XNYS:ZBPRA Zions Bancorp Pref Share Quarterly Report 10-Q Filing - 6/30/2012

Effective Date 6/30/2012

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UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
FORM 10-Q
 
ý
QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934
For the quarterly period ended June 30, 2012
OR
¨
TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934
For the transition period from              to             
COMMISSION FILE NUMBER 001-12307
ZIONS BANCORPORATION
(Exact name of registrant as specified in its charter)
 
UTAH
87-0227400
(State or other jurisdiction of
incorporation or organization)
(I.R.S. Employer
Identification No.)
 
 
ONE SOUTH MAIN, 15TH FLOOR
SALT LAKE CITY, UTAH
84133
(Address of principal executive offices)
(Zip Code)
Registrant’s telephone number, including area code: (801) 524-4787
Indicate by check mark whether the registrant (1) has filed all reports required to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during the preceding 12 months (or for such shorter period that the registrant was required to file such reports), and (2) has been subject to such filing requirements for the past 90 days.    Yes  ý    No  ¨
Indicate by check mark whether the registrant has submitted electronically and posted on its corporate Web site, if any, every Interactive Data File required to be submitted and posted pursuant to Rule 405 of Regulation S-T (§232.405 of this chapter) during the preceding 12 months (or for such shorter period that the registrant was required to submit and post such files).    Yes  ý    No  ¨
Indicate by check mark whether the registrant is a large accelerated filer, an accelerated filer, a non-accelerated filer, or a smaller reporting company. See the definitions of “large accelerated filer,” “accelerated filer” and “smaller reporting company” in Rule 12b-2 of the Exchange Act.
Large accelerated filer
ý
Accelerated filer
¨
 
 
 
 
Non-accelerated filer
¨
Smaller reporting company
¨
Indicate by check mark whether the registrant is a shell company (as defined in Rule 12b-2 of the Exchange Act).    Yes  ¨    No  ý
Indicate the number of shares outstanding of each of the issuer’s classes of common stock, as of the latest practicable date.
Common Stock, without par value, outstanding at July 31, 2012
184,148,177 shares

1


ZIONS BANCORPORATION AND SUBSIDIARIES
INDEX
 
 
 
 
 
 
Page
 
 
 
 
ITEM 1.
 
 
 
 
 
 
 
 
 
 
 
 
 
ITEM 2.
 
 
 
ITEM 3.
 
 
 
ITEM 4.
 
 
 
 
 
 
ITEM 1.
 
 
 
ITEM 1A.
 
 
 
ITEM 2.
 
 
 
ITEM 6.
 
 

2


PART I. FINANCIAL INFORMATION
ITEM 1.    FINANCIAL STATEMENTS (Unaudited)
ZIONS BANCORPORATION AND SUBSIDIARIES
CONSOLIDATED BALANCE SHEETS

(In thousands, except share amounts)
June 30,
2012
 
December 31,
2011
 
(Unaudited)
 
 
ASSETS
 
 
 
Cash and due from banks
$
1,124,673

 
$
1,224,350

Money market investments:
 
 
 
Interest-bearing deposits
7,887,175

 
7,020,895

Federal funds sold and security resell agreements
83,529

 
102,159

Investment securities:
 
 
 
Held-to-maturity, at adjusted cost (approximate fair value $715,710 and $729,974)
773,016

 
807,804

Available-for-sale, at fair value
3,167,590

 
3,230,795

Trading account, at fair value
20,539

 
40,273

 
3,961,145

 
4,078,872

Loans held for sale
139,245

 
201,590

Loans, net of unearned income and fees:
 
 
 
Loans and leases
36,231,104

 
36,393,782

FDIC-supported loans
642,246

 
750,870

 
36,873,350

 
37,144,652

Less allowance for loan losses
971,716

 
1,049,958

Loans, net of allowance
35,901,634

 
36,094,694

Other noninterest-bearing investments
867,882

 
865,231

Premises and equipment, net
714,913

 
719,276

Goodwill
1,015,129

 
1,015,129

Core deposit and other intangibles
59,277

 
67,830

Other real estate owned
144,816

 
153,178

Other assets
1,507,594

 
1,605,905

 
$
53,407,012

 
$
53,149,109

LIABILITIES AND SHAREHOLDERS’ EQUITY
 
 
 
Deposits:
 
 
 
Noninterest-bearing demand
$
16,498,248

 
$
16,110,857

Interest-bearing:
 
 
 
