest rates were to sustain immediate parallel changes ranging from -100 bps to +300 bps.
EARNINGS AT RISKINCOME SIMULATION – CHANGE IN NET INTEREST INCOME
| | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | |
| | June 30, 2019 | | | | | | | | |
| | Parallel shift in rates (in bps)1 | | | | | | | | |
| Repricing scenario | | -100 | | 0 | | +100 | | +200 | | +300 |
| | | | | | | | | | |
| Earnings at Risk | | (4.1) | % | | — | % | | 3.2 | % | | 6.0 | % | | 8.9 | % |
|
| | | | | | | | | | | | | | | |
| | | September 30, 2017 |
| | | Parallel shift in rates (in bps)1 |
| Repricing scenario | | -100 | | 0 | | +100 | | +200 | | +300 |
| | | | | | | | | | | |
| Earnings at Risk | | (3.8 | )% | | — | % | | 2.9 | % | | 5.8 | % | | 8.5 | % |
| |
1
| Assumes rates cannot go below zero in the negative rate shift. |
For non-maturity interest bearinginterest-bearing deposits, the weighted average modeled beta is 36%42%. If the weighted average deposit beta increased to 46%58% it would decrease the EaR in the +200bp+200bps shock from 5.8%6.0% to 3.3%3.7%.
ZIONS BANCORPORATION, NATIONAL ASSOCIATION AND SUBSIDIARIES
For comparative purposes, the December 31, 2018 measures are presented in the following schedule.
| | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | |
| | December 31, 2018 | | | | | | | | |
| | Parallel shift in rates (in bps)1 | | | | | | | | |
| Repricing scenario | | -100 | | 0 | | +100 | | +200 | | +300 |
| | | | | | | | | | |
| Earnings at Risk | | (5.3) | % | | — | % | | 3.4 | % | | 5.1 | % | | 10.1 | % |
| | | | | | | | | | |
| | | | | | | | | | |
| | | | | | | | | | |
1 Assumes rates cannot go below zero in the negative rate shift.
The asset sensitivity as measured by EaR decreased slightly quarter-over-quarter due to changes in the investment securities and funding compositions.
The EaR analysis focuses on parallel rate shocks across the term structure of rates. The yield curve typically does not move in a parallel manner. During the past year, an increase in short-term rates has led to a flatter yield curve as longer-term rates have not increased at the same pace as short-term rates. If we consider a flatteningsteeping rate shock
ZIONS BANCORPORATION AND SUBSIDIARIES
where the short-term rate moves +200bp-200bps but the ten-year rate only moves +30bp,-30bps, the increase in earnings decline is 31% lowerless severe over 12 months compared with the parallel +200bp-200bps rate shock.
For comparative purposes, the December 31, 2016 measures as presented in the following schedule have been recalculated using the new methodology.
|
| | | | | | | | | | | | | | | |
| | | December 31, 2016 |
| | | Parallel shift in rates (in bps)1 |
| Repricing scenario | | -100 | | 0 | | +100 | | +200 | | +300 |
| | | | | | | | | | | |
| Earnings at Risk | | (4.9 | )% | | — | % | | 3.6 | % | | 7.6 | % | | 11.5 | % |
| |
1
| Assumes rates cannot go below zero in the negative rate shift. |
The asset sensitivity as measured by EaR declined due to continued purchases of medium-term securities funded through reductions in money market investments and increases in short-term borrowings.
CHANGES IN ECONOMIC VALUE OF EQUITY
As of the dates indicated, and incorporating the assumptions previously described, the following schedule shows our estimated percentage change in EVE under parallel interest rate changes ranging from -100 bps to +300 bps. For non-maturity interest bearinginterest-bearing deposits, the weighted average modeled beta is 36%42%. If the weighted average deposit beta increased to 46%58% it would decrease the EVE in the +200bp+200bps shock from 1.1%(1.3)% to -1.4%(3.2)%.
| | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | |
| | June 30, 2019 | | | | | | | | |
| | Parallel shift in rates (in bps)1 | | | | | | | | |
| Repricing scenario | | -100 | | 0 | | +100 | | +200 | | +300 |
| | | | | | | | | | |
| Economic Value of Equity | | 7.7 | % | | — | % | | 0.5 | % | | (1.3) | % | | (3.3) | % |
| | | | | | | | | | |
| | | | | | | | | | |
| | | | | | | | | | |
|
| | | | | | | | | | | | | | | |
| | | September 30, 2017 |
| | | Parallel shift in rates (in bps)1 |
| Repricing scenario | | -100 | | 0 | | +100 | | +200 | | +300 |
| | | | | | | | | | | |
| Economic Value of Equity | | 1.6 | % | | — | % | | 0.8 | % | | 1.1 | % | | 1.3 | % |
| |
1
| Assumes rates cannot go below zero in the negative rate shift. |
For comparative purposes, the December 31, 20162018 measures asare presented in the following schedule have been recalculated using the new methodology.schedule. The changes in EVE measures from December 31, 2018 are driven by increases in interest rates which increase the same factors as thoseexpected life of certain assets and decrease the expected life of certain liabilities.
| | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | |
| | December 31, 2018 | | | | | | | | |
| | Parallel shift in rates (in bps)1 | | | | | | | | |
| Repricing scenario | | -100 | | 0 | | +100 | | +200 | | +300 |
| | | | | | | | | | |
| Economic Value of Equity | | (2.5) | % | | — | % | | (2.1) | % | | (5.6) | % | | (5.4) | % |
| | | | | | | | | | |
| | | | | | | | | | |
1 Assumes rates cannot go below zero in our income simulation.the negative rate shift.
|
| | | | | | | | | | | | | | | |
| | | December 31, 2016 |
| | | Parallel shift in rates (in bps)1 |
| Repricing scenario | | -100 bps | | 0 bps | | +100 bps | | +200 bps | | +300 bps |
| | | | | | | | | | | |
| Economic Value of Equity | | 0.3 | % | | — | % | | 1.2 | % | | 2.9 | % | | 4.9 | % |
| |
1
| Assumes rates cannot go below zero in the negative rate shift. |
Our focus on business banking also plays a significant role in determining the nature of the Company’sBank’s asset-liability management posture. At SeptemberJune 30, 2017, $19.72019, $21 billion of the Company’sBank’s commercial lending and CRE loan balances were scheduled to reprice in the next six months. Of these variable-rate loans approximately 65%98% are tied to either the prime rate or LIBOR. For these variable-rate loans we have executed $1.1$5.2 billion of cash flow hedges by receiving fixed rates on interest rate swaps.swaps or through purchased interest rate floors. Additionally, asset sensitivity is reduced due to $0.3 billion$58 million of variable-rate loans being priced at floored rates at SeptemberJune 30, 2017,2019, which were above the “index plus spread” rate by an average of 4565 bps. At SeptemberJune 30, 2017,2019, we also had $3.2$3.3 billion of variable-rate consumer loans scheduled to reprice in the next six months. Of these variable-rate consumer loans approximately $0.2 billion$7 million were priced at floored rates, which were above the “index plus spread” rate by an average of 3249 bps.
See Notes 3 and 7 of the Notes to Consolidated Financial Statements and Notes 7 and 20 of our 2016 Annual Report on Form 10-K for additional information regarding derivative instruments.
In July 2017, the Financial Conduct Authority, the authority regulating LIBOR, along with various other regulatory bodies, announced that LIBOR would likely be discontinued at the end of 2021. LIBOR makes up the most liquid and common interest rate index in the world and is commonly referenced in financial instruments. We have
ZIONS BANCORPORATION, NATIONAL ASSOCIATION AND SUBSIDIARIES
exposure to LIBOR in various aspects through its financial contracts. We are currently working with various industry groups and internal working groups to determine an appropriate replacement index for affected contracts that expire after the expected discontinuation of LIBOR on December 31, 2021. Instruments that may be impacted include loans, securities, and derivatives, among other financial contracts indexed to LIBOR and that mature after December 31, 2021. We are actively working to address any impacted contracts but realize that amending certain contracts indexed to LIBOR may require consent from the counterparties which could be difficult and costly to obtain in certain limited circumstances.
Market Risk – Fixed Income
We engage in the underwriting and trading of municipal securities. This trading activity exposes us to a risk of loss arising from adverse changes in the prices of these fixed income securities.
ZIONS BANCORPORATION AND SUBSIDIARIES
At SeptemberJune 30, 2017,2019, we had a relatively small amount, $56$148 million, of trading assets and $49$66 million of securities sold, not yet purchased, compared with $115$106 million and $25$85 million, respectively, at December 31, 2016.2018.
We are exposed to market risk through changes in fair value. We are also exposed to market risk for interest rate swaps used to hedge interest rate risk. Changes in the fair value of AFS securities and in interest rate swaps that qualify as cash flow hedges are included in accumulated other comprehensive income (“AOCI”) for each financial reporting period. During the thirdsecond quarter of 2017,2019, the after-tax change in AOCI attributable to AFS securities decreasedincreased by $47$116 million, due largely to changes in the interest rate environment, compared with a $11$50 million decrease in the same prior year period.
Market Risk – Equity Investments
Through our equity investment activities, we own equity securities that are publicly traded.publicly-traded. In addition, we own equity securities in companies and governmental entities, e.g., the Federal Reserve Bank and an FHLB, that are not publicly traded.publicly-traded. The accounting for equity investments may use the cost, fair value, equity, or full consolidation methods of accounting, depending on our ownership position and degree of involvement in influencing the investees’ affairs. Regardless of the accounting method, the value of our investment is subject to fluctuation. Because the fair value of these securities may fall below our investment costs, we are exposed to the possibility of loss. Equity investments in private and public companies are approved, monitored and evaluated by the Company’sBank’s Equity Investment Committee consisting of members of management.
We hold both direct and indirect investments in predominantly pre-public companies, primarily through various Small Business Investment Company (“SBIC”)SBIC venture capital funds. Our equity exposure to these investments was approximately $123$139 million and $124$132 million at SeptemberJune 30, 20172019 and December 31, 2016,2018, respectively. On occasion, some of the companies within our SBIC investments may issue an initial public offering. In this case, the fund is generally subject to a lockout period before liquidating the investment, which can introduce additional market risk. During the third quarter of 2017 we sold the remaining amount of our most significant publicly traded direct investment and as of September 30, 2017 we had an insignificant amount of publicly traded stocks as part of our direct SBIC investments.
Additionally, Amegy has an alternative investments portfolio. These investments are primarily directed towards equity buyout and mezzanine funds with a key strategy of deriving ancillary commercial banking business from the portfolio companies. Early stageEarly-stage venture capital funds are generally not a part of the strategy because the underlying companies are typically not creditworthy. The carrying value of Amegy’s equity investments was $12$11 million at Septemberboth June 30, 20172019 and $13 million at December 31, 2016.2018.
These PEIs are subject to the provisions of the Dodd-Frank Act. The Volcker Rule of the Dodd-Frank Act prohibits banks and bank holding companies from holding PEIs, except for SBIC funds and certain other permitted exclusions, beyond a required deadline. The Federal Reserve Board (“FRB”) announced in December 2016 that it would allow banks to apply for an additional five-year extension beyond the July 21, 2017 deadline to comply with the Dodd-Frank Act requirement for these investments. The Company applied for and was granted an extension for its eligible PEIs. All positions in the remaining portfolio of PEIs are subject to the extended deadline or other applicable exclusions.
As of September 30, 2017, such prohibited PEIs amounted to $4 million, with an additional $4 million of unfunded commitments (see Note 5 of the Notes to Consolidated Financial Statements for more information). We currently do not believe that this divestiture requirement will ultimately have a material impact on our financial statements.
Liquidity Risk Management
Overview
Liquidity risk is the possibility thatrefers to our capacity to meet our cash and collateral obligations and to manage both expected and unexpected cash flows may not be adequate to fund our ongoingwithout adversely impacting the operations and meet our commitments in a timely and cost-effective manner. Since liquidity risk is closely linked to both credit risk and market risk, manyor financial strength of the previously discussed risk control mechanisms also apply to the monitoring and managementBank. Sources of liquidity risk. We manage our liquidity to provide adequate funds for our customers’ credit needs,
ZIONS BANCORPORATION AND SUBSIDIARIES
our capital plan actions and our anticipated financial and contractual obligations which include withdrawals by depositors, debt and capital service requirements, and lease obligations. The management of liquidity and funding, is performed centrally for the Parent and jointly by the Parent and bank management for its subsidiary bank.
Overseeing liquidity management is the responsibility of ALCO, which implements a Board-approved corporate Liquidity and Funding Policy. This policy addresses monitoring and maintaining adequate liquidity, diversifying funding positions, and anticipating future funding needs. The policy also includes liquidity ratio guidelines, such as the “time-to-required funding”deposits, borrowings, and LCR, that are usedequity and unencumbered assets, such as marketable loans and securities. The Bank continues to monitor theperform liquidity positions of the Parentstress tests and ZB, N.A., as well as various stress test and liquid asset measurements for the Parent and ZB, N.A.
The Company has adopted policy limits that govern liquidity risk. The policy requires the Company to maintain a bufferassess its portfolio of highly liquid assets sufficient to cover cash outflows in the event of a severe liquidity crisis. The Company targets a buffer of highly liquid assets at the Parent to cover 18-24 months of cash outflows under a scenario with limited cash inflows, and maintains a minimum policy limit of not less than 12 months. Throughout the first nine months of 2017 and as of September 30, 2017, the Company complied with this policy. More information regarding the Company’s liquidity risk management process is contained in “Liquidity Risk Management” under “Overview” in our 2016 Annual Report on Form 10-K.
Liquidity Regulation
In September 2014, U.S. banking regulators issued a final rule that implements a quantitative liquidity requirement in the U.S. generally consistent with the LCR minimum liquidity measure established under the Basel III liquidity framework. Under this rule, we are subject to a modified LCR standard, which requires a financial institution to hold an adequate amount of unencumbered High-Quality-Liquid Assets (“HQLA”) that can be converted into cash easily and immediately in private markets to meet its liquidity needs for a short-term liquidity stress scenario. This rule became applicable to us on January 1, 2016.
The Basel III liquidity framework includes a second minimum liquidity measure, the Net Stable Funding Ratio (“NSFR”), which requires a financial institution to maintain a stable funding profile over a one-year period in relation to the characteristics of its on- and off-balance sheet activities. On October 31, 2014, the Basel Committee on Banking Supervision issued its final standards for this ratio, entitled Basel III: The Net Stable Funding Ratio. On May 3, 2016, the FRB issued a proposal requiring bank holding companies with less than $250 billion of assets, but more than $50 billion of assets, to cover 70% of 1-year cash outflows under the assumptions required in the proposed NSFR Rule. Under the proposal, bank holding companies would be required to publicly disclose information about the NSFR levels each quarter. The proposal has an effective date of January 1, 2018. We continue to monitor this proposal and any other developments. Based on this Basel III publication and the FRB proposal, we believe we would meet the minimum NSFR if such requirement were currently effective.
The Enhanced Prudential Standards for liquidity management (Reg. YY) require us to conduct monthly liquidity stress tests. These tests incorporate scenarios designed by us, require a buffer of highly liquid assets sufficient(sufficient to cover 30-day funding needs under the stress scenarios,scenarios). At June 30, 2019, our investment securities portfolio of $15.5 billion and are subject to review by the FRB. The Company’s internal liquidity stress-testing program as contained in its policy complies with these requirementscash and includes monthly liquidity stress testing using a setmoney market investments of internally generated scenarios representing severe liquidity constraints over a 12-month horizon.$1.8 billion collectively comprised 25% of total assets.
ZIONS BANCORPORATION, NATIONAL ASSOCIATION AND SUBSIDIARIES
Liquidity Management Actions
ConsolidatedThe Bank’s consolidated cash, interest-bearing deposits held as investments, and security resell agreements at the Parent and its subsidiaries was $1.7 billion at SeptemberJune 30, 20172019 compared with $2.0to $2.4 billion at December 31, 2018 and $1.5 billion at June 30, 2017 and $2.5 billion at December 31, 2016. The $0.8 billion decrease during2018. During the first ninesix months of 2017 resulted2019 uses of cash were primarily from (1) an increase in investment securities, (2) net loan originations, and purchases, (3) a net decrease in deposits, (4) repurchase(2) repurchases of our common stock, (5) repayment of long-term debt, (6) repurchase and redemption of our preferred stock, and (7)(3) dividends on common and preferred stock. These decreasesThe primary sources of cash during the same period were partially offset byfrom (1) the issuance of long-term debt, (2) a decrease in investment securities, (3) an increase in short-term FHLB borrowingsdebt, (4) an increase in deposits, and (5) net cash provided by operating activities.activities
The Bank’s loan to total deposit ratio has increased slightly and was 89% at June 30, 2019 compared with 86% at December 31, 2018, and 84% at June 30, 2018 indicating a higher loan growth than deposit growth. As a result of the higher loan growth, the Bank is relying on more expensive wholesale funding for a portion of its loan growth. The Bank’s core deposits, consisting of noninterest-bearing demand deposits, savings and money market deposits, and time deposits under $250,000, was $51.0 billion at June 30, 2019 compared with $51.2 billion at December 31, 2018 and $50.8 billion at June 30, 2018.
ZIONS BANCORPORATION AND SUBSIDIARIES
2019 was a result of a $579 million and $350 million increase in time deposits and savings and money market deposits, respectively, partially offset by a $698 million decrease in noninterest-bearing demand deposits.
During the first ninesix months of 2017, our HTM2019, the Bank issued a $500 million senior note with an interest rate of 3.35% and AFS investment securities increased by $1.7 billion. This increase was primarily due to purchasesa maturity date of short-to-medium duration agency guaranteed mortgage-backed securities. Prior to the second quarter of 2017, we were adding to our investment portfolio during the past couple of years to increase our HQLA position in light of the new LCR rules and more broadly, to manage balance sheet liquidity more effectively. However, during the second and third quarters of 2017, our HTM and AFS investment securities decreased by $432 million, and we expect the size of the investment portfolio to be generally stable during the next several quarters.
During the first nine months of 2017 we made cash payments totaling $153 million for our long-term debt which matured and did not incur any new long-term debt during the same time period. See Note 8 for additional detail about debt maturities. During the first nine months of 2017, we also increased our short-term debt with the FHLB by $2.8 billion, and had $3.3 billion outstanding as of September 30, 2017.
Parent Company Liquidity
The Parent’s cash requirements consist primarily of debt service, investments in and advances to subsidiaries, operating expenses, income taxes, and dividends to preferred and common shareholders. The Parent’s cash needs are usually met through dividends from its subsidiaries, interest and investment income, subsidiaries’ proportionate shares of current income taxes, and long-term debt and equity issuances.
Cash and interest-bearing deposits held as investments at the Parent decreased to $0.3 billion at September 30, 2017 compared with $0.4 billion atMarch 4, 2022. At June 30, 2016 and $0.5 billion at December 31, 2016. This $0.2 billion decrease for the first nine months of 2017 resulted primarily from (1) repurchase of our common stock, (2) repayment of long-term debt, (3) repurchase and redemption of our preferred stock and (4) dividends on our common and preferred stock. This decrease in cash was partially offset by common dividends and return of common equity and preferred dividends received by the parent from its subsidiary bank.
At September 30, 2017,2019, maturities of our long-term senior and subordinated debt ranged from June 2023August 2021 to September 2028.
DuringThe Bank’s cash payments for interest, reflected in operating expenses, increased to $199 million during the first ninesix months of 2017,2019 from $100 million during the Parent received common dividendsfirst six months of 2018 due to an increase in deposits, short- and returnlong-term borrowings, and higher interest rates paid on deposits and short-term borrowings. Additionally, the Bank paid approximately $127 million of common equity totaling $384 million and dividends on preferred stock totaling $39 million. Duringand common stock for the first ninesix months of 2016, our subsidiary bank accrued $1252019 compared with $104 million of common dividends and return of common equity that has since been paid to the Parent and did not receive dividends on its preferred stock. At September 30, 2017, ZB, N.A. had approximately $453 million available for the paymentfirst six months of dividends2018. Dividends paid per common share increased from $0.24 in the second quarter of 2018 to $0.30 in the parent under current capital regulations. The dividends that ZB, N.A. can pay are restricted by current and historical earning levels, retained earnings, and risk-based and other regulatory capital requirements and limitations.second quarter of 2019. In July 2019, the Board approved a quarterly common dividend of $.034 per share.
General financial market and economic conditions impact our access to, and cost of, external financing. Access to funding markets for the Parent and its subsidiary bankBank is also directly affected by the credit ratings received from various rating agencies. The ratings not only influence the costs associated with the borrowings, but can also influence the sources of the borrowings. The debt ratings and outlooks issued byAll of the variouscredit rating agencies forrate the Company and ZB, N.A.Bank’s debt at an investment-grade level. The Bank’s credit ratings did not change during the first ninesix months of 2017, except S&P2019 and Kroll upgraded their outlooks for bothare presented in the Parent and ZB, N.A. from Stable to Positive. The credit rating agencies all rate the Parent’s and ZB, N.A.’s senior debt at an investment-grade level. In addition, Kroll rates the Company’s subordinated debt at an investment-grade level, while S&P rates the Company’s subordinated debt as noninvestment-grade.following schedule.
ZIONS BANCORPORATION AND SUBSIDIARIES
The following schedule presents the Parent’s balance sheets as of September 30, 2017, December 31, 2016, and September 30, 2016.
| PARENT ONLY CONDENSED BALANCE SHEETS |
| | | | | | | | | | | |
| (In millions) | September 30,
2017 | | December 31,
2016 | | September 30,
2016 |
| ASSETS | | | | | |
| Cash and due from banks | $ | 2 |
| | $ | 2 |
| | $ | — |
|
| Interest-bearing deposits | 331 |
| | 529 |
| | 415 |
|
| Investment securities: | | | | | |
| Available-for-sale, at fair value | 37 |
| | 40 |
| | 41 |
|
| Other noninterest-bearing investments | 35 |
| | 29 |
| | 29 |
|
| Investments in subsidiaries: | | | | | |
| Commercial bank | 7,697 |
| | 7,570 |
| | 7,617 |
|
| Other subsidiaries | 6 |
| | 6 |
| | 81 |
|
| Other assets | 73 |
| | 81 |
| | 153 |
|
| Total assets | $ | 8,181 |
| | $ | 8,257 |
| | $ | 8,336 |
|
| LIABILITIES AND SHAREHOLDERS’ EQUITY | | | | | |
| Other liabilities | $ | 38 |
| | $ | 89 |
| | $ | 87 |
|
| Subordinated debt to affiliated trusts | — |
| | — |
| | 36 |
|
| Long-term debt: | | | | | |
| Due to others | 382 |
| | 534 |
| | 534 |
|
| Total liabilities | 420 |
| | 623 |
| | 657 |
|
| Shareholders’ equity: | | | | | |
| Preferred stock | 566 |
| | 710 |
| | 709 |
|
| Common stock | 4,552 |
| | 4,725 |
| | 4,748 |
|
| Retained earnings | 2,700 |
| | 2,321 |
| | 2,212 |
|
| Accumulated other comprehensive income (loss) | (57 | ) | | (122 | ) | | 10 |
|
| Total shareholders’ equity | 7,761 |
| | 7,634 |
| | 7,679 |
|
| Total liabilities and shareholders’ equity | $ | 8,181 |
| | $ | 8,257 |
| | $ | 8,336 |
|
The Parent’s cash payments for interest, reflected in operating expenses, decreased to $16 million during the first nine months of 2017 from $25 million during the first nine months of 2016 due to the maturity and repayment of debt during 2017 and 2016. Additionally, the Parent paid approximately $89 million of total dividends on preferred stock and common stock for the first nine months of 2017 compared to $81 million for the first nine months of 2016.
Subsidiary Bank Liquidity
ZB, N.A.’s primary source of funding is its core deposits, consisting of demand, savings and money market deposits, and time deposits under $250,000. On a consolidated basis, the Company’s loan to total deposit ratio was 84.8% at September 30, 2017 compared with 83.4% at June 30, 2017 and 80.1% at December 31, 2016, reflecting loan growth and a decrease in deposits during the first nine months of 2017.
Total deposits decreased by $1.1 billion to $52.1 billion at September 30, 2017, compared with $53.2 billion at December 31, 2016. This decrease was a result of a $1.2 billion decrease in savings and money market deposits and a $0.1 billion decrease in noninterest-bearing demand deposits. The decrease was partially offset by a $0.2 billion increase in time deposits. Also, during the first quarter of 2017, ZB, N.A. redeployed approximately $2.6 billion of cash to short-to-medium duration agency guaranteed mortgage-backed securities. ZB, N.A.’s long-term senior debt ratings were the same as the Parent, except Standard & Poor’s was BBB and Kroll’s was BBB+, compared to BBB- for Standard & Poor’s and BBB for Kroll for the Parent. | | | | | | | | | | | | | | | | | | | | | | | | | | |
| CREDIT RATINGS | | | | | | | | |
| as of July 31, 2019: | | | | | | | | |
| Rating agency | | Outlook | | Long-term issuer/senior
debt rating | | Subordinated debt rating | | Short-term debt rating |
| | | | | | | | |
| S&P | | Stable | | BBB+ | | BBB | | A-2 |
| Kroll | | Stable | | A- | | BBB+ | | K2 |
| Fitch | | Positive | | BBB | | BBB- | | |
The FHLB system and Federal Reserve Banks have been and are a source of back-up liquidity and from time to time, have been a significant source of funding. ZB,Zions Bancorporation, N.A. is a member of the FHLB of Des Moines. The FHLB
ZIONS BANCORPORATION AND SUBSIDIARIES
allows member banks to borrow against their eligible loans and securities to satisfy liquidity and funding requirements. The Bank is required to invest in FHLB and Federal Reserve stock to maintain their borrowing capacity.
At September 30, 2017, theThe amount available for additional FHLB and Federal Reserve borrowings was approximately $15.1 billion, compared with $17.1$13.8 billion at both June 30, 2019 and December 31, 2016.2018. Loans with a carrying value of approximately $25.4$23.3 billion at SeptemberJune 30, 20172019 have been pledged at the FHLB of Des Moines and the Federal Reserve as collateral for current and potential
ZIONS BANCORPORATION, NATIONAL ASSOCIATION AND SUBSIDIARIES
borrowings compared with $24.0$22.6 billion at December 31, 2016.2018. At SeptemberJune 30, 2017,2019, we had $3.3$5.0 billion of short-term FHLB borrowings outstanding and no long-term FHLB or Federal Reserve borrowings outstanding, compared with $500 million$4.5 billion of short-term FHLB borrowings and no long-term FHLB or Federal Reserve borrowings outstanding at December 31, 2016.2018. At SeptemberJune 30, 2017,2019, our total investment in FHLB and Federal Reserve stock was $140$208 million and $184$123 million, respectively, compared with $30$190 million and $181$139 million at December 31, 2016.2018.
Our AFS investment activitiessecurities are primarily held as a source of contingent liquidity. We target securities that can providebe easily turned into cash through sale or repurchase agreements and whose value remains relatively stable during market disruptions. We regularly manage our short-term funding needs through secured borrowing with the securities pledged as collateral. Interest rate risk management is another consideration for selection of investment securities. Our AFS securities balances have been fairly constant over the last year.
Our use cash, depending onof borrowed funds (both short- and long-term) increased by $882 million during the asset-liability management posture taken. first six months of 2019, which helped to fund loan growth over the period.
During the first ninesix months of 2017, HTM and AFS investment securities’ activities resulted in a net increase in investment securities and a net $2.1 billion decrease in cash,2019 we paid income taxes of $132 million compared with a net $2.9 billion decrease in cashto $91 million for the first ninesix months of 2016, reflecting2018.
We may also, from time to time, issue additional preferred stock, senior or subordinated notes or other forms of capital or debt instruments, depending on our purchasecapital, funding, asset-liability management or other needs as market conditions warrant and subject to any required regulatory approvals. Management believes that the sources of HQLA during the first quarter of 2017.
Maturing balances in ZB, N.A.’s loan portfolios also provide additional flexibility in managing cash flows. Lendingavailable liquidity are adequate to meet all reasonably foreseeable short-term and purchase activity for the first nine months of 2017 resulted in a net cash outflow of $1.5 billion compared with a net cash outflow of $2.0 billion for the first nine months of 2016.
intermediate-term demands. A more comprehensive discussion of liquidity risk management, including certain contractual obligations, is contained in our 20162018 Annual Report on Form 10-K.
Operational Risk Management
Operational risk is the risk to current or anticipated earnings or capital arising from inadequate or failed internal processes or systems, human errors or misconduct, or adverse external events. In our ongoing efforts to identify and manage operational risk, we have an ERM department whose responsibility is to help employees, management and the Board of Directors to assess, understand, measure, manage, and monitor risk in accordance with our Risk Appetite Framework. We have documented both controls and the Control Self-Assessment related to financial reporting under the 2013 framework issued by the Committee of Sponsoring Organizations of the Treadway Commission (“COSO”) and the FDICIA.Federal Deposit Insurance Corporation Improvement Act (“FDICIA”).
To manage and minimize our operational risk, we have in place transactional documentation requirements; systems and procedures to monitor transactions and positions; systems and procedures to detect and mitigate attempts to commit fraud, penetrate our systems or telecommunications, access customer data, and/or deny normal access to those systems to our legitimate customers; regulatory compliance reviews; and periodicPeriodic reviews by the Company’sBank’s Compliance Risk Management, Internal Audit and Credit Examination departments. Reconciliation procedures have been established to ensure that data processing systems consistentlydepartments are conducted on a regular basis, and accurately capture critical data. In addition, the Data Governance department hasalso provides key governance surrounding data integrity and availability. Further, we have key programs and procedures to maintain contingency and business continuity plans for operational support in the event of natural or other disasters. We also mitigate operational risk through the purchase of insurance, including errors and omissions and professional liability insurance.
availability oversight. We are continually improving our oversight of operational risk, including enhancement of risk identification, risk and control self-assessments, and antifraud measures, which are reported on a regular basis to enterprise management committees. The Operational Risk Committee reports to the ERMC, which reports to the ROC. Key measures have been established to increase oversight by ERM and Operational Risk Management through the strengthening of new initiative reviews, enhancements to the Enterprise Procurement and Third Party Risk Management framework, enhancements to the Business Continuity and Disaster Recovery programs and Enterprise Security programs, and the establishment of Fraud Risk Oversight, Incident Response Oversight and Technology
ZIONS BANCORPORATION AND SUBSIDIARIES
Project Oversight programs. Significant enhancements have also been made to governance, technology, and reporting, including the establishment of Policy and Committee Governance programs, the implementation of a governance, risk and control solution, and the creation of an Enterprise Risk Profile and an Operational Risk Profile along with business line risk profiles. In addition, the establishment of an Enterprise Exam Management department has standardized our response and reporting, and increased our effectiveness and efficiencies with regulatory examinations, communications and issues management.
The number and sophistication of attempts to disrupt or penetrate our critical systems, sometimes referred to as hacking, cyber fraud, cyber attacks, cyber terrorism, or other similar names, also continue to grow. OnGiven the importance and increasing sophistication of cyber attacks, the Bank has designated cyber risk a daily basis, the Company, its customers, and other financial institutions are subject to a large number of such attempts. We have established systems and procedures to monitor, thwart or mitigate damage from such attempts. However, in some instances we, or our customers, have been victimized by cyber fraud (our related losses have not been material), or some of our customers have been temporarily unable to routinely access our online systems as a result of, for example, distributed denial of service attacks. We continue to review this area of our operations to help ensure that we manage thislevel one risk in an effective manner.its risk taxonomy, which places it at the highest level of oversight with its other top risks.
For a more comprehensive discussion of operational risk management see our 2018 Annual Report on Form 10-K. CAPITAL MANAGEMENT
Overview
We believe that a strong capital position is vital to continued profitability and to promoting depositor and investor confidence.
Capital Planning and Stress Testing
As The Bank has a bank holding company (“BHC”) with assets greater than $50 billion, we are required by the Dodd-Frank Actfundamental financial objective to participate in annualconsistently produce superior risk-adjusted returns on its shareholders’ capital. The Bank continues to utilize stress tests knowntesting as the Dodd-Frank Act Stress Test (“DFAST”). In addition, we are requiredprimary mechanism to participate ininform its decisions on the Federal Reserve Board’s annual Comprehensive Capital Analysisappropriate level of capital and Review (“CCAR”), which is also recently referenced as the Horizontal Capital Review (“HCR”) for largecapital actions, based upon actual and non-complex firms (generally, BHCs, with assets between $50 billionhypothetically-stressed
ZIONS BANCORPORATION, NATIONAL ASSOCIATION AND SUBSIDIARIES
economic conditions. The timing and $250 billion). In ouramount of capital plan, we are required to forecast, under a variety of economic scenarios, our estimated regulatory capital ratios, including our Common Equity Tier 1 ratio. Under the implementing regulations for CCAR, BHCs may generally raise and redeem capital, pay dividends, and repurchase stock and take similar capital-related actions only under a capital plan as to which the FRB has not objected. A detailed discussion of CCAR/DFAST requirements is contained on page 10 of the “Capital Plan and Stress Testing” section under Part 1, Item 1 in our 2016 Annual report on Form 10-K.
We submitted our stress test results and 2017 capital plan to the FRB on April 5, 2017. On June 28, 2017, the Board of Governors of the Federal Reserve System notified Zions Bancorporation that the Federal Reserve does not object to Zions Bancorporation’s Board-approved 2017 capital plan. Our capital plan for the period spanning July 1, 2017 through June 30, 2018 includes up to $465 million of common stock repurchases and approximately $140 million of common stock dividends as follows.
Increasing the quarterly common dividend to $0.24 per share by the second quarter of 2018 following the path of:
| |
◦ | $0.12 per share in the third quarter of 2017 |
| |
◦ | $0.16 per share in the fourth quarter of 2017 |
| |
◦ | $0.20 per share in the first quarter of 2018 |
| |
◦ | $0.24 per share in the second quarter of 2018 |
Capital actions are subject to final approval by Zions Bancorporation’s board of directors, and may be influenced by, among other things, actual earningsvarious factors, including the Bank's financial performance, business needs, prevailing and prevailinganticipated economic conditions.conditions, and OCC approval.
On June 22, 2017, we filed a Form 8-K presenting the results of the 2017 DFAST exercise. The results of Zions’ published stress tests demonstrate that the Company believes it has sufficientCommon stock and additional paid-in capital to withstand a severe hypothetical economic downturn. Detailed disclosure of the stress test results can be found on our website.
On June 29, 2016, we filed a Form 8-K announcing that the FRB did not object to our 2016 capital plan (which spans the timeframe of Julydecreased $535 million, or 14%, from December 31, 20162018 to June 30, 2017). The plan included (1) the increase2019, primarily due to $550 million of the quarterly common
ZIONS BANCORPORATION AND SUBSIDIARIES
dividend to $0.08 per share beginning in the third quarter of 2016, (2) up to $180 million in total repurchases of common equity and (3) up to $144 million in total repurchases of preferred equity.
As planned, our quarterly dividend onBank common stock increased to $0.12 per share during the third quarter of 2017. The quarterly dividend had been $0.08 per share since the third quarter of 2016. The Company has repurchased $115 million of our common stock at an average price of $45.45 per share under the 2017 capital plan and $180 million of our common stock at an average price of $35.66 per share under the 2016 capital plan. The Company has $350 million of buyback capacity remaining in its 2017 capital plan.repurchases from publicly announced plans.
Also in accordance with our 2016 capital plan, we redeemed all outstanding shares of our 7.9% Series F preferred stock on the redemption date of June 15, 2017. Note 8 contains additional information about the redemption.
Basel III
The Basel III capital rules became effective for the Company on January 1, 2015 (subject to phase-in periods for certain of their components). The Basel III capital rules will be fully phased in on January 1, 2019. In 2013, the FRB, FDIC, and OCC published final rules (the “Basel III Capital Rules”) establishing a new comprehensive capital framework for U.S. banking organizations. The rules implemented the Basel Committee’s December 2010 framework, commonly referred to as Basel III, for strengthening international capital standards as well as certain provisions of the Dodd-Frank Act.
A detailed discussion of Basel III requirements, including implications for the Company, is contained on page 9 in “Capital Standards – Basel Framework” under Part 1, Item 1 in our 2016 Annual Report on Form 10-K.
We met all capital adequacy requirements under the Basel III Capital Rules based upon phase-in rules as of September 30, 2017, and believe that we would meet all capital adequacy requirements on a fully phased-in basis if such requirements were currently effective.
Capital Management Actions
During the first six months of 2019, the Bank repurchased 11.3 million shares of common stock, or 6% of common stock outstanding as of December 31, 2018, for $550 million at an average price of $48.50 per share. During the last four quarters, the Bank repurchased 20.0 million shares of common stock, or 10% of common stock outstanding as of June 30, 2018, for $985 million at an average price of $49.29 per share. In July 2019, the Bank announced that the Board of Directors approved a plan to repurchase $275 million of common stock during the third quarter of 2019. Shares may be repurchased occasionally in the open market, through privately negotiated transactions, utilizing Rule 10b5-1 plans or otherwise.
The Bank paid common dividends of $110 million, or $0.60 per share, during the first six months of 2019 compared to $87 million, or $0.44 per share, during the first six months of 2018. In July 2019, the Board of Directors declared a quarterly dividend of $0.34 per common share payable on August 22, 2019 to shareholders of record on August 15, 2019. The Bank also paid dividends on preferred stock of $17 million for both the first six months of 2019 and 2018. See Note 9 for additional detail about capital management transactions during the first six months of 2019.
CAPITAL DISTRIBUTIONS
| | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | |
| Three Months Ended | | | | | | | | | | |
| (Dollar amounts in millions) | June 30,
2019 | | March 31,
2019 | | December 31,
2018 | | September 30,
2018 | | June 30,
2018 | | March 31,
2018 |
| Common dividends paid | $ | 54 | | $ | 56 | | $ | 57 | | $ | 58 | | $ | 47 | | $ | 40 |
| Bank common stock repurchased – from publicly announced plans | 275 | | 275 | | 250 | | 185 | | 120 | | 115 |
| Total capital distributed to common shareholders | $ | 329 | | $ | 331 | | $ | 307 | | $ | 243 | | $ | 167 | | $ | 155 |
| Capital distributed as a percentage of net earnings applicable to common shareholders | 174 | % | | 161 | % | | 141 | % | | 113 | % | | 89 | % | | 67 | % |
Total shareholders’ equity increased by $0.2 billion to $7.8 billion at September 30, 2017 fromhas remained consistent and was $7.6 billion at June 30, 2019, December 31, 2016.2018 and June 30, 2018. The increaseprimary increases in total shareholders’ equity is primarily due toduring the first six months of 2019 was net income of $469$411 million and a $65$275 million from an increase in the fair value of our AFS securities due largely to changes in the interest rate environment. These increases are partially offset byThe primary decreases during the same period was $550 million from repurchases of ourBank common stock under our buyback program totaling $205from publicly announced plans and $127 million from common and preferred stock dividends paid.
Weighted average diluted shares decreased by 20 million and $14418 million paidwhen comparing the second quarters of 2019 and 2018 and the first six months of 2019 and 2018, respectively, primarily due to redeem our Series F preferred stock.
DuringBank share repurchases and a decrease in the latter partBank’s common share price which reduced the dilutive impact of 2016, the market price of our common stock increased above the exercise price of common stock warrants on our common stock.outstanding. As of September 2017, we have 5.8June 30, 2019, the Bank had 29.3 million common stockZIONW warrants atoutstanding with an exercise price of $36.27 per share which expire on November 14, 2018 and 29.3 million common stock warrants at an exercise price of $35.61 per share$34.41 which expire on May 22, 2020.
The following schedule presents the diluted shares from the outstanding common stock warrants at June 30, 2019 at various Zions Bancorporation, N.A. common stock market prices as of August 24, 2017,July 31, 2019, excluding the effect of future changes in exercise cost and warrant share multiplier from the future payment of common stock dividends.
