0000109380zions:A335SeniorNotesMemberus-gaap:SeniorNotesMember2020-04-012020-06-30
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, 20172020 OR
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 Symbols | Name of Each Exchange on Which Registered |
| Common Stock, par value $0.001 | ZION | 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 | ZIONP | The NASDAQ Stock Market LLC |
| Series G Fixed/Floating-Rate Non-Cumulative Perpetual Preferred Stock | ZIONO | The NASDAQ Stock Market LLC |
| Series H 5.75% Non-Cumulative Perpetual Preferred Stock | ZIONN | The NASDAQ Stock Market LLC |
| 6.95% Fixed-to-Floating Rate Subordinated Notes due September 15, 2028 | ZIONL | The NASDAQ Stock Market LLC |
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 29, 2020 163,980,710 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 this Quarterly ReportThis 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 concerning the potential effects of the COVID-19 pandemic on the Bank's businesses and financial results and condition; 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.
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’seffect of the COVID-19 pandemic, and other infectious illness outbreaks that may arise in the future, on the Bank’s customers, businesses, liquidity, financial results and overall condition and which has created significant uncertainties in U.S. and global markets;
•changes in governmental policy and regulation, including measures taken in response to economic, business, political and social conditions, such as the Small Business Administration’s (“SBA”) Paycheck Protection Program (“PPP”), the Federal Reserve Board's efforts to provide liquidity to the financial system and provide credit to private commercial and municipal borrowers, and other programs designed to address the effects of the COVID-19 pandemic;
•the Bank's participation as a lender in the PPP and similar programs and its effect on the Bank's liquidity, financial results, businesses and customers, including the availability of program funds and the ability of customers to comply with requirements and otherwise perform with respect to loans obtained under such programs;
•the Bank’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 StatesU. S. and other countries, and other major developments, including wars, military actions, and terrorist attacks;
ZIONS BANCORPORATION, NATIONAL ASSOCIATION AND SUBSIDIARIES
•changes in business, 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, particularly with respect to the effects on the economy and the Bank’s customers, businesses, and financial results of segments subject to high volatility and stress that may be exacerbated by the COVID-19 pandemic, such as the recent sudden decreases in oil and gas prices;
•changes in markets for equity, fixed income, commercial paperfixed-income, 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;
•uncertainty regarding the future of the London Interbank Offered Rate ("LIBOR"), and the potential transition away from LIBOR toward new benchmark interest rates;
•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 2019 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•the Bank’s implementation of new technologies, including its core deposit system, to remain competitive.
ZIONS BANCORPORATION, NATIONAL ASSOCIATION AND SUBSIDIARIES
Further, statements about the potential effects of the COVID-19 pandemic on the Bank’s businesses and financial results and condition may constitute forward-looking statements and are subject to the risk that the actual effects may differ, possibly materially, from what is reflected in those forward-looking statements due to factors and future developments that are uncertain, unpredictable and in many cases beyond the Bank’s control, including the scope and duration of the pandemic, actions taken by governmental authorities in response to the pandemic, and the direct and indirect impact of the pandemic on the Bank, its customers and third parties.
We caution against the undue reliance on forward-looking statements, which adversely affectreflect our views only as of the Company’s operations or business;
the Company’s ability to comply with applicable laws and regulations;
changes in accounting policies or procedures as may be required by the FASB or regulatory agencies; and
costs of deposit insurance and changes with respect to FDIC insurance coverage levels.
date they are made. 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 | CSVGAAP | Cash Surrender ValueGenerally Accepted Accounting Principles |
| AFS | Available-for-Sale | DFASTHECL | Dodd-Frank Act Stress TestHome Equity Credit Line |
| ALCO | Asset/Liability Committee | HTM | Held-to-Maturity |
| ALLL | Allowance for Loan and Lease Losses | IMG | International Manufacturing Group |
| ALM | Asset Liability Management | LIBOR | London Interbank Offered Rate |
| Amegy | Amegy Bank, a division of Zions Bancorporation, National Association | MD&A | Management’s Discussion and Analysis |
| AOCI | Accumulated Other Comprehensive Income | Municipalities | State and Local Governments |
| ASC | Accounting Standards Codification | NASDAQ | National Association of Securities Dealers Automated Quotations |
| ASU | Accounting Standards Update | NBAZ | National Bank of Arizona, a division of Zions Bancorporation, National Association |
| bps | basis points | NIM | Net Interest Margin |
| CB&T | California Bank & Trust, a division of Zions Bancorporation, National Association | NSB | Nevada State Bank, a division of Zions Bancorporation, National Association |
| CECL | Current Expected Credit Loss | OCC | Office of the Comptroller of the Currency |
| CET1 | Common Equity Tier 1 (Basel III) | OCI | Other Comprehensive Income |
| CFPB | Consumer Financial Protection Bureau | OREO | Other Real Estate Owned |
| CLTV | Combined Loan-to-Value Ratio | OTTI | Other-Than-Temporary Impairment |
| COSO | Committee of Sponsoring Organizations of the Treadway Commission | PEI | Private Equity Investment |
| CRE | Commercial Real Estate | PPNR | Pre-provision Net Revenue |
| CVA | Credit Valuation Adjustment | PPP | Paycheck Protection Program |
| Dodd-Frank Act | Dodd-Frank Wall Street Reform and Consumer Protection Act | PPPLF | Payroll Protection Program Liquidity Facility |
ALLLDTA | Allowance for Loan and Lease Losses | DTA | Deferred Tax Asset | ROC | Risk Oversight Committee |
AmegyEaR | Amegy Bank, a division of ZB, N.A. | EaR | Earnings at Risk | ROU | Right-of-Use |
AOCIERM | Accumulated Other Comprehensive Income | EITF | Emerging Issues Task Force |
ASC | Accounting Standards Codification | ERM | Enterprise Risk Management | RULC | Reserve for Unfunded Lending Commitments |
ASUEVE | Accounting Standards Update | ERMC | Enterprise Risk Management Committee |
BHC | Bank Holding Company | EVE | Economic Value of Equity at Risk | S&P | Standard and Poor's |
BOLIFASB | Bank-Owned Life Insurance | FAMC | Federal Agricultural Mortgage Corporation, or “Farmer Mac” |
bps | basis points | FASB | Financial Accounting Standards Board | SBA | Small Business Administration |
CB&TFDIC | California Bank & Trust, a division of ZB, N.A. | FDIC | Federal Deposit Insurance Corporation | SBIC | Small Business Investment Company |
CCARFDICIA | Comprehensive Capital Analysis and Review | FDICIA | Federal Deposit Insurance Corporation Improvement Act | SEC | Securities and Exchange Commission |
CDFHLB | Certificate of Deposit | FHLB | Federal Home Loan Bank |
CET1 | Common Equity Tier 1 (Basel III)TCBW | 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 |
CMC | Capital Management Committee | GAAP | Generally Accepted Accounting Principles |
COSO | Committee of Sponsoring Organizations of the Treadway Commission | HCR | Horizontal Capital Review |
CRA | Community Reinvestment Act | HECL | Home Equity Credit Line |
CRE | Commercial Real Estate | 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 |
OCIFTP | Other Comprehensive IncomeFunds Transfer Pricing | TDR | Troubled Debt Restructuring |
ZIONS BANCORPORATION, NATIONAL ASSOCIATION AND SUBSIDIARIES
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OREOTier 1 | Other Real Estate OwnedCommon Equity Tier 1 (Basel III) and Additional Tier 1 Capital | VectraZions Bancorporation, N.A. | Zions Bancorporation, National Association |
| U.S. | United States | Zions Bank | Zions Bank, a division of Zions Bancorporation, National Association |
| Vectra | Vectra Bank Colorado, a division of ZB, N.A. |
OTTI | Other-Than-Temporary Impairment | ZB, N.A. | ZB,Zions Bancorporation, National Association |
Parent | Zions Bancorporation | Zions Bank | Zions Bank, a division of ZB, N.A. |
PCI | Purchased Credit-Impaired | ZMSC | Zions Management Services Company |
CRITICAL ACCOUNTING POLICIES AND SIGNIFICANT ESTIMATES
The Company has made no significant changes in its critical accounting policies and significant estimates from those disclosed in its 2016 Annual Report on Form 10-K.
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 about performance 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,
2020 | | March 31,
2020 | | December 31,
2019 | | June 30,
2019 |
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| Net earnings applicable to common shareholders (GAAP) | | $ | 57 | | | $ | 6 | | | $ | 174 | | | $ | 189 | |
| 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) | $ | 57 | | | $ | 6 | | | $ | 174 | | | $ | 189 | |
| Average common equity (GAAP) | | $ | 7,030 | | | $ | 6,924 | | | $ | 6,866 | | | $ | 6,988 | |
| Average goodwill and intangibles | | (1,014) | | | (1,014) | | | (1,014) | | | (1,014) | |
| Average tangible common equity (non-GAAP) | (b) | $ | 6,016 | | | $ | 5,910 | | | $ | 5,852 | | | $ | 5,974 | |
| Number of days in quarter | (c) | 91 | | | 91 | | | 92 | | | 91 | |
| Number of days in year | (d) | 366 | | | 366 | | | 365 | | | 365 | |
| Return on average tangible common equity (non-GAAP) | (a/b/c)*d | 3.8 | % | | 0.4 | % | | 11.8 | % | | 12.7 | % |
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,
2020 | | March 31,
2020 | | December 31,
2019 | | June 30,
2019 |
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| Total shareholders’ equity (GAAP) | | $ | 7,575 | | | $ | 7,472 | | | $ | 7,353 | | | $ | 7,599 | |
| Goodwill and intangibles | | (1,014) | | | (1,014) | | | (1,014) | | | (1,014) | |
| Tangible equity (non-GAAP) | (a) | 6,561 | | | 6,458 | | | 6,339 | | | 6,585 | |
| Preferred stock | | (566) | | | (566) | | | (566) | | | (566) | |
| Tangible common equity (non-GAAP) | (b) | $ | 5,995 | | | $ | 5,892 | | | $ | 5,773 | | | $ | 6,019 | |
| Total assets (GAAP) | | $ | 76,447 | | | $ | 71,467 | | | $ | 69,172 | | | $ | 70,065 | |
| Goodwill and intangibles | | (1,014) | | | (1,014) | | | (1,014) | | | (1,014) | |
| Tangible assets (non-GAAP) | (c) | $ | 75,433 | | | $ | 70,453 | | | $ | 68,158 | | | $ | 69,051 | |
| Common shares outstanding (thousands) | (d) | 163,978 | | | 163,852 | | | 165,057 | | | 176,935 | |
| Tangible equity ratio (non-GAAP) | (a/c) | 8.7 | % | | 9.2 | % | | 9.3 | % | | 9.5 | % |
| Tangible common equity ratio (non-GAAP) | (b/c) | 7.9 | % | | 8.4 | % | | 8.5 | % | | 8.7 | % |
| Tangible book value per common share (non-GAAP) | (b/d) | $ | 36.56 | | | $ | 35.96 | | | $ | 34.98 | | | $ | 34.02 | |
Efficiency Ratio and Adjusted Pre-Provision Net Revenue – this schedule also includes “adjusted noninterest expense,” “taxable-equivalent net interest income,” “adjusted taxable-equivalent revenue,” “pre-provision net revenue" (“PPNR”) and “adjusted pre-provision net revenue (“PPNR”).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 |
|
| 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,
2020 | | March 31,
2020 | | June 30,
2019 | | June 30,
2020 | | June 30,
2019 | | December 31,
2019 |
| | | | | | | | | | | | |
| Noninterest expense (GAAP) | (a) | $ | 430 | | | $ | 408 | | | $ | 424 | | | $ | 837 | | | $ | 854 | | | $ | 1,742 | |
| Adjustments: | | | | | | | | | | | | |
| Severance costs | | — | | | — | | | 1 | | | — | | | 1 | | | 25 | |
| Other real estate expense, net | | — | | | — | | | — | | | — | | | (1) | | | (3) | |
| | | | | | | | | | | | |
| Amortization of core deposit and other intangibles | | — | | | — | | | — | | | — | | | 1 | | | 1 | |
| Restructuring costs | | — | | | 1 | | | — | | | 1 | | | — | | | 15 | |
| Pension termination-related expense | | 28 | | | — | | | — | | | 28 | | | — | | | — | |
| Total adjustments | (b) | 28 | | | 1 | | | 1 | | | 29 | | | 1 | | | 38 | |
| Adjusted noninterest expense (non-GAAP) | (a-b)=(c) | $ | 402 | | | $ | 407 | | | $ | 423 | | | $ | 808 | | | $ | 853 | | | $ | 1,704 | |
| Net interest income (GAAP) | (d) | $ | 563 | | | $ | 548 | | | $ | 569 | | | $ | 1,111 | | | $ | 1,145 | | | $ | 2,272 | |
| Fully taxable-equivalent adjustments | (e) | 6 | | | 7 | | | 7 | | | 13 | | | 13 | | | 26 | |
| Taxable-equivalent net interest income (non-GAAP) | (d+e)=f | 569 | | | 555 | | | 576 | | | 1,124 | | | 1,158 | | | 2,298 | |
| Noninterest income (GAAP) | g | 117 | | | 134 | | | 132 | | | 250 | | | 264 | | | 562 | |
| Combined income (non-GAAP) | (f+g)=(h) | 686 | | | 689 | | | 708 | | | 1,374 | | | 1,422 | | | 2,860 | |
| Adjustments: | | | | | | | | | | | | |
| Fair value and nonhedge derivative loss | | (12) | | | (11) | | | (6) | | | (23) | | | (8) | | | (9) | |
| Securities gains (losses), net | | (4) | | | (6) | | | (3) | | | (9) | | | (2) | | | 3 | |
| Total adjustments | (i) | (16) | | | (17) | | | (9) | | | (32) | | | (10) | | | (6) | |
| Adjusted taxable-equivalent revenue (non-GAAP) | (h-i)=(j) | $ | 702 | | | $ | 706 | | | $ | 717 | | | $ | 1,406 | | | $ | 1,432 | | | $ | 2,866 | |
| Pre-provision net revenue (PPNR) (non-GAAP) | (h)-(a) | $ | 256 | | | $ | 281 | | | $ | 284 | | | $ | 537 | | | $ | 568 | | | $ | 1,118 | |
| Adjusted PPNR (non-GAAP) | (j)-(c) | 300 | | | 299 | | | 294 | | | 598 | | | 579 | | | 1,162 | |
| Efficiency ratio (non-GAAP) | (c/j) | 57.3 | % | | 57.7 | % | | 59.0 | % | | 57.5 | % | | 59.6 | % | | 59.5 | % |
|
| | | | | | | | | | | | | | | | | | | | | | | | |
| (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
The financial performance in the second quarter of 2020 reflected the continued deterioration in the economic environment due to the COVID-19 pandemic. The slowing of economic activity and rising unemployment rate contributed to a $168 million provision for credit losses. Rapidly decreasing interest rates drove our loan yields down more quickly than our deposit rates, leading to a 31 basis point decline in our net interest margin, which was 3.23% in the second quarter. The decline in the net interest margin was largely offset by strong loan and deposit growth, which were significantly assisted by the PPP. Core customer-related fee income was stable despite the economic weakness, while overall fee income was down due to declining values in our Small Business Investment Company portfolio and credit-related valuations in our customer interest rate swap exposure. Noninterest expenses were well controlled, due in part to the reductions in staff announced in late 2019, and also included a one-time pension plan termination-related expense of $28 million.
COVID-19 Pandemic
In the latter part of the first quarter of 2020, the COVID-19 pandemic manifested its impact on individuals, companies, and governments around the world. It has significantly curtailed the global economy and created a challenging operating environment. As economic conditions deteriorated in mid-March, we responded rapidly with some key modifications to adjust to the change in the operating environment:
•For our employees:
◦Enhanced the ability of our employees to work remotely, adjusting branch operating hours and restricting lobby access in many cases.
◦Provided significant support to employees by granting an increase in flexibility with paid leave, temporarily adjusting vacation policies, and increasing the cleaning of facilities to enable a safer environment for those employees who are not able to work from home.
◦Paid enhanced overtime for employees working on PPP loans and announced a $1,000 bonus to each of our employees with annualized compensation of less than $150,000 to be paid later this year.
•For our customers and communities:
◦Provided short-term loan payment and fee forbearance programs. Many borrowers requested and received temporary forbearance from obligations to assist them with the expected shortage in their near-term cash flow.
◦Moved certain offshore operations domestically to ensure that information security standards are met and that our customers are provided with the service and support they need.
◦Facilitated government programs. See "SBA Paycheck Protection Program" in this section for more information.
◦Provided support to our communities and we announced $30 million in future charitable contributions from the loan processing fees received from the PPP loans.
•For our shareholders and regulators:
◦Maintained our capital ratios at strong levels and materially augmented our allowance for credit losses ("ACL"), increased the ACL by $388 million, or 74%, since January 1, 2020.
◦Reduced costs where possible, which included reductions in incentive compensation linked to profitability and credit quality performance for certain executives.
ZIONS BANCORPORATION, NATIONAL ASSOCIATION AND SUBSIDIARIES
Select Industries with Elevated Risk Related to COVID-19
We believe select industries have elevated risk due to the COVID-19 pandemic, and as a result, we are more closely managing our credit exposure to these industries, including having completed detailed industry credit reviews during the quarter. The following chart shows $4.2 billion, or 8.6%, of the Bank's non-PPP loan balances as of June 30, 2020, in these select industries. Approximately 29% of these loans were modified or deferring payments, and 97% were secured by collateral. The oil and gas-related industry has also been affected by the COVID-19 pandemic and a resulting global imbalance of supply and demand. For more information see "Oil and Gas-Related Exposure" on page 25 of Management's Discussion and Analysis.
Line utilization for the COVID-19 selected industries declined approximately nine percentage points from March 31, 2020 to June 30, 2020. For information on loan modifications related to COVID-19 see "COVID-19 modifications" on page 30 of Management's Discussion and Analysis.
SBA's Paycheck Protection Program
During the second quarter of 2020, we provided assistance to many small businesses through the PPP. This program provides small businesses with funds to be used for certain expenses as defined by the SBA.
As of June 30, 2020, we had processed approximately $7 billion of PPP loans for more than 46,000 customers, which included more than 10,000 new customers. We are working diligently to solidify those new relationships. We ranked ninth by dollar volume of all the participating financial institutions, as disclosed by the SBA. Payments by borrowers on the loans will begin six months after the note date, while interest at 1%, will continue to accrue during the six-month deferment. Loans can be forgiven in whole or part (up to full principal and any accrued interest).
Loan processing fees paid to the Bank from the SBA are accounted for as loan origination fees. These fees, net of loan origination costs, are deferred and recognized over the life of the loan as a yield adjustment. If a loan is paid off or forgiven by the SBA prior to its maturity date, the remaining unamortized net deferred fees will be recognized in
ZIONS BANCORPORATION, NATIONAL ASSOCIATION AND SUBSIDIARIES
interest income at that time. As the PPP continues to evolve, changes to the loan terms and exercise of loan forgiveness may impact the effective yield.
Federal Reserve's Main Street Lending Program
We are a participant in the Federal Reserve's Main Street Lending Program to support lending to small and medium-sized businesses and nonprofit organizations that were in sound financial condition before the onset of the COVID-19 pandemic. As of June 30, 2020, we had not funded any loans under this program.
Second Quarter 2020 Financial Performance
| | | | | | | | | | | | | | | | | | | | |
Net Earnings Applicable to Common Shareholders
(in millions) | | Provision for Credit Losses (in millions) | | Adjusted PPNR
(in millions) | | Efficiency ratio |
| | | | | | | | | | | | | | | | | | | | |
| | | | | | |
| Net earnings decreased from the second quarter of 2019 to the second quarter of 2020 primarily from an increase in the provision for credit losses. The increase in net earnings from the first quarter of 2020 to the current period was primarily due to a lower provision for credit losses. | | The increased provision for credit losses in the first and second quarters of 2020 compared with the second quarter of 2019 is primarily due to experienced and expected economic deterioration caused by the COVID-19 pandemic and stress in the oil and gas-related sector. | | PPNR increased from both the first quarter of 2020 and the second quarter of 2019. The increase in adjusted PPNR from the same prior year period is primarily a result of a $21 million decrease in adjusted noninterest expense, partially offset by a $15 million decrease in adjusted taxable-equivalent revenue. | | Our efficiency ratio improved from both the first quarter of 2020 and the second quarter of 2019. The improvement from the same prior year period is a result of expense control, including a reduction in workforce during the fourth quarter of 2019. |
The Bank reported net earnings applicable to common shareholders for the third quarter of 2017 were $152$57 million, or $0.72$0.34 per diluted common share for the second quarter of 2020, compared with net earnings applicable to common shareholders of $154$189 million, or $0.73$0.99 per diluted common share for the second quarter of 2017, and $1172019.
During this time of economic uncertainty, we have materially strengthened our allowance for credit losses. Charge-offs were $31 million or $0.57 per diluted common share forduring the thirdsecond quarter of 2016. Interest income of $5572020, compared with $14 million in the third quarter of 2017 improved $66 million overduring the same prior year period, mainlyperiod.
We entered the current economic environment with a strong capital and reserve position, a robust liquidity profile, and a loan portfolio that has been substantially “de-risked” in recent years and that largely tends to have collateral as a secondary source of repayment – a characteristic that has historically resulted in lower loss rates per dollar of troubled loans.
Net income decreased by $132 million to $66 million in the second quarter of 2020 from $198 million in the second quarter of 2019, primarily due to growtha $147 million increase in our loansthe provision for credit losses, $28 million of expense related to the previously announced pension plan termination, and securities portfoliosa decrease of $15 million in total noninterest income. These decreases were partially offset by a $42 million reduction in income taxes, a $10 million increase in loan-related fees and short-term rate increases that positively impacted loan yields. income, and a $7 million decrease in salaries and employee benefits.
ZIONS BANCORPORATION, NATIONAL ASSOCIATION AND SUBSIDIARIES
Net income for the first six months of 2020 was $80 million, compared with $411 million for the first six months of 2019. The provision for credit losses increased by $401 million during this same time period to $426 million from $25 million and was the primary reason for the decrease in net income. Noninterest expense decreased $17 million while total noninterest income decreased $14 million during this same time period.
Net interest margin (“NIM”)income was 3.45%$563 million in the most recentsecond quarter of 2020 compared with 3.36%$569 million in the third quarter of 2016.
Performance Against Previously Announced Initiatives
In June 2015, we announced several initiatives to improve operational and financial performance along with some key financial targets. Our initiatives are designed to improve customer experience, to simplify the corporate structure and operations, and to make the Company a more efficient organization. Following is a brief discussion regarding 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, whichperiod. Interest income decreased by $89 million, but was 66.3%. Improvements in interest income from securities and loans, partially offset by increasesa decrease in adjustedinterest expense of $83 million. Both were impacted from lower benchmark interest rates. Interest income also benefited from loan growth of 13%, largely from PPP loans.
Adjusted PPNR of $300 million for the second quarter of 2020 was up $6 million, or 2%, from the second quarter of 2019. Adjusted noninterest expense resulteddecreased by $21 million in the significant improvement.same period, reflecting expense control and the reduction in workforce announced in October 2019. The Bank’s efficiency ratio was 57.3% in the second quarter of 2020 compared with 59.0% in the second quarter of 2019 and 57.7% in the first quarter of 2020. See “GAAP to Non-GAAP Reconciliations” on page 56 for more information regarding the calculation of the adjusted PPNR and the efficiency ratio and why management uses this non-GAAP measure.ratio.
Maintain adjusted noninterest expense at less than $1.58Our average loan portfolio increased $5.9 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%12%, from the thirdsecond quarter of 2016, primarily as a result2019, with PPP loans accounting for $5.0 billion, or 84% of increasesthe growth. The yield on average loans decreased by 102 bps, reflecting the decline in netbenchmark interest income. Although adjusted noninterest expense also increased overrates. Overall, from the same period, from $404 million in the thirdsecond quarter of 20162019 to $414 million in the most recent quarter, increases in income more than offset the increase in expense. The higher adjusted PPNR in the thirdsecond quarter of 2017,2020, classified loans increased by $707 million, or 92%, and nonaccrual loans increased by $91 million, or 37%. The ratio of net loan charge-offs to average loans was 0.23% for the second quarter of 2020, compared with 0.12% for the same prior year period, drove an improvement in the Company’s efficiency ratio from 65.9% in the thirdsecond quarter of 20162019. Unfunded lending commitments increased $0.9 billion, or 3.9%, to 62.3% in the current quarter. Year-to-date adjusted PPNR was $732 million in 2017$24.2 billion at June 30, 2020 from $23.3 billion at June 30, 2019.
At June 30, 2020, oil 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 5 for more information regarding the calculationgas-related loans represented 5% of adjusted PPNR.
Asset quality for the total loan portfolio, continues to strengthen. Classified and nonaccrual loans improved as a percentagecompared with 8% at December 31, 2014, or the beginning of outstanding balances by 97 bps and 27 bps, respectively, between the third quarterslast energy cycle. Since December 31, 2014, the mix of 2016 and 2017. In recent quarters, asset quality in our oil and gas-related portfolioloans has been substantially weaker than it has been in non-oilshifted toward lower risk loans and gas-related loans. At the same time, the Company has reduced its oil and gas-related exposure by $253 million since the third quarter of 2016 and oil prices 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 improvementsour underwriting standards for these loans 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, this growth has been widespread across most other products, with particular strength in 1-4 family residential, commercial and industrial, and municipal lending.
We continue to increase the return on and of capital. 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 $0.12 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 bystrengthened. For the second quarter of 2018,
ZIONS BANCORPORATION AND SUBSIDIARIES
2020, the classified oil and upgas-related loan ratio was 8.3%, there were no oil and gas-related net charge-offs, and the ACL related to $465 million in common stock repurchases.oil and gas-related loans was 5.7%. See “Capital Management”"Oil and Gas-Related Exposure" on page 3925 for moreadditional information regarding the 2017 capital plan.on oil and gas-related loans.
Challenges in the Third Quarter and the First Nine MonthsAreas of 2017focus for 2020
Noninterest expense increased to $413 million from $403 million for the same prior year period, representingWe started 2020 with 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 third quarter of 2016. Adjusted noninterest expense, which excludes severance and some other items as explained in the “GAAP to Non-GAAP Reconciliations” sectioncontinued focus on page 5, increased 2.5% over the same period. We expect to achieve our goal of limiting adjusted noninterest expense growth to 2-3% in 2017 when compared with 2016.
Further impacting noninterest expense during the third quarter of 2017 was $6 million of noninterest expenseinitiatives related to property damageBank profitability and communityreturns on- and employee supportof-equity as a result of Hurricane Harvey. Additionally, we provided a $34 million qualitative increasedetailed in our 2019 Annual Report on Form 10-K (see “Focus for 2020” in our 2019 Annual Report on
Form 10-K). More recently, with the allowance for credit losses (“ACL”) due to potential losseshuman and economic crises caused by the hurricane.COVID-19 pandemic, we are focusing on serving our customers, communities, and employees who have been negatively impacted by the COVID-19 pandemic, as previously discussed, as well as heightening our vigilance in managing emerging risks. We believe this focus will create the best long-term value for our shareholders.
Net Interest Income and Net Interest Margin
Net interest income is the difference between interest earned on interest-earning assets and interest paid on interest-bearing liabilities. Taxable-equivalent netliabilities and is more than three-quarters of our revenue. Net interest income is derived from both the largest portionvolume of our revenue. For the third quarter of 2017, taxable-equivalent netinterest-earning assets and interest-bearing liabilities and their respective yields/rates.
Net interest income was $531decreased $6 million compared with $537to $563 million forin the second quarter of 2017 and $4762020 from $569 million forin the thirdsecond quarter of 2016.2019. The linked quarter decrease was primarily due to $16 millionlower interest rates, with yields on loans and securities declining more than the rates paid on deposits and borrowed funds. The impact of lower interest income recoveriesrates was partially offset by loan growth, primarily PPP loans, and a shift in the prior quarter, which did not repeat. Between the third quarters of 2016 and 2017, taxable-equivalentliability balances from borrowed funds to lower-cost deposits.
The net interest income increased $55 million, which was driven by a larger securities portfolio, growthmargin (“NIM”) decreased to 3.23% 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. The increased NIM for the third quarter,2020, compared with 3.54% in the same prior year period resultedand 3.41% in the first quarter of 2020. The decrease in the NIM from the combinationsame prior year
ZIONS BANCORPORATION, NATIONAL ASSOCIATION AND SUBSIDIARIES
period was a result of lower yields on loans and securities, coupled with our loan growth. 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 borrowings to fund someby decreases in interest rates on deposits and other borrowed funds. Excluding the effect of the balance sheet growth. PPP loans, we expect that the NIM will remain under pressure over the next several quarters.
Average interest-earning assets increased $4.9$5.6 billion from the thirdsecond quarter of 2016,2019 to the second quarter of 2020, with average rates improving 15decreasing 83 bps. Average interest-bearing liabilities increased $3.9$0.4 billion over theduring this same period, while the average rate paid on interest-bearing liabilities decreased 86 bps. We are continuing to work on reducing our cost of funds, and average rates increased 12 bps.
The average loan portfolio increased $1.3 billion, or 3.2% betweenduring the thirdsecond quarter of 20172020, we repurchased and retired $429 million principal amount of our senior notes to manage liquidity.
The loan growth during the thirdsecond quarter of 2016. Most2020 was funded through a mix of the average growth was in the consumer 1-4 family residential portfolio, where Company yields are generally lower than on commercial loans. deposits, securities run-off, and a net increase of long-term debt. The average loan yield increased 16decreased 102 bps over the same prior year period, with increasesdecreases of 89 bps, 141 bps, and 62 bps in the average rates for commercial non-PPP, CRE, and consumer loans, respectively. The yield on PPP loans was 3.14% during the second quarter of 17 bps, 27 bps,2020, which was impacted by the amortization of loan fees that are recognized over the life of the loans. As the PPP continues to evolve, changes to the loan terms and 5 bps, respectively. We have experienced some improvementexercise of loan forgiveness may impact the effective yield.
Benchmark interest rates decreased in interest income2019 and 2020 resulting in response to short-term rate increases.a negative impact on yields. A portion of our variable-rate loans, weresuch as those with longer initial rate periods or longer reset frequencies, have not yet been affected by changesdeclines in those indices due tobenchmark interest rate floors, longer reset frequency, or indices tied to longer-term rates, which rates have been impacted by a flatteningrates. Also, our earning assets generally reprice more quickly than our funding sources, because nearly half of the yield curve in recent quarters. We expect continued strong growth in residential mortgages, with moderate growth in both CRE and commercial and industrial loans.our deposits are noninterest-bearing.
Average available-for-sale (“AFS”)AFS securities balances fordecreased by $622 million from the thirdsecond quarter of 2017 increased by $5.5 billion compared with2019 to the same prior year period.second quarter of 2020. Yields on average AFS securities increaseddecreased by 3031 bps over the same period.
ZIONS BANCORPORATION, NATIONAL ASSOCIATION AND SUBSIDIARIES
Average noninterest-bearing demand deposits provided us with low cost funding and comprised 45.8% of average total deposits which totaled $51.9were $63.0 billion for the thirdsecond quarter of 2017,2020, compared with 44.3% of average total deposits, which totaled $50.7$54.3 billion for the thirdsecond quarter of 2016.2019. The funding of PPP loan proceeds into customer deposit accounts contributed meaningfully to overall deposit growth, which may be short-term, depending on behavior of the PPP customers and their use of the funds. Average interest-bearing deposits increased by 0.3% ingrew 9% and were $33.9 billion for the thirdsecond quarter of 2017,2020, compared with $31.2 billion for the same prior year period,period. The daily average benchmark federal funds target rate decreased from 2.50% to 0.25% between the second quarter of 2019 and the averagesecond quarter of 2020, or 225 bps, while the rate paid increased 3 bps.Overon the past twelve months we have seen a deposit betaBank’s average interest-bearing deposits decreased 58 bps, from 85 bps in the second quarter of approximately 3%, which is a relatively low value for2019 to 27 bps in the current environment.second quarter of 2020. We are actively monitoring and managing deposits, and have been selectively increasingreducing deposit pricingrates since mid-2019. Our cost of total deposits decreased 34 bps, from 49 bps in certain markets and with certain clients, but we have not generally experienced significant pressurethe second quarter of 2019 to increase deposit rates.15 bps in the second quarter of 2020.
Although we consider a wide variety of sources when determining our funding needs, we benefit from access to deposits from a significant number of smallsmall- to mid-sized business customers, particularly noninterest-bearing deposits, that providewhich provides us with a low cost of funds andthat have a positive impact on our NIM. Further detail onBecause many of our deposit betas is discussedaccounts are of an operating nature for businesses and households, we expect our noninterest-bearing deposits to remain a competitive advantage. Average noninterest-bearing demand deposits increased by $6.0 billion, or 26% from the second quarter of 2019 to the second quarter of 2020. This increase in “Interest Ratedemand deposits primarily reflects PPP loans that were funded directly into these accounts. Average noninterest-bearing deposits comprised 46% and Market Risk Management” on page 30.
The42% of average balance of long-term debt was $297 million lowertotal deposits for the thirdsecond quarters of 2020 and 2019, respectively. The net impact of noninterest-bearing sources of funds on the NIM was 0.16% during the second quarter of 20172020, compared with 0.50% during the same prior year period, assecond quarter of 2019, reflecting a resultdecline in the value of early callsthese funds.
Average borrowed funds decreased by $3.0 billion from the second quarter of 2019 to the second quarter of 2020, with average short-term borrowings decreasing $3.6 billion, and maturities.average long-term borrowings increasing by $0.6 billion, reflecting less reliance on short-term borrowings and deposit growth. During 2019 the Bank issued $500 million of senior notes with an interest rate of 3.35% and $500 million of subordinated notes with an interest rate of 3.25%. Both of these note issuances were originally accompanied by fair value swap hedges which effectively transformed the borrowing cost to variable-rate. In late March 2020, we terminated the swaps which resulted in a reduction to the effective interest rate on the debt. For more information the termination of these swaps see Note 7 – Derivative Instruments and Hedging Activities. During the second quarter of 2020 the Bank repurchased and retired $210 million and $219 million principal amount of its 3.35% and 3.50% senior notes, respectively. The average
ZIONS BANCORPORATION, NATIONAL ASSOCIATION AND SUBSIDIARIES
interest rate paid on short-term borrowings and long-term debt increaseddecreased by 58242 bps betweenand 191 bps, respectively, from the same periods because remaining debt was at a higher average rate thansecond quarter of 2019 to the debt that matured and was called. Average 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.second quarter of 2020 due to lower benchmark interest rates.
The spread on average interest-bearing funds was 3.26%3.07% and 3.23%3.04% for the thirdsecond quarters of 20172020 and 2016,2019, respectively. The spread on average interest-bearing funds for these periods was affected by the same factors that had an impact onimpacted the NIM.
Interest rate spreads and marginmargins are impacted by the mix of assets we hold, the composition of our loan and securities portfolios, and the type of funding we use. We expect some modest resistance to increased spreads due to both a change in the mix of the portfolio (increasing concentration in lower-yielding residential mortgages), as well as older, higher-yielding 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 resulted in lower-yielding loans.
used. 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, our modeled projections for noninterest-bearing demand deposits, which are a substantial portion of our deposit balances, are particularly reliant on assumptions for which there is little historical experience due to the prolonged period of very low interest rates. Further detail on interest rate risk is discussed in “Interest Rate and Market Risk Management” on page 30.
Refer to the “Liquidity Risk Management” section beginning on page 34 for more information on how we manage liquidity risk.31.