Savings and NOW
7,505,841

 
7,159,101

Money market
14,439,389

 
14,616,740

Time
3,211,942

 
3,413,550

Foreign
1,504,827

 
1,575,361

 
43,160,247

 
42,875,609

Securities sold, not yet purchased
104,882

 
44,486

Federal funds purchased and security repurchase agreements
759,591

 
608,098

Other short-term borrowings
7,621

 
70,273

Long-term debt
2,274,571

 
1,954,462

Reserve for unfunded lending commitments
103,586

 
102,422

Other liabilities
507,151

 
510,531

Total liabilities
46,917,649

 
46,165,881

Shareholders’ equity:
 
 
 
Preferred stock, without par value, authorized 4,400,000 shares
1,800,473

 
2,377,560

Common stock, without par value; authorized 350,000,000 shares; issued
and outstanding 184,117,522 and 184,135,388 shares
4,157,525

 
4,163,242

Retained earnings
1,110,120

 
1,036,590

Accumulated other comprehensive income (loss)
(576,147
)
 
(592,084
)
Controlling interest shareholders’ equity
6,491,971

 
6,985,308

Noncontrolling interests
(2,608
)
 
(2,080
)
Total shareholders’ equity
6,489,363

 
6,983,228

 
$
53,407,012

 
$
53,149,109

See accompanying notes to consolidated financial statements.

3


ZIONS BANCORPORATION AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF INCOME
(Unaudited)
(In thousands, except per share amounts)
Three Months Ended
June 30,
 
Six Months Ended
June 30,
 
2012
 
2011
 
2012
 
2011
Interest income:
 
 
 
 
 
 
 
Interest and fees on loans
$
478,569

 
$
523,741

 
$
965,184

 
$
1,041,898

Interest on money market investments
5,099

 
3,199

 
9,727

 
6,042

Interest on securities:
 
 
 
 
 
 
 
Held-to-maturity
9,325

 
9,009

 
18,284

 
17,673

Available-for-sale
25,090

 
22,179

 
48,248

 
44,455

Trading account
148

 
538

 
486

 
990

Total interest income
518,231

 
558,666

 
1,041,929

 
1,111,058

Interest expense:
 
 
 
 
 
 
 
Interest on deposits
20,823

 
34,257

 
44,236

 
70,741

Interest on short-term borrowings
256

 
1,783

 
1,035

 
3,963

Interest on long-term debt
65,165

 
106,454

 
122,372

 
196,326

Total interest expense
86,244

 
142,494

 
167,643

 
271,030

Net interest income
431,987

 
416,172

 
874,286

 
840,028

Provision for loan losses
10,853

 
1,330

 
26,517

 
61,330

Net interest income after provision for loan losses
421,134

 
414,842

 
847,769

 
778,698

Noninterest income:
 
 
 
 
 
 
 
Service charges and fees on deposit accounts
43,426

 
42,878

 
86,958

 
87,408

Other service charges, commissions and fees
38,554

 
43,958

 
72,780

 
85,643

Trust and wealth management income
8,057

 
7,179

 
14,431

 
13,933

Capital markets and foreign exchange
7,342

 
8,358

 
13,076

 
15,572

Dividends and other investment income
21,542

 
17,239

 
31,022

 
25,267

Loan sales and servicing income
10,287

 
9,836

 
18,639

 
15,849

Fair value and nonhedge derivative income (loss)
(6,784
)
 
4,195

 
(11,184
)
 
5,415

Equity securities gains (losses), net
107

 
(1,636
)
 
9,252

 
(739
)
Fixed income securities gains (losses), net
5,519

 
(2,396
)
 
6,239

 
(2,455
)
Impairment losses on investment securities:
 
 
 
 
 
 
 
Impairment losses on investment securities
(24,026
)
 
(6,339
)
 
(42,299
)
 
(9,444
)
Noncredit-related losses on securities not expected to be sold (recognized in other comprehensive income)
16,718

 
1,181

 
24,782

 
1,181

Net impairment losses on investment securities
(7,308
)
 
(5,158
)
 
(17,517
)
 
(8,263
)
Other
2,280

 
3,896

 
6,325

 
24,862

Total noninterest income
123,022

 
128,349

 
230,021

 
262,492

Noninterest expense:
 
 
 
 
 
 
 
Salaries and employee benefits
220,765

 
222,138

 
445,399

 
437,148

Occupancy, net
28,169

 
27,588

 
56,120

 
55,598

Furniture and equipment
27,302

 
26,153

 
54,094

 
51,815

Other real estate expense
6,440

 
17,903

 
14,250

 
42,070

Credit-related expense
12,415

 
17,124

 
25,900

 
32,037

Provision for unfunded lending commitments
4,868

 
(1,904
)
 