ZIONS BANCORPORATION, NATIONAL ASSOCIATION AND SUBSIDIARIES
IMPACT OF COMMON STOCK WARRANTS
| | | | | | | | |
| Assumed Zions Bancorporation, N.A. Common Stock Market Price | | Diluted Shares (000s) |
| | |
| $ | 30.00 | | — |
| 35.00 | | 2,385 |
| 40.00 | | 5,979 |
| 45.00 | | 8,775 |
| 50.00 | | 11,011 |
| 55.00 | | 12,841 |
| 60.00 | | 14,366 |
| 65.00 | | 15,656 |
|
| | | | | |
| Assumed Zions Bancorporation Common Stock Market Price | | Diluted Shares (000s) |
| | | |
| $ | 35.00 |
| | 0 |
| 40.00 |
| | 4,590 |
| 45.00 |
| | 8,070 |
|
| 50.00 |
| | 10,854 |
| 55.00 |
| | 13,132 |
|
ZIONS BANCORPORATION AND SUBSIDIARIES
We paid $57 million in dividendsthe Notes to Consolidated Financial Statements for additional information on our common stock during the first nine months of 2017 compared with $41 million during the first nine months of 2016. During its October 2017 meeting, the Board of Directors declared a quarterly dividend of $0.16 per common share payable on November 22, 2017warrants.
Basel III Capital Requirements
The Bank is subject to shareholders of record on November 15, 2017. We paid dividends on preferred stock of $32 million for the first nine months of 2017 compared to $40 million during the first nine months of 2016. See Note 8 for additional detail aboutBasel III capital management transactions during the first nine months of 2017.
Capital Ratios
Banking organizations are required by capital regulationsrequirements to maintain adequate levels of capital as measured by several regulatory capital ratios. We met all capital adequacy requirements under the Basel III Capital Rules as of June 30, 2019. The following schedule showspresents the Company’sBank’s capital and performance ratios as of SeptemberJune 30, 2017,2019, December 31, 2016,2018 and SeptemberJune 30, 2016.2018.
CAPITAL RATIOS
| | | | | | | | | | | | | | | | | |
| June 30,
2019 | | December 31,
2018 | | June 30,
2018 |
| | | | | |
Tangible common equity ratio1 | 8.7 | % | | 8.9 | % | | 9.2 | % |
Tangible equity ratio1 | 9.5 | | | 9.7 | | | 10.1 | |
| Average equity to average assets (three months ended) | 10.8 | | | 11.2 | | | 11.5 | |
| Basel III risk-based capital ratios: | | | | | |
| Common equity tier 1 capital | 10.8 | | | 11.7 | | | 12.2 | |
| Tier 1 leverage | 9.5 | | | 10.3 | | | 10.5 | |
| Tier 1 risk-based | 11.8 | | | 12.7 | | | 13.3 | |
| Total risk-based | 13.0 | | | 13.9 | | | 14.8 | |
| Return on average common equity (three months ended) | 10.8 | | | 12.4 | | | 10.6 | |
Return on average tangible common equity (three months ended)1 | 12.7 | | | 14.5 | | | 12.4 | |
| Tangible book value per common share | $ | 34.02 | | $ | 31.97 | | $ | 30.91 |
|
| | | | | | | | |
| | September 30,
2017 | | December 31,
2016 | | September 30,
2016 |
| | | | | | |
Tangible common equity ratio1 | 9.57 | % | | 9.49 | % | | 9.91 | % |
Tangible equity ratio1 | 10.45 | % | | 10.63 | % | | 11.09 | % |
| Average equity to average assets (three months ended) | 11.93 | % | | 12.48 | % | | 12.81 | % |
Basel III risk-based capital ratios2: | | | | | |
| Common equity tier 1 capital | 12.22 | % | | 12.07 | % | | 12.04 | % |
| Tier 1 leverage | 10.58 | % | | 11.09 | % | | 11.27 | % |
| Tier 1 risk-based | 13.33 | % | | 13.49 | % | | 13.48 | % |
| Total risk-based | 14.99 | % | | 15.24 | % | | 15.31 | % |
| Return on average common equity (three months ended) | 8.3 | % | | 7.1 | % | | 6.7 | % |
Return on average tangible common equity (three months ended)1 | 9.8 | % | | 8.4 | % | | 7.9 | % |
| |
1
| See “GAAP to Non-GAAP Reconciliations” on page 5 for more information regarding these ratios. |
| |
2
| Based on the applicable phase-in periods. |
At SeptemberJune 30, 2017,2019, Basel III regulatory tier 1 risk-based capital and total risk-based capital was $6.8$6.6 billion and 7.7$7.2 billion, respectively, compared with $6.7$6.8 billion and $7.6$7.4 billion, respectively, at December 31, 2016.2018. We believe that we have further room to optimize our capital ratios as supported by our stress testing and efforts to improve our loan portfolio composition and are continuing to reduce excess capital. A more comprehensivedetailed discussion of our capital management and Basel III requirements, including implications for the Bank, is contained in “Capital Standards – Basel Framework” under Part 1, Item 1, “Capital Management," and Note 14 of the Notes to Consolidated Financial Statements in our 20162018 Annual Report on Form 10-K.
| |
ITEM 1. | FINANCIAL STATEMENTS (Unaudited)
|
ITEM 1. FINANCIAL STATEMENTS (Unaudited) ZIONS BANCORPORATION AND SUBSIDIARIES CONSOLIDATED BALANCE SHEETS |
| | | | | | | |
| (In millions, shares in thousands) | September 30,
2017 | | December 31,
2016 |
| (Unaudited) | | |
| ASSETS | | | |
| Cash and due from banks | $ | 541 |
| | $ | 737 |
|
| Money market investments: | | | |
| Interest-bearing deposits | 765 |
| | 1,411 |
|
| Federal funds sold and security resell agreements | 467 |
| | 568 |
|
| Investment securities: | | | |
| Held-to-maturity, at amortized cost (approximate fair value $743 and $850) | 746 |
| | 868 |
|
| Available-for-sale, at fair value | 15,242 |
| | 13,372 |
|
| Trading account, at fair value | 56 |
| | 115 |
|
| Total investment securities | 16,044 |
| | 14,355 |
|
| Loans held for sale | 71 |
| | 172 |
|
| Loans and leases, net of unearned income and fees | 44,156 |
| | 42,649 |
|
| Less allowance for loan losses | 541 |
| | 567 |
|
| Loans held for investment, net of allowance | 43,615 |
| | 42,082 |
|
| Other noninterest-bearing investments | 1,008 |
| | 884 |
|
| Premises, equipment and software, net | 1,083 |
| | 1,020 |
|
| Goodwill | 1,014 |
| | 1,014 |
|
| Core deposit and other intangibles | 3 |
| | 8 |
|
| Other real estate owned | 3 |
| | 4 |
|
| Other assets | 950 |
| | 984 |
|
| Total Assets | $ | 65,564 |
| | $ | 63,239 |
|
| LIABILITIES AND SHAREHOLDERS’ EQUITY | | | |
| Deposits: | | | |
| Noninterest-bearing demand | $ | 24,011 |
| | $ | 24,115 |
|
| Interest-bearing: | | | |
| Savings and money market | 25,179 |
| | 26,364 |
|
| Time | 2,909 |
| | 2,757 |
|
| Total deposits | 52,099 |
| | 53,236 |
|
| Federal funds and other short-term borrowings | 4,624 |
| | 827 |
|
| Long-term debt | 383 |
| | 535 |
|
| Reserve for unfunded lending commitments | 59 |
| | 65 |
|
| Other liabilities | 638 |
| | 942 |
|
| Total liabilities | 57,803 |
| | 55,605 |
|
| Shareholders’ equity: | | | |
| Preferred stock, without par value, authorized 4,400 shares | 566 |
| | 710 |
|
| Common stock, without par value; authorized 350,000 shares; issued and outstanding 199,712 and 203,085 shares | 4,552 |
| | 4,725 |
|
| Retained earnings | 2,700 |
| | 2,321 |
|
| Accumulated other comprehensive income (loss) | (57 | ) | | (122 | ) |
| Total shareholders’ equity | 7,761 |
| | 7,634 |
|
| Total liabilities and shareholders’ equity | $ | 65,564 |
| | $ | 63,239 |
|
CONSOLIDATED BALANCE SHEETS
| | | | | | | | | | | |
| (In millions, shares in thousands) | June 30,
2019 | | December 31,
2018 |
| (Unaudited) | | |
| ASSETS | | | |
| Cash and due from banks | $ | 538 | | $ | 614 |
| Money market investments: | | | |
| Interest-bearing deposits | 634 | | 619 |
| Federal funds sold and security resell agreements | 620 | | 1,461 |
| Investment securities: | | | |
| Held-to-maturity, at amortized cost (approximate fair value $698 and $767) | 695 | | 774 |
| Available-for-sale, at fair value | 14,672 | | 14,737 |
| Trading account, at fair value | 148 | | 106 |
| Total securities | 15,515 | | 15,617 |
| Loans held for sale | 105 | | 93 |
| Loans and leases, net of unearned income and fees | 48,617 | | 46,714 |
| Less allowance for loan losses | 503 | | 495 |
| Loans held for investment, net of allowance | 48,114 | | 46,219 |
| Other noninterest-bearing investments | 1,056 | | 1,046 |
| Premises, equipment and software, net | 1,133 | | 1,124 |
| Goodwill and intangibles | 1,014 | | 1,015 |
| Other real estate owned | 5 | | 4 |
| Other assets | 1,331 | | 934 |
| Total Assets | $ | 70,065 | | $ | 68,746 |
| LIABILITIES AND SHAREHOLDERS’ EQUITY | | | |
| Deposits: | | | |
| Noninterest-bearing demand | $ | 22,947 | | $ | 23,645 |
| Interest-bearing: | | | |
| Savings and money market | 26,470 | | 26,120 |
| Time | 4,915 | | 4,336 |
| | | |
| Total deposits | 54,332 | | 54,101 |
| Federal funds purchased and other short-term borrowings | 6,023 | | 5,653 |
| Long-term debt | 1,236 | | 724 |
| Reserve for unfunded lending commitments | 60 | | 57 |
| Other liabilities | 815 | | 633 |
| Total liabilities | 62,466 | | 61,168 |
| Shareholders’ equity: | | | |
| Preferred stock, without par value; authorized 4,400 shares | 566 | | 566 |
| Common stock ($0.001 par value; authorized 350,000 shares; issued and outstanding 176,935 and 187,554 shares) and additional paid-in capital | 3,271 | | 3,806 |
| Retained earnings | 3,737 | | 3,456 |
| Accumulated other comprehensive income (loss) | 25 | | (250) |
| | | |
| | | |
| Total shareholders’ equity | 7,599 | | 7,578 |
| Total liabilities and shareholders’ equity | $ | 70,065 | | $ | 68,746 |
| | | |
See accompanying notes to consolidated financial statements.
ZIONS BANCORPORATION, NATIONAL ASSOCIATION AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF INCOME ZIONS BANCORPORATION AND SUBSIDIARIES CONSOLIDATED STATEMENTS OF INCOME (Unaudited) |
| | | | | | | | | | | | | | | |
| (In millions, except shares and per share amounts) | Three Months Ended
September 30, | | Nine Months Ended
September 30, |
| 2017 | | 2016 | | 2017 | | 2016 |
| Interest income: | | | | | | | |
| Interest and fees on loans | $ | 468 |
| | $ | 437 |
| | $ | 1,370 |
| | $ | 1,291 |
|
| Interest on money market investments | 5 |
| | 5 |
| | 14 |
| | 18 |
|
| Interest on securities | 84 |
| | 49 |
| | 246 |
| | 143 |
|
| Total interest income | 557 |
| | 491 |
| | 1,630 |
| | 1,452 |
|
| Interest expense: | | | | | | | |
| Interest on deposits | 15 |
| | 13 |
| | 43 |
| | 36 |
|
| Interest on short- and long-term borrowings | 20 |
| | 9 |
| | 48 |
| | 30 |
|
| Total interest expense | 35 |
| | 22 |
| | 91 |
| | 66 |
|
| Net interest income | 522 |
| | 469 |
| | 1,539 |
| | 1,386 |
|
| Provision for loan losses | 5 |
| | 19 |
| | 35 |
| | 95 |
|
| Net interest income after provision for loan losses | 517 |
| | 450 |
| | 1,504 |
| | 1,291 |
|
| Noninterest income: | | | | | | | |
| Service charges and fees on deposit accounts | 42 |
| | 45 |
| | 127 |
| | 128 |
|
| Other service charges, commissions and fees | 55 |
| | 54 |
| | 160 |
| | 156 |
|
| Wealth management income | 11 |
| | 10 |
| | 30 |
| | 27 |
|
| Loan sales and servicing income | 6 |
| | 11 |
| | 19 |
| | 29 |
|
| Capital markets and foreign exchange | 8 |
| | 6 |
| | 21 |
| | 16 |
|
| Customer-related fees | 122 |
| | 126 |
| | 357 |
| | 356 |
|
| Dividends and other investment income | 9 |
| | 9 |
| | 31 |
| | 20 |
|
| Securities gains, net | 5 |
| | 8 |
| | 13 |
| | 11 |
|
| Other | 3 |
| | 2 |
| | 3 |
| | 1 |
|
| Total noninterest income | 139 |
| | 145 |
| | 404 |
| | 388 |
|
| Noninterest expense: | | | | | | | |
| Salaries and employee benefits | 253 |
| | 242 |
| | 756 |
| | 742 |
|
| Occupancy, net | 35 |
| | 33 |
| | 101 |
| | 93 |
|
| Furniture, equipment and software, net | 32 |
| | 29 |
| | 96 |
| | 92 |
|
| Other real estate expense, net | (1 | ) | | — |
| | (1 | ) | | (2 | ) |
| Credit-related expense | 7 |
| | 7 |
| | 23 |
| | 19 |
|
| Provision for unfunded lending commitments | (4 | ) | | (3 | ) | | (6 | ) | | (13 | ) |
| Professional and legal services | 14 |
| | 14 |
| | 42 |
| | 38 |
|
| Advertising | 6 |
| | 6 |
| | 17 |
| | 17 |
|
| FDIC premiums | 15 |
| | 12 |
| | 40 |
| | 28 |
|
| Amortization of core deposit and other intangibles | 2 |
| | 2 |
| | 5 |
| | 6 |
|
| Other | 54 |
| | 61 |
| | 159 |
| | 161 |
|
| Total noninterest expense | 413 |
| | 403 |
| | 1,232 |
| | 1,181 |
|
| Income before income taxes | 243 |
| | 192 |
| | 676 |
| | 498 |
|
| Income taxes | 83 |
| | 65 |
| | 207 |
| | 166 |
|
| Net income | 160 |
| | 127 |
| | 469 |
| | 332 |
|
| Preferred stock dividends | (8 | ) | | (10 | ) | | (30 | ) | | (36 | ) |
| Preferred stock redemption | — |
| | — |
| | (3 | ) | | (10 | ) |
| Net earnings applicable to common shareholders | $ | 152 |
| | $ | 117 |
| | $ | 436 |
| | $ | 286 |
|
| Weighted average common shares outstanding during the period: | | | | | | | |
| Basic shares (in thousands) | 200,332 |
| | 204,312 |
| | 201,493 |
| | 204,180 |
|
| Diluted shares (in thousands) | 209,106 |
| | 204,714 |
| | 209,366 |
| | 204,425 |
|
| Net earnings per common share: | | | | | | | |
| Basic | $ | 0.75 |
| | $ | 0.57 |
| | $ | 2.14 |
| | $ | 1.39 |
|
| Diluted | 0.72 |
| | 0.57 |
| | 2.06 |
| | 1.39 |
|
| | | | | | | | | | | | | | | | | | | | | | | |
| (In millions, except shares and per share amounts) | Three Months Ended
June 30, | | | | Six Months Ended
June 30, | | |
| 2019 | | 2018 | | 2019 | | 2018 |
| Interest income: | | | | | | | |
| Interest and fees on loans | $ | 581 | | $ | 514 | | $ | 1,151 | | $ | 1,011 |
| Interest on money market investments | 8 | | 7 | | 17 | | 13 |
| Interest on securities | 95 | | 85 | | 191 | | 170 |
| Total interest income | 684 | | 606 | | 1,359 | | 1,194 |
| Interest expense: | | | | | | | |
| Interest on deposits | 66 | | 29 | | 123 | | 48 |
| Interest on short- and long-term borrowings | 49 | | 29 | | 91 | | 56 |
| Total interest expense | 115 | | 58 | | 214 | | 104 |
| Net interest income | 569 | | 548 | | 1,145 | | 1,090 |
| Provision for credit losses: | | | | | | | |
| Provision for loan losses | 20 | | 5 | | 22 | | (35) |
| Provision for unfunded lending commitments | 1 | | 7 | | 3 | | — |
| Total provision for credit losses | 21 | | 12 | | 25 | | (35) |
| Net interest income after provision for loan losses | 548 | | 536 | | 1,120 | | 1,125 |
| Noninterest income: | | | | | | | |
| Service charges and fees on deposit accounts | 41 | | 42 | | 81 | | 84 |
| Other service charges, commissions and fees | 58 | | 55 | | 113 | | 110 |
| Wealth management and trust income | 13 | | 14 | | 26 | | 25 |
| Loan sales and servicing income | 9 | | 7 | | 14 | | 13 |
| Capital markets and foreign exchange | 9 | | 7 | | 16 | | 15 |
| Customer-related fees | 130 | | 125 | | 250 | | 247 |
| Dividends and other investment income | 9 | | 11 | | 18 | | 22 |
| Securities gains (losses), net | (3) | | 1 | | (2) | | 1 |
| Other | (4) | | 1 | | (2) | | 6 |
| Total noninterest income | 132 | | 138 | | 264 | | 276 |
| Noninterest expense: | | | | | | | |
| Salaries and employee benefits | 274 | | 266 | | 562 | | 535 |
| Occupancy, net | 32 | | 32 | | 65 | | 63 |
| Furniture, equipment and software, net | 35 | | 32 | | 67 | | 65 |
| Other real estate expense, net | — | | — | | (1) | | 1 |
| Credit-related expense | 8 | | 7 | | 13 | | 13 |
| Professional and legal services | 13 | | 14 | | 23 | | 26 |
| Advertising | 5 | | 7 | | 11 | | 13 |
| FDIC premiums | 6 | | 14 | | 12 | | 26 |
| Other | 51 | | 49 | | 102 | | 98 |
| Total noninterest expense | 424 | | 421 | | 854 | | 840 |
| Income before income taxes | 256 | | 253 | | 530 | | 561 |
| Income taxes | 58 | | 56 | | 119 | | 126 |
| Net income | 198 | | 197 | | 411 | | 435 |
| | | | | | | |
| | | | | | | |
| Preferred stock dividends | (9) | | (10) | | (17) | | (17) |
| | | | | | | |
| Net earnings applicable to common shareholders | $ | 189 | | $ | 187 | | $ | 394 | | $ | 418 |
| Weighted average common shares outstanding during the period: | | | | | | | |
| Basic shares (in thousands) | 179,156 | | 195,583 | | 181,946 | | 196,149 |
| Diluted shares (in thousands) | 189,098 | | 209,247 | | 192,206 | | 209,859 |
| Net earnings per common share: | | | | | | | |
| Basic | $ | 1.05 | | $ | 0.95 | | $ | 2.15 | | $ | 2.11 |
| Diluted | 0.99 | | 0.89 | | 2.04 | | 1.97 |
See accompanying notes to consolidated financial statements.
ZIONS BANCORPORATION, NATIONAL ASSOCIATION AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF COMPREHENSIVE INCOME ZIONS BANCORPORATION AND SUBSIDIARIES CONSOLIDATED STATEMENTS OF COMPREHENSIVE INCOME (Unaudited) |
| | | | | | | | | | | | | | | |
| | Three Months Ended
September 30, | | Nine Months Ended
September 30, |
| (In millions) | 2017 | | 2016 | | 2017 | | 2016 |
| | | | | | | | |
| Net income for the period | $ | 160 |
| | $ | 127 |
| | $ | 469 |
| | $ | 332 |
|
| Other comprehensive income (loss), net of tax: | | | | | | | |
| Net unrealized holding gains (losses) on investment securities | (8 | ) | | (11 | ) | | 65 |
| | 54 |
|
| Net unrealized gains on other noninterest-bearing investments | — |
| | 2 |
| | 2 |
| | 2 |
|
| Net unrealized holding gains (losses) on derivative instruments | — |
| | (3 | ) | | — |
| | 14 |
|
| Reclassification adjustment for increase in interest income recognized in earnings on derivative instruments | — |
| | (2 | ) | | (2 | ) | | (5 | ) |
| Pension and postretirement | — |
| | — |
| | — |
| | (1 | ) |
| Other comprehensive income (loss) | (8 | ) | | (14 | ) | | 65 |
| | 64 |
|
| Comprehensive income | $ | 152 |
| | $ | 113 |
| | $ | 534 |
| | $ | 396 |
|
| | | | | | | | | | | | | | | | | | | | | | | |
| Three Months Ended
June 30, | | | | Six Months Ended
June 30, | | |
| (In millions) | 2019 | | 2018 | | 2019 | | 2018 |
| | | | | | | |
| Net income for the period | $ | 198 | | $ | 197 | | $ | 411 | | $ | 435 |
| Other comprehensive income (loss), net of tax: | | | | | | | |
| Net unrealized holding gains (losses) on investment securities | 116 | | (50) | | 237 | | (175) |
| | | | | | | |
| | | | | | | |
| | | | | | | |
| | | | | | | |
| | | | | | | |
| Net unrealized gains (losses) on other noninterest-bearing investments | — | | 2 | | (3) | | 3 |
| Net unrealized holding gains (losses) on derivative instruments | 31 | | (2) | | 39 | | (5) |
| Reclassification adjustment for decrease in interest income recognized in earnings on derivative instruments | 1 | | 1 | | 2 | | 1 |
| | | | | | | |
| Other comprehensive income (loss) | 148 | | (49) | | 275 | | (176) |
| Comprehensive income | $ | 346 | | $ | 148 | | $ | 686 | | $ | 259 |
See accompanying notes to consolidated financial statements.
ZIONS BANCORPORATION, NATIONAL ASSOCIATION AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF CHANGES IN SHAREHOLDERS’ EQUITY
(Unaudited)
| | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | |
(In millions, except shares
and per share amounts) | Preferred
stock | | Common stock | | | | Accumulated paid-in capital | | Retained earnings | | Accumulated other
comprehensive income (loss) | | | | Total
shareholders’ equity |
| | | Shares (in thousands) | | Amount | | | | | | | | | | |
| | | | | | | | | | | | | | | |
| Balance at March 31, 2019 | $ | 566 | | 182,513 | | $ | — | | $ | 3,541 | | $ | 3,603 | | | $ | (122) | | | $ | 7,588 |
| Net income for the period | | | | | | | | | 198 | | | | | | 198 |
| Other comprehensive income, net of tax | | | | | | | | | | | | 147 | | | 147 |
| Bank common stock repurchased | | | (5,857) | | | | (276) | | | | | | | | (276) |
| Net shares issued from stock warrant exercises | | | 7 | | | | | | | | | | | | |
| Net activity under employee plans and related tax benefits | | | 272 | | | | 6 | | | | | | | | 6 |
| Dividends on preferred stock | | | | | | | | | (10) | | | | | | (10) |
Dividends on common stock, $0.30
per share | | | | | | | | | (54) | | | | | | (54) |
| | | | | | | | | | | | | | | |
| Balance at June 30, 2019 | $ | 566 | | 176,935 | | $ | — | | $ | 3,271 | | $ | 3,737 | | | $ | 25 | | | $ | 7,599 |
| | | | | | | | | | | | | | | |
| Balance at March 31, 2018 | $ | 566 | | 197,050 | | $ | 4,346 | | $ | — | | $ | 2,999 | | | $ | (267) | | | $ | 7,644 |
| Net income for the period | | | | | | | | | 197 | | | | | | 197 |
| Other comprehensive loss, net of tax | | | | | | | | | | | | (48) | | | (48) |
| | | | | | | | | | | | | | | |
| Bank common stock repurchased | | | (2,270) | | (127) | | | | | | | | | | (127) |
| Net shares issued from stock warrant exercises | | | 53 | | | | | | | | | | | | |
| Net activity under employee plans and related tax benefits | | | 559 | | 12 | | | | | | | | | | 12 |
| Dividends on preferred stock | | | | | | | | | (10) | | | | | | (10) |
Dividends on common stock, $0.24
per share | | | | | | | | | (47) | | | | | | (47) |
| | | | | | | | | | | | | | | |
| Balance at June 30, 2018 | $ | 566 | | 195,392 | | $ | 4,231 | | $ | — | | $ | 3,139 | | | $ | (315) | | | $ | 7,621 |
ZIONS BANCORPORATION AND SUBSIDIARIES CONSOLIDATED STATEMENTS OF CHANGES IN SHAREHOLDERS’ EQUITY (Unaudited) |
| | | | | | | | | | | | | | | | | | | | | | | | |
(In millions, except shares and per share amounts) | Preferred stock | | Common stock | | Retained earnings | | Accumulated other comprehensive income (loss) | | Total shareholders’ equity |
Shares (in thousands) | | Amount | | | |
| | | | | | | | | | | | | | |
| Balance at December 31, 2016 | $ | 710 |
| | 203,085 |
| | $ | 4,725 |
| | $ | 2,321 |
| | | $ | (122 | ) | | | $ | 7,634 |
|
| Net income for the period | | | | | | | 469 |
| | | | | | 469 |
|
| Other comprehensive income, net of tax | | | | | | | | | | 65 |
| | | 65 |
|
| Preferred stock redemption | (144 | ) | | | | 2 |
| | (2 | ) | | | | | | (144 | ) |
| Company common stock repurchased | | | (4,689 | ) | | (205 | ) | | | | | | | | (205 | ) |
| Net activity under employee plans and related tax benefits | | | 1,316 |
| | 30 |
| | | | | | | | 30 |
|
| Dividends on preferred stock |
|
| | | | | | (30 | ) | | | | | | (30 | ) |
| Dividends on common stock, $0.28 per share | | | | | | | (58 | ) | | | | | | (58 | ) |
| Balance at September 30, 2017 | $ | 566 |
| | 199,712 |
| | $ | 4,552 |
| | $ | 2,700 |
| | | $ | (57 | ) | | | $ | 7,761 |
|
| | | | | | | | | | | | | | |
| Balance at December 31, 2015 | $ | 828 |
| | 204,417 |
| | $ | 4,767 |
| | $ | 1,967 |
| | | $ | (55 | ) | | | $ | 7,507 |
|
| Net income for the period | | | | | | | 332 |
| | | | | | 332 |
|
| Other comprehensive income, net of tax | | | | | | | | | | 64 |
| | | 64 |
|
| Preferred stock redemption | (118 | ) | | | | 2 |
| | (10 | ) | | | | | | (126 | ) |
| Company common stock repurchased |
|
| | (1,469 | ) | | (45 | ) | | | | | | | | (45 | ) |
| Net activity under employee plans and related tax benefits | | | 902 |
| | 24 |
| | | | | | | | 24 |
|
| Dividends on preferred stock |
|
| | | | | | (36 | ) | | | | | | (36 | ) |
| Dividends on common stock, $0.20 per share | | | | | | | (41 | ) | | | | | | (41 | ) |
| Change in deferred compensation | | | | | | | — |
| | | | | | — |
|
| Balance at September 30, 2016 | $ | 710 |
| | 203,850 |
| | $ | 4,748 |
| | $ | 2,212 |
| | | $ | 9 |
| | | $ | 7,679 |
|
| | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | |
| | | | | | | | | | | | | | | |
(In millions, except shares
and per share amounts) | Preferred
stock | | Common stock | | | | Accumulated paid-in capital | | Retained earnings | | Accumulated other
comprehensive income (loss) | | | | Total
shareholders’ equity |
| | | Shares (in thousands) | | Amount | | | | | | | | | | |
| | | | | | | | | | | | | | | |
| Balance at December 31, 2018 | $ | 566 | | 187,554 | | $ | — | | $ | 3,806 | | $ | 3,456 | | | $ | (250) | | | $ | 7,578 |
| Net income for the period | | | | | | | | | 411 | | | | | | 411 |
| Other comprehensive income, net of tax | | | | | | | | | | | | 275 | | | 275 |
| Cumulative effect adjustment, adoption of ASU 2017-08, Premium Amortization on Purchased Callable Debt Securities | | | | | | | | | (3) | | | | | | (3) |
| Bank common stock repurchased | | | (11,363) | | | | (551) | | | | | | | | (551) |
| Net shares issued from stock warrant exercises | | | 8 | | | | | | | | | | | | |
| Net activity under employee plans and related tax benefits | | | 736 | | | | 16 | | | | | | | | 16 |
| Dividends on preferred stock | | | | | | | | | (17) | | | | | | (17) |
Dividends on common stock, $0.60 per share | | | | | | | | | (110) | | | | | | (110) |
| | | | | | | | | | | | | | | |
| Balance at June 30, 2019 | $ | 566 | | 176,935 | | $ | — | | $ | 3,271 | | $ | 3,737 | | | $ | 25 | | | $ | 7,599 |
| | | | | | | | | | | | | | | |
| Balance at December 31, 2017 | $ | 566 | | 197,532 | | $ | 4,445 | | $ | — | | $ | 2,807 | | | $ | (139) | | | $ | 7,679 |
| Net income for the period | | | | | | | | | 435 | | | | | | 435 |
| Other comprehensive loss, net of tax | | | | | | | | | | | | (176) | | | (176) |
| Cumulative effect adjustment, adoption of ASU 2014-09, Revenue from Contracts with Customers | | | | | | | | | 1 | | | | | | 1 |
| Bank common stock repurchased | | | (4,541) | | (248) | | | | | | | | | | (248) |
| Net shares issued from stock warrant exercises | | | 1,095 | | | | | | | | | | | | |
| Net activity under employee plans and related tax benefits | | | 1,306 | | 34 | | | | | | | | | | 34 |
| Dividends on preferred stock | | | | | | | | | (17) | | | | | | (17) |
Dividends on common stock, $0.44
per share | | | | | | | | | (87) | | | | | | (87) |
| | | | | | | | | | | | | | | |
| Balance at June 30, 2018 | $ | 566 | | 195,392 | | $ | 4,231 | | $ | — | | $ | 3,139 | | | $ | (315) | | | $ | 7,621 |
See accompanying notes to consolidated financial statements.
ZIONS BANCORPORATION, NATIONAL ASSOCIATION AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF CASH FLOWS ZIONS BANCORPORATION AND SUBSIDIARIES CONSOLIDATED STATEMENTS OF CASH FLOWS (Unaudited) |
| | | | | | | | | | | | | | | |
| (In millions) | Three Months Ended
September 30, | | Nine Months Ended
September 30, |
| 2017 | | 2016 | | 2017 | | 2016 |
| CASH FLOWS FROM OPERATING ACTIVITIES | | | | | | | |
| Net income for the period | $ | 160 |
| | $ | 127 |
| | $ | 469 |
| | $ | 332 |
|
| Adjustments to reconcile net income to net cash provided by operating activities: | | | | | | | |
| Provision for credit losses | 1 |
| | 16 |
| | 29 |
| | 82 |
|
| Depreciation and amortization | 47 |
| | 34 |
| | 131 |
| | 88 |
|
| Share-based compensation | 4 |
| | 6 |
| | 21 |
| | 22 |
|
| Deferred income tax expense (benefit) | (4 | ) | | 2 |
| | 4 |
| | (9 | ) |
| Net decrease (increase) in trading securities | 5 |
| | 11 |
| | 59 |
| | (60 | ) |
| Net decrease (increase) in loans held for sale | (18 | ) | | (12 | ) | | 71 |
| | (9 | ) |
| Change in other liabilities | 84 |
| | 52 |
| | 63 |
| | 215 |
|
| Change in other assets | (42 | ) | | (4 | ) | | (9 | ) | | (222 | ) |
| Other, net | (10 | ) | | (19 | ) | | (35 | ) | | (24 | ) |
| Net cash provided by operating activities | 227 |
| | 213 |
| | 803 |
| | 415 |
|
| CASH FLOWS FROM INVESTING ACTIVITIES | | | | | | | |
| Net decrease (increase) in money market investments | 363 |
| | (389 | ) | | 748 |
| | 3,563 |
|
| Proceeds from maturities and paydowns of investment securities held-to-maturity | 83 |
| | 34 |
| | 249 |
| | 66 |
|
| Purchases of investment securities held-to-maturity | (54 | ) | | (35 | ) | | (127 | ) | | (235 | ) |
| Proceeds from sales, maturities, and paydowns of investment securities available-for-sale | 615 |
| | 683 |
| | 1,775 |
| | 3,257 |
|
| Purchases of investment securities available-for-sale | (535 | ) | | (1,607 | ) | | (4,001 | ) | | (5,974 | ) |
| Net change in loans and leases | (475 | ) | | (58 | ) | | (1,511 | ) | | (1,956 | ) |
| Net change in other noninterest-bearing investments | 14 |
| | (26 | ) | | (89 | ) | | (29 | ) |
| Purchases of premises and equipment | (39 | ) | | (51 | ) | | (133 | ) | | (143 | ) |
| Proceeds from sales of other real estate owned | 3 |
| | 6 |
| | 7 |
| | 15 |
|
| Other, net | 1 |
| | 2 |
| | 5 |
| | 5 |
|
| Net cash used in investing activities | (24 | ) | | (1,441 | ) | | (3,077 | ) | | (1,431 | ) |
| CASH FLOWS FROM FINANCING ACTIVITIES | | | | | | | |
| Net increase (decrease) in deposits | (278 | ) | | 575 |
| | (1,136 | ) | | 496 |
|
| Net change in short-term funds borrowed | (718 | ) | | 845 |
| | 1,297 |
| | 768 |
|
| Proceeds from debt over 90 days and up to one year | 1,850 |
| | — |
| | 3,600 |
| | — |
|
| Repayments of debt over 90 days and up to one year | (850 | ) | | — |
| | (1,100 | ) | | — |
|
| Cash paid for preferred stock redemption | — |
| | — |
| | (144 | ) | | (126 | ) |
| Repayments of long-term debt | — |
| | (129 | ) | | (153 | ) | | (244 | ) |
| Proceeds from the issuance of common stock | 2 |
| | 5 |
| | 20 |
| | 8 |
|
| Dividends paid on common and preferred stock | (34 | ) | | (31 | ) | | (89 | ) | | (81 | ) |
| Company common stock repurchased | (115 | ) | | (45 | ) | | (217 | ) | | (51 | ) |
| Other, net | — |
| | 1 |
| | — |
| | 1 |
|
| Net cash provided by (used in) financing activities | (143 | ) | | 1,221 |
| | 2,078 |
| | 771 |
|
| Net increase (decrease) in cash and due from banks | 60 |
| | (7 | ) | | (196 | ) | | (245 | ) |
| Cash and due from banks at beginning of period | 481 |
| | 560 |
| | 737 |
| | 798 |
|
| Cash and due from banks at end of period | $ | 541 |
| | $ | 553 |
| | $ | 541 |
| | $ | 553 |
|
| Cash paid for interest | $ | 27 |
| | $ | 18 |
| | $ | 79 |
| | $ | 61 |
|
| Net cash paid for income taxes | 84 |
| | 53 |
| | 206 |
| | 154 |
|
| Noncash activities are summarized as follows: | | | | | | | |
| Loans held for investment transferred to other real estate owned | 1 |
| | 6 |
| | 5 |
| | 13 |
|
| Loans held for investment reclassified to loans held for sale, net | 1 |
| | 40 |
| | 14 |
| | 36 |
|
| Available-for-sale securities purchased, not settled | 25 |
| | — |
| | 81 |
| | — |
|
| Held-to-maturity securities purchased, not settled | — |
| | — |
| | 31 |
| | — |
|
| | | | | | | | | | | | | | | | | | |
| (In millions) | | | | Six Months Ended
June 30, | | | | | | |
| | | | 2019 | | 2018 | | | | |
| CASH FLOWS FROM OPERATING ACTIVITIES | | | | | | | | | | |
| Net income for the period | | | | $ | 411 | | $ | 435 | | | | |
| Adjustments to reconcile net income to net cash provided by operating activities: | | | | | | | | | | |
| | | | | | | | | | |
| Provision for credit losses | | | | 25 | | (35) | | | | |
| Depreciation and amortization | | | | 93 | | 92 | | | | |
| Share-based compensation | | | | 18 | | 18 | | | | |
| Deferred income tax expense | | | | 3 | | 2 | | | | |
| Net increase in trading securities | | | | (42) | | (59) | | | | |
| Net increase in loans held for sale | | | | (39) | | (34) | | | | |
| Change in other liabilities | | | | (73) | | 85 | | | | |
| Change in other assets | | | | (166) | | (52) | | | | |
| Other, net | | | | (10) | | (14) | | | | |
| Net cash provided by operating activities | | | | 220 | | 438 | | | | |
| CASH FLOWS FROM INVESTING ACTIVITIES | | | | | | | | | | |
| Net decrease in money market investments | | | | 827 | | 40 | | | | |
| Proceeds from maturities and paydowns of investment securities held-to-maturity | | | | 239 | | 114 | | | | |
| Purchases of investment securities held-to-maturity | | | | (160) | | (222) | | | | |
| Proceeds from sales, maturities, and paydowns of investment securities available-for-sale | | | | 1,345 | | 1,404 | | | | |
| Purchases of investment securities available-for-sale | | | | (1,028) | | (1,176) | | | | |
| Net change in loans and leases | | | | (1,877) | | (431) | | | | |
| Purchases and sales of other noninterest-bearing investments | | | | (5) | | (4) | | | | |
| Purchases of premises and equipment | | | | (60) | | (54) | | | | |
| Other, net | | | | 4 | | — | | | | |
| Net cash used in investing activities | | | | (715) | | (329) | | | | |
| CASH FLOWS FROM FINANCING ACTIVITIES | | | | | | | | | | |
| Net increase in deposits | | | | 232 | | 965 | | | | |
| Net change in short-term funds borrowed | | | | 371 | | 1,181 | | | | |
| | | | | | | | | | |
| Repayments of debt over 90 days and up to one year | | | | — | | (2,000) | | | | |
| | | | | | | | | | |
| Proceeds from the issuance of long-term debt | | | | 497 | | — | | | | |
| | | | | | | | | | |
| | | | | | | | | | |
| Proceeds from the issuance of common stock | | | | 7 | | 17 | | | | |
| Dividends paid on common and preferred stock | | | | (127) | | (104) | | | | |
| Bank common stock repurchased | | | | (551) | | (248) | | | | |
| Other, net | | | | (10) | | — | | | | |
| Net cash provided by (used in) financing activities | | | | 419 | | (189) | | | | |
| Net decrease in cash and due from banks | | | | (76) | | (80) | | | | |
| Cash and due from banks at beginning of period | | | | 614 | | 548 | | | | |
| Cash and due from banks at end of period | | | | $ | 538 | | $ | 468 | | | | |
| Cash paid for interest | | | | $ | 199 | | $ | 100 | | | | |
| Net cash paid for income taxes | | | | 132 | | 91 | | | | |
| Noncash activities are summarized as follows: | | | | | | | | | | |
| Loans held for investment transferred to other real estate owned | | | | 6 | | 6 | | | | |
| Loans held for investment reclassified to loans held for sale, net | | | | — | | 39 | | | | |
See accompanying notes to consolidated financial statements.
ZIONS BANCORPORATION, NATIONAL ASSOCIATION AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(Unaudited)
SeptemberJune 30, 20172019
1. BASIS OF PRESENTATION
The accompanying unaudited consolidated financial statements of Zions Bancorporation, (“the Parent”)National Association and its majority-owned subsidiaries (collectively “Zions Bancorporation, N.A.,” “the Company,” “Zions,Bank,” “we,” “our,” “us”) have been prepared in accordance with United States (“U.S.”) generally accepted accounting principles (“GAAP”) for interim financial information and with the instructions to Form 10-Q and Article 10 of Regulation S-X. Accordingly, they do not include all of the information and footnotes required by GAAP for complete financial statements. In the opinion of management, all adjustments (consisting of normal recurring accruals) considered necessary for a fair presentation have been included. References to GAAP, including standards promulgated by the Financial Accounting Standards Board (“FASB”), are made according to sections of the Accounting Standards Codification (“ASC”). Changes to the ASC are made with Accounting Standards Updates (“ASU”) that include consensus issues of the Emerging Issues Task Force (“EITF”). In certain cases, ASUs are issued jointly with International Financial Reporting Standards (“IFRS”).Force.
Operating results for the ninesix months ended SeptemberJune 30, 20172019 and 20162018 are not necessarily indicative of the results that may be expected in future periods. In preparing the consolidated financial statements, we are required to make estimates and assumptions that affect the amounts reported in the financial statements and accompanying notes. Actual results could differ from those estimates. The consolidated balance sheet at December 31, 20162018 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 2016Bank’s 2018 Annual Report on Form 10-K. Certain prior period amounts have been reclassified to conform with the current period presentation. These reclassifications did not affect net income or shareholders’ equity.