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) | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | |
| (Unaudited) | Three Months Ended
June 30, 2020 | | | | | | Three Months Ended
June 30, 2019 | | | | |
| (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 | $ | 1,610 | | | $ | 1 | | | 0.35 | % | | $ | 1,261 | | | $ | 8 | | | 2.64 | % |
| Securities: | | | | | | | | | | | |
| Held-to-maturity | 632 | | | 6 | | | 3.58 | | | 687 | | | 6 | | | 3.69 | |
| Available-for-sale | 14,128 | | | 74 | | | 2.12 | | | 14,750 | | | 90 | | | 2.43 | |
| Trading account | 149 | | | 2 | | | 4.29 | | | 172 | | | 2 | | | 4.48 | |
Total securities 2 | 14,909 | | | 82 | | | 2.20 | | | 15,609 | | | 98 | | | 2.51 | |
| Loans held for sale | 125 | | | 2 | | | 5.02 | | | 71 | | | — | | | 2.18 | |
Loans and leases 3 | | | | | | | | | | | |
| Commercial - excluding PPP loans | 25,773 | | | 259 | | | 4.05 | | | 24,977 | | | 308 | | | 4.94 | |
| Commercial - PPP loans | 5,016 | | | 39 | | | 3.14 | | | — | | | — | | | — | |
| Commercial real estate | 11,866 | | | 112 | | | 3.81 | | | 11,777 | | | 153 | | | 5.22 | |
| Consumer | 11,613 | | | 106 | | | 3.66 | | | 11,570 | | | 124 | | | 4.28 | |
| Total loans and leases | 54,268 | | | 516 | | | 3.83 | | | 48,324 | | | 585 | | | 4.85 | |
| Total interest-earning assets | 70,912 | | | 601 | | | 3.41 | | | 65,265 | | | 691 | | | 4.24 | |
| Cash and due from banks | 617 | | | | | | | 592 | | | | | |
| Allowance for credit losses on loans and debt securities | (724) | | | | | | | (496) | | | | | |
| Goodwill and intangibles | 1,014 | | | | | | | 1,014 | | | | | |
| Other assets | 4,095 | | | | | | | 3,480 | | | | | |
| Total assets | $ | 75,914 | | | | | | | $ | 69,855 | | | | | |
| LIABILITIES AND SHAREHOLDERS’ EQUITY | | | | | | | | | | | |
| Interest-bearing deposits: | | | | | | | | | | | |
| Savings and money market | $ | 30,094 | | | $ | 10 | | | 0.13 | % | | $ | 26,262 | | | $ | 41 | | | 0.63 | % |
| Time | 3,853 | | | 13 | | | 1.35 | | | 5,025 | | | 25 | | | 2.02 | |
| | | | | | | | | | | |
| Total interest-bearing deposits | 33,947 | | | 23 | | | 0.27 | | | 31,287 | | | 66 | | | 0.85 | |
| Borrowed funds: | | | | | | | | | | | |
| Federal funds purchased and other short-term borrowings | 2,230 | | | 1 | | | 0.11 | | | 5,795 | | | 37 | | | 2.53 | |
| Long-term debt | 1,736 | | | 8 | | | 1.93 | | | 1,230 | | | 12 | | | 3.84 | |
| Total borrowed funds | 3,966 | | | 9 | | | 0.91 | | | 7,025 | | | 49 | | | 2.76 | |
| Total interest-bearing liabilities | 37,913 | | | 32 | | | 0.34 | | | 38,312 | | | 115 | | | 1.20 | |
| Noninterest-bearing demand deposits | 29,053 | | | | | | | 23,060 | | | | | |
| Other liabilities | 1,352 | | | | | | | 929 | | | | | |
| Total liabilities | 68,318 | | | | | | | 62,301 | | | | | |
| Shareholders’ equity: | | | | | | | | | | | |
| Preferred equity | 566 | | | | | | | 566 | | | | | |
| Common equity | 7,030 | | | | | | | 6,988 | | | | | |
| Total shareholders’ equity | 7,596 | | | | | | | 7,554 | | | | | |
| Total liabilities and shareholders’ equity | $ | 75,914 | | | | | | | $ | 69,855 | | | | | |
| Spread on average interest-bearing funds | | | | | 3.07 | % | | | | | | 3.04 | % |
| Effect of net noninterest-bearing sources of funds | | | | | 0.16 | | | | | | | 0.50 | |
| Net interest margin | | | $ | 569 | | | 3.23 | | | | | $ | 576 | | | 3.54 | |
| Memo: total loans and leases, excluding PPP loans | $ | 49,252 | | | 477 | | 3.90 | | | $ | 48,324 | | | 585 | | 4.85 | |
| | | | | | | | | | | |
| Memo: total cost of deposits | | | | | 0.15 | | | | | | | 0.49 | |
| Memo: total deposits and interest-bearing liabilities | 66,966 | | | 32 | | | 0.19 | | | 61,372 | | | 115 | | | 0.75 | |
1 Rates are calculated using amounts in thousands and the statutory taxable-equivalent rates 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 $25 million and $31 million of taxable-equivalent premium amortization for the second quarters of 2020 and 2019, 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
| | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | |
| (Unaudited) | Six Months Ended
June 30, 2020 | | | | | | Six Months Ended
June 30, 2019 | | | | |
| (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 | $ | 1,812 | | | $ | 9 | | | 1.00 | % | | $ | 1,264 | | | $ | 17 | | | 2.69 | % |
| Securities: | | | | | | | | | | | |
| Held-to-maturity | 612 | | | 11 | | | 3.65 | | | 758 | | | 14 | | | 3.71 | |
| Available-for-sale | 13,907 | | | 151 | | | 2.19 | | | 14,737 | | | 180 | | | 2.46 | |
| Trading account | 157 | | | 3 | | | 4.28 | | | 140 | | | 3 | | | 4.49 | |
Total securities 2 | 14,676 | | | 165 | | | 2.27 | | | 15,635 | | | 197 | | | 2.54 | |
| Loans held for sale | 117 | | | 2 | | | 4.15 | | | 67 | | | 1 | | | 1.96 | |
Loans and leases 3 | | | | | | | | | | | |
| Commercial - excluding PPP loans | 25,645 | | | 545 | | | 4.27 | | | 24,703 | | | 612 | | | 4.99 | |
| Commercial - PPP loans | 2,506 | | | 41 | | | 3.29 | | | — | | | — | | | — | |
| Commercial real estate | 11,706 | | | 245 | | | 4.21 | | | 11,557 | | | 301 | | | 5.26 | |
| Consumer | 11,675 | | | 222 | | | 3.83 | | | 11,490 | | | 244 | | | 4.29 | |
| Total loans and leases | 51,532 | | | 1,053 | | | 4.11 | | | 47,750 | | | 1,157 | | | 4.89 | |
| Total interest-earning assets | 68,137 | | | 1,229 | | | 3.63 | | | 64,716 | | | 1,372 | | | 4.27 | |
| Cash and due from banks | 646 | | | | | | | 574 | | | | | |
| Allowance for loan losses | (611) | | | | | | | (498) | | | | | |
| Goodwill and intangibles | 1,014 | | | | | | | 1,014 | | | | | |
| Other assets | 3,873 | | | | | | | 3,417 | | | | | |
| Total assets | $ | 73,059 | | | | | | | $ | 69,223 | | | | | |
| LIABILITIES AND SHAREHOLDERS’ EQUITY | | | | | | | | | | | |
| Interest-bearing deposits: | | | | | | | | | | | |
| Savings and money market | $ | 29,475 | | | 43 | | | 0.30 | % | | $ | 26,142 | | | 76 | | | 0.59 | % |
| Time | 4,153 | | | 31 | | | 1.49 | | | 4,851 | | | 47 | | | 1.96 | |
| | | | | | | | | | | |
| Total interest-bearing deposits | 33,628 | | | 74 | | | 0.44 | | | 30,993 | | | 123 | | | 0.80 | |
| Borrowed funds: | | | | | | | | | | | |
| Federal funds purchased and other short-term borrowings | 2,576 | | | 9 | | | 0.72 | | | 5,543 | | | 70 | | | 2.55 | |
| Long-term debt | 1,742 | | | 22 | | | 2.57 | | | 1,056 | | | 21 | | | 3.94 | |
| Total borrowed funds | 4,318 | | | 31 | | | 1.47 | | | 6,599 | | | 91 | | | 2.77 | |
| Total interest-bearing liabilities | 37,946 | | | 105 | | | 0.56 | | | 37,592 | | | 214 | | | 1.15 | |
| Noninterest-bearing demand deposits | 26,326 | | | | | | | 23,140 | | | | | |
| Other liabilities | 1,244 | | | | | | | 929 | | | | | |
| Total liabilities | 65,516 | | | | | | | 61,661 | | | | | |
| Shareholders’ equity: | | | | | | | | | | | |
| Preferred equity | 566 | | | | | | | 566 | | | | | |
| Common equity | 6,977 | | | | | | | 6,996 | | | | | |
| Total shareholders’ equity | 7,543 | | | | | | | 7,562 | | | | | |
| Total liabilities and shareholders’ equity | $ | 73,059 | | | | | | | $ | 69,223 | | | | | |
| Spread on average interest-bearing funds | | | | | 3.07 | % | | | | | | 3.12 | % |
| Impact of net noninterest-bearing sources of funds | | | | | 0.25 | | | | | | | 0.49 | |
| Net interest margin | | | $ | 1,124 | | | 3.32 | | | | | $ | 1,158 | | | 3.61 | |
| Memo: total loans and leases, excluding PPP loans | $ | 49,026 | | | 1,012 | | | 4.15 | | | $ | 47,750 | | | 1,157 | | | 4.89 | |
| | | | | | | | | | | |
| Memo: total cost of deposits | | | | | 0.25 | | | | | | | 0.46 | |
| Memo: total deposits and interest-bearing liabilities | 64,272 | | | 105 | | | 0.32 | | | 60,732 | | | 214 | | | 1.14 | |
1 Rates are calculated using amounts in thousands and the statutory taxable-equivalent rates 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 $54 million and $63 million of taxable-equivalent premium amortization for the first six months of 2020 and 2019, 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 allowance for credit losses (“ACL”) is the combination of both the allowance for loan and lease losses (ALLL) and the reserve for unfunded lending commitments (RULC). The ALLL represents the estimated current expected credit losses over the contractual term of the loan and lease portfolio as of the balance sheet date. The RULC represents the estimated reserve for current expected credit losses associated with off-balance sheet commitments. Changes in the ALLL and RULC, including changes in net charge-offs, are recorded in the provision for loan and lease losses and the provision for unfunded lending commitments in the income statement, respectively. The ACL for debt securities is estimated separately from loans.
The provision for credit losses, which is the combination of both the provision for loan losses and the provision for unfunded lending commitments.commitments, was $168 million in the second quarter of 2020, compared with $21 million in the second quarter of 2019 and $258 million in the first quarter of 2020. The ACL increased $351 million to $914 million at June 30, 2020, compared with $563 million at June 30, 2019. The increase in the ACL is primarily due to experienced and expected economic deterioration caused by the COVID-19 pandemic, and stress in the oil and gas-related sector. The provision for loancredit losses isfor debt securities was less than $1 million in the second quarter of 2020.
On January 1, 2020, we adopted Accounting Standards Update (“ASU”) 2016-13, Credit Losses (Topic 326): Measurement of Credit Losses on Financial Instruments, and its subsequent updates, often referred to as the Current Expected Credit Loss ("CECL") accounting standard. Upon adoption of the ASU, Zions recorded the full amount of expense that,the ACL for loans and leases of $526 million, compared with $554 million at December 31, 2019, resulting in an after-tax increase to retained earnings of $20 million. The impact of the adoption of CECL for our judgment, is required to maintainsecurities portfolio was less than $1 million. As a result of this new accounting standard, we expect our ACL will become more volatile primarily because, under the new process, 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 usedsubject 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 economic forecasts that may change materially from period to period.
Note 6 of our 20162019 Annual Report on Form 10-K and “Credit Risk Management” on page 20 for more24 contains information on how we determine the appropriate level for the ALLL and the RULC.
The provision Also, for loan losses was $5 million in the third quarter of 2017, compared with $19 million in the same prior year period. Strong overall credit quality, including steady improvement in the oilmore information see "Critical Accounting Policies 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.Significant Estimates" on page 41.
During the third quarter of 2017, we recorded a $(4) million provision for unfunded lending commitments, compared with a $(3) million provision in the third quarter of 2016. 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, which is the combination of both the ALLL and the RULC, decreased $59 million when compared with the third quarter of 2016. Even with loan growth and the above-mentioned hurricane impact, robust credit quality and decreased net charge-offs 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.
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,Growing 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 dueis a key strategic priority, and several strategic initiatives are underway to lower loan sales volume, decreased deposit fees, and a decline in net securities gains.
ZIONS BANCORPORATION, NATIONAL ASSOCIATION AND SUBSIDIARIES
support this effort, although growth has been impacted by the effects of COVID-19. Specifically, we are working to leverage our focus on commercial and small business customers to accelerate sales of capital markets products and wealth advisory services. Noninterest income accounted for 17% and 19% of net revenue during the second quarters of 2020 and 2019, respectively. Noninterest income was $117 million for the second quarter of 2020, compared with $132 million for the second quarter of 2019.
We believe a subtotal of customer-related fees provides a better view of income over which we have more direct near-term control. It excludes items such as dividends, insurance-related income, mark-to-market adjustments on certain derivatives, and securities gains and losses. Customer-related fees were stable at $130 million during both the second quarters of 2020 and 2019. Non customer-related fees decreased $4by $15 million from the thirdsecond quarter of 2016. Service charges on deposit accounts decreased largely2019 to the second quarter of 2020.
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) | 2020 | | 2019 | | | | | | 2020 | | 2019 | | | | |
| | | | | | | | | | | | | | | |
| Commercial account fees | $ | 30 | | | $ | 30 | | | $ | — | | | — | % | | $ | 61 | | | $ | 60 | | | $ | 1 | | | 2 | % |
| Card fees | 19 | | | 23 | | | (4) | | | (17) | | | 39 | | | 46 | | | (7) | | | (15) | |
| Retail and business banking fees | 15 | | | 20 | | | (5) | | | (25) | | | 33 | | | 38 | | | (5) | | | (13) | |
| Loan-related fees and income | 27 | | | 17 | | | 10 | | | 59 | | | 53 | | | 35 | | | 18 | | | 51 | |
| Capital markets and foreign exchange fees | 18 | | | 20 | | | (2) | | | (10) | | | 42 | | | 35 | | | 7 | | | 20 | |
| Wealth management and trust fees | 15 | | | 15 | | | — | | | — | | | 31 | | | 28 | | | 3 | | | 11 | |
| Other customer-related fees | 6 | | | 5 | | | 1 | | | 20 | | | 12 | | | 10 | | | 2 | | | 20 | |
| Customer-related fees | 130 | | | 130 | | | — | | | — | | | 271 | | | 252 | | | 19 | | | 8 | |
| Fair value and nonhedge derivative loss | (12) | | | (6) | | | (6) | | | NM | | (23) | | | (8) | | | (15) | | | 188 | |
| Dividends and other income | 3 | | | 11 | | | (8) | | | NM | | 11 | | | 22 | | | (11) | | | (50) | |
| Securities losses, net | (4) | | | (3) | | | (1) | | | NM | | (9) | | | (2) | | | (7) | | | NM |
| Total noninterest income | $ | 117 | | | $ | 132 | | | $ | (15) | | | (11) | % | | $ | 250 | | | $ | 264 | | | $ | (14) | | | (5) | % |
Loan-related fees and income increased $10 million from the second quarter of 2019 to the second quarter of 2020 due to increased earnings credits on analyzed business accounts. Loan sales and servicing income declined primarily becausestrength in residential mortgage banking activity, including loan sales, volume was downwhich benefited from an unusually high amountthe reduction in benchmark interest rates. Due to the waiving of fees for customers during the early stages of the COVID-19 pandemic, we experienced a $5 million decrease from the second quarter of 2019 to the second quarter of 2020 in retail and business banking fees, mostly attributable to lower insufficient fund fees, as well as a $4 million decrease in card fees from reduced economic activity and transaction volume in the thirdsecond quarter of 20162020. Capital markets and aforeign exchange fees decreased by $2 million lossfrom the second quarter of 2019 to the second quarter of 2020, due largely to reduced loan syndication fees.
In the second quarter of 2020, the Bank recognized a $12 million negative credit valuation adjustment (“CVA”) on client-related interest rate swaps, compared with a loan classified as held for sale$6 million negative CVA in the most recentprior year period. The year-to-date declineThis change reflects the Bank’s growing customer-related credit exposure to interest rate swaps. Dividends and other income decreased from $11 million in loan sales and servicing income wasthe second quarter of 2019, to $3 million in the second quarter of 2020, due to similar factors. We continue to see steady improvement in credit card interchangeadverse market valuations on certain Small Business Investment Company (“SBIC”) investments and lower dividends received from the Federal Home Loan Bank (“FHLB”), reflecting less FHLB activity stock held by the Bank.
Customer-related fees for the first six months of 2020 increased by $19 million primarily from loan-related fees and are growing our wealth managementincome and trust businesses. We expect moderate growthcapital markets and foreign exchange fees, partially offset by a decrease in customer-relatedcard fees over the next twelve months.and loan-related fees and income.
ZIONS BANCORPORATION, NATIONAL ASSOCIATION AND SUBSIDIARIES
Noninterest Expense
Noninterest expense increased by $6 million, or 1%, from the second quarter of 2019 to the second quarter of 2020. Adjusted noninterest expense decreased $21 million, or 5%, over the same period, reflecting our ongoing efforts to reduce expenses and streamline operations. 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) | 2020 | | 2019 | | | | | | 2020 | | 2019 | | | | |
| | | | | | | | | | | | | | | |
| Salaries and employee benefits | $ | 267 | | | $ | 274 | | | $ | (7) | | | (3) | % | | $ | 540 | | | $ | 562 | | | $ | (22) | | | (4) | % |
| Occupancy, net | 32 | | | 32 | | | — | | | — | | | 65 | | | 65 | | | — | | | — | |
| Furniture, equipment and software, net | 32 | | | 35 | | | (3) | | | (9) | | | 64 | | | 67 | | | (3) | | | (4) | |
| Other real estate expense, net | — | | | — | | | — | | | NM | | — | | | (1) | | | 1 | | | NM |
| Credit-related expense | 6 | | | 8 | | | (2) | | | (25) | | | 10 | | | 13 | | | (3) | | | (23) | |
| Professional and legal services | 10 | | | 13 | | | (3) | | | (23) | | | 22 | | | 23 | | | (1) | | | (4) | |
| Advertising | 3 | | | 5 | | | (2) | | | (40) | | | 6 | | | 11 | | | (5) | | | (45) | |
| FDIC premiums | 7 | | | 6 | | | 1 | | | 17 | | | 12 | | | 12 | | | — | | | — | |
| Other | 73 | | | 51 | | | 22 | | | 43 | | | 118 | | | 102 | | | 16 | | | 16 | |
| Total noninterest expense | $ | 430 | | | $ | 424 | | | $ | 6 | | | 1 | % | | $ | 837 | | | $ | 854 | | | $ | (17) | | | (2) | % |
Adjusted noninterest expense 1 | $ | 402 | | | $ | 423 | | | $ | (21) | | | (5) | % | | $ | 808 | | | $ | 853 | | | $ | (45) | | | (5) | % |
1 For information on non-GAAP financial measures, see “GAAP to Non-GAAP Reconciliations” on page 56.
We have previously forecast increases in noninterest expense for 2017. Noninterest expense increased primarily as a result of a $28 million pension plan termination-related expense recognized in Other noninterest expense. The pension plan termination included a $17 million reclassification out of accumulated other comprehensive income and into Other noninterest expense, resulting in a pre-tax decrease in shareholders’ equity of $11 million. Salaries and employee benefits decreased by $10$7 million, overprimarily from lower overall incentive compensation, although there were increases for certain compensation pools, such as those related to PPP loans. Full-time equivalent employees decreased from 10,326 to 9,859 from the thirdsecond quarter of 20162019 to the second quarter of 2020 primarily as a result of the 5% workforce reduction announced in October 2019. However, base salaries did not decline 5% from the prior year second quarter due to the effects of inflation and $51 millionmerit increases.
The Bank’s efficiency ratio was 57.3% in the second quarter of 2020 compared with 59.0% in 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.
Salary and benefits expense was up $11 million from the thirdsecond quarter of 2016,2019 and $14 million year to date. Elevated noninterest expense57.7% in the third quarter of 2016 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 from the third quarter of 2016, and increased $8 million compared with the first nine months of 2016. The increase was primarily due to damage to buildings caused by Hurricane Harvey. In the first quarter of 2017, we also placed a newly constructed office building into operation in Houston2020. The efficiency ratio 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.
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 AND SUBSIDIARIES
compared with the third quarter of 2016, and released $7 million less compared with the first nine months of 2016. Credit concerns in 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 expense increased $3 million or 25.0% from the third quarter of 2016, and $12 million, or 42.9%, 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 million, compared with 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. 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).
Income Taxes
Income tax expense for the thirdsecond quarter of 20172020 was $83$16 million compared with $65$58 million for the same prior year period.period as a result of lower income during the second quarter of 2020. The effective income tax rates were 34.2%19.5% and 33.9%22.7% for the thirdsecond quarters of 20172020 and 2016, respectively. 2019, respectively, as a result of the proportional increase in nontaxable items and tax credits relative to pretax book income as compared to the prior year period.
Income tax expense for the first six months of 2020 was $207$18 million compared to $119 million for the first ninesix months of 2017 and $166 million for the first nine months of 2016.2019. The effective tax rates for these year-to-date periods were 30.6%18.4% and 33.3%22.5%, respectively. Tax rates generally benefited fromNote 13 of the nontaxability of certain income items. 2017 rates were further impacted byNotes to Consolidated Financial Statements contains additional information about the following factors:
We reevaluated our state tax positions infactors that influenced 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 staterates and information about deferred income 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,assets 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.liabilities.
Preferred Stock Dividends
Our preferredPreferred stock dividends decreased $2have been consistent over the past year and were $9 million when compared with the third quarter of 2016 and $6 million, compared with the first nine months of 2016. Infor both the second quarters of 20172020 and 2016, the Company redeemed preferred stock of $144 million and $118 million, respectively. The total one-time reduction to net earnings applicable to common shareholders associated with preferred stock redemptions was $2 million for the 2017 redemption and $10 million for the 2016 redemption, primarily due to the accelerated recognition of preferred stock issuance costs.2019.
ZIONS BANCORPORATION, NATIONAL ASSOCIATION 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 in the first 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 nonearningnon-earning 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 11.16.
Average interest-earning assets were $60.6$68.1 billion for the first ninesix months of 2017,2020, compared with $55.7$64.7 billion for the first ninesix months of 2016.2019. Average interest-earning assets as a percentage of total average assets for the first ninesix months of 20172020 and 20162019 were 93.4%93% and 93.7%94%, respectively.
Average loans were $43.2$51.5 billion and $41.9$47.8 billion for the first ninesix months of 20172020 and 2016,2019, respectively. Average loans as a percentage of total average assets for the first ninesix months of 20172020 were 66.6%71%, compared with 70.4%69% in the same prior year period.
Average money market investments, consisting of interest-bearing deposits, federal funds sold, and security resell agreements, decreasedincreased by 61.0%43% to $1.6$1.8 billion for the first ninesix months of 2017,2020, compared with $4.1$1.3 billion for the first ninesix months of 2016.2019. Average securities increaseddecreased by 63.7%6% for the first ninesix months of 2017,2020, compared with the first ninesix months of 2016.2019.
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 3436 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 20162019 Annual Report on Form 10-K.
ZIONS BANCORPORATION AND SUBSIDIARIES
INVESTMENT SECURITIES PORTFOLIO
| | | | September 30, 2017 | | December 31, 2016 | | June 30, 2020 | | | December 31, 2019 | |
| (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 | $ | 687 | | | $ | 688 | | | | $ | 691 | | | $ | 592 | | | $ | 592 | | | | $ | 597 | |
| | Available-for-sale | | | | | | | | | | | | Available-for-sale | | | | | | | | | | | | | |
| U.S. Treasury securities | 25 |
| | 25 |
| | 25 |
| | — |
| | — |
| | — |
| U.S. Treasury securities | 100 | | | 100 | | | | 100 | | | 25 | | | 25 | | | | 25 | |
| 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 | 1,242 | | | 1,241 | | | | 1,276 | | | 1,301 | | | 1,301 | | | | 1,302 | |
| Agency guaranteed mortgage-backed securities | 9,537 |
| | 9,748 |
| | 9,683 |
| | 7,745 |
| | 7,986 |
| | 7,883 |
| Agency guaranteed mortgage-backed securities | 9,795 | | | 9,911 | | | | 10,213 | | | 9,406 | | | 9,518 | | | | 9,559 | |
| Small Business Administration loan-backed securities | 2,055 |
| | 2,281 |
| | 2,291 |
| | 2,066 |
| | 2,298 |
| | 2,288 |
| Small Business Administration loan-backed securities | 1,221 | | | 1,325 | | | | 1,286 | | | 1,414 | | | 1,535 | | | | 1,495 | |
| Municipal securities | 1,141 |
| | 1,281 |
| | 1,291 |
| | 1,048 |
| | 1,182 |
| | 1,154 |
| Municipal securities | 1,144 | | | 1,239 | | | | 1,301 | | | 1,175 | | | 1,282 | | | | 1,319 | |
| Other debt securities | 25 |
| | 25 |
| | 25 |
| | 25 |
| | 25 |
| | 24 |
| Other debt securities | 25 | | | 25 | | | | 25 | | | 25 | | | 25 | | | | 25 | |
| | 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 | 13,527 | | | 13,841 | | | | 14,201 | | | 13,346 | | | 13,686 | | | | 13,725 | |
| Total investment securities | | Total investment securities | $ | 14,214 | | | $ | 14,529 | | | | $ | 14,892 | | | $ | 13,938 | | | $ | 14,278 | | | | $ | 14,322 | |
The amortized cost of investment securities at SeptemberJune 30, 20172020 increased by 11.4%2% from the balances at December 31, 2016, due to purchases2019. Approximately 28% of agency guaranteed mortgage-backed securities.the investment securities are floating-rate as of June 30, 2020.
The investment securities portfolio includes $576$315 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 nine months ended SeptemberJune 30, 2017, premium amortization reduced the yield on securities by 89 and 90 bps, respectively,2020, was $25 million, compared with a 117 bps and 110 bps impact$31 million for the same periodsperiod in 2016. The lower level2019.
ZIONS BANCORPORATION, NATIONAL ASSOCIATION AND SUBSIDIARIES
As of SeptemberJune 30, 2017,2020, under the GAAP fair value accounting hierarchy, 0.7% of the $15.2$14.2 billion fair value of the AFS securities portfolio was valued at Level 1, 99.3% was valued at Level 2, and there were no Level 3 AFS securities. At December 31, 2016, 1.4%2019, 0.2% of the $13.4$13.7 billion fair value of AFS securities portfolio was valued at Level 1, 98.6%99.8% was valued at Level 2, and there were no Level 3 AFS securities. See Note 203 of our 20162019 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 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,
2020 | | December 31,
2019 |
| | | | | | | | |
| Loans and leases | $ | 1,073 |
| | $ | 778 |
| Loans and leases | $ | 2,535 | | | $ | 2,393 | |
| Held-to-maturity – municipal securities | 746 |
| | 868 |
| Held-to-maturity – municipal securities | 688 | | | 592 | |
| Available-for-sale – municipal securities | 1,292 |
| | 1,154 |
| Available-for-sale – municipal securities | 1,301 | | | 1,319 | |
| | Trading account – municipal securities | 55 |
| | 112 |
| Trading account – municipal securities | 141 | | | 107 | |
| Unfunded lending commitments | 156 |
| | 182 |
| Unfunded lending commitments | 319 | | | 200 | |
| Total direct exposure to municipalities | $ | 3,322 |
| | $ | 3,094 |
| Total direct exposure to municipalities | $ | 4,984 | | | $ | 4,611 | |
At SeptemberJune 30, 2017, one2020, no municipal loan with a balance of $1 million wasloans were 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, 20172020 and December 31, 2016.2019.
Loan Portfolio
For the first ninesix months of 20172020 and 2016,2019, average loans accounted for 66.6%71% and 70.4%69%, respectively, of total average assets. As presented in the following schedule, the largest category was commercial and industrial loans, excluding PPP loans, which constituted 31.8%26% of our loan portfolio at SeptemberJune 30, 2017.2020.
ZIONS BANCORPORATION, NATIONAL ASSOCIATION AND SUBSIDIARIES
LOAN PORTFOLIO
| | | | September 30, 2017 | | December 31, 2016 | | June 30, 2020 | | | December 31, 2019 | |
| (Dollar amounts in millions) | Amount | | % of total loans | | Amount | | % of total loans | (Dollar amounts in millions) | Amount | | % of
total loans | | Amount | | % of
total loans |
| Commercial: | | | | | | | | Commercial: | | | | | | | |
| Commercial and industrial | $ | 14,041 |
| | 31.8 | % | | $ | 13,452 |
| | 31.5 | % | Commercial and industrial | $ | 14,076 | | | 25.5 | % | | $ | 14,760 | | | 30.3 | % |
| PPP | | PPP | 6,690 | | | 12.1 | | | — | | | — | |
| Leasing | 343 |
| | 0.8 |
| | 423 |
| | 1.0 |
| Leasing | 324 | | | 0.6 | | | 334 | | | 0.7 | |
| Owner-occupied | 7,082 |
| | 16.0 |
| | 6,962 |
| | 16.3 |
| Owner-occupied | 8,083 | | | 14.7 | | | 7,901 | | | 16.2 | |
| Municipal | 1,073 |
| | 2.4 |
| | 778 |
| | 1.8 |
| Municipal | 2,535 | | | 4.6 | | | 2,393 | | | 4.9 | |
| Total commercial | 22,539 |
| | 51.0 |
| | 21,615 |
| | 50.6 |
| Total commercial | 31,708 | | | 57.5 | | | 25,388 | | | 52.1 | |
| Commercial real estate: | | | | | | | | Commercial real estate: | |
| Construction and land development | 2,170 |
| | 4.9 |
| | 2,019 |
| | 4.7 |
| Construction and land development | 2,367 | | | 4.3 | | | 2,211 | | | 4.5 | |
| Term | 8,944 |
| | 20.3 |
| | 9,322 |
| | 21.9 |
| Term | 9,587 | | | 17.4 | | | 9,344 | | | 19.2 | |
| Total commercial real estate | 11,114 |
| | 25.2 |
| | 11,341 |
| | 26.6 |
| Total commercial real estate | 11,954 | | | 21.7 | | | 11,555 | | | 23.7 | |
| Consumer: | | | | | | | | Consumer: | |
| Home equity credit line | 2,745 |
| | 6.2 |
| | 2,645 |
| | 6.2 |
| Home equity credit line | 2,856 | | | 5.2 | | | 2,917 | | | 6.0 | |
| 1-4 family residential | 6,522 |
| | 14.8 |
| | 5,891 |
| | 13.8 |
| 1-4 family residential | 7,393 | | | 13.4 | | | 7,568 | | | 15.6 | |
| Construction and other consumer real estate | 558 |
| | 1.3 |
| | 486 |
| | 1.2 |
| Construction and other consumer real estate | 640 | | | 1.1 | | | 624 | | | 1.3 | |
| Bankcard and other revolving plans | 490 |
| | 1.1 |
| | 481 |
| | 1.1 |
| Bankcard and other revolving plans | 437 | | | 0.8 | | | 502 | | | 1.0 | |
| Other | 188 |
| | 0.4 |
| | 190 |
| | 0.5 |
| Other | 141 | | | 0.3 | | | 155 | | | 0.3 | |
| Total consumer | 10,503 |
| | 23.8 |
| | 9,693 |
| | 22.8 |
| Total consumer | 11,467 | | | 20.8 | | | 11,766 | | | 24.2 | |
| Total net loans | $ | 44,156 |
| | 100.0 | % | | $ | 42,649 |
| | 100.0 | % | Total net loans | $ | 55,129 | | | 100.0 | % | | $ | 48,709 | | | 100.0 | % |
Loan portfolio growth during the first ninesix months of 20172020 was widespreadprimarily due to the origination of PPP loans across loan products and geographies with particular strength in consumer 1-4 family residential andour geographical footprint. Excluding PPP loans, commercial and industrial loans. The impact of these increases wasloans decreased, with the decrease partially offset by a decreaseincreases in ourterm commercial real estate ("CRE"), commercial owner-occupied, CRE term portfolio.
Commercial owner-occupied loans also increasedconstruction and land development, and municipal loans. The growth in the loan portfolio during the first ninesix months of 2017; however, we experienced continued runoff2020 was primarily at CB&T, 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 2017,2020, the Company increasedBank decreased its short-term borrowings with the Federal Home Loan Bank (“FHLB”) by $2.8$1 billion. This increase requireddecrease also led to a further investment$40 million decrease in FHLB activity stock, which consequently increasedstock. The value of our SBIC investments decreased by $110$32 million during the year.same period as a result of lower valuations and disposition of investments. Aside from this increase, otherthese decreases, Other noninterest-bearing investments remained relatively stable as set forthillustrated in the following schedule.
OTHER NONINTEREST-BEARING INVESTMENTS
| | | | | | | | | | | |
| (In millions) | June 30,
2020 | | December 31,
2019 |
| | | |
| Bank-owned life insurance | $ | 530 | | | $ | 525 | |
| Federal Home Loan Bank stock | 10 | | | 50 | |
| Federal Reserve stock | 97 | | | 107 | |
Farmer Mac stock1 | 40 | | | 47 | |
| SBIC investments | 122 | | | 154 | |
| Non-SBIC investment funds | 11 | | | 12 | |
| Other | 3 | | | 3 | |
| Total other noninterest-bearing investments | $ | 813 | | | $ | 898 | |
1 As a result of the merger of our former bank holding company into the Bank, we agreed to dispose of our Farmer Mac Class C stock to resolve questions about the permissibility of national bank investments in such shares, and initiated sales of the stock in the first quarter of 2020.
|
| | | | | | | |
| (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, NATIONAL ASSOCIATION AND SUBSIDIARIES
Premises, Equipment, and Software
Net premises, equipment, and software increased $63$31 million, or 6.2%2.7%, during the first ninesix months of 2020. In 2017, primarily duethe Bank implemented the first phase of its 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 CRE lending systems. With this milestone reached, we now have substantially all our retail, commercial and CRE 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, 2020 | | | | | | |
| (In millions) | Phase 1 | | Phase 2 | | Phase 3 | | Total |
| Capitalized costs for the core replacement project | | | | | | | |
| Total amount capitalized, less accumulated depreciation | $ | 50 | | | $ | 78 | | | $ | 77 | | | $ | 205 | |
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 20172020 increased by 4.2%11%, compared with the first ninesix months of 2016,2019, with average interest-bearing deposits increasing by 3.9%9% and average noninterest-bearing deposits increasing by 7.4%14%. 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 336 bps higherlower during the first ninesix months of 2017,2020, 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.2019.
Demand, and savings, and money market deposits were 94.4%94% and 94.8%92% of total deposits at SeptemberJune 30, 20172020 and December 31, 2016,2019, respectively. At SeptemberJune 30, 20172020 and December 31, 2016,2019, total deposits included $1.3$1.6 billion and $0.9$2.3 billion, respectively, of brokered deposits.
See “Liquidity Risk Management” on page 3436 for additional information on funding and borrowed funds.
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 risk, interest rate and market risk, liquidity risk, strategic risk, business and operational risks.corporate governance risk, operational/technology risk, cyber risk, capital/financial reporting risk, legal/compliance risk (including regulatory risk); and reputational risk. 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. For a more comprehensive discussion of these risks, see “Risk Factors” in our 2019 Annual Report on Form 10-K.
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 2019 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
ZIONS BANCORPORATION, NATIONAL ASSOCIATION AND SUBSIDIARIES
the U.S., and the U.S. Department of Agriculture. As of SeptemberJune 30, 2017,2020, the principal balance of these loans was $533 million,$7.3 billion, and the guaranteed portion of these loans was $403 million.$7.1 billion. Most of these loans were guaranteed by the SBA.
The following schedule presents the composition of government agency guaranteed loans and includes $6.7 billion of the aforementioned PPP loans.