1,164

 
(11,444
)
Legal and professional services
12,947

 
8,432

 
24,043

 
15,121

Advertising
6,618

 
5,962

 
12,425

 
12,873

FDIC premiums
10,444

 
15,232

 
21,363

 
39,333

Amortization of core deposit and other intangibles
4,262

 
4,855

 
8,553

 
10,556

Other
67,426

 
72,773

 
130,717

 
139,524

Total noninterest expense
401,656

 
416,256

 
794,028

 
824,631

Income before income taxes
142,500

 
126,935

 
283,762

 
216,559

Income taxes
51,036

 
54,325

 
102,895

 
91,358

Net income
91,464

 
72,610

 
180,867

 
125,201

Net loss applicable to noncontrolling interests
(273
)
 
(265
)
 
(546
)
 
(491
)
Net income applicable to controlling interest
91,737

 
72,875

 
181,413

 
125,692

Preferred stock dividends
(36,522
)
 
(43,837
)
 
(100,709
)
 
(81,887
)
Net earnings applicable to common shareholders
$
55,215

 
$
29,038

 
$
80,704

 
$
43,805

Weighted average common shares outstanding during the period:
 
 
 
 
 
 
 
Basic shares
182,985

 
182,472

 
182,892

 
182,092

Diluted shares
183,137

 
182,728

 
183,050

 
182,365

Net earnings per common share:
 
 
 
 
 
 
 
Basic
$
0.30

 
$
0.16

 
$
0.44

 
$
0.24

Diluted
0.30

 
0.16

 
0.44

 
0.24

See accompanying notes to consolidated financial statements.

4


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

(In thousands)
Three Months Ended
June 30,
 
Six Months Ended
June 30,
 
2012
 
2011
 
2012
 
2011
Net income
$
91,464

 
$
72,610

 
$
180,867

 
$
125,201

Other comprehensive income (loss), net of tax:
 
 
 
 
 
 
 
Net realized and unrealized holding gains (losses) on investments
6,431

 
(4,272
)
 
29,045

 
(36,060
)
Reclassification for net losses on investments included in earnings
821

 
4,636

 
6,619

 
6,590

Noncredit-related impairment losses on securities not expected to be sold
(10,323
)
 
(729
)
 
(15,303
)
 
(729
)
Accretion of securities with noncredit-related impairment losses not expected to be sold
367

 
73

 
532

 
99

Net unrealized losses on derivative instruments
(1,876
)
 
(5,036
)
 
(4,956
)
 
(13,095
)
Other comprehensive income (loss)
(4,580
)
 
(5,328
)
 
15,937

 
(43,195
)
Comprehensive income
86,884

 
67,282

 
196,804

 
82,006

Comprehensive loss applicable to noncontrolling interests
(273
)
 
(265
)
 
(546
)
 
(491
)
Comprehensive income applicable to controlling interest
$
87,157

 
$
67,547

 
$
197,350

 
$
82,497

See accompanying notes to consolidated financial statements.

5


ZIONS BANCORPORATION AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF CHANGES IN SHAREHOLDERS’ EQUITY
(Unaudited)

(In thousands, except share
and per share amounts)
Preferred
stock
 
Common stock
 
Retained earnings
 
Accumulated
other
comprehensive income (loss)
 
Noncontrolling interests
 
Total
shareholders’ equity
Shares
 
Amount
 
 
 
 
Balance at December 31, 2011
$
2,377,560

 
184,135,388

 
$
4,163,242

 
$
1,036,590

 
 
$
(592,084
)
 
 
 
$
(2,080
)
 
 
$
6,983,228

Net income (loss) for the period
 
 
 
 
 
 
181,413

 
 
 
 
 
 
(546
)
 
 
180,867

Other comprehensive income
 
 
 
 
 
 
 
 
 
15,937

 
 
 
 
 
 
15,937

Issuance of preferred stock
143,750

 
 
 
(2,408
)
 
 
 
 
 
 
 
 
 
 
 
141,342

Preferred stock redemption
(842,500
)
 
 
 
3,830

 
(3,830
)
 
 
 
 
 
 
 
 
 
(842,500
)
Subordinated debt converted to preferred stock
93,568

 
 
 
(13,602
)
 
 
 
 
 
 
 
 
 
 
 
79,966

Net activity under employee plans and related tax benefits
 
 
(17,866
)
 
6,463

 
 
 
 
 
 
 
 
 
 
 
6,463

Dividends on preferred stock
28,095

 
 
 
 