Zions Bancorporation, (“the Parent”)N.A. is a financial holding companycommercial bank headquartered in Salt Lake City, Utah, which owns and operates a commercial bank.Utah. The Parent and its subsidiaries (collectively “the Company”) provideBank provides a full range of banking and related services in 11 Western and Southwestern states through seven7 separately managed and branded units as follows: Zions Bank, in Utah, Idaho and Wyoming; Amegy Bank (“Amegy”), in Texas; California Bank & Trust (“CB&T”); Amegy Bank (“Amegy”), in Texas; National Bank of Arizona (“NBAZ”); Nevada State Bank (“NSB”); Vectra Bank Colorado (“Vectra”), in Colorado and New Mexico; and The Commerce Bank of Washington (“TCBW”) which operates under that name in Washington and under the name The Commerce Bank of Oregon (“TCBO”) in Oregon. The Parent also owns and operates certain nonbank subsidiaries that engage in financial services.
ZIONS BANCORPORATION, NATIONAL ASSOCIATION AND SUBSIDIARIES
2. RECENT ACCOUNTING PRONOUNCEMENTS AND DEVELOPMENTS
| | | | | | | | | | | | | | | | | | | | |
2.Standard | RECENT ACCOUNTING PRONOUNCEMENTS | Description | | Date of adoption | | Effect on the financial statements or other significant matters |
| | | | | | |
| Standards not yet adopted by the Bank | | | | | | |
| | | | | | |
Standard | | Description | | DateASU 2016-13, Credit Losses (Topic 326): Measurement of adoption | | EffectCredit Losses on the financial statements or other significant matters |
| | | | | | |
Standards not yet adopted by the Company |
| | | | | | |
ASU 2014-09, Revenue from Contracts with Customers (Topic 606)Financial
Instruments and subsequent related ASUs
| | The core principle of the new guidance is that a company will recognize revenue when it transfers promised goods or services to customers in an amount that reflects the consideration to which the company expects to be entitled in exchange for those goods or services. The banking industry does not expect significant changes because major sources of revenue are from financial instruments that have been excluded from the scope of the new standard, (including loans, derivatives, debt and equity securities, etc.). However, these new standards affect other fees charged by banks, such as asset management fees, credit card interchange fees, deposit account fees, etc. Adoption may be made on a full retrospective basis with practical expedients, or on a modified retrospective basis with a cumulative effect adjustment. | | January 1, 2018 | | Approximately 85% of our revenue, including all of our interest income and a portion of our noninterest income, is out of scope of the guidance. The contracts that are in scope of the guidance are primarily related to service charges and fees on deposit accounts, wealth management income, and other service charges, commissions and fees. We have completed our review of these contracts and have not identified any material changes in the timing of revenue recognition. We plan to adopt this guidance using the modified retrospective transition method, and we expect to expand our qualitative disclosures of revenue recognition upon adoption. |
| | | | | | |
ASU 2016-01, Financial Instruments – Overall (Subtopic 825-10): Recognition and Measurement of Financial Assets and Financial Liabilities
| | The standard provides revised accounting guidance related to the accounting for and reporting of financial instruments. Some of the main provisions include:
– Equity investments that do not result in consolidation and are not accounted for under the equity method would be measured at fair value through net income
– Changes in instrument-specific credit risk for financial liabilities that are measured under the fair value option would be recognized in other comprehensive income (“OCI”).
– Elimination of the requirement to disclose the methods and significant assumptions used to estimate the fair value of financial instruments carried at amortized cost. However, it will require the use of exit price when measuring the fair value of financial instruments measured at amortized cost for disclosure purposes.
| | January 1, 2018 | | We do not have a significant amount of equity securities classified as available-for-sale (“AFS”). Additionally, we do not have any financial liabilities accounted for under the fair value option. Therefore, the transition adjustment upon adoption of this guidance is not expected to be material. We are refining our valuation models to better account for an exit price, but do not expect a significant change in our disclosure. |
| | | | | | |
ASU 2017-12, Derivatives and Hedging (Topic 815): Targeted Improvements to Accounting for Hedging Activities
| | The purpose of this standard is to better align a company’s financial reporting for hedging activities with the economic objectives of those activities. The standard is effective for public business entities for fiscal years beginning after December 15, 2018, with early adoption, including adoption in an interim period, permitted. The standard requires a modified retrospective transition method that requires recognition of the cumulative effect of the change on the opening balance of each affected component of equity in the statement of financial position as of the date of adoption. | | January 1, 2018 | | While we continue to assess all potential impacts of the standard, we currently do not expect adoption of this guidance to have a material impact on our consolidated financial statements. We are still evaluating when to adopt this guidance. |
| | | | | | |
ZIONS BANCORPORATION AND SUBSIDIARIES
|
| | | | | | |
Standard | | Description | | Date of adoption | | Effect on the financial statements or other significant matters |
| | | | | | |
Standards not yet adopted by the Company (continued) |
| | | | | | |
This ASU, 2016-02, Leases (Topic 842) | | The standard requires that a lessee recognize assets and liabilities for leases with lease terms of more than 12 months. For leases with a term of 12 months or less, a lessee is permitted to make an accounting policy election by class of underlying asset not to recognize lease assets and lease liabilities. The recognition, measurement, and presentation of expenses and cash flows arising from a lease by a lessee primarily will depend on its classification as a finance or operating lease. However, the standard will require both types of leases to be recognized on the balance sheet. It also requires disclosures to better understand the amount, timing, and uncertainty of cash flows arising from leases. These disclosures include qualitative and quantitative requirements, providing additional information about the amounts recorded in the financial statements. | | January 1, 2019 | | We are currently evaluating the potential impact of this guidance on the Company’s financial statements. As of December 31, 2016, the Company had minimum noncancelable net operating lease payments of $275 million that are being evaluated. The implementation team is working on gathering all key lease data elements to meet the requirements of the new guidance. Additionally, we are implementing new lease software that will accommodate the new accounting requirements.
|
| | | | | | |
ASU 2017-08, Nonrefundable Fees and Other Costs (Subtopic 310-20): Premium Amortization on Purchased Callable Debt Securities
| | The amendments in this ASU shorten the amortization period for certain callable debt securities held at a premium. The standard requires the premium to be amortized to the earliest call date. The update does not change the accounting for securities held at a discount. | | January 1, 2019 | | Our initial analysis suggests this guidance will not have a material impact on the Company’s financial statements, but we will continue to monitor its impact as we move closer to implementation. |
| | | | | | |
ASU 2016-13,
Credit Losses (Topic 326): Measurement of Credit Losses on Financial Instruments
| | The standardsubsequent updates, significantly changes how entities will measure credit losses for mostvirtually all financial assets and certain other instruments that are not measured at fair value through net income.income that have the contractual right to receive cash. The standard replaces today’s “incurred loss” approach with an “expected loss” model for instruments such as loans and held-to-maturity (“HTM”) securities that are measured at amortized cost. The standard requires credit losses relating to AFSavailable-for sale (“AFS”) debt securities to be recorded through an allowance for credit lossesloss (“ACL”) rather than a reduction of the carrying amount.amount and replaces the historically required other-than-temporary impairment (“OTTI”) analysis. It also changes the accounting for purchased credit-impaired debt securities and loans.
The standard retains many of the current disclosure requirements in currentU.S. GAAP and expands certainother disclosure requirements. The new guidance is effective for calendar year-end public companies beginning January 1, 2020. Early adoption of the guidance is permitted as of January 1, 2019. | | January 1,
2020
| | We have formed anOur implementation team, led jointly by our internal Credit, Treasury, and the Corporate Controller’s group, that also includes other lines of business and functions within the Company. The implementation team is working on developingAccounting groups, has developed models that canto meet the requirementsnew standard. We continue to analyze the results of our models. Next steps include establishing and testing controls, further challenging model results, finalizing the new guidance. While thisqualitative allowance process, and developing disclosures.
Based on our current analysis, we believe the standard may potentially have a material impact on the Company’sBank’s financial statements, and we are stillexpect more volatility in processthe credit loss estimate over economic cycles. The Bank will adopt this guidance beginning January 1, 2020. Transition to the new standard is through a cumulative-effect adjustment to the opening retained earnings as of conducting our evaluation.
the beginning of January 1, 2020.
|
| | | | | | |
ASU 2017-04, Intangibles – Goodwill and Other (Topic 350): Simplifying the Test for Goodwill Impairment
| | The standard eliminatesThis ASU removes the requirements in step two of the current goodwill impairment model, eliminating the requirement to calculate and compare the implied fair value of goodwill (i.e. Step 2the reporting entity with the carrying amount of the currentthat entity, including goodwill, impairment test) to measure a goodwillany impairment charge. Instead, entities wouldwill record an impairment charge based on the excess of a reporting unit’s carrying amount of goodwill over its implied fair value of goodwill (i.e., measure the charge based on Step 1step one of the current guidance). The standard does not change the guidance on completing Step 1 of the goodwill impairment test.
The standard also continues to allow entities to perform thean optional qualitative goodwill impairment assessment before determining whether to proceed to Step 1.the quantitative step one. The standard is effective for the CompanyBank as of January 1, 2020. Early adoption is allowed for any goodwill impairment test performed after January 1, 2017. | | January 1,
2020
| | We do not currently expect this guidance will have a material impact on the Company’sBank’s financial statements since the fair values of our reporting units were not lower than their respective carrying amounts of goodwill at the time of our goodwill impairment analysis for 2016.2018 and there were no significant decreases in the fair value identified for the relevant reporting units since the analysis was performed.
The Bank is not planning to early adopt this new guidance. The transition and adoption provisions are to be applied prospectively. |
| | | | | | |
ZIONS BANCORPORATION, NATIONAL ASSOCIATION AND SUBSIDIARIES
| | | | | | | | | | | | | | | | | | | | |
| Standard | | Description | | Date of adoption | | Effect on the financial statements or other significant matters |
| | | | | | |
| Standards adopted by the Bank during 2019 | | | | | | |
| | | | | | |
StandardsASU 2016-02, Leases (Topic 842) and subsequent related ASUs
| | Although lessor accounting was left materially unchanged by ASU 2016-02 (and all related ASUs which together have been codified in ASC 842), ASC 842 requires that all lessees recognize a right-of-use ("ROU") asset and an offsetting lease liability for all leases with a term greater than 12 months. As the lessee, we adopted by the Company |
| | | | | | |
ASU 2016-09, Stock Compensation (Topic 718): Improvements to Employee Share-Based Payment Accounting
| | The standard requires entities to recognize the income tax effects of share-based awards in the income statement when the awards vest or are settled (i.e. the additional paid-in capital pools will be eliminated). The standard provides an entity the option to make an entity-wide accounting policy election, by class of underlying asset, to either estimate the numbernot recognize lease assets or liabilities for leases with a term of awards that are expected12 months or less.
The recognition, measurement, and presentation of expenses and cash flows arising from a lease will depend primarily on its classification as a finance or operating lease. ASC 842 requires additional disclosures to vest or account for forfeitures when they occur. The standard also requires that excess tax benefits be reflected in the operating sectionprovide financial statement users a better understanding of the statementamount, timing, and uncertainty of cash flows rather than the investing sectionarising from leases. These new quantitative and to make an election to adopt this requirement either on a retrospective or prospective basis.qualitative disclosure requirements are detailed further in Note 8. | | January 1,
2019
| | The Bank adopted ASC 842 as of January 1, 2017 | | Upon2019 using the second of two permitted modified retrospective approaches for initial adoption. Under this method, the Bank recorded a right-of use asset of approximately $225 million and a lease liability of approximately $242 million. There was no impact to retained earnings upon adoption.
See Note 8 for additional details on the financial statement impact of completing the adoption of this ASU, there was no material impact from the cumulative effect adjustment to retained earnings. We elected to account for forfeitures when they occur and to reflect excess tax benefits in the operating section of the statement of cash flows on a prospective basis.ASC 842.
|
| | | | | | |
3.ASU 2017-08, Nonrefundable Fees and Other Costs (Subtopic 310-20). Premium Amortization on Purchased Callable Debt Securities | FAIR VALUE | The amendments in this ASU shorten the amortization period for certain callable debt securities held at a premium. The standard requires the premium of qualifying debt securities to be amortized to the earliest call date. The update does not change the accounting for callable debt securities held at a discount.
| | January 1,
2019
| | We adopted this standard as of January 1, 2019 using a modified retrospective transition approach. As a result of adoption, we recorded a $3 million decrease to retained earnings on January 1, 2019, as a cumulative effect adjustment. |
| | | | | | |
ASU 2018-13, Fair Value Measurement (Topic 820): Disclosure Framework – Changes to the Disclosure Requirements for Fair Value Measurement | | The purpose of this ASU is to improve the effectiveness of disclosures in the notes to the financial statements. This update removes, modifies, and makes certain additions to the disclosure requirements for fair value measurement.
The mandatory adoption date of the guidance in this ASU is for the first fiscal period beginning after December 15, 2019, with early adoption permitted.
| | January 1,
2019
| | We early adopted this ASU as of January 1, 2019. This standard
will be applied prospectively. The changes to the disclosure requirements for fair value
measurements are immaterial to the financial statements and can be found in Note 3.
|
| | | | | | |
ASU 2018-15, Intangibles – Goodwill and Other-Internal- Use Software (Topic 350-40): Customer’s Accounting for Implementation Cost Incurred in a Cloud Computing Arrangement That Is a Service Contract
| | This ASU aligns the requirements for capitalizing implementation costs associated with Cloud Computing Arrangements that meet the definition of a service contract with requirements already provided for costs associated with internal-use software. Additionally, it clarifies that:
-The amortization period for capitalized amounts will be the noncancelable hosting contract term plus any expected renewal periods.
-Entities in a hosting arrangement that is a service contract must provide certain qualitative and quantitative disclosures.
-Transition for those not already following the provisions of this ASU can be applied either retrospectively or prospectively. | | January 1,
2019
| | We early adopted this ASU as of January 1, 2019. The Bank has historically been applying the guidance as clarified in this ASU. Consequently, the adoption of the ASU did not have a material impact on the Bank’s financial statements.
|
ZIONS BANCORPORATION, NATIONAL ASSOCIATION AND SUBSIDIARIES
3. FAIR VALUE
Fair Value Measurement
Fair value is defined as the exchange price that would be received for an asset or paid to transfer a liability (an exit price) in the principal or most advantageous market for the asset or liability in an orderly transaction between market participants on the measurement date. For a discussion of the Company’sBank’s valuation methodologies for assets and liabilities measured at fair value and the fair value hierarchy, see Note 203 of our 20162018 Annual Report on Form 10-K.
ZIONS BANCORPORATION AND SUBSIDIARIES
Quantitative Disclosure by Fair Value Hierarchy
Assets and liabilities measured at fair value by class on a recurring basis are summarized as follows:
| | | | | | | | | | | | | | | | | | | | | | | |
| (In millions) | June 30, 2019 | | | | | | |
| Level 1 | | Level 2 | | Level 3 | | Total |
| ASSETS | | | | | | | |
| Investment securities: | | | | | | | |
Available-for-sale: 1 | | | | | | | |
| U.S. Treasury, agencies and corporations | $ | 40 | | $ | 13,257 | | $ | — | | $ | 13,297 |
| Municipal securities | | | 1,350 | | | | 1,350 |
| | | | | | | |
| | | | | | | |
| | | | | | | |
| | | | | | | |
| Other debt securities | | | 25 | | | | 25 |
| Total Available-for-sale | 40 | | 14,632 | | — | | 14,672 |
| Trading account | 18 | | 130 | | | | 148 |
| Other noninterest-bearing investments: | | | | | | | |
| Bank-owned life insurance | | | 522 | | | | 522 |
| Private equity investments | | | | | 105 | | 105 |
| Other assets: | | | | | | | |
| Agriculture loan servicing and interest-only strips | | | | | 19 | | 19 |
| Deferred compensation plan assets | 106 | | | | | | 106 |
| Derivatives: | | | | | | | |
| Derivatives designated as hedges | | | 26 | | | | 26 |
| Derivatives not designated as hedges: | | | | | | | |
| Customer-facing interest rate | | | 139 | | | | 139 |
| | | | | | | |
| Other interest rate | | | 2 | | | | 2 |
| Foreign exchange | 3 | | | | | | 3 |
| Total Assets | $ | 167 | | $ | 15,451 | | $ | 124 | | $ | 15,742 |
| LIABILITIES | | | | | | | |
| Securities sold, not yet purchased | $ | 66 | | $ | — | | $ | — | | $ | 66 |
| Other liabilities: | | | | | | | |
| Deferred compensation plan obligations | 106 | | | | | | 106 |
| Derivatives: | | | | | | | |
| | | | | | | |
| Derivatives not designated as hedges: | | | | | | | |
| Customer-facing interest rate | | | 11 | | | | 11 |
| | | | | | | |
| Other interest rate | | | 1 | | | | 1 |
| Foreign exchange | 2 | | | | | | 2 |
| | | | | | | |
| | | | | | | |
| Total Liabilities | $ | 174 | | $ | 12 | | $ | — | | $ | 186 |
|
| | | | | | | | | | | | | | | |
| (In millions) | September 30, 2017 |
| Level 1 | | Level 2 | | Level 3 | | Total |
| ASSETS | | | | | | | |
| Investment securities: | | | | | | | |
Available-for-sale: 1 | | | | | | | |
| U.S. Treasury, agencies and corporations | $ | 25 |
| | $ | 13,814 |
| | $ | — |
| | $ | 13,839 |
|
| Municipal securities | | | 1,291 |
| |
|
| | 1,291 |
|
| Other debt securities | | | 25 |
| | | | 25 |
|
| Money market mutual funds and other | 86 |
| | 1 |
| | | | 87 |
|
| | 111 |
| | 15,131 |
| | — |
| | 15,242 |
|
| Trading account | | | 56 |
| | | | 56 |
|
| Other noninterest-bearing investments: | | | | | | | |
| Bank-owned life insurance | | | 504 |
| | | | 504 |
|
| Private equity investments | | |
|
| | 93 |
| | 93 |
|
| Other assets: | | | | | | | |
| Agriculture loan servicing and interest-only strips |
| |
|
| | 19 |
| | 19 |
|
| Deferred compensation plan assets | 97 |
| |
|
| |
|
| | 97 |
|
| Derivatives: | | | | | | | |
| Interest rate swaps and forwards | | | 1 |
| | | | 1 |
|
| Interest rate swaps for customers | | | 36 |
| | | | 36 |
|
| Foreign currency exchange contracts | 6 |
| | | | | | 6 |
|
| | 6 |
| | 37 |
| | — |
| | 43 |
|
| | $ | 214 |
| | $ | 15,728 |
| | $ | 112 |
| | $ | 16,054 |
|
| LIABILITIES | | | | | | | |
| Securities sold, not yet purchased | $ | 48 |
| | $ | — |
| | $ | — |
| | $ | 48 |
|
| Other liabilities: | | | | | | | |
| Deferred compensation plan obligations | 97 |
| |
| |
| | 97 |
|
| Derivatives: | | | | | | | |
| Interest rate swaps for customers | | | 30 |
| | | | 30 |
|
| Foreign currency exchange contracts | 5 |
| | | | | | 5 |
|
| | 5 |
| | 30 |
| | — |
| | 35 |
|
| | $ | 150 |
| | $ | 30 |
| | $ | — |
| | $ | 180 |
|
1We used a third-party pricing service to measure fair value for approximately 92%94% of our AFS Level 2 securities.
ZIONS BANCORPORATION, NATIONAL ASSOCIATION AND SUBSIDIARIES
| | | | | | | | | | | | | | | | | | | | | | | |
| (In millions) | December 31, 2018 | | | | | | |
| Level 1 | | Level 2 | | Level 3 | | Total |
| ASSETS | | | | | | | |
| Investment securities: | | | | | | | |
Available-for-sale: 1 | | | | | | | |
| U.S. Treasury, agencies and corporations | $ | 40 | | $ | 13,385 | | $ | — | | $ | 13,425 |
| Municipal securities | | | 1,291 | | | | 1,291 |
| | | | | | | |
| | | | | | | |
| | | | | | | |
| | | | | | | |
| Other debt securities | | | 21 | | | | 21 |
| | | | | | | |
| Total Available-for-sale | 40 | | 14,697 | | — | | 14,737 |
| Trading account | 14 | | 92 | | | | 106 |
| Other noninterest-bearing investments: | | | | | | | |
| Bank-owned life insurance | | | 516 | | | | 516 |
| Private equity investments | | | | | 102 | | 102 |
| Other assets: | | | | | | | |
| Agriculture loan servicing and interest-only strips | | | | | 18 | | 18 |
| Deferred compensation plan assets | 95 | | | | | | 95 |
| Derivatives: | | | | | | | |
| | | | | | | |
| Derivatives not designated as hedges: | | | | | | | |
| Customer-facing interest rate | | | 40 | | | | 40 |
| | | | | | | |
| Other interest rate | | | 1 | | | | 1 |
| Foreign exchange | 4 | | | | | | 4 |
| Total Assets | $ | 153 | | $ | 15,346 | | $ | 120 | | $ | 15,619 |
| LIABILITIES | | | | | | | |
| Securities sold, not yet purchased | $ | 85 | | $ | — | | $ | — | | $ | 85 |
| Other liabilities: | | | | | | | |
| Deferred compensation plan obligations | 95 | | | | | | 95 |
| Derivatives: | | | | | | | |
| | | | | | | |
| Derivatives not designated as hedges: | | | | | | | |
| Customer-facing interest rate | | | 36 | | | | 36 |
| | | | | | | |
| Other interest rate | | | 1 | | | | 1 |
| Foreign exchange | 2 | | | | | | 2 |
| | | | | | | |
| | | | | | | |
| Total Liabilities | $ | 182 | | $ | 37 | | $ | — | | $ | 219 |
|
| | | | | | | | | | | | | | | |
| (In millions) | December 31, 2016 |
| Level 1 | | Level 2 | | Level 3 | | Total |
| ASSETS | | | | | | | |
| Investment securities: | | | | | | | |
Available-for-sale: 1 | | | | | | | |
| U.S. Treasury, agencies and corporations | $ | — |
| | $ | 12,009 |
| | $ | — |
| | $ | 12,009 |
|
| Municipal securities | | | 1,154 |
| |
|
| | 1,154 |
|
| Other debt securities | | | 24 |
| |
|
| | 24 |
|
| Money market mutual funds and other | 184 |
| | 1 |
| | | | 185 |
|
| | 184 |
| | 13,188 |
| | — |
| | 13,372 |
|
| Trading account | | | 115 |
| | | | 115 |
|
| Other noninterest-bearing investments: | | | | | | | |
| Bank-owned life insurance | | | 497 |
| | | | 497 |
|
Private equity investments 2 | 18 |
| |
|
| | 73 |
| | 91 |
|
| Other assets: | | | | | | | |
| Agriculture loan servicing and interest-only strips |
| |
|
| | 20 |
| | 20 |
|
| Deferred compensation plan assets | 91 |
| |
|
| |
|
| | 91 |
|
| Derivatives: | | | | | | | |
| Interest rate swaps and forwards | | | 4 |
| | | | 4 |
|
| Interest rate swaps for customers | | | 49 |
| | | | 49 |
|
| Foreign currency exchange contracts | 11 |
| | | | | | 11 |
|
| | 11 |
| | 53 |
| | — |
| | 64 |
|
| | $ | 304 |
| | $ | 13,853 |
| | $ | 93 |
| | $ | 14,250 |
|
| LIABILITIES | | | | | | | |
| Securities sold, not yet purchased | $ | 25 |
| | $ | — |
| | $ | — |
| | $ | 25 |
|
| Other liabilities: | | �� | | | | | |
| Deferred compensation plan obligations | 91 |
| |
| |
| | 91 |
|
| Derivatives: | | | | | | | |
| Interest rate swaps and forwards | | | 1 |
| | | | 1 |
|
| Interest rate swaps for customers | | | 49 |
| | | | 49 |
|
| Foreign currency exchange contracts | 9 |
| | | | | | 9 |
|
| | 9 |
| | 50 |
| | — |
| | 59 |
|
| | $ | 125 |
| | $ | 50 |
| | $ | — |
| | $ | 175 |
|
1We used a third-party pricing service to measure fair value for approximately 91%95% of our AFS Level 2 securities.
2 The Level 1 private equity investments amount relates to the portion of our SBIC investments that are now publicly traded.
Level 3 Valuations
Private Equity Investments
Private equity investments are generally measured underThe Bank’s Level 3. Certain investments that have converted to being publicly traded are measured under Level 1. The majority of these3 holdings include private equity investments (“PEIs”) are held in Zions’ Small Business Investment Company (“SBIC”), agriculture loan servicing, and are early stage venture investments. The fair value measurements of these investments are updated at least on a quarterly basis, including whenever a new round of financing occurs. Certain of these investments are measured using multiples of operating performance. The fair value measurements of PEIs are reviewed on a quarterly basis byinterest-only strips. For additional information regarding the Securities Valuation Committee. The Equity Investments Committee, consisting of executives familiar with the investments, reviews periodic financial information, including audited financial statements when available.
Certain valuation analytics may be employed that include current and projected financial performance, recent financing activities, economic and market conditions, market comparables, market liquidity, sales restrictions, and other factors. A significant change in the expected performance of the individual investment would result in a change in the fair value measurement of the investment. The amount of unfunded commitments to invest is
ZIONS BANCORPORATION AND SUBSIDIARIES
disclosed in Note 5. Certain restrictions apply for the redemption of these investments and certain investments are prohibited by the Volcker Rule. See discussions in Note 5.
Agriculture Loan Servicing
This asset results from our servicing of agriculture loans approved and funded by Federal Agricultural Mortgage Corporation (“FAMC”). We provide this servicing under an agreement with FAMC for loans they own. The asset’s fair value represents our projection of the present value of future cash flowsinstruments measured under Level 3, using discounted cash flow methodologies.
Interest-Only Strips
Interest-only strips are created as a by-product ofand the securitization process. When the guaranteed portions of Small Business Administration (“SBA”) 7(a) loans are pooled, interest-only strips may be created in the pooling process. The asset’smethods and significant assumptions used to estimate their fair value, representssee Note 3 of our projection2018 Annual Report on Form 10-K.
ZIONS BANCORPORATION, NATIONAL ASSOCIATION AND SUBSIDIARIES
Reconciliation of Level 3 Fair Value Measurements
The following reconciles the beginning and ending balances of assets and liabilities that are measured at fair value by class on a recurring basis using Level 3 inputs:
|
| | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | |
| | Level 3 Instruments |
| | Three Months Ended | | Nine Months Ended |
| | September 30, 2017 | | September 30, 2016 | | September 30, 2017 | | September 30, 2016 |
| (In millions) | Private
equity
investments | | Ag loan svcg and int-only strips | | Private
equity
investments | | Ag loan svcg and int-only strips | | Private
equity
investments | | Ag loan svcg and int-only strips | | Private
equity
investments | | Ag loan svcg and int-only strips |
| | | | | | | | | | | | | | | | |
| Balance at beginning of period | $ | 82 |
| | $ | 19 |
| | $ | 64 |
| | $ | 18 |
| | $ | 73 |
| | $ | 20 |
| | $ | 58 |
| | $ | 14 |
|
| Securities gains, net | 5 |
| | — |
| | 1 |
| | — |
| | 7 |
| | — |
| | 3 |
| | — |
|
| Other noninterest income | — |
| | — |
| | — |
| | 2 |
| | — |
| | (1 | ) | | — |
| | 6 |
|
| Purchases | 6 |
| | — |
| | 2 |
| | — |
| | 18 |
| | — |
| | 6 |
| | — |
|
| Redemptions and paydowns | — |
| | — |
| | — |
| | — |
| | (5 | ) | | — |
| | — |
| | — |
|
| Balance at end of period | $ | 93 |
| | $ | 19 |
| | $ | 67 |
| | $ | 20 |
| | $ | 93 |
| | $ | 19 |
| | $ | 67 |
| | $ | 20 |
|
No transfers of assets or liabilities occurred among Levels 1, 2 or 3 for the three and nine months ended September 30, 2017 and 2016. | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | |
| Level 3 Instruments | | | | | | | | | | | | | | | | | | | | | | |
| Three Months Ended | | | | | | | | Six Months Ended | | | | | | | | | | | | | | |
| June 30, 2019 | | | | June 30, 2018 | | | | June 30, 2019 | | | | June 30, 2018 | | | | | | | | | | |
| (In millions) | Private
equity
investments | | Ag loan svcg and int-only strips | | Private
equity
investments | | Ag loan svcg and int-only strips | | Private equity investments | | Ag loan svcg and int-only strips | | Private equity investments | | Ag loan svcg and int-only strips | | | | | | | | |
| | | | | | | | | | | | | | | | | | | | | | | |
| Balance at beginning of period | $ | 107 | | $ | 17 | | $ | 100 | | $ | 18 | | $ | 102 | | $ | 18 | | $ | 95 | | $ | 18 | | | | | | | | |
| | | | | | | | | | | | | | | | | | | | | | | |
| Securities gains (losses), net | (2) | | — | | 1 | | — | | (1) | | — | | 1 | | — | | | | | | | | |
| Other noninterest income | — | | 2 | | — | | — | | — | | 1 | | — | | — | | | | | | | | |
| Purchases | — | | — | | 1 | | — | | 4 | | — | | 6 | | — | | | | | | | | |
| | | | | | | | | | | | | | | | | | | | | | | |
| | | | | | | | | | | | | | | | | | | | | | | |
| Balance at end of period | $ | 105 | | $ | 19 | | $ | 102 | | $ | 18 | | $ | 105 | | $ | 19 | | $ | 102 | | $ | 18 | | | | | | | | |
The reconciliation of Level 3 instruments includes the followingdoes not include any realized gains and losses in the statement of income:
|
| | | | | | | | | | | | | | | |
| (In millions) | Three Months Ended
September 30, | | Nine Months Ended
September 30, |
| |
| 2017 | | 2016 | | 2017 | | 2016 |
| | | | | | | | |
| Securities gains, net | $ | — |
| | $ | 4 |
| | $ | 3 |
| | $ | 4 |
|
Nonrecurring Fair Value Measurements
Included in the balance sheet amounts are the following amounts of assets that had fair value changes measured on a nonrecurring basis.
|
| | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | |
| (In millions) | Fair value at September 30, 2017 | | Fair value at December 31, 2016 |
| Level 1 | | Level 2 | | Level 3 | | Total | | Level 1 | | Level 2 | | Level 3 | | Total |
| ASSETS | | | | | | | | | | | | | | | |
| Private equity investments | $ | — |
| | $ | — |
| | $ | 1 |
| | $ | 1 |
| | $ | — |
| | $ | — |
| | $ | 1 |
| | $ | 1 |
|
| Impaired loans | — |
| | 17 |
| | — |
| | 17 |
| | — |
| | 52 |
| | — |
| | 52 |
|
| Other real estate owned | — |
| | — |
| | — |
| | — |
| | — |
| | 1 |
| | — |
| | 1 |
|
| | $ | — |
| | $ | 17 |
| | $ | 1 |
| | $ | 18 |
| | $ | — |
| | $ | 53 |
| | $ | 1 |
| | $ | 54 |
|
ZIONS BANCORPORATION AND SUBSIDIARIES
| | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | |
| (In millions) | Fair value at June 30, 2019 | | | | | | | | Fair value at December 31, 2018 | | | | | | |
| Level 1 | | Level 2 | | Level 3 | | Total | | Level 1 | | Level 2 | | Level 3 | | Total |
| ASSETS | | | | | | | | | | | | | | | |
| Private equity investments | $ | — | | $ | — | | $ | — | | $ | — | | $ | — | | $ | — | | $ | 1 | | $ | 1 |
| Impaired loans | — | | 6 | | — | | 6 | | — | | 32 | | — | | 32 |
| Other real estate owned | — | | 1 | | — | | 1 | | — | | — | | — | | — |
| Total | $ | — | | $ | 7 | | $ | — | | $ | 7 | | $ | — | | $ | 32 | | $ | 1 | | $ | 33 |
The previous fair values may not be current as of the dates indicated, but rather as of the date the fair value change occurred, such as a charge for impairment. Accordingly, carrying values may not equal current fair value.
| | | | Gains (losses) from fair value changes | | Gains (losses) from fair value changes | |
| (In millions) | Three Months Ended
September 30, | | Nine Months Ended
September 30, | (In millions) | Three Months Ended
June 30, | | | Six Months Ended
June 30, | |
| 2017 | | 2016 | | 2017 | | 2016 | | 2019 | | 2018 | | 2019 | | 2018 |
| ASSETS | | | | | | | | ASSETS | | | | | | | |
| Private equity investments | $ | — |
| | $ | — |
| | $ | (1 | ) | | $ | — |
| Private equity investments | $ | — | | $ | — | | $ | — | | $ | — |
| Impaired loans | (1 | ) | | (5 | ) | | (8 | ) | | (34 | ) | Impaired loans | (9) | | (1) | | (9) | | (5) |
| Other real estate owned | — |
| | (1 | ) | | — |
| | (1 | ) | Other real estate owned | — | | — | | — | | (1) |
| | $ | (1 | ) | | $ | (6 | ) | | $ | (9 | ) | | $ | (35 | ) | |
| Total | | Total | $ | (9) | | $ | (1) | | $ | (9) | | $ | (6) |
During the three and nine months ended SeptemberJune 30, we recognized $1 million and $2 millionan insignificant amount of net gains in 20172019 and an insignificant amount and $3 million in 20162018 from
the sale of other real estate owned (“OREO”) properties. During the six months ended June 30, we recognized approximately $1 million of net gains in 2019 and 2018 from the sale of OREO properties that had a carrying value, at the time of sale, of approximately $5 million and $8$2 million during the nine months ended September 30, 2017 and 2016, respectively. Previousthese same periods. Prior to their sale, in these periods, we recognized an insignificant amount of impairment on these properties of an insignificant amount in 2017during the six months ended June 30, 2019 and 2016.2018.
Private equity investments carried at cost were measured at fair value for impairment purposes according to the methodology previously discussed for these investments. Amounts of PEIs carried at cost were $10$9 million at September
ZIONS BANCORPORATION, NATIONAL ASSOCIATION AND SUBSIDIARIES
June 30, 20172019 and $13$10 million at December 31, 2016.2018. Amounts of other noninterest-bearing investments carried at cost were $324$332 million at SeptemberJune 30, 20172019 and $211$329 million at December 31, 2016,2018, which were comprised of Federal Reserve and Federal Home Loan Bank (“FHLB”) stock. Private equity investments accounted for using the equity method were $35$38 million at SeptemberJune 30, 20172019 and $38$35 million at December 31, 2016.2018.
Impaired (or nonperforming) loans that are collateral dependentcollateral-dependent were measured at fair value based on the fair value of the collateral. OREO was measured initially at fair value based on collateral appraisals at the time of transfer and subsequently at the lower of cost or fair value. For additional information regarding the measurement of fair value for impaired loans, collateral-dependent loans, and OREO, see Note 203 of our 20162018 Annual Report on Form 10-K.
Fair Value of Certain Financial Instruments
Following is a summary of the carrying values and estimated fair values of certain financial instruments:
| | | | September 30, 2017 | | December 31, 2016 | | June 30, 2019 | | | December 31, 2018 | |
| (In millions) | Carrying value | | Estimated fair value | | Level | | Carrying value | | Estimated fair value | | Level | (In millions) | Carrying
value | | Estimated
fair value | | Level | | Carrying
value | | Estimated
fair value | | Level |
| Financial assets: | | | | | | | | | Financial assets: | | | | | | | | | | | |
| HTM investment securities | $ | 746 |
| | $ | 743 |
| | 2 | | $ | 868 |
| | $ | 850 |
| | 2 | HTM investment securities | $ | 695 | | $ | 698 | | 2 | | $ | 774 | | $ | 767 | | 2 |
| Loans and leases (including loans held for sale), net of allowance | 43,686 |
| | 43,196 |
| | 3 | | 42,254 |
| | 42,111 |
| | 3 | Loans and leases (including loans held for sale), net of allowance | 48,219 | | 47,475 | | 3 | | 46,312 | | 45,251 | | 3 |
| Financial liabilities: | | | | | | | | | Financial liabilities: | |
| Time deposits | 2,909 |
| | 2,890 |
| | 2 | | 2,757 |
| | 2,744 |
| | 2 | Time deposits | 4,915 | | 4,923 | | 2 | | 4,336 | | 4,319 | | 2 |
| Other short-term borrowings | 3,250 |
| | 3,250 |
| | 2 | | 500 |
| | 500 |
| | 2 | |
| | Long-term debt | 383 |
| | 406 |
| | 2 | | 535 |
| | 552 |
| | 2 | Long-term debt | 1,236 | | 1,248 | | 2 | | 724 | | 727 | | 2 |
This summary excludes financial assets and liabilities for which carrying value approximates fair value and financial instruments that are recorded at fair value on a recurring basis. For additional information regarding the financial instruments within the scope of this disclosure, and the methods and significant assumptions used to estimate their fair value, see Note 203 of our 20162018 Annual Report on Form 10-K.
ZIONS BANCORPORATION4. OFFSETTING ASSETS AND SUBSIDIARIESLIABILITIES
| |
4. | OFFSETTING ASSETS AND LIABILITIES |
Gross and net information for selected financial instruments in the balance sheet is as follows:
| | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | |
| | June 30, 2019 | | | | | | | | | | |
| (In millions) | | | | | | | | 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 | | $ | 876 | | $ | (256) | | $ | 620 | | $ | — | | $ | — | | $ | 620 |
| Derivatives (included in other assets) | | 170 | | — | | 170 | | (10) | | (14) | | 146 |
| Total assets | | $ | 1,046 | | $ | (256) | | $ | 790 | | $ | (10) | | $ | (14) | | $ | 766 |
| Liabilities: | | | | | | | | | | | | |
| Federal funds and other short-term borrowings | | $ | 6,279 | | $ | (256) | | $ | 6,023 | | $ | — | | $ | — | | $ | 6,023 |
| Derivatives (included in other liabilities) | | 14 | | — | | 14 | | (10) | | (2) | | 2 |
| Total Liabilities | | $ | 6,293 | | $ | (256) | | $ | 6,037 | | $ | (10) | | $ | (2) | | $ | 6,025 |
ZIONS BANCORPORATION, NATIONAL ASSOCIATION AND SUBSIDIARIES
|
| | | | | | | | | | | | | | | | | | | | | | | | |
| | | September 30, 2017 |
| (In millions) | | | | | | | | 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 | | $ | 779 |
| | $ | (312 | ) | | $ | 467 |
| | $ | — |
| | $ | — |
| | $ | 467 |
|
| Derivatives (included in other assets) | | 43 |
| | — |
| | 43 |
| | (15 | ) | | — |
| | 28 |
|
| Total assets | | $ | 822 |
| | $ | (312 | ) | | $ | 510 |
| | $ | (15 | ) | | $ | — |
| | $ | 495 |
|
| Liabilities: | | | | | | | | | | | | |
| Federal funds and other short-term borrowings | | $ | 4,936 |
| | $ | (312 | ) | | $ | 4,624 |
| | $ | — |
| | $ | — |
| | $ | 4,624 |
|
| Derivatives (included in other liabilities) | | 35 |
| | — |
| | 35 |
| | (15 | ) | | (11 | ) | | 9 |
|
| Total Liabilities | | $ | 4,971 |
| | $ | (312 | ) | | $ | 4,659 |
| | $ | (15 | ) | | $ | (11 | ) | | $ | 4,633 |
|
| | | | | December 31, 2016 | | December 31, 2018 | |
| (In millions) | | | | | | | | Gross amounts not offset in the balance sheet | | | (In millions) | | | 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 | 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: | | | | | | | | | | | | | Assets: | | | | | | | | | | | | |
| Federal funds sold and security resell agreements | | $ | 568 |
| | $ | — |
| | $ | 568 |
| | $ | — |
| | $ | — |
| | $ | 568 |
| Federal funds sold and security resell agreements | | $ | 1,461 | | $ | — | | $ | 1,461 | | $ | — | | $ | — | | $ | 1,461 |
| Derivatives (included in other assets) | | 64 |
| | — |
| | 64 |
| | (17 | ) | | — |
| | 47 |
| Derivatives (included in other assets) | | 45 | | — | | 45 | | (35) | | (3) | | 7 |
| Total assets | | $ | 632 |
| | $ | — |
| | $ | 632 |
| | $ | (17 | ) | | $ | — |
| | $ | 615 |
| Total assets | | $ | 1,506 | | $ | — | | $ | 1,506 | | $ | (35) | | $ | (3) | | $ | 1,468 |
| Liabilities: | | | | | | | | | | | | | Liabilities: | | | | | | | | | | | | |
| Federal funds and other short-term borrowings | | $ | 827 |
| | $ | — |
| | $ | 827 |
| | $ | — |
| | $ | — |
| | $ | 827 |
| Federal funds and other short-term borrowings | | $ | 5,653 | | $ | — | | $ | 5,653 | | $ | — | | $ | — | | $ | 5,653 |
| Derivatives (included in other liabilities) | | 59 |
| | — |
| | 59 |
| | (17 | ) | | (17 | ) | | 25 |
| Derivatives (included in other liabilities) | | 39 | | — | | 39 | | (35) | | (1) | | 3 |
| Total Liabilities | | $ | 886 |
| | $ | — |
| | $ | 886 |
| | $ | (17 | ) | | $ | (17 | ) | | $ | 852 |
| Total Liabilities | | $ | 5,692 | | $ | — | | $ | 5,692 | | $ | (35) | | $ | (1) | | $ | 5,656 |
Security repurchase and reverse repurchase (“resell”) agreements are offset, when applicable, in the balance sheet according to master netting agreements. Security repurchase agreements are included with “Federal funds and other short-term borrowings.” Derivative instruments may be offset under their master netting agreements; however, for accounting purposes, we present these items on a gross basis in the Company’sBank’s balance sheet. See Note 7 for further information regarding derivative instruments.