GOVERNMENT GUARANTEES
| | | (Dollar amounts in millions) | September 30, 2017 | | Percent
guaranteed | | December 31, 2016 | | Percent
guaranteed | (Dollar amounts in millions) | June 30,
2020 | | Percent
guaranteed | | December 31,
2019 | | Percent
guaranteed |
| | | | | | | | | | | | | | | | |
| Commercial | $ | 502 |
| | 75 | % | | $ | 519 |
| | 75 | % | Commercial | $ | 7,254 | | | 98 | % | | $ | 555 | | | 74 | % |
| Commercial real estate | 15 |
| | 74 |
| | 18 |
| | 75 |
| Commercial real estate | 18 | | | 78 | | | 18 | | | 78 | |
| Consumer | 16 |
| | 92 |
| | 17 |
| | 92 |
| Consumer | 6 | | | 100 | | | 7 | | | 100 | |
| Total loans | $ | 533 |
| | 76 |
| | $ | 554 |
| | 76 |
| Total loans | $ | 7,278 | | | 98 | % | | $ | 580 | | | 75 | % |
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, 2020 | | | | December 31, 2019 | | |
| (Dollar amounts in millions) | Amount | | Percent | | Amount | | Percent |
| | | | | | | |
| Retail trade | $ | 2,808 | | | 8.9 | % | | $ | 2,606 | | | 10.3 | % |
| Healthcare and social assistance | 2,803 | | | 8.8 | | | 1,916 | | | 7.5 | |
| Manufacturing | 2,747 | | | 8.7 | | | 2,160 | | | 8.5 | |
| Real estate, rental and leasing | 2,518 | | | 7.9 | | | 2,401 | | | 9.5 | |
| Construction | 2,095 | | | 6.6 | | | 1,158 | | | 4.6 | |
| Finance and insurance | 2,089 | | | 6.6 | | | 1,837 | | | 7.2 | |
| Wholesale trade | 1,923 | | | 6.0 | | | 1,639 | | | 6.4 | |
| Professional, scientific, and technical services | 1,837 | | | 5.8 | | | 950 | | | 3.7 | |
| Hospitality and food services | 1,688 | | | 5.3 | | | 983 | | | 3.9 | |
| Transportation and warehousing | 1,638 | | | 5.2 | | | 1,454 | | | 5.7 | |
Utilities1 | 1,498 | | | 4.7 | | | 1,411 | | | 5.6 | |
| Mining, quarrying, and oil and gas extraction | 1,425 | | | 4.5 | | | 1,429 | | | 5.6 | |
| Other Services (except Public Administration) | 1,285 | | | 4.1 | | | 890 | | | 3.5 | |
| Public Administration | 1,268 | | | 4.0 | | | 1,189 | | | 4.7 | |
Other2 | 4,086 | | | 12.9 | | | 3,365 | | | 13.3 | |
| Total | $ | 31,708 | | | 100.0 | % | | $ | 25,388 | | | 100.0 | % |
|
| | | | | | | | | | | | | |
| | 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 | % |
| |
2 No other industry group exceeds 3.3%. 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 SeptemberJune 30, 2017 and December 31, 2016,2020, we had approximately $3.8$4.5 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, NATIONAL ASSOCIATION AND SUBSIDIARIES
OIL AND GAS-RELATED EXPOSURE 1
| | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | |
| (in millions) | June 30, 2020 | | | | December 31, 2019 | | | | | | | | | | | | | December 31, 2014 | | |
| | | | | | | | | | | | | | | | | | | | |
| Loans and leases | Amount | | Percent | | Amount | | Percent | | | | | | | | | | | Amount | | Percent |
| Upstream | $ | 1,034 | | | 39 | % | | $ | 1,041 | | | 42 | % | | | | | | | | | | | $ | 1,107 | | | 36 | % |
| Midstream | 909 | | | 35 | | | 863 | | | 34 | | | | | | | | | | | | 579 | | | 19 | |
| Oil and gas services | 460 | | | 17 | | | 439 | | | 18 | | | | | | | | | | | | 1,277 | | | 41 | |
| Downstream | 226 | | | 9 | | | 158 | | | 6 | | | | | | | | | | | | 110 | | | 4 | |
| Total loan and lease balances | 2,629 | | | 100 | % | | 2,501 | | | 100 | % | | | | | | | | | | | 3,073 | | | 100 | % |
| Unfunded lending commitments | 1,916 | | | | | 2,171 | | | | | | | | | | | | | | 2,700 | | | |
| Total oil and gas-related credit exposure | $ | 4,545 | | | | | $ | 4,672 | | | | | | | | | | | | | | $ | 5,773 | | | |
| | | | | | | | | | | | | | | | | | | | |
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| | | | | | | | 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 oil and gas-related activity, e.g., upstream or midstream; typically, 50% ofrevenues 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 sector is used as a guide.
At June 30, 2020, oil and gas-related loans held for salerepresented approximately 5% of the total loan portfolio, compared with 8% at period end.
| |
3
| Calculated as the ratio of annualized net charge-offs to the beginning loan balances for each respective period. |
DuringDecember 31, 2014, or the third quarterbeginning of 2017, our overall balancethe last energy cycle. Due to active risk management of the portfolio, the mix 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 quarterat June 30, 2020 consists of 2016. Oil39% upstream, 35% midstream, 17% oil and gas-related loans represented 4.6% of the total loan portfolio at September 30, 2017,services, and 9% downstream, compared with 5.1%36%, 19%, 41%, and 4%, respectively, at December 31, 2016 and 5.4% at September 30, 2016. Unfunded oil and gas-related2014.
We use disciplined underwriting practices to mitigate the risk associated with upstream 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.activities. 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 servicesreserve-based borrowers where approximately 84% of those loans which include oilfield services andare collateralized by the value of the borrower’s 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 sizereserves. The following schedule presents certain credit quality measures of our oil and gas-related portfolio,loan portfolio.
| | | | | | | | | | | | | |
| June 30, 2020 | | | | December 31, 2019 |
| Credit quality measures | | | | | |
| Classified loan ratio | 8.3 | % | | | | 2.2 | % |
| Nonaccrual loan ratio | 2.7 | % | | | | 0.7 | % |
| Ratio of nonaccrual loans that are current | 69.4 | % | | | | 66.7 | % |
Net charge-offs, annualized1 | — | % | | | | 0.5 | % |
| Ratio of allowance for credit losses to oil and gas-related loans, at period end | 5.7 | % | | | | 3.1 | % |
1 Calculated as the average amountratio of our commitments is approximately $6 million, with approximately 68%annualized net charge-offs for each respective period to loan balances at each period end.
For the second quarter of 2020, 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 totalclassified 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”)loan ratio was 8.3%, 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 ourhad no oil and gas-related borrowers have access to capital marketsnet charge-offs, 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.gas-related loans was 5.7%
ZIONS BANCORPORATION, NATIONAL ASSOCIATION AND SUBSIDIARIES
Commercial Real Estate Loans
SelectedSelect 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 | | 6/30/2020 | | $ | 1,183 | | | $ | 3,026 | | | $ | 647 | | | $ | 658 | | | $ | 1,647 | | | $ | 1,490 | | | $ | 427 | | | $ | 509 | | | $ | 9,587 | | | 80.2 | % |
| % of loan type | | | | 12.3 | % | | 31.6 | % | | 6.7 | % | | 6.9 | % | | 17.2 | % | | 15.5 | % | | 4.5 | % | | 5.3 | % | | 100.0 | % | | |
Delinquency rates 2: | | | | | | | | | | | | | | | | | | | | | | |
| 30-89 days | | 6/30/2020 | | 0.3 | % | | 0.3 | % | | — | % | | 0.8 | % | | — | % | | 0.1 | % | | — | % | | 0.4 | % | | 0.2 | % | | |
| | 12/31/2019 | | 0.1 | % | | 0.1 | % | | — | % | | 0.2 | % | | — | % | | 0.1 | % | | — | % | | 0.2 | % | | 0.1 | % | | |
| ≥ 90 days | | 6/30/2020 | | — | % | | 0.3 | % | | 1.1 | % | | — | % | | 0.1 | % | | 0.3 | % | | — | % | | 0.4 | % | | 0.2 | % | | |
| | 12/31/2019 | | — | % | | 0.1 | % | | — | % | | — | % | | — | % | | — | % | | — | % | | 0.2 | % | | — | % | | |
| Accruing loans past due 90 days or more | | 6/30/2020 | | $ | — | | | $ | — | | | $ | 8 | | | $ | — | | | $ | — | | | $ | — | | | $ | — | | | $ | — | | | $ | 8 | | | |
| | 12/31/2019 | | — | | | — | | | — | | | — | | | — | | | — | | | — | | | — | | | — | | | |
| Nonaccrual loans | | 6/30/2020 | | $ | — | | | $ | 10 | | | $ | — | | | $ | — | | | $ | 4 | | | $ | 5 | | | $ | — | | | $ | 4 | | | $ | 23 | | | |
| | 12/31/2019 | | — | | | 3 | | | — | | | — | | | 3 | | | 6 | | | — | | | 4 | | | 16 | | | |
| Residential construction and land development | | | | | | | | | | | | | | | | | | | | | | |
| Balance outstanding | | 6/30/2020 | | $ | 94 | | | $ | 220 | | | $ | 43 | | | $ | — | | | $ | 201 | | | $ | 130 | | | $ | 10 | | | $ | 19 | | | $ | 717 | | | 6.0 | % |
| % of loan type | | | | 13.1 | % | | 30.7 | % | | 6.0 | % | | — | % | | 28.0 | % | | 18.2 | % | | 1.4 | % | | 2.6 | % | | 100.0 | % | | |
Delinquency rates 2: | | | | | | | | | | | | | | | | | | | | | | |
| 30-89 days | | 6/30/2020 | | — | % | | 1.4 | % | | — | % | | — | % | | — | % | | — | % | | — | % | | — | % | | 0.4 | % | | |
| | 12/31/2019 | | — | % | | 1.2 | % | | — | % | | — | % | | — | % | | — | % | | — | % | | — | % | | 0.4 | % | | |
| ≥ 90 days | | 6/30/2020 | | — | % | | — | % | | — | % | | — | % | | — | % | | — | % | | — | % | | — | % | | — | % | | |
| | 12/31/2019 | | — | % | | — | % | | — | % | | — | % | | — | % | | — | % | | — | % | | — | % | | — | % | | |
| Accruing loans past due 90 days or more | | 6/30/2020 | | $ | — | | | $ | — | | | $ | — | | | $ | — | | | $ | — | | | $ | — | | | $ | — | | | $ | — | | | $ | — | | | |
| | 12/31/2019 | | — | | | — | | | — | | | — | | | — | | | — | | | — | | | — | | | — | | | |
| Nonaccrual loans | | 6/30/2020 | | $ | — | | | $ | — | | | $ | — | | | $ | — | | | $ | — | | | $ | — | | | $ | — | | | $ | — | | | $ | — | | | |
| | 12/31/2019 | | — | | | — | | | — | | | — | | | — | | | — | | | — | | | — | | | — | | | |
| Commercial construction and land development | | | | | | | | | | | | | | | | | | | | | | |
| Balance outstanding | | 6/30/2020 | | $ | 113 | | | $ | 312 | | | $ | 70 | | | $ | 126 | | | $ | 404 | | | $ | 433 | | | $ | 137 | | | $ | 55 | | | $ | 1,650 | | | 13.8 | % |
| % of loan type | | | | 6.9 | % | | 18.9 | % | | 4.2 | % | | 7.7 | % | | 24.5 | % | | 26.2 | % | | 8.3 | % | | 3.3 | % | | 100.0 | % | | |
Delinquency rates 2: | | | | | | | | | | | | | | | | | | | | | | |
| 30-89 days | | 6/30/2020 | | — | % | | 1.0 | % | | 5.7 | % | | — | % | | — | % | | — | % | | — | % | | — | % | | 0.4 | % | | |
| | 12/31/2019 | | — | % | | 0.4 | % | | — | % | | — | % | | — | % | | 0.2 | % | | — | % | | — | % | | 0.1 | % | | |
| ≥ 90 days | | 6/30/2020 | | — | % | | — | % | | — | % | | — | % | | — | % | | — | % | | — | % | | — | % | | — | % | | |
| | 12/31/2019 | | — | % | | — | % | | — | % | | — | % | | — | % | | — | % | | — | % | | — | % | | — | % | | |
| Accruing loans past due 90 days or more | | 6/30/2020 | | $ | — | | | $ | — | | | $ | — | | | $ | — | | | $ | — | | | $ | — | | | $ | — | | | $ | — | | | $ | — | | | |
| | 12/31/2019 | | — | | | — | | | — | | | — | | | — | | | — | | | — | | | — | | | — | | | |
| Nonaccrual loans | | 6/30/2020 | | $ | — | | | $ | — | | | $ | — | | | $ | — | | | $ | — | | | $ | — | | | $ | — | | | $ | — | | | $ | — | | | |
| | 12/31/2019 | | — | | | — | | | — | | | — | | | — | | | — | | | — | | | — | | | — | | | |
| Total construction and land development | | 6/30/2020 | | $ | 207 | | | $ | 532 | | | $ | 113 | | | $ | 126 | | | $ | 605 | | | $ | 563 | | | $ | 147 | | | $ | 74 | | | $ | 2,367 | | | |
| Total commercial real estate | | 6/30/2020 | | $ | 1,390 | | | $ | 3,558 | | | $ | 760 | | | $ | 784 | | | $ | 2,252 | | | $ | 2,053 | | | $ | 574 | | | $ | 583 | | | $ | 11,954 | | | 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 | % |
| |
1
| No other geography exceeds $67 million for all three loan types. |
| |
2
| Delinquency rates include nonaccrual loans. |
2 Delinquency rates include nonaccrual loans.
At June 30, 2020, our CRE construction and land development and term loan portfolios represent approximately 22% of the total loan portfolio. The majority of our CRE loans are secured by real estate located within our geographical footprint. Approximately 21%25% of the CRE term loans consist of mini-perm loans as of September 30, 2017. For such loans, construction has been completed andloan portfolio matures in 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 tonext 12 months. Construction
ZIONS BANCORPORATION, NATIONAL ASSOCIATION AND SUBSIDIARIES
seven years. The remaining 79% ofand land development loans generally mature in 18 to 36 months and contain full or partial recourse guarantee structures with one to five-year extension options or roll-to-perm options that often result in term debt. Term CRE loans aregenerally mature within a three to seven-year period and consist of full, partial, and non-recourse guarantee structures. Typical term loans with initial maturities generally of 5 to 20 years. The stabilization criteria for a project to qualify for a termCRE loan differ by product type andstructures include criteria related to the cash flow generated by the project,annually-tested operating covenants that require loan rebalancing based on minimum debt service coverage, debt yield, or loan-to-value ratio, and occupancy rates.tests.
Approximately $134$142 million, or 9%6%, of the commercial construction and land development portfolio at SeptemberJune 30, 20172020 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.
Of the total CRE loan portfolio we categorize $1.9 billion as retail property. At September 30, 2017, approximately $339 million, or 18%, For a more comprehensive discussion of the retail CRE loans, are secured by regional shopping centers.
Underwriting on commercial properties is primarily based onsee 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, depending2019 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, 2017,2020 and December 31, 2019, 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,
2020 | | December 31,
2019 |
| | | | | | | | |
| Secured by first deeds of trust | $ | 1,396 |
| | $ | 1,383 |
| Secured by first deeds of trust | $ | 1,374 | | | $ | 1,392 | |
| Secured by second (or junior) liens | 1,349 |
| | 1,262 |
| Secured by second (or junior) liens | 1,482 | | | 1,525 | |
| Total | $ | 2,745 |
| | $ | 2,645 |
| Total | $ | 2,856 | | | $ | 2,917 | |
At SeptemberJune 30, 2017,2020, 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%89% of our HECL portfolio is still in the draw period, and approximately 24%18% 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 20172020 and 20162019 for the HECL portfolio was (0.01)%0.00% and 0.02%(0.02)%, 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 decreased(“OREO”) increased to 1.06%0.62% at SeptemberJune 30, 2017,2020, compared with 1.34%0.51% at December 31, 2016.2019.
Total nonaccrual loans at SeptemberJune 30, 2017 decreased $1042020 increased $96 million from December 31, 2016,2019, primarily in the commercial and industrial loan portfolio. However, nonaccrual loans slightly increased in the commercial owner-occupiedportfolio at Amegy and commercial real estate term loan portfolios. The largest total decrease in nonaccrual loans occurred at Amegy.Vectra.
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. Company policy does not allow for the conversion of nonaccrual construction and land development loans to CRE term loans. See also 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 forthpresents our nonperforming assets:
NONPERFORMING ASSETS
| | | | | | | | | | | |
| (Dollar amounts in millions) | June 30,
2020 | | December 31,
2019 |
| | | |
Nonaccrual loans 1 | $ | 339 | | | $ | 243 | |
| Other real estate owned | 5 | | | 8 | |
| Total nonperforming assets | $ | 344 | | | $ | 251 | |
Ratio of nonperforming assets to net loans and leases1 and other real estate owned | 0.62 | % | | 0.51 | % |
| Accruing loans past due 90 days or more | $ | 16 | | | $ | 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 | $ | 355 | | | $ | 253 | |
Ratio of nonaccrual loans and accruing loans past due 90 days or more to loans and leases1 | 0.64 | % | | 0.52 | % |
| Accruing loans past due 30-89 days | $ | 168 | | | $ | 75 | |
Nonaccrual loans1 current as to principal and interest payments | 53.4 | % | | 53.1 | % |
|
| | | | | | | |
| (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 $3increased $132 million, or 1.2%86%, during the first ninesix months of 2017.2020. 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,
2020 | | December 31,
2019 |
| | | | | | | | |
| Restructured loans – accruing | $ | 133 |
| | $ | 151 |
| Restructured loans – accruing | $ | 197 | | | $ | 78 | |
| Restructured loans – nonaccruing | 115 |
| | 100 |
| Restructured loans – nonaccruing | 88 | | | 75 | |
| Total | $ | 248 |
| | $ | 251 |
| Total | $ | 285 | | | $ | 153 | |
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
June 30, | | | | Six Months Ended
June 30, | | | |
| (In millions) | 2020 | | 2019 | | 2020 | | 2019 | |
| | | | | | | | |
| Balance at beginning of period | $ | 167 | | | $ | 174 | | | $ | 153 | | | $ | 202 | | |
| New identified TDRs and principal increases | 145 | | | 14 | | | 172 | | | 20 | | |
| Payments and payoffs | (12) | | | (11) | | | (22) | | | (39) | | |
| Charge-offs | (15) | | | (1) | | | (15) | | | (5) | | |
| No longer reported as TDRs | — | | | — | | | (2) | | | — | | |
| Sales and other | — | | | — | | | (1) | | | (2) | | |
| Balance at end of period | $ | 285 | | | $ | 176 | | | $ | 285 | | | $ | 176 | | |
|
| | | | | | | | | | | | | | | |
| | Three Months Ended
September 30, | | Nine Months Ended
September 30, |
| (In millions) | 2017 | | 2016 | | 2017 | | 2016 |
| | | | | | | | |
| Balance at beginning of period | $ | 304 |
| | $ | 315 |
| | $ | 251 |
| | $ | 297 |
|
| New identified TDRs and principal increases | 7 |
| | 40 |
| | 163 |
| | 142 |
|
| Payments and payoffs | (45 | ) | | (35 | ) | | (117 | ) | | (107 | ) |
| Charge-offs | (4 | ) | | (24 | ) | | (17 | ) | | (29 | ) |
| No longer reported as TDRs | — |
| | — |
| | (4 | ) | | (7 | ) |
| Sales and other | (14 | ) | | (1 | ) | | (28 | ) | | (1 | ) |
| Balance at end of period | $ | 248 |
| | $ | 295 |
| | $ | 248 |
| | $ | 295 |
|
As described previously, we developed various debt relief programs for our borrowers that have been adversely impacted by the COVID-19 pandemic. These programs primarily began in the second quarter of 2020 and generally consisted of short-term, or 90-day, principal and interest loan payment deferrals. Consistent with accounting and regulatory guidance, loan modifications provided to borrowers experiencing financial difficulties exclusively related to the COVID-19 pandemic, in which we provided these short-term modifications or payment deferrals, are not classified as TDRs. Approximately 8.5% of total loan balances (across most loan products and industries) have been processed for modifications or payment deferrals as of June 30, 2020.
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, NATIONAL ASSOCIATION 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) | Six Months Ended June 30, 2020 | | Twelve Months Ended
December 31, 2019 | | Six Months Ended June 30, 2019 |
| | | | | |
| Loans and leases outstanding (net of unearned income) | $ | 55,129 | | | $ | 48,709 | | | $ | 48,617 | |
| Average loans and leases outstanding (net of unearned income) | $ | 51,532 | | | $ | 48,265 | | | $ | 47,750 | |
| Allowance for loan losses: | | | | | |
Balance at beginning of period1 | $ | 497 | | | $ | 495 | | | $ | 495 | |
| Provision for loan losses | 401 | | | 37 | | | 22 | |
| Charge-offs: | | | | | |
| Commercial | 41 | | | 57 | | | 27 | |
| Commercial real estate | — | | | 4 | | | 1 | |
| Consumer | 8 | | | 17 | | | 7 | |
| Total | 49 | | | 78 | | | 35 | |
| Recoveries: | | | | | |
| Commercial | 7 | | | 25 | | | 12 | |
| Commercial real estate | — | | | 6 | | | 3 | |
| Consumer | 4 | | | 10 | | | 6 | |
| Total | 11 | | | 41 | | | 21 | |
| Net loan and lease charge-offs (recoveries) | 38 | | | 37 | | | 14 | |
| Balance at end of period | $ | 860 | | | $ | 495 | | | $ | 503 | |
| Ratio of annualized net charge-offs to average loans and leases | 0.15 | % | | 0.08 | % | | 0.06 | % |
Ratio of allowance for loan losses to net loans2 and leases, at period end | 1.56 | % | | 1.02 | % | | 1.03 | % |
Ratio of allowance for loan losses to nonaccrual loans2, at period end | 254 | % | | 204 | % | | 203 | % |
| Ratio of allowance for loan losses to nonaccrual loans and accruing loans past due 90 days or more, at period end | 242 | % | | 196 | % | | 190 | % |
|
| | | | | | | | | | | |
| (Dollar amounts in millions) | Nine Months Ended September 30, 2017 | | Twelve Months Ended December 31, 2016 | | Nine Months Ended September 30, 2016 |
| | | | | | |
| Loans and leases outstanding (net of unearned income) | $ | 44,156 |
| | $ | 42,649 |
| | $ | 42,540 |
|
| Average loans and leases outstanding (net of unearned income) | $ | 43,218 |
| | $ | 42,062 |
| | $ | 41,868 |
|
| Allowance for loan losses: | | | | | |
| Balance at beginning of period | $ | 567 |
| | $ | 606 |
| | $ | 606 |
|
| Provision charged to earnings | 35 |
| | 93 |
| | 95 |
|
| Charge-offs: | | | | | |
| Commercial | (98 | ) | | (170 | ) | | (138 | ) |
| Commercial real estate | (6 | ) | | (12 | ) | | (10 | ) |
| Consumer | (13 | ) | | (16 | ) | | (11 | ) |
| Total | (117 | ) | | (198 | ) | | (159 | ) |
| Recoveries: | | | | | |
| Commercial | 36 |
| | 43 |
| | 36 |
|
| Commercial real estate | 12 |
| | 14 |
| | 12 |
|
| Consumer | 8 |
| | 9 |
| | 7 |
|
| Total | 56 |
| | 66 |
| | 55 |
|
| Net loan and lease charge-offs | (61 | ) | | (132 | ) | | (104 | ) |
| Balance at end of period | $ | 541 |
| | $ | 567 |
| | $ | 597 |
|
| Ratio of annualized net charge-offs to average loans and leases | 0.19 | % | | 0.31 | % | | 0.33 | % |
| 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 nonaccrual loans, at period end | 120 | % | | 107 | % | | 103 | % |
| Ratio of allowance for loan losses to nonaccrual loans and accruing loans past due 90 days or more, at period end | 112 | % | | 100 | % | | 98 | % |
2 Does not include loans held for sale.
The total ALLL decreasedincreased during the first ninesix months of 20172020 by $26$365 million, primarily as a result of credit quality improvementsexperienced and expected economic deterioration caused by the COVID-19 pandemic and stress in the total loan portfolio.oil and gas-related sector.
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, 2017,2020, the reserve decreased bywas $54 million, a decrease of $5 million and $6 million compared withfrom December 31, 2016, also as a result of credit quality improvements in the total loan portfolio,2019, and decreased by $3 million from SeptemberJune 30, 2016.2019, respectively.
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 incomefixed-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.
ZIONS BANCORPORATION, NATIONAL ASSOCIATION AND SUBSIDIARIES
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 risingthe current rate environment as the rate earned on our assets reprice more quickly thancontinue to decline. Due to our liabilities.
As most of our liabilities are comprised of indeterminate maturity and managed rateconcentration in noninterest-bearing deposits behavioral assumptions for these deposits have a significant impactas well as the low interest rates paid on our projectedinterest-bearing deposits, there is little room to reduce deposit costs.
At December 31, 2019 we had $1.5 billion of fixed-to-floating interest rate risk. We have historically reportedswaps hedging long-term debt (effectively converting the fixed-rate debt into floating-rate debt). In late March 2020, we terminated $1.0 billion of swaps (i.e. two sets$500 million swaps with maturities in August 2021 and February 2022) with a combined fair value of deposit assumptions, fast$36 million that adjusted the carrying value of the debt by the same amount. The basis adjustment will be amortized as an adjustment to interest expense through the maturity of the debt, thereby reducing the effective interest rate. For more information on derivatives designated as qualifying hedges, see Note 7 – Derivative Instruments and slow, to reflectHedging Activities.
The schedule below presents all derivatives utilized in our asset-liability management ("ALM") activities that are designated in qualifying hedging relationships as defined by GAAP as of June 30, 2020 and December 31, 2019. The schedule includes the uncertaintynotional amount, fair value, and the weighted-average receive-fixed rate for each category of deposit behavior and its impact on interest rate risk. We have recently updated our deposit models and now disclose interest rate riskderivatives, shown by maturity for only a single set of deposit behavioral assumptions. The newly implemented method differs from prior methods primarilythe next five years.
| | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | |
| June 30, 2020 | | | | | | | | | | | | | | |
| | | Contractual Maturity | | | | | | | | | | | | |
| (Dollar amounts in millions) | Total | | 2020 | | 2021 | | 2022 | | 2023 | | 2024 | | Thereafter | | Maturities-to-date 2020 |
| Cash flow hedges | | | | | | | | | | | | | | | |
| | | | | | | | | | | | | | | |
| | | | | | | | | | | | | | | |
| | | | | | | | | | | | | | | |
| | | | | | | | | | | | | | | |
| Receive-fixed interest rate swaps | | | | | | | | | | | | | | | |
Net fair value1 | $ | 119 | | | $ | 1 | | | $ | 1 | | | $ | 79 | | | $ | 5 | | | $ | 33 | | | $ | — | | | $ | — | |
| Total notional amount | 3,500 | | | 350 | | | 50 | | | 2,400 | | | 300 | | | 400 | | | — | | | 88 | |
| Weighted-average fixed-rate | 2.06 | % | | 1.56 | % | | 1.81 | % | | 2.06 | % | | 2.35 | % | | 2.35 | % | | — | % | | 1.53 | % |
| | | | | | | | | | | | | | | |
| Fair value hedges | | | | | | | | | | | | | | | |
| Receive-fixed interest rate swaps | | | | | | | | | | | | | | | |
Net fair value1 | $ | 49 | | | $ | — | | | $ | — | | | $ | — | | | $ | — | | | $ | — | | | $ | 49 | | | $ | — | |
| Total notional amount | 500 | | | — | | | — | | | — | | | — | | | — | | | 500 | | | — | |
| Weighted-average fixed-rate | 1.70 | % | | — | % | | — | % | | — | % | | — | % | | — | % | | 1.70 | % | | — | % |
| | | | | | | | | | | | | | | |
| Total ALM interest rate derivatives | | | | | | | | | | | | | | | |
Net fair value1 | $ | 168 | | | $ | 1 | | | $ | 1 | | | $ | 79 | | | $ | 5 | | | $ | 33 | | | $ | 49 | | | $ | — | |
| Total notional amount | 4,000 | | | 350 | | | 50 | | | 2,400 | | | 300 | | | 400 | | | 500 | | | 88 | |
1Fair values shown in the way we treat commercial checking depositsschedule above are presented net and exclude the effects of collateral settlements for centrally cleared derivatives.
ZIONS BANCORPORATION, NATIONAL ASSOCIATION AND SUBSIDIARIES
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| December 31, 2019 | | | | | | | | | | | | | | |
| | | Contractual Maturity | | | | | | | | | | | | |
| (Dollar amounts in millions) | Total | | 2020 | | 2021 | | 2022 | | 2023 | | 2024 | | Thereafter | | Matured in 2019 |
| Cash flow hedges | | | | | | | | | | | | | | | |
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| Receive-fixed interest rate swaps | | | | | | | | | | | | | | | |
Net fair value1 | $ | 48 | | | $ | — | | | $ | — | | | $ | 27 | | | $ | 8 | | | $ | 13 | | | $ | — | | | $ | — | |
| Total notional amount | 3,588 | | | 438 | | | 50 | | | 2,400 | | | 300 | | | 400 | | | — | | | 200 | |
| Weighted-average fixed-rate | 2.05 | % | | 1.56 | % | | 1.81 | % | | 2.06 | % | | 2.35 | % | | 2.35 | % | | — | % | | 1.62 | % |
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| Fair value hedges | | | | | | | | | | | | | | | |
| Receive-fixed interest rate swaps | | | | | | | | | | | | | | | |
Net fair value1 | $ | 9 | | | $ | — | | | $ | 10 | | | $ | 9 | | | $ | — | | | $ | — | | | $ | (10) | | | $ | — | |
| Total notional amount | 1,500 | | | — | | | 500 | | | 500 | | | — | | | — | | | 500 | | | — | |
| Weighted-average fixed-rate | 2.39 | % | | — | % | | 2.99 | % | | 2.46 | % | | — | % | | — | % | | 1.70 | % | | — | % |
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| Total ALM interest rate derivatives | | | | | | | | | | | | | | | |
Net fair value1 | $ | 57 | | | $ | — | | | $ | 10 | | | $ | 36 | | | $ | 8 | | | $ | 13 | | | $ | (10) | | | $ | — | |
| Total notional amount | 5,088 | | | 438 | | | 550 | | | 2,900 | | | 300 | | | 400 | | | 500 | | | 200 | |
1Fair values shown in the manner by which we determineschedule above are presented net and exclude the portioneffects of deposits that are core deposits. For commercial checking deposits, we have separated the balances into a core amount that is operational or that compensatescollateral settlements 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 24 to 48 months, and excess balances are modeled with a high attrition rate.centrally cleared derivatives.
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 interest rate environments. Earnings at Riskenvironments over a one-year period. This simulated impact to net interest income due to a change in rates uses as its base a modeled net interest income that is measured assumingnot necessarily the same as the most recent quarter's or year's reported net interest income. Rather, EaR employs estimated net interest income under an unchanged interest rate scenario as the basis for comparison. The EaR process then simulates changes to the base net interest income under several interest rate 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). The EaR model does not contemplate changes in fee income that are amortized into interest income (e.g. premiums, discounts, origination points and costs, etc.). 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 and into 2020. As of June 30, 2020 the EaR declined by 1% 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 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.
ZIONS BANCORPORATION, NATIONAL ASSOCIATION AND SUBSIDIARIES
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, 2020 | |
| Product | | Effective duration (unchanged) | | Effective duration (+200 bps) | Product | | Effective duration (unchanged) | | Effective duration
(+200 bps) |
| | | | | | | | | | |
| Demand deposits | | 3.3 | % | | 3.3 | % | Demand deposits | | 3.9 | % | | 2.9 | % |
| Money market | | 1.5 | % | | 1.3 | % | Money market | | 5.4 | % | | 1.8 | % |
| 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
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| | June 30, 2020 | | | | | | | | |
| | Parallel shift in rates (in bps)1 | | | | | | | | |
| Repricing scenario | | -100 | | 0 | | +100 | | +200 | | +300 |
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| Earnings at Risk | | (1.4) | % | | — | % | | 7.6 | % | | 13.4 | % | | 18.6 | % |
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| | | September 30, 2017 |
| | | Parallel shift in rates (in bps)1 |
| Repricing scenario | | -100 | | 0 | | +100 | | +200 | | +300 |
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| Earnings at Risk | | (3.8 | )% | | — | % | | 2.9 | % | | 5.8 | % | | 8.5 | % |
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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%24%. If the weighted average deposit beta increasedwere to 46% it would decreaseincrease 6%, the EaR in the +200bp+100 bps rate shock would change from 5.8%7.6% to 3.3%7.2%.
ZIONS BANCORPORATION, NATIONAL ASSOCIATION AND SUBSIDIARIES
For comparative purposes, the December 31, 2019 measures are presented in the following schedule.
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| | December 31, 2019 | | | | | | | | |
| | Parallel shift in rates (in bps)1 | | | | | | | | |
| Repricing scenario | | -100 | | 0 | | +100 | | +200 | | +300 |
| | | | | | | | | | |
| Earnings at Risk | | (4.6) | % | | — | % | | 3.0 | % | | 6.0 | % | | 8.9 | % |
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1 Assumes rates cannot go below zero in the negative rate shift.
The asset sensitivity as measured by EaR increased quarter over quarter primarily due to changes in the deposit beta for money market accounts. The lower beta is consistent with our prior experience with the federal funds target rate in the range of 0%-0.25%.
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 flattening rate shock
ZIONS BANCORPORATION AND SUBSIDIARIES
where the short-term rate moves +200bp+200 bps but the ten-year rate only moves +30bp,+30 bps, the increase in earningsEaR is 31% lower39% less over 1224 months compared with the parallel +200bp+200 bps rate shock.
For comparative purposes, the December 31, 2016 measures as presented in the following schedule have been recalculated using the new methodology.
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| | | December 31, 2016 |
| | | Parallel shift in rates (in bps)1 |
| Repricing scenario | | -100 | | 0 | | +100 | | +200 | | +300 |
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| Earnings at Risk | | (4.9 | )% | | — | % | | 3.6 | % | | 7.6 | % | | 11.5 | % |
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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%24%. If the weighted average deposit beta increasedwere to 46%increase 6% it would decreasechange the EVE in the +200bp+100 bps rate shock from 1.1%10.6% to -1.4%9.2%. In the -100 bps rate shock the EVE would increase due to the fact that we cap the value of our indeterminate deposits at their par value, or equivalently we assume no premium would be required to dispose of these liabilities given that depositors could be repaid at par.Since our assets increase in value as rates fall and the majority of our liabilities are indeterminate deposits, EVE increases disproportionately.
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| | June 30, 2020 | | | | | | | | |
| | Parallel shift in rates (in bps)1 | | | | | | | | |
| Repricing scenario | | -100 | | 0 | | +100 | | +200 | | +300 |
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| Economic Value of Equity | | 12.8 | % | | — | % | | 10.6 | % | | 14.4 | % | | 16.6 | % |
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| | | 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 | % |
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1
| Assumes rates cannot go below zero in the negative rate shift. |
For comparative purposes, the December 31, 20162019 measures asare presented in the following schedule have been recalculated using the new methodology.schedule. The changes in EVE measures from December 31, 2019 are primarily driven by the same factors as thosebehavior of the deposit models. For non-maturity deposits, the deposit premium (or discount below par value) is floored at zero in our income simulation.a low-rate environment.
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| | December 31, 2019 | | | | | | | | |
| | Parallel shift in rates (in bps)1 | | | | | | | | |
| Repricing scenario | | -100 | | 0 | | +100 | | +200 | | +300 |
| | | | | | | | | | |
| Economic Value of Equity | | 8.0 | % | | — | % | | 1.1 | % | | 0.4 | % | | (0.6) | % |
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| | | 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 | % |
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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, $19.72020, $22 billion of the Company’sBank’s commercial lending and CRE loan balances were scheduled to reprice in the next sixthree 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$3.5 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$3 billion of variable-rate loans being priced at floored rates at SeptemberJune 30, 2017,2020, which were above the “index plus spread” rate by an average of 4573 bps. At SeptemberJune 30, 2017,2020, we also had $3.2 billion of variable-rate consumer loans scheduled to reprice in the next sixthree months. Of these variable-rate consumer loans approximately $0.2$1.1 billion were priced at floored rates, which were above the “index plus spread” rate by an average of 3236 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.
ZIONS BANCORPORATION, NATIONAL ASSOCIATION AND SUBSIDIARIES
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 exposure to LIBOR in various aspects through our 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 incomefixed-income securities.
ZIONS BANCORPORATION AND SUBSIDIARIES
At SeptemberJune 30, 2017,2020, we had a relatively small amount, $56$160 million, of trading assets and $49$42 million of securities sold, not yet purchased, compared with $115$182 million and $25$66 million, respectively, at December 31, 2016.2019.
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”)AOCI for each financial reporting period. During the thirdsecond quarter of 2017,2020, the after-tax change in AOCI attributable to AFS securities decreasedincreased by $47$94 million, due largely to changes in the interest rate environment, compared with a $11$116 million decreaseincrease 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”small business investment company ("SBIC") venture capital funds. Our equity exposure to these investments was approximately $123$122 million and $124$154 million at SeptemberJune 30, 20172020 and December 31, 2016,2019, 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
Liquidity Risk Management
Liquidity refers to our capacity to meet our cash and collateral obligations and to manage both expected and unexpected cash flows without adversely impacting 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 stage venture capital funds are generally not a partoperations or financial strength of the strategy because the underlying companies are typically not creditworthy. The carrying valueBank. Sources of Amegy’sliquidity include both traditional forms of funding, such as deposits, borrowings, and equity investments was $12 million at September 30, 2017 and $13 million at December 31, 2016.unencumbered assets, such as marketable loans and securities.
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 that our cash flows may not be adequate to fund our ongoing 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, many of the previously discussed risk control mechanisms also apply to the monitoring and management 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
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” and LCR, that are used to monitor the liquidity positions of the Parent and ZB, N.A., as well as various stress test and liquid asset measurements for the Parent and ZB, N.A.ZIONS BANCORPORATION, NATIONAL ASSOCIATION AND SUBSIDIARIES
The Company has adopted policy limits that governBank continues to perform liquidity risk. The policy requires the Company to maintain a bufferstress tests and assess 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, 2020, our investment securities portfolio of $15.0 billion and are subject to review by the FRB. cash and money market investments of $2.4 billion collectively comprised 23% of total assets.