5. INVESTMENTS
Investment Securities
Securities are classified as HTM, AFS or trading. HTM securities, which management has the intent and ability to hold until maturity, are carried at amortized cost. AFS securities are carried at fair value and unrealized gains and losses, after applicable taxes, are reportedrecorded as net increases or decreases to accumulated other comprehensive income (“AOCI”). Realized gains and losses on AFS securities are determined by using the cost basis of each individual security. Trading securities are carried at fair value with gains and losses recognized in current period earnings. The purchase premiums for callable debt securities classified as HTM or AFS are amortized at a constant effective yield to the earliest call date. The purchase premiums and discounts for bothall other HTM and AFS securities are amortized and accreted at a constant effective yield to the contractual maturity date and no assumption is made concerning prepayments. As principal prepayments occur, the portion of the unamortized premium or discount associated with the principal reduction is recognized asin interest
ZIONS BANCORPORATION AND SUBSIDIARIES
income in the period the principal is reduced. Note 203 of our 20162018 Annual Report on Form 10-K discusses the process to estimate fair value for investment securities.
| | | | | | | | | | | | | | | | | | | | | | | |
| June 30, 2019 | | | | | | |
| (In millions) | Amortized
cost | | Gross unrealized gains | | Gross unrealized losses | | Estimated
fair value |
| Held-to-maturity | | | | | | | |
| Municipal securities | $ | 695 | | $ | 5 | | $ | 2 | | $ | 698 |
| Available-for-sale | | | | | | | |
| U.S. Treasury securities | 40 | | — | | — | | 40 |
| U.S. Government agencies and corporations: | | | | | | | |
| Agency securities | 1,372 | | 6 | | 5 | | 1,373 |
| Agency guaranteed mortgage-backed securities | 10,110 | | 86 | | 63 | | 10,133 |
| Small Business Administration loan-backed securities | 1,790 | | 1 | | 40 | | 1,751 |
| Municipal securities | 1,322 | | 28 | | — | | 1,350 |
| Other debt securities | 25 | | — | | — | | 25 |
| Total available-for-sale | 14,659 | | 121 | | 108 | | 14,672 |
| Total investment securities | $ | 15,354 | | $ | 126 | | $ | 110 | | $ | 15,370 |
ZIONS BANCORPORATION, NATIONAL ASSOCIATION AND SUBSIDIARIES
|
| | | | | | | | | | | | | | | |
| | September 30, 2017 |
| (In millions) | Amortized cost | | Gross unrealized gains | | Gross unrealized losses | | Estimated fair value |
| Held-to-maturity | | | | | | | |
| Municipal securities | $ | 746 |
| | $ | 7 |
| | $ | 10 |
| | $ | 743 |
|
| Available-for-sale | | | | | | | |
| U.S. Treasury securities | 25 |
| | — |
| | — |
| | 25 |
|
| U.S. Government agencies and corporations: | | | | | | | |
| Agency securities | 1,839 |
| | 5 |
| | 4 |
| | 1,840 |
|
| Agency guaranteed mortgage-backed securities | 9,748 |
| | 21 |
| | 86 |
| | 9,683 |
|
| Small Business Administration loan-backed securities | 2,281 |
| | 19 |
| | 9 |
| | 2,291 |
|
| Municipal securities | 1,281 |
| | 15 |
| | 5 |
| | 1,291 |
|
| Other debt securities | 25 |
| | — |
| | — |
| | 25 |
|
| | 15,199 |
| | 60 |
| | 104 |
| | 15,155 |
|
| Money market mutual funds and other | 87 |
| | — |
| | — |
| | 87 |
|
| | 15,286 |
| | 60 |
| | 104 |
| | 15,242 |
|
| Total | $ | 16,032 |
| | $ | 67 |
| | $ | 114 |
| | $ | 15,985 |
|
| | | | December 31, 2016 | | December 31, 2018 | |
| (In millions) | Amortized
cost | | Gross unrealized gains | | Gross unrealized losses | | Estimated
fair value | (In millions) | Amortized
cost | | Gross unrealized gains | | Gross unrealized losses | | Estimated
fair value |
| Held-to-maturity | | | | | | | | Held-to-maturity | | | | | | | |
| Municipal securities | $ | 868 |
| | $ | 5 |
| | $ | 23 |
| | $ | 850 |
| Municipal securities | $ | 774 | | $ | 4 | | $ | 11 | | $ | 767 |
| Available-for-sale | | | | | | | | Available-for-sale | | | | | | | |
| U.S. Treasury securities | | U.S. Treasury securities | 40 | | — | | — | | 40 |
| U.S. Government agencies and corporations: | | | | | | | | U.S. Government agencies and corporations: | |
| Agency securities | 1,846 |
| | 2 |
| | 9 |
| | 1,839 |
| Agency securities | 1,394 | | — | | 19 | | 1,375 |
| Agency guaranteed mortgage-backed securities | 7,986 |
| | 7 |
| | 110 |
| | 7,883 |
| Agency guaranteed mortgage-backed securities | 10,236 | | 18 | | 240 | | 10,014 |
| Small Business Administration loan-backed securities | 2,298 |
| | 8 |
| | 18 |
| | 2,288 |
| Small Business Administration loan-backed securities | 2,042 | | 1 | | 47 | | 1,996 |
| Municipal securities | 1,182 |
| | 1 |
| | 29 |
| | 1,154 |
| Municipal securities | 1,303 | | 4 | | 16 | | 1,291 |
| Other debt securities | 25 |
| | — |
| | 1 |
| | 24 |
| Other debt securities | 25 | | — | | 4 | | 21 |
| Total available-for-sale debt securities | | Total available-for-sale debt securities | 15,040 | | 23 | | 326 | | 14,737 |
| | 13,337 |
| | 18 |
| | 167 |
| | 13,188 |
| |
| Money market mutual funds and other | 184 |
| | — |
| | — |
| | 184 |
| |
| | 13,521 |
| | 18 |
| | 167 |
| | 13,372 |
| |
| Total | $ | 14,389 |
| | $ | 23 |
| | $ | 190 |
| | $ | 14,222 |
| |
| Total investment securities | | Total investment securities | $ | 15,814 | | $ | 27 | | $ | 337 | | $ | 15,504 |
Maturities
The amortized cost and estimated fair value of investment debt securities are shown subsequently as of SeptemberJune 30, 2017,2019, by expected timingcontractual maturity of principal payments. Actual principal payments may differ from contractual or expected principal payments because borrowers may have the right to call or prepay obligations with or without call or prepayment penalties.
|
| | | | | | | | | | | | | | | |
| | September 30, 2017 |
| | Held-to-maturity | | Available-for-sale |
| (In millions) | Amortized cost | | Estimated fair value | | Amortized cost | | Estimated fair value |
| | | | | | | | |
| Principal return in one year or less | $ | 99 |
| | $ | 100 |
| | $ | 2,296 |
| | $ | 2,285 |
|
| Principal return after one year through five years | 282 |
| | 284 |
| | 5,406 |
| | 5,384 |
|
| Principal return after five years through ten years | 186 |
| | 188 |
| | 4,784 |
| | 4,779 |
|
| Principal return after ten years | 179 |
| | 171 |
| | 2,713 |
| | 2,707 |
|
| Total | $ | 746 |
| | $ | 743 |
| | $ | 15,199 |
| | $ | 15,155 |
|
ZIONS BANCORPORATION AND SUBSIDIARIES
| | | | | | | | | | | | | | | | | | | | | | | |
| June 30, 2019 | | | | | | |
| Held-to-maturity | | | | Available-for-sale | | |
| (In millions) | Amortized
cost | | Estimated
fair value | | Amortized
cost | | Estimated
fair value |
| | | | | | | |
| Due in one year or less | $ | 138 | | $ | 138 | | $ | 177 | | $ | 177 |
| Due after one year through five years | 258 | | 259 | | 633 | | 636 |
| Due after five years through ten years | 155 | | 158 | | 2,824 | | 2,835 |
| Due after ten years | 144 | | 143 | | 11,025 | | 11,024 |
| Total debt investment securities | $ | 695 | | $ | 698 | | $ | 14,659 | | $ | 14,672 |
The following is a summary of the amount of gross unrealized losses for investmentdebt securities and the estimated fair value by length of time the securities have been in an unrealized loss position:
| | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | |
| June 30, 2019 | | | | | | | | | | |
| Less than 12 months | | | | 12 months or more | | | | Total | | |
| (In millions) | Gross
unrealized
losses | | Estimated
fair
value | | Gross
unrealized
losses | | Estimated
fair
value | | Gross
unrealized
losses | | Estimated
fair
value |
| Held-to-maturity | | | | | | | | | | | |
| Municipal securities | $ | — | | $ | 13 | | $ | 2 | | $ | 275 | | $ | 2 | | $ | 288 |
| | | | | | | | | | | |
| | | | | | | | | | | |
| | | | | | | | | | | |
| | | | | | | | | | | |
| Available-for-sale | | | | | | | | | | | |
| | | | | | | | | | | |
| U.S. Government agencies and corporations: | | | | | | | | | | | |
| Agency securities | — | | 14 | | 5 | | 606 | | 5 | | 620 |
| Agency guaranteed mortgage-backed securities | 1 | | 72 | | 62 | | 4,535 | | 63 | | 4,607 |
| Small Business Administration loan-backed securities | 1 | | 34 | | 39 | | 1,430 | | 40 | | 1,464 |
| Municipal securities | — | | 30 | | — | | 159 | | — | | 189 |
| Other | — | | — | | — | | 15 | | — | | 15 |
| | | | | | | | | | | |
| | | | | | | | | | | |
| | | | | | | | | | | |
| | | | | | | | | | | |
| | | | | | | | | | | |
| Total available-for-sale | 2 | | 150 | | 106 | | 6,745 | | 108 | | 6,895 |
| | | | | | | | | | | |
| | | | | | | | | | | |
| Total investment securities | $ | 2 | | $ | 163 | | $ | 108 | | $ | 7,020 | | $ | 110 | | $ | 7,183 |
ZIONS BANCORPORATION, NATIONAL ASSOCIATION AND SUBSIDIARIES
|
| | | | | | | | | | | | | | | | | | | | | | | |
| | September 30, 2017 |
| | Less than 12 months | | 12 months or more | | Total |
| (In millions) | Gross unrealized losses | | Estimated fair value | | Gross unrealized losses | | Estimated fair value | | Gross unrealized losses | | Estimated fair value |
| Held-to-maturity | | | | | | | | | | | |
| Municipal securities | $ | 1 |
| | $ | 175 |
| | $ | 9 |
| | $ | 132 |
| | $ | 10 |
| | $ | 307 |
|
| Available-for-sale | | | | | | | | | | | |
| U.S. Government agencies and corporations: | | | | | | | | | | | |
| Agency securities | 3 |
| | 576 |
| | 1 |
| | 331 |
| | 4 |
| | 907 |
|
| Agency guaranteed mortgage-backed securities | 74 |
| | 6,266 |
| | 12 |
| | 677 |
| | 86 |
| | 6,943 |
|
| Small Business Administration loan-backed securities | 1 |
| | 149 |
| | 8 |
| | 749 |
| | 9 |
| | 898 |
|
| Municipal securities | 3 |
| | 321 |
| | 2 |
| | 122 |
| | 5 |
| | 443 |
|
| Other | — |
| | — |
| | — |
| | — |
| | — |
| | — |
|
| Available-for-sale total | 81 |
| | 7,312 |
| | 23 |
| | 1,879 |
| | 104 |
| | 9,191 |
|
| Total | $ | 82 |
| | $ | 7,487 |
| | $ | 32 |
| | $ | 2,011 |
| | $ | 114 |
| | $ | 9,498 |
|
| | | | December 31, 2016 | | December 31, 2018 | |
| | Less than 12 months | | 12 months or more | | Total | | Less than 12 months | | | 12 months or more | | | Total | |
| (In millions) | Gross unrealized losses | | Estimated fair value | | Gross unrealized losses | | Estimated fair value | | Gross unrealized losses | | Estimated fair value | (In millions) | Gross
unrealized
losses | | Estimated
fair
value | | Gross
unrealized
losses | | Estimated
fair
value | | Gross
unrealized
losses | | Estimated
fair
value |
| Held-to-maturity | | | | | | | | | | | | Held-to-maturity | | | | | | | | | | | |
| Municipal securities | $ | 15 |
| | $ | 467 |
| | $ | 8 |
| | $ | 61 |
| | $ | 23 |
| | $ | 528 |
| Municipal securities | $ | 1 | | $ | 86 | | $ | 10 | | $ | 438 | | $ | 11 | | $ | 524 |
| | Available-for-sale | | | | | | | | | | | | Available-for-sale | | | | | | | | | | | |
| U.S. Government agencies and corporations: | | | | | | | | | | | | U.S. Government agencies and corporations: | |
| Agency securities | 9 |
| | 950 |
| | — |
| | 127 |
| | 9 |
| | 1,077 |
| Agency securities | 2 | | 245 | | 17 | | 913 | | 19 | | 1,158 |
| Agency guaranteed mortgage-backed securities | 102 |
| | 6,649 |
| | 7 |
| | 326 |
| | 109 |
| | 6,975 |
| Agency guaranteed mortgage-backed securities | 16 | | 1,081 | | 224 | | 6,661 | | 240 | | 7,742 |
| Small Business Administration loan-backed securities | 3 |
| | 527 |
| | 16 |
| | 841 |
| | 19 |
| | 1,368 |
| Small Business Administration loan-backed securities | 19 | | 1,180 | | 28 | | 711 | | 47 | | 1,891 |
| Municipal securities | 28 |
| | 992 |
| | — |
| | 9 |
| | 28 |
| | 1,001 |
| Municipal securities | 2 | | 266 | | 14 | | 641 | | 16 | | 907 |
| Other | — |
| | — |
| | 2 |
| | 14 |
| | 2 |
| | 14 |
| Other | — | | — | | 4 | | 11 | | 4 | | 11 |
| Available-for-sale total | 142 |
| | 9,118 |
| | 25 |
| | 1,317 |
| | 167 |
| | 10,435 |
| |
| Total | $ | 157 |
| | $ | 9,585 |
| | $ | 33 |
| | $ | 1,378 |
| | $ | 190 |
| | $ | 10,963 |
| |
| | Total available-for-sale | | Total available-for-sale | 39 | | 2,772 | | 287 | | 8,937 | | 326 | | 11,709 |
| | Total investment securities | | Total investment securities | $ | 40 | | $ | 2,858 | | $ | 297 | | $ | 9,375 | | $ | 337 | | $ | 12,233 |
At SeptemberJune 30, 20172019 and December 31, 2016,2018, respectively, 360284 and 642606 HTM and 1,4461,182 and 2,3982,588 AFS investment securities were in an unrealized loss position.
Other-Than-Temporary Impairment
Ongoing Policy
The Bank did not recognize any OTTI on its investment securities portfolio during the first six months of 2019. We review investment securities on a quarterly basis for the presence of other-than-temporary impairment (“OTTI”).OTTI. Unrealized losses relate to changes in interest rates subsequent to purchase and are not attributable to credit. At SeptemberJune 30, 2017,2019, we did not have an intent to sell identified securities with unrealized losses or initiate such sales, and we believe it is not more likely than not we would be required to sell such securities before recovery of their amortized cost basis. Therefore, these securities did not have any OTTI recognized during the third quarter of 2017. For additional information on our policy and evaluation process relating to OTTI, see Note 5 of our 20162018 Annual Report on Form 10-K.
ZIONS BANCORPORATION AND SUBSIDIARIES
The following summarizes gains and losses including OTTI, of which there was none, that were recognized in the statement of income:
| | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | |
| Three Months Ended June 30, | | | | | | | | Six Months Ended June 30, | | | | | | | | | | | | | | | |
| 2019 | | | | 2018 | | | | 2019 | | | | 2018 | | | | | | | | | | | |
| (In millions) | Gross gains | | Gross losses | | Gross gains | | Gross losses | | Gross gains | | Gross losses | | Gross gains | | Gross losses | | | | | | | | | |
| | | | | | | | | | | | | | | | | | | | | | | | |
| | | | | | | | | | | | | | | | | | | | | | | | |
| | | | | | | | | | | | | | | | | | | | | | | | |
| | | | | | | | | | | | | | | | | | | | | | | | |
| Other noninterest-bearing investments | $ | 1 | | $ | 4 | | $ | 4 | | $ | 3 | | $ | 5 | | $ | 7 | | $ | 6 | | $ | 5 | | | | | | | | | |
| | | | | | | | | | | | | | | | | | | | | | | | |
Net gains (losses) 1 | | | $ | (3) | | | | $ | 1 | | | | $ | (2) | | | | $ | 1 | | | | | | | | | |
| | | | | | | | | | | | | | | | | | | | | | | | |
| | | | | | | | | | | | | | | | | | | | | | | | |
| | | | | | | | | | | | | | | | | | | | | | | | |
| | | | | | | | | | | | | | | | | | | | | | | | |
|
| | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | |
| | | Three Months Ended | | Nine Months Ended |
| | | September 30, 2017 | | September 30, 2016 | | September 30, 2017 | | September 30, 2016 |
| | (In millions) | Gross gains | | Gross losses | | Gross gains | | Gross losses | | Gross gains | | Gross losses | | Gross gains | | Gross losses |
| |
| | Investment securities: | | | | | | | | | | | | | | | |
| | Other noninterest-bearing investments | $ | 5 |
| | $ | — |
| | $ | 8 |
| | $ | — |
| | $ | 20 |
| | $ | 7 |
| | $ | 15 |
| | $ | 4 |
|
| | Net gains 1 | | | $ | 5 |
| | | | $ | 8 |
| | | | $ | 13 |
| | | | $ | 11 |
|
1 Net gains were recognized in securities gains (losses), net in the statement of income.
Interest income by security type is as follows:
| | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | |
| Three Months Ended June 30, | | | | | | | | | | |
| 2019 | | | | | | 2018 | | | | |
| (In millions) | Taxable | | Nontaxable | | Total | | Taxable | | Nontaxable | | Total |
| Investment securities: | | | | | | | | | | | |
| Held-to-maturity | $ | 2 | | $ | 4 | | $ | 6 | | $ | 3 | | $ | 3 | | $ | 6 |
| Available-for-sale | 81 | | 6 | | 87 | | 70 | | 7 | | 77 |
| Trading | — | | 2 | | 2 | | — | | 2 | | 2 |
| Total securities | $ | 83 | | $ | 12 | | $ | 95 | | $ | 73 | | $ | 12 | | $ | 85 |
ZIONS BANCORPORATION, NATIONAL ASSOCIATION AND SUBSIDIARIES
| | | | Six Months Ended June 30, | |
| | | | | | | | | | | | | | | 2019 | | | 2018 | |
| (In millions) | Three Months Ended
September 30, 2017 | | Nine Months Ended
September 30, 2017 | (In millions) | Taxable | | Nontaxable | | Total | | Taxable | | Nontaxable | | Total |
| | Taxable | | Nontaxable | | Total | | Taxable | | Nontaxable | | Total | |
| Investment securities: | | | | | | | | | | | | Investment securities: | | | | | | | | | | | |
| Held-to-maturity | $ | 2 |
| | $ | 3 |
| | $ | 5 |
| | $ | 7 |
| | $ | 10 |
| | $ | 17 |
| Held-to-maturity | $ | 4 | | $ | 8 | | $ | 12 | | $ | 5 | | $ | 7 | | $ | 12 |
| Available-for-sale | 72 |
| | 6 |
| | 78 |
| | 209 |
| | 18 |
| | 227 |
| Available-for-sale | 164 | | 12 | | 176 | | 142 | | 13 | | 155 |
| Trading | 1 |
| | — |
| | 1 |
| | 2 |
| | — |
| | 2 |
| Trading | — | | 3 | | 3 | | — | | 3 | | 3 |
| Total | $ | 75 |
| | $ | 9 |
| | $ | 84 |
| | $ | 218 |
| | $ | 28 |
| | $ | 246 |
| Total | $ | 168 | | $ | 23 | | $ | 191 | | $ | 147 | | $ | 23 | | $ | 170 |
|
| | | | | | | | | | | | | | | | | | | | | | | |
| (In millions) | Three Months Ended
September 30, 2016 | | Nine Months Ended
September 30, 2016 |
| | Taxable | | Nontaxable | | Total | | Taxable | | Nontaxable | | Total |
| Investment securities: | | | | | | | | | | | |
| Held-to-maturity | $ | 2 |
| | $ | 3 |
| | $ | 5 |
| | $ | 7 |
| | $ | 9 |
| | $ | 16 |
|
| Available-for-sale | 40 |
| | 3 |
| | 43 |
| | 118 |
| | 8 |
| | 126 |
|
| Trading | 1 |
| | — |
| | 1 |
| | 1 |
| | — |
| | 1 |
|
| Total | $ | 43 |
| | $ | 6 |
| | $ | 49 |
| | $ | 126 |
| | $ | 17 |
| | $ | 143 |
|
Investment securities with a carrying value of $2.3$2.1 billion at SeptemberJune 30, 20172019 and $1.4$2.6 billionatDecember 31, 20162018, 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.
Private Equity Investments
Effect of Volcker Rule
The Company’s PEIs are subject to the provisions of the Dodd-Frank Act. The Volcker Rule of the Dodd-Frank Act prohibits banks and bank holding companies from holding PEIs, except for SBIC funds and certain other permitted exclusions, beyond a required deadline. The Federal Reserve Board announced in December 2016 that it would allow banks to apply for an additional five-year extension beyond the July 21, 2017 deadline to comply with the Dodd-Frank Act requirement for these investments. The Company applied for and was granted an extension for its eligible PEIs. All positions in the remaining portfolio of PEIs are subject to the extended deadline or other applicable exclusions.
Of the recorded PEIs of $138 million at September 30, 2017, approximately $4 million remain prohibited by the Volcker Rule. At September 30, 2017, we have $27 million of unfunded commitments for PEIs, of which approximately $4 million relate to prohibited PEIs. We currently do not believe that this divestiture requirement will ultimately have a material impact on our financial statements. See other discussions related to private equity investments in Note 3.
ZIONS BANCORPORATION6. LOANS AND SUBSIDIARIESALLOWANCE FOR CREDIT LOSSES
| |
6. | LOANS AND ALLOWANCE FOR CREDIT LOSSES |
Loans and Loans Held for Sale
Loans are summarized as follows according to major portfolio segment and specific loan class:
| | | | | | | | | | | |
| (In millions) | June 30,
2019 | | December 31,
2018 |
| | | |
| Loans held for sale | $ | 105 | | $ | 93 |
| Commercial: | | | |
| Commercial and industrial | $ | 14,883 | | $ | 14,513 |
| Leasing | 337 | | 327 |
| Owner-occupied | 7,828 | | 7,661 |
| Municipal | 2,059 | | 1,661 |
| Total commercial | 25,107 | | 24,162 |
| Commercial real estate: | | | |
| Construction and land development | 2,609 | | 2,186 |
| Term | 9,218 | | 8,939 |
| Total commercial real estate | 11,827 | | 11,125 |
| Consumer: | | | |
| Home equity credit line | 2,929 | | 2,937 |
| 1-4 family residential | 7,440 | | 7,176 |
| Construction and other consumer real estate | 644 | | 643 |
| Bankcard and other revolving plans | 502 | | 491 |
| Other | 168 | | 180 |
| Total consumer | 11,683 | | 11,427 |
| | | |
Total loans 1 | $ | 48,617 | | $ | 46,714 |
|
| | | | | | | |
| (In millions) | September 30,
2017 | | December 31,
2016 |
| | | | |
| Loans held for sale | $ | 71 |
| | $ | 172 |
|
| Commercial: | | | |
| Commercial and industrial | $ | 14,041 |
| | $ | 13,452 |
|
| Leasing | 343 |
| | 423 |
|
| Owner-occupied | 7,082 |
| | 6,962 |
|
| Municipal | 1,073 |
| | 778 |
|
| Total commercial | 22,539 |
| | 21,615 |
|
| Commercial real estate: | | | |
| Construction and land development | 2,170 |
| | 2,019 |
|
| Term | 8,944 |
| | 9,322 |
|
| Total commercial real estate | 11,114 |
| | 11,341 |
|
| Consumer: | | | |
| Home equity credit line | 2,745 |
| | 2,645 |
|
| 1-4 family residential | 6,522 |
| | 5,891 |
|
| Construction and other consumer real estate | 558 |
| | 486 |
|
| Bankcard and other revolving plans | 490 |
| | 481 |
|
| Other | 188 |
| | 190 |
|
| Total consumer | 10,503 |
| | 9,693 |
|
| Total loans | $ | 44,156 |
| | $ | 42,649 |
|
Loan balances1Loans are presented net of unearned income, unamortized purchase premiums and discounts, and net deferred loan fees which amounted to $63and costs totaling $52 million and $50 million at SeptemberJune 30, 20172019 and $77 million at December 31, 2016.
Owner-occupied and commercial real estate loans include unamortized premiums of approximately $17 million at September 30, 2017 and $20 million at December 31, 2016.2018, respectively.
Municipal loans generally include loans to municipalitiesstate and local governments (“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.
Land acquisition and development loans included in the construction and land development loan classportfolio were $238$210 million at SeptemberJune 30, 20172019 and $290$237 million at December 31, 2016.2018.
Loans with a carrying value of approximately $25.4$23.3 billion at SeptemberJune 30, 20172019 and $24.0$22.6 billion at December 31, 20162018 have been pledged at the Federal Reserve andor the FHLB of Des Moines as collateral for current and potential borrowings.
We sold loans totaling $146$132 million and $696$250 million for the three and ninesix months ended SeptemberJune 30, 2017,2019 and $413$206 million and $1.0 billion$312 million for the three and ninesix months ended SeptemberJune 30, 2016, 2018, respectively, that were classified as
ZIONS BANCORPORATION, NATIONAL ASSOCIATION AND SUBSIDIARIES
loans held for sale. The sold loans were derecognized from the balance sheet. Loans classified as loans held for sale primarily consist of conforming residential mortgages and the guaranteed portion of SBASmall Business Administration (“SBA”) loans. The loans are mainly sold to U.S. government agencies or participated to third parties. At times, we have continuing involvement in the transferred loans in the form of servicing rights or a guarantee from the respective issuer. Amounts added to loans held for sale during these same periods were $176$170 million and $640$263 million for the three and ninesix months ended SeptemberJune 30, 2017,2019 and $387$235 million and $979$400 million for the three and ninesix months ended SeptemberJune 30, 2016,2018, respectively.
ZIONS BANCORPORATION AND SUBSIDIARIES
See Note 5 for further information regarding guaranteed securities.
The principal balance of sold loans for which we retain servicing was approximately $2.1$2.2 billion at Septemberboth June 30, 2017,2019 and $2.0 billion at December 31, 2016.2018. Income from loans sold, excluding servicing, was $1$3 million and $9$5 million for the six months ended June 30, 2019 and $4 million and $7 million for the three and ninesix months ended SeptemberJune 30, 2017, and $6 million and $15 million for the three and nine months ended September 30, 2016,2018, respectively.
Allowance for Credit Losses
The ACLallowance for credit losses (“ACL”) consists of the allowance for loan and lease losses (“ALLL”) and the reserve for unfunded lending commitments (“RULC”). The ALLL represents our estimate of probable and estimable losses inherent in the loan and lease portfolio as of the balance sheet date. We also estimate a reserve for potential losses associated with off-balance sheet commitments, including standby letters of credit. We determine the RULC using the same procedures and methodologies that we use for the ALLL.
For additional information regarding our policies and methodologies used to estimate the ACL, see Note 6 of our 20162018 Annual Report on Form 10-K.
Changes in the allowance for credit losses are summarized as follows: Changes in the allowance for credit losses are summarized as follows:
| |
| | | Three Months Ended September 30, 2017 | | Three Months Ended June 30, 2019 | |
| (In millions) | Commercial | | Commercial real estate | | Consumer | | Total | (In millions) | Commercial | | Commercial
real estate | | Consumer | | Total |
| Allowance for loan losses | | | | | | | | Allowance for loan losses | | | | | | | |
| Balance at beginning of period | $ | 393 |
| | $ | 116 |
| | $ | 35 |
| | $ | 544 |
| Balance at beginning of period | $ | 328 | | $ | 113 | | $ | 56 | | $ | 497 |
| Additions: | | | | | | | | |
| | Provision for loan losses | (4 | ) | | (7 | ) | | 16 |
| | 5 |
| Provision for loan losses | 23 | | 1 | | (4) | | 20 |
| Deductions: | | | | | | | | Deductions: | |
| Gross loan and lease charge-offs | (16 | ) | | (4 | ) | | (5 | ) | | (25 | ) | Gross loan and lease charge-offs | 19 | | — | | 4 | | 23 |
| Recoveries | 12 |
| | 2 |
| | 3 |
| | 17 |
| Recoveries | 6 | | — | | 3 | | 9 |
| Net loan and lease charge-offs | (4 | ) | | (2 | ) | | (2 | ) | | (8 | ) | |
| Net loan and lease charge-offs (recoveries) | | Net loan and lease charge-offs (recoveries) | 13 | | — | | 1 | | 14 |
| Balance at end of period | $ | 385 |
| | $ | 107 |
| | $ | 49 |
| | $ | 541 |
| Balance at end of period | $ | 338 | | $ | 114 | | $ | 51 | | $ | 503 |
| Reserve for unfunded lending commitments | | | | | | | | Reserve for unfunded lending commitments | | | | | | | |
| Balance at beginning of period | $ | 53 |
| | $ | 10 |
| | $ | — |
| | $ | 63 |
| Balance at beginning of period | $ | 42 | | $ | 17 | | $ | — | | $ | 59 |
| Provision charged to earnings | (4 | ) | | — |
| | — |
| | (4 | ) | |
| Provision for unfunded lending commitments | | Provision for unfunded lending commitments | (1) | | 2 | | — | | 1 |
| Balance at end of period | $ | 49 |
| | $ | 10 |
| | $ | — |
| | $ | 59 |
| Balance at end of period | $ | 41 | | $ | 19 | | $ | — | | $ | 60 |
| Total allowance for credit losses at end of period | | | | | | | | Total allowance for credit losses at end of period | | | | | | | |
| Allowance for loan losses | $ | 385 |
| | $ | 107 |
| | $ | 49 |
| | $ | 541 |
| Allowance for loan losses | $ | 338 | | $ | 114 | | $ | 51 | | $ | 503 |
| Reserve for unfunded lending commitments | 49 |
| | 10 |
| | — |
| | 59 |
| Reserve for unfunded lending commitments | 41 | | 19 | | — | | 60 |
| Total allowance for credit losses | $ | 434 |
| | $ | 117 |
| | $ | 49 |
| | $ | 600 |
| Total allowance for credit losses | $ | 379 | | $ | 133 | | $ | 51 | | $ | 563 |
ZIONS BANCORPORATION, NATIONAL ASSOCIATION AND SUBSIDIARIES
| | | | | | | | | | | | | | | | | | | | | | | |
| Six Months Ended June 30, 2019 | | | | | | |
| (In millions) | Commercial | | Commercial
real estate | | Consumer | | Total |
| Allowance for loan losses | | | | | | | |
| Balance at beginning of period | $ | 331 | | $ | 110 | | $ | 54 | | $ | 495 |
| | | | | | | |
| Provision for loan losses | 22 | | 2 | | (2) | | 22 |
| Deductions: | | | | | | | |
| Gross loan and lease charge-offs | 27 | | 1 | | 7 | | 35 |
| Recoveries | 12 | | 3 | | 6 | | 21 |
| Net loan and lease charge-offs (recoveries) | 15 | | (2) | | 1 | | 14 |
| Balance at end of period | $ | 338 | | $ | 114 | | $ | 51 | | $ | 503 |
| Reserve for unfunded lending commitments | | | | | | | |
| Balance at beginning of period | $ | 40 | | $ | 17 | | $ | — | | $ | 57 |
| Provision for unfunded lending commitments | 1 | | 2 | | — | | 3 |
| Balance at end of period | $ | 41 | | $ | 19 | | $ | — | | $ | 60 |
| Total allowance for credit losses at end of period | | | | | | | |
| Allowance for loan losses | $ | 338 | | $ | 114 | | $ | 51 | | $ | 503 |
| Reserve for unfunded lending commitments | 41 | | 19 | | — | | 60 |
| Total allowance for credit losses | $ | 379 | | $ | 133 | | $ | 51 | | $ | 563 |
| | | | | | | | | | | | | | | | | | | | | | | |
| Three Months Ended June 30, 2018 | | | | | | |
| (In millions) | Commercial | | Commercial
real estate | | Consumer | | Total |
| Allowance for loan losses | | | | | | | |
| Balance at beginning of period | $ | 329 | | $ | 104 | | $ | 40 | | $ | 473 |
| | | | | | | |
| Provision for loan losses | (18) | | 15 | | 8 | | 5 |
| | | | | | | |
| Gross loan and lease charge-offs | 10 | | — | | 3 | | 13 |
| Recoveries | 20 | | 3 | | 2 | | 25 |
| Net loan and lease charge-offs (recoveries) | (10) | | (3) | | 1 | | (12) |
| Balance at end of period | $ | 321 | | $ | 122 | | $ | 47 | | $ | 490 |
| Reserve for unfunded lending commitments | | | | | | | |
| Balance at beginning of period | $ | 40 | | $ | 11 | | $ | — | | $ | 51 |
| Provision for unfunded lending commitments | 3 | | 4 | | — | | 7 |
| Balance at end of period | $ | 43 | | $ | 15 | | $ | — | | $ | 58 |
| Total allowance for credit losses at end of period | | | | | | | |
| Allowance for loan losses | $ | 321 | | $ | 122 | | $ | 47 | | $ | 490 |
| Reserve for unfunded lending commitments | 43 | | 15 | | — | | 58 |
| Total allowance for credit losses | $ | 364 | | $ | 137 | | $ | 47 | | $ | 548 |
|
| | | | | | | | | | | | | | | |
| | Nine Months Ended September 30, 2017 |
| (In millions) | Commercial | | Commercial real estate | | Consumer | | Total |
| Allowance for loan losses | | | | | | | |
| Balance at beginning of period | $ | 420 |
| | $ | 116 |
| | $ | 31 |
| | $ | 567 |
|
| Additions: | | | | | | | |
| Provision for loan losses | 27 |
| | (15 | ) | | 23 |
| | 35 |
|
| Deductions: | | | | | | | |
| Gross loan and lease charge-offs | (98 | ) | | (6 | ) | | (13 | ) | | (117 | ) |
| Recoveries | 36 |
| | 12 |
| | 8 |
| | 56 |
|
| Net loan and lease (charge-offs) recoveries | (62 | ) | | 6 |
| | (5 | ) | | (61 | ) |
| Balance at end of period | $ | 385 |
| | $ | 107 |
| | $ | 49 |
| | $ | 541 |
|
| Reserve for unfunded lending commitments | | | | | | | |
| Balance at beginning of period | $ | 54 |
| | $ | 11 |
| | $ | — |
| | $ | 65 |
|
| Provision credited to earnings | (5 | ) | | (1 | ) | | — |
| | (6 | ) |
| Balance at end of period | $ | 49 |
| | $ | 10 |
| | $ | — |
| | $ | 59 |
|
| Total allowance for credit losses at end of period | | | | | | | |
| Allowance for loan losses | $ | 385 |
| | $ | 107 |
| | $ | 49 |
| | $ | 541 |
|
| Reserve for unfunded lending commitments | 49 |
| | 10 |
| | — |
| | 59 |
|
| Total allowance for credit losses | $ | 434 |
| | $ | 117 |
| | $ | 49 |
| | $ | 600 |
|
|
| | | | | | | | | | | | | | | |
| | Three Months Ended September 30, 2016 |
| (In millions) | Commercial | | Commercial real estate | | Consumer | | Total |
| Allowance for loan losses | | | | | | | |
| Balance at beginning of period | $ | 457 |
| | $ | 121 |
| | $ | 30 |
| | $ | 608 |
|
| Additions: | | | | | | | |
| Provision for loan losses | 22 |
| | (6 | ) | | 3 |
| | 19 |
|
| Deductions: | | | | | | | |
| Gross loan and lease charge-offs | (48 | ) | | (1 | ) | | (5 | ) | | (54 | ) |
| Recoveries | 15 |
| | 7 |
| | 2 |
| | 24 |
|
| Net loan and lease (charge-offs) recoveries | (33 | ) | | 6 |
| | (3 | ) | | (30 | ) |
| Balance at end of period | $ | 446 |
| | $ | 121 |
| | $ | 30 |
| | $ | 597 |
|
| Reserve for unfunded lending commitments | | | | | | | |
| Balance at beginning of period | $ | 54 |
| | $ | 11 |
| | $ | — |
| | $ | 65 |
|
| Provision credited to earnings | (2 | ) | | (1 | ) | | — |
| | (3 | ) |
| Balance at end of period | $ | 52 |
| | $ | 10 |
| | $ | — |
| | $ | 62 |
|
| Total allowance for credit losses at end of period | | | | | | | |
| Allowance for loan losses | $ | 446 |
| | $ | 121 |
| | $ | 30 |
| | $ | 597 |
|
| Reserve for unfunded lending commitments | 52 |
| | 10 |
| | — |
| | 62 |
|
| Total allowance for credit losses | $ | 498 |
| | $ | 131 |
| | $ | 30 |
| | $ | 659 |
|
ZIONS BANCORPORATION, NATIONAL ASSOCIATION AND SUBSIDIARIES
| | | | | | | | | | | | | | | | | | | | | | | |
| Six Months Ended June 30, 2018 | | | | | | |
| (In millions) | Commercial | | Commercial
real estate | | Consumer | | Total |
| Allowance for loan losses | | | | | | | |
| Balance at beginning of period | $ | 371 | | $ | 103 | | $ | 44 | | $ | 518 |
| | | | | | | |
| Provision for loan losses | (58) | | 14 | | 9 | | (35) |
| | | | | | | |
| Gross loan and lease charge-offs | 30 | | — | | 9 | | 39 |
| Recoveries | 38 | | 5 | | 3 | | 46 |
| Net loan and lease charge-offs (recoveries) | (8) | | (5) | | 6 | | (7) |
| Balance at end of period | $ | 321 | | $ | 122 | | $ | 47 | | $ | 490 |
| Reserve for unfunded lending commitments | | | | | | | |
| Balance at beginning of period | $ | 48 | | $ | 10 | | $ | — | | $ | 58 |
| Provision for unfunded lending commitments | (5) | | 5 | | — | | — |
| Balance at end of period | $ | 43 | | $ | 15 | | $ | — | | $ | 58 |
| Total allowance for credit losses at end of period | | | | | | | |
| Allowance for loan losses | $ | 321 | | $ | 122 | | $ | 47 | | $ | 490 |
| Reserve for unfunded lending commitments | 43 | | 15 | | — | | 58 |
| Total allowance for credit losses | $ | 364 | | $ | 137 | | $ | 47 | | $ | 548 |
|
| | | | | | | | | | | | | | | |
| | Nine Months Ended September 30, 2016 |
| (In millions) | Commercial | | Commercial real estate | | Consumer | | Total |
| Allowance for loan losses | | | | | | | |
| Balance at beginning of period | $ | 454 |
| | $ | 114 |
| | $ | 38 |
| | $ | 606 |
|
| Additions: | | | | | | | |
| Provision for loan losses | 93 |
| | 5 |
| | (3 | ) | | 95 |
|
| Deductions: | | | | | | | |
| Gross loan and lease charge-offs | (137 | ) | | (10 | ) | | (12 | ) | | (159 | ) |
| Recoveries | 36 |
| | 12 |
| | 7 |
| | 55 |
|
| Net loan and lease (charge-offs) recoveries | (101 | ) | | 2 |
| | (5 | ) | | (104 | ) |
| Balance at end of period | $ | 446 |
| | $ | 121 |
| | $ | 30 |
| | $ | 597 |
|
| Reserve for unfunded lending commitments | | | | | | | |
| Balance at beginning of period | $ | 58 |
| | $ | 16 |
| | $ | 1 |
| | $ | 75 |
|
| Provision credited to earnings | (6 | ) | | (6 | ) | | (1 | ) | | (13 | ) |
| Balance at end of period | $ | 52 |
| | $ | 10 |
| | $ | — |
| | $ | 62 |
|
| Total allowance for credit losses at end of period | | | | | | | |
| Allowance for loan losses | $ | 446 |
| | $ | 121 |
| | $ | 30 |
| | $ | 597 |
|
| Reserve for unfunded lending commitments | 52 |
| | 10 |
| | — |
| | 62 |
|
| Total allowance for credit losses | $ | 498 |
| | $ | 131 |
| | $ | 30 |
| | $ | 659 |
|
| | | | | | | | | | | | | | | | | | | | | | | |
| June 30, 2019 | | | | | | |
| (In millions) | Commercial | | Commercial
real estate | | Consumer | | Total |
| Allowance for loan losses: | | | | | | | |
| Individually evaluated for impairment | $ | 11 | | $ | 1 | | $ | 2 | | $ | 14 |
| Collectively evaluated for impairment | 327 | | 113 | | 49 | | 489 |
| | | | | | | |
| Total | $ | 338 | | $ | 114 | | $ | 51 | | $ | 503 |
| Outstanding loan balances: | | | | | | | |
| Individually evaluated for impairment | $ | 168 | | $ | 48 | | $ | 69 | | $ | 285 |
| Collectively evaluated for impairment | 24,939 | | 11,779 | | 11,614 | | 48,332 |
| | | | | | | |
| Total | $ | 25,107 | | $ | 11,827 | | $ | 11,683 | | $ | 48,617 |
| The ALLL and outstanding loan balances according to the Company’s impairment method are summarized as follows: |
| | | | | | | | | | | | | | | |
| | September 30, 2017 |
| (In millions) | Commercial | | Commercial real estate | | Consumer | | Total |
| Allowance for loan losses: | | | | | | | |
| Individually evaluated for impairment | $ | 28 |
| | $ | 1 |
| | $ | 4 |
| | $ | 33 |
|
| Collectively evaluated for impairment | 357 |
| | 106 |
| | 45 |
| | 508 |
|
| Purchased loans with evidence of credit deterioration | — |
| | — |
| | — |
| | — |
|
| Total | $ | 385 |
| | $ | 107 |
| | $ | 49 |
| | $ | 541 |
|
| Outstanding loan balances: | | | | | | | |
| Individually evaluated for impairment | $ | 352 |
| | $ | 78 |
| | $ | 70 |
| | $ | 500 |
|
| Collectively evaluated for impairment | 22,163 |
| | 11,026 |
| | 10,427 |
| | 43,616 |
|
| Purchased loans with evidence of credit deterioration | 24 |
| | 10 |
| | 6 |
| | 40 |
|
| Total | $ | 22,539 |
| | $ | 11,114 |
| | $ | 10,503 |
| | $ | 44,156 |
|
|
| | | | | | | | | | | | | | | |
| | December 31, 2016 |
| (In millions) | Commercial | | Commercial real estate | | Consumer | | Total |
| Allowance for loan losses: | | | | | | | |
| Individually evaluated for impairment | $ | 56 |
| | $ | 3 |
| | $ | 6 |
| | $ | 65 |
|
| Collectively evaluated for impairment | 364 |
| | 113 |
| | 25 |
| | 502 |
|
| Purchased loans with evidence of credit deterioration | — |
| | — |
| | — |
| | — |
|
| Total | $ | 420 |
| | $ | 116 |
| | $ | 31 |
| | $ | 567 |
|
| Outstanding loan balances: | | | | | | | |
| Individually evaluated for impairment | $ | 466 |
| | $ | 78 |
| | $ | 75 |
| | $ | 619 |
|
| Collectively evaluated for impairment | 21,111 |
| | 11,231 |
| | 9,611 |
| | 41,953 |
|
| Purchased loans with evidence of credit deterioration | 38 |
| | 32 |
| | 7 |
| | 77 |
|
| Total | $ | 21,615 |
| | $ | 11,341 |
| | $ | 9,693 |
| | $ | 42,649 |
|
ZIONS BANCORPORATION AND SUBSIDIARIES
| | | | | | | | | | | | | | | | | | | | | | | |
| December 31, 2018 | | | | | | |
| (In millions) | Commercial | | Commercial
real estate | | Consumer | | Total |
| Allowance for loan losses: | | | | | | | |
| Individually evaluated for impairment | $ | 6 | | $ | 1 | | $ | 2 | | $ | 9 |
| Collectively evaluated for impairment | 325 | | 109 | | 52 | | 486 |
| | | | | | | |
| Total | $ | 331 | | $ | 110 | | $ | 54 | | $ | 495 |
| Outstanding loan balances: | | | | | | | |
| Individually evaluated for impairment | $ | 164 | | $ | 55 | | $ | 72 | | $ | 291 |
| Collectively evaluated for impairment | 23,998 | | 11,070 | | 11,355 | | 46,423 |
| | | | | | | |
| Total | $ | 24,162 | | $ | 11,125 | | $ | 11,427 | | $ | 46,714 |
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. For further discussion of our policies and processes regarding nonaccrual and past due loans, see Note 6 of our 20162018 Annual Report on Form 10-K.