The Company’s internal liquidity stress-testing program as contained in its policy complies with these requirements and includes monthly liquidity stress testing using a set of internally generated scenarios representing severe liquidity constraints over a 12-month horizon.
Liquidity Management Actions
ConsolidatedBank’s consolidated cash, interest-bearing deposits held as investments, and security resell agreements at the Parent and its subsidiaries was $1.7 billion at September 30, 2017 compared with $2.0were $2.4 billion at June 30, 2017 and $2.52020 compared to $1.8 billion at December 31, 2016. The $0.82019, and $1.7 billion decreaseat June 30, 2019. During the first six months of 2020 the primary source of cash was from an increase in deposits. Uses of cash during the first nine months of 2017 resultedsame period were primarily from (1) loan originations, (2) a decrease in short-term borrowings, (3) an increase in investment securities, (2) net loan originations and purchases, (3) a net decrease in deposits, (4) repurchase of our common stock, (5) repayment of long-term debt, (6) repurchase and redemption of our preferred stock, and (7)(5) dividends on common and preferred stock, and (6) repurchases of our common stock. These decreases
Total deposits were partially offset by short-term FHLB borrowings and net cash provided by operating activities.
ZIONS BANCORPORATION AND SUBSIDIARIES
During the first nine months of 2017, our HTM and AFS investment securities increased by $1.7 billion. This increase was primarily due to purchases 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$65.7 billion at June 30, 2016 and $0.52020 compared to $57.1 billion at December 31, 2016. This $0.22019 and $54.3 billion decreaseat June 30, 2019. The increase for the first ninesix months of 2017 resulted primarily from (1) repurchase2020 was a result of our common stock, (2) repayment of long-term debt, (3) repurchasea $7.1 billion and redemption of our preferred stock$2.5 billion increase in noninterest-bearing demand deposits and (4) dividends on our commonsavings and preferred stock. This decrease in cash wasmoney market deposits, respectively, partially offset by common dividendsa $1.0 billion decrease in time deposits. The funding of PPP loan proceeds into customer deposit accounts contributed meaningfully to overall deposit growth. The Bank’s core deposits, consisting of noninterest-bearing demand deposits, savings and return of common equitymoney market deposits, and preferred dividends received by the parent from its subsidiary bank.time deposits under $250,000, was $63.3 billion at June 30, 2020 compared with $53.9 billion at December 31, 2019 and $51.0 billion at June 30, 2019.
At SeptemberJune 30, 2017,2020, maturities of our long-term senior and subordinated debt ranged from June 2023August 2021 to September 2028.October 2029.
DuringThe Bank’s cash payments for interest, reflected in operating expenses, decreased to $123 million during the first ninesix months of 2017,2020 from $199 million during the Parent received common dividendsfirst six months of 2019. This decrease is primarily due to lower interest rates paid on deposits and returnborrowed funds and lower borrowed funds. Additionally, the Bank paid approximately $130 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 $1252020 compared to $127 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 dividends2019. Dividends paid per common share increased from $0.30 in the second quarter of 2019 to $0.34 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 2020. In July 2020, the Board approved a quarterly common dividend of $0.34 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. Although the Bank’s credit ratings did not change during the first ninesix months of 2017, except2020, Fitch and S&P and Kroll upgradedrevised their outlooks for both the Parent and ZB, N.A.outlook to Negative 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.
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 disruption in economic activity and financial markets from the maturityCOVID-19 pandemic and repayment of debt during 2017the Bank's oil and 2016. Additionally,gas exposure. The Bank's credit ratings and outlooks are presented in 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.following schedule.
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, 2020: | | | | | | | | |
| Rating agency | | Outlook | | Long-term issuer/senior
debt rating | | Subordinated debt rating | | Short-term debt rating |
| | | | | | | | |
| Kroll | | Stable | | A- | | BBB+ | | K2 |
| S&P | | Negative | | BBB+ | | BBB | | NR |
| Fitch | | Negative | | BBB+ | | BBB | | F1 |
| Moody's | | Stable | | Baa2 | | NR | | NR |
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$19.1 billion at June 30, 2020 compared with $17.1to $15.3 billion at December 31, 2016.2019 and $13.8 billion at June 30, 2019. Loans with a carrying
ZIONS BANCORPORATION, NATIONAL ASSOCIATION AND SUBSIDIARIES
value of approximately $25.4$26.6 billion at SeptemberJune 30, 20172020 have been pledged at the FHLB of Des Moines and the Federal Reserve as collateral for current and potential borrowings compared with $24.0$21.5 billion at December 31, 2016.2019. At SeptemberJune 30, 2017,2020, we had $3.3 billion of$1 million short-term FHLBFederal Reserve borrowings outstanding and no long-term FHLBFederal Reserve or Federal ReserveFHLB borrowings outstanding, compared with $500 million$1.0 billion of short-term FHLB borrowings and no long-term FHLB or Federal Reserve borrowings outstanding at December 31, 2016.2019. At SeptemberJune 30, 2017,2020, our total investment in FHLB and Federal Reserve stock was $140$10 million and $184$97 million, respectively, compared with $30$50 million and $181$107 million at December 31, 2016.2019.
During the second quarter of 2020, the Federal Reserve established the Payroll Protection Program Liquidity Facility (“PPPLF”). Zions has the ability to pledge loans it has made under the PPP to the PPPLF and receive term funding matching the term of the pledged loans for the full balance of PPP loans held by the Bank. The PPPLF is therefore an additional source of liquidity with the amount determined by the balance of PPP loans held.
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 use cash, depending onrepurchase agreements and whose value remains relatively stable during market disruptions. We regularly manage our short-term funding needs through secured borrowing with the asset-liabilitysecurities pledged as collateral. Interest rate risk management posture taken. Duringis another consideration for selection of investment securities. Our AFS securities balances increased by $476 million during the first ninesix months of 2017, HTM and AFS investment securities’ activities resulted in2020.
The Bank’s loan to total deposit ratio was 84% at June 30, 2020 compared to 85% at December 31, 2019, indicating a net increase in investment securities and a net $2.1 billion decrease in cash,higher deposit growth pattern compared with a net $2.9 billion decrease in cashto the loan growth pattern for the first ninesix months of 2016, reflecting2020. If our purchaseoperating, investing and deposit activity do not provide the loan funding required, the Bank will rely on more expensive wholesale funding for a portion of HQLAits loan growth. Our use of borrowed funds (both short- and long-term) decreased by $1.6 billion during the first quarter of 2017.
Maturing balances in ZB, N.A.’s loan portfolios also provide additional flexibility in managing cash flows. Lending and purchase activity for the first ninesix months of 2017 resulted in a net cash outflow2020 as our deposit growth funded average loan growth over the period.
We may also, from time to time, issue additional preferred stock, senior or subordinated notes or other forms of $1.5 billion compared with a net cash outflowcapital or debt instruments, depending on our capital, funding, asset-liability management or other needs as market conditions warrant and subject to any required regulatory approvals. Management believes that the sources of $2.0 billion for the first nine months of 2016.
available liquidity are adequate to meet all reasonably foreseeable short-term and intermediate-term demands. A more comprehensive discussion of liquidity risk management, including certain contractual obligations, is contained in our 20162019 Annual Report on Form 10-K.
OperationalOperational/Technology and Cyber 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.
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 periodic 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 consistently and accurately capture critical data. In addition, the Data Governance department has 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.
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,cyberattacks, or other similar names also continuecontinues to grow. On a daily basis,To combat the Company, its customers,ever increasing sophistication of cyberattacks, we have upgraded key detection software and other financial institutions are subject to a largeexpanded the number of such attempts.staff and expertise to monitor and manage cyberattacks. In addition, we have elevated our oversight and internal reporting to the Board and
ZIONS BANCORPORATION, NATIONAL ASSOCIATION AND SUBSIDIARIES
respective committees. We have established systemsalso implemented an advisory group made up of cyber industry and academic experts to assist us in better managing this critical risk.
While we have significant internal resources, policies and procedures designed to monitor, thwartprevent or mitigate damage from such attempts. However, in some instances we,limit the effect of the possible failure, interruption or our customers, have been victimized by cyber fraud (our related losses have not been material), or somesecurity breach of our customers have been temporarily unableinformation systems, the Bank has experienced security breaches due to routinely accesscyberattacks in the past and there can be no assurance that any such failure, interruption or security breach will not occur in the future, or, if they do occur, that they will be adequately addressed. It is impossible to determine the potential effects of these events with any certainty but any such breach could result in material adverse consequences for the Bank and its customers.
For a more comprehensive discussion of operational/technology and cyber risk management see 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 this risk in an effective manner.2019 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. The Bank has a fundamental financial objective to consistently produce superior risk-adjusted returns on its shareholders’ capital. We entered the economic downturn resulting from the COVID-19 pandemic with a strong capital position.
Capital Planning and Stress Testing
As a bank holding company (“BHC”) with assets greater than $50 billion, we are requiredThe Bank’s primary regulator is the OCC. The Bank continues to be subject to examinations by the Dodd-FrankCFPB with respect to consumer financial regulations. Under the National Bank Act and OCC regulations, certain capital transactions may be subject to participate in annualthe approval of the OCC.
The Bank continues to utilize stress testing as the primary mechanism to inform its decisions on the appropriate level of capital and capital actions, based upon actual and hypothetically-stressed economic conditions. The results of our internal stress tests known asare publicly available on the Dodd-Frank Act Stress Test (“DFAST”). In addition, we are required to participate in the Federal Reserve Board’s annual Comprehensive Capital AnalysisBank's website. The timing and Review (“CCAR”), which is also recently referenced as the Horizontal Capital Review (“HCR”) for large and non-complex firms (generally, BHCs, with assets between $50 billion 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.
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 sufficient 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 July 31, 2016 to June 30, 2017). The plan included (1) the increase 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 on 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.
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,conditions, 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.approval.
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
Weighted average diluted shares outstanding decreased 8.6 million from the first quarter of 2020, primarily due to a lower average Bank common share price and the expiration of common stock warrants. On May 22, 2020, 29.2 million common stock warrants (NASDAQ: ZIONW) expired, with an exercise price of $33.31. Each common stock warrant was convertible into 0.00 shares.
Total shareholders’ equity increased by $0.2 billion to $7.8has remained consistent and was $7.6 billion at SeptemberJune 30, 2017 from $7.62020 compared to $7.4 billion at December 31, 2016.2019 and $7.6 billion at June 30, 2019. The primary increases during the first six months of 2020 was $242 million (after tax) from an increase in total shareholders’ equity is primarily due to net income of $469 million and a $65 million increase in the fair value of ourunrealized gains on AFS securities due largely to changes in the interest rate environment. These increases are partially offset byenvironment and net income of $80 million. The primary decreases during the same time period was $130 million from common and preferred stock dividends paid and $75 million from repurchases of ourBank common stock under our buyback program totaling $205from publicly announced plans. Common stock and additional paid-in capital decreased $60 million, and $144 million paidor 2%, during the first six months of 2020 primarily due to redeem our Series F preferred stock.the Bank common stock repurchases.
During the latter partfirst quarter of 2016,2020, the market price of our common stock increased above the exercise priceBank repurchased 1.7 million shares of common stock, warrants on our common stock. As of September 2017, we have 5.8 million common stock warrants at 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 which expire on May 22, 2020. The following schedule presents the diluted shares from common stock warrants at various Zions Bancorporation common stock market prices as of August 24, 2017, excluding the effect of future changes in exercise cost and warrant share multiplier from the paymentor 1% of common stock dividends.
IMPACT OF COMMON STOCK WARRANTSoutstanding as of December 31, 2019, for $75 million at an average price of $45.02 per share. Beginning in the second quarter of 2020, the Bank suspended share repurchase activity until visibility on earnings is improved. The Bank expects to maintain the appropriate amount of capital to cover inherent risk. The timing and amount of additional common share repurchases will be subject to various factors, including the Bank's financial performance, business needs, prevailing economic conditions, and OCC approval. The magnitude, timing and form of capital return will be determined by the Board. Shares may be repurchased occasionally in the open market, through privately negotiated transactions, utilizing Rule 10b5-1 plans or otherwise.
|
| | | | | |
| 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, NATIONAL ASSOCIATION AND SUBSIDIARIES
WeThe Bank paid $57 million incommon dividends on common stock during the first nine months of 2017 compared with $41$113 million during the first ninesix months of 2016. During its October 2017 meeting,2020 compared to $110 million during the first six months of 2019. In July 2020 the Board of Directors declared a quarterly dividend of $0.16$0.34 per common share payable on November 22, 2017August 20, 2020 to shareholders of record on November 15, 2017. WeAugust 13, 2020. The Bank also paid dividends on preferred stock of $32$17 million for both the first ninesix months of 2017 compared to $40 million during the first nine months of 2016.2020 and 2019. See Note 89 for additional detail about capital management transactions during the first ninesix months of 2017.2020.
Basel III Capital RatiosRequirements
Banking organizations are required byThe Bank is subject to Basel III 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, 2020. The following schedule showspresents the Company’sBank’s capital and performance ratios as of SeptemberJune 30, 2017,2020, December 31, 2016,2019 and SeptemberJune 30, 2016.2019.
A final rule adopted by the federal banking agencies in February 2019 provides banking organizations with the option to phase in, over a three-year period, the adverse day-one regulatory capital effects of the adoption of CECL. On March 27, 2020, the federal banking agencies issued an interim final rule that gives banking organizations that implement CECL before the end of 2020 the option to reduce for two years a portion of CECL’s adverse effect on regulatory capital. This is in addition to the three-year transition period already in place, resulting in an optional five-year transition. We adopted the provisions of this guidance beginning with the first quarter 2020 financial statements. As a result, we will delay recognizing the full amount of the June 30, 2020 impact of the ACL on regulatory capital until after a two-year deferral period, which for us extends through December 31, 2021. Beginning on January 1, 2022, we will be required to phase in 25% of the previously deferred estimated capital impact of the ACL, with an additional 25% to be phased in at the beginning of each subsequent year until fully phased in by the first quarter of 2025. At June 30, 2020, the application of these provisions improved our CET1, Tier 1 risk-based and Total risk-based capital ratios by 14 basis points each, and improved our Tier 1 leverage capital ratio by 9 basis points.
CAPITAL RATIOS
| | | | | | | | | | | | | | | | | |
| June 30,
2020 | | December 31,
2019 | | June 30,
2019 |
| | | | | |
Tangible common equity ratio1 | 7.9 | % | | 8.5 | % | | 8.7 | % |
Tangible equity ratio1 | 8.7 | | | 9.3 | | | 9.5 | |
| Average equity to average assets (three months ended) | 10.0 | | | 10.7 | | | 10.8 | |
| Basel III risk-based capital ratios: | | | | | |
| Common equity tier 1 capital | 10.2 | | | 10.2 | | | 10.8 | |
| Tier 1 leverage | 8.4 | | | 9.2 | | | 9.5 | |
| Tier 1 risk-based | 11.2 | | | 11.2 | | | 11.8 | |
| Total risk-based | 13.5 | | | 13.2 | | | 13.0 | |
| Return on average common equity (three months ended) | 3.3 | | | 10.1 | | | 10.8 | |
Return on average tangible common equity (three months ended)1 | 3.8 | | | 11.8 | | | 12.7 | |
|
| | | | | | | | |
| | 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, 2017,2020, Basel III regulatory tier 1 risk-based capital and total risk-based capital was $6.8$6.3 billion and 7.7$7.5 billion, respectively, compared with $6.7$6.3 billion and $7.6$7.4 billion, respectively, at December 31, 2016.2019. 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 15 of the Notes to Consolidated Financial Statements in our 20162019 Annual Report on Form 10-K.
ZIONS BANCORPORATION, NATIONAL ASSOCIATION AND SUBSIDIARIES
CRITICAL ACCOUNTING POLICIES AND SIGNIFICANT ESTIMATES
| |
ITEM 1. | FINANCIAL STATEMENTS (Unaudited)
|
On January 1, 2020, we adopted ASU 2016-13, or CECL. Upon adoption of the ASU, we recorded the full amount of the ACL for loans and leases of $526 million, compared with $554 million at December 31, 2019, resulting in an after-tax increase to retained earnings of $20 million. The impact of the adoption of CECL for our securities portfolio was less than $1 million. The CECL allowance is calculated based on quantitative models and management qualitative judgment based on many factors over the life of loan. The primary assumptions of the CECL quantitative model are the economic forecast, the length of the reasonable and supportable forecast period, the length of the reversion period, prepayment rates, and the credit quality of the portfolio.
As a result of this accounting standard, we expect our ACL will become more volatile primarily because, under the new methodology, the allowance is subject to economic forecasts that may change materially from period to period. Although we believe that our methodology for determining an appropriate level for the allowance adequately addresses the various components that could potentially result in credit losses, the processes and their elements include features that may be susceptible to significant change. Any unfavorable differences between the actual outcome of credit-related events and our estimates could require an additional provision for credit losses.
We estimate CECL over the contractual remaining life of each loan, which considers historical credit loss experience, current conditions, and reasonable and supportable forecasts about the future. We use the following two types of credit loss estimation models:
•Econometric loss models, which rely on statistical analyses of our historical loss experience dependent upon economic factors and other loan-level characteristics. Statistically relevant economic factors vary depending upon the type of loan, but include variables such as unemployment, real estate price indices, energy prices, GDP, etc.
•Loss models that are based on our long-term average historical credit loss experience since 2008, which rely on statistical analyses of our historical loss experience dependent upon loan-level characteristics.
Estimated credit losses during the first 12 months of a loan’s contractual remaining life, or reasonable and supportable period, are derived from the econometric loss models. Over a subsequent 12-month reversion period, we blend the estimated credit losses from the two models on a straight-line basis. For the remaining life of the loan, the estimated credit losses are derived from the long-term average historical credit loss models.
In addition to our quantitative allowance for loan losses, we also consider other qualitative and environmental factors related to current conditions and reasonable and supportable forecasts that may indicate current expected credit losses may differ from the historical information reflected in our quantitative models. Although the qualitative process is subjective, it represents our best estimate of qualitative factors impacting the determination of the ACL as of the financial reporting date.
Note 6 of the Notes to Consolidated Financial Statements and “Credit Risk Management” on page 24 contain further information and more specific descriptions of the processes and methodologies used to estimate the allowance for credit losses.
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 |
|
ITEM 1. FINANCIAL STATEMENTS (Unaudited)
ZIONS BANCORPORATION, NATIONAL ASSOCIATION AND SUBSIDIARIES
CONSOLIDATED BALANCE SHEETS
| | | | | | | | | | | |
| (In millions, shares in thousands) | June 30,
2020 | | December 31,
2019 |
| (Unaudited) | | |
| ASSETS | | | |
| Cash and due from banks | $ | 570 | | | $ | 705 | |
| Money market investments: | | | |
| Interest-bearing deposits | 1,579 | | | 743 | |
| Federal funds sold and security resell agreements | 266 | | | 484 | |
| Investment securities: | | | |
| Held-to-maturity, at amortized cost (approximate fair value $691 and $597) | 688 | | | 592 | |
| Available-for-sale, at fair value | 14,201 | | | 13,725 | |
| Trading account, at fair value | 160 | | | 182 | |
| | | |
| Total securities | 15,049 | | | 14,499 | |
| Loans held for sale | 105 | | | 129 | |
| Loans and leases, net of unearned income and fees | 55,129 | | | 48,709 | |
| Less allowance for loan losses | 860 | | | 495 | |
| Loans held for investment, net of allowance | 54,269 | | | 48,214 | |
| Other noninterest-bearing investments | 813 | | | 898 | |
| Premises, equipment and software, net | 1,173 | | | 1,142 | |
| Goodwill and intangibles | 1,014 | | | 1,014 | |
| Other real estate owned | 5 | | | 8 | |
| Other assets | 1,604 | | | 1,336 | |
| Total Assets | $ | 76,447 | | | $ | 69,172 | |
| LIABILITIES AND SHAREHOLDERS’ EQUITY | | | |
| Deposits: | | | |
| Noninterest-bearing demand | $ | 30,714 | | | $ | 23,576 | |
| Interest-bearing: | | | |
| Savings and money market | 31,307 | | | 28,790 | |
| Time | 3,663 | | | 4,719 | |
| | | |
| Total deposits | 65,684 | | | 57,085 | |
| Federal funds purchased and other short-term borrowings | 860 | | | 2,053 | |
| Long-term debt | 1,353 | | | 1,723 | |
| Reserve for unfunded lending commitments | 54 | | | 59 | |
| Other liabilities | 921 | | | 899 | |
| Total liabilities | 68,872 | | | 61,819 | |
| 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 163,978 and 165,057 shares) and additional paid-in capital | 2,675 | | | 2,735 | |
| Retained earnings | 3,979 | | | 4,009 | |
| Accumulated other comprehensive income (loss) | 355 | | | 43 | |
| | | |
| | | |
| Total shareholders’ equity | 7,575 | | | 7,353 | |
| Total liabilities and shareholders’ equity | $ | 76,447 | | | $ | 69,172 | |
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, | | |
| 2020 | | 2019 | | 2020 | | 2019 |
| Interest income: | | | | | | | |
| Interest and fees on loans | $ | 514 | | | $ | 581 | | | $ | 1,046 | | | $ | 1,151 | |
| Interest on money market investments | 1 | | | 8 | | | 9 | | | 17 | |
| Interest on securities | 80 | | | 95 | | | 161 | | | 191 | |
| Total interest income | 595 | | | 684 | | | 1,216 | | | 1,359 | |
| Interest expense: | | | | | | | |
| Interest on deposits | 23 | | | 66 | | | 74 | | | 123 | |
| Interest on short- and long-term borrowings | 9 | | | 49 | | | 31 | | | 91 | |
| Total interest expense | 32 | | | 115 | | | 105 | | | 214 | |
| Net interest income | 563 | | | 569 | | | 1,111 | | | 1,145 | |
| Provision for credit losses: | | | | | | | |
| Provision for loan losses | 161 | | | 20 | | | 401 | | | 22 | |
| Provision for unfunded lending commitments | 7 | | | 1 | | | 25 | | | 3 | |
| | | | | | | |
| Total provision for credit losses | 168 | | | 21 | | | 426 | | | 25 | |
| Net interest income after provision for credit losses | 395 | | | 548 | | | 685 | | | 1,120 | |
| Noninterest income: | | | | | | | |
| Commercial account fees | 30 | | | 30 | | | 61 | | | 60 | |
| Card fees | 19 | | | 23 | | | 39 | | | 46 | |
| Retail and business banking fees | 15 | | | 20 | | | 33 | | | 38 |
| Loan-related fees and income | 27 | | | 17 | | | 53 | | | 35 | |
| Capital markets and foreign exchange fees | 18 | | | 20 | | | 42 | | | 35 | |
| Wealth management and trust fees | 15 | | | 15 | | | 31 | | | 28 | |
| Other customer-related fees | 6 | | | 5 | | | 12 | | | 10 | |
| Customer-related fees | 130 | | | 130 | | | 271 | | | 252 | |
| Fair value and nonhedge derivative loss | (12) | | | (6) | | | (23) | | | (8) | |
| Dividends and other investment income | 3 | | | 11 | | | 11 | | | 22 | |
| Securities losses, net | (4) | | | (3) | | | (9) | | | (2) | |
| Total noninterest income | 117 | | | 132 | | | 250 | | | 264 | |
| Noninterest expense: | | | | | | | |
| Salaries and employee benefits | 267 | | | 274 | | | 540 | | | 562 | |
| Occupancy, net | 32 | | | 32 | | | 65 | | | 65 | |
| Furniture, equipment and software, net | 32 | | | 35 | | | 64 | | | 67 | |
| Other real estate expense, net | — | | | — | | | — | | | (1) | |
| Credit-related expense | 6 | | | 8 | | | 10 | | | 13 | |
| Professional and legal services | 10 | | | 13 | | | 22 | | | 23 | |
| Advertising | 3 | | | 5 | | | 6 | | | 11 | |
| FDIC premiums | 7 | | | 6 | | | 12 | | | 12 | |
| Other | 73 | | | 51 | | | 118 | | | 102 | |
| Total noninterest expense | 430 | | | 424 | | | 837 | | | 854 | |
| Income before income taxes | 82 | | | 256 | | | 98 | | | 530 | |
| Income taxes | 16 | | | 58 | | | 18 | | | 119 | |
| Net income | 66 | | | 198 | | | 80 | | | 411 | |
| | | | | | | |
| | | | | | | |
| Preferred stock dividends | (9) | | | (9) | | | (17) | | | (17) | |
| | | | | | | |
| Net earnings applicable to common shareholders | $ | 57 | | | $ | 189 | | | $ | 63 | | | $ | 394 | |
| Weighted average common shares outstanding during the period: | | | | | | | |
| Basic shares (in thousands) | 163,542 | | | 179,156 | | | 163,843 | | | 181,946 | |
| Diluted shares (in thousands) | 164,425 | | | 189,098 | | | 168,132 | | | 192,206 | |
| Net earnings per common share: | | | | | | | |
| Basic | $ | 0.34 | | | $ | 1.05 | | | $ | 0.38 | | | $ | 2.15 | |
| Diluted | 0.34 | | | 0.99 | | | 0.37 | | | 2.04 | |
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) | 2020 | | 2019 | | 2020 | | 2019 |
| | | | | | | |
| Net income for the period | $ | 66 | | | $ | 198 | | | $ | 80 | | | $ | 411 | |
| Other comprehensive income (loss), net of tax: | | | | | | | |
| Net unrealized holding gains on investment securities | 94 | | | 116 | | | 242 | | | 237 | |
| | | | | | | |
| | | | | | | |
| | | | | | | |
| | | | | | | |
| | | | | | | |
| Net unrealized gains on other noninterest-bearing investments | (8) | | | — | | | (6) | | | (3) | |
| Net unrealized holding gains on derivative instruments | 7 | | | 30 | | | 76 | | | 39 | |
| Reclassification adjustment for (increase) decrease in interest income recognized in earnings on derivative instruments | (10) | | | 1 | | | (13) | | | 2 | |
| Reclassification to earnings for termination of pension plan | 13 | | | — | | | 13 | | | — | |
| Other comprehensive income | 96 | | | 147 | | | 312 | | | 275 | |
| Comprehensive income | $ | 162 | | | $ | 345 | | | $ | 392 | | | $ | 686 | |
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, 2020 | $ | 566 | | | 163,852 | | | $ | — | | | $ | 2,668 | | | $ | 3,979 | | | | $ | 259 | | | | $ | 7,472 | |
| Net income for the period | | | | | | | | | 66 | | | | | | | 66 | |
| Other comprehensive income, net of tax | | | | | | | | | | | | 96 | | | | 96 | |
| | | | | | | | | | | | | | | |
| Bank common stock repurchased | | | (11) | | | | | — | | | | | | | | | — | |
| | | | | | | | | | | | | | | |
| Net activity under employee plans and related tax benefits | | | 137 | | | | | 7 | | | | | | | | | 7 | |
| Dividends on preferred stock | | | | | | | | | (9) | | | | | | | (9) | |
Dividends on common stock, $0.34 per share | | | | | | | | | (56) | | | | | | | (56) | |
| Change in deferred compensation | | | | | | | | | (1) | | | | | | | (1) | |
| Balance at June 30, 2020 | $ | 566 | | | 163,978 | | | $ | — | | | $ | 2,675 | | | $ | 3,979 | | | | $ | 355 | | | | $ | 7,575 | |
| | | | | | | | | | | | | | | |
| 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 | |
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, 2019 | $ | 566 | | | 165,057 | | | $ | — | | | $ | 2,735 | | | $ | 4,009 | | | | $ | 43 | | | | $ | 7,353 | |
| Net income for the period | | | | | | | | | 80 | | | | | | | 80 | |
| Other comprehensive income, net of tax | | | | | | | | | | | | 312 | | | | 312 | |
| Cumulative effect adjustment, adoption of ASU 2016-13, Credit Losses: Measurement of Credit Losses on Financial Instruments | | | | | | | | | 20 | | | | | | | 20 | |
| Bank common stock repurchased | | | (1,680) | | | | | (75) | | | | | | | | | (75) | |
| Net shares issued from stock warrant exercises | | | 1 | | | | | | | | | | | | | |
| Net activity under employee plans and related tax benefits | | | 600 | | | | | 15 | | | | | | | | | 15 | |
| Dividends on preferred stock | | | | | | | | | (17) | | | | | | | (17) | |
Dividends on common stock, $0.68 per share | | | | | | | | | (112) | | | | | | | (112) | |
| Change in deferred compensation | | | | | | | | | (1) | | | | | | | (1) | |
| Balance at June 30, 2020 | $ | 566 | | | 163,978 | | | $ | — | | | $ | 2,675 | | | $ | 3,979 | | | | $ | 355 | | | | $ | 7,575 | |
| | | | | | | | | | | | | | | |
| 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 | |
ZIONS BANCORPORATION, NATIONAL ASSOCIATION AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF CASH FLOWS
(Unaudited)
| | | | | | | | | | | | | | |
| (In millions) | | | | Six Months Ended
June 30, | | |
| | | | 2020 | | 2019 |
| CASH FLOWS FROM OPERATING ACTIVITIES | | | | | | |
| Net income for the period | | | | $ | 80 | | | $ | 411 | |
| Adjustments to reconcile net income to net cash provided by operating activities: | | | | | | |
| | | | | | |
| Provision for credit losses | | | | 426 | | | 25 | |
| Depreciation and amortization | | | | 63 | | | 93 | |
| Share-based compensation | | | | 18 | | | 18 | |
| Deferred income tax expense (benefit) | | | | (94) | | | 3 | |
| Net decrease (increase) in trading securities | | | | 22 | | | (42) | |
| Net increase in loans held for sale | | | | (13) | | | (39) | |
| Change in other liabilities | | | | 33 | | | (73) | |
| Change in other assets | | | | (129) | | | (166) | |
| Other, net | | | | (8) | | | (10) | |
| Net cash provided by operating activities | | | | 398 | | | 220 | |
| CASH FLOWS FROM INVESTING ACTIVITIES | | | | | | |
| Net decrease (increase) in money market investments | | | | (618) | | | 827 | |
| Proceeds from maturities and paydowns of investment securities held-to-maturity | | | | 73 | | | 239 | |
| Purchases of investment securities held-to-maturity | | | | (169) | | | (160) | |
| Proceeds from sales, maturities and paydowns of investment securities available-for-sale | | | | 1,795 | | | 1,345 | |
| Purchases of investment securities available-for-sale | | | | (2,011) | | | (1,028) | |
| Net change in loans and leases | | | | (6,381) | | | (1,877) | |
| Purchases and sales of other noninterest-bearing investments | | | | 59 | | | (5) | |
| Purchases of premises and equipment | | | | (82) | | | (60) | |
| | | | | | |
| Other, net | | | | 33 | | | 4 | |
| Net cash used in investing activities | | | | (7,301) | | | (715) | |
| CASH FLOWS FROM FINANCING ACTIVITIES | | | | | | |
| Net increase in deposits | | | | 8,599 | | | 232 | |
| Net change in short-term funds borrowed | | | | (1,194) | | | 371 | |
| | | | | | |
| | | | | | |
| | | | | | |
| Proceeds from the issuance of long-term debt | | | | — | | | 497 | |
| Redemption of long-term debt | | | | (429) | | | — | |
| | | | | | |
| Proceeds from the issuance of common stock | | | | 5 | | | 7 | |
| Dividends paid on common and preferred stock | | | | (130) | | | (127) | |
| Bank common stock repurchased | | | | (76) | | | (551) | |
| Other, net | | | | (7) | | | (10) | |
| Net cash provided by financing activities | | | | 6,768 | | | 419 | |
| Net decrease in cash and due from banks | | | | (135) | | | (76) | |
| Cash and due from banks at beginning of period | | | | 705 | | | 614 | |
| Cash and due from banks at end of period | | | | $ | 570 | | | $ | 538 | |
| Cash paid for interest | | | | $ | 123 | | | $ | 199 | |
| Net cash paid for income taxes | | | | 17 | | | 132 | |
| Noncash activities are summarized as follows: | | | | | | |
| Loans held for investment transferred to other real estate owned | | | | 1 | | | 6 | |
| Loans held for sale reclassified to loans held for investment, net | | | | 22 | | | — | |
See accompanying notes to consolidated financial statements.
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 |
| | — |
|
See accompanying notes to consolidated financial statements.
ZIONS BANCORPORATION, NATIONAL ASSOCIATION AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(Unaudited)
SeptemberJune 30, 20172020
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, 20172020 and 20162019 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, 20162019 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 2019 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. Additionally, effective October 1, 2019, we made certain financial reporting changes and reclassifications to noninterest income in our Consolidated Statements of Income. These changes and reclassifications were adopted on a retrospective basis. The changes and reclassifications reflect changes only to noninterest income in the Consolidated Statements of Income and do not impact net income, net interest income or noninterest expense.
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.Accounting Standard Updates | RECENT ACCOUNTING PRONOUNCEMENTS | Description | | Date of adoption | | Effect on the financial statements or other significant matters |
| | | | | | |
| Updates adopted by the Bank during 2020 | | | | | | |
| | | | | | |
Standard | | Description | | Date of adoption | | Effect on the financial statements or other significant matters |
| | | | | | |
Standards not yet adopted by the Company |
| | | | | | |
ASU 2014-09, Revenue from Contracts with Customers2020-04, Reference Rate Reform (Topic 606) and subsequent related ASUs
| | The core principle848): Facilitation of the new guidanceEffects of ReferenceRate Reform on Financial Reporting | | As part of reference rate reform, the London Interbank Offered Rate ("LIBOR") 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 expectsexpected to be entitled in exchange for those goodsdiscontinued by December 31, 2021 and is being replaced by observable or services. The banking industry does not expect significant changes because major sourcestransaction-based alternative reference rates less susceptible to manipulation. This ASU addresses certain operational accounting concerns 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,modifying contracts such as asset management fees, credit card interchange fees, deposit account fees, etc. Adoption maydebt, lease, and derivative agreements that reference LIBOR, or another rate, that is expected to be made on a full retrospective basis with practicaldiscontinued due to reference rate reform.
The ASU provides temporary optional 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 relatedexceptions to the accounting requirements for contract modifications for contracts that reference LIBOR. This ASU also provides for a one-time election to sell or transfer to available-for-sale or trading certain qualifying held-to-maturity ("HTM") debt securities. Additionally, this guidance provides various optional expedients for hedging relationships affected by reference rate reform.
| | April 1, 2020 | | We adopted ASU 2020-04 on April 1, 2020; the impact upon adoption was not significant as no practical expedients were applied in the current period, but will be applied in future periods.
To date, the Bank has identified a significant number of contracts referencing LIBOR across various business units and reportingcontract types. Additionally, the Bank’s designated hedging relationships utilize LIBOR-indexed derivatives and hedge the LIBOR exposure of financial instruments. Somefloating-rate commercial loans and the Bank’s fixed-rate debt. Remediation of these LIBOR exposures will constitute a significant operational effort. While the full impact of reference rate reform is still being determined, the application of the main provisions include:
– Equity investments that do not result in consolidationASU and are not accounted for underits practical expedients will significantly reduce the equity method would be measured at fair value through net income– Changes in instrument-specific credit risk foroperational and financial liabilities that are measured under the fair value option would be recognized in other comprehensive income (“OCI”).