| Nonaccrual loans are summarized as follows: |
| | | | | | | |
| (In millions) | September 30,
2017 | | December 31,
2016 |
| | | | |
| Loans held for sale | $ | 13 |
| | $ | 40 |
|
| Commercial: | | | |
| Commercial and industrial | $ | 257 |
| | $ | 354 |
|
| Leasing | 8 |
| | 14 |
|
| Owner-occupied | 85 |
| | 74 |
|
| Municipal | 1 |
| | 1 |
|
| Total commercial | 351 |
| | 443 |
|
| Commercial real estate: | | | |
| Construction and land development | 6 |
| | 7 |
|
| Term | 41 |
| | 29 |
|
| Total commercial real estate | 47 |
| | 36 |
|
| Consumer: | | | |
| Home equity credit line | 11 |
| | 11 |
|
| 1-4 family residential | 40 |
| | 36 |
|
| Construction and other consumer real estate | 1 |
| | 2 |
|
| Bankcard and other revolving plans | 1 |
| | 1 |
|
| Other | 1 |
| | — |
|
| Total consumer loans | 54 |
| | 50 |
|
| Total | $ | 452 |
| | $ | 529 |
|
ZIONS BANCORPORATION, NATIONAL ASSOCIATION AND SUBSIDIARIES
Nonaccrual loans are summarized as follows:
| | | | | | | | | | | |
| (In millions) | June 30,
2019 | | December 31,
2018 |
| | | |
| Loans held for sale | $ | — | | $ | 6 |
| Commercial: | | | |
| Commercial and industrial | $ | 85 | | $ | 82 |
| Leasing | 1 | | 2 |
| Owner-occupied | 69 | | 67 |
| Municipal | 1 | | 1 |
| Total commercial | 156 | | 152 |
| Commercial real estate: | | | |
| Construction and land development | 1 | | — |
| Term | 31 | | 38 |
| Total commercial real estate | 32 | | 38 |
| Consumer: | | | |
| Home equity credit line | 12 | | 13 |
| 1-4 family residential | 44 | | 42 |
| Construction and other consumer real estate | 4 | | — |
| Bankcard and other revolving plans | — | | 1 |
| Other | — | | — |
| Total consumer loans | 60 | | 56 |
| Total | $ | 248 | | $ | 246 |
Past due loans (accruing and nonaccruing) are summarized as follows:
| | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | |
| June 30, 2019 | | | | | | | | | | | | |
| (In millions) | 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 | $ | 105 | | $ | — | | $ | — | | $ | — | | $ | 105 | | $ | — | | $ | — |
| Commercial: | | | | | | | | | | | | | |
| Commercial and industrial | $ | 14,820 | | $ | 37 | | $ | 26 | | $ | 63 | | $ | 14,883 | | $ | 4 | | $ | 53 |
| Leasing | 337 | | — | | — | | — | | 337 | | — | | 1 |
| Owner-occupied | 7,771 | | 32 | | 25 | | 57 | | 7,828 | | 6 | | 47 |
| Municipal | 2,058 | | — | | 1 | | 1 | | 2,059 | | — | | — |
| Total commercial | 24,986 | | 69 | | 52 | | 121 | | 25,107 | | 10 | | 101 |
| Commercial real estate: | | | | | | | | | | | | | |
| Construction and land development | 2,580 | | 23 | | 6 | | 29 | | 2,609 | | 5 | | — |
| Term | 9,202 | | 10 | | 6 | | 16 | | 9,218 | | — | | 24 |
| Total commercial real estate | 11,782 | | 33 | | 12 | | 45 | | 11,827 | | 5 | | 24 |
| Consumer: | | | | | | | | | | | | | |
| Home equity credit line | 2,919 | | 6 | | 4 | | 10 | | 2,929 | | — | | 6 |
| 1-4 family residential | 7,411 | | 8 | | 21 | | 29 | | 7,440 | | — | | 17 |
| Construction and other consumer real estate | 640 | | 1 | | 3 | | 4 | | 644 | | — | | — |
| Bankcard and other revolving plans | 497 | | 3 | | 2 | | 5 | | 502 | | 2 | | — |
| Other | 167 | | 1 | | — | | 1 | | 168 | | — | | — |
| Total consumer loans | 11,634 | | 19 | | 30 | | 49 | | 11,683 | | 2 | | 23 |
| Total | $ | 48,402 | | $ | 121 | | $ | 94 | | $ | 215 | | $ | 48,617 | | $ | 17 | | $ | 148 |
| Past due loans (accruing and nonaccruing) are summarized as follows: |
| | | | | | | | | | | | | | | | | | | | | | | | | | | |
| | September 30, 2017 |
| (In millions) | 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 | $ | 58 |
| | $ | — |
| | $ | 13 |
| | $ | 13 |
| | $ | 71 |
| | $ | — |
| | $ | — |
|
| Commercial: | | | | | | | | | | | | | |
| Commercial and industrial | $ | 13,870 |
| | $ | 53 |
| | $ | 118 |
| | $ | 171 |
| | $ | 14,041 |
| | $ | 17 |
| | $ | 150 |
|
| Leasing | 343 |
| | — |
| | — |
| | — |
| | 343 |
| | — |
| | 8 |
|
| Owner-occupied | 7,021 |
| | 27 |
| | 34 |
| | 61 |
| | 7,082 |
| | 5 |
| | 49 |
|
| Municipal | 1,073 |
| | — |
| | — |
| | — |
| | 1,073 |
| | — |
| | 1 |
|
| Total commercial | 22,307 |
| | 80 |
| | 152 |
| | 232 |
| | 22,539 |
| | 22 |
| | 208 |
|
| Commercial real estate: | | | | | | | | | | | | | |
| Construction and land development | 2,158 |
| | 6 |
| | 6 |
| | 12 |
| | 2,170 |
| | 1 |
| | 1 |
|
| Term | 8,925 |
| | 8 |
| | 11 |
| | 19 |
| | 8,944 |
| | 2 |
| | 30 |
|
| Total commercial real estate | 11,083 |
| | 14 |
| | 17 |
| | 31 |
| | 11,114 |
| | 3 |
| | 31 |
|
| Consumer: | | | | | | | | | | | | | |
| Home equity credit line | 2,735 |
| | 6 |
| | 4 |
| | 10 |
| | 2,745 |
| | — |
| | 4 |
|
| 1-4 family residential | 6,497 |
| | 10 |
| | 15 |
| | 25 |
| | 6,522 |
| | — |
| | 20 |
|
| Construction and other consumer real estate | 547 |
| | 6 |
| | 5 |
| | 11 |
| | 558 |
| | 4 |
| | — |
|
| Bankcard and other revolving plans | 486 |
| | 3 |
| | 1 |
| | 4 |
| | 490 |
| | 1 |
| | 1 |
|
| Other | 185 |
| | 3 |
| | — |
| | 3 |
| | 188 |
| | — |
| | 1 |
|
| Total consumer loans | 10,450 |
| | 28 |
| | 25 |
| | 53 |
| | 10,503 |
| | 5 |
| | 26 |
|
| Total | $ | 43,840 |
| | $ | 122 |
| | $ | 194 |
| | $ | 316 |
| | $ | 44,156 |
| | $ | 30 |
| | $ | 265 |
|
|
| | | | | | | | | | | | | | | | | | | | | | | | | | | |
| | December 31, 2016 |
| (In millions) | 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 | $ | 172 |
| | $ | — |
| | $ | — |
| | $ | — |
| | $ | 172 |
| | $ | — |
| | $ | 40 |
|
| Commercial: | | | | | | | | | | | | | |
| Commercial and industrial | $ | 13,306 |
| | $ | 72 |
| | $ | 74 |
| | $ | 146 |
| | $ | 13,452 |
| | $ | 10 |
| | $ | 287 |
|
| Leasing | 423 |
| | — |
| | — |
| | — |
| | 423 |
| | — |
| | 14 |
|
| Owner-occupied | 6,894 |
| | 40 |
| | 28 |
| | 68 |
| | 6,962 |
| | 8 |
| | 43 |
|
| Municipal | 778 |
| | — |
| | — |
| | — |
| | 778 |
| | — |
| | 1 |
|
| Total commercial | 21,401 |
| | 112 |
| | 102 |
| | 214 |
| | 21,615 |
| | 18 |
| | 345 |
|
| Commercial real estate: | | | | | | | | | | | | | |
| Construction and land development | 2,010 |
| | 7 |
| | 2 |
| | 9 |
| | 2,019 |
| | 1 |
| | 1 |
|
| Term | 9,291 |
| | 9 |
| | 22 |
| | 31 |
| | 9,322 |
| | 12 |
| | 18 |
|
| Total commercial real estate | 11,301 |
| | 16 |
| | 24 |
| | 40 |
| | 11,341 |
| | 13 |
| | 19 |
|
| Consumer: | | | | | | | | | | | | | |
| Home equity credit line | 2,635 |
| | 4 |
| | 6 |
| | 10 |
| | 2,645 |
| | 1 |
| | 5 |
|
| 1-4 family residential | 5,857 |
| | 12 |
| | 22 |
| | 34 |
| | 5,891 |
| | — |
| | 11 |
|
| Construction and other consumer real estate | 479 |
| | 3 |
| | 4 |
| | 7 |
| | 486 |
| | 3 |
| | — |
|
| Bankcard and other revolving plans | 478 |
| | 2 |
| | 1 |
| | 3 |
| | 481 |
| | 1 |
| | 1 |
|
| Other | 189 |
| | 1 |
| | — |
| | 1 |
| | 190 |
| | — |
| | — |
|
| Total consumer loans | 9,638 |
| | 22 |
| | 33 |
| | 55 |
| | 9,693 |
| | 5 |
| | 17 |
|
| Total | $ | 42,340 |
| | $ | 150 |
| | $ | 159 |
| | $ | 309 |
| | $ | 42,649 |
| | $ | 36 |
| | $ | 381 |
|
| |
1
| Represents nonaccrual loans that are not past due more than 30 days; however, full payment of principal and interest is still not expected. |
ZIONS BANCORPORATION, NATIONAL ASSOCIATION AND SUBSIDIARIES
| | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | |
| December 31, 2018 | | | | | | | | | | | | |
| (In millions) | 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 | $ | 89 | | $ | — | | $ | 4 | | $ | 4 | | $ | 93 | | $ | — | | $ | 2 |
| Commercial: | | | | | | | | | | | | | |
| Commercial and industrial | $ | 14,445 | | $ | 37 | | $ | 31 | | $ | 68 | | $ | 14,513 | | $ | 4 | | $ | 46 |
| Leasing | 325 | | 1 | | 1 | | 2 | | 327 | | — | | 1 |
| Owner-occupied | 7,621 | | 23 | | 17 | | 40 | | 7,661 | | 3 | | 48 |
| Municipal | 1,661 | | — | | — | | — | | 1,661 | | — | | 1 |
| Total commercial | 24,052 | | 61 | | 49 | | 110 | | 24,162 | | 7 | | 96 |
| Commercial real estate: | | | | | | | | | | | | | |
| Construction and land development | 2,185 | | 1 | | — | | 1 | | 2,186 | | — | | — |
| Term | 8,924 | | 4 | | 11 | | 15 | | 8,939 | | 1 | | 26 |
| Total commercial real estate | 11,109 | | 5 | | 11 | | 16 | | 11,125�� | | 1 | | 26 |
| Consumer: | | | | | | | | | | | | | |
| Home equity credit line | 2,927 | | 4 | | 6 | | 10 | | 2,937 | | — | | 4 |
| 1-4 family residential | 7,143 | | 15 | | 18 | | 33 | | 7,176 | | — | | 19 |
| Construction and other consumer real estate | 642 | | 1 | | — | | 1 | | 643 | | — | | — |
| Bankcard and other revolving plans | 487 | | 2 | | 2 | | 4 | | 491 | | 2 | | — |
| Other | 179 | | 1 | | — | | 1 | | 180 | | — | | — |
| Total consumer loans | 11,378 | | 23 | | 26 | | 49 | | 11,427 | | 2 | | 23 |
| Total | $ | 46,539 | | $ | 89 | | $ | 86 | | $ | 175 | | $ | 46,714 | | $ | 10 | | $ | 145 |
1 Represents nonaccrual loans that are not past due more than 30 days; however, full payment of principal and interest is still not expected.
Credit Quality Indicators
In addition to the past due and nonaccrual criteria, we also analyze loans using loan risk-grading systems, which vary based on the size and type of credit risk exposure. The internal risk grades assigned to loans follow our definitions of Pass, Special Mention, Substandard,Sub-standard, and Doubtful, which are consistent with published definitions of regulatory risk classifications. For further discussion of our policies and processes regarding credit quality indicators and internal loan risk grading,risk-grading, see Note 6 of our 20162018 Annual Report on Form 10-K.
ZIONS BANCORPORATION, NATIONAL ASSOCIATION AND SUBSIDIARIES
Outstanding loan balances (accruing and nonaccruing) categorized by these credit quality classifications are summarized as follows:
| | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | |
| June 30, 2019 | | | | | | | | | | |
| (In millions) | Pass | | Special
Mention | | Sub-
standard | | Doubtful | | Total
loans | | Total
allowance |
| Commercial: | | | | | | | | | | | |
| Commercial and industrial | $ | 14,247 | | $ | 273 | | $ | 363 | | $ | — | | $ | 14,883 | | |
| Leasing | 321 | | 11 | | 5 | | — | | 337 | | |
| Owner-occupied | 7,524 | | 77 | | 227 | | — | | 7,828 | | |
| Municipal | 2,032 | | — | | 27 | | — | | 2,059 | | |
| Total commercial | 24,124 | | 361 | | 622 | | — | | 25,107 | | $ | 338 |
| Commercial real estate: | | | | | | | | | | | |
| Construction and land development | 2,586 | | 16 | | 7 | | — | | 2,609 | | |
| Term | 9,111 | | 39 | | 68 | | — | | 9,218 | | |
| Total commercial real estate | 11,697 | | 55 | | 75 | | — | | 11,827 | | 114 |
| Consumer: | | | | | | | | | | | |
| Home equity credit line | 2,913 | | — | | 16 | | — | | 2,929 | | |
| 1-4 family residential | 7,391 | | — | | 49 | | — | | 7,440 | | |
| Construction and other consumer real estate | 639 | | — | | 5 | | — | | 644 | | |
| Bankcard and other revolving plans | 499 | | — | | 3 | | — | | 502 | | |
| Other | 168 | | — | | — | | — | | 168 | | |
| Total consumer loans | 11,610 | | — | | 73 | | — | | 11,683 | | 51 |
| Total | $ | 47,431 | | $ | 416 | | $ | 770 | | $ | — | | $ | 48,617 | | $ | 503 |
|
| | | | | | | | | | | | | | | | | | | | | | | |
| | September 30, 2017 |
| (In millions) | Pass | | Special Mention | | Sub- standard | | Doubtful | | Total loans | | Total allowance |
| Commercial: | | | | | | | | | | | |
| Commercial and industrial | $ | 12,987 |
| | $ | 357 |
| | $ | 695 |
| | $ | 2 |
| | $ | 14,041 |
| | |
| Leasing | 325 |
| | 1 |
| | 17 |
| | — |
| | 343 |
| | |
| Owner-occupied | 6,697 |
| | 93 |
| | 292 |
| | — |
| | 7,082 |
| | |
| Municipal | 1,072 |
| | — |
| | 1 |
| | — |
| | 1,073 |
| | |
| Total commercial | 21,081 |
| | 451 |
| | 1,005 |
| | 2 |
| | 22,539 |
| | $ | 385 |
|
| Commercial real estate: | | | | | | | | | | | |
| Construction and land development | 2,140 |
| | 24 |
| | 6 |
| | — |
| | 2,170 |
| | |
| Term | 8,697 |
| | 84 |
| | 163 |
| | — |
| | 8,944 |
| | |
| Total commercial real estate | 10,837 |
| | 108 |
| | 169 |
| | — |
| | 11,114 |
| | 107 |
|
| Consumer: | | | | | | | | | | | |
| Home equity credit line | 2,728 |
| | — |
| | 17 |
| | — |
| | 2,745 |
| | |
| 1-4 family residential | 6,475 |
| | — |
| | 47 |
| | — |
| | 6,522 |
| | |
| Construction and other consumer real estate | 554 |
| | — |
| | 4 |
| | — |
| | 558 |
| | |
| Bankcard and other revolving plans | 487 |
| | — |
| | 3 |
| | — |
| | 490 |
| | |
| Other | 187 |
| | — |
| | 1 |
| | — |
| | 188 |
| | |
| Total consumer loans | 10,431 |
| | — |
| | 72 |
| | — |
| | 10,503 |
| | 49 |
|
| Total | $ | 42,349 |
| | $ | 559 |
| | $ | 1,246 |
| | $ | 2 |
| | $ | 44,156 |
| | $ | 541 |
|
| | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | |
| December 31, 2018 | | | | | | | | | | |
| (In millions) | Pass | | Special
Mention | | Sub-
standard | | Doubtful | | Total
loans | | Total
allowance |
| Commercial: | | | | | | | | | | | |
| Commercial and industrial | $ | 13,891 | | $ | 322 | | $ | 300 | | $ | — | | $ | 14,513 | | |
| Leasing | 313 | | 10 | | 4 | | — | | 327 | | |
| Owner-occupied | 7,369 | | 72 | | 220 | | — | | 7,661 | | |
| Municipal | 1,632 | | 2 | | 27 | | — | | 1,661 | | |
| Total commercial | 23,205 | | 406 | | 551 | | — | | 24,162 | | $ | 331 |
| Commercial real estate: | | | | | | | | | | | |
| Construction and land development | 2,174 | | 11 | | 1 | | — | | 2,186 | | |
| Term | 8,853 | | 10 | | 76 | | — | | 8,939 | | |
| Total commercial real estate | 11,027 | | 21 | | 77 | | — | | 11,125 | | 110 |
| Consumer: | | | | | | | | | | | |
| Home equity credit line | 2,920 | | — | | 17 | | — | | 2,937 | | |
| 1-4 family residential | 7,129 | | — | | 47 | | — | | 7,176 | | |
| Construction and other consumer real estate | 641 | | — | | 2 | | — | | 643 | | |
| Bankcard and other revolving plans | 488 | | — | | 3 | | — | | 491 | | |
| Other | 179 | | — | | 1 | | — | | 180 | | |
| Total consumer loans | 11,357 | | — | | 70 | | — | | 11,427 | | 54 |
| Total | $ | 45,589 | | $ | 427 | | $ | 698 | | $ | — | | $ | 46,714 | | $ | 495 |
|
| | | | | | | | | | | | | | | | | | | | | | | |
| | December 31, 2016 |
| (In millions) | Pass | | Special Mention | | Sub- standard | | Doubtful | | Total loans | | Total allowance |
| Commercial: | | | | | | | | | | | |
| Commercial and industrial | $ | 12,185 |
| | $ | 266 |
| | $ | 998 |
| | $ | 3 |
| | $ | 13,452 |
| | |
| Leasing | 387 |
| | 5 |
| | 30 |
| | 1 |
| | 423 |
| | |
| Owner-occupied | 6,560 |
| | 96 |
| | 306 |
| | — |
| | 6,962 |
| | |
| Municipal | 765 |
| | 7 |
| | 6 |
| | — |
| | 778 |
| | |
| Total commercial | 19,897 |
| | 374 |
| | 1,340 |
| | 4 |
| | 21,615 |
| | $ | 420 |
|
| Commercial real estate: | | | | | | | | | | | |
| Construction and land development | 1,942 |
| | 52 |
| | 25 |
| | — |
| | 2,019 |
| | |
| Term | 9,096 |
| | 82 |
| | 144 |
| | — |
| | 9,322 |
| | |
| Total commercial real estate | 11,038 |
| | 134 |
| | 169 |
| | — |
| | 11,341 |
| | 116 |
|
| Consumer: | | | | | | | | | | | |
| Home equity credit line | 2,629 |
| | — |
| | 16 |
| | — |
| | 2,645 |
| | |
| 1-4 family residential | 5,851 |
| | — |
| | 40 |
| | — |
| | 5,891 |
| | |
| Construction and other consumer real estate | 482 |
| | — |
| | 4 |
| | — |
| | 486 |
| | |
| Bankcard and other revolving plans | 478 |
| | — |
| | 3 |
| | — |
| | 481 |
| | |
| Other | 189 |
| | — |
| | 1 |
| | — |
| | 190 |
| | |
| Total consumer loans | 9,629 |
| | — |
| | 64 |
| | — |
| | 9,693 |
| | 31 |
|
| Total | $ | 40,564 |
| | $ | 508 |
| | $ | 1,573 |
| | $ | 4 |
| | $ | 42,649 |
| | $ | 567 |
|
ZIONS BANCORPORATION AND SUBSIDIARIES
Impaired Loans
Loans are considered impaired when, based on current information and events, it is probable that we will be unable to collect all amounts due in accordance with the contractual terms of the loan agreement, including scheduled interest payments. Payments received on impaired loans that are accruing are recognized in interest income, according to the contractual loan agreement. Payments received on impaired loans that are on nonaccrual are not
ZIONS BANCORPORATION, NATIONAL ASSOCIATION AND SUBSIDIARIES
recognized in interest income, but are applied as a reduction to the principal outstanding. The amount of interest income recognized on a cash basis during the time the loans were impaired within the three and six months ended SeptemberJune 30, 20172019 and 20162018 was not significant. For additional information regarding our policies and methodologies used to evaluate impaired loans, see Note 6 of our 20162018 Annual Report on Form 10-K.
Information on impaired loans individually evaluated is summarized as follows, including the average recorded investment and interest income recognized for the three and six months ended SeptemberJune 30, 20172019 and 2016:2018:
| | | | | | | | | | | | | | | | | | | | | | | | | | | | | |
| June 30, 2019 | | | | | | | | |
| (In millions) | Unpaid
principal
balance | | Recorded investment | | | | Total
recorded
investment | | Related
allowance |
| | | with no
allowance | | with
allowance | | | | |
| | | | | | | | | |
| Commercial: | | | | | | | | | |
| Commercial and industrial | $ | 129 | | $ | 36 | | $ | 62 | | $ | 98 | | $ | 10 |
| Owner-occupied | 63 | | 44 | | 11 | | 55 | | 1 |
| Municipal | 1 | | 1 | | — | | 1 | | — |
| Total commercial | 193 | | 81 | | 73 | | 154 | | 11 |
| Commercial real estate: | | | | | | | | | |
| Construction and land development | — | | — | | — | | — | | — |
| Term | 38 | | 32 | | 2 | | 34 | | — |
| Total commercial real estate | 38 | | 32 | | 2 | | 34 | | — |
| Consumer: | | | | | | | | | |
| Home equity credit line | 15 | | 12 | | 2 | | 14 | | — |
| 1-4 family residential | 60 | | 29 | | 23 | | 52 | | 2 |
| Construction and other consumer real estate | 3 | | 1 | | 2 | | 3 | | — |
| | | | | | | | | |
| Other | — | | — | | — | | — | | — |
| Total consumer loans | 78 | | 42 | | 27 | | 69 | | 2 |
| Total | $ | 309 | | $ | 155 | | $ | 102 | | $ | 257 | | $ | 13 |
| | | | | | | | | | | | | | | | | | | | | | | | | | | | | |
| December 31, 2018 | | | | | | | | |
| (In millions) | Unpaid
principal
balance | | Recorded investment | | | | Total
recorded
investment | | Related
allowance |
| | | with no
allowance | | with
allowance | | | | |
| | | | | | | | | |
| Commercial: | | | | | | | | | |
| Commercial and industrial | $ | 112 | | $ | 52 | | $ | 36 | | $ | 88 | | $ | 4 |
| Owner-occupied | 67 | | 31 | | 29 | | 60 | | 2 |
| Municipal | 1 | | 1 | | — | | 1 | | — |
| Total commercial | 180 | | 84 | | 65 | | 149 | | 6 |
| Commercial real estate: | | | | | | | | | |
| Construction and land development | 1 | | — | | — | | — | | — |
| Term | 44 | | 37 | | 3 | | 40 | | — |
| Total commercial real estate | 45 | | 37 | | 3 | | 40 | | — |
| Consumer: | | | | | | | | | |
| Home equity credit line | 15 | | 12 | | 2 | | 14 | | — |
| 1-4 family residential | 69 | | 32 | | 25 | | 57 | | 2 |
| Construction and other consumer real estate | 1 | | 1 | | — | | 1 | | — |
| | | | | | | | | |
| Other | — | | — | | — | | — | | — |
| Total consumer loans | 85 | | 45 | | 27 | | 72 | | 2 |
| Total | $ | 310 | | $ | 166 | | $ | 95 | | $ | 261 | | $ | 8 |
|
| | | | | | | | | | | | | | | | | | | |
| | September 30, 2017 |
| (In millions) | Unpaid principal balance | | Recorded investment | | Total recorded investment | | Related allowance |
with no allowance | | with allowance | |
| Commercial: | | | | | | | | | |
| Commercial and industrial | $ | 313 |
| | $ | 109 |
| | $ | 160 |
| | $ | 269 |
| | $ | 25 |
|
| Owner-occupied | 117 |
| | 64 |
| | 39 |
| | 103 |
| | 3 |
|
| Municipal | 1 |
| | 1 |
| | — |
| | 1 |
| | — |
|
| Total commercial | 431 |
| | 174 |
| | 199 |
| | 373 |
| | 28 |
|
| Commercial real estate: | | | | | | | | | |
| Construction and land development | 10 |
| | 5 |
| | 4 |
| | 9 |
| | — |
|
| Term | 67 |
| | 45 |
| | 12 |
| | 57 |
| | — |
|
| Total commercial real estate | 77 |
| | 50 |
| | 16 |
| | 66 |
| | — |
|
| Consumer: | | | | | | | | | |
| Home equity credit line | 24 |
| | 13 |
| | 8 |
| | 21 |
| | — |
|
| 1-4 family residential | 61 |
| | 26 |
| | 25 |
| | 51 |
| | 4 |
|
| Construction and other consumer real estate | 3 |
| | 2 |
| | 1 |
| | 3 |
| | — |
|
| Other | 1 |
| | 1 |
| | — |
| | 1 |
| | — |
|
| Total consumer loans | 89 |
| | 42 |
| | 34 |
| | 76 |
| | 4 |
|
| Total | $ | 597 |
| | $ | 266 |
| | $ | 249 |
| | $ | 515 |
| | $ | 32 |
|
|
| | | | | | | | | | | | | | | | | | | |
| | December 31, 2016 |
| (In millions) | Unpaid principal balance | | Recorded investment | | Total recorded investment | | Related allowance |
with no allowance | | with allowance | |
| Commercial: | | | | | | | | | |
| Commercial and industrial | $ | 470 |
| | $ | 82 |
| | $ | 311 |
| | $ | 393 |
| | $ | 52 |
|
| Owner-occupied | 115 |
| | 71 |
| | 30 |
| | 101 |
| | 3 |
|
| Municipal | 1 |
| | 1 |
| | — |
| | 1 |
| | — |
|
| Total commercial | 586 |
| | 154 |
| | 341 |
| | 495 |
| | 55 |
|
| Commercial real estate: | | | | | | | | | |
| Construction and land development | 22 |
| | 7 |
| | 6 |
| | 13 |
| | — |
|
| Term | 92 |
| | 53 |
| | 17 |
| | 70 |
| | 2 |
|
| Total commercial real estate | 114 |
| | 60 |
| | 23 |
| | 83 |
| | 2 |
|
| Consumer: | | | | | | | | | |
| Home equity credit line | 24 |
| | 16 |
| | 7 |
| | 23 |
| | — |
|
| 1-4 family residential | 59 |
| | 27 |
| | 28 |
| | 55 |
| | 6 |
|
| Construction and other consumer real estate | 3 |
| | 1 |
| | 2 |
| | 3 |
| | — |
|
| Other | 2 |
| | 1 |
| | — |
| | 1 |
| | — |
|
| Total consumer loans | 88 |
| | 45 |
| | 37 |
| | 82 |
| | 6 |
|
| Total | $ | 788 |
| | $ | 259 |
| | $ | 401 |
| | $ | 660 |
| | $ | 63 |
|
ZIONS BANCORPORATION, NATIONAL ASSOCIATION AND SUBSIDIARIES
| | | | | | | | | | | | | | | | | | | | | | | | |
| Three Months Ended
June 30, 2019 | | | | Six Months Ended
June 30, 2019 | | | |
| (In millions) | Average
recorded
investment | | Interest
income
recognized | | Average
recorded
investment | | Interest
income
recognized | |
| | | | | | | | |
| | | | | | | | |
| Commercial: | | | | | | | | |
| Commercial and industrial | $ | 108 | | $ | 1 | | $ | 96 | | $ | 2 | |
| Owner-occupied | 59 | | — | | 60 | | — | |
| Municipal | 1 | | — | | 1 | | — | |
| Total commercial | 168 | | 1 | | 157 | | 2 | |
| Commercial real estate: | | | | | | | | |
| Construction and land development | — | | — | | — | | — | |
| Term | 39 | | — | | 37 | | — | |
| Total commercial real estate | 39 | | — | | 37 | | — | |
| Consumer: | | | | | | | | |
| Home equity credit line | 14 | | — | | 14 | | — | |
| 1-4 family residential | 55 | | — | | 55 | | — | |
| Construction and other consumer real estate | 3 | | — | | 2 | | — | |
| | | | | | | | |
| Other | — | | — | | — | | — | |
| Total consumer loans | 72 | | — | | 71 | | — | |
| Total | $ | 279 | | $ | 1 | | $ | 265 | | $ | 2 | |
|
| | | | | | | | | | | | | | | |
| | Three Months Ended
September 30, 2017 | | Nine Months Ended
September 30, 2017 |
| (In millions) | Average recorded investment | | Interest income recognized | | Average recorded investment | | Interest income recognized |
| Commercial: | | | | | | | |
| Commercial and industrial | $ | 356 |
| | $ | 1 |
| | $ | 311 |
| | $ | 5 |
|
| Owner-occupied | 104 |
| | 2 |
| | 101 |
| | 5 |
|
| Municipal | 1 |
| | — |
| | 1 |
| | — |
|
| Total commercial | 461 |
| | 3 |
| | 413 |
| | 10 |
|
| Commercial real estate: | | | | | | | |
| Construction and land development | 10 |
| | — |
| | 11 |
| | — |
|
| Term | 53 |
| | 1 |
| | 58 |
| | 11 |
|
| Total commercial real estate | 63 |
| | 1 |
| | 69 |
| | 11 |
|
| Consumer: | | | | | | | |
| Home equity credit line | 21 |
| | — |
| | 21 |
| | 1 |
|
| 1-4 family residential | 53 |
| | 1 |
| | 53 |
| | 1 |
|
| Construction and other consumer real estate | 2 |
| | — |
| | 2 |
| | — |
|
| Other | 1 |
| | — |
| | 1 |
| | — |
|
| Total consumer loans | 77 |
| | 1 |
| | 77 |
|
| 2 |
|
| Total | $ | 601 |
| | $ | 5 |
| | $ | 559 |
| | $ | 23 |
|
| | | | Three Months Ended
September 30, 2016 | | Nine Months Ended
September 30, 2016 | | Three Months Ended
June 30, 2018 | | | Six Months Ended
June 30, 2018 | |
| (In millions) | Average recorded investment | | Interest income recognized | | Average recorded investment | | Interest income recognized | (In millions) | Average
recorded
investment | | Interest
income
recognized | | Average
recorded
investment | | Interest
income
recognized | |
| | Commercial: | | | | | | | | Commercial: | | | | | | | | |
| Commercial and industrial | $ | 449 |
| | $ | 1 |
| | $ | 319 |
| | $ | 4 |
| Commercial and industrial | $ | 138 | | $ | — | | $ | 126 | | $ | — | |
| Owner-occupied | 100 |
| | 2 |
| | 103 |
| | 8 |
| Owner-occupied | 54 | | — | | 55 | | 8 | |
| Municipal | 1 |
| | — |
| | 1 |
| | — |
| Municipal | 1 | | — | | 1 | | — | |
| Total commercial | 550 |
| | 3 |
| | 423 |
| | 12 |
| Total commercial | 193 | | — | | 182 | | 8 | |
| Commercial real estate: | | | | | | | | Commercial real estate: | | | | | | | | |
| Construction and land development | 11 |
| | 1 |
| | 12 |
| | 2 |
| Construction and land development | 5 | | — | | 5 | | — | |
| Term | 74 |
| | 3 |
| | 79 |
| | 9 |
| Term | 58 | | — | | 53 | | — | |
| Total commercial real estate | 85 |
| | 4 |
| | 91 |
| | 11 |
| Total commercial real estate | 63 | | — | | 58 | | — | |
| Consumer: | | | | | | | | Consumer: | | | | | | | | |
| Home equity credit line | 23 |
| | — |
| | 22 |
| | 1 |
| Home equity credit line | 15 | | — | | 14 | | — | |
| 1-4 family residential | 61 |
| | 1 |
| | 58 |
| | 2 |
| 1-4 family residential | 57 | | — | | 55 | | — | |
| Construction and other consumer real estate | 3 |
| | — |
| | 3 |
| | — |
| Construction and other consumer real estate | 2 | | — | | 1 | | — | |
| | Other | 2 |
| | — |
| | 2 |
| | — |
| Other | — | | — | | — | | — | |
| Total consumer loans | 89 |
| | 1 |
| | 85 |
| | 3 |
| Total consumer loans | 74 | | — | | 70 | | — | |
| Total | $ | 724 |
| | $ | 8 |
| | $ | 599 |
| | $ | 26 |
| Total | $ | 330 | | $ | — | | $ | 310 | | $ | 8 | |
Modified and Restructured Loans
Loans may be modified in the normal course of business for competitive reasons or to strengthen the Company’sBank’s position. Loan modifications and restructurings may also occur when the borrower experiences financial difficulty and needs temporary or permanent relief from the original contractual terms of the loan. Loans that have been modified to accommodate a borrower who is experiencing financial difficulties, and for which the CompanyBank has granted a concession that it would not otherwise consider, are considered troubled debt restructurings (“TDRs”). For further discussion of our policies and processes regarding TDRs, see Note 6 of our 20162018 Annual Report on Form 10-K.