– Eliminationstatement impact 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
| Bank’s remediation efforts. |
| | | | | | |
Standard | | Description | | Date of adoption | | Effect on the financial statements or other significant matters |
| | | | | | |
Standards not yet adopted by the Company (continued) |
| | | | | | |
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 (Topic 326): Measurement of Credit Losses on Financial Instruments and subsequent related ASUs
| | The standardThis ASU, and subsequent 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 standardupdate replaces today’s “incurred loss” approach with an “expected loss”a current expected credit loss (“CECL”) model for instruments such as loans and held-to-maturity (“HTM”)HTM securities that are measured at amortized cost. The standardASU 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 standardASU retains many of the current disclosure requirements in currentU.S. GAAP and expands certainother disclosure requirements. Early adoption of theThe new guidance is permitted as ofeffective for calendar year-end public companies beginning January 1, 2019.2020. | | January 1, 2020 | | We have formedadopted ASU 2016-13 and its subsequent updates on January 1, 2020; the impact upon adoption was an implementation team led jointly by Credit and the Corporate Controller’s group, that also includes other linesafter-tax increase to retained earnings of business and functions within the Company. The implementation team is working on developing models that can meet the requirementsapproximately $20 million. |
ZIONS BANCORPORATION, NATIONAL ASSOCIATION AND SUBSIDIARIES
| | | | | | | | | | | | | | | | | | | | |
| Accounting Standard Updates | | Description | | Date of the new guidance. While this standard may potentially have a material impactadoption | | Effect on the Company’s financial statements we are still in process of conducting our evaluation.
or other significant matters |
| Updates adopted by the Bank during 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 standardASU 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 standardUpdate 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 doadopted ASU 2017-04 on January 1, 2020; the impact upon adoption was not currently expect this guidance will have a material impact on the Company’s financial statements since the fair values of our reporting unitssignificant. The transition and adoption provisions were not lower than their respective carrying amounts at the time of our goodwill impairment analysis for 2016. |
| | | | | | applied prospectively. |
ZIONS BANCORPORATION, NATIONAL ASSOCIATION AND SUBSIDIARIES
3. FAIR VALUE
|
| | | | | | |
Standards 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 to either estimate the number of awards that are expected to vest or account for forfeitures when they occur. The standard also requires that excess tax benefits be reflected in the operating section of the statement of cash flows rather than the investing section and to make an election to adopt this requirement either on a retrospective or prospective basis. | | January 1, 2017 | | Upon 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. |
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 20162019 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, 2020 | | | | | | |
| Level 1 | | Level 2 | | Level 3 | | Total |
| ASSETS | | | | | | | |
| Investment securities: | | | | | | | |
| Available-for-sale: | | | | | | | |
| U.S. Treasury, agencies and corporations | $ | 100 | | | $ | 12,775 | | | $ | — | | | $ | 12,875 | |
| Municipal securities | | | 1,301 | | | | | 1,301 | |
| | | | | | | |
| | | | | | | |
| | | | | | | |
| | | | | | | |
| Other debt securities | | | 25 | | | | | 25 | |
| Total Available-for-sale | 100 | | | 14,101 | | | — | | | 14,201 | |
| Trading account | 16 | | | 144 | | | | | 160 | |
| Other noninterest-bearing investments: | | | | | | | |
| Bank-owned life insurance | | | 530 | | | | | 530 | |
Private equity investments1 | 5 | | | | | 77 | | | 82 | |
| Other assets: | | | | | | | |
| Agriculture loan servicing and interest-only strips | | | | | 17 | | | 17 | |
| Deferred compensation plan assets | 105 | | | | | | | 105 | |
| Derivatives: | | | | | | | |
| Derivatives designated as hedges | | | (1) | | | | | (1) | |
| Derivatives not designated as hedges: | | | | | | | |
| Customer-facing interest rate | | | 460 | | | | | 460 | |
| | | | | | | |
| Other interest rate | | | 20 | | | | | 20 | |
| Foreign exchange | 3 | | | | | | | 3 | |
| Total Assets | $ | 229 | | | $ | 15,254 | | | $ | 94 | | | $ | 15,577 | |
| LIABILITIES | | | | | | | |
| Securities sold, not yet purchased | $ | 42 | | | $ | — | | | $ | — | | | $ | 42 | |
| Other liabilities: | | | | | | | |
| Deferred compensation plan obligations | 105 | | | | | | | 105 | |
| Derivatives: | | | | | | | |
| Derivatives designated as hedges | | | (1) | | | | | (1) | |
| Derivatives not designated as hedges: | | | | | | | |
| Customer-facing interest rate | | | 32 | | | | | 32 | |
| | | | | | | |
| Other interest rate | | | 6 | | | | | 6 | |
| Foreign exchange | 2 | | | | | | | 2 | |
| | | | | | | |
| | | | | | | |
| Total Liabilities | $ | 149 | | | $ | 37 | | | $ | — | | | $ | 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% of our AFS Level 2 securities.
ZIONS BANCORPORATION AND SUBSIDIARIES
|
| | | | | | | | | | | | | | | |
| (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% of our AFS Level 2 securities.
2The Levellevel 1 private equity investmentsPEI amount relates to the portion of our SBIC investments that areis now publicly traded.
ZIONS BANCORPORATION, NATIONAL ASSOCIATION AND SUBSIDIARIES
| | | | | | | | | | | | | | | | | | | | | | | |
| (In millions) | December 31, 2019 | | | | | | |
| Level 1 | | Level 2 | | Level 3 | | Total |
| ASSETS | | | | | | | |
| Investment securities: | | | | | | | |
| Available-for-sale: | | | | | | | |
| U.S. Treasury, agencies and corporations | $ | 25 | | | $ | 12,356 | | | $ | — | | | $ | 12,381 | |
| Municipal securities | | | 1,319 | | | | | 1,319 | |
| | | | | | | |
| | | | | | | |
| | | | | | | |
| | | | | | | |
| Other debt securities | | | 25 | | | | | 25 | |
| | | | | | | |
| Total Available-for-sale | 25 | | | 13,700 | | | — | | | 13,725 | |
| Trading account | 65 | | | 117 | | | | | 182 | |
| Other noninterest-bearing investments: | | | | | | | |
| Bank-owned life insurance | | | 525 | | | | | 525 | |
Private equity investments1 | 9 | | | | | 107 | | | 116 | |
| Other assets: | | | | | | | |
| Agriculture loan servicing and interest-only strips | | | | | 18 | | | 18 | |
| Deferred compensation plan assets | 113 | | | | | | | 113 | |
| Derivatives: | | | | | | | |
| | | | | | | |
| Derivatives not designated as hedges: | | | | | | | |
| Customer-facing interest rate | | | 146 | | | | | 146 | |
| | | | | | | |
| Other interest rate | | | 3 | | | | | 3 | |
| Foreign exchange | 4 | | | | | | | 4 | |
| Total Assets | $ | 216 | | | $ | 14,491 | | | $ | 125 | | | $ | 14,832 | |
| LIABILITIES | | | | | | | |
| Securities sold, not yet purchased | $ | 66 | | | $ | — | | | $ | — | | | $ | 66 | |
| Other liabilities: | | | | | | | |
| Deferred compensation plan obligations | 113 | | | | | | | 113 | |
| Derivatives: | | | | | | | |
| | | | | | | |
| Derivatives not designated as hedges: | | | | | | | |
| Customer-facing interest rate | | | 14 | | | | | 14 | |
| | | | | | | |
| Other interest rate | | | 1 | | | | | 1 | |
| Foreign exchange | 4 | | | | | | | 4 | |
| | | | | | | |
| | | | | | | |
| Total Liabilities | $ | 183 | | | $ | 15 | | | $ | — | | | $ | 198 | |
1 The level 1 PEI amount relates to the portion of our SBIC investments that is 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 projection2019 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, 2020 | | | | June 30, 2019 | | | | June 30, 2020 | | | | June 30, 2019 | | | | | | | | | | | | | | | | | | |
| (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 investments1 | | Ag loan svcg and int-only strips | | | | | | | | | | | | | | | | |
| | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | |
| Balance at beginning of period | $ | 79 | | | $ | 17 | | | $ | 107 | | | $ | 17 | | | $ | 107 | | | $ | 18 | | | $ | 102 | | | $ | 18 | | | | | | | | | | | | | | | | | |
| | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | |
| Securities losses, net | (4) | | | — | | | (2) | | | — | | | (9) | | | — | | | (1) | | | — | | | | | | | | | | | | | | | | | |
| Other noninterest income (expense) | — | | | — | | | — | | | 2 | | | — | | | (1) | | | — | | | 1 | | | | | | | | | | | | | | | | | |
| Purchases | 2 | | | — | | | — | | | — | | | 4 | | | — | | | 4 | | | — | | | | | | | | | | | | | | | | | |
| | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | |
| | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | |
| Other | — | | | — | | | — | | | — | | | (25) | | | — | | | — | | | — | | | | | | | | | | | | | | | | | |
| Balance at end of period | $ | 77 | | | $ | 17 | | | $ | 105 | | | $ | 19 | | | $ | 77 | | | $ | 17 | | | $ | 105 | | | $ | 19 | | | | | | | | | | | | | | | | | |
The reconciliation of Level 3 instruments includesdoes 0t include any realized gains or losses in the followingstatement of income during the three months ended June 30, 2020, and 2019. During the six months ended June 30, realized gains 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, 2020 | | | | | | | | Fair value at December 31, 2019 | | | | | | |
| Level 1 | | Level 2 | | Level 3 | | Total | | Level 1 | | Level 2 | | Level 3 | | Total |
| ASSETS | | | | | | | | | | | | | | | |
| Private equity investments | $ | — | | | $ | — | | | $ | 1 | | | $ | 1 | | | $ | — | | | $ | — | | | $ | 1 | | | $ | 1 | |
| Collateral-dependent loans | — | | | — | | | — | | | — | | | — | | | — | | | — | | | — | |
| Other real estate owned | — | | | 1 | | | — | | | 1 | | | — | | | — | | | — | | | — | |
| Total | $ | — | | | $ | 1 | | | $ | 1 | | | $ | 2 | | | $ | — | | | $ | — | | | $ | 1 | | | $ | 1 | |
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 | | 2020 | | 2019 | | 2020 | | 2019 |
| ASSETS | | | | | | | | ASSETS | | | | | | | |
| Private equity investments | $ | — |
| | $ | — |
| | $ | (1 | ) | | $ | — |
| Private equity investments | $ | — | | | $ | — | | | $ | — | | | $ | — | |
| Impaired loans | (1 | ) | | (5 | ) | | (8 | ) | | (34 | ) | |
| Collateral-dependent loans | | Collateral-dependent loans | — | | | (9) | | | — | | | (9) | |
| Other real estate owned | — |
| | (1 | ) | | — |
| | (1 | ) | Other real estate owned | — | | | — | | | — | | | — | |
| | $ | (1 | ) | | $ | (6 | ) | | $ | (9 | ) | | $ | (35 | ) | |
| Total | | Total | $ | — | | | $ | (9) | | | $ | — | | | $ | (9) | |
During the three and nine months ended SeptemberJune 30, we recognized less than $1 million and $2 million of net gains in 20172020 and an insignificant amount and $3 million in 20162019 from the sale of other real estate owned (“OREO”) properties. During the six months ended June 30, we recognized less than $1 million and approximately $1 million of net gains in 2020 and 2019 from the sale of OREO properties that had a carrying value, at the time of sale, of approximately $5$3 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 during the six months ended June 30, 2020 and 2019.
ZIONS BANCORPORATION, NATIONAL ASSOCIATION AND SUBSIDIARIES
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$8 million at Septemberboth June 30, 20172020 and $13 million at December 31, 2016.2019. Amounts of other noninterest-bearing investments carried at cost were $324$107 million at SeptemberJune 30, 20172020 and $211$157 million at December 31, 2016,2019, which were comprised of Federal Reserve and Federal Home Loan Bank (“FHLB”) stock. Private equity investments accounted for using the equity method were $35$47 million at SeptemberJune 30, 20172020 and $38$45 million at December 31, 2016.2019.
Impaired (or nonperforming) loansLoans that are collateral dependentcollateral-dependent were measured at fair value based onthe lower of amortized cost or 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 20162019 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, 2020 | | | December 31, 2019 | |
| (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 | $ | 688 | | | $ | 691 | | | 2 | | $ | 592 | | | $ | 597 | | | 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 | 54,374 | | | 53,988 | | | 3 | | 48,343 | | | 47,958 | | | 3 |
| Financial liabilities: | | | | | | | | | Financial liabilities: | |
| Time deposits | 2,909 |
| | 2,890 |
| | 2 | | 2,757 |
| | 2,744 |
| | 2 | Time deposits | 3,663 | | | 3,690 | | | 2 | | 4,719 | | | 4,725 | | | 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 | 1,353 | | | 1,320 | | | 2 | | 1,723 | | | 1,751 | | | 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 20162019 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, 2020 | | | | | | | | | | |
| (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 | | $ | 634 | | | $ | (368) | | | $ | 266 | | | $ | — | | | $ | — | | | $ | 266 | |
| Derivatives (included in other assets) | | 483 | | | — | | | 483 | | | (1) | | | — | | | 482 | |
| Total assets | | $ | 1,117 | | | $ | (368) | | | $ | 749 | | | $ | (1) | | | $ | — | | | $ | 748 | |
| Liabilities: | | | | | | | | | | | | |
| Federal funds purchased and other short-term borrowings | | $ | 1,228 | | | $ | (368) | | | $ | 860 | | | $ | — | | | $ | — | | | $ | 860 | |
| Derivatives (included in other liabilities) | | 40 | | | — | | | 40 | | | (1) | | | (32) | | | 7 | |
| Total Liabilities | | $ | 1,268 | | | $ | (368) | | | $ | 900 | | | $ | (1) | | | $ | (32) | | | $ | 867 | |
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, 2019 | |
| (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 | | $ | 694 | | | $ | (210) | | | $ | 484 | | | $ | — | | | $ | — | | | $ | 484 | |
| Derivatives (included in other assets) | | 64 |
| | — |
| | 64 |
| | (17 | ) | | — |
| | 47 |
| Derivatives (included in other assets) | | 153 | | | — | | | 153 | | | (6) | | | — | | | 147 | |
| Total assets | | $ | 632 |
| | $ | — |
| | $ | 632 |
| | $ | (17 | ) | | $ | — |
| | $ | 615 |
| Total assets | | $ | 847 | | | $ | (210) | | | $ | 637 | | | $ | (6) | | | $ | — | | | $ | 631 | |
| Liabilities: | | | | | | | | | | | | | Liabilities: | | | | | | | | | | | | |
| Federal funds and other short-term borrowings | | $ | 827 |
| | $ | — |
| | $ | 827 |
| | $ | — |
| | $ | — |
| | $ | 827 |
| |
| Federal funds purchased and other short-term borrowings | | Federal funds purchased and other short-term borrowings | | $ | 2,263 | | | $ | (210) | | | $ | 2,053 | | | $ | — | | | $ | — | | | $ | 2,053 | |
| Derivatives (included in other liabilities) | | 59 |
| | — |
| | 59 |
| | (17 | ) | | (17 | ) | | 25 |
| Derivatives (included in other liabilities) | | 19 | | | — | | | 19 | | | (6) | | | (10) | | | 3 | |
| Total Liabilities | | $ | 886 |
| | $ | — |
| | $ | 886 |
| | $ | (17 | ) | | $ | (17 | ) | | $ | 852 |
| Total Liabilities | | $ | 2,282 | | | $ | (210) | | | $ | 2,072 | | | $ | (6) | | | $ | (10) | | | $ | 2,056 | |
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 purchased 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 are reported 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 carrying values of our securities do not include accrued interest receivables of $54 million and $58 million at June 30, 2020 and December 31, 2019, respectively. These receivables are presented in the Consolidated Balance Sheet within the Other Assets line item.
The purchase premiums for callable debt securities classified as HTM or AFS are amortized at an 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 recognized in interest income over the contractual life of the security using theeffective yield to the contractual maturity date and no assumption is made concerning prepayments.method. As principal prepayments occur,repayments are received on securities, a proportionate amount of the related premium or discount is recognized in income so that the effective yield on the remaining portion of the unamortized premium or discount associated with the principal reduction is recognized as interest
ZIONS BANCORPORATION AND SUBSIDIARIES
income in the period the principal is reduced.security continues unchanged. Note 203 of our 20162019 Annual Report on Form 10-K discusses the process to estimate fair value for investment securities.
ZIONS BANCORPORATION, NATIONAL ASSOCIATION AND SUBSIDIARIES
| | | | September 30, 2017 | | June 30, 2020 | |
| (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 | $ | 746 |
| | $ | 7 |
| | $ | 10 |
| | $ | 743 |
| Municipal securities | $ | 688 | | | $ | 5 | | | $ | 2 | | | $ | 691 | |
| Available-for-sale | | | | | | | | Available-for-sale | | | | | | | |
| U.S. Treasury securities | 25 |
| | — |
| | — |
| | 25 |
| U.S. Treasury securities | 100 | | | — | | | — | | | 100 | |
| U.S. Government agencies and corporations: | | | | | | | | U.S. Government agencies and corporations: | |
| Agency securities | 1,839 |
| | 5 |
| | 4 |
| | 1,840 |
| Agency securities | 1,241 | | | 36 | | | 1 | | | 1,276 | |
| Agency guaranteed mortgage-backed securities | 9,748 |
| | 21 |
| | 86 |
| | 9,683 |
| Agency guaranteed mortgage-backed securities | 9,911 | | | 304 | | | 2 | | | 10,213 | |
| Small Business Administration loan-backed securities | 2,281 |
| | 19 |
| | 9 |
| | 2,291 |
| Small Business Administration loan-backed securities | 1,325 | | | — | | | 39 | | | 1,286 | |
| Municipal securities | 1,281 |
| | 15 |
| | 5 |
| | 1,291 |
| Municipal securities | 1,239 | | | 62 | | | — | | | 1,301 | |
| Other debt securities | 25 |
| | — |
| | — |
| | 25 |
| 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 |
| |
| Total available-for-sale debt securities | | Total available-for-sale debt securities | 13,841 | | | 402 | | | 42 | | | 14,201 | |
| Total investment securities | | Total investment securities | $ | 14,529 | | | $ | 407 | | | $ | 44 | | | $ | 14,892 | |
| | | | December 31, 2016 | | December 31, 2019 | |
| (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 | $ | 592 | | | $ | 5 | | | $ | — | | | $ | 597 | |
| Available-for-sale | | | | | | | | Available-for-sale | | | | | | | |
| U.S. Treasury securities | | U.S. Treasury securities | 25 | | | — | | | — | | | 25 | |
| U.S. Government agencies and corporations: | | | | | | | | U.S. Government agencies and corporations: | |
| Agency securities | 1,846 |
| | 2 |
| | 9 |
| | 1,839 |
| Agency securities | 1,301 | | | 5 | | | 4 | | | 1,302 | |
| Agency guaranteed mortgage-backed securities | 7,986 |
| | 7 |
| | 110 |
| | 7,883 |
| Agency guaranteed mortgage-backed securities | 9,518 | | | 83 | | | 42 | | | 9,559 | |
| Small Business Administration loan-backed securities | 2,298 |
| | 8 |
| | 18 |
| | 2,288 |
| Small Business Administration loan-backed securities | 1,535 | | | 1 | | | 41 | | | 1,495 | |
| Municipal securities | 1,182 |
| | 1 |
| | 29 |
| | 1,154 |
| Municipal securities | 1,282 | | | 37 | | | — | | | 1,319 | |
| Other debt securities | 25 |
| | — |
| | 1 |
| | 24 |
| Other debt securities | 25 | | | — | | | — | | | 25 | |
| Total available-for-sale debt securities | | Total available-for-sale debt securities | 13,686 | | | 126 | | | 87 | | | 13,725 | |
| | 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 | $ | 14,278 | | | $ | 131 | | | $ | 87 | | | $ | 14,322 | |
Maturities
The following schedule shows the amortized cost and estimated fair valueweighted average yields of investment debt securities are shown subsequentlyby contractual maturity of principal payments as of SeptemberJune 30, 2017, by expected timing of principal payments.2020. 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, NATIONAL ASSOCIATION AND SUBSIDIARIES
| | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | |
| June 30, 2020 | | | | | | | | | | | | | | | | | | |
| Total debt investment securities | | | | Due in one year or less | | | | Due after one year through five years | | | | Due after five years through ten years | | | | Due after ten years | | |
| (In millions) | Amortized cost | | Avg yield | | Amortized cost | | Avg yield | | Amortized cost | | Avg yield | | Amortized cost | | Avg yield | | Amortized cost | | Avg yield |
| | | | | | | | | | | | | | | | | | | |
| Held-to-maturity | | | | | | | | | | | | | | | | | | | |
Municipal securities 1 | $ | 688 | | | 3.41 | % | | $ | 191 | | | 2.64 | % | | $ | 237 | | | 3.38 | % | | $ | 148 | | | 3.87 | % | | $ | 112 | | | 4.18 | % |
| Available-for-sale | | | | | | | | | | | | | | | | | | | |
| U.S. Treasury securities | 100 | | | 0.17 | | | 100 | | | 0.17 | | | — | | | — | | | — | | | — | | | — | | | — | |
| U.S. Government agencies and corporations: | | | | | | | | | | | | | | | | | | | |
| Agency securities | 1,241 | | | 2.40 | | | 61 | | | 0.99 | | | 155 | | | 1.52 | | | 399 | | | 2.61 | | | 626 | | | 2.62 | |
| Agency guaranteed mortgage-backed securities | 9,911 | | | 2.23 | | | 2 | | | 3.60 | | | 187 | | | 1.49 | | | 927 | | | 1.81 | | | 8,795 | | | 2.30 | |
| Small Business Administration loan-backed securities | 1,325 | | | 1.45 | | | — | | | — | | | 26 | | | 1.20 | | | 159 | | | 1.47 | | | 1,140 | | | 1.46 | |
Municipal securities 1 | 1,239 | | | 2.56 | | | 83 | | | 1.90 | | | 560 | | | 2.26 | | | 494 | | | 2.85 | | | 102 | | | 3.39 | |
| Other debt securities | 25 | | | 6.28 | | | — | | | — | | | — | | | — | | | 10 | | | 9.50 | | | 15 | | | 4.13 | |
| Total available-for-sale debt securities | 13,841 | | | 2.19 | | | 246 | | | 0.98 | | | 928 | | | 1.95 | | | 1,989 | | | 2.24 | | | 10,678 | | | 2.24 | |
| Total investment securities | $ | 14,529 | | | 2.26 | % | | $ | 437 | | | 1.71 | % | | $ | 1,165 | | | 2.24 | % | | $ | 2,137 | | | 2.35 | % | | $ | 10,790 | | | 2.26 | % |
1 The yields on tax-exempt securities are calculated on a tax-equivalent basis.
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, 2020 | | | | | | | | | | |
| 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 | | | $ | 84 | | | $ | 1 | | | $ | 19 | | | $ | 2 | | | $ | 103 | |
| | | | | | | | | | | |
| | | | | | | | | | | |
| | | | | | | | | | | |
| | | | | | | | | | | |
| Available-for-sale | | | | | | | | | | | |
| U.S. Treasury securities | — | | | 25 | | | — | | | — | | | — | | | 25 | |
| U.S. Government agencies and corporations: | | | | | | | | | | | |
| Agency securities | 1 | | | 74 | | | — | | | 69 | | | 1 | | | 143 | |
| Agency guaranteed mortgage-backed securities | — | | | 176 | | | 2 | | | 249 | | | 2 | | | 425 | |
| Small Business Administration loan-backed securities | 1 | | | 149 | | | 38 | | | 1,070 | | | 39 | | | 1,219 | |
| Municipal securities | — | | | 22 | | | — | | | — | | | — | | | 22 | |
| Other | — | | | 15 | | | — | | | — | | | — | | | 15 | |
| | | | | | | | | | | |
| | | | | | | | | | | |
| | | | | | | | | | | |
| | | | | | | | | | | |
| | | | | | | | | | | |
| Total available-for-sale | 2 | | | 461 | | | 40 | | | 1,388 | | | 42 | | | 1,849 | |
| | | | | | | | | | | |
| | | | | | | | | | | |
| Total investment securities | $ | 3 | | | $ | 545 | | | $ | 41 | | | $ | 1,407 | | | $ | 44 | | | $ | 1,952 | |
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, 2019 | |
| | 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 | $ | — | | | $ | 73 | | | $ | — | | | $ | 45 | | | $ | — | | | $ | 118 | |
| | 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 | | | 222 | | | 2 | | | 359 | | | 4 | | | 581 | |
| Agency guaranteed mortgage-backed securities | 102 |
| | 6,649 |
| | 7 |
| | 326 |
| | 109 |
| | 6,975 |
| Agency guaranteed mortgage-backed securities | 4 | | | 1,173 | | | 38 | | | 3,215 | | | 42 | | | 4,388 | |
| Small Business Administration loan-backed securities | 3 |
| | 527 |
| | 16 |
| | 841 |
| | 19 |
| | 1,368 |
| Small Business Administration loan-backed securities | 1 | | | 172 | | | 40 | | | 1,215 | | | 41 | | | 1,387 | |
| Municipal securities | 28 |
| | 992 |
| | — |
| | 9 |
| | 28 |
| | 1,001 |
| Municipal securities | — | | | 50 | | | — | | | 5 | | | — | | | 55 | |
| Other | — |
| | — |
| | 2 |
| | 14 |
| | 2 |
| | 14 |
| Other | — | | | — | | | — | | | — | | | — | | | — | |
| 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 | 7 | | | 1,617 | | | 80 | | | 4,794 | | | 87 | | | 6,411 | |
| | Total investment securities | | Total investment securities | $ | 7 | | | $ | 1,690 | | | $ | 80 | | | $ | 4,839 | | | $ | 87 | | | $ | 6,529 | |
At SeptemberJune 30, 20172020 and December 31, 2016,2019, respectively, 360103 and 642146 HTM and 1,446520 and 2,398849 AFS investment securities were in an unrealized loss position.
Other-Than-Temporary Impairment
Ongoing Policy
We review investment securities on a quarterly basis for the presence of other-than-temporaryimpairment. For AFS securities, we assess whether impairment (“OTTI”)is present on an individual security basis when the fair value of a debt security is less than its amortized cost basis at the balance sheet date. When determining if the fair value of an investment is less than the amortized cost basis we have elected to exclude accrued interest from the amortized cost basis of the investment. If we have an intent to sell an identified security, or it is more likely than not we will be required to sell the security before recovery of its amortized cost basis, then we recognize an impairment equal to any existing allowance written off against the security.
If we do not have the intent to sell a security, and it is more likely than not that we will not be required to sell a security prior to recovery of its amortized cost basis, then we determine whether there is any impairment attributable to credit-related factors. We analyze certain factors, primarily internal and external credit ratings, to determine if the decline in fair value below the amortized cost basis has resulted from a credit loss or other factors. If a credit impairment is determined to exist, then we measure the amount of credit loss and recognize an allowance for the credit loss. In measuring the credit loss, we generally compare the present value of cash flows expected to be collected from the security to the amortized cost basis of the security. These cash flows are credit adjusted using, among other things, assumptions for default probability and loss severity. Certain other unobservable inputs such as prepayment rate assumptions are also utilized. In addition, certain internal models may be utilized. To determine the credit-related portion of impairment we use the security-specific effective interest rate when estimating the present value of cash flows. If the present value of cash flows is less than the amortized cost basis of the security, then this amount is recorded as an allowance for credit loss, limited to the amount that the fair value is less than the amortized cost basis (i.e., the credit impairment cannot result in the security being carried at an amount lower than its fair value). The assumptions used to estimate the expected cash flows depends on the particular asset class, structure and credit rating of the security. Declines in fair value that are not recorded in the allowance are recorded in other comprehensive income, net of applicable taxes.
AFS Impairment Conclusions
The Bank did not recognize any impairment on its AFS investment securities portfolio during the first six months of 2020. Unrealized losses relate to changes in interest rates subsequent to purchase and are not attributable to credit. At SeptemberJune 30, 2017,2020, we had not initiated any sales of AFS securities nor did notwe have an intent to sell any identified securities with unrealized losses, or initiate such sales, and we do not 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 2016 Annual Report on Form 10-K.
ZIONS BANCORPORATION, NATIONAL ASSOCIATION AND SUBSIDIARIES
HTM Credit Quality
For HTM securities, the allowance for credit losses ("ACL") is assessed consistent with the approach discussed in Note 6 for loans carried at amortized cost. The ACL on HTM securities was less than $1 million at June 30, 2020. All HTM securities were risk-graded as "pass" in terms of credit quality and none were past due as of June 30, 2020. The amortized cost basis of HTM securities categorized by year of issuance is summarized as follows:
| | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | |
| June 30, 2020 | | | | | | | | | | | | |
| Amortized cost basis by year of issuance | | | | | | | | | | | | |
| (In millions) | 2020 | | 2019 | | 2018 | | 2017 | | 2016 | | Prior | | Total Securities |
| Held-to-maturity | $ | 153 | | | $ | 32 | | | $ | 1 | | | $ | 44 | | | $ | 203 | | | $ | 255 | | | $ | 688 | |
Securities Gains and Losses Recognized in Income
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, | | | | | | | | | | | | | | | |
| 2020 | | | | 2019 | | | | 2020 | | | | 2019 | | | | | | | | | | | |
| (In millions) | Gross gains | | Gross losses | | Gross gains | | Gross losses | | Gross gains | | Gross losses | | Gross gains | | Gross losses | | | | | | | | | |
| | | | | | | | | | | | | | | | | | | | | | | | |
| | | | | | | | | | | | | | | | | | | | | | | | |
| | | | | | | | | | | | | | | | | | | | | | | | |
| | | | | | | | | | | | | | | | | | | | | | | | |
| Other noninterest-bearing investments | $ | 3 | | | $ | 7 | | | $ | 1 | | | $ | 4 | | | $ | 8 | | | $ | 17 | | | $ | 5 | | | $ | 7 | | | | | | | | | | |
| | | | | | | | | | | | | | | | | | | | | | | | |
Net losses 1 | | | $ | (4) | | | | | $ | (3) | | | | | $ | (9) | | | | | $ | (2) | | | | | | | | | | |
| | | | | | | | | | | | | | | | | | | | | | | | |
| | | | | | | | | | | | | | | | | | | | | | | | |
| | | | | | | | | | | | | | | | | | | | | | | | |
| | | | | | | | | | | | | | | | | | | | | | | | |
|
| | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | |
| | | 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 gainslosses 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, | | | | | | | | | | |
| 2020 | | | | | | 2019 | | | | |
| (In millions) | Taxable | | Nontaxable | | Total | | Taxable | | Nontaxable | | Total |
| Investment securities: | | | | | | | | | | | |
| Held-to-maturity | $ | 3 | | | $ | 2 | | | $ | 5 | | | $ | 2 | | | $ | 4 | | | $ | 6 | |
| Available-for-sale | 67 | | | 7 | | | 74 | | | 81 | | | 6 | | | 87 | |
| Trading | — | | | 1 | | | 1 | | | — | | | 2 | | | 2 | |
| Total securities | $ | 70 | | | $ | 10 | | | $ | 80 | | | $ | 83 | | | $ | 12 | | | $ | 95 | |
|
| | | | | | | | | | | | | | | | | | | | | | | |
| (In millions) | Three Months Ended
September 30, 2017 | | Nine Months Ended
September 30, 2017 |
| | Taxable | | Nontaxable | | Total | | Taxable | | Nontaxable | | Total |
| Investment securities: | | | | | | | | | | | |
| Held-to-maturity | $ | 2 |
| | $ | 3 |
| | $ | 5 |
| | $ | 7 |
| | $ | 10 |
| | $ | 17 |
|
| Available-for-sale | 72 |
| | 6 |
| | 78 |
| | 209 |
| | 18 |
| | 227 |
|
| Trading | 1 |
| | — |
| | 1 |
| | 2 |
| | — |
| | 2 |
|
| Total | $ | 75 |
| | $ | 9 |
| | $ | 84 |
| | $ | 218 |
| | $ | 28 |
| | $ | 246 |
|
| | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | |
| Six Months Ended June 30, | | | | | | | | | | |
| 2020 | | | | | | 2019 | | | | |
| (In millions) | Taxable | | Nontaxable | | Total | | Taxable | | Nontaxable | | Total |
| Investment securities: | | | | | | | | | | | |
| Held-to-maturity | $ | 5 | | | $ | 5 | | | $ | 10 | | | $ | 4 | | | $ | 8 | | | $ | 12 | |
| Available-for-sale | 135 | | | 13 | | | 148 | | | 164 | | | 12 | | | 176 | |
| Trading | — | | | 3 | | | 3 | | | — | | | 3 | | | 3 | |
| Total | $ | 140 | | | $ | 21 | | | $ | 161 | | | $ | 168 | | | $ | 23 | | | $ | 191 | |
|
| | | | | | | | | | | | | | | | | | | | | | | |
| (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$2.0 billion at Septemberboth June 30, 20172020 and $1.4 billion at December 31, 20162019, 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 InvestmentsEffect 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 BANCORPORATION, NATIONAL ASSOCIATION AND SUBSIDIARIES
6. LOANS, LEASES, AND ALLOWANCE FOR CREDIT LOSSES
| |
6. | LOANS AND ALLOWANCE FOR CREDIT LOSSES |
Loans, Leases, and Loans Held for Sale
Loans and leases are summarized as follows according to major portfolio segment and specific loan class:
| | | | | | | | | | | |
| (In millions) | June 30,
2020 | | December 31,
2019 |
| | | |
| Loans held for sale | $ | 105 | | | $ | 129 | |
| Commercial: | | | |
| Commercial and industrial | $ | 14,076 | | | $ | 14,760 | |
| PPP | 6,690 | | | — | |
| Leasing | 324 | | | 334 | |
| Owner-occupied | 8,083 | | | 7,901 | |
| Municipal | 2,535 | | | 2,393 | |
| Total commercial | 31,708 | | | 25,388 | |
| Commercial real estate: | | | |
| Construction and land development | 2,367 | | | 2,211 | |
| Term | 9,587 | | | 9,344 | |
| Total commercial real estate | 11,954 | | | 11,555 | |
| Consumer: | | | |
| Home equity credit line | 2,856 | | | 2,917 | |
| 1-4 family residential | 7,393 | | | 7,568 | |
| Construction and other consumer real estate | 640 | | | 624 | |
| Bankcard and other revolving plans | 437 | | | 502 | |
| Other | 141 | | | 155 | |
| Total consumer | 11,467 | | | 11,766 | |
| | | |
| Total loans and leases | $ | 55,129 | | | $ | 48,709 | |
|
| | | | | | | |
| (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 balancesLoans and leases are presented at their amortized cost basis, which includes net of unearned incomeunamortized purchase premiums, discounts, and deferred loan fees which amounted to $63and costs totaling $212 million and $48 million at SeptemberJune 30, 20172020 and $77 million at December 31, 2016.
Owner-occupied2019, respectively. Amortized cost basis does not include accrued interest receivables of $183 million and commercial real estate loans include unamortized premiums of approximately $17$164 million at SeptemberJune 30, 20172020 and $20 million at December 31, 2016.2019, respectively. These receivables are presented in the Consolidated Balance Sheet within the Other Assets line item.
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$142 million at SeptemberJune 30, 20172020 and $290$158 million at December 31, 2016.2019.
Loans with a carrying value of approximately $25.4$26.6 billion at SeptemberJune 30, 20172020 and $24.0$21.5 billion at December 31, 20162019 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$608 million and $696$907 million for the three and ninesix months ended SeptemberJune 30, 2017,2020 and $413$132 million and $1.0 billion$250 million for the three and ninesix months ended SeptemberJune 30, 2016, 2019, respectively, that were classified as 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 SBA loans.Small Business Administration (“SBA”) loans, and does not consist of loans from the SBA's Payroll Protection Program. 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$602 million and $640$917 million for the three and ninesix months ended SeptemberJune 30, 2017,2020 and $387$170 million and $979$263 million for the three and ninesix months ended SeptemberJune 30, 2016, 2019, respectively. See Note 5 for further information regarding guaranteed securities.
ZIONS BANCORPORATION, NATIONAL ASSOCIATION AND SUBSIDIARIES
The principal balance of sold loans for which we retain servicing was approximately $2.1$2.3 billion at SeptemberJune 30, 2017,2020 and $2.0$1.7 billion at December 31, 2016.2019. Income from loans sold, excluding servicing, was $1$13 million and $9$26 million for the three and ninesix months ended SeptemberJune 30, 2017,2020, and $6$3 million and $15$5 million for the three and ninesix months ended SeptemberJune 30, 2016,2019, respectively.
Allowance for Credit Losses
The ACLallowance for credit losses (“ACL”), which consists of the allowance for loan and lease losses (“ALLL”("ALLL") and the reserve for unfunded lending commitments, (“RULC”). The ALLL represents our estimate of probable and estimablecurrent expected credit losses inherent inover the contractual term of the loan and lease portfolio and unfunded lending commitments as of the balance sheet date. The ACL for AFS and HTM debt securities is estimated separately from loans. For HTM securities, the ACL is assessed consistent with the approach for loans carried at amortized cost. See Note 5 for further discussion on our assessment of expected credit losses on AFS securities and disclosures related to AFS and HTM securities.
We determine our ACL as the best estimate within a range of estimated current expected losses by using the loan’s amortized cost basis (principal balance, net of unamortized premiums, discounts, and deferred fees and costs). We do not estimate the ACL for accrued interest receivables because we reverse or write-off uncollectible accrued interest receivable balances in a timely manner, generally within one month.
The methodologies we use to estimate the ACL depend upon the type of loan, the age and contractual term of the loan, expected payments (both contractual and assumed prepayments), credit quality indicators, economic forecasts, and the evaluation method (whether individually or collectively evaluated). Expected loan extensions, renewals, or modifications are not considered in the ACL, unless they are included in the original or modified contract at the reporting date and are not unconditionally cancellable, or we reasonably expect them to result in a TDR.