ZIONS BANCORPORATION, NATIONAL ASSOCIATION AND SUBSIDIARIES
Selected information on TDRs that includes the recorded investment on an accruing and nonaccruing basis by loan class and modification type is summarized in the following schedules:
| | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | |
| June 30, 2019 | | | | | | | | | | | | |
| Recorded investment resulting from the following modification types: | | | | | | | | | | | | |
| (In millions) | Interest
rate below
market | | Maturity
or term
extension | | Principal
forgiveness | | Payment
deferral | | Other1 | | Multiple modification types2 | | Total |
| Accruing | | | | | | | | | | | | | |
| Commercial: | | | | | | | | | | | | | |
| Commercial and industrial | $ | 2 | | $ | 4 | | $ | — | | $ | — | | $ | 14 | | $ | 9 | | $ | 29 |
| Owner-occupied | 4 | | 1 | | — | | — | | 3 | | 6 | | 14 |
| Municipal | — | | — | | — | | — | | — | | — | | — |
| Total commercial | 6 | | 5 | | — | | — | | 17 | | 15 | | 43 |
| Commercial real estate: | | | | | | | | | | | | | |
| Construction and land development | — | | — | | — | | — | | — | | — | | — |
| Term | 1 | | 2 | | — | | 1 | | — | | 4 | | 8 |
| Total commercial real estate | 1 | | 2 | | — | | 1 | | — | | 4 | | 8 |
| Consumer: | | | | | | | | | | | | | |
| Home equity credit line | — | | 2 | | 7 | | — | | — | | 3 | | 12 |
| 1-4 family residential | 1 | | 1 | | 6 | | — | | 1 | | 24 | | 33 |
| Construction and other consumer real estate | — | | 1 | | — | | — | | — | | — | | 1 |
| | | | | | | | | | | | | |
| Total consumer loans | 1 | | 4 | | 13 | | — | | 1 | | 27 | | 46 |
| Total accruing | 8 | | 11 | | 13 | | 1 | | 18 | | 46 | | 97 |
| Nonaccruing | | | | | | | | | | | | | |
| Commercial: | | | | | | | | | | | | | |
| Commercial and industrial | 1 | | 5 | | — | | 1 | | 1 | | 26 | | 34 |
| Owner-occupied | 6 | | 1 | | — | | — | | 1 | | 6 | | 14 |
| Municipal | — | | — | | — | | — | | — | | 1 | | 1 |
| Total commercial | 7 | | 6 | | — | | 1 | | 2 | | 33 | | 49 |
| Commercial real estate: | | | | | | | | | | | | | |
| | | | | | | | | | | | | |
| Term | 3 | | — | | — | | 2 | | 3 | | 11 | | 19 |
| Total commercial real estate | 3 | | — | | — | | 2 | | 3 | | 11 | | 19 |
| Consumer: | | | | | | | | | | | | | |
| Home equity credit line | — | | — | | 1 | | — | | — | | 1 | | 2 |
| 1-4 family residential | — | | — | | 1 | | 1 | | 1 | | 6 | | 9 |
| | | | | | | | | | | | | |
| | | | | | | | | | | | | |
| Total consumer loans | — | | — | | 2 | | 1 | | 1 | | 7 | | 11 |
| Total nonaccruing | 10 | | 6 | | 2 | | 4 | | 6 | | 51 | | 79 |
| Total | $ | 18 | | $ | 17 | | $ | 15 | | $ | 5 | | $ | 24 | | $ | 97 | | $ | 176 |
|
| | | | | | | | | | | | | | | | | | | | | | | | | | | |
| | September 30, 2017 |
| | Recorded investment resulting from the following modification types: | | |
| (In millions) | Interest rate below market | | Maturity or term extension | | Principal forgiveness | | Payment deferral | | Other1 | | Multiple modification types2 | | Total |
| Accruing | | | | | | | | | | | | | |
| Commercial: | | | | | | | | | | | | | |
| Commercial and industrial | $ | — |
| | $ | 4 |
| | $ | — |
| | $ | — |
| | $ | 11 |
| | $ | 23 |
| | $ | 38 |
|
| Owner-occupied | 2 |
| | — |
| | 1 |
| | — |
| | 7 |
| | 13 |
| | 23 |
|
| Total commercial | 2 |
| | 4 |
| | 1 |
| | — |
| | 18 |
| | 36 |
| | 61 |
|
| Commercial real estate: | | | | | | | | | | | | | |
| Construction and land development | — |
| | 2 |
| | — |
| | — |
| | — |
| | 2 |
| | 4 |
|
| Term | 4 |
| | — |
| | — |
| | 1 |
| | 2 |
| | 7 |
| | 14 |
|
| Total commercial real estate | 4 |
| | 2 |
| | — |
| | 1 |
| | 2 |
| | 9 |
| | 18 |
|
| Consumer: | | | | | | | | | | | | | |
| Home equity credit line | — |
| | 2 |
| | 10 |
| | — |
| | — |
| | 3 |
| | 15 |
|
| 1-4 family residential | 1 |
| | — |
| | 7 |
| | 1 |
| | 2 |
| | 26 |
| | 37 |
|
| Construction and other consumer real estate | — |
| | 1 |
| | — |
| | — |
| | — |
| | 1 |
| | 2 |
|
| Total consumer loans | 1 |
| | 3 |
|
| 17 |
|
| 1 |
|
| 2 |
|
| 30 |
| | 54 |
|
| Total accruing | 7 |
| | 9 |
| | 18 |
| | 2 |
| | 22 |
| | 75 |
| | 133 |
|
| Nonaccruing | | | | | | | | | | | | | |
| Commercial: | | | | | | | | | | | | | |
| Commercial and industrial | — |
| | 1 |
| | 4 |
| | 4 |
| | 46 |
| | 27 |
| | 82 |
|
| Owner-occupied | 1 |
| | 2 |
| | — |
| | 1 |
| | 1 |
| | 9 |
| | 14 |
|
| Municipal | — |
| | 1 |
| | — |
| | — |
| | — |
| | — |
| | 1 |
|
| Total commercial | 1 |
| | 4 |
| | 4 |
| | 5 |
| | 47 |
| | 36 |
| | 97 |
|
| Commercial real estate: | | | | | | | | | | | | | |
| Construction and land development | — |
| | — |
| | — |
| | — |
| | — |
| | — |
| | — |
|
| Term | 2 |
| | 1 |
| | — |
| | — |
| | 1 |
| | 4 |
| | 8 |
|
| Total commercial real estate | 2 |
| | 1 |
| | — |
| | — |
| | 1 |
| | 4 |
| | 8 |
|
| Consumer: | | | | | | | | | | | | | |
| Home equity credit line | — |
| | — |
| | 1 |
| | — |
| | — |
| | — |
| | 1 |
|
| 1-4 family residential | — |
| | — |
| | 2 |
| | — |
| | 1 |
| | 5 |
| | 8 |
|
| Construction and other consumer real estate | — |
| | — |
| | — |
| | 1 |
| | — |
| | — |
| | 1 |
|
| Total consumer loans | — |
| | — |
| | 3 |
| | 1 |
| | 1 |
| | 5 |
| | 10 |
|
| Total nonaccruing | 3 |
| | 5 |
| | 7 |
| | 6 |
| | 49 |
| | 45 |
| | 115 |
|
| Total | $ | 10 |
| | $ | 14 |
| | $ | 25 |
| | $ | 8 |
| | $ | 71 |
| | $ | 120 |
| | $ | 248 |
|
1 Includes TDRs that resulted from other modification types including, but not limited to, a legal judgment awarded on different terms, a bankruptcy plan confirmed on different terms, a settlement that includes the delivery of collateral in exchange for debt reduction, etc.
| |
22 Includes TDRs that resulted from a combination of any of the previous modification types. | Includes TDRs that resulted from a combination of any of the previous modification types. |
ZIONS BANCORPORATION, NATIONAL ASSOCIATION AND SUBSIDIARIES
| | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | |
| December 31, 2018 | | | | | | | | | | | | |
| Recorded investment resulting from the following modification types: | | | | | | | | | | | | |
| (In millions) | Interest
rate below
market | | Maturity
or term
extension | | Principal
forgiveness | | Payment
deferral | | Other1 | | Multiple modification types2 | | Total |
| Accruing | | | | | | | | | | | | | |
| Commercial: | | | | | | | | | | | | | |
| Commercial and industrial | $ | 2 | | $ | 4 | | $ | — | | $ | — | | $ | 15 | | $ | 7 | | $ | 28 |
| Owner-occupied | 3 | | 2 | | — | | — | | 2 | | 14 | | 21 |
| Total commercial | 5 | | 6 | | — | | — | | 17 | | 21 | | 49 |
| Commercial real estate: | | | | | | | | | | | | | |
| Construction and land development | — | | — | | — | | — | | — | | — | | — |
| Term | 2 | | 2 | | — | | 1 | | — | | 6 | | 11 |
| Total commercial real estate | 2 | | 2 | | — | | 1 | | — | | 6 | | 11 |
| Consumer: | | | | | | | | | | | | | |
| Home equity credit line | — | | 1 | | 8 | | — | | — | | 3 | | 12 |
| 1-4 family residential | 1 | | 2 | | 6 | | 1 | | 1 | | 28 | | 39 |
| Construction and other consumer real estate | — | | — | | — | | — | | — | | 1 | | 1 |
| | | | | | | | | | | | | |
| Total consumer loans | 1 | | 3 | | 14 | | 1 | | 1 | | 32 | | 52 |
| Total accruing | 8 | | 11 | | 14 | | 2 | | 18 | | 59 | | 112 |
| Nonaccruing | | | | | | | | | | | | | |
| Commercial: | | | | | | | | | | | | | |
| Commercial and industrial | 1 | | 6 | | — | | 1 | | 10 | | 27 | | 45 |
| Owner-occupied | 6 | | — | | — | | 1 | | 2 | | 5 | | 14 |
| Municipal | — | | — | | — | | — | | — | | 1 | | 1 |
| Total commercial | 7 | | 6 | | — | | 2 | | 12 | | 33 | | 60 |
| Commercial real estate: | | | | | | | | | | | | | |
| | | | | | | | | | | | | |
| Term | 3 | | — | | — | | 2 | | 14 | | 1 | | 20 |
| Total commercial real estate | 3 | | — | | — | | 2 | | 14 | | 1 | | 20 |
| Consumer: | | | | | | | | | | | | | |
| Home equity credit line | — | | — | | 1 | | — | | — | | — | | 1 |
| 1-4 family residential | — | | — | | 1 | | — | | 1 | | 7 | | 9 |
| | | | | | | | | | | | | |
| | | | | | | | | | | | | |
| Total consumer loans | — | | — | | 2 | | — | | 1 | | 7 | | 10 |
| Total nonaccruing | 10 | | 6 | | 2 | | 4 | | 27 | | 41 | | 90 |
| Total | $ | 18 | | $ | 17 | | $ | 16 | | $ | 6 | | $ | 45 | | $ | 100 | | $ | 202 |
1 Includes TDRs that resulted from other modification types including, but not limited to, a legal judgment awarded on different terms, a bankruptcy plan confirmed on different terms, a settlement that includes the delivery of collateral in exchange for debt reduction, etc. |
| | | | | | | | | | | | | | | | | | | | | | | | | | | |
| | December 31, 2016 |
| | Recorded investment resulting from the following modification types: | | |
| (In millions) | Interest rate below market | | Maturity or term extension | | Principal forgiveness | | Payment deferral | | Other1 | | Multiple modification types2 | | Total |
| Accruing | | | | | | | | | | | | | |
| Commercial: | | | | | | | | | | | | | |
| Commercial and industrial | $ | — |
| | $ | 19 |
| | $ | — |
| | $ | — |
| | $ | — |
| | $ | 28 |
| | $ | 47 |
|
| Owner-occupied | 3 |
| | — |
| | 1 |
| | — |
| | 8 |
| | 10 |
| | 22 |
|
| Total commercial | 3 |
| | 19 |
| | 1 |
| | — |
| | 8 |
| | 38 |
| | 69 |
|
| Commercial real estate: | | | | | | | | | | | | | |
| Construction and land development | — |
| | 4 |
| | — |
| | — |
| | — |
| | 4 |
| | 8 |
|
| Term | 4 |
| | — |
| | — |
| | 1 |
| | 2 |
| | 10 |
| | 17 |
|
| Total commercial real estate | 4 |
| | 4 |
| | — |
| | 1 |
| | 2 |
| | 14 |
| | 25 |
|
| Consumer: | | | | | | | | | | | | | |
| Home equity credit line | — |
| | 1 |
| | 10 |
| | — |
| | — |
| | 3 |
| | 14 |
|
| 1-4 family residential | 3 |
| | 1 |
| | 6 |
| | — |
| | 2 |
| | 30 |
| | 42 |
|
| Construction and other consumer real estate | — |
| | — |
| | — |
| | — |
| | — |
| | 1 |
| | 1 |
|
| Total consumer loans | 3 |
| | 2 |
| | 16 |
| | — |
| | 2 |
| | 34 |
| | 57 |
|
| Total accruing | 10 |
| | 25 |
| | 17 |
| | 1 |
| | 12 |
| | 86 |
| | 151 |
|
| Nonaccruing | | | | | | | | | | | | | |
| Commercial: | | | | | | | | | | | | | |
| Commercial and industrial | 1 |
| | — |
| | — |
| | 1 |
| | 33 |
| | 25 |
| | 60 |
|
| Owner-occupied | — |
| | 1 |
| | — |
| | 3 |
| | 1 |
| | 12 |
| | 17 |
|
| Municipal | — |
| | 1 |
| | — |
| | — |
| | — |
| | — |
| | 1 |
|
| Total commercial | 1 |
| | 2 |
| | — |
| | 4 |
| | 34 |
| | 37 |
| | 78 |
|
| Commercial real estate: | | | | | | | | | | | | | |
| Construction and land development | — |
| | — |
| | — |
| | — |
| | 2 |
| | — |
| | 2 |
|
| Term | 2 |
| | 1 |
| | — |
| | — |
| | 2 |
| | 3 |
| | 8 |
|
| Total commercial real estate | 2 |
| | 1 |
| | — |
| | — |
| | 4 |
| | 3 |
| | 10 |
|
| Consumer: | | | | | | | | | | | | | |
| Home equity credit line | — |
| | — |
| | 1 |
| | — |
| | — |
| | 1 |
| | 2 |
|
| 1-4 family residential | — |
| | — |
| | 2 |
| | — |
| | 1 |
| | 5 |
| | 8 |
|
| Construction and other consumer real estate | — |
| | — |
| | — |
| | 2 |
| | — |
| | — |
| | 2 |
|
| Total consumer loans | — |
| | — |
| | 3 |
| | 2 |
| | 1 |
| | 6 |
| | 12 |
|
| Total nonaccruing | 3 |
| | 3 |
| | 3 |
| | 6 |
| | 39 |
| | 46 |
| | 100 |
|
| Total | $ | 13 |
| | $ | 28 |
| | $ | 20 |
| | $ | 7 |
| | $ | 51 |
| | $ | 132 |
| | $ | 251 |
|
| |
1
| Includes TDRs that resulted from other modification types including, but not limited to, a legal judgment awarded on different terms, a bankruptcy plan confirmed on different terms, a settlement that includes the delivery of collateral in exchange for debt reduction, etc. |
| |
2
| Includes TDRs that resulted from a combination of any of the previous modification types. |
Unfunded lending commitments on TDRs amounted to approximately $18$12 million and $11 million at SeptemberJune 30, 20172019 and $14 million at December 31, 2016.2018, respectively.
The total recorded investment of all TDRs in which interest rates were modified below market was $116$84 million at SeptemberJune 30, 20172019 and $128$88 million at December 31, 2016.2018. These loans are included in the previous schedule in the columns for interest rate below market and multiple modification types.
The net financial impact on interest income due to interest rate modifications below market for accruing TDRs for the three and ninesix months ended SeptemberJune 30, 20172019 and 20162018 was not significant.
ZIONS BANCORPORATION AND SUBSIDIARIES
On an ongoing basis, we monitor the performance of all TDRs according to their restructured terms. Subsequent payment default is defined in terms of delinquency, when principal or interest payments are past due 90 days or more for commercial loans, or 60 days or more for consumer loans.
ZIONS BANCORPORATION, NATIONAL ASSOCIATION AND SUBSIDIARIES
The recorded investment of accruing and nonaccruing TDRs that had a payment default during the period listed below (and are still in default at period end) and are within 12 months or less of being modified as TDRs is as follows:
| | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | |
| Three Months Ended
June 30, 2019 | | | | | | Six Months Ended
June 30, 2019 | | | | |
| (In millions) | Accruing | | Nonaccruing | | Total | | Accruing | | Nonaccruing | | Total |
| Commercial: | | | | | | | | | | | |
| Commercial and industrial | $ | — | | $ | 3 | | $ | 3 | | $ | — | | $ | 6 | | $ | 6 |
| Owner-occupied | — | | — | | — | | — | | — | | — |
| Total commercial | — | | 3 | | 3 | | — | | 6 | | 6 |
| Commercial real estate: | | | | | | | | | | | |
| | | | | | | | | | | |
| Term | — | | — | | — | | — | | 1 | | 1 |
| | | | | | | | | | | |
| Consumer: | | | | | | | | | | | |
| | | | | | | | | | | |
| 1-4 family residential | — | | 1 | | 1 | | — | | 1 | | 1 |
| | | | | | | | | | | |
| | | | | | | | | | | |
| Total | $ | — | | $ | 4 | | $ | 4 | | $ | — | | $ | 8 | | $ | 8 |
|
| | | | | | | | | | | | | | | | | | | | | | | | |
| | Three Months Ended
September 30, 2017 | | Nine Months Ended
September 30, 2017 |
| (In millions) | Accruing | | Nonaccruing | | Total | | Accruing | | Nonaccruing | | Total |
| Commercial: | | | | | | | | | | | |
| Commercial and industrial | $ | — |
| | $ | 1 |
| | $ | 1 |
| | $ | — |
| | $ | 1 |
| 1,291 |
| $ | 1 |
|
| Owner-occupied | — |
| | — |
| | — |
| | — |
| | 1 |
| 5,405 |
| 1 |
|
| Total commercial | — |
| | 1 |
| | 1 |
| | — |
| | 2 |
| | 2 |
|
| Total | $ | — |
| | $ | 1 |
| | $ | 1 |
| | $ | — |
| | $ | 2 |
| | $ | 2 |
|
| | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | |
| Three Months Ended
June 30, 2018 | | | | | | Six Months Ended
June 30, 2018 | | | | |
| (In millions) | Accruing | | Nonaccruing | | Total | | Accruing | | Nonaccruing | | Total |
| Commercial: | | | | | | | | | | | |
| Commercial and industrial | $ | — | | $ | 5 | | $ | 5 | | $ | — | | $ | 5 | | $ | 5 |
| Owner-occupied | — | | — | | — | | — | | 1 | | 1 |
| Total commercial | — | | 5 | | 5 | | — | | 6 | | 6 |
| Commercial real estate: | | | | | | | | | | | |
| | | | | | | | | | | |
| Term | — | | 2 | | 2 | | — | | 2 | | 2 |
| | | | | | | | | | | |
| Consumer: | | | | | | | | | | | |
| | | | | | | | | | | |
| 1-4 family residential | — | | 1 | | 1 | | — | | 1 | | 1 |
| | | | | | | | | | | |
| | | | | | | | | | | |
| Total | $ | — | | $ | 8 | | $ | 8 | | $ | — | | $ | 9 | | $ | 9 |
|
| | | | | | | | | | | | | | | | | | | | | | | |
| | Three Months Ended
September 30, 2016 | | Nine Months Ended
September 30, 2016 |
| (In millions) | Accruing | | Nonaccruing | | Total | | Accruing | | Nonaccruing | | Total |
| Commercial: | | | | | | | | | | | |
| Commercial and industrial | $ | — |
| | $ | 3 |
| | $ | 3 |
| | $ | — |
| | $ | 3 |
| | $ | 3 |
|
| Owner-occupied | 4 |
| | — |
| | 4 |
| | 4 |
| | — |
| | 4 |
|
| Total commercial | 4 |
| | 3 |
| | 7 |
| | 4 |
| | 3 |
| | 7 |
|
| Total | $ | 4 |
| | $ | 3 |
| | $ | 7 |
| | $ | 4 |
| | $ | 3 |
| | $ | 7 |
|
Note: Total loans modified as TDRs during the 12 months previous to SeptemberJune 30, 20172019 and 20162018 were $84$69 millionand $139$73 million, respectively.
At SeptemberJune 30, 20172019 and December 31, 2016,2018, the amount of foreclosed residential real estate property held by the CompanyBank was approximately $1 million and $2 million, and the recorded investment in consumer mortgage loans collateralized by residential real estate property that are in the process of foreclosure was approximately $7$8 million and $10 million, respectively.
Concentrations of Credit Risk
Credit risk is the possibility of loss from the failure of a borrower, guarantor, or another obligor to fully perform under the terms of a credit-related contract. We perform an ongoing analysis of our loan portfolio to evaluate whether there is any significant exposure to any concentrations of credit risk. See Note 6 of our 20162018 Annual Report on Form 10-K for further discussion of our evaluation of credit risk concentrations. See also Note 7 of our 20162018 Annual Report on Form 10-K for a discussion of counterparty risk associated with the Company’sBank’s derivative transactions.
Purchased Loans
Background and Accounting
We purchase loans in the ordinary course of business and account for them and the related interest income based on their performing status at the time of acquisition. Purchased credit-impaired (“PCI”) loans have evidence of credit deterioration at the time of acquisition and it is probable that not all contractual payments will be collected. Interest income for PCI loans is accounted for on an expected cash flow basis. Upon acquisition, in accordance with applicable accounting guidance, the acquired loans were recorded at their fair value without a corresponding ALLL. Certain acquired loans with similar characteristics such as risk exposure, type, size, etc., are grouped and accounted for in loan pools.
ZIONS BANCORPORATION7. DERIVATIVE INSTRUMENTS AND SUBSIDIARIESHEDGING ACTIVITIES
Outstanding Balances and Accretable Yield
The outstanding balances of all required payments and the related carrying amounts for PCI loans are as follows:
|
| | | | | | | |
| (In millions) | September 30, 2017 | | December 31, 2016 |
| | | | |
| Commercial | $ | 36 |
| | $ | 49 |
|
| Commercial real estate | 15 |
| | 51 |
|
| Consumer | 7 |
| | 9 |
|
| Outstanding balance | $ | 58 |
| | $ | 109 |
|
| Carrying amount | $ | 40 |
| | $ | 77 |
|
| Less ALLL | — |
| | 1 |
|
| Carrying amount, net | $ | 40 |
| | $ | 76 |
|
At the time of acquisition of PCI loans, we determine the loan’s contractually required payments in excess of all cash flows expected to be collected as an amount that should not be accreted (nonaccretable difference). With respect to the cash flows expected to be collected, the portion representing the excess of the loan’s expected cash flows over our initial investment (accretable yield) is accreted into interest income on a level yield basis over the remaining expected life of the loan or pool of loans. The effects of estimated prepayments are considered in estimating the expected cash flows.
Certain PCI loans are not accounted for as previously described because the estimation of cash flows to be collected involves a high degree of uncertainty. Under these circumstances, the accounting guidance provides that interest income is recognized on a cash basis similar to the cost recovery methodology for nonaccrual loans. The net carrying amounts in the preceding schedule also include the amounts for these loans. There were no loans of this type at September 30, 2017 and December 31, 2016.
Changes in the accretable yield for PCI loans were as follows:
|
| | | | | | | | | | | | | | | |
| (In millions) | Three Months Ended
September 30, | | Nine Months Ended
September 30, |
| 2017 | | 2016 | | 2017 | | 2016 |
| | | | | | | | |
| Balance at beginning of period | $ | 21 |
| | $ | 38 |
| | $ | 33 |
| | $ | 40 |
|
| Accretion | (2 | ) | | (6 | ) | | (17 | ) | | (19 | ) |
| Reclassification from nonaccretable difference | — |
| | — |
| | (1 | ) | | 9 |
|
| Disposals and other | — |
| | 2 |
| | 4 |
| | 4 |
|
| Balance at end of period | $ | 19 |
| | $ | 34 |
| | $ | 19 |
| | $ | 34 |
|
Note: Amounts have been adjusted based on refinements to the original estimates of the accretable yield.
The primary drivers of reclassification to accretable yield from nonaccretable difference and increases in disposals and other resulted primarily from (1) changes in estimated cash flows, (2) unexpected payments on nonaccrual loans, and (3) recoveries on zero balance loans pools. See subsequent discussion under changes in cash flow estimates.
ALLL Determination
For all acquired loans, the ALLL is only established for credit deterioration subsequent to the date of acquisition and represents our estimate of the inherent losses in excess of the book value of acquired loans. The ALLL for acquired loans is included in the overall ALLL in the balance sheet.
During the three and nine months ended September 30, we adjusted the ALLL for acquired loans by recording a provision for loan losses of an insignificant amount for both periods in 2017, and $1 million and $2 million in 2016, respectively. The provision is net of the ALLL reversals resulting from changes in cash flow estimates, which are discussed subsequently.
ZIONS BANCORPORATION AND SUBSIDIARIES
Changes in the provision for loan losses and related ALLL are driven in large part by the same factors that affect the changes in reclassification from nonaccretable difference to accretable yield, as discussed under changes in cash flow estimates.
Changes in Cash Flow Estimates
Over the life of the loan or loan pool, we continue to estimate cash flows expected to be collected. We evaluate quarterly at the balance sheet date whether the estimated present values of these loans using the effective interest rates have decreased below their carrying values. If so, we record a provision for loan losses.
For increases in carrying values that resulted from better-than-expected cash flows, we use such increases first to reverse any existing ALLL. During the three and nine months endedSeptember 30, total reversals to the ALLL, including the impact of increases in estimated cash flows, were insignificant during both periods in 2017 and $1 million during both periods in 2016, respectively. When there is no current ALLL, we increase the amount of accretable yield on a prospective basis over the remaining life of the loan and recognize this increase in interest income.
For the three and nine months ended September 30, the impact of increased cash flow estimates recognized in the statement of income for acquired loans with no ALLL was approximately $2 million and $15 million in 2017, and $4 million and $14 million in 2016, respectively, of additional interest income.
| |
7. | DERIVATIVE INSTRUMENTS AND HEDGING ACTIVITIES |
Objectives and Accounting
The Bank is exposed to certain risks arising from both its business operations and economic conditions. Our objectives in using derivatives are to add stability to interest income or expense, to modify the duration of specific assets or liabilities as we consider advisable, to manage exposure to interest rate movements or other identified risks, and/or to directly offset derivatives sold to our customers. For a detailed discussion of the use of and accounting policies regarding derivative instruments, see Note 7 of our 20162018 Annual Report on Form 10-K10-K.
ZIONS BANCORPORATION, NATIONAL ASSOCIATION AND SUBSIDIARIES
Fair Value Hedges – As of June 30, 2019, the Bank had $1 billion of interest rate swaps designated in two separate qualifying fair value hedge relationships. Each hedge has a notional amount of $500 million, with the first $500 million maturing in August of 2021 and the second $500 million maturing in February of 2022. The hedging instruments used are receive-fixed interest rate swaps converting the interest on our fixed-rate debt to floating. These hedges are designated as fair values hedges of the change in fair value of the London Interbank Offered Rate (“LIBOR”) benchmark swap rate component of the contractual coupon cash flows of these notes. Both swaps are structured to match the critical terms of the hedged notes, resulting in the expectation that the swaps will be highly effective as hedging instruments. The first swap has a received fixed-rate, or strike rate, of 3.50%, while the second swap, which was added during the first quarter of 2019, has a receive-fixed rate of 3.35%, making the average received-fixed strike rate 3.425% for our two existing fair value hedges which continued to be highly effective and meet all other requirements to remain designated and part of a qualifying hedge accounting relationship of the balance sheet date.
The Bank has no remaining debt basis adjustments from previously designed fair value hedges so there is no scheduled amortization for previously terminated fair value hedges that will impact the Bank’s financial statements for the foreseeable future.
Cash Flow Hedges – As of June 30, 2019, the Bank had $1.7 billion of interest rate swaps and $3.5 billion of interest rate floors designated as cash flow hedges of pools of floating-rate commercial loans. The bank had 24 active interest rate swaps as of June 30, 2019 with a weighted-average maturity of approximately 2.8 years, compared with 2.7 years at March 31, 2019, and a weighted average received-fixed strike rate of 2.1%. During the second quarter of 2019, two of these receive-fixed interest rate swaps matured, each had a notional amount of $75 million. An additional three swaps will mature by year end, and seven total swaps maturing by the end of the second quarter of 2020. During the quarter, the Bank continued to expand its protection against its exposure to potential net interest income and margin compression in a down interest rate environment by expanding its cash flow hedge portfolio by adding four receive-fixed swaps with individual notional amounts of $100 million each (aggregate notional of $400 million). The four additional swaps added to the Bank's cash flow hedge portfolio have maturities ranging from three to five years in tenor.
During the first quarter of 2019 the Bank expanded its cash flow hedging program to include purchased floors. The Bank added one additional floor during the second quarter of 2019 with a $500 million notional and a strike rate of 1.5% and a term of approximately 3 years, consistent with the terms of the rest of the cash flow hedge floor portfolio. The additional floor increased the total floor notional to $3.5 billion, which is comprised of seven floors, each with a notional amount of $500 million, a strike rate of 1.5%, and an approximate life of 3 years. The floor added in the second quarter was purchased for $1.4 million making the aggregate purchase price of all seven floors purchased in the six months ended June 30, 2019 approximately $8 million. As of June 30, 2019, the fair value of the floors increased $15 million to $26 million as a result of the change in the LIBOR swap rate during the quarter.
Shortly after the end of the second quarter, the Bank modified all of its floors to reduce the strike rate to 1% while doubling the notional amount from $3.5 billion to $7.0 billion. The modification did not result in any additional costs to the Bank. While the accounting is being finalized at the time of this filing, it is expected that there will be no significant changes to the periodic impact on interest income from the premium amortization or any other accounting changes of note.
During the second quarter of 2019 the cash flow hedge swap portfolio increased in value by $26 million, which was recognized in AOCI. The fair value hedge swap portfolio increased in value by $12 million which was offset by the change in fair value of the hedged debt, resulting in no direct earnings impact.
For the cash flow hedges, changes in fair value remain deferred in AOCI as long as the hedging relationship remains highly effective and qualifies for hedge accounting. Amounts deferred in AOCI are reclassified into earning in the periods in which the hedged forecasted transactions effect earnings. The premium on the purchased floors is deferred in AOCI and amortized using straight-line over the life of the hedges with the offsetting entry to the AOCI release being recorded as a reduction in interest income.
ZIONS BANCORPORATION, NATIONAL ASSOCIATION AND SUBSIDIARIES
Collateral and Credit Risk
Exposure to credit risk arises from the possibility of nonperformance by counterparties. No significant losses on derivative instruments have occurred as a result of counterparty nonperformance. For a more detailed discussion of collateral and credit risk related to our derivative contracts, see Note 7 of our 20162018 Annual Report on Form 10-K.
Our derivative contracts require us to pledge collateral for derivatives that are in a net liability position at a given balance sheet date. Certain of these derivative contracts contain credit-risk-related contingent features that include the requirement to maintain a minimum debt credit rating. We may be required to pledge additional collateral if a credit-risk-related feature were triggered, such as a downgrade of our credit rating. However, in past situations, not all counterparties have demanded that additional collateral be pledged when provided for under their contracts.by the contractual terms. At SeptemberJune 30, 2017,2019, the fair value of our derivative liabilities was $35$155 million, for which we were required to pledge cash collateral of approximately $46$64 million in the normal course of business. If our credit rating were downgraded one notch by either Standard & Poor’s (“S&P”) or Moody’s at SeptemberJune 30, 2017, the2019, there would likely be no additional amount of collateral we could be required to pledge is approximately $1 million.be pledged. As a result of the Dodd-Frank Wall Street Reform and Consumer Protection Act (“Dodd-Frank Act”), all newly eligible derivatives entered into are cleared through a central clearinghouse. Derivatives that are centrally cleared do not have credit-risk-related features that require additional collateral if our credit rating were downgraded.
ZIONS BANCORPORATION AND SUBSIDIARIES
Derivative Amounts
Selected information with respect to notional amounts and recorded gross fair values at SeptemberJune 30, 20172019 and December 31, 2016,2018, and the related gain (loss) of derivative instruments for the three and ninesix months ended SeptemberJune 30, 20172019 and 20162018 is summarized as follows:
| | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | |
| June 30, 2019 | | | | | | December 31, 2018 | | | | |
| Notional
amount | | Fair value | | | | Notional
amount | | Fair value | | |
| (In millions) | | | Other
assets | | Other
liabilities | | | | Other
assets | | Other
liabilities |
| Derivatives designated as hedging instruments: | | | | | | | | | | | |
| Cash flow hedges: | | | | | | | | | | | |
| Purchased interest rate floors | $ | 3,500 | | $ | 26 | | $ | — | | $ | — | | $ | — | | $ | — |
| Received-fixed interest rate swaps | 1,663 | | — | | — | | 687 | | — | | — |
| Fair value hedges: | | | | | | | | | | | |
| Received-fixed interest rate swaps | 1,000 | | — | | — | | 500 | | — | | — |
| Total derivatives designated as hedging instruments | 6,163 | | 26 | | — | | 1,187 | | — | | — |
| Derivatives not designated as hedging instruments: | | | | | | | | | | | |
Customer-facing interest rate derivatives 1, 2 | 3,410 | | 138 | | 3 | | 2,826 | | 37 | | 33 |
Offsetting interest rate derivatives 2 | 3,451 | | 3 | | 149 | | 2,826 | | 33 | | 40 |
| Other interest rate derivatives | 570 | | 2 | | 1 | | 300 | | 1 | | 1 |
| Foreign exchange derivatives | 366 | | 3 | | 2 | | 389 | | 4 | | 2 |
| Total derivatives not designated as hedging instruments | 7,797 | | 146 | | 155 | | 6,341 | | 75 | | 76 |
| Total derivatives | $ | 13,960 | | $ | 172 | | $ | 155 | | $ | 7,528 | | $ | 75 | | $ | 76 |
1 Customer-facing interest rate derivatives in an asset position include an $11 million and $3 million credit valuation adjustment reducing the fair value as of June 30, 2019 and December 31, 2018, respectively.