Losses are charged to the ACL when recognized. Generally, commercial and commercial real estate (“CRE”) loans are charged off or charged down when they are determined to be uncollectible in whole or in part, or when 180 days past due, unless the loan is well-secured and in process of collection. Consumer loans are either charged off or charged down to net realizable value no later than the month in which they become 180 days past due. Closed-end consumer loans that are not secured by residential real estate are either charged off or charged down to net realizable value no later than the month in which they become 120 days past due.
We establish the amount of the ACL by analyzing the portfolio at least quarterly, and we adjust the provision for loan losses and unfunded lending commitments to ensure the ACL is at an appropriate level at the balance sheet date.
For commercial and CRE loans with commitments greater than $1 million, we assign internal risk grades using a comprehensive loan grading system based on financial and statistical models, individual credit analysis, and loan officer experience and judgment. The credit quality indicators discussed subsequently are based on this grading system. Estimated credit losses on all loan segments, including consumer and small commercial and CRE loans with commitments less than or equal to $1 million that are evaluated on a collective basis, are derived from statistical analyses of our historical default and loss experience since January 2008.
We estimate current expected credit losses over the contractual remaining life of each loan, which considers historical credit loss experience, current conditions, and reasonable and supportable forecasts about the future. We use the following two types of credit loss estimation models:
•Econometric loss models, which rely on statistical analyses of our historical loss experience dependent upon economic factors and other loan-level characteristics. Statistically relevant economic factors vary depending upon the type of loan, but include variables such as unemployment, real estate price indices, energy prices, GDP, etc.
•Loss models that are based on our long-term average historical credit loss experience since 2008, which rely on statistical analyses of our historical loss experience dependent upon loan-level characteristics.
ZIONS BANCORPORATION, NATIONAL ASSOCIATION AND SUBSIDIARIES
Estimated credit losses during the first 12 months of a loan’s contractual remaining life, or reasonable and supportable period, are derived from the econometric loss models. Over a subsequent 12-month reversion period, we blend the estimated credit losses from the two models on a straight-line basis. For the remaining life of the loan, the estimated credit losses are derived from the long-term average historical credit loss models.
For loans that do not share risk characteristics with other loans, we estimate lifetime expected credit losses on an individual basis. We consider individually-evaluated loans to be nonaccrual loans with a balance greater than $1 million; TDR loans, including TDRs that subsequently default; a loan no longer reported as a TDR; or a loan where we reasonably expect it to become a TDR. When a loan is individually-evaluated for expected credit losses, we estimate a specific reserve for the loan based on the projected present value of the loan’s future cash flows discounted at the loan’s effective interest rate, or the observable market price of the loan, or the fair value of the loan’s underlying collateral.
The process of estimating future cash flows also incorporates the same determining factors discussed subsequently under nonaccrual loans. When we base the specific reserve on the fair value of the loan’s underlying collateral, we generally charge off the portion of the balance that is greater than fair value. For these loans, subsequent to the charge-off, if the fair value of the loan's underlying collateral increases according to an updated appraisal, we hold a negative reserve up to the lesser of the amount of the charge-off or the updated fair value.
The methodologies described above generally rely on historical loss information to help determine our quantitative portion of the ACL. However, we also consider other qualitative and environmental factors related to current conditions and reasonable and supportable forecasts that may indicate current expected credit losses may differ from the historical information reflected in our quantitative models. Thus, after applying historical loss experience, as described above, we review the quantitative portion of ACL for each segment using qualitative criteria, and we use those criteria to determine our qualitative estimate. We monitor various risk factors that influence our judgment regarding the level of the ACL across the portfolio segments. These factors primarily include:
•Actual and expected changes in international, national, regional, and local economic and business conditions and developments;
•The volume and severity of past due loans, the volume of nonaccrual loans, and the volume and severity of adversely classified or graded loans;
•Lending policies and procedures, including changes in underwriting standards and practices for collection, charge-off, and recovery;
•The experience, ability, and depth of lending management and other relevant staff;
•The nature and volume of the portfolio;
•The quality of the credit review function;
•The existence, growth, and effect of any concentration of credit;
•The effect of other external factors such as regulatory, legal, and technological environments; competition; and events such as natural disasters and pandemics.
The magnitude of the impact of these factors on our qualitative assessment of the ACL changes from quarter to quarter according to changes made by management in its assessment of these factors, the extent these factors are already reflected in quantitative loss estimates, and the extent changes in these factors diverge from one to another. We also consider the uncertainty and imprecision inherent in the estimation process when evaluating the ACL.
Off-Balance-Sheet Credit Exposures
As previously discussed, we estimate a reservecurrent expected credit losses for potential losses associated with off-balance sheetoff-balance-sheet loan commitments, including standby letters of credit. We determine the RULC usingcredit, that are not unconditionally cancellable. This estimate uses the same procedures and methodologies thatdescribed previously for loans and is calculated by taking the difference between the estimated current expected credit loss and the funded balance, if greater than zero.
ZIONS BANCORPORATION, NATIONAL ASSOCIATION AND SUBSIDIARIES
Changes in the Allowance for Credit Losses
On January 1, 2020, we use foradopted Accounting Standards Update (“ASU”) 2016-13, Credit Losses (Topic 326): Measurement of Credit Losses on Financial Instruments, and its subsequent updates, often referred to as the ALLL.
For additional information regarding our policies and methodologies usedCurrent Expected Credit Loss ("CECL") standard. Due to estimatethe adoption of the standard, the ACL methodology explained above has significantly changed from the prior period. For more information on our previous ACL methodology, see Note 6 ofin our 20162019 Annual Report on Form 10-K.
The ACL was $914 million at June 30, 2020, compared with $777 million at March 31, 2020. During the second quarter of 2020, our estimate of current expected credit losses increased primarily due to the ongoing economic impact related to the effects of the COVID-19 pandemic.
Changes in the ACL are summarized as follows:
| | | | | | | | | | | | | | | | | | | | | | | |
| Three Months Ended June 30, 2020 | | | | | | |
| (In millions) | Commercial | | Commercial
real estate | | Consumer | | Total |
| Allowance for loan losses | | | | | | | |
| | | | | | | |
| | | | | | | |
| Balance at beginning of period | $ | 413 | | | $ | 128 | | | $ | 189 | | | $ | 730 | |
| Provision for loan losses | 186 | | | 16 | | | (41) | | | 161 | |
| Gross loan and lease charge-offs | 31 | | | — | | | 5 | | | 36 | |
| Recoveries | 3 | | | — | | | 2 | | | 5 | |
| Net loan and lease charge-offs (recoveries) | 28 | | | — | | | 3 | | | 31 | |
| Balance at end of period | $ | 571 | | | $ | 144 | | | $ | 145 | | | $ | 860 | |
| | | | | | | |
| Reserve for unfunded lending commitments | | | | | | | |
| | | | | | | |
| | | | | | | |
| Balance at beginning of period | $ | 16 | | | $ | 23 | | | $ | 8 | | | $ | 47 | |
| Provision for unfunded lending commitments | 11 | | | (3) | | | (1) | | | 7 | |
| Balance at end of period | $ | 27 | | | $ | 20 | | | $ | 7 | | | $ | 54 | |
| Total allowance for credit losses at end of period | | | | | | | |
| Allowance for loan losses | $ | 571 | | | $ | 144 | | | $ | 145 | | | $ | 860 | |
| Reserve for unfunded lending commitments | 27 | | | 20 | | | 7 | | | 54 | |
| Total allowance for credit losses | $ | 598 | | | $ | 164 | | | $ | 152 | | | $ | 914 | |
Changes in the allowance for credit losses are summarized as follows:
|
| | | | | | | | | | | | | | | |
| | Three Months Ended September 30, 2017 |
| (In millions) | Commercial | | Commercial real estate | | Consumer | | Total |
| Allowance for loan losses | | | | | | | |
| Balance at beginning of period | $ | 393 |
| | $ | 116 |
| | $ | 35 |
| | $ | 544 |
|
| Additions: | | | | | | | |
| Provision for loan losses | (4 | ) | | (7 | ) | | 16 |
| | 5 |
|
| Deductions: | | | | | | | |
| Gross loan and lease charge-offs | (16 | ) | | (4 | ) | | (5 | ) | | (25 | ) |
| Recoveries | 12 |
| | 2 |
| | 3 |
| | 17 |
|
| Net loan and lease charge-offs | (4 | ) | | (2 | ) | | (2 | ) | | (8 | ) |
| Balance at end of period | $ | 385 |
| | $ | 107 |
| | $ | 49 |
| | $ | 541 |
|
| Reserve for unfunded lending commitments | | | | | | | |
| Balance at beginning of period | $ | 53 |
| | $ | 10 |
| | $ | — |
| | $ | 63 |
|
| Provision charged to earnings | (4 | ) | | — |
| | — |
| | (4 | ) |
| 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 |
|
ZIONS BANCORPORATION, NATIONAL ASSOCIATION AND SUBSIDIARIES
| | | | | | | | | | | | | | | | | | | | | | | |
| Six Months Ended June 30, 2020 | | | | | | |
| (In millions) | Commercial | | Commercial
real estate | | Consumer | | Total |
| Allowance for loan losses | | | | | | | |
| Balance at December 31, 2019 | $ | 341 | | | $ | 101 | | | $ | 53 | | | $ | 495 | |
| Adjustment for change in accounting standard | (59) | | | (32) | | | 93 | | | 2 | |
| Balance at beginning of period (January 1, 2020) | 282 | | | 69 | | | 146 | | | 497 | |
| Provision for loan losses | 323 | | | 75 | | | 3 | | | 401 | |
| Gross loan and lease charge-offs | 41 | | | — | | | 8 | | | 49 | |
| Recoveries | 7 | | | — | | | 4 | | | 11 | |
| Net loan and lease charge-offs (recoveries) | 34 | | | — | | | 4 | | | 38 | |
| Balance at end of period | $ | 571 | | | $ | 144 | | | $ | 145 | | | $ | 860 | |
| | | | | | | |
| Reserve for unfunded lending commitments | | | | | | | |
| Balance at December 31, 2019 | $ | 39 | | | $ | 20 | | | $ | — | | | $ | 59 | |
| Adjustment for change in accounting standard | (28) | | | (8) | | | 6 | | | (30) | |
| Balance at beginning of period (January 1, 2020) | 11 | | | 12 | | | 6 | | | 29 | |
| Provision for unfunded lending commitments | 16 | | | 8 | | | 1 | | | 25 | |
| Balance at end of period | $ | 27 | | | $ | 20 | | | $ | 7 | | | $ | 54 | |
| Total allowance for credit losses at end of period | | | | | | | |
| Allowance for loan losses | $ | 571 | | | $ | 144 | | | $ | 145 | | | $ | 860 | |
| Reserve for unfunded lending commitments | 27 | | | 20 | | | 7 | | | 54 | |
| Total allowance for credit losses | $ | 598 | | | $ | 164 | | | $ | 152 | | | $ | 914 | |
| | | | | | | | | | | | | | | | | | | | | | | |
| Three Months Ended June 30, 2019 | | | | | | |
| (In millions) | Commercial | | Commercial
real estate | | Consumer | | Total |
| Allowance for loan losses | | | | | | | |
| | | | | | | |
| | | | | | | |
| Balance at beginning of period | $ | 328 | | | $ | 113 | | | $ | 56 | | | $ | 497 | |
| Provision for loan losses | 23 | | | 1 | | | (4) | | | 20 | |
| Gross loan and lease charge-offs | 19 | | | — | | | 4 | | | 23 | |
| Recoveries | 6 | | | — | | | 3 | | | 9 | |
| Net loan and lease charge-offs (recoveries) | 13 | | | — | | | 1 | | | 14 | |
| Balance at end of period | $ | 338 | | | $ | 114 | | | $ | 51 | | | $ | 503 | |
| | | | | | | |
| Reserve for unfunded lending commitments | | | | | | | |
| | | | | | | |
| | | | | | | |
| Balance at beginning of period | $ | 42 | | | $ | 17 | | | $ | — | | | $ | 59 | |
| Provision for unfunded lending commitments | (1) | | | 2 | | | — | | | 1 | |
| 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 | |
|
| | | | | | | | | | | | | | | |
| | 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
|
| | | | | | | | | | | | | | | |
| | 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 |
|
| 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
| | | | | | | | | | | | | | | | | | | | | | | |
| 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 | |
| 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 | |
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 securedwell-secured and in the process of collection. For further discussionFactors we consider in determining whether a loan is placed on nonaccrual include delinquency status, collateral value, borrower or guarantor financial statement information, bankruptcy status, and other information which would indicate that the full and timely collection of our policiesinterest and processes regardingprincipal is uncertain.
A nonaccrual loan may be returned to accrual status when all delinquent interest and past due loans, see Note 6principal become current in accordance with the terms of our 2016 Annual Report on Form 10-K.the loan agreement; the loan, if secured, is well-secured; the borrower has paid according to the contractual terms for a minimum of six months; and an analysis of the borrower indicates a reasonable assurance of the ability and willingness to maintain payments.
| 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
The amortized cost basis of loans on nonaccrual status are summarized as follows:
| | | | | | | | | | | | | | | | | | | | | | | |
| June 30, 2020 | | | | | | |
| Amortized cost basis | | | | Total amortized cost basis | | |
| (In millions) | with no allowance | | with allowance | | | | Related allowance |
| | | | | | | |
| | | | | | | |
| Commercial: | | | | | | | |
| Commercial and industrial | $ | 26 | | | $ | 146 | | | $ | 172 | | | $ | 33 | |
| PPP | — | | | — | | | — | | | — | |
| Leasing | — | | | 1 | | | 1 | | | — | |
| Owner-occupied | 29 | | | 39 | | | 68 | | | 2 | |
| Municipal | — | | | — | | | — | | | — | |
| Total commercial | 55 | | | 186 | | | 241 | | | 35 | |
| Commercial real estate: | | | | | | | |
| Construction and land development | — | | | — | | | — | | | — | |
| Term | 14 | | | 9 | | | 23 | | | 1 | |
| Total commercial real estate | 14 | | | 9 | | | 23 | | | 1 | |
| Consumer: | | | | | | | |
| Home equity credit line | 1 | | | 14 | | | 15 | | | 2 | |
| 1-4 family residential | 9 | | | 50 | | | 59 | | | 3 | |
| Construction and other consumer real estate | — | | | — | | | — | | | — | |
| Bankcard and other revolving plans | — | | | 1 | | | 1 | | | 1 | |
| Other | — | | | — | | | — | | | — | |
| Total consumer loans | 10 | | | 65 | | | 75 | | | 6 | |
| Total | $ | 79 | | | $ | 260 | | | $ | 339 | | | $ | 42 | |
The amount of accrued interest receivables written off by reversing interest income during the period is summarized by loan portfolio segment as follows:
| | | | | | | | | | | |
| (In millions) | Three Months Ended
June 30, 2020 | | Six Months Ended
June 30, 2020 |
| | | |
| Commercial | $ | 4 | | | $ | 8 | |
| Commercial real estate | 1 | | | 1 | |
| Consumer | — | | | — | |
| Total | $ | 5 | | | $ | 9 | |
Past Due Loans
Closed-end loans with payments scheduled monthly are reported as past due when the borrower is in arrears for two or more monthly payments. Similarly, open-end credits, such as charge-card plans and other revolving credit plans, are reported as past due when the minimum payment has not been made for two or more billing cycles. Other multi-payment obligations (i.e., quarterly, semi-annual, etc.), single payment, and demand notes, are reported as past due when either principal or interest is due and unpaid for a period of 30 days or more.
| 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
Past due loans (accruing and nonaccruing) are summarized as follows:
| | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | |
| June 30, 2020 | | | | | | | | | | | | |
| (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 |
| | | | | | | | | | | | | |
| | | | | | | | | | | | | |
| Commercial: | | | | | | | | | | | | | |
| Commercial and industrial | $ | 13,912 | | | $ | 104 | | | $ | 60 | | | $ | 164 | | | $ | 14,076 | | | $ | 5 | | | $ | 108 | |
| PPP | 6,690 | | | — | | | — | | | — | | | 6,690 | | | — | | | — | |
| Leasing | 324 | | | — | | | — | | | — | | | 324 | | | — | | | 1 | |
| Owner-occupied | 8,028 | | | 29 | | | 26 | | | 55 | | | 8,083 | | | 2 | | | 40 | |
| Municipal | 2,535 | | | — | | | — | | | — | | | 2,535 | | | — | | | — | |
| Total commercial | 31,489 | | | 133 | | | 86 | | | 219 | | | 31,708 | | | 7 | | | 149 | |
| Commercial real estate: | | | | | | | | | | | | | |
| Construction and land development | 2,357 | | | 10 | | | — | | | 10 | | | 2,367 | | | — | | | — | |
| Term | 9,542 | | | 23 | | | 22 | | | 45 | | | 9,587 | | | 8 | | | 6 | |
| Total commercial real estate | 11,899 | | | 33 | | | 22 | | | 55 | | | 11,954 | | | 8 | | | 6 | |
| Consumer: | | | | | | | | | | | | | |
| Home equity credit line | 2,850 | | | 2 | | | 4 | | | 6 | | | 2,856 | | | — | | | 10 | |
| 1-4 family residential | 7,338 | | | 15 | | | 40 | | | 55 | | | 7,393 | | | — | | | 16 | |
| Construction and other consumer real estate | 638 | | | 2 | | | — | | | 2 | | | 640 | | | — | | | — | |
| Bankcard and other revolving plans | 433 | | | 3 | | | 1 | | | 4 | | | 437 | | | 1 | | | — | |
| Other | 140 | | | 1 | | | — | | | 1 | | | 141 | | | — | | | — | |
| Total consumer loans | 11,399 | | | 23 | | | 45 | | | 68 | | | 11,467 | | | 1 | | | 26 | |
| Total | $ | 54,787 | | | $ | 189 | | | $ | 153 | | | $ | 342 | | | $ | 55,129 | | | $ | 16 | | | $ | 181 | |
| | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | |
| December 31, 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 |
| | | | | | | | | | | | | |
| | | | | | | | | | | | | |
| Commercial: | | | | | | | | | | | | | |
| Commercial and industrial | $ | 14,665 | | | $ | 57 | | | $ | 38 | | | $ | 95 | | | $ | 14,760 | | | $ | 8 | | | $ | 54 | |
| PPP | — | | | — | | | — | | | — | | | — | | | — | | | — | |
| Leasing | 334 | | | — | | | — | | | — | | | 334 | | | 1 | | | — | |
| Owner-occupied | 7,862 | | | 20 | | | 19 | | | 39 | | | 7,901 | | | — | | | 44 | |
| Municipal | 2,393 | | | — | | | — | | | — | | | 2,393 | | | — | | | — | |
| Total commercial | 25,254 | | | 77 | | | 57 | | | 134 | | | 25,388 | | | 9 | | | 98 | |
| Commercial real estate: | | | | | | | | | | | | | |
| Construction and land development | 2,206 | | | 5 | | | — | | | 5 | | | 2,211 | | | — | | | 1 | |
| Term | 9,333 | | | 8 | | | 3 | | | 11 | | | 9,344 | | | — | | | 10 | |
| Total commercial real estate | 11,539 | | | 13 | | | 3 | | | 16 | | | 11,555 | | | — | | | 11 | |
| Consumer: | | | | | | | | | | | | | |
| Home equity credit line | 2,908 | | | 6 | | | 3 | | | 9 | | | 2,917 | | | — | | | 7 | |
| 1-4 family residential | 7,532 | | | 12 | | | 24 | | | 36 | | | 7,568 | | | — | | | 13 | |
| Construction and other consumer real estate | 624 | | | — | | | — | | | — | | | 624 | | | — | | | — | |
| Bankcard and other revolving plans | 499 | | | 2 | | | 1 | | | 3 | | | 502 | | | 1 | | | — | |
| Other | 154 | | | 1 | | | — | | | 1 | | | 155 | | | — | | | — | |
| Total consumer loans | 11,717 | | | 21 | | | 28 | | | 49 | | | 11,766 | | | 1 | | | 20 | |
| Total | $ | 48,510 | | | $ | 111 | | | $ | 88 | | | $ | 199 | | | $ | 48,709 | | | $ | 10 | | | $ | 129 | |
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
Credit Quality Indicators
In addition to the nonaccrual and 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, and Doubtful, which are consistent with published definitions of regulatory risk classifications. For further discussion
Definitions of our policiesPass, Special Mention, Substandard, and processes regarding credit quality indicators and internal loan risk grading, see Note 6 of our 2016 Annual Report on Form 10-K.
Outstanding loan balances (accruing and nonaccruing) categorized by these credit quality classificationsDoubtful are summarized as follows:
•Pass – A Pass asset is higher-quality and does not fit any of the other categories described below. The likelihood of loss is considered low. |
| | | | | | | | | | | | | | | | | | | | | | | |
| | 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 |
|
•Substandard – A Substandard asset is inadequately protected by the current sound worth and paying capacity of the obligor or of the collateral pledged, if any. Assets so classified have well-defined weaknesses and are characterized by the distinct possibility that the Bank may sustain some loss if deficiencies are not corrected.
•Doubtful – A Doubtful asset has all the weaknesses inherent in a Substandard asset with the added characteristics that the weaknesses make collection or liquidation in full highly questionable and improbable.
The balance of loans classified as Doubtful as of June 30, 2020 and December 31, 2019 was insignificant.
We generally assign internal risk grades to commercial and CRE loans with commitments greater than $1 million based on financial and statistical models, individual credit analysis, and loan officer experience and judgment. For these larger loans, we assign one of multiple grades within the Pass classification or one of the following four grades: Special Mention, Substandard, Doubtful, and Loss. Loss indicates that the outstanding balance has been charged off. We confirm our internal risk grades quarterly, or as soon as we identify information that affects the credit risk of the loan.
For consumer loans and certain small commercial and CRE loans with commitments less than or equal to $1 million, we generally assign internal risk grades similar to those described previously based on automated rules that depend on refreshed credit scores, payment performance, and other risk indicators. These are generally assigned either a Pass or Substandard grade and are reviewed as we identify information that might warrant a grade change.
|
| | | | | | | | | | | | | | | | | | | | | | | |
| | 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, NATIONAL ASSOCIATION AND SUBSIDIARIES
Impaired Loans
LoansThe amortized cost basis of loans and leases categorized by year of origination and by credit quality classifications as monitored by management 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 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 September 30, 2017 and 2016 was not significant. For additional information regarding our policies and methodologies used to evaluate impaired loans, see Note 6 of our 2016 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 months ended September 30, 2017 and 2016:follows:
| | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | |
| June 30, 2020 | | | | | | | | | |
| Term Loans | | | | | | Revolving loans amortized cost basis | Revolving loans converted to term loans amortized cost basis | | |
| Amortized cost basis by year of origination | | | | | | | | | |
| (In millions) | 2020 | 2019 | 2018 | 2017 | 2016 | Prior | | | Total
loans | |
| Commercial: | | | | | | | | | | |
| Commercial and industrial | | | | | | | | | | |
| Pass | $ | 1,084 | | $ | 3,456 | | $ | 2,401 | | $ | 1,312 | | $ | 516 | | $ | 317 | | $ | 3,430 | | $ | 37 | | $ | 12,553 | | |
| Special Mention | 45 | | 186 | | 160 | | 90 | | 14 | | 63 | | 135 | | 1 | | 694 | | |
| Accruing Substandard | 28 | | 159 | | 203 | | 93 | | 24 | | 23 | | 124 | | 3 | | 657 | | |
| Nonaccrual | 1 | | 33 | | 12 | | 37 | | 10 | | 17 | | 32 | | 30 | | 172 | | |
| Total commercial and industrial | 1,158 | | 3,834 | | 2,776 | | 1,532 | | 564 | | 420 | | 3,721 | | 71 | | 14,076 | | |
| PPP | | | | | | | | | | |
| Pass | 6,690 | | — | | — | | — | | — | | — | | — | | — | | 6,690 | | |
| Special Mention | — | | — | | — | | — | | — | | — | | — | | — | | — | | |
| Accruing Substandard | — | | — | | — | | — | | — | | — | | — | | — | | — | | |
| Nonaccrual | — | | — | | — | | — | | — | | — | | — | | — | | — | | |
| Total leasing | 6,690 | | — | | — | | — | | — | | — | | — | | — | | 6,690 | | |
| Leasing | | | | | | | | | | |
| Pass | 49 | | 127 | | 52 | | 40 | | 20 | | 9 | | — | | — | | 297 | | |
| Special Mention | — | | 9 | | 3 | | 2 | | 1 | | 7 | | — | | — | | 22 | | |
| Accruing Substandard | — | | 2 | | 1 | | 1 | | — | | — | | — | | — | | 4 | | |
| Nonaccrual | — | | — | | — | | — | | 1 | | — | | — | | — | | 1 | | |
| Total leasing | 49 | | 138 | | 56 | | 43 | | 22 | | 16 | | — | | — | | 324 | | |
| Owner-occupied | | | | | | | | | | |
| Pass | 739 | | 1,370 | | 1,306 | | 1,028 | | 718 | | 2,096 | | 156 | | 17 | | 7,430 | | |
| Special Mention | 36 | | 53 | | 63 | | 42 | | 42 | | 45 | | 14 | | — | | 295 | | |
| Accruing Substandard | 15 | | 36 | | 42 | | 39 | | 35 | | 112 | | 10 | | 1 | | 290 | | |
| Nonaccrual | — | | 9 | | 14 | | 11 | | 7 | | 26 | | — | | 1 | | 68 | | |
| Total owner-occupied | 790 | | 1,468 | | 1,425 | | 1,120 | | 802 | | 2,279 | | 180 | | 19 | | 8,083 | | |
| Municipal | | | | | | | | | | |
| Pass | 371 | | 890 | | 408 | | 487 | | 79 | | 260 | | — | | 1 | | 2,496 | | |
| Special Mention | — | | — | | — | | — | | — | | 14 | | — | | — | | 14 | | |
| Accruing Substandard | — | | — | | 21 | | — | | — | | 4 | | — | | — | | 25 | | |
| Nonaccrual | — | | — | | — | | — | | — | | — | | — | | — | | — | | |
| Total municipal | 371 | | 890 | | 429 | | 487 | | 79 | | 278 | | — | | 1 | | 2,535 | | |
| Total commercial | 9,058 | | 6,330 | | 4,686 | | 3,182 | | 1,467 | | 2,993 | | 3,901 | | 91 | | 31,708 | | |
| | | | | | | | | | |
| | | | | | | | | | |
| | | | | | | | | | |
| | | | | | | | | | |
| | | | | | | | | | |
| | | | | | | | | | |
| | | | | | | | | | |
| | | | | | | | | | |
| | | | | | | | | | |
| | | | | | | | | | |
| | | | | | | | | | |
| | | | | | | | | | |
| | | | | | | | | | |
| | | | | | | | | | |
|
| | | | | | | | | | | | | | | | | | | |
| | 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
| | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | |
| June 30, 2020 | | | | | | | | | |
| Term Loans | | | | | | Revolving loans amortized cost basis | Revolving loans converted to term loans amortized cost basis | | |
| Amortized cost basis by year of origination | | | | | | | | | |
| (In millions) | 2020 | 2019 | 2018 | 2017 | 2016 | Prior | | | Total
loans | |
| Commercial real estate: | | | | | | | | | | |
| Construction and land development | | | | | | | | | | |
| Pass | 357 | | 740 | | 604 | | 47 | | 13 | | 8 | | 457 | | 3 | | 2,229 | | |
| Special Mention | 26 | | 40 | | 21 | | 27 | | — | | — | | 20 | | — | | 134 | | |
| Accruing Substandard | — | | 4 | | — | | — | | — | | — | | — | | — | | 4 | | |
| Nonaccrual | — | | — | | — | | — | | — | | — | | — | | — | | — | | |
| Total construction and land development | 383 | | 784 | | 625 | | 74 | | 13 | | 8 | | 477 | | 3 | | 2,367 | | |
| Term | | | | | | | | | | |
| Pass | 1,444 | | 2,052 | | 1,739 | | 1,014 | | 901 | | 1,517 | | 77 | | 9 | | 8,753 | | |
| Special Mention | 57 | | 161 | | 170 | | 89 | | 15 | | 157 | | 5 | | — | | 654 | | |
| Accruing Substandard | 37 | | 25 | | 30 | | 20 | | 14 | | 31 | | — | | — | | 157 | | |
| Nonaccrual | — | | — | | 1 | | 4 | | — | | 17 | | 1 | | — | | 23 | | |
| Total term | 1,538 | | 2,238 | | 1,940 | | 1,127 | | 930 | | 1,722 | | 83 | | 9 | | 9,587 | | |
| Total commercial real estate | 1,921 | | 3,022 | | 2,565 | | 1,201 | | 943 | | 1,730 | | 560 | | 12 | | 11,954 | | |
| Consumer: | | | | | | | | | | |
| Home equity credit line | | | | | | | | | | |
| Pass | — | | — | | — | | — | | — | | — | | 2,693 | | 141 | | 2,834 | | |
| Accruing Substandard | — | | — | | — | | — | | — | | — | | 6 | | 1 | | 7 | | |
| Nonaccrual | — | | — | | — | | — | | — | | — | | 11 | | 4 | | 15 | | |
| Total home equity credit line | — | | — | | — | | — | | — | | — | | 2,710 | | 146 | | 2,856 | | |
| 1-4 family residential | | | | | | | | | | |
| Pass | 563 | | 1,107 | | 1,017 | | 1,320 | | 1,373 | | 1,951 | | — | | — | | 7,331 | | |
| Accruing Substandard | — | | — | | 1 | | — | | 1 | | 1 | | — | | — | | 3 | | |
| Nonaccrual | — | | 2 | | 3 | | 10 | | 8 | | 36 | | — | | — | | 59 | | |
| Total 1-4 family residential | 563 | | 1,109 | | 1,021 | | 1,330 | | 1,382 | | 1,988 | | — | | — | | 7,393 | | |
| Construction and other consumer real estate | | | | | | | | | | |
| Pass | 54 | | 354 | | 187 | | 28 | | 2 | | 15 | | — | | — | | 640 | | |
| Accruing Substandard | — | | — | | — | | — | | — | | — | | — | | — | | — | | |
| Nonaccrual | — | | — | | — | | — | | — | | — | | — | | — | | — | | |
| Total construction and other consumer real estate | 54 | | 354 | | 187 | | 28 | | 2 | | 15 | | — | | — | | 640 | | |
| Bankcard and other revolving plans | | | | | | | | | | |
| Pass | — | | — | | — | | — | | — | | — | | 431 | | 1 | | 432 | | |
| Accruing Substandard | — | | — | | — | | — | | — | | — | | 4 | | — | | 4 | | |
| Nonaccrual | — | | — | | — | | — | | — | | — | | 1 | | — | | 1 | | |
| Total bankcard and other revolving plans | — | | — | | — | | — | | — | | — | | 436 | | 1 | | 437 | | |
| Other consumer | | | | | | | | | | |
| Pass | 35 | | 49 | | 32 | | 16 | | 6 | | 3 | | — | | — | | 141 | | |
| Accruing Substandard | — | | — | | — | | — | | — | | — | | — | | — | | — | | |
| Nonaccrual | — | | — | | — | | — | | — | | — | | — | | — | | — | | |
| Total other consumer | 35 | | 49 | | 32 | | 16 | | 6 | | 3 | | — | | — | | 141 | | |
| Total consumer | 652 | | 1,512 | | 1,240 | | 1,374 | | 1,390 | | 2,006 | | 3,146 | | 147 | | 11,467 | | |
| Total loans | $ | 11,631 | | $ | 10,864 | | $ | 8,491 | | $ | 5,757 | | $ | 3,800 | | $ | 6,729 | | $ | 7,607 | | $ | 250 | | $ | 55,129 | | |
|
| | | | | | | | | | | | | | | |
| | 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 |
|
70
|
| | | | | | | | | | | | | | | |
| | Three Months Ended
September 30, 2016 | | Nine Months Ended
September 30, 2016 |
| (In millions) | Average recorded investment | | Interest income recognized | | Average recorded investment | | Interest income recognized |
| Commercial: | | | | | | | |
| Commercial and industrial | $ | 449 |
| | $ | 1 |
| | $ | 319 |
| | $ | 4 |
|
| Owner-occupied | 100 |
| | 2 |
| | 103 |
| | 8 |
|
| Municipal | 1 |
| | — |
| | 1 |
| | — |
|
| Total commercial | 550 |
| | 3 |
| | 423 |
| | 12 |
|
| Commercial real estate: | | | | | | | |
| Construction and land development | 11 |
| | 1 |
| | 12 |
| | 2 |
|
| Term | 74 |
| | 3 |
| | 79 |
| | 9 |
|
| Total commercial real estate | 85 |
| | 4 |
| | 91 |
| | 11 |
|
| Consumer: | | | | | | | |
| Home equity credit line | 23 |
| | — |
| | 22 |
| | 1 |
|
| 1-4 family residential | 61 |
| | 1 |
| | 58 |
| | 2 |
|
| Construction and other consumer real estate | 3 |
| | — |
| | 3 |
| | — |
|
| Other | 2 |
| | — |
| | 2 |
| | — |
|
| Total consumer loans | 89 |
| | 1 |
| | 85 |
| | 3 |
|
| Total | $ | 724 |
| | $ | 8 |
| | $ | 599 |
| | $ | 26 |
|
ZIONS BANCORPORATION, NATIONAL ASSOCIATION AND SUBSIDIARIES
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”).
Consistent with recent accounting and regulatory guidance, loan modifications provided to borrowers experiencing financial difficulties exclusively related to the COVID-19 pandemic, in which we provide certain short-term modifications or payment deferrals, are not classified as TDRs. The TDRs disclosed subsequently do not include these loan modifications.
For further discussion of our policies and processes regarding TDRs, see Note 6 of our 20162019 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, 2020 | | | | | | | | | | | | |
| 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 | $ | 1 | | | $ | 5 | | | $ | — | | | $ | — | | | $ | 7 | | | $ | 3 | | | $ | 16 | |
| Owner-occupied | 3 | | | 1 | | | — | | | 3 | | | 4 | | | 9 | | | 20 | |
| | | | | | | | | | | | | |
| Total commercial | 4 | | | 6 | | | — | | | 3 | | | 11 | | | 12 | | | 36 | |
| Commercial real estate: | | | | | | | | | | | | | |
| | | | | | | | | | | | | |
| Term | 1 | | | — | | | — | | | 7 | | | 94 | | | 24 | | | 126 | |
| Total commercial real estate | 1 | | | — | | | — | | | 7 | | | 94 | | | 24 | | | 126 | |
| Consumer: | | | | | | | | | | | | | |
| Home equity credit line | — | | | 1 | | | 7 | | | — | | | 1 | | | 2 | | | 11 | |
| 1-4 family residential | 1 | | | 1 | | | 4 | | | — | | | 1 | | | 17 | | | 24 | |
| Construction and other consumer real estate | — | | | — | | | — | | | — | | | — | | | — | | | — | |
| | | | | | | | | | | | | |
| Total consumer loans | 1 | | | 2 | | | 11 | | | — | | | 2 | | | 19 | | | 35 | |
| Total accruing | 6 | | | 8 | | | 11 | | | 10 | | | 107 | | | 55 | | | 197 | |
| Nonaccruing | | | | | | | | | | | | | |
| Commercial: | | | | | | | | | | | | | |
| Commercial and industrial | — | | | — | | | — | | | 10 | | | 4 | | | 51 | | | 65 | |
| Owner-occupied | 5 | | | — | | | — | | | — | | | 1 | | | 2 | | | 8 | |
| Municipal | — | | | — | | | — | | | — | | | — | | | — | | | — | |
| Total commercial | 5 | | | — | | | — | | | 10 | | | 5 | | | 53 | | | 73 | |
| Commercial real estate: | | | | | | | | | | | | | |
| | | | | | | | | | | | | |
| Term | 1 | | | — | | | — | | | 1 | | | 3 | | | 2 | | | 7 | |
| Total commercial real estate | 1 | | | — | | | — | | | 1 | | | 3 | | | 2 | | | 7 | |
| Consumer: | | | | | | | | | | | | | |
| Home equity credit line | — | | | — | | | 1 | | | — | | | — | | | — | | | 1 | |
| 1-4 family residential | — | | | — | | | 1 | | | 1 | | | — | | | 5 | | | 7 | |
| | | | | | | | | | | | | |
| | | | | | | | | | | | | |
| Total consumer loans | — | | | — | | | 2 | | | 1 | | | — | | | 5 | | | 8 | |
| Total nonaccruing | 6 | | | — | | | 2 | | | 12 | | | 8 | | | 60 | | | 88 | |
| Total | $ | 12 | | | $ | 8 | | | $ | 13 | | | $ | 22 | | | $ | 115 | | | $ | 115 | | | $ | 285 | |
|
| | | | | | | | | | | | | | | | | | | | | | | | | | | |
| | 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, 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 | $ | 1 | | | $ | 2 | | | $ | — | | | $ | — | | | $ | 8 | | | $ | 5 | | | $ | 16 | |
| Owner-occupied | 3 | | | 1 | | | — | | | — | | | 4 | | | 7 | | | 15 | |
| Total commercial | 4 | | | 3 | | | — | | | — | | | 12 | | | 12 | | | 31 | |
| Commercial real estate: | | | | | | | | | | | | | |
| | | | | | | | | | | | | |
| Term | 2 | | | — | | | — | | | 1 | | | — | | | 3 | | | 6 | |
| Total commercial real estate | 2 | | | — | | | — | | | 1 | | | — | | | 3 | | | 6 | |
| Consumer: | | | | | | | | | | | | | |
| Home equity credit line | — | | | 2 | | | 7 | | | — | | | — | | | 2 | | | 11 | |
| 1-4 family residential | 1 | | | 1 | | | 4 | | | — | | | 1 | | | 22 | | | 29 | |
| Construction and other consumer real estate | — | | | 1 | | | — | | | — | | | — | | | — | | | 1 | |
| | | | | | | | | | | | | |
| Total consumer loans | 1 | | | 4 | | | 11 | | | — | | | 1 | | | 24 | | | 41 | |
| Total accruing | 7 | | | 7 | | | 11 | | | 1 | | | 13 | | | 39 | | | 78 | |
| Nonaccruing | | | | | | | | | | | | | |
| Commercial: | | | | | | | | | | | | | |
| Commercial and industrial | — | | | 4 | | | — | | | 20 | | | 4 | | | 22 | | | 50 | |
| Owner-occupied | 5 | | | — | | | — | | | — | | | 1 | | | 4 | | | 10 | |
| Municipal | — | | | — | | | — | | | — | | | — | | | — | | | — | |
| Total commercial | 5 | | | 4 | | | — | | | 20 | | | 5 | | | 26 | | | 60 | |
| Commercial real estate: | | | | | | | | | | | | | |
| | | | | | | | | | | | | |
| Term | 1 | | | — | | | — | | | — | | | 3 | | | 3 | | | 7 | |
| Total commercial real estate | 1 | | | — | | | — | | | — | | | 3 | | | 3 | | | 7 | |
| Consumer: | | | | | | | | | | | | | |
| Home equity credit line | — | | | — | | | 2 | | | — | | | — | | | — | | | 2 | |
| 1-4 family residential | — | | | — | | | 1 | | | — | | | 1 | | | 4 | | | 6 | |
| | | | | | | | | | | | | |
| | | | | | | | | | | | | |
| Total consumer loans | — | | | — | | | 3 | | | — | | | 1 | | | 4 | | | 8 | |
| Total nonaccruing | 6 | | | 4 | | | 3 | | | 20 | | | 9 | | | 33 | | | 75 | |
| Total | $ | 13 | | | $ | 11 | | | $ | 14 | | | $ | 21 | | | $ | 22 | | | $ | 72 | | | $ | 153 | |
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$4 million and $5 million at SeptemberJune 30, 20172020 and $14 million at December 31, 2016.2019, respectively.
The total recorded investment of all TDRs in which interest rates were modified below market was $116$77 million at SeptemberJune 30, 20172020 and $128$73 million at December 31, 2016.2019. 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, 20172020 and 20162019 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, 2020 | | | | | | Three Months Ended
June 30, 2019 | | | | |
| (In millions) | Accruing | | Nonaccruing | | Total | | Accruing | | Nonaccruing | | Total |
| | | | | | | | | | | |
| Commercial and industrial | $ | — | | | $ | 2 | | | $ | 2 | | | $ | — | | | $ | 3 | | | $ | 3 | |
| | | | | | | | | | | |
| | | | | | | | | | | |
| | | | | | | | | | | |
| | | | | | | | | | | |
| | | | | | | | | | | |
| | | | | | | | | | | |
| | | | | | | | | | | |
| | | | | | | | | | | |
| 1-4 family residential | — | | | — | | | — | | | — | | | 1 | | | 1 | |
| | | | | | | | | | | |
| | | | | | | | | | | |
| Total | $ | — | | | $ | 2 | | | $ | 2 | | | $ | — | | | $ | 4 | | | $ | 4 | |
| | | | | | | | | | | |
| Six Months Ended
June 30, 2020 | | | | | | Six Months Ended
June 30, 2019 | | | | |
| (In millions) | Accruing | | Nonaccruing | | Total | | Accruing | | Nonaccruing | | Total |
| | | | | | | | | | | |
| Commercial and industrial | $ | — | | | $ | 3 | | | $ | 3 | | | $ | — | | | $ | 6 | | | $ | 6 | |
| | | | | | | | | | | |
| | | | | | | | | | | |
| | | | | | | | | | | |
| | | | | | | | | | | |
| Term | — | | | — | | | — | | | — | | | 1 | | | 1 | |
| | | | | | | | | | | |
| | | | | | | | | | | |
| | | | | | | | | | | |
| 1-4 family residential | — | | | — | | | — | | | — | | | 1 | | | 1 | |
| Construction and other consumer real estate | — | | | — | | | — | | | — | | | — | | | — | |
| | | | | | | | | | | |
| Total | $ | — | | | $ | 3 | | | $ | 3 | | | $ | — | | | $ | 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
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, 20172020 and 20162019 were $84$173 millionand $139$69 million, respectively.
Collateral-Dependent Loans
As discussed previously, when a loan is individually-evaluated for expected credit losses, we estimate a specific reserve for the loan based on the projected present value of the loan’s future cash flows discounted at the loan’s effective interest rate, or the observable market price of the loan, or the fair value of the loan’s underlying collateral.
Selected information on loans for which the repayment is expected to be provided substantially through the operation or sale of the underlying collateral and the borrower is experiencing financial difficulties, including the type of collateral and the extent to which the collateral secures the loans, is summarized as follows:
| | | | | | | | | | | | | | | | | |
| June 30, 2020 | | | | |
| (In millions) | Amortized Cost | | Major Types of Collateral | | Weighted Average LTV1 |
| Commercial: | | | | | |
| Commercial and industrial | $ | 16 | | | Single family residential, Agriculture | | 47% |
| | | | | |
| Owner-occupied | 2 | | | Farm land | | 26% |
| | | | | |
| | | | | |
| Commercial real estate: | | | | | |
| | | | | |
| Term | 10 | | | Multi-family, Industrial | | 50% |
| | | | | |
| Consumer: | | | | | |
| Home equity credit line | 2 | | | Single family residential | | 26% |
| 1-4 family residential | 1 | | | Single family residential | | 45% |
| | | | | |
| | | | | |
| | | | | |
| | | | | |
| Total | $ | 31 | | | | | |
1 The fair value is based on the most recent appraisal or other collateral evaluation.
Foreclosed Residential Real Estate
At SeptemberJune 30, 20172020 and December 31, 2016,2019, the amount of foreclosed residential real estate property held by the CompanyBank was approximately $1 million and $2less than $1 million, and the recorded investment inrespectively. The amortized cost basis of consumer mortgage loans collateralized by residential real estate property that are in the process of foreclosure was approximately $7$9 million and $10$8 million for the same periods, respectively.
ZIONS BANCORPORATION, NATIONAL ASSOCIATION AND SUBSIDIARIES
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 20162019 Annual Report on Form 10-K for further discussion of our evaluation of credit risk concentrations. See also Note 7 of our 20162019 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 20162019 Annual Report on Form 10-K10-K.
Fair Value Hedges – As of June 30, 2020, the Bank had $500 million notional amount of an interest rate swap designated in a qualifying fair value hedge relationship. The hedging instrument used is a receive-fixed interest rate swap converting the interest on our fixed-rate debt to floating. The hedge is designated as a fair value hedge of the change in fair value of the London Interbank Offered Rate (“LIBOR”) benchmark swap rate component of the contractual coupon cash flows of our fixed-rate debt. The swap is structured to match the critical terms of the hedged notes, resulting in the expectation that the swap will be highly effective as a hedging instrument. All interest rate swaps designated as fair value hedges were highly effective and met all other requirements to remain designated and part of qualifying hedge accounting relationships as of the balance sheet date. During the second quarter of 2020, the fair value hedge swap portfolio increased in value by $4 million, which was offset by the change in fair value of the hedged debt, resulting in no direct earnings impact.
At December 31, 2019 we had $1.5 billion of fixed-to-floating interest rate swaps designated as fair value hedges of long-term debt (effectively converting the fixed-rate debt into floating-rate debt). In late March 2020, we terminated $1 billion of swaps (i.e., 2 $500 million swaps with maturities in August 2021 and February 2022) with a combined fair value of $36 million. As a result, the cumulative basis adjustment on the debt at the time of the terminations will be amortized as an adjustment to interest expense through the maturity of the debt, thereby reducing the effective interest rate. During the second quarter of 2020, the Bank amortized $7 million of the outstanding unamortized debt basis adjustment. Additionally, as part of the repurchase and retirement of senior notes, the Bank recognized $12 million of the unamortized debt basis adjustment in Other noninterest expense. As of June 30, 2020, the Bank has $18 million of unamortized debt basis adjustments from previously designed fair value hedges remaining.
Cash Flow Hedges – For derivatives designated as qualifying cash flow hedges, periodic changes in fair value are deferred in AOCI. Amounts deferred in AOCI are reclassified into earnings in the periods in which the hedged forecasted transactions (i.e., the hedged floating-rate commercial loan interest receipts) are recognized in earnings or become probable not to occur.
As of June 30, 2020, the Bank had $3.5 billion notional amount of receive-fixed interest rate swaps designated as cash flow hedges of pools of floating-rate commercial loans. During the second quarter of 2020, the Bank's cash flow hedge portfolio decreased in value by $4 million, which was recorded in AOCI. The amounts deferred in AOCI are reclassified into earnings in the periods in which the interest payments occur (i.e. when the hedged forecasted transactions affect earnings).
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 20162019 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, 2017,2020, the fair value of our derivative liabilities was $35$502 million, for which we were required to pledge cash collateral of approximately $46$81 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, the2020, there would likely be $3 million of 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, 20172020 and December 31, 2016,2019, is summarized as follows:
| | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | |
| June 30, 2020 | | | | | | December 31, 2019 | | | | |
| 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 | $ | — | | | $ | — | | | $ | — | | | $ | — | | | $ | — | | | $ | — | |
| Receive-fixed interest rate swaps | 3,500 | | | — | | | — | | | 3,588 | | | — | | | — | |
| Fair value hedges: | | | | | | | | | | | |
| Receive-fixed interest rate swaps | 500 | | | — | | | — | | | 1,500 | | | — | | | — | |
| Total derivatives designated as hedging instruments | 4,000 | | | — | | | — | | | 5,088 | | | — | | | — | |
| Derivatives not designated as hedging instruments: | | | | | | | | | | | |
Customer-facing interest rate derivatives 1, 2 | 5,280 | | | 460 | | | — | | | 4,409 | | | 146 | | | 5 | |
Offsetting interest rate derivatives 2 | 5,281 | | | — | | | 494 | | | 4,422 | | | 5 | | | 157 | |
| Other interest rate derivatives | 1,679 | | | 20 | | | 6 | | | 726 | | | 3 | | | 1 | |
| Foreign exchange derivatives | 273 | | | 3 | | | 2 | | | 385 | | | 4 | | | 4 | |
| Total derivatives not designated as hedging instruments | 12,513 | | | 483 | | | 502 | | | 9,942 | | | 158 | | | 167 | |
| Total derivatives | $ | 16,513 | | | $ | 483 | | | $ | 502 | | | $ | 15,030 | | | $ | 158 | | | $ | 167 | |
1 Customer-facing interest rate derivatives in an asset position include a $34 million and an $11 million net credit valuation adjustment reducing the related gain (loss)fair value amounts as of June 30, 2020 and December 31, 2019, respectively. There was no significant debit valuation adjustment for derivative liabilities. These adjustments are required to reflect both our nonperformance risk and that of the respective counterparty.
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, 2020 | | | | December 31, 2019 | | |
| (In millions) | Other assets | | Other liabilities | | Other assets | | Other liabilities |
| Customer-facing interest rate derivatives | $ | 460 | | | $ | — | | | $ | 141 | | | $ | 5 | |
| Offsetting interest rate derivatives | — | | | 32 | | | 5 | | | 9 | |
ZIONS BANCORPORATION, NATIONAL ASSOCIATION AND SUBSIDIARIES
The amount of derivative instrumentsgains (losses) from cash flow and fair value hedges that was deferred in OCI or recognized in earnings for the three and ninesix months ended SeptemberJune 30, 20172020 and 20162019 is summarized as follows:
| | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | |
| Amount of derivative gain (loss) recognized/reclassified | | | | | | | | | | |
| Three Months Ended June 30, 2020 | | | | | | | | | | |
| (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 | | Interest on Fair Value Hedges | | Hedge Ineffectiveness / OCI Reclass due to Missed Forecast | | |
| Derivatives designated as hedging instruments: | | | | | | | | | | | |
Cash flow hedges of floating-rate assets1: | | | | | | | | | | | |
| Purchased interest rate floors | $ | — | | | $ | — | | | $ | 3 | | | $ | — | | | $ | — | | | |
| Interest rate swaps | 10 | | | — | | | 10 | | | — | | | — | | | |
| Fair value hedges of fixed-rate debt: | | | | | | | | | | | |
| Receive-fixed interest rate swaps | — | | | — | | | — | | | 1 | | | — | | | |
Basis amortization on terminated swaps2 | — | | | — | | | — | | | 6 | | | — | | | |
| Total derivatives designated as hedging instruments | $ | 10 | | | $ | — | | | $ | 13 | | | $ | 7 | | | $ | — | | | |
| | | | | | | | | | | | | | | | | | | | | | | | | | | | | |
| Amount of derivative gain (loss) recognized/reclassified | | | | | | | | |
| Six Months Ended June 30, 2020 | | | | | | | | |
| (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 | | Interest on Fair Value Hedges | | Hedge Ineffectiveness / OCI Reclass due to Missed Forecast |
| Derivatives designated as hedging instruments: | | | | | | | | | |
Cash flow hedges of floating-rate assets1: | | | | | | | | | |
| Purchased interest rate floors | $ | — | | | $ | — | | | $ | 6 | | | $ | — | | | $ | — | |
| Interest rate swaps | 102 | | | — | | | 11 | | | — | | | — | |
| Fair value hedges of fixed-rate debt: | | | | | | | | | |
| Receive-fixed interest rate swaps | — | | | — | | | — | | | 3 | | | — | |
Basis amortization on terminated swaps2 | — | | | — | | | — | | | 7 | | | — | |
| Total derivatives designated as hedging instruments | $ | 102 | | | $ | — | | | $ | 17 | | | $ | 10 | | | $ | — | |
| | | | | | | | | | | | | | | | | | | | | | | | | | | | | |
| Amount of derivative gain (loss) recognized/reclassified | | | | | | | | |
| Three 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 | | Interest on Fair Value Hedges | | 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 | | | $ | 15 | | | $ | (1) | | | $ | — | | | $ | — | |
| Interest rate swaps | 24 | | | — | | | (1) | | | — | | | — | |
| Fair value hedges of fixed-rate debt: | | | | | | | | | |
| Receive-fixed interest rate swaps | — | | | — | | | — | | | — | | | — | |
Basis amortization on terminated swaps2 | — | | | — | | | — | | | — | | | — | |
| Total derivatives designated as hedging instruments | $ | 26 | | | $ | 15 | | | $ | (2) | | | $ | — | | | $ | — | |
ZIONS BANCORPORATION, NATIONAL ASSOCIATION AND SUBSIDIARIES
|
| | | | | | | | | | | | | | | | | | | | | | | |
| | September 30, 2017 | | December 31, 2016 |
| | 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: | | | | | | | | | | | |
| Interest rate swaps | $ | 1,138 |
| | $ | — |
| | $ | — |
| | $ | 1,388 |
| | $ | 2 |
| | $ | 1 |
|
| 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 |
|
| Total derivatives not designated as hedging instruments | 5,083 |
| | 43 |
| | 35 |
| | 4,821 |
| | 62 |
| | 58 |
|
| Total derivatives | $ | 6,221 |
| | $ | 43 |
| | $ | 35 |
| | $ | 6,209 |
| | $ | 64 |
| | $ | 59 |
|
1 Notional amounts include both the customer swaps and the offsetting derivative contracts.
|
| | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | |
| | Amount of derivative gain (loss) recognized/reclassified |
| | Three Months Ended September 30, 2017 | | Nine Months Ended September 30, 2017 |
(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 |
| Derivatives designated as hedging instruments: | | | | | | | | | | | | | | | |
Cash flow hedges1: | | | | | | | | | | | | �� | | | |
| Interest rate swaps | $ | — |
| | $ | — |
| | | | | | $ | — |
| | $ | 3 |
| | | | |
| Derivatives not designated as hedging instruments: | | | | | | | | | | | | | | | |
| Interest rate swaps and forward contracts | | | | | $ | — |
| | | | | | | | $ | (1 | ) | | |
| Interest rate swaps for customers | | | | | 4 |
| | | | | | | | 8 |
| | |
| Foreign exchange | | | | | 4 |
| | | | | | | | 12 |
| | |
| Total derivatives | $ | — |
| | $ | — |
| | $ | 8 |
| | $ | — |
| | $ | — |
| | $ | 3 |
| | $ | 19 |
| | $ | — |
|
|
| | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | |
| | Amount of derivative gain (loss) recognized/reclassified |
| | Three Months Ended September 30, 2016 | | Nine Months Ended September 30, 2016 |
(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 |
| Derivatives designated as hedging instruments: | | | | | | | | | | | | | | | |
Cash flow hedges1: | | | | | | | | | | | | | | | |
| Interest rate swaps | $ | (5 | ) | | $ | 3 |
| | | | | | $ | 23 |
| | $ | 9 |
| | | | |
| 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 |
| | |
| Total derivatives | $ | (5 | ) | | $ | 3 |
| | $ | 8 |
| | $ | — |
| | $ | 23 |
| | $ | 9 |
| | $ | 16 |
| | $ | — |
|
| | | | | | | | | | | | | | | | | | | | | | | | | | | | | |
| 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 | | Interest on Fair Value Hedges | | 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 | — | | | — | | | — | | | 1 | | | — | |
Basis amortization on terminated swaps2 | — | | | — | | | — | | | — | | | — | |
| Total derivatives designated as hedging instruments | $ | 35 | | | $ | 18 | | | $ | (4) | | | $ | 1 | | | $ | — | |
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, 2020, we estimate that $61 million will be reclassified from AOCI into interest
2 Adjustment to interest expense resulting from the amortization of the debt basis adjustment on fixed-rate debt previously hedged by terminated receive-fixed interest rate.
The amount of gains (losses) recognized from derivatives not designated as accounting hedges is as follows:
| | | | | | | | | | | | | | | | | | | | | | | |
| Noninterest (Other) Income/(Expense) | | | | | | |
| (In millions) | Three Months Ended June 30, 2020 | | Six Months Ended June 30, 2020 | | Three Months Ended June 30, 2019 | | Six Months Ended June 30, 2019 |
| Derivatives not designated as hedging instruments: | | | | | | | |
| Customer-facing interest rate derivatives | $ | 34 | | | $ | 346 | | | $ | 86 | | | $ | 132 | |
| Offsetting interest rate derivatives | (39) | | | (352) | | | (85) | | | (130) | |
| Other interest rate derivatives | 2 | | | 11 | | | (1) | | | (1) | |
| Foreign exchange derivatives | 5 | | | 12 | | | 6 | | | 11 | |
| Total derivatives not designated as hedging instruments | $ | 2 | | | $ | 17 | | | $ | 6 | | | $ | 12 | |
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, 2020 | | | | | | Three Months Ended June 30, 2019 | | | | |
| (In millions) | Derivatives2 | | Hedged items | | Total income statement impact | | Derivatives2 | | Hedged items | | Total income statement impact |
Interest rate swaps1 | $ | 4 | | | $ | (4) | | | $ | — | | | $ | 12 | | | $ | (12) | | | $ | — | |
| | | | | | | | | | | | | |
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. | | | | | | | | | | |
| | | | | | | | | | | |
| | | | | | | | | | | |
| | | | | | | | | | | |
| | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | |
| Gain/(loss) recorded in income | | | | | | | | | | |
| Six Months Ended June 30, 2020 | | | | | | Six Months Ended June 30, 2019 | | | | |
| (In millions) | Derivatives2 | | Hedged items | | Total income statement impact | | Derivatives2 | | Hedged items | | Total income statement impact |
Interest rate swaps1 | $ | 75 | | | $ | (75) | | | $ | — | | | $ | 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.
ZIONS BANCORPORATION, NATIONAL ASSOCIATION AND SUBSIDIARIES
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)1 | | | | Cumulative amount of fair value hedging adjustment included in the carrying amount of the hedged assets/(liabilities) | | |
| (In millions) | June 30, 2020 | | December 31, 2019 | | June 30, 2020 | | December 31, 2019 |
Long-term debt2 | $ | (549) | | | $ | (1,510) | | | $ | (49) | | | $ | (10) | |
| | | | | | | |
| | | | | | | |
1 Carrying amounts displayed above exclude issuance discounts or premiums and unamortized issuance costs.
2 The carrying amount of long-term fixed-rate debt excludes amounts related to terminated fair value hedges.
8. LEASES
We determine if a contract is a lease or contains a lease at inception. For a more detailed discussion of our lease policies, see Note 8 of our 2019 Annual Report on Form 10-K.
We have operating and finance leases for branches, corporate offices, and data centers. Our equipment leases are not material. At June 30, 2020, we had 421 branches, of which 274 are owned and 147 are leased. We lease our headquarters in Salt Lake City, Utah, and other office or data centers are either owned or leased.
The fair valueBank may enter into certain lease arrangements with a term of derivative12 months or less, and we have elected to exclude these from capitalization. The length of our commitments for leases ranges from 2020 to 2062, some of which include options to extend or terminate the leases.
Assets recorded under operating leases were $209 million at June 30, 2020, and $218 million at December 31, 2019, while assets was reduced by a net credit valuation adjustment ofrecorded under finance leases were $4 million at both of those dates. 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.
| | | | | | | | | | | |
| (Dollar amounts in millions) | June 30,
2020 | | December 31, 2019 |
| | | |
| Operating assets and liabilities | | | |
| Operating right-of-use assets, net of amortization | $ | 209 | | | $ | 218 | |
| Operating lease liabilities | 237 | | | 246 | |
| Weighted average remaining lease term (years) | | | |
| Operating leases | 8.9 | | 9.1 |
| Finance leases | 19.7 | | 20.2 |
| Weighted average discount rate | | | |
| Operating leases | 3.1 | % | | 3.2 | % |
| Finance leases | 3.1 | % | | 3.1 | % |
The components of lease expense are as follows:
| | | | | | | | | | | | | | | | | | | | | | | |
| Three Months Ended June 30, | | | | Six Months Ended June 30, | | |
| (In millions) | 2020 | | 2019 | | 2020 | | 2019 |
| | | | | | | |
| Operating lease costs | $ | 12 | | | $ | 12 | | | $ | 24 | | | $ | 24 | |
| | | | | | | |
| | | | | | | |
| | | | | | | |
| | | | | | | |
| | | | | | | |
| Variable lease costs | 12 | | | 13 | | | 24 | | | 26 | |
| | | | | | | |
| Total lease cost | $ | 24 | | | $ | 25 | | | $ | 48 | | | $ | 50 | |
Table of Contents
ZIONS BANCORPORATION, NATIONAL ASSOCIATION AND SUBSIDIARIES
Supplemental cash flow information related to leases is as follows:
| | | | | | | | | | | | | | | | | | | | | | | |
| Three Months Ended June 30, | | | | Six Months Ended June 30, | | |
| (In millions) | 2020 | | 2019 | | 2020 | | 2019 |
| | | | | | | |
| Cash paid for amounts in the measurement of lease liabilities: | | | | | | | |
| Operating cash disbursements from operating leases | $ | 13 | | | $ | 12 | | | $ | 25 | | | $ | 24 | |
| | | | | | | |
| | | | | | | |
| | | | | | | |
| | | | | | | |
| | | | | | | |
ROU assets obtained in exchange for lease liabilities:
| | | | | | | | | | | | | | | | | | | | | | | |
| Three Months Ended June 30, | | | | Six Months Ended June 30, | | |
| (In millions) | 2020 | | 2019 | | 2020 | | 2019 |
| | | | | | | |
| New operating lease liabilities | $ | 3 | | | $ | 4 | | | $ | 6 | | | $ | 4 | |
| | | | | | | |
| | | | | | | |
Maturities analysis for operating lease liabilities as of June 30, 2020 is as follows (contractual undiscounted lease payments):
| | | | | |
| (In millions) | |
| |
2020 1 | $ | 25 | |
| 2021 | 47 | |
| 2022 | 42 | |
| 2023 | 35 | |
| 2024 | 26 | |
| Thereafter | 104 | |
| Total | $ | 279 | |
1 Contractual maturities for the six months remaining in 2020.
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 2020 and 2019, and $6 million for both the first six months of 2020 and 2019.
The Bank also has a lending division that makes equipment leases, considered to be sales-type leases or direct financing leases, totaling $324 million and $334 million as of June 30, 2020 and December 31, 2019, 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 2020 and 2019, and $7 million at September 30, 2017for both the first six months of 2020 and 2016, respectively. The adjustment for derivative liabilities was a $1 million decrease and was not significant at September 30, 2017 and 2016, respectively. These adjustments are required to reflect both our own nonperformance risk and the respective counterparty’s nonperformance risk.2019.
| |
8. | DEBT AND SHAREHOLDERS’ EQUITY |
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,
2020 | | December 31, 2019 |
| | | | | | | | |
| | Subordinated notes | $ | 247 |
| | $ | 247 |
| Subordinated notes | $ | 630 | | | $ | 572 | |
| Senior notes | 135 |
| | 287 |
| Senior notes | 719 | | | 1,147 | |
| Capital lease obligations | 1 |
| | 1 |
| |
| | Finance lease obligations | | Finance lease obligations | 4 | | | 4 | |
| Total | $ | 383 |
| | $ | 535 |
| Total | $ | 1,353 | | | $ | 1,723 | |
The preceding carrying values represent the par value of the debt adjusted for any unamortized premium or discount, or unamortized debt issuance costs.costs, and basis adjustments for interest rate swaps designated as fair value hedges. The change in outstanding senior and subordinated debt balances from December 31, 2019 to June 30, 2020 was primarily a result of the repurchase and retirement of senior notes that had adjustments to their carrying values from being in designated hedge relationships with interest rate swaps. During the second quarter of 2020, the Bank
ZIONS BANCORPORATION, NATIONAL ASSOCIATION AND SUBSIDIARIES
repurchased and Maturitiesretired $219 million of senior notes with an interest rate of 3.50% and $210 million of senior notes with an interest rate of 3.35%.
During the first quarter of 2017, $153 million of our 4.5%2020 the Bank terminated 2 receive-fixed interest rate swaps designated as hedges on senior notes, matured.resulting in one outstanding receive-fixed interest rate swap designated as a hedge on a $500 million subordinated note with an interest rate of 3.25% at June 30, 2020. The outstanding swap constitutes a qualifying fair value hedging relationship. The terminated interest rate swaps adjusted the carrying value of the debt and this adjustment will be amortized into earnings until the original maturity date. For more information on derivatives designated as qualifying fair value hedges, see Note 7 – Derivative Instruments and Hedging Activities.
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, 2020, there were 164.0 million shares of 0.001 par value common stock outstanding. The balance of common stock and additional paid-in capital was $2.7 billion at June 30, 2020, and decreased $60 million, or 2%, from December 31, 2019, primarily due to Bank common stock repurchases. 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 redeem2020, 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 andBank repurchased 2.51.7 million shares of common stock outstanding with a fair value of $115$75 million at an average price of $45.45$45.02 per share, and has repurchased 4.7share.
On May 22, 2020, 29.2 million shares of common stock outstandingwarrants (NASDAQ: ZIONW), with a fair value $205 million at an averageexercise price of $43.72 per share during the first nine months of 2017. During the first nine months of 2016, the Company repurchased 1.5 million shares of$33.31, expired unexercised. Each common stock outstanding with a fair value of $45 million, at an average price of $30.64 per share.
Duringwarrant was convertible into 1.10 shares and the second quarter 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 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 resultexercise of the tender offer, includingcommon stock warrants was cashless as 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 for an aggregate cash payment of $126 million. The
ZIONS BANCORPORATION AND SUBSIDIARIES
total one-time reduction towarrants were settled on a net earnings applicable to common shareholders associated with the preferred stock redemption was $10 million.share basis.
Accumulated Other Comprehensive Income
Accumulated other comprehensive income (loss) was $(57)improved to $355 million at SeptemberJune 30, 2017 compared to $(122)2020 from $43 million at December 31, 2016.2019 primarily as a result of increases in the fair value of AFS securities due to changes in interest rates. 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, 2020 | | | | | | | |
| Balance at December 31, 2019 | $ | 29 | | | $ | 28 | | | $ | (14) | | | $ | 43 | |
| | | | | | | |
| OCI before reclassifications, net of tax | 241 | | | 71 | | | 13 | | | 325 | |
| Amounts reclassified from AOCI, net of tax | — | | | (13) | | | — | | | (13) | |
| OCI | 241 | | | 58 | | | 13 | | | 312 | |
| Balance at June 30, 2020 | $ | 270 | | | $ | 86 | | | $ | (1) | | | $ | 355 | |
| Income tax expense included in OCI | $ | 79 | | | $ | 19 | | | $ | 4 | | | $ | 102 | |
| 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 | |
ZIONS BANCORPORATION, NATIONAL ASSOCIATION AND SUBSIDIARIES
|
| | | | | | | | | | | | | | | |
| (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) | | |
| (In millions) | | Three Months Ended
June 30, | | | | Six Months Ended
June 30, | | | | | | |
| Details about AOCI components | | 2020 | | 2019 | | 2020 | | 2019 | | | | Affected line item |
| | | | | | | | | | | | |
| | | | | | | | | | | | |
| | | | | | | | | | | | |
| | | | | | | | | | | | |
| | | | | | | | | | | | |
| | | | | | | | | | | | |
| | | | | | | | | | | | |
| | | | | | | | | | | | |
| | | | | | | | | | | | |
| | | | | | | | | | | | |
| | | | | | | | | | | | |
| Net unrealized gains (losses) on derivative instruments | | $ | 13 | | | $ | (2) | | | $ | 17 | | | $ | (4) | | | SI | | Interest and fees on loans |
| Income tax expense (benefit) | | 3 | | | (1) | | | 4 | | | (2) | | | | | |
| Amounts Reclassified from AOCI | | 10 | | | (1) | | | 13 | | | (2) | | | | | |
1 Positive reclassification amounts indicate increases to earnings in the statement of income.
10. COMMITMENTS, GUARANTEES AND CONTINGENT LIABILITIES
|
| | | | | | | | | | | | | | | | | | | | |
| | | 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,
2020 | | December 31,
2019 |
| | | |
Net unfunded commitments to extend credit 1 | $ | 23,498 | | | $ | 23,099 | |
| Standby letters of credit: | | | |
| Financial | 532 | | | 631 | |
| Performance | 178 | | | 192 | |
| Commercial letters of credit | 21 | | | 5 | |
| Total unfunded lending commitments | $ | 24,229 | | | $ | 23,927 | |
|
| | | | | | | |
| (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 2019 Annual Report on Form 10-K contains further information about these commitments and guarantees including their terms and collateral requirements. At SeptemberJune 30, 2017,2020, the CompanyBank had recorded approximately $5$6 million as a liability for the guarantees associated with the standby letters of credit, which consisted of $1$4 million attributable to the RULC and $4$2 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, 2017,2020, 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 initial motion practice having been completed.
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 IMGour former customer, International Manufacturing Group (“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 the discovery phase with dispositive motion practice underway. The hearings for the dispositive motions have been delayed, and the previously scheduled May 2020 trial setting has been vacated to be reset in the future due to the COVID-19 pandemic.
ZIONS BANCORPORATION, NATIONAL ASSOCIATION AND SUBSIDIARIES
•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. This case is in the post-pleading phase and trial will not occur for a substantial period of time.At•two civil cases, Lifescan Inc. and Johnson & Johnson Health Care Services v. Jeffrey Smith, et. al., brought against us in the endUnited States District Court for the District of SeptemberNew Jersey in December 2017, and Roche Diagnostics and Roche Diabetes Care Inc. v. Jeffrey C. Smith, et. al., brought against us in the 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 who filed for bankruptcy protection in 2017. The 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 class action lawsuit, Gregory, et. al. v. Zions Bancorporation, brought against us in the United States District Court for Utah in January 2019. This case was filed on behalf of investors in Rust Rare Coin, Inc., alleging that we settledaided and abetted a governmental inquiry conductedPonzi 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 U.S. Attorney’s OfficeSEC against Rust Rare Coin and its principal, Gaylen Rust. The matter is in the early motion practice state. During the second quarter of 2019, we filed a motion to dismiss which has not yet been ruled upon by the Court. Trial has not been scheduled.
•two civil class action lawsuits, Fahmia Inc.v. Zions Bancorporation, 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 engagedColorado in fraudulent marketing practices, primarilyJune 2020, and ImpAcct LLC v. JPMorgan Chase, et. al., brought against us and other banks in the 2006-2008 timeframe. The settlement agreement imposed a civil money penaltyUnited States District Court for the Central District of $3.6 million, whichCalifornia in June 2020. A third class action lawsuit, Manoloff v. Bank of America, et. al., was paidfiled against us in the third quarter. Because this amount had been fully reserved,United States District Court for the settlement did not affect our third quarter financial results.Southern District of Texas in July 2020. These cases allege that we wrongly failed to pay agents of borrowers receiving loans from us under the Government's Paycheck Protection Program fees that were allegedly owed to them under the program. These cases are similar to class action lawsuits filed against other banks and will likely involve complicated procedural issues.
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, 2017,2020, we estimated that the aggregate range of reasonably possible losses for those matters to be from $0 millionto roughly $20$35 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
ZIONS BANCORPORATION, NATIONAL ASSOCIATION AND SUBSIDIARIES
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 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 2020. 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 17 of our 2019 Annual Report on Form 10-K.