2 The fair value amounts for these derivatives do not include the settlement amounts for those trades that are cleared. Once the settlement amounts with the clearing houses are included the derivative fair values would be the following:
| | | | | | | | | | | | | | | | | | | | | | | |
| June 30, 2019 | | | | December 31, 2018 | | |
| (In millions) | Other assets | | Other liabilities | | Other assets | | Other liabilities |
| Customer-facing interest rate derivatives | $ | 136 | | $ | 3 | | $ | 7 | | $ | 33 |
| Offsetting interest rate derivatives | 3 | | 8 | | 33 | | 3 |
ZIONS BANCORPORATION, NATIONAL ASSOCIATION AND SUBSIDIARIES
| | | | September 30, 2017 | | December 31, 2016 | | Amount of derivative gain (loss) recognized/reclassified | |
| | Notional amount | | Fair value | | Notional amount | | Fair value | | Three Months Ended June 30, 2019 | |
| (In millions) | Other assets | | Other liabilities | | Other assets | | Other liabilities | (In millions) | Effective Portion of Derivatives Gain/(Loss) Deferred in OCI | | Excluded Components Deferred in OCI (Amortization Approach) | | Amount of Gain/(Loss) Reclassified From OCI into Income | | Other Noninterest Income/(Expense) | | Hedge Ineffectiveness / OCI Reclass due to Missed Forecast |
| Derivatives designated as hedging instruments: | | | | | | | | | | | | Derivatives designated as hedging instruments: | | | | | | | | | |
| Cash flow hedges: | | | | | | | | | | | | |
Cash flow hedges of floating-rate assets1: | | Cash flow hedges of floating-rate assets1: | |
| Purchased interest rate floors | | Purchased interest rate floors | $ | 2 | | $ | 15 | | $ | (1) | | $ | — | | $ | — |
| Interest rate swaps | $ | 1,138 |
| | $ | — |
| | $ | — |
| | $ | 1,388 |
| | $ | 2 |
| | $ | 1 |
| Interest rate swaps | 24 | | — | | (1) | | — | | — |
| Fair value hedges of fixed-rate debt: | | Fair value hedges of fixed-rate debt: | |
| Receive-fixed interest rate swaps | | Receive-fixed interest rate swaps | — | | — | | — | | — | | — |
| Total derivatives designated as hedging instruments | | Total derivatives designated as hedging instruments | 26 | | 15 | | (2) | | — | | — |
| Derivatives not designated as hedging instruments: | | | | | | | | | | | | Derivatives not designated as hedging instruments: | | |
| Interest rate swaps and forwards | 205 |
| | 1 |
| | — |
| | 235 |
| | 2 |
| | — |
| |
Interest rate swaps for customers 1 | 4,598 |
| | 36 |
| | 30 |
| | 4,162 |
| | 49 |
| | 49 |
| |
| Foreign exchange | 280 |
| | 6 |
| | 5 |
| | 424 |
| | 11 |
| | 9 |
| |
| Customer-facing interest rate derivatives | | Customer-facing interest rate derivatives | | 86 | |
| Offsetting interest rate derivatives | | Offsetting interest rate derivatives | | (85) | |
| Other interest rate derivatives | | Other interest rate derivatives | | (1) | |
| Foreign exchange derivatives | | Foreign exchange derivatives | | 6 | |
| Total derivatives not designated as hedging instruments | 5,083 |
| | 43 |
| | 35 |
| | 4,821 |
| | 62 |
| | 58 |
| Total derivatives not designated as hedging instruments | | | | | | | 6 | | |
| Total derivatives | $ | 6,221 |
| | $ | 43 |
| | $ | 35 |
| | $ | 6,209 |
| | $ | 64 |
| | $ | 59 |
| Total derivatives | $ | 26 | | $ | 15 | | $ | (2) | | $ | 6 | | $ | — |
1 Notional amounts include both the customer swaps and the offsetting derivative contracts.
| | | | | | | | | | | | | | | | | | | | | | | | | | | | | |
| Amount of derivative gain (loss) recognized/reclassified | | | | | | | | |
| Six Months Ended June 30, 2019 | | | | | | | | |
| (In millions) | Effective Portion of Derivatives Gain/(Loss) Deferred in OCI | | Excluded Components Deferred in OCI (Amortization Approach) | | Amount of Gain/(Loss) Reclassified From OCI into Income | | Other Noninterest Income/(Expense) | | Hedge Ineffectiveness / OCI Reclass due to Missed Forecast |
| Derivatives designated as hedging instruments: | | | | | | | | | |
Cash flow hedges of floating-rate assets1: | | | | | | | | | |
| Purchased interest rate floors | $ | 2 | | $ | 18 | | $ | (1) | | $ | — | | $ | — |
| Interest rate swaps | 33 | | — | | (3) | | — | | — |
| Fair value hedges of fixed-rate debt: | | | | | | | | | |
| Receive-fixed interest rate swaps | — | | — | | — | | — | | — |
| Total derivatives designated as hedging instruments | 35 | | 18 | | (4) | | — | | — |
| Derivatives not designated as hedging instruments: | | | | | | | | | |
| Customer-facing interest rate derivatives | | | | | | | 132 | | |
| Offsetting interest rate derivatives | | | | | | | (130) | | |
| Other interest rate derivatives | | | | | | | (1) | | |
| Foreign exchange derivatives | | | | | | | 11 | | |
| Total derivatives not designated as hedging instruments | | | | | | | 12 | | |
| Total derivatives | $ | 35 | | $ | 18 | | $ | (4) | | $ | 12 | | $ | — |
ZIONS BANCORPORATION, NATIONAL ASSOCIATION AND SUBSIDIARIES
| | | | Amount of derivative gain (loss) recognized/reclassified | | Amount of derivative gain (loss) recognized/reclassified | |
| | Three Months Ended September 30, 2017 | | Nine Months Ended September 30, 2017 | | Three Months Ended June 30, 2018 | |
(In millions) | OCI | | Reclassified from AOCI to interest income | | Noninterest income (expense) | | Offset to interest expense | | OCI | | Reclassified from AOCI to interest income | | Noninterest
income
(expense) | | Offset to
interest
expense | (In millions) | Effective Portion of Derivatives Gain/(Loss) Deferred in OCI | | Excluded Components Deferred in OCI (Amortization Approach) | | Amount of Gain/(Loss) Reclassified From OCI into Income | | Other Noninterest Income/(Expense) | | Hedge Ineffectiveness / OCI Reclass due to Missed Forecast |
| Derivatives designated as hedging instruments: | | | | | | | | | | | | | | | | Derivatives designated as hedging instruments: | | | | | | | | | |
Cash flow hedges1: | | | | | | | | | | | | �� | | | | |
Cash flow hedges of floating-rate assets1: | | Cash flow hedges of floating-rate assets1: | |
| Purchased interest rate floors | | Purchased interest rate floors | $ | — | | $ | — | | $ | — | | $ | — | | $ | — |
| Interest rate swaps | $ | — |
| | $ | — |
| | | | | | $ | — |
| | $ | 3 |
| | | | | Interest rate swaps | (2) | | — | | (1) | | — | | — |
| Fair value hedges of fixed-rate debt: | | Fair value hedges of fixed-rate debt: | |
| Receive-fixed interest rate swaps | | Receive-fixed interest rate swaps | — | | — | | — | | — | | — |
| Total derivatives designated as hedging instruments | | Total derivatives designated as hedging instruments | (2) | | — | | (1) | | — | | — |
| Derivatives not designated as hedging instruments: | | | | | | | | | | | | | | | | Derivatives not designated as hedging instruments: | | |
| Interest rate swaps and forward contracts | | | | | $ | — |
| | | | | | | | $ | (1 | ) | | | |
| Interest rate swaps for customers | | | | | 4 |
| | | | | | | | 8 |
| | | |
| Foreign exchange | | | | | 4 |
| | | | | | | | 12 |
| | | |
| Customer-facing interest rate derivatives | | Customer-facing interest rate derivatives | | | (14) | |
| Offsetting interest rate derivatives | | Offsetting interest rate derivatives | | | 18 | |
| Other interest rate derivatives | | Other interest rate derivatives | | | — | |
| Foreign exchange derivatives | | Foreign exchange derivatives | | | 5 | | |
| Total derivatives not designated as hedging instruments | | Total derivatives not designated as hedging instruments | | | | | | | 9 | | |
| Total derivatives | $ | — |
| | $ | — |
| | $ | 8 |
| | $ | — |
| | $ | — |
| | $ | 3 |
| | $ | 19 |
| | $ | — |
| Total derivatives | $ | (2) | | $ | — | | $ | (1) | | $ | 9 | | $ | — |
| | | | Amount of derivative gain (loss) recognized/reclassified | | Amount of derivative gain (loss) recognized/reclassified | |
| | Three Months Ended September 30, 2016 | | Nine Months Ended September 30, 2016 | | Six Months Ended June 30, 2018 | |
(In millions) | OCI | | Reclassified from AOCI to interest income | | Noninterest income (expense) | | Offset to interest expense | | OCI | | Reclassified from AOCI to interest income | | Noninterest income (expense) | | Offset to interest expense | (In millions) | Effective Portion of Derivatives Gain/(Loss) Deferred in OCI | | Excluded Components Deferred in OCI (Amortization Approach) | | Amount of Gain/(Loss) Reclassified From OCI into Income | | Other Noninterest Income/(Expense) | | Hedge Ineffectiveness / OCI Reclass due to Missed Forecast |
| Derivatives designated as hedging instruments: | | | | | | | | | | | | | | | | Derivatives designated as hedging instruments: | | | | | | | | | |
Cash flow hedges1: | | | | | | | | | | | | | | | | |
Cash flow hedges of floating-rate assets1: | | Cash flow hedges of floating-rate assets1: | |
| Purchased interest rate floors | | Purchased interest rate floors | $ | — | | $ | — | | $ | — | | $ | — | | $ | — |
| Interest rate swaps | $ | (5 | ) | | $ | 3 |
| | | | | | $ | 23 |
| | $ | 9 |
| | | | | Interest rate swaps | (7) | | — | | (2) | | — | | — |
| Fair value hedges of fixed-rate debt: | | Fair value hedges of fixed-rate debt: | |
| Receive-fixed interest rate swaps | | Receive-fixed interest rate swaps | — | | — | | — | | — | | — |
| Total derivatives designated as hedging instruments | | Total derivatives designated as hedging instruments | (7) | | — | | (2) | | — | | — |
| Derivatives not designated as hedging instruments: | | | | | | | | | | | | | | | | Derivatives not designated as hedging instruments: | | |
Interest rate swaps and forward contracts
| | | | | $ | 1 |
| | | | | | | | $ | 3 |
| | | |
| Interest rate swaps for customers | | | | | 4 |
| | | | | | | | 5 |
| | | |
| Foreign exchange | | | | | 3 |
| | | | | | | | 8 |
| | | |
| Customer-facing interest rate derivatives | | Customer-facing interest rate derivatives | | | (43) | |
| Offsetting interest rate derivatives | | Offsetting interest rate derivatives | | | 57 | |
| Other interest rate derivatives | | Other interest rate derivatives | | | — | |
| Foreign exchange derivatives | | Foreign exchange derivatives | | | 10 | | |
| Total derivatives not designated as hedging instruments | | Total derivatives not designated as hedging instruments | | | | | | | 24 | | |
| Total derivatives | $ | (5 | ) | | $ | 3 |
| | $ | 8 |
| | $ | — |
| | $ | 23 |
| | $ | 9 |
| | $ | 16 |
| | $ | — |
| Total derivatives | $ | (7) | | $ | — | | $ | (2) | | $ | 24 | | $ | — |
Note: These schedules are not intended to present at any given time the Company’sBank’s long/short position with respect to its derivative contracts.
| |
1 Amounts recognized in OCI and reclassified from AOCI represent the effective portion of the derivative gain (loss). For the 12 months following June 30, 2019, we estimate that $2 million will be reclassified from AOCI into interest income 1
| Amounts recognized in OCI and reclassified from AOCI represent the effective portion of the derivative gain (loss). For the 12 months following September 30, 2017, we estimate that $2 million will be reclassified from AOCI into interest income. |
ZIONS BANCORPORATION, NATIONAL ASSOCIATION AND SUBSIDIARIES
The following schedule presents derivatives used in fair value hedge accounting relationships, as well as pre-tax gains/(losses) recorded on such derivatives and the related hedged items for the periods presented.
| | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | |
| Gain/(loss) recorded in income | | | | | | | | | | |
| Three Months Ended June 30, 2019 | | | | | | Three Months Ended June 30, 2018 | | | | |
| (In millions) | Derivatives2 | | Hedged items | | Total income statement impact | | Derivatives2 | | Hedged items | | Total income statement impact |
Interest rate swaps1 | $ | 12 | | $ | (12) | | $ | — | | $ | — | | $ | — | | $ | — |
| | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | |
| Gain/(loss) recorded in income | | | | | | | | | | |
| Six Months Ended June 30, 2019 | | | | | | Six Months Ended June 30, 2018 | | | | |
| (In millions) | Derivatives2 | | Hedged items | | Total income statement impact | | Derivatives2 | | Hedged items | | Total income statement impact |
Interest rate swaps1 | $ | 18 | | $ | (18) | | $ | — | | $ | — | | $ | — | | $ | — |
1 Consists of hedges of benchmark interest rate risk of fixed-rate long-term debt. Gains and losses were recorded in net interest income.
2 The income for derivatives does not reflect interest income/expense to be consistent with the presentation of the gains/ (losses) on the hedged items.
The following schedule provides selected information regarding the long-term debt in the statement of financial position in which the hedged item is included.
| | | | | | | | | | | | | | | | | | | | | | | |
| Carrying amount of the hedged assets/(liabilities) | | | | Cumulative amount of fair value hedging adjustment included in the carrying amount of the hedged assets/(liabilities) | | |
| (In millions) | June 30, 2019 | | December 31, 2018 | | June 30, 2019 | | December 31, 2018 |
| Long-term debt | $ | (1,022) | | $ | (505) | | $ | (22) | | $ | (5) |
| | | | | | | |
| | | | | | | |
The fair value of derivative assets was reduced by a net credit valuation adjustment of $4$11 million and $7$1 million at SeptemberJune 30, 20172019 and 2016, respectively.2018, respectfully. The adjustment for derivative liabilities was zero at June 30, 2019 and a $1decrease of less than $2 million decrease and was not significant at SeptemberJune 30, 2017 and 2016, respectively.2018. These adjustments are required to reflect both our own nonperformance risk and the respective counterparty’s nonperformance risk.
8. LEASES
Leases
In February 2016, the FASB issued ASU 2016-02, Leases (“Topic 842”), to increase transparency and comparability among organizations by requiring the recognition of ROU assets and lease liabilities on the balance sheet. Most prominent among the changes in the standard is the recognition of ROU assets and lease liabilities by lessees for those leases classified as operating leases. Under the standard, disclosures are required to meet the objective of enabling users of financial statements to assess the amount, timing, and uncertainty of cash flows arising from leases.
Upon adoption the Bank has elected to use the following optional exemptions that are permitted under Topic 842, which have been applied consistently:
•the Bank elected the optional transition method and there was no impact to retained earnings from recognizing the appropriate amount of lease assets and liabilities on the balance sheet as of the adoption date of the standard. Prior period financial statements were not restated.
•the Bank elected the expedient package to not reassess (1) whether any existing or expired contracts are or contain leases, (2) lease classification for any existing or expired leases, and (3) initial direct costs for any existing leases.
•the Bank elected to not separate lease components from non-lease components for all classes of underlying assets for lessee or lessor transactions.
ZIONS BANCORPORATION, NATIONAL ASSOCIATION AND SUBSIDIARIES
We determine if a contract is a lease or contains a lease at inception. The right to use leased assets for the lease term are considered ROU assets. Operating lease assets are included in “Other assets” while finance lease assets are included in “Premises, equipment and software, net.” Lease liabilities for operating leases are included in “Other liabilities” while finance leases are included in “Long-term debt” on our consolidated balance sheet.
Lease ROU assets and operating lease liabilities are recognized based on the present value of the future minimum lease payments over the lease term at commencement date. Because most of our leases do not provide an implicit rate, we use our incremental borrowing rate based on the information available at the commencement date in determining the present value of future payments. The lease ROU asset also incorporates any amortization incurred, including initial direct costs, and excludes lease incentives received. Our lease terms may include options to extend or terminate the lease, and the lease term incorporates these when it is reasonably certain that we will exercise these options. The Bank enters into certain lease agreements with both lease and non-lease components, which are not separated out for lessees and lessors on a relative standalone basis.
We have operating and finance leases for branches, corporate offices, and data centers. Our equipment leases are not material. At June 30, 2019, we had 432 branches, of which 277 are owned and 155 are leased. We lease our headquarters in Salt Lake City, Utah, and other office or data centers are either owned or leased.
The Bank may enter into certain lease arrangements with a term of 12 months or less, and we have elected to exclude these from capitalization. The length of our commitments for leases ranges from 2019 to 2062, some of which include options to extend or terminate the leases.
As of June 30, 2019, assets recorded under operating leases were $232 million, while assets recorded under finance leases were less than $1 million. We utilized a secured incremental borrowing rate based on the remaining term of the lease as of the effective date for the discount rate to determine our lease ROU assets and liabilities. The following schedule presents lease-related assets and liabilities, their weighted average remaining life, and the weighted average discount rate.
| | | | | | | |
8.(Dollar amounts in millions) | DEBT AND SHAREHOLDERS’ EQUITYJune 30,
2019 | | |
| | | |
| Operating assets and liabilities | | | |
| Operating right-of-use assets, net of amortization | $ | 232 | | |
| Operating lease liabilities | 251 | | |
| Weighted average remaining lease term (years) | | | |
| Operating leases | 9.3 | | |
| Finance leases | 0.9 | | |
| Weighted average discount rate | | | |
| Operating leases | 3.2 | % | | |
| Finance leases | 12.6 | % | | |
The components of lease expense are as follows:
| | | | | | | | | | | | | | | | |
| (In millions) | Three Months Ended
June 30, 2019 | | Six Months Ended June 30, 2019 | | | |
| | | | | | |
| Operating lease costs | $ | 12 | | $ | 24 | | | |
| | | | | | |
| | | | | | |
| | | | | | |
| | | | | | |
| | | | | | |
| Variable lease costs | 13 | | 26 | | | |
| | | | | | |
| Total lease cost | $ | 25 | | $ | 50 | | | |
Supplemental cash flow information related to leases is as follows:
| | | | | | | | | | | | | |
| (In millions) | Three Months Ended
June 30, 2019 | | Six Months Ended June 30, 2019 | | |
| | | | | |
| Cash paid for amounts in the measurement of lease liabilities: | | | | | |
| Operating cash disbursements from operating leases | $ | 12 | | $ | 24 | | |
| | | | | |
| | | | | |
| | | | | |
| | | | | |
| | | | | |
ZIONS BANCORPORATION, NATIONAL ASSOCIATION AND SUBSIDIARIES
Maturities analysis for lease liabilities as of June 30, 2019 is as follows (undiscounted lease payments):
| | | | | |
| (In millions) | |
| |
2019 1 | $ | 32 |
| 2020 | 47 |
| 2021 | 42 |
| 2022 | 37 |
| 2023 | 31 |
| Thereafter | 116 |
| Total | $ | 305 |
1 Contractual maturities for the six months remaining in 2019.
The Bank enters into certain lease agreements where it is the lessor of real estate. Real estate leases are made from bank-owned and subleased property to generate cash flow from the property, including from leasing vacant suites in which the Bank occupies portions of the building. Operating lease income was $3 million for both the second quarters of 2019 and 2018, and $6 million and $5 million for the first six months of 2019 and 2018.
The Bank also has a lending division that makes equipment leases, considered to be sales-type leases or direct financing leases, totaling $337 million and $358 million as of June 30, 2019 and 2018, respectively. The Bank uses leasing of equipment as a venue for customers to access equipment without purchasing upfront. The Bank recorded income of $3 million on these leases for both the second quarters of 2019 and 2018, and $7 million for both the first six months of 2019 and 2018.
9. LONG-TERM DEBT AND SHAREHOLDERS’ EQUITY
Long-Term Debt
Long-term debt is summarized as follows:
| | | (In millions) | September 30,
2017 | | December 31, 2016 | (In millions) | June 30,
2019 | | December 31, 2018 |
| | | | | | | | |
| | Subordinated notes | $ | 247 |
| | $ | 247 |
| Subordinated notes | $ | 87 | | $ | 87 |
| Senior notes | 135 |
| | 287 |
| Senior notes | 1,149 | | 637 |
| Capital lease obligations | 1 |
| | 1 |
| |
| | Total | $ | 383 |
| | $ | 535 |
| Total | $ | 1,236 | | $ | 724 |
The preceding carrying values represent the par value of the debt adjusted for any unamortized premium or discount, or unamortized debt issuance costs.
Debt Redemptionscosts, and Maturities
valuation adjustments for fair value swaps. During the first six months of 2019, the Bank issued a $500 million senior note with an interest rate of 3.35% and a maturity date of March 4, 2022.
Common Stock
The Bank’s common stock is traded on the National Association of Securities Dealers Automated Quotations (“NASDAQ”) Global Select Market. As of June 30, 2019, there were 176.9 million shares of 0.001 par value common stock outstanding. As of June 30, 2019, 29.3 million common stock warrants (NASDAQ: ZIONW), with an exercise price of $34.41, were outstanding, and each common stock warrant was convertible into 1.06 shares. These warrants expire on May 22, 2020.
Common stock and additional paid-in capital was $3.3 billion at June 30, 2019, and decreased $535 million, or 14%, from December 31, 2018, primarily due to Bank common stock repurchases. During the second quarter of 2017, $153 million of2019, we continued our 4.5% senior notes matured.
During the first nine months of 2016, $89 million of our 4.0% senior notes matured. In addition, we purchased $15 million of our 4.5% senior notes and redeemed $11 million of our 3.6% senior medium-term notes.
During the third quarter of 2016 we elected to exercise our right to redeem the following junior subordinated debentures related to trust preferred securities issued to the following trusts.
|
| | | | | | | |
| (Dollar amounts in millions) | Balance Redeemed | | Coupon rate 1 | | Redemption date |
| | | | | | |
| Amegy Statutory Trust I | $ | 51 |
| | 3mL+2.85% | | September 17, 2016 |
| Amegy Statutory Trust III | 62 |
| | 3mL+1.78% | | September 15, 2016 |
| Stockmen’s Statutory Trust II | 8 |
| | 3mL+3.15% | | September 26, 2016 |
| Stockmen’s Statutory Trust III | 8 |
| | 3mL+2.89% | | September 17, 2016 |
| Total | $ | 129 |
| | | | |
| |
1
| Designation of “3mL” is three-month London Interbank Offered Rate (“LIBOR”). |
Shareholders’ Equity
During the third quarter of 2017, the Company continued its common stock buyback program and repurchased 2.55.8 million shares of common stock outstanding with a fair value of $115$275 million at an average price of $45.45$47.05 per share, and has repurchased 4.7 million shares of common stock outstanding with a fair value $205 million at an average price of $43.72 per share during the first nine months of 2017.share. During the first ninesix months of 2016, the Company2019 we repurchased 1.511.3 million shares of common stock outstanding with a fair value of $45$550 million, at an average price of $30.64$48.50 per share.
During the second quartershare compared to 4.3 million shares with a fair value of 2017, we redeemed all outstanding shares of our 7.9% Series F preferred stock for a cash payment of approximately $144 million. Dividends paid to these redeemed shares amounted to $0.49375 per depositary share for a total amount of $3 million. The total one-time reduction to net earnings applicable to common shareholders associated with the preferred stock redemption was $2$235 million due to the accelerated recognition of preferred stock issuance costs.
On April 25, 2016, we launched a tender offer to purchase up to $120 million par amount of certain outstanding preferred stock. Our preferred stock decreased by $119 million in the second quarter of 2016 as a result of the tender offer, including the purchase of $27 million of our Series I preferred stock, $59 million of our Series J preferred stock, and $33 million of our Series G preferred stock forat an aggregate cash payment of $126 million. Theaverage
ZIONS BANCORPORATION, NATIONAL ASSOCIATION AND SUBSIDIARIES
total one-time reductionprice of $54.64 per share for the first six months of 2018. In July 2019, the Bank announced that the Board approved a plan to net earnings applicable torepurchase $275 million of common shareholders associated withstock during the preferred stock redemption was $10 million.third quarter of 2019.
Accumulated Other Comprehensive Income
Accumulated other comprehensive income (loss) was $(57)$25 million at SeptemberJune 30, 20172019 compared to $(122)with $(250) million at December 31, 2016.2018. Changes in AOCI by component are as follows:
| | | | | | | | | | | | | | | | | | | | | | | |
| (In millions) | Net unrealized gains (losses) on investment securities | | Net unrealized gains (losses) on derivatives and other | | Pension and post-retirement | | Total |
| Six Months Ended June 30, 2019 | | | | | | | |
| Balance at December 31, 2018 | $ | (228) | | $ | (1) | | $ | (21) | | $ | (250) |
| OCI before reclassifications, net of tax | 237 | | 36 | | — | | 273 |
| Amounts reclassified from AOCI, net of tax | — | | 2 | | — | | 2 |
| OCI | 237 | | 38 | | — | | 275 |
| Balance at June 30, 2019 | $ | 9 | | $ | 37 | | $ | (21) | | $ | 25 |
| Income tax expense included in OCI | $ | 78 | | $ | 12 | | $ | — | | $ | 90 |
| Six Months Ended June 30, 2018 | | | | | | | |
| Balance at December 31, 2017 | $ | (114) | | $ | (2) | | $ | (23) | | $ | (139) |
| OCI (loss) before reclassifications, net of tax | (175) | | (2) | | — | | (177) |
| Amounts reclassified from AOCI, net of tax | — | | 1 | | — | | 1 |
| OCI (loss) | (175) | | (1) | | — | | (176) |
| Balance at June 30, 2018 | $ | (289) | | $ | (3) | | $ | (23) | | $ | (315) |
| Income tax benefit included in OCI | $ | (58) | | $ | — | | $ | — | | $ | (58) |
| | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | |
| | Amounts reclassified from AOCI 1 | | | | Amounts reclassified from AOCI 1 | | | | Statement of income (SI)
Balance sheet (BS) | | |
| (In millions) | | Three Months Ended
June 30, | | | | Six Months Ended
June 30, | | | | | | |
| Details about AOCI components | | 2019 | | 2018 | | 2019 | | 2018 | | | | Affected line item |
| | | | | | | | | | | | |
| | | | | | | | | | | | |
| | | | | | | | | | | | |
| | | | | | | | | | | | |
| | | | | | | | | | | | |
| | | | | | | | | | | | |
| | | | | | | | | | | | |
| | | | | | | | | | | | |
| | | | | | | | | | | | |
| | | | | | | | | | | | |
| | | | | | | | | | | | |
| Net unrealized losses on derivative instruments | | $ | (2) | | $ | (1) | | $ | (4) | | $ | (2) | | SI | | Interest and fees on loans |
| Income tax benefit | | (1) | | — | | (2) | | (1) | | | | |
| Amounts Reclassified from AOCI | | (1) | | (1) | | (2) | | (1) | | | | |
1 Negative reclassification amounts indicate decreases to earnings in the statement of income.
10. COMMITMENTS, GUARANTEES AND CONTINGENT LIABILITIES
|
| | | | | | | | | | | | | | | |
| (In millions) | Net unrealized gains (losses) on investment securities | | Net unrealized gains (losses) on derivatives and other | | Pension and post-retirement | | Total |
| Nine Months Ended September 30, 2017 | | | | | | | |
| Balance at December 31, 2016 | $ | (93 | ) | | $ | 2 |
| | $ | (31 | ) | | $ | (122 | ) |
| OCI before reclassifications, net of tax | 65 |
| | 2 |
| | — |
| | 67 |
|
| Amounts reclassified from AOCI, net of tax | — |
| | (2 | ) | | — |
| | (2 | ) |
| OCI | 65 |
| | — |
| | — |
| | 65 |
|
| Balance at September 30, 2017 | $ | (28 | ) | | $ | 2 |
| | $ | (31 | ) | | $ | (57 | ) |
| Income tax expense included in OCI | $ | 40 |
| | $ | — |
| | $ | — |
| | $ | 40 |
|
| Nine Months Ended September 30, 2016 | | | | | | | |
| Balance at December 31, 2015 | $ | (18 | ) | | $ | 2 |
| | $ | (38 | ) | | $ | (54 | ) |
| OCI (loss) before reclassifications, net of tax | 54 |
| | 16 |
| | (1 | ) | | 69 |
|
| Amounts reclassified from AOCI, net of tax | — |
| | (5 | ) | | — |
| | (5 | ) |
| OCI (loss) | 54 |
| | 11 |
| | (1 | ) | | 64 |
|
| Balance at September 30, 2016 | $ | 36 |
| | $ | 13 |
| | $ | (39 | ) | | $ | 10 |
|
| Income tax expense included in OCI (loss) | $ | 34 |
| | $ | 6 |
| | $ | 1 |
| | $ | 41 |
|
|
| | | | | | | | | | | | | | | | | | | | |
| | | Amounts reclassified from AOCI 1 | | Amounts reclassified from AOCI 1 | | Statement of income (SI) Balance sheet (BS) | | |
| (In millions) | | Three Months Ended
September 30, | | Nine Months Ended
September 30, | | | |
| Details about AOCI components | | 2017 | | 2016 | | 2017 | | 2016 | | | Affected line item |
| | | | | | | | | | | | | |
| Net unrealized gains on derivative instruments | | $ | — |
| | $ | 3 |
| | $ | 3 |
| | $ | 9 |
| | SI | | Interest and fees on loans |
| Income tax expense | | — |
| | 1 |
| | 1 |
| | 4 |
| | | | |
| Amounts Reclassified from AOCI | | $ | — |
| | $ | 2 |
| | $ | 2 |
| | $ | 5 |
| | | | |
| |
1
| Positive reclassification amounts indicate increases to earnings in the statement of income and decreases to balance sheet assets. |
| |
9. | COMMITMENTS, GUARANTEES AND CONTINGENT LIABILITIES |
Commitments and Guarantees
Contractual amounts of off-balance sheet financial instruments used to meet the financing needs of our customers are as follows:
| | | | | | | | | | | |
| (In millions) | June 30,
2019 | | December 31,
2018 |
| | | |
Net unfunded commitments to extend credit 1 | $ | 22,529 | | $ | 21,454 |
| Standby letters of credit: | | | |
| Financial | 527 | | 655 |
| Performance | 189 | | 199 |
| Commercial letters of credit | 19 | | 18 |
| Total unfunded lending commitments | $ | 23,264 | | $ | 22,326 |
|
| | | | | | | |
| (In millions) | September 30,
2017 | | December 31,
2016 |
| | | | |
Net unfunded commitments to extend credit 1 | $ | 18,828 |
| | $ | 18,274 |
|
| Standby letters of credit: | | | |
| Financial | 709 |
| | 771 |
|
| Performance | 202 |
| | 196 |
|
| Commercial letters of credit | 43 |
| | 60 |
|
| Total unfunded lending commitments | $ | 19,782 |
| | $ | 19,301 |
|
ZIONS BANCORPORATION AND SUBSIDIARIES
participations
The Company’s 2016Bank’s 2018 Annual Report on Form 10-K contains further information about these commitments and guarantees including their terms and collateral requirements. At SeptemberJune 30, 2017,2019, the CompanyBank had recorded
ZIONS BANCORPORATION, NATIONAL ASSOCIATION AND SUBSIDIARIES
approximately $5$4 million as a liability for the guarantees associated with the standby letters of credit, which consisted of $1 million attributable to the RULC and $4$3 million of deferred commitment fees.
At September 30, 2017, we had unfunded commitments for PEIs of approximately $27 million. These obligations have no stated maturity. PEIs related to these commitments that are prohibited by the Volcker Rule were $4 million at September 30, 2017. See related discussions about these investments in Notes 3 and 5.
Legal Matters
We are subject to litigation in court and arbitral proceedings, as well as proceedings, investigations, examinations and other actions brought or considered by governmental and self-regulatory agencies. Litigation may relate to lending, deposit and other customer relationships, vendor and contractual issues, employee matters, intellectual property matters, personal injuries and torts, regulatory and legal compliance, and other matters. While most matters relate to individual claims, we are also subject to putative class action claims and similar broader claims. Proceedings, investigations, examinations and other actions brought or considered by governmental and self-regulatory agencies may relate to our banking, investment advisory, trust, securities, and other products and services; our customers’ involvement in money laundering, fraud, securities violations and other illicit activities or our policies and practices relating to such customer activities; and our compliance with the broad range of banking, securities and other laws and regulations applicable to us. At any given time, we may be in the process of responding to subpoenas, requests for documents, data and testimony relating to such matters and engaging in discussions to resolve the matters.
As of SeptemberJune 30, 2017,2019, we were subject to the following material litigation andor governmental inquiries:
•a civil suit, Shou-En Wang v. CB&T, brought against us in the Superior Court for Los Angeles County, Central District in April 2016. The case relates to our depositor relationships with customers who were promoters of an investment program that allegedly misappropriated investors’ funds. This case is in an early phase, with initial motion practice having been completed.
a civil suit, McFarland as Trustee for International Manufacturing Group v. CB&T, et. al., brought against us in the United States Bankruptcy Court for the Eastern District of California in May 2016. The Trustee seeks to recover loan payments previously repaid to us by our customer, International Manufacturing Group (“IMG”), alleging that IMG, along with its principal, obtained loans and made loan repayments in furtherance of an alleged Ponzi scheme. This case is in an early phase with initialInitial motion practice havinghas been completed.
completed and discovery is underway. Mediation sessions were held in the second quarter of 2019. No trial date has been set.•a civil suit, JTS Communities, Inc. et. al v. CB&T, Jun Enkoji and Dawn Satow, brought against us in the Superior Court of California,for Sacramento County, California in June 2017. In this case four investors in IMG seek to hold us liable for losses arising from their investments in that company, alleging that we conspired with and knowingly assisted IMG and its principal in furtherance of an alleged Ponzi Scheme.
scheme. This case is in an early phase with initial motion practice having been completed and discovery is underway. Trial is scheduled for February 2020.•a civil class action lawsuit, Evans v. CB&T, brought against us in the United States District Court for the Eastern District of California in May 2017. This case was filed on behalf of a class of up to 50 investors in IMG and seeks to hold us liable for losses of class members arising from their investments in IMG, alleging that we conspired with and knowingly assisted IMG and its principal in furtherance of an alleged Ponzi Scheme.
scheme. In December 2017, the District Court dismissed all claims against the Bank. In January 2018, the plaintiff filed an appeal with the Court of Appeals for the Ninth Circuit. The appeal was heard in early April 2019 with the Court of Appeals reversing the trial court's dismissal. It is likely that trial will not occur for a substantial period of time.At•a Private Attorney General Act (“PAGA”) claim under California law, Lawson v. CB&T, brought against us in the endSuperior Court for the County of September 2017, we settledSan Diego, California, in February 2016. In this case, the plaintiff alleges, on behalf of herself and other current or former employees of the Bank who worked in California on a governmental inquiry conductednon-exempt basis, violations by the U.S. Attorney’s OfficeBank of California wage and hour laws. The case remains in the early stages of motion practice, to date mainly involving questions of venue and scope of employees covered by the PAGA claims. In March 2018, the Supreme Court of California granted review of an appeal from the intermediate appellate court decision requiring all aspects of the case to be heard in state court, rather than in arbitration. The appellate briefing process has been completed with a ruling anticipated in 2019. Trial has not been scheduled.
ZIONS BANCORPORATION, NATIONAL ASSOCIATION AND SUBSIDIARIES
•two civil cases, Lifescan Inc. and Johnson & Johnson Health Care Services v. Jeffrey Smith, et. al., brought against us in the United States District Court for the Eastern District of Pennsylvania into our payment processing practices relating to certain telemarketing customers alleged to have engagedNew Jersey in fraudulent marketing practices, primarilyDecember 2017, and Roche Diagnostics and Roche Diabetes Care Inc. v. Jeffrey C. Smith, et. al., brought against us in the 2006-2008 timeframe.United States District Court for the District of New Jersey in March 2019. In these cases, certain manufacturers and distributors of medical products seek to hold us liable for allegedly fraudulent practices of a borrower of the Bank which filed for bankruptcy protection in 2017. The settlement agreement imposed cases are in early phases, with initial motion practice and discovery underway in the Lifescan case. Trial has not been scheduled in either case.
•a civil money penalty of $3.6 million, which was paidclass action lawsuit, Gregory, et. al. v. Zions Bancorporation, brought against us in the third quarter. Because this amount hadUnited States District Court in Utah in January 2019. This case was filed on behalf of investors in Rust Rare Coin, Inc. alleging that we aided and abetted a Ponzi scheme fraud perpetrated by Rust Rare Coin, a Zions Bank customer. The case follows civil actions and the establishment of a receivership for Rust Rare Coin by The Commodities Futures Trading Commission and the Utah Division of Securities in November 2018, as well as a separate suit brought by the Securities and Exchange Commission against Rust Rare Coin and its principal, Gaylen Rust. The matter is in the early motion practice state and initial phase discovery has commenced. During the second quarter of 2019, we filed a motion to dismiss. Trial has not been fully reserved,scheduled. A related case, North Valley Partners et. al. vs. Zions Bancorporation, brought against us by a group of investors in Rust Rare Coin, was dismissed without prejudice in the settlement did not affect our thirdsecond quarter financial results.of 2019 with those plaintiffs opting for now to participate in the Gregory class.
•a civil suit, Shou-En Wang v. CB&T, brought against us in the Superior Court for Los Angeles County, Central District in April 2016 was resolved in the second quarter of 2019. The case related to deposit customers who were promoters of an investment program that allegedly misappropriated investors' funds.
At least quarterly, we review outstanding and new legal matters, utilizing then available information. In accordance with applicable accounting guidance, if we determine that a loss from a matter is probable and the amount of the loss can be reasonably estimated, we establish an accrual for the loss. In the absence of such a determination, no accrual is made. Once established, accruals are adjusted to reflect developments relating to the matters.
ZIONS BANCORPORATION AND SUBSIDIARIES
In our review, we also assess whether we can determine the range of reasonably possible losses for significant matters in which we are unable to determine that the likelihood of a loss is remote. Because of the difficulty of predicting the outcome of legal matters, discussed subsequently, we are able to meaningfully estimate such a range only for a limited number of matters. Based on information available as of SeptemberJune 30, 2017,2019, we estimated that the aggregate range of reasonably possible losses for those matters to be from $0 millionto roughly $20$45 million in excess of amounts accrued. The matters underlying the estimated range will change from time to time, and actual results may vary significantly from this estimate. Those matters for which a meaningful estimate is not possible are not included within this estimated range and, therefore, this estimated range does not represent our maximum loss exposure.
Based on our current knowledge, we believe that our current estimated liability for litigation and other legal actions and claims, reflected in our accruals and determined in accordance with applicable accounting guidance, is adequate and that liabilities in excess of the amounts currently accrued, if any, arising from litigation and other legal actions and claims for which an estimate as previously described is possible, will not have a material impact on our financial condition, results of operations, or cash flows. However, in light of the significant uncertainties involved in these matters, and the very large or indeterminate damages sought in some of these matters, an adverse outcome in one or more of these matters could be material to our financial condition, results of operations, or cash flows for any given reporting period.
Any estimate or determination relating to the future resolution of litigation, arbitration, governmental or self-regulatory examinations, investigations or actions or similar matters is inherently uncertain and involves significant judgment. This is particularly true in the early stages of a legal matter, when legal issues and facts have not been well articulated, reviewed, analyzed, and vetted through discovery, preparation for trial or hearings, substantive and productive mediation or settlement discussions, or other actions. It is also particularly true with respect to class action and similar claims involving multiple defendants, matters with complex procedural requirements or substantive issues or novel legal theories, and examinations, investigations and other actions conducted or brought by governmental and self-regulatory agencies, in which the normal adjudicative process is not applicable. Accordingly, we usually are unable to determine whether a favorable or unfavorable outcome is remote, reasonably likely, or probable, or to estimate the amount or range of a probable or reasonably likely loss, until relatively late in the course of a legal matter, sometimes not until a number of years have elapsed. Accordingly, our judgments and
ZIONS BANCORPORATION, NATIONAL ASSOCIATION AND SUBSIDIARIES
estimates relating to claims will change from time to time in light of developments and actual outcomes will differ from our estimates. These differences may be material.
11. REVENUE RECOGNITION
We derive our revenue primarily from interest income on loans and securities, which was more than three-quarters of our revenue in the second quarter of 2019. Only noninterest income is considered to be revenue from contracts with customers in scope of ASC 606. For a discussion of the Bank’s revenue recognition from contracts, and the implementation of ASC 606, see Note 16 of our 2018 Annual Report on Form 10-K.
The following schedule provides the major income categories within “Other service charges, commissions and fees” that are in scope of ASC 606 for the three and six months ended June 30, 2019:
| | | | | | | | | | | | | | | | | | | | | | | |
| Three Months Ended
June 30, | | | | Six Months Ended
June 30, | | |
| (In millions) | 2019 | | 2018 | | 2019 | | 2018 |
| | | | | | | |
| Card fee income | $ | 36 | | $ | 34 | | $ | 69 | | $ | 67 |
| ATM fees | 2 | | 3 | | 4 | | 5 |
| Other service charges | 3 | | 4 | | 7 | | 7 |
| Other commissions and fees | 4 | | 5 | | 8 | | 10 |
| Total | $ | 45 | | $ | 46 | | $ | 88 | | $ | 89 |
Disaggregation of Revenue
We provide services across different geographical areas, primarily in 11 Western U.S. States, under banking operations that have their own individual brand names, including Zions Bank, Amegy Bank, California Bank & Trust, National Bank of Arizona, Nevada State Bank, Vectra Bank Colorado, and The Commerce Bank of Washington. The operating segment listed as “Other” includes Zions Management Services Company, certain non-bank financial services subsidiaries, centralized back-office functions, and eliminations of transactions between the segments. Certain prior period amounts have been reclassified to conform with the current period presentation. These reclassifications did not affect net income or shareholders’ equity.