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 certain non-bank financial services subsidiaries, centralized back-office functions, and eliminations of transactions between 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 presents the noninterest income and net revenue by operating segments for the three months ended June 30, 2020 and 2019:
| | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | |
| Zions Bank | | | | Amegy | | | | CB&T | | |
| (In millions) | 2020 | | 2019 | | 2020 | | 2019 | | 2020 | | 2019 |
| | | | | | | | | | | |
| Commercial account fees | $ | 10 | | | $ | 10 | | | $ | 10 | | | $ | 9 | | | $ | 5 | | | $ | 6 | |
| Card fees | 11 | | | 13 | | | 6 | | | 7 | | | 3 | | | 4 | |
| Retail and business banking fees | 4 | | | 5 | | | 3 | | | 4 | | | 3 | | | 3 | |
| | | | | | | | | | | |
| Capital markets and foreign exchange fees | (1) | | | — | | | 1 | | | 1 | | | — | | | — | |
| Wealth management and trust fees | 6 | | | 4 | | | 4 | | | 3 | | | 2 | | | 1 | |
| Other customer-related fees | 1 | | | 1 | | | — | | | — | | | — | | | 1 | |
| Total noninterest income from contracts with customers (ASC 606) | 31 | | | 33 | | | 24 | | | 24 | | | 13 | | | 15 | |
| Other noninterest income (Non-ASC 606 customer related) | 7 | | | 3 | | | 8 | | | 10 | | | 6 | | | 7 | |
| Total customer-related fees | 38 | | | 36 | | | 32 | | | 34 | | | 19 | | | 22 | |
| Other noninterest income (non-customer related) | — | | | 2 | | | (1) | | | — | | | — | | | — | |
| Total noninterest income | 38 | | | 38 | | | 31 | | | 34 | | | 19 | | | 22 | |
| Other real estate owned gain from sale | — | | | — | | | — | | | — | | | — | | | — | |
| Net interest income | 156 | | | 175 | | | 120 | | | 127 | | | 123 | | | 134 | |
| Total income less interest expense | $ | 194 | | | $ | 213 | | | $ | 151 | | | $ | 161 | | | $ | 142 | | | $ | 156 | |
| | | | | | | | | | | |
ZIONS BANCORPORATION, NATIONAL ASSOCIATION AND SUBSIDIARIES
| | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | |
| NBAZ | | | | NSB | | | | Vectra | | |
| (In millions) | 2020 | | 2019 | | 2020 | | 2019 | | 2020 | | 2019 |
| | | | | | | | | | | |
| Commercial account fees | $ | 2 | | | $ | 2 | | | $ | 1 | | | $ | 2 | | | $ | 1 | | | $ | 1 | |
| Card fees | 2 | | | 3 | | | 2 | | | 3 | | | 1 | | | 2 | |
| Retail and business banking fees | 2 | | | 2 | | | 2 | | | 3 | | | 1 | | | 1 | |
| | | | | | | | | | | |
| Capital markets and foreign exchange fees | — | | | — | | | — | | | — | | | — | | | — | |
| Wealth management and trust fees | — | | | — | | | 1 | | | 1 | | | 1 | | | — | |
| Other customer-related fees | — | | | — | | | — | | | — | | | — | | | — | |
| Total noninterest income from contracts with customers (ASC 606) | 6 | | | 7 | | | 6 | | | 9 | | | 4 | | | 4 | |
| Other noninterest income (Non-ASC 606 customer related) | 4 | | | 3 | | | 4 | | | 2 | | | 4 | | | 2 | |
| Total customer-related fees | 10 | | | 10 | | | 10 | | | 11 | | | 8 | | | 6 | |
| Other noninterest income (non-customer related) | — | | | 1 | | | — | | | — | | | — | | | — | |
| Total noninterest income | 10 | | | 11 | | | 10 | | | 11 | | | 8 | | | 6 | |
| Other real estate owned gain from sale | — | | | — | | | — | | | — | | | — | | | — | |
| Net interest income | 53 | | | 59 | | | 35 | | | 38 | | | 33 | | | 35 | |
| Total income less interest expense | $ | 63 | | | $ | 70 | | | $ | 45 | | | $ | 49 | | | $ | 41 | | | $ | 41 | |
| | | | | | | | | | | |
| TCBW | | | | Other | | | | Consolidated Bank | | |
| (In millions) | 2020 | | 2019 | | 2020 | | 2019 | | 2020 | | 2019 |
| | | | | | | | | | | |
| Commercial account fees | $ | 1 | | | $ | 1 | | | $ | — | | | $ | (1) | | | $ | 30 | | | $ | 30 | |
| Card fees | — | | | — | | | — | | | — | | | 25 | | | 32 | |
| Retail and business banking fees | — | | | — | | | — | | | 2 | | | 15 | | | 20 | |
| | | | | | | | | | | |
| Capital markets and foreign exchange fees | — | | | — | | | 3 | | | 1 | | | 3 | | | 2 | |
| Wealth management and trust fees | — | | | — | | | 1 | | | 5 | | | 15 | | | 14 | |
| Other customer-related fees | — | | | — | | | 5 | | | 3 | | | 6 | | | 5 | |
| Total noninterest income from contracts with customers (ASC 606) | 1 | | | 1 | | | 9 | | | 10 | | | 94 | | | 103 | |
| Other noninterest income (Non-ASC 606 customer related) | — | | | — | | | 3 | | | — | | | 36 | | | 27 | |
| Total customer-related fees | 1 | | | 1 | | | 12 | | | 10 | | | 130 | | | 130 | |
| Other noninterest income (non-customer related) | — | | | — | | | (12) | | | (1) | | | (13) | | | 2 | |
| Total noninterest income | 1 | | | 1 | | | — | | | 9 | | | 117 | | | 132 | |
| Other real estate owned gain from sale | — | | | — | | | — | | | — | | | — | | | — | |
| Net interest income | 13 | | | 14 | | | 30 | | | (13) | | | 563 | | | 569 | |
| Total income less interest expense | $ | 14 | | | $ | 15 | | | $ | 30 | | | $ | (4) | | | $ | 680 | | | $ | 701 | |
The following schedule presents the noninterest income and net revenue by operating segments for the six months ended June 30, 2020 and 2019:
| | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | |
| Zions Bank | | | | Amegy | | | | CB&T | | |
| (In millions) | 2020 | | 2019 | | 2020 | | 2019 | | 2020 | | 2019 |
| | | | | | | | | | | |
| Commercial account fees | $ | 21 | | | $ | 20 | | | $ | 19 | | | $ | 17 | | | $ | 11 | | | $ | 11 | |
| Card fees | 23 | | | 25 | | | 12 | | | 14 | | | 6 | | | 8 | |
| Retail and business banking fees | 10 | | | 11 | | | 7 | | | 8 | | | 6 | | | 7 | |
| | | | | | | | | | | |
| Capital markets and foreign exchange fees | (1) | | | — | | | 3 | | | 3 | | | — | | | — | |
| Wealth management and trust fees | 11 | | | 8 | | | 8 | | | 5 | | | 4 | | | 2 | |
| Other customer-related fees | 1 | | | 2 | | | 1 | | | 1 | | | 1 | | | 1 | |
| Total noninterest income from contracts with customers (ASC 606) | 65 | | | 66 | | | 50 | | | 48 | | | 28 | | | 29 | |
| Other noninterest income (Non-ASC 606 customer related) | 12 | | | 4 | | | 17 | | | 20 | | | 15 | | | 12 | |
| Total customer-related fees | 77 | | | 70 | | | 67 | | | 68 | | | 43 | | | 41 | |
| Other noninterest income (non-customer related) | (1) | | | 1 | | | — | | | — | | | 1 | | | — | |
| Total noninterest income | 76 | | | 71 | | | 67 | | | 68 | | | 44 | | | 41 | |
| Other real estate owned gain from sale | — | | | 1 | | | — | | | — | | | — | | | — | |
| Net interest income | 314 | | | 351 | | | 237 | | | 252 | | | 245 | | | 267 | |
| Total income less interest expense | $ | 390 | | | $ | 423 | | | $ | 304 | | | $ | 320 | | | $ | 289 | | | $ | 308 | |
| | | | | | | | | | | |
ZIONS BANCORPORATION, NATIONAL ASSOCIATION AND SUBSIDIARIES
| | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | |
| NBAZ | | | | NSB | | | | Vectra | | |
| (In millions) | 2020 | | 2019 | | 2020 | | 2019 | | 2020 | | 2019 |
| | | | | | | | | | | |
| Commercial account fees | $ | 4 | | | $ | 4 | | | $ | 4 | | | $ | 4 | | | $ | 3 | | | $ | 3 | |
| Card fees | 5 | | | 6 | | | 5 | | | 6 | | | 2 | | | 3 | |
| Retail and business banking fees | 4 | | | 4 | | | 4 | | | 6 | | | 2 | | | 2 | |
| | | | | | | | | | | |
| Capital markets and foreign exchange fees | — | | | — | | | — | | | — | | | — | | | — | |
| Wealth management and trust fees | 1 | | | 1 | | | 2 | | | 2 | | | 2 | | | 1 | |
| Other customer-related fees | — | | | — | | | — | | | — | | | — | | | — | |
| Total noninterest income from contracts with customers (ASC 606) | 14 | | | 15 | | | 15 | | | 18 | | | 9 | | | 9 | |
| Other noninterest income (Non-ASC 606 customer related) | 7 | | | 6 | | | 6 | | | 3 | | | 7 | | | 3 | |
| Total customer-related fees | 21 | | | 21 | | | 21 | | | 21 | | | 16 | | | 12 | |
| Other noninterest income (non-customer related) | — | | | — | | | — | | | — | | | — | | | — | |
| Total noninterest income | 21 | | | 21 | | | 21 | | | 21 | | | 16 | | | 12 | |
| Other real estate owned gain from sale | — | | | — | | | — | | | — | | | — | | | — | |
| Net interest income | 105 | | | 117 | | | 70 | | | 76 | | | 65 | | | 69 | |
| Total income less interest expense | $ | 126 | | | $ | 138 | | | $ | 91 | | | $ | 97 | | | $ | 81 | | | $ | 81 | |
| | | | | | | | | | | |
| TCBW | | | | Other | | | | Consolidated Bank | | |
| (In millions) | 2020 | | 2019 | | 2020 | | 2019 | | 2020 | | 2019 |
| | | | | | | | | | | |
| Commercial account fees | $ | 1 | | | $ | 1 | | | $ | (2) | | | $ | — | | | $ | 61 | | | $ | 60 | |
| Card fees | — | | | 1 | | | 2 | | | (1) | | | 55 | | | 62 | |
| Retail and business banking fees | — | | | — | | | — | | | — | | | 33 | | | 38 | |
| | | | | | | | | | | |
| Capital markets and foreign exchange fees | — | | | — | | | 4 | | | 2 | | | 6 | | | 5 | |
| Wealth management and trust fees | — | | | — | | | 2 | | | 8 | | | 30 | | | 27 | |
| Other customer-related fees | — | | | — | | | 8 | | | 5 | | | 11 | | | 9 | |
| Total noninterest income from contracts with customers (ASC 606) | 1 | | | 2 | | | 14 | | | 14 | | | 196 | | | 201 | |
| Other noninterest income (Non-ASC 606 customer related) | 1 | | | — | | | 10 | | | 3 | | | 75 | | | 51 | |
| Total customer-related fees | 2 | | | 2 | | | 24 | | | 17 | | | 271 | | | 252 | |
| Other noninterest income (non-customer related) | — | | | — | | | (21) | | | 11 | | | (21) | | | 12 | |
| Total noninterest income | 2 | | | 2 | | | 3 | | | 28 | | | 250 | | | 264 | |
| Other real estate owned gain from sale | — | | | — | | | — | | | 1 | | | — | | | 2 | |
| Net interest income | 25 | | | 27 | | | 50 | | | (14) | | | 1,111 | | | 1,145 | |
| Total income less interest expense | $ | 27 | | | $ | 29 | | | $ | 53 | | | $ | 15 | | | $ | 1,361 | | | $ | 1,411 | |
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 June 30, | | | | Six Months Ended June 30, | | |
| 2020 | | 2019 | | 2020 | | 2019 |
| | | | | | | |
| | | | | | | |
| Interest cost | $ | — | | | $ | 1 | | | $ | 2 | | | $ | 3 | |
| Expected return on plan assets | (1) | | | (2) | | | (3) | | | (4) | |
| Pension termination-related expense | 28 | | | — | | | 28 | | | — | |
| | | | | | | |
| Amortization of net actuarial loss | — | | | 1 | | | — | | | 1 | |
| Net periodic cost | $ | 27 | | | $ | — | | | $ | 27 | | | $ | — | |
|
| | | | | | | | | | | | | | | |
| (In millions) | Three Months Ended September 30, | | Nine Months Ended September 30, |
| 2017 | | 2016 | | 2017 | | 2016 |
| | | | | | | | |
| Interest cost | $ | 2 |
|
| $ | 2 |
| | $ | 5 |
| | $ | 5 |
|
| Expected return on plan assets | (3 | ) |
| (3 | ) | | (9 | ) | | (9 | ) |
| Partial settlement loss | 1 |
| | 3 |
| | 2 |
| | 3 |
|
| Amortization of net actuarial loss | 1 |
|
| 1 |
| | 4 |
| | 5 |
|
| Net periodic benefit cost | $ | 1 |
| | $ | 3 |
| | $ | 2 |
| | $ | 4 |
|
In October 2018, the Bank announced its intention to terminate the defined benefit pension plan subject to obtaining necessary regulatory approval. The Bank received an IRS letter of determination on March 31, 2020. Plan participants made elections for lump-sum distributions or annuity benefits. Lump-sum distributions were completed in May 2020, and the annuity purchase was completed in June 2020. As disclosed in our 2016 Annual Report on Form 10-K, the Company has frozen its participation and benefit accruals fora result of the pension plan and its contributions for individual benefit paymentstermination, the Bank incurred $28 million of expense, which was recognized in the postretirement benefit plan.
During the third quarter of 2017, the Company revised itsOther noninterest expense. The pension plan to offer certain participants a temporary opportunity to make an election to receive an immediate distribution from the pension plan. The window for this opportunity is between August 1, 2017 and November 24, 2017.
ZIONS BANCORPORATION, NATIONAL ASSOCIATION AND SUBSIDIARIES
termination expense included a loss of $17 million that was reclassified out of accumulated other comprehensive income, resulting in a pre-tax decrease in shareholders’ equity of $11 million.
13. INCOME TAXES
The effective income tax rate of 34.2%19.5% for the thirdsecond quarter of 20172020 was slightly higherlower than the 2016 third2019 second quarter rate of 33.9%22.7%. The effective tax rates for the first ninesix months of 20172020 and 20162019 were 30.6%18.4% and 33.3%22.5%, respectively. TheseThe income tax rates for both 20172020 and 2016 generally benefited2019 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 statenon-deductibility of Federal Deposit Insurance Corporation (“FDIC”) premiums, certain executive compensation, and other fringe benefits. Further, the 2020 tax positionsrates were reduced as a result of the proportional increases in nontaxable items and tax credits relative to pretax book income as compared with the first quarter 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.prior year periods.
We had a net deferred tax asset (“DTA”) balance of $207$22 million at SeptemberJune 30, 2017,2020, compared with $250$37 million at December 31, 2016, which included a $4 million valuation allowance at each respective reporting date2019. The decrease in the net DTA resulted primarily from the decrease of accrued compensation and an increase in unrealized gains in other comprehensive income ("OCI") related to securities. An increase in the provision for certain acquiredloan losses in excess of net operating loss carryforwardscharge-offs, 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) | 2020 | | 2019 | | 2020 | | 2019 |
| | | | | | | |
| Basic: | | | | | | | |
| Net income | $ | 66 | | | $ | 198 | | | $ | 80 | | | $ | 411 | |
| Less common and preferred dividends | 66 | | | 63 | | | 130 | | | 127 | |
| Undistributed earnings | — | | | 135 | | | (50) | | | 284 | |
| Less undistributed earnings applicable to nonvested shares | — | | | 1 | | | — | | | 2 | |
| Undistributed earnings applicable to common shares | — | | | 134 | | | (50) | | | 282 | |
| Distributed earnings applicable to common shares | 56 | | | 54 | | | 112 | | | 110 | |
| Total earnings applicable to common shares | $ | 56 | | | $ | 188 | | | $ | 62 | | | $ | 392 | |
| Weighted average common shares outstanding (in thousands) | 163,542 | | | 179,156 | | | 163,843 | | | 181,946 | |
| Net earnings per common share | $ | 0.34 | | | $ | 1.05 | | | $ | 0.38 | | | $ | 2.15 | |
| | | | | | | |
| Diluted: | | | | | | | |
| Total earnings applicable to common shares | $ | 56 | | | $ | 188 | | | $ | 62 | | | $ | 392 | |
| Weighted average common shares outstanding (in thousands) | 163,542 | | | 179,156 | | | 163,843 | | | 181,946 | |
| Dilutive effect of common stock warrants (in thousands) | 723 | | | 9,318 | | | 4,012 | | | 9,587 | |
| | | | | | | |
| Dilutive effect of stock options (in thousands) | 160 | | | 624 | | | 277 | | | 673 | |
| Weighted average diluted common shares outstanding (in thousands) | 164,425 | | | 189,098 | | | 168,132 | | | 192,206 | |
| Net earnings per common share | $ | 0.34 | | | $ | 0.99 | | | $ | 0.37 | | | $ | 2.04 | |
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 weightdiluted earnings per share.
| | | | | | | | | | | | | | | | | | | | | | | |
| Three Months Ended
June 30, | | | | Six Months Ended
June 30, | | |
| (In thousands) | 2020 | | 2019 | | 2020 | | 2019 |
| | | | | | | |
| Restricted stock and restricted stock units | 1,321 | | | 1,446 | | | 1,357 | | | 1,435 | |
| Stock options | 938 | | | 492 | | | 855 | | | 411 | |
ZIONS BANCORPORATION, NATIONAL ASSOCIATION AND SUBSIDIARIES | |
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 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 continuesis continually refined. In the third quarter of 2019, we made changes to be refined.the FTP process to more accurately reflect the cost of funds for loans. Prior period amounts have been revised to reflect the impact of these changes had they been instituted for the periods presented. 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, 2017,2020, our banking business is conducted through 7 locally managed and branded segments in distinct geographical areas. Zions Bank operates 9895 branches in Utah, 2325 branches in Idaho, and one1 branch in Wyoming. Amegy operates 7375 branches in Texas. CB&T operates 9285 branches in California. NBAZ operates 5856 branches in Arizona. NSB operates 5046 branches in Nevada. Vectra operates 3634 branches in Colorado and one1 branch in New Mexico. TCBW operates one branch2 branches in Washington and one1 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’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, 20172020 and 2016:2019: | | | | | | | | | | | | | | | | | | | | | | | | Zions Bank | | | Amegy | | | CB&T | |
| (In millions) | Zions Bank | | Amegy | | CB&T | | NBAZ | | NSB | (In millions) | 2020 | | 2019 | | 2020 | | 2019 | | 2020 | | 2019 |
| | 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 | $ | 156 | | | $ | 175 | | | $ | 120 | | | $ | 127 | | | $ | 123 | | | $ | 134 | |
| Provision for loan losses | (15 | ) | | (1 | ) | | 33 |
| | 24 |
| | (4 | ) | | (2 | ) | | (8 | ) | | — |
| | (3 | ) | | (4 | ) | |
| Net interest income after provision for loan losses | 179 |
| | 158 |
| | 89 |
| | 90 |
| | 122 |
| | 112 |
| | 61 |
| | 48 |
| | 37 |
| | 35 |
| |
| Provision for credit losses | | Provision for credit losses | 40 | | | 16 | | | 25 | | | (8) | | | 46 | | | 9 | |
| Net interest income after provision for credit losses | | Net interest income after provision for credit losses | 116 | | | 159 | | | 95 | | | 135 | | | 77 | | | 125 | |
| Noninterest income | 39 |
| | 39 |
| | 28 |
| | 32 |
| | 20 |
| | 18 |
| | 10 |
| | 11 |
| | 11 |
| | 10 |
| Noninterest income | 38 | | | 38 | | | 31 | | | 34 | | | 19 | | | 22 | |
| Noninterest expense | 107 |
| | 108 |
| | 86 |
| | 75 |
| | 74 |
| | 75 |
| | 38 |
| | 36 |
| | 35 |
| | 34 |
| Noninterest expense | 111 | | | 120 | | | 79 | | | 86 | | | 74 | | | 82 | |
| Income (loss) before income taxes | $ | 111 |
| | $ | 89 |
| | $ | 31 |
| | $ | 47 |
| | $ | 68 |
| | $ | 55 |
| | $ | 33 |
| | $ | 23 |
| | $ | 13 |
| | $ | 11 |
| Income (loss) before income taxes | $ | 43 | | | $ | 77 | | | $ | 47 | | | $ | 83 | | | $ | 22 | | | $ | 65 | |
| 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 | $ | 14,222 | | | $ | 13,067 | | | $ | 13,570 | | | $ | 12,254 | | | $ | 12,524 | | | $ | 10,838 | |
| Total average deposits | | Total average deposits | 17,977 | | | 15,205 | | | 13,023 | | | 11,361 | | | 13,522 | | | 11,412 | |
| | 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) | 2020 | | 2019 | | 2020 | | 2019 | | 2020 | | 2019 |
| SELECTED INCOME STATEMENT DATA | | | | | | | | | | | |
| Net interest income | $ | 53 | | | $ | 59 | | | $ | 35 | | | $ | 38 | | | $ | 33 | | | $ | 35 | |
| Provision for credit losses | 16 | | | 2 | | | 40 | | | — | | | (1) | | | 1 | |
| Net interest income after provision for credit losses | 37 | | | 57 | | | (5) | | | 38 | | | 34 | | | 34 | |
| Noninterest income | 10 | | | 11 | | | 10 | | | 11 | | | 8 | | | 6 | |
| Noninterest expense | 35 | | | 38 | | | 34 | | | 37 | | | 27 | | | 27 | |
| Income (loss) before income taxes | $ | 12 | | | $ | 30 | | | $ | (29) | | | $ | 12 | | | $ | 15 | | | $ | 13 | |
| SELECTED AVERAGE BALANCE SHEET DATA | | | | | | | | | | | |
| Total average loans | $ | 5,247 | | | $ | 4,847 | | | $ | 3,169 | | | $ | 2,570 | | | $ | 3,490 | | | $ | 3,105 | |
| Total average deposits | 5,722 | | | 5,048 | | | 5,402 | | | 4,406 | | | 3,662 | | | 2,811 | |
| | | | | | | | | | | |
| TCBW | | | | Other | | | | Consolidated Bank | | |
| (In millions) | 2020 | | 2019 | | 2020 | | 2019 | | 2020 | | 2019 |
| SELECTED INCOME STATEMENT DATA | | | | | | | | | | | |
| Net interest income | $ | 13 | | | $ | 14 | | | $ | 30 | | | $ | (13) | | | $ | 563 | | | $ | 569 | |
| Provision for credit losses | 5 | | | 2 | | | (3) | | | (1) | | | 168 | | | 21 | |
| Net interest income after provision for credit losses | 8 | | | 12 | | | 33 | | | (12) | | | 395 | | | 548 | |
| Noninterest income | 1 | | | 1 | | | — | | | 9 | | | 117 | | | 132 | |
| Noninterest expense | 5 | | | 5 | | | 65 | | | 29 | | | 430 | | | 424 | |
| Income (loss) before income taxes | $ | 4 | | | $ | 8 | | | $ | (32) | | | $ | (32) | | | $ | 82 | | | $ | 256 | |
| SELECTED AVERAGE BALANCE SHEET DATA | | | | | | | | | | | |
| Total average loans | $ | 1,485 | | | $ | 1,203 | | | $ | 561 | | | $ | 440 | | | $ | 54,268 | | | $ | 48,324 | |
| Total average deposits | 1,282 | | | 1,053 | | | 2,410 | | | 3,051 | | | 63,000 | | | 54,347 | |
The following schedule presents selected operating segment information for the ninesix months ended SeptemberJune 30, 20172020 and 2016:2019:
| | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | |
| Zions Bank | | | | Amegy | | | | CB&T | | |
| (In millions) | 2020 | | 2019 | | 2020 | | 2019 | | 2020 | | 2019 |
| SELECTED INCOME STATEMENT DATA | | | | | | | | | | | |
| Net interest income | $ | 314 | | | $ | 351 | | | $ | 237 | | | $ | 252 | | | $ | 245 | | | $ | 267 | |
| Provision for credit losses | 94 | | | 26 | | | 127 | | | (23) | | | 84 | | | 12 | |
| Net interest income after provision for credit losses | 220 | | | 325 | | | 110 | | | 275 | | | 161 | | | 255 | |
| Noninterest income | 76 | | | 71 | | | 67 | | | 68 | | | 44 | | | 41 | |
| Noninterest expense | 221 | | | 237 | | | 161 | | | 174 | | | 151 | | | 164 | |
| Income (loss) before income taxes | $ | 75 | | | $ | 159 | | | $ | 16 | | | $ | 169 | | | $ | 54 | | | $ | 132 | |
| SELECTED AVERAGE BALANCE SHEET DATA | | | | | | | | | | | |
| Total average loans | $ | 13,611 | | | $ | 13,004 | | | $ | 12,984 | | | $ | 12,058 | | | $ | 11,773 | | | $ | 10,707 | |
| Total average deposits | 16,953 | | | 15,238 | | | 12,344 | | | 11,401 | | | 12,825 | | | 11,328 | |
| | | | | | | | | | | |
| NBAZ | | | | NSB | | | | Vectra | | |
| (In millions) | 2020 | | 2019 | | 2020 | | 2019 | | 2020 | | 2019 |
| SELECTED INCOME STATEMENT DATA | | | | | | | | | | | |
| Net interest income | $ | 105 | | | $ | 117 | | | $ | 70 | | | $ | 76 | | | $ | 65 | | | $ | 69 | |
| Provision for credit losses | 35 | | | 4 | | | 52 | | | (1) | | | 23 | | | 5 | |
| Net interest income after provision for credit losses | 70 | | | 113 | | | 18 | | | 77 | | | 42 | | | 64 | |
| Noninterest income | 21 | | | 21 | | | 21 | | | 21 | | | 16 | | | 12 | |
| Noninterest expense | 72 | | | 78 | | | 70 | | | 73 | | | 53 | | | 54 | |
| Income (loss) before income taxes | $ | 19 | | | $ | 56 | | | $ | (31) | | | $ | 25 | | | $ | 5 | | | $ | 22 | |
| SELECTED AVERAGE BALANCE SHEET DATA | | | | | | | | | | | |
| Total average loans | $ | 4,991 | | | $ | 4,798 | | | $ | 2,942 | | | $ | 2,535 | | | $ | 3,296 | | | $ | 3,080 | |
| Total average deposits | 5,413 | | | 4,972 | | | 5,115 | | | 4,368 | | | 3,325 | | | 2,816 | |
ZIONS BANCORPORATION, NATIONAL ASSOCIATION AND SUBSIDIARIES
| | | | | | | | | | | | | | | | | | | | | | | | | TCBW | | | Other | | | Consolidated Bank | |
| (In millions) | Zions Bank | | Amegy | | CB&T | | NBAZ | | NSB | (In millions) | 2020 | | 2019 | | 2020 | | 2019 | | 2020 | | 2019 |
| | 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 | $ | 25 | | | $ | 27 | | | $ | 50 | | | $ | (14) | | | $ | 1,111 | | | $ | 1,145 | |
| Provision for loan losses | 18 |
| | (31 | ) | | 41 |
| | 159 |
| | (10 | ) | | (1 | ) | | (7 | ) | | 2 |
| | (8 | ) | | (29 | ) | |
| Net interest income after provision for loan losses | 465 |
| | 493 |
| | 318 |
| | 185 |
| | 361 |
| | 323 |
| | 160 |
| | 138 |
| | 106 |
| | 120 |
| |
| Provision for credit losses | | Provision for credit losses | 10 | | | 2 | | | 1 | | | — | | | 426 | | | 25 | |
| Net interest income after provision for credit losses | | Net interest income after provision for credit losses | 15 | | | 25 | | | 49 | | | (14) | | | 685 | | | 1,120 | |
| Noninterest income | 112 |
| | 112 |
| | 87 |
| | 90 |
| | 56 |
| | 51 |
| | 29 |
| | 30 |
| | 30 |
| | 29 |
| Noninterest income | 2 | | | 2 | | | 3 | | | 28 | | | 250 | | | 264 | |
| Noninterest expense | 327 |
| | 320 |
| | 259 |
| | 244 |
| | 225 |
| | 221 |
| | 111 |
| | 109 |
| | 105 |
| | 104 |
| Noninterest expense | 11 | | | 11 | | | 98 | | | 63 | | | 837 | | | 854 | |
| Income (loss) before income taxes | $ | 250 |
| | $ | 285 |
| | $ | 146 |
| | $ | 31 |
| | $ | 192 |
| | $ | 153 |
| | $ | 78 |
| | $ | 59 |
| | $ | 31 |
| | $ | 45 |
| Income (loss) before income taxes | $ | 6 | | | $ | 16 | | | $ | (46) | | | $ | (49) | | | $ | 98 | | | $ | 530 | |
| 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 | $ | 1,372 | | | $ | 1,156 | | | $ | 563 | | | $ | 412 | | | $ | 51,532 | | | $ | 47,750 | |
| Total average deposits | | Total average deposits | 1,165 | | | 1,064 | | | 2,814 | | | 2,946 | | | 59,954 | | | 54,133 | |
| |
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, 2017.2020. 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, 2017.2020. There were no changes in the Company’sBank’s internal control over financial reporting during the thirdsecond quarter of 20172020 that have materially affected, or are reasonably likely to materially affect, the Company’sBank’s internal control over financial reporting.
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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 inIn addition to the risk factors included in Zions Bancorporation’s 2016Bancorporation, National Association’s 2019 Annual Report on Form 10-K.10-K, we have added the following risk factor:
Our business, financial condition, liquidity and results of operations have been, and will likely continue to be, adversely affected by the COVID-19 pandemic.
The COVID-19 pandemic has created economic and financial disruptions that have adversely affected, and are likely to continue to adversely affect, our business, financial condition, liquidity, capital and results of operations. The extent to which the COVID-19 pandemic will continue to negatively affect our business, financial condition, liquidity and results of operations will depend on future developments, which are highly uncertain and cannot be predicted, including the scope and duration of the pandemic, the continued effectiveness of our business continuity plan, the direct and indirect impact of the pandemic on our employees, customers, communities, counterparties and service providers, as well as other market participants, and actions taken by governmental authorities and other third parties in response to the pandemic.
The COVID-19 pandemic has contributed to the following, any of which could have an adverse effect on our business, financial condition, liquidity and results of operations:
| |
ITEM 2. | UNREGISTERED SALES OF EQUITY SECURITIES AND USE OF PROCEEDS |
ZIONS BANCORPORATION, NATIONAL ASSOCIATION AND SUBSIDIARIES
•Increased unemployment and decreased consumer confidence and business generally, leading to an increased risk of delinquencies, defaults and foreclosures.
•Ratings downgrades, credit deterioration and defaults in many sectors and industries, including, but not limited to, states and municipalities, retail, oil and gas, hotels and casinos, restaurants, telecommunications/media, real estate/construction, airlines and transportation, leisure and recreation.
•A sudden and significant reduction in the valuation of the equity, fixed-income and commodity markets and the significant increase in the volatility of those markets.
•A decrease in the rates and yields on U.S. Treasury and other securities, which may lead to decreased net interest income.
•Increased demands on capital and liquidity.
•A reduction in the value of the assets that the Bank manages or otherwise administers or services for others, affecting related fee income and demand for the Bank’s services.
•Heightened cybersecurity, information security and operational risks as a result of work-from-home arrangements.
We are prioritizing the safety of our customers, communities and employees, and have limited branch activity to be occupied by a specified number of individuals at any given time, drive-through services or in-office appointments. Additionally, the majority of employees are working remotely. If these measures are not effective in serving our customers or affect the productivity of our associates, they may lead to significant disruptions in our business operations.
Many of our counterparties and third-party service providers have also been, and may further be, affected by “stay-at-home” orders, market volatility and other factors that increase their risks of business disruption or that may otherwise affect their ability to perform under the terms of any agreements with us or provide essential services. As a result, our operational and other risks are generally expected to increase until the pandemic subsides.
We are offering special financial assistance to support customers who are experiencing financial hardships related to the COVID-19 pandemic, including waivers of certain withdrawal fees from CDs and savings and money market accounts, loan payment deferrals and extensions, credit card payment extensions, temporary consumer mortgage payment forbearance and payment deferment, suspending initiation of new repossessions of automobiles and other vehicles and suspending new residential property foreclosures on consumer real estate loans. If such measures are not effective in mitigating the effects of the COVID-19 pandemic on borrowers, we may experience higher rates of default and increased credit losses in future periods.
Certain segments and industries where the Bank has credit exposure, including, but not limited to, states and municipalities, retail, oil and gas, hotels and casinos, restaurants, telecommunications/media, real estate/construction, airlines and transportation, leisure and recreation, have experienced significant operational challenges as a result of the COVID-19 pandemic. In some cases, the COVID-19 pandemic accelerated deterioration in industries, such as oil and gas, that were already experiencing increased volatility and stress. These negative effects may result in a number of clients making higher than usual draws on outstanding lines of credit, which may negatively affect our liquidity if current economic conditions persist. These assistance efforts may adversely affect our revenue and results of operations. In addition, the effects of the COVID-19 pandemic may also cause our municipal and commercial customers to be unable to pay their loans as they come due or decrease the value of collateral, which we expect would cause significant increases in our credit losses.
Net interest income is the largest component of the Bank’s revenue. Net interest income is significantly affected by market rates of interest. The significant reductions to the federal funds rate has led to a decrease in the rates and yields on U.S. Treasury securities, in some cases declining below zero. If interest rates are reduced further in response to the COVID-19 pandemic, we expect that our net interest income will decline, perhaps significantly. The overall effect of lower interest rates on the economic environment cannot be predicted at this time and depends on future actions the Federal Reserve may take to increase or reduce the targeted federal funds rate in response to the COVID-19 pandemic, and resulting economic conditions.
ZIONS BANCORPORATION, NATIONAL ASSOCIATION AND SUBSIDIARIES
Governmental authorities have taken unprecedented measures to provide economic assistance to individual households and businesses, stabilize the markets and support economic growth. The success of these measures is unknown and they may not be sufficient to fully mitigate the negative impact of the COVID-19 pandemic. Additionally, some measures, such as a suspension of mortgage and other loan payments and foreclosures, may have a negative impact on the Bank’s business, financial condition, liquidity and results of operations. We also face an increased risk of litigation and governmental and regulatory scrutiny as a result of the effects of the COVID-19 pandemic on market and economic conditions and actions governmental authorities take in response to those conditions.
The length of the pandemic and the efficacy of the extraordinary measures being put in place to address it are unknown. Until the pandemic subsides, the Bank expects continued draws on lines of credit, reduced revenues and increased customer and client defaults. Even after the pandemic subsides, the U.S. economy may experience a recession which may be prolonged, which could materially and adversely affect the Bank’s business, financial condition, liquidity and capital. To the extent the COVID-19 pandemic adversely affects our business, financial condition, liquidity, capital or results of operations, it may also have the effect of heightening many of the other risks described in the section entitled “Risk Factors” in the Bank’s 2019 Annual Report on Form 10-K and any subsequent Quarterly Reports on Form 10-Q.
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 2017:2020:
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 | | | — | | | | $ | — | | | | — | | | | | $ | — | | |
| May | | | 10,665 | | | | 30.84 | | | | — | | | | | — | | |
| June | | | 433 | | | | 36.28 | | | | — | | | | | — | | |
| Second quarter | | | 11,098 | | | | 31.06 | | | | — | | | | | | |
1 Represents common shares acquired 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 exercise of stock options under provisions of an employee share-based compensation plan.
|
| | | | | | | | | | | | | | | | | | | | |
| 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 |
| | | | | |
ZIONS BANCORPORATION, NATIONAL ASSOCIATION AND SUBSIDIARIES
ITEM 6. EXHIBITS
a.Exhibits
| | | | | | | | | | | |
1
Exhibit
Number | Represents common shares acquired from employees in connection with our stock compensation plan in addition to shares acquired under previously reported share repurchase plans. Shares were acquired from employees to pay for their payroll taxes and stock option exercise cost upon the vesting of restricted stock and restricted stock units, and the exercise of stock options, under provisions of an employee share-based compensation plan. |
ZIONS BANCORPORATION AND SUBSIDIARIES
| Description |
ITEM 6. | EXHIBITS |
a)Exhibits
|
| | | |
Exhibit
| | Description | |
| | | |
| | Second Amended and Restated Articles of IncorporationAssociation of Zions Bancorporation, dated July 8, 2014,National Association, incorporated by reference to Exhibit 3.1 of Form 8-K/A8-K filed on July 18, 2014.October 2, 2018. | * |
| | | |
| | Second Amended and Restated Bylaws of Zions Bancorporation, dated February 27, 2015,National Association, incorporated by reference to Exhibit 3.2 of Form 10-Q for the quarter ended March 31, 2015.8-K filed on April 4, 2019. | * |
| | | |
| | Sixth Amendment to the Zions Bancorporation Pension Plan, dated June 25, 2020 (filed herewith). | |
| | | |
| | Certification by Chief Executive Officer required by Rules 13a-15(f) and 15d-15(f) under the Securities Exchange Act of 1934 (filed herewith). | |
| | | |
| | Certification by Chief Financial Officer required by Rules 13a-15(f) and 15d-15(f) under the Securities Exchange Act of 1934 (filed herewith). | |
| | | |
| | 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). | |
| | | |
| 101 | | Interactive data files pursuantPursuant to RuleRules 405 and 406 of Regulation S-T:S-T, the following information is formatted in Inline XBRL (i) the Consolidated Balance Sheets as of SeptemberJune 30, 20172020 and December 31, 2016,2019, (ii) the Consolidated Statements of Income for the three months ended SeptemberJune 30, 20172020 and SeptemberJune 30, 20162019 and the ninesix months ended SeptemberJune 30, 20172020 and SeptemberJune 30, 2016,2019, (iii) the Consolidated Statements of Comprehensive Income for the three months ended SeptemberJune 30, 20172020 and SeptemberJune 30, 20162019 and the ninesix months ended SeptemberJune 30, 20172020 and SeptemberJune 30, 2016,2019, (iv) the Consolidated Statements of Changes in Shareholders’ Equity for the ninethree months ended SeptemberJune 30, 20172020 and SeptemberJune 30, 2016,2019 and the six months ended June 30, 2020 and June 30, 2019, (v) the Consolidated Statements of Cash Flows for the threesix months ended SeptemberJune 30, 20172020 and SeptemberJune 30, 2016 and the nine months ended September 30, 2017 and September 30, 20162019 and (vi) the Notes to Consolidated Financial StatementsStatement (filed herewith).
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| | | |
| 104 | | The cover page from this Quarterly Report on Form 10-Q, formatted as Inline XBRL. | |
* 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.
| | |
|
| ZIONS BANCORPORATION, NATIONAL ASSOCIATION |
ZIONS BANCORPORATION |
|
| /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 5, 2020