The following schedule sets forth the noninterest income and net revenue by operating segments for the three months ended June 30, 2019 and 2018:
| | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | |
| Zions Bank | | | | Amegy | | | | CB&T | | |
| (In millions) | 2019 | | 2018 | | 2019 | | 2018 | | 2019 | | 2018 |
| | | | | | | | | | | |
| Service charges and fees on deposit accounts | $ | 14 | | $ | 15 | | $ | 11 | | $ | 11 | | $ | 7 | | $ | 7 |
| Other service charges, commissions, and fees | 18 | | 18 | | 9 | | 9 | | 7 | | 6 |
| Wealth management and trust income | 4 | | 4 | | 3 | | 3 | | 1 | | 1 |
| | | | | | | | | | | |
| Capital markets and foreign exchange | 2 | | 1 | | (2) | | (1) | | 1 | | 1 |
| | | | | | | | | | | |
| Total noninterest income from contracts with customers (ASC 606) | 38 | | 38 | | 21 | | 22 | | 16 | | 15 |
| Other noninterest income (Non-ASC 606 customer related) | 1 | | — | | 13 | | 9 | | 6 | | 4 |
| Total customer-related fees | 39 | | 38 | | 34 | | 31 | | 22 | | 19 |
| Other noninterest income (non-customer related) | — | | — | | — | | — | | — | | — |
| Total noninterest income | 39 | | 38 | | 34 | | 31 | | 22 | | 19 |
| Other real estate owned gain from sale | — | | — | | — | | — | | — | | — |
| Net interest income | 179 | | 176 | | 132 | | 127 | | 140 | | 131 |
| Total income less interest expense | $ | 218 | | $ | 214 | | $ | 166 | | $ | 158 | | $ | 162 | | $ | 150 |
| | | | | | | | | | | |
ZIONS BANCORPORATION, NATIONAL ASSOCIATION AND SUBSIDIARIES
| | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | |
| NBAZ | | | | NSB | | | | Vectra | | |
| (In millions) | 2019 | | 2018 | | 2019 | | 2018 | | 2019 | | 2018 |
| | | | | | | | | | | |
| Service charges and fees on deposit accounts | $ | 3 | | $ | 3 | | $ | 4 | | $ | 4 | | $ | 2 | | $ | 2 |
| Other service charges, commissions, and fees | 3 | | 3 | | 3 | | 3 | | 2 | | 2 |
| Wealth management and trust income | — | | — | | 1 | | 1 | | — | | — |
| | | | | | | | | | | |
| Capital markets and foreign exchange | — | | — | | — | | — | | — | | — |
| | | | | | | | | | | |
| Total noninterest income from contracts with customers (ASC 606) | 6 | | 6 | | 8 | | 8 | | 4 | | 4 |
| Other noninterest income (Non-ASC 606 customer related) | 4 | | 3 | | 3 | | 2 | | 2 | | 2 |
| Total customer-related fees | 10 | | 9 | | 11 | | 10 | | 6 | | 6 |
| Other noninterest income (non-customer related) | 1 | | 1 | | — | | — | | — | | — |
| Total noninterest income | 11 | | 10 | | 11 | | 10 | | 6 | | 6 |
| Other real estate owned gain from sale | — | | — | | — | | — | | — | | — |
| Net interest income | 62 | | 58 | | 40 | | 38 | | 36 | | 34 |
| Total income less interest expense | $ | 73 | | $ | 68 | | $ | 51 | | $ | 48 | | $ | 42 | | $ | 40 |
| | | | | | | | | | | |
| TCBW | | | | Other | | | | Consolidated Bank | | |
| (In millions) | 2019 | | 2018 | | 2019 | | 2018 | | 2019 | | 2018 |
| | | | | | | | | | | |
| Service charges and fees on deposit accounts | $ | — | | $ | — | | $ | — | | $ | — | | $ | 41 | | $ | 42 |
| Other service charges, commissions, and fees | 1 | | 1 | | 3 | | 4 | | 46 | | 46 |
| Wealth management and trust income | — | | — | | 4 | | 4 | | 13 | | 13 |
| | | | | | | | | | | |
| Capital markets and foreign exchange | — | | — | | 1 | | 2 | | 2 | | 3 |
| | | | | | | | | | | |
| Total noninterest income from contracts with customers (ASC 606) | 1 | | 1 | | 8 | | 10 | | 102 | | 104 |
| Other noninterest income (Non-ASC 606 customer related) | — | | — | | (1) | | 1 | | 28 | | 21 |
| Total customer-related fees | 1 | | 1 | | 7 | | 11 | | 130 | | 125 |
| Other noninterest income (non-customer related) | — | | — | | 1 | | 12 | | 2 | | 13 |
| Total noninterest income | 1 | | 1 | | 8 | | 23 | | 132 | | 138 |
| Other real estate owned gain from sale | — | | — | | — | | — | | — | | — |
| Net interest income | 14 | | 12 | | (34) | | (28) | | 569 | | 548 |
| Total income less interest expense | $ | 15 | | $ | 13 | | $ | (26) | | $ | (5) | | $ | 701 | | $ | 686 |
The following schedule sets forth the noninterest income and net revenue by operating segments for the six months ended June 30, 2019 and 2018:
| | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | |
| Zions Bank | | | | Amegy | | | | CB&T | | |
| (In millions) | 2019 | | 2018 | | 2019 | | 2018 | | 2019 | | 2018 |
| | | | | | | | | | | |
| Service charges and fees on deposit accounts | $ | 27 | | $ | 29 | | $ | 22 | | $ | 22 | | $ | 14 | | $ | 14 |
| Other service charges, commissions, and fees | 36 | | 35 | | 18 | | 19 | | 13 | | 12 |
| Wealth management and trust income | 8 | | 7 | | 5 | | 5 | | 2 | | 2 |
| | | | | | | | | | | |
| Capital markets and foreign exchange | 3 | | 3 | | (3) | | (3) | | 2 | | 2 |
| Other noninterest income from contracts with customers | — | | — | | — | | — | | — | | — |
| Total noninterest income from contracts with customers (ASC 606) | 74 | | 74 | | 42 | | 43 | | 31 | | 30 |
| Other noninterest income (Non-ASC 606 customer related) | (2) | | (1) | | 26 | | 21 | | 10 | | 8 |
| Total customer-related fees | 72 | | 73 | | 68 | | 64 | | 41 | | 38 |
| Other noninterest income (non-customer related) | — | | — | | — | | — | | — | | 2 |
| Total noninterest income | 72 | | 73 | | 68 | | 64 | | 41 | | 40 |
| Other real estate owned gain from sale | 1 | | — | | — | | — | | — | | — |
| Net interest income | 358 | | 342 | | 263 | | 254 | | 278 | | 262 |
| Total income less interest expense | $ | 431 | | $ | 415 | | $ | 331 | | $ | 318 | | $ | 319 | | $ | 302 |
| | | | | | | | | | | |
ZIONS BANCORPORATION, NATIONAL ASSOCIATION AND SUBSIDIARIES
| | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | |
| NBAZ | | | | NSB | | | | Vectra | | |
| (In millions) | 2019 | | 2018 | | 2019 | | 2018 | | 2019 | | 2018 |
| | | | | | | | | | | |
| Service charges and fees on deposit accounts | $ | 6 | | $ | 6 | | $ | 7 | | $ | 8 | | $ | 4 | | $ | 4 |
| Other service charges, commissions, and fees | 6 | | 6 | | 6 | | 6 | | 3 | | 3 |
| Wealth management and trust income | 1 | | 1 | | 2 | | 2 | | 1 | | 1 |
| | | | | | | | | | | |
| Capital markets and foreign exchange | — | | — | | 1 | | — | | — | | — |
| Other noninterest income from contracts with customers | — | | — | | — | | — | | — | | — |
| Total noninterest income from contracts with customers (ASC 606) | 13 | | 13 | | 16 | | 16 | | 8 | | 8 |
| Other noninterest income (Non-ASC 606 customer related) | 6 | | 4 | | 5 | | 4 | | 4 | | 4 |
| Total customer-related fees | 19 | | 17 | | 21 | | 20 | | 12 | | 12 |
| Other noninterest income (non-customer related) | 2 | | 2 | | — | | — | | — | | — |
| Total noninterest income | 21 | | 19 | | 21 | | 20 | | 12 | | 12 |
| Other real estate owned gain from sale | — | | — | | — | | — | | — | | — |
| Net interest income | 122 | | 111 | | 80 | | 73 | | 72 | | 66 |
| Total income less interest expense | $ | 143 | | $ | 130 | | $ | 101 | | $ | 93 | | $ | 84 | | $ | 78 |
| | | | | | | | | | | |
| TCBW | | | | Other | | | | Consolidated Bank | | |
| (In millions) | 2019 | | 2018 | | 2019 | | 2018 | | 2019 | | 2018 |
| | | | | | | | | | | |
| Service charges and fees on deposit accounts | $ | 1 | | $ | 1 | | $ | — | | $ | — | | $ | 81 | | $ | 84 |
| Other service charges, commissions, and fees | 1 | | 1 | | 5 | | 7 | | 88 | | 89 |
| Wealth management and trust income | — | | — | | 7 | | 7 | | 26 | | 25 |
| | | | | | | | | | | |
| Capital markets and foreign exchange | — | | — | | 2 | | 4 | | 5 | | 6 |
| Other noninterest income from contracts with customers | — | | — | | 1 | | 1 | | 1 | | 1 |
| Total noninterest income from contracts with customers (ASC 606) | 2 | | 2 | | 15 | | 19 | | 201 | | 205 |
| Other noninterest income (Non-ASC 606 customer related) | — | | 1 | | — | | 1 | | 49 | | 42 |
| Total customer-related fees | 2 | | 3 | | 15 | | 20 | | 250 | | 247 |
| Other noninterest income (non-customer related) | — | | — | | 12 | | 25 | | 14 | | 29 |
| Total noninterest income | 2 | | 3 | | 27 | | 45 | | 264 | | 276 |
| Other real estate owned gain from sale | — | | — | | 1 | | 1 | | 2 | | 1 |
| Net interest income | 28 | | 24 | | (56) | | (42) | | 1,145 | | 1,090 |
| Total income less interest expense | $ | 30 | | $ | 27 | | $ | (28) | | $ | 4 | | $ | 1,411 | | $ | 1,367 |
Revenue from contracts with customers did not generate significant contract assets and liabilities. Contract receivables are included in Other Assets. Payment terms vary by services offered, and the timing between completion of performance obligations and payment is typically not significant.
12. RETIREMENT PLANS
The following discloses the net periodic benefit cost (credit)(benefit) and its components for the Company’sBank’s pension and other retirement plans:
| | | (In millions) | Three Months Ended September 30, | | Nine Months Ended September 30, | (In millions) | Three Months Ended June 30, | | | Six Months Ended June 30, | |
| 2017 | | 2016 | | 2017 | | 2016 | | 2019 | | 2018 | | 2019 | | 2018 |
| | | | | | | | | | | | | | | | |
| | Interest cost | $ | 2 |
|
| $ | 2 |
| | $ | 5 |
| | $ | 5 |
| Interest cost | $ | 1 | | $ | 1 | | $ | 3 | | $ | 3 |
| Expected return on plan assets | (3 | ) |
| (3 | ) | | (9 | ) | | (9 | ) | Expected return on plan assets | (2) | | (3) | | (4) | | (6) |
| Partial settlement loss | 1 |
| | 3 |
| | 2 |
| | 3 |
| Partial settlement loss | — | | — | | — | | 1 |
| | Amortization of net actuarial loss | 1 |
|
| 1 |
| | 4 |
| | 5 |
| Amortization of net actuarial loss | 1 | | 1 | | 1 | | 1 |
| Net periodic benefit cost | $ | 1 |
| | $ | 3 |
| | $ | 2 |
| | $ | 4 |
| |
| Net periodic cost (benefit) | | Net periodic cost (benefit) | $ | — | | $ | (1) | | $ | — | | $ | (1) |
As disclosed in our 20162018 Annual Report on Form 10-K, the CompanyBank has frozen its participation and benefit accruals for the pension plan and its contributions for individual benefit payments in the postretirement benefit plan.
During In October 2018, the third quarter of 2017, the Company revisedBank decided to terminate its pension plan subject to offer certain participants a temporary opportunity to make an election to receive an immediate distribution from the pension plan. The window forobtaining necessary regulatory approval. Completion of this opportunitytermination is between August 1, 2017 and November 24, 2017.expected in early 2020. Plan participant benefits will not be disadvantaged because of this decision.
ZIONS BANCORPORATION, NATIONAL ASSOCIATION AND SUBSIDIARIES
13. INCOME TAXES
The effective income tax rate of 34.2%22.7% for the thirdsecond quarter of 20172019 was slightly higher than the 2016 third2018 second quarter rate of 33.9%22.1%. The effective tax ratesrate for the first nine months of 2017 and 2016 were 30.6% and 33.3%, respectively. Theseboth year-to-date periods was 22.5%. The income tax rates for both 20172019 and 2016 generally benefited2018 were reduced by nontaxable municipal interest income and nontaxable income from the non-taxability of certain income items. The 2017 effective tax rate was further impactedbank-owned life insurance, and were increased by the following factors:
We re-evaluated our state tax positions in the first quarternon-deductibility of 2017, which resulted in a one-time $14 million benefit to income tax expense.
We reduced income tax expense by $4 million in the second quarter of 2017 due to changes in the carrying value of various state deferred tax items.
We also recorded an $8 million benefit in the first nine months of 2017 from the implementation of new accounting guidance related to stock-based compensation.Federal Deposit Insurance Corporation (“FDIC”) premiums, certain executive compensation and other fringe benefits.
We had a net deferred tax asset (“DTA”) balance of $207$36 million at SeptemberJune 30, 2017,2019, compared with $250$130 million at December 31, 2016, which included a $4 million valuation allowance at each respective reporting date for certain acquired2018. The decrease in the net operating loss carryforwardsDTA resulted primarily from the decrease of accrued compensation and unrealized losses in other comprehensive income ("OCI") related to securities. A reduction of net deferred tax liabilities related to leasing operations, including deferred items associated with the adoption of ASC 842, offset some of the overall decrease in DTA.
14. NET EARNINGS PER COMMON SHARE
Basic and diluted net earnings per common share based on the weighted average outstanding shares are summarized as follows:
| | | | | | | | | | | | | | | | | | | | | | | |
| Three Months Ended
June 30, | | | | Six Months Ended
June 30, | | |
| (In millions, except shares and per share amounts) | 2019 | | 2018 | | 2019 | | 2018 |
| | | | | | | |
| Basic: | | | | | | | |
| Net income | $ | 198 | | $ | 197 | | $ | 411 | | $ | 435 |
| Less common and preferred dividends | 63 | | 57 | | 127 | | 104 |
| Undistributed earnings | 135 | | 140 | | 284 | | 331 |
| Less undistributed earnings applicable to nonvested shares | 1 | | 1 | | 2 | | 3 |
| Undistributed earnings applicable to common shares | 134 | | 139 | | 282 | | 328 |
| Distributed earnings applicable to common shares | 54 | | 47 | | 110 | | 86 |
| Total earnings applicable to common shares | $ | 188 | | $ | 186 | | $ | 392 | | $ | 414 |
| Weighted average common shares outstanding (in thousands) | 179,156 | | 195,583 | | 181,946 | | 196,149 |
| Net earnings per common share | $ | 1.05 | | $ | 0.95 | | $ | 2.15 | | $ | 2.11 |
| Diluted: | | | | | | | |
| Total earnings applicable to common shares | $ | 188 | | $ | 186 | | $ | 392 | | $ | 414 |
| Weighted average common shares outstanding (in thousands) | 179,156 | | 195,583 | | 181,946 | | 196,149 |
| Dilutive effect of common stock warrants (in thousands) | 9,318 | | 12,640 | | 9,587 | | 12,627 |
| Dilutive effect of stock options (in thousands) | 624 | | 1,024 | | 673 | | 1,083 |
| Weighted average diluted common shares outstanding (in thousands) | 189,098 | | 209,247 | | 192,206 | | 209,859 |
| Net earnings per common share | $ | 0.99 | | $ | 0.89 | | $ | 2.04 | | $ | 1.97 |
The following schedule presents the weighted average stock awards that were anti-dilutive and not included in our acquisitionthe calculation of the remaining interest in a less significant subsidiary. We evaluate deferred tax assets on a regular basis to determine whether an additional valuation allowance is required. Based on this evaluation, and considering the weight of the positive evidence compared to the negative evidence, we have concluded that an additional valuation allowance is not required as of September 30, 2017.diluted earnings per share.
| | | | | | | | | | | | | | | | | | | | | | | |
| Three Months Ended
June 30, | | | | Six Months Ended
June 30, | | |
| (In thousands) | 2019 | | 2018 | | 2019 | | 2018 |
| | | | | | | |
| Restricted stock and restricted stock units | 1,446 | | 1,709 | | 1,435 | | 1,733 |
| Stock options | 492 | | 194 | | 411 | | 120 |
| |
12. | OPERATING SEGMENT INFORMATION |
15. OPERATING SEGMENT INFORMATION
We manage our operations and prepare management reports and other information with a primary focus on geographical area. Our banking operations are managed under their own individual brand names, including Zions
ZIONS BANCORPORATION, NATIONAL ASSOCIATION AND SUBSIDIARIES
Bank, Amegy Bank, California Bank & Trust, National Bank of Arizona, Nevada State Bank, Vectra Bank Colorado, and The Commerce Bank of Washington. Performance assessment and resource allocation are based upon this geographical structure. We use an internal funds transfer pricing (“FTP”) allocation system to report results of operations for business segments. This process continues to beis continually refined. Total average loans and deposits presented for the banking segments do not include insignificant intercompany amounts between banking segments butand may also include deposits with the Other segment. Prior period amounts have been reclassified to reflect these changes.
As of SeptemberJune 30, 2017,2019, our banking business is conducted through 7 locally managed and branded segments in distinct geographical areas. Zions Bank operates 98 branches in Utah, 2324 branches in Idaho, and one branch in Wyoming. Amegy operates 7374 branches in Texas. CB&T operates 9287 branches in California. NBAZ operates 58 branches in Arizona. NSB operates 50 branches in Nevada. Vectra operates 36 branches in Colorado and one branch in New Mexico. TCBW operates one branchtwo branches in Washington and one branch in Oregon.
The operating segment identified as “Other” includes the Parent, Zions Management Services Company, certain nonbanknon-bank financial service subsidiaries, centralized back-office functions, and eliminations of transactions between segments. The major components of net interest income at the Bank’s back officeback-office include the revenue associated with the investments securities portfolio and the offset of the FTP costs and benefits provided to the business segments. Throughout 2016 consolidation efforts continued, which resulted in transitioning full-time equivalents from the business segments to the Company’s back-office units. Due to the continuing nature and timing of this change, the Company’s back-office units retained more direct expenses in 2016 than in prior years. In the first quarter of 2017 we made changes to the FTP process and internal allocation of central expenses to better reflect the performance of business segments. Prior period amounts have been revised to reflect the impact of these changes had they been instituted in 2016.
The following schedule does not present total assets or income tax expense for each operating segment, but instead presents average loans, average deposits and income before income taxes because these are the metrics that management uses when evaluating performance and making decisions pertaining to the operating segments. The Parent’sBank’s net interest income includes interest expense on other borrowed funds. The condensed statement of income
ZIONS BANCORPORATION AND SUBSIDIARIES
identifies the components of income and expense which affect the operating amounts presented in the Other segment.
The accounting policies of the individual operating segments are the same as those of the Company.Bank. Transactions between operating segments are primarily conducted at fair value, resulting in profits that are eliminated for reporting consolidated results of operations.
The following schedule presents selected operating segment information for the three months ended SeptemberJune 30, 20172019 and 2016:2018: | | | | | | | | | | | | | | | | | | | | | | | | Zions Bank | | | Amegy | | | CB&T | |
| (In millions) | Zions Bank | | Amegy | | CB&T | | NBAZ | | NSB | (In millions) | 2019 | | 2018 | | 2019 | | 2018 | | 2019 | | 2018 |
| | 2017 | | 2016 | | 2017 | | 2016 | | 2017 | | 2016 | | 2017 | | 2016 | | 2017 | | 2016 | |
| SELECTED INCOME STATEMENT DATA | SELECTED INCOME STATEMENT DATA | | | | | | | | | | | | | | | SELECTED INCOME STATEMENT DATA | | | | | | | | | | | |
| Net interest income | $ | 164 |
| | $ | 157 |
| | $ | 122 |
| | $ | 114 |
| | $ | 118 |
| | $ | 110 |
| | $ | 53 |
| | $ | 48 |
| | $ | 34 |
| | $ | 31 |
| Net interest income | $ | 179 | | $ | 176 | | $ | 132 | | $ | 127 | | $ | 140 | | $ | 131 |
| Provision for loan losses | (15 | ) | | (1 | ) | | 33 |
| | 24 |
| | (4 | ) | | (2 | ) | | (8 | ) | | — |
| | (3 | ) | | (4 | ) | |
| Provision for credit losses | | Provision for credit losses | 16 | | 5 | | (8) | | (6) | | 9 | | 2 |
| Net interest income after provision for loan losses | 179 |
| | 158 |
| | 89 |
| | 90 |
| | 122 |
| | 112 |
| | 61 |
| | 48 |
| | 37 |
| | 35 |
| Net interest income after provision for loan losses | 163 | | 171 | | 140 | | 133 | | 131 | | 129 |
| Noninterest income | 39 |
| | 39 |
| | 28 |
| | 32 |
| | 20 |
| | 18 |
| | 10 |
| | 11 |
| | 11 |
| | 10 |
| Noninterest income | 39 | | 38 | | 34 | | 31 | | 22 | | 19 |
| Noninterest expense | 107 |
| | 108 |
| | 86 |
| | 75 |
| | 74 |
| | 75 |
| | 38 |
| | 36 |
| | 35 |
| | 34 |
| Noninterest expense | 120 | | 117 | | 86 | | 86 | | 82 | | 76 |
| Income (loss) before income taxes | $ | 111 |
| | $ | 89 |
| | $ | 31 |
| | $ | 47 |
| | $ | 68 |
| | $ | 55 |
| | $ | 33 |
| | $ | 23 |
| | $ | 13 |
| | $ | 11 |
| Income (loss) before income taxes | $ | 82 | | $ | 92 | | $ | 88 | | $ | 78 | | $ | 71 | | $ | 72 |
| SELECTED AVERAGE BALANCE SHEET DATA | SELECTED AVERAGE BALANCE SHEET DATA | | | | | | | | | | | | | | | SELECTED AVERAGE BALANCE SHEET DATA | | | | | | | | | | | |
| Total loans | $ | 12,543 |
| | $ | 12,629 |
| | $ | 11,170 |
| | $ | 10,666 |
| | $ | 9,575 |
| | $ | 9,341 |
| | $ | 4,267 |
| | $ | 4,156 |
| | $ | 2,347 |
| | $ | 2,288 |
| |
| Total deposits | 15,773 |
| | 15,948 |
| | 10,862 |
| | 11,068 |
| | 11,021 |
| | 10,929 |
| | 4,816 |
| | 4,632 |
| | 4,276 |
| | 4,223 |
| |
| (In millions) | Vectra | | TCBW | | Other | | Consolidated Company | | | | | |
| Total average loans | | Total average loans | $ | 13,067 | | $ | 12,633 | | $ | 12,254 | | $ | 11,387 | | $ | 10,838 | | $ | 9,908 |
| Total average deposits | | Total average deposits | 15,455 | | 15,346 | | 11,361 | | 11,060 | | 11,412 | | 11,181 |
| | 2017 | | 2016 | | 2017 | | 2016 | | 2017 | | 2016 | | 2017 | | 2016 | | | | | |
| SELECTED INCOME STATEMENT DATA | | | | | | | | | | | | | | | |
| Net interest income | $ | 32 |
| | $ | 31 |
| | $ | 12 |
| | $ | 10 |
| | $ | (13 | ) | | $ | (32 | ) | | $ | 522 |
| | $ | 469 |
| | | | | |
| Provision for loan losses | — |
| | 2 |
| | 3 |
| | — |
| | (1 | ) | | — |
| | 5 |
| | 19 |
| | | | | |
| Net interest income after provision for loan losses | 32 |
| | 29 |
| | 9 |
| | 10 |
| | (12 | ) | | (32 | ) | | 517 |
| | 450 |
| | | | | |
| Noninterest income | 7 |
| | 6 |
| | 1 |
| | 1 |
| | 23 |
| | 28 |
| | 139 |
| | 145 |
| | | | | |
| Noninterest expense | 25 |
| | 25 |
| | 5 |
| | 5 |
| | 43 |
| | 45 |
| | 413 |
| | 403 |
| | | | | |
| Income (loss) before income taxes | $ | 14 |
| | $ | 10 |
| | $ | 5 |
| | $ | 6 |
| | $ | (32 | ) | | $ | (49 | ) | | $ | 243 |
| | $ | 192 |
| | | | | |
| SELECTED AVERAGE BALANCE SHEET DATA | | | | | | | | | | | | | | | |
| Total loans | $ | 2,683 |
| | $ | 2,489 |
| | $ | 939 |
| | $ | 796 |
| | $ | 308 |
| | $ | 122 |
| | $ | 43,832 |
| | $ | 42,487 |
| | | | | |
| Total deposits | 2,757 |
| | 2,663 |
| | 1,098 |
| | 1,010 |
| | 1,318 |
| | 202 |
| | 51,921 |
| | 50,675 |
| | | | | |
ZIONS BANCORPORATION, NATIONAL ASSOCIATION AND SUBSIDIARIES
| | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | |
| NBAZ | | | | NSB | | | | Vectra | | |
| (In millions) | 2019 | | 2018 | | 2019 | | 2018 | | 2019 | | 2018 |
| SELECTED INCOME STATEMENT DATA | | | | | | | | | | | |
| Net interest income | $ | 62 | | $ | 58 | | $ | 40 | | $ | 38 | | $ | 36 | | $ | 34 |
| Provision for credit losses | 2 | | 7 | | — | | — | | 1 | | 2 |
| Net interest income after provision for loan losses | 60 | | 51 | | 40 | | 38 | | 35 | | 32 |
| Noninterest income | 11 | | 10 | | 11 | | 10 | | 6 | | 6 |
| Noninterest expense | 38 | | 38 | | 37 | | 36 | | 27 | | 25 |
| Income (loss) before income taxes | $ | 33 | | $ | 23 | | $ | 14 | | $ | 12 | | $ | 14 | | $ | 13 |
| SELECTED AVERAGE BALANCE SHEET DATA | | | | | | | | | | | |
| Total average loans | $ | 4,847 | | $ | 4,640 | | $ | 2,570 | | $ | 2,349 | | $ | 3,105 | | $ | 2,881 |
| Total average deposits | 5,048 | | 4,942 | | 4,406 | | 4,314 | | 2,811 | | 2,784 |
| | | | | | | | | | | |
| TCBW | | | | Other | | | | Consolidated Bank | | |
| (In millions) | 2019 | | 2018 | | 2019 | | 2018 | | 2019 | | 2018 |
| SELECTED INCOME STATEMENT DATA | | | | | | | | | | | |
| Net interest income | $ | 14 | | $ | 12 | | $ | (34) | | $ | (28) | | $ | 569 | | $ | 548 |
| Provision for credit losses | 2 | | 1 | | (1) | | 1 | | 21 | | 12 |
| Net interest income after provision for loan losses | 12 | | 11 | | (33) | | (29) | | 548 | | 536 |
| Noninterest income | 1 | | 1 | | 8 | | 23 | | 132 | | 138 |
| Noninterest expense | 5 | | 5 | | 29 | | 38 | | 424 | | 421 |
| Income (loss) before income taxes | $ | 8 | | $ | 7 | | $ | (54) | | $ | (44) | | $ | 256 | | $ | 253 |
| SELECTED AVERAGE BALANCE SHEET DATA | | | | | | | | | | | |
| Total average loans | $ | 1,203 | | $ | 1,117 | | $ | 440 | | $ | 327 | | $ | 48,324 | | $ | 45,242 |
| Total average deposits | 1,053 | | 1,048 | | 2,801 | | 2,221 | | 54,347 | | 52,896 |
The following schedule presents selected operating segment information for the ninesix months ended SeptemberJune 30, 20172019 and 2016:2018:
| | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | |
| Zions Bank | | | | Amegy | | | | CB&T | | |
| (In millions) | 2019 | | 2018 | | 2019 | | 2018 | | 2019 | | 2018 |
| SELECTED INCOME STATEMENT DATA | | | | | | | | | | | |
| Net interest income | $ | 358 | | $ | 342 | | $ | 263 | | $ | 254 | | $ | 278 | | $ | 262 |
| Provision for loan losses | 26 | | 3 | | (23) | | (59) | | 12 | | 5 |
| Net interest income after provision for loan losses | 332 | | 339 | | 286 | | 313 | | 266 | | 257 |
| Noninterest income | 72 | | 73 | | 68 | | 64 | | 41 | | 40 |
| Noninterest expense | 237 | | 231 | | 174 | | 173 | | 164 | | 154 |
| Income (loss) before income taxes | $ | 167 | | $ | 181 | | $ | 180 | | $ | 204 | | $ | 143 | | $ | 143 |
| SELECTED AVERAGE BALANCE SHEET DATA | | | | | | | | | | | |
| Total average loans | $ | 13,004 | | $ | 12,543 | | $ | 12,058 | | $ | 11,379 | | $ | 10,707 | | $ | 9,919 |
| Total average deposits | 15,490 | | 15,211 | | 11,401 | | 10,938 | | 11,328 | | 11,150 |
| | | | | | | | | | | |
| NBAZ | | | | NSB | | | | Vectra | | |
| (In millions) | 2019 | | 2018 | | 2019 | | 2018 | | 2019 | | 2018 |
| SELECTED INCOME STATEMENT DATA | | | | | | | | | | | |
| Net interest income | $ | 122 | | $ | 111 | | $ | 80 | | $ | 73 | | $ | 72 | | $ | 66 |
| Provision for credit losses | 4 | | 9 | | (1) | | — | | 5 | | 5 |
| Net interest income after provision for loan losses | 118 | | 102 | | 81 | | 73 | | 67 | | 61 |
| Noninterest income | 21 | | 19 | | 21 | | 20 | | 12 | | 12 |
| Noninterest expense | 78 | | 75 | | 73 | | 72 | | 54 | | 52 |
| Income (loss) before income taxes | $ | 61 | | $ | 46 | | $ | 29 | | $ | 21 | | $ | 25 | | $ | 21 |
| SELECTED AVERAGE BALANCE SHEET DATA | | | | | | | | | | | |
| Total average loans | $ | 4,798 | | $ | 4,591 | | $ | 2,535 | | $ | 2,349 | | $ | 3,080 | | $ | 2,837 |
| Total average deposits | 4,972 | | 4,863 | | 4,368 | | 4,269 | | 2,816 | | 2,748 |
| | | | | | | | | | | |
ZIONS BANCORPORATION, NATIONAL ASSOCIATION AND SUBSIDIARIES
| | | | | | | | | | | | | | | | | | | | | | | | TCBW | | | Other | | | Consolidated Bank | |
| (In millions) | Zions Bank | | Amegy | | CB&T | | NBAZ | | NSB | (In millions) | 2019 | | 2018 | | 2019 | | 2018 | | 2019 | | 2018 |
| | 2017 | | 2016 | | 2017 | | 2016 | | 2017 | | 2016 | | 2017 | | 2016 | | 2017 | | 2016 | |
| SELECTED INCOME STATEMENT DATA | SELECTED INCOME STATEMENT DATA | | | | | | | | | | | | | | | SELECTED INCOME STATEMENT DATA | | | | | | | | | | | |
| Net interest income | $ | 483 |
| | $ | 462 |
| | $ | 359 |
| | $ | 344 |
| | $ | 351 |
| | $ | 322 |
| | $ | 153 |
| | $ | 140 |
| | $ | 98 |
| | $ | 91 |
| Net interest income | $ | 28 | | $ | 24 | | $ | (56) | | $ | (42) | | $ | 1,145 | | $ | 1,090 |
| Provision for loan losses | 18 |
| | (31 | ) | | 41 |
| | 159 |
| | (10 | ) | | (1 | ) | | (7 | ) | | 2 |
| | (8 | ) | | (29 | ) | |
| Provision for credit losses | | Provision for credit losses | 2 | | 2 | | — | | — | | 25 | | (35) |
| Net interest income after provision for loan losses | 465 |
| | 493 |
| | 318 |
| | 185 |
| | 361 |
| | 323 |
| | 160 |
| | 138 |
| | 106 |
| | 120 |
| Net interest income after provision for loan losses | 26 | | 22 | | (56) | | (42) | | 1,120 | | 1,125 |
| Noninterest income | 112 |
| | 112 |
| | 87 |
| | 90 |
| | 56 |
| | 51 |
| | 29 |
| | 30 |
| | 30 |
| | 29 |
| Noninterest income | 2 | | 3 | | 27 | | 45 | | 264 | | 276 |
| Noninterest expense | 327 |
| | 320 |
| | 259 |
| | 244 |
| | 225 |
| | 221 |
| | 111 |
| | 109 |
| | 105 |
| | 104 |
| Noninterest expense | 11 | | 11 | | 63 | | 72 | | 854 | | 840 |
| Income (loss) before income taxes | $ | 250 |
| | $ | 285 |
| | $ | 146 |
| | $ | 31 |
| | $ | 192 |
| | $ | 153 |
| | $ | 78 |
| | $ | 59 |
| | $ | 31 |
| | $ | 45 |
| Income (loss) before income taxes | $ | 17 | | $ | 14 | | $ | (92) | | $ | (69) | | $ | 530 | | $ | 561 |
| SELECTED AVERAGE BALANCE SHEET DATA | SELECTED AVERAGE BALANCE SHEET DATA | | | | | | | | | | | | | | | SELECTED AVERAGE BALANCE SHEET DATA | | | | | | | | | | | |
| Total loans | $ | 12,505 |
| | $ | 12,512 |
| | $ | 10,890 |
| | $ | 10,599 |
| | $ | 9,453 |
| | $ | 9,170 |
| | $ | 4,258 |
| | $ | 4,010 |
| | $ | 2,352 |
| | $ | 2,275 |
| |
| Total deposits | 16,001 |
| | 15,866 |
| | 11,131 |
| | 11,100 |
| | 10,953 |
| | 10,764 |
| | 4,747 |
| | 4,553 |
| | 4,240 |
| | 4,113 |
| |
| (In millions) | Vectra | | TCBW | | Other | | Consolidated Company | | | | | |
| | 2017 | | 2016 | | 2017 | | 2016 | | 2017 | | 2016 | | 2017 | | 2016 | | | | | |
| SELECTED INCOME STATEMENT DATA | | | | | | | | | | | | | | | |
| Net interest income | $ | 93 |
| | $ | 90 |
| | $ | 34 |
| | $ | 28 |
| | $ | (32 | ) | | $ | (91 | ) | | $ | 1,539 |
| | $ | 1,386 |
| | | | | |
| Provision for loan losses | — |
| | (4 | ) | | 2 |
| | — |
| | (1 | ) | | (1 | ) | | 35 |
| | 95 |
| | | | | |
| Net interest income after provision for loan losses | 93 |
| | 94 |
| | 32 |
| | 28 |
| | (31 | ) | | (90 | ) | | 1,504 |
| | 1,291 |
| | | | | |
| Noninterest income | 19 |
| | 17 |
| | 3 |
| | 3 |
| | 68 |
| | 56 |
| | 404 |
| | 388 |
| | | | | |
| Noninterest expense | 75 |
| | 73 |
| | 16 |
| | 15 |
| | 114 |
| | 95 |
| | 1,232 |
| | 1,181 |
| | | | | |
| Income (loss) before income taxes | $ | 37 |
| | $ | 38 |
| | $ | 19 |
| | $ | 16 |
| | $ | (77 | ) | | $ | (129 | ) | | $ | 676 |
| | $ | 498 |
| | | | | |
| SELECTED AVERAGE BALANCE SHEET DATA | | | | | | | | | | | | | | | |
| Total loans | $ | 2,607 |
| | $ | 2,453 |
| | $ | 909 |
| | $ | 769 |
| | $ | 244 |
| | $ | 80 |
| | $ | 43,218 |
| | $ | 41,868 |
| | | | | |
| Total deposits | 2,758 |
| | 2,704 |
| | 1,098 |
| | 970 |
| | 1,227 |
| | (8 | ) | | 52,155 |
| | 50,062 |
| | | | | |
| Total average loans | | Total average loans | $ | 1,156 | | $ | 1,135 | | $ | 412 | | $ | 301 | | $ | 47,750 | | $ | 45,054 |
| Total average deposits | | Total average deposits | 1,064 | | 1,060 | | 2,694 | | 2,208 | | 54,133 | | 52,447 |
| |
ITEM 3. | QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK |
ITEM 3. QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK
Interest rate and market risks are among the most significant risks regularly undertaken by us, and they are closely monitored as previously discussed. A discussion regarding our management of interest rate and market risk is included in the section entitled “Interest Rate and Market Risk Management” in this Form 10-Q.
| |
ITEM 4. | CONTROLS AND PROCEDURES |
ITEM 4. CONTROLS AND PROCEDURES
The Company’sBank’s management, with the participation of the Company’sBank’s Chief Executive Officer and Chief Financial Officer, has evaluated the effectiveness of the Company’sBank’s disclosure controls and procedures as of SeptemberJune 30, 2017.2019. Based on that evaluation, the Company’sBank’s Chief Executive Officer and Chief Financial Officer concluded that the Company’sBank’s disclosure controls and procedures were effective as of SeptemberJune 30, 2017.2019. There were no changes in the Company’sBank’s internal control over financial reporting during the thirdsecond quarter of 20172019 that have materially affected, or are reasonably likely to materially affect, the Company’sBank’s internal control over financial reporting.
| |
PART II. | OTHER INFORMATION |
PART II. OTHER INFORMATION ITEM 1. LEGAL PROCEEDINGS
The information contained in Note 910 of the Notes to Consolidated Financial Statements is incorporated by reference herein.
ZIONS BANCORPORATION AND SUBSIDIARIES
We believe there have been no material changes in the risk factors included in Zions Bancorporation’s 2016Bancorporation, National Association’s 2018 Annual Report on Form 10-K.
| |
ITEM 2. | UNREGISTERED SALES OF EQUITY SECURITIES AND USE OF PROCEEDS |
ZIONS BANCORPORATION, NATIONAL ASSOCIATION AND SUBSIDIARIES
ITEM 2. UNREGISTERED SALES OF EQUITY SECURITIES AND USE OF PROCEEDS
The following schedule summarizes the Company’sBank’s share repurchases for the thirdsecond quarter of 2017:2019:
SHARE REPURCHASES
| | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | |
| Period | | Total number of shares repurchased 1 | | | | Average
price paid
per share | | Total number of shares purchased as part of publicly announced plans or programs | | | | Approximate dollar value of shares that may yet be
purchased under the plan (in millions) | | |
| | | | | | | | | | | | | | |
| April | | | 461,768 | | | $ | 49.38 | | | 461,000 | | | | $ | 252 | |
| May | | | 5,395,284 | | | 46.86 | | | 5,383,746 | | | | — | |
| June | | | — | | | — | | | — | | | | — | |
| Second quarter | | | 5,857,052 | | | 47.05 | | | 5,844,746 | | | | | |
1 Represents common shares acquired under previously reported share repurchase plans and common shares acquired from employees in connection with our stock compensation plan. Shares were acquired from employees to pay for their payroll taxes and stock option exercise cost upon the vesting of restricted stock and the exercise of stock options, under provisions of an employee share-based compensation plan.
ITEM 6. EXHIBITS
|
| | | | | | | | | | | | | | | | | | | | |
| Period | | Total��number of shares repurchased 1 | | Average price paid per share | | Total number of shares purchased as part of publicly announced plans or programs | | Approximate dollar value of shares that may yet be purchased under the plan |
| | | | | | | | | | | | | | | |
| July | | | 504,117 |
| | | $ | 45.32 |
| | | 502,400 |
| | | | $ | 442,230,302 |
| |
| August | | | 2,034,567 |
| | | 45.38 |
| | | 2,027,832 |
| | | | 350,000,045 |
| |
| September | | | 508 |
| | | 45.89 |
| | | — |
| | | | 350,000,045 |
| |
| Third quarter | | | 2,539,192 |
| | | 45.45 |
| | | 2,530,232 |
| | | | | |
| | | | | | | | | | | |
Exhibit
Number | | Description | |
| | | |
| 3.1 | | Second Amended and Restated Articles of Association of Zions Bancorporation, National Association, incorporated by reference to Exhibit 3.1 of Form 8-K filed on October 2, 2018. | * |
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| 3.2 | | Second Amended and Restated Bylaws of Zions Bancorporation, National Association, incorporated by reference to Exhibit 3.2 of Form 8-K filed on April 4, 2019. | * |
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| Represents common shares acquired from employees in connection with our stock compensation plan in addition | Third Amendment to shares acquired under previously reported share repurchase plans. Shares were acquired from employees to pay for their payroll taxesthe Zions Bancorporation Payshelter 401(k) and stock option exercise cost upon the vesting of restricted stock and restricted stock units, and the exercise of stock options, under provisions of an employee share-based compensation plan.Employee Stock Ownership Plan, dated June 27, 2019, effective September 30, 2018 (filed herewith). |
ZIONS BANCORPORATION AND SUBSIDIARIES
a)Exhibits
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Exhibit
| | Description | |
| | | |
| | Restated Articles of Incorporation of Zions Bancorporation dated July 8, 2014, incorporated by reference to Exhibit 3.1 of Form 8-K/A filed on July 18, 2014. | * |
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| | Restated Bylaws of Zions Bancorporation dated February 27, 2015, incorporated by reference to Exhibit 3.2 of Form 10-Q for the quarter ended March 31, 2015. | * |
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| | Certification by Chief Executive Officer required by Rules 13a-15(f) and 15d-15(f) under the Securities Exchange Act of 1934 (filed herewith). | |
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| | Certification by Chief Financial Officer required by Rules 13a-15(f) and 15d-15(f) under the Securities Exchange Act of 1934 (filed herewith). | |
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| | Certification by Chief Executive Officer and Chief Financial Officer required by Sections 13(a) or 15(d), as applicable, of the Securities Exchange Act of 1934 (15 U.S.C. 78m) and 18 U.S.C. Section 1350 (furnished herewith). | |
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| 101 | | Interactive data files pursuantPursuant to RuleRules 405 and 406 of Regulation S-T:S-T, the following information is formatted in iXBRL (Inline eXtensible Business Reporting Language): (i) the Consolidated Balance Sheets as of SeptemberJune 30, 20172019 and December 31, 2016,2018, (ii) the Consolidated Statements of Income for the three months ended SeptemberJune 30, 20172019 and SeptemberJune 30, 20162018 and the ninesix months ended SeptemberJune 30, 20172019 and SeptemberJune 30, 2016,2018, (iii) the Consolidated Statements of Comprehensive Income for the three months ended SeptemberJune 30, 20172019 and SeptemberJune 30, 20162018 and the ninesix months ended SeptemberJune 30, 20172019 and SeptemberJune 30, 2016,2018, (iv) the Consolidated Statements of Changes in Shareholders’ Equity for the ninethree months ended SeptemberJune 30, 20172019 and SeptemberJune 30, 2016,2018 and the six months ended June 30, 2019 and June 30, 2018, (v) the Consolidated Statements of Cash Flows for the threesix months ended SeptemberJune 30, 20172019 and SeptemberJune 30, 2016 and the nine months ended September 30, 2017 and September 30, 20162018 and (vi) the Notes to Consolidated Financial Statements (filed herewith).
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* Incorporated by reference
Pursuant to Item 601(b)(4)(iii)(A) of Regulation S-K, copies of certain instruments defining the rights of holders of long-term debt are not filed. The Bank agrees to furnish a copy thereof to the Securities and Exchange Commission and the Office of the Comptroller of the Currency upon request.
ZIONS BANCORPORATION, NATIONAL ASSOCIATION AND SUBSIDIARIES
SIGNATURES
Pursuant to the requirements of the Securities Exchange Act of 1934, the registrant has duly caused this report to be signed on its behalf by the undersigned thereunto duly authorized.
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| ZIONS BANCORPORATION, NATIONAL ASSOCIATION |
ZIONS BANCORPORATION |
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| /s/ Harris H. Simmons |
Harris H. Simmons, Chairman and
Chief Executive Officer
|
|
| /s/ Paul E. Burdiss |
| Paul E. Burdiss, Executive Vice President and Chief Financial Officer |
Date: November 8, 2017
August 6, 2019