 
(100,709
)
 
 
 
 
 
 
 
 
 
(72,614
)
Dividends on common stock, $0.02 per share
 
 
 
 
 
 
(3,704
)
 
 
 
 
 
 
 
 
 
(3,704
)
Change in deferred compensation
 
 
 
 
 
 
360

 
 
 
 
 
 
 
 
 
360

Other changes in noncontrolling interests
 
 
 
 
 
 
 
 
 
 
 
 
 
18

 
 
18

Balance at June 30, 2012
$
1,800,473

 
184,117,522

 
$
4,157,525

 
$
1,110,120

 
 
$
(576,147
)
 
 
 
$
(2,608
)
 
 
$
6,489,363

 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
Balance at December 31, 2010
$
2,056,672

 
182,784,086

 
$
4,163,619

 
$
889,284

 
 
$
(461,296
)
 
 
 
$
(1,065
)
 
 
$
6,647,214

Net income (loss) for the period
 
 
 
 
 
 
125,692

 
 
 
 
 
 
(491
)
 
 
125,201

Other comprehensive loss
 
 
 
 
 
 
 
 
 
(43,195
)
 
 
 
 
 
 
(43,195
)
Subordinated debt converted to preferred stock
262,062

 
 
 
(37,744
)
 
 
 
 
 
 
 
 
 
 
 
224,318

Issuance of common stock
 
 
1,067,540

 
25,048

 
 
 
 
 
 
 
 
 
 
 
25,048

Net activity under employee plans and related tax benefits
 
 
459,664

 
7,446

 
 
 
 
 
 
 
 
 
 
 
7,446

Dividends on preferred stock
10,636

 
 
 
 
 
(81,887
)
 
 
 
 
 
 
 
 
 
(71,251
)
Dividends on common stock, $0.02 per share
 
 
 
 
 
 
(3,653
)
 
 
 
 
 
 
 
 
 
(3,653
)
Change in deferred compensation
 
 
 
 
 
 
1,909

 
 
 
 
 
 
 
 
 
1,909

Other changes in noncontrolling interests
 
 
 
 
 
 
 
 
 
 
 
 
 
54

 
 
54

Balance at June 30, 2011
$
2,329,370

 
184,311,290

 
$
4,158,369

 
$
931,345

 
 
$
(504,491
)
 
 
 
$
(1,502
)
 
 
$
6,913,091

See accompanying notes to consolidated financial statements.

6


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

(In thousands)
Three Months Ended
June 30,
 
Six Months Ended
June 30,
 
2012
 
2011
 
2012
 
2011
CASH FLOWS FROM OPERATING ACTIVITIES
 
 
 
 
 
 
 
Net income for the period
$
91,464

 
$
72,610

 
$
180,867

 
$
125,201

Adjustments to reconcile net income to net cash provided by
operating activities:
 
 
 
 
 
 
 
Net impairment losses on investment securities
7,308

 
5,158

 
17,517

 
8,263

Provision for credit losses
15,721

 
(574
)
 
27,681

 
49,886

Depreciation and amortization
62,166

 
105,790

 
119,309

 
195,596

Deferred income tax expense (benefit)
(630
)
 
33,913

 
19,055

 
87,703

Net increase (decrease) in trading securities
(1,506
)
 
5,397

 
19,734

 
(2,485
)
Net decrease in loans held for sale
50,464

 
41,041

 
71,377

 
69,512

Net write-downs of and losses from sales of other real estate owned
5,509

 
14,363

 
13,341

 
34,113

Change in other liabilities
(11,731
)
 
29,928

 
(30,530
)
 
(6,896
)
Change in other assets
38,398

 
41,334

 
88,823

 
59,488

Other, net
3,544

 
(2,734
)
 
(18,372
)
 
(4,934
)
Net cash provided by operating activities
260,707

 
346,226

 
508,802

 
615,447

 
 
 
 
 
 
 
 
CASH FLOWS FROM INVESTING ACTIVITIES
 
 
 
 
 
 
 
Net increase in money market investments
(288,671
)
 
(291,604
)
 
(847,650
)
 
(341,811
)
Proceeds from maturities and paydowns of investment securities held-to-maturity
34,106

 
12,923

 
54,685

 
42,031

Purchases of investment securities held-to-maturity
(24,461
)
 
(21,316
)
 
(33,738
)
 
(26,809
)
Proceeds from sales, maturities, and paydowns of investment securities available-for-sale
235,192

 
277,419

 
676,174

 
579,669

Purchases of investment securities available-for-sale
(187,627
)
 
(238,577
)
 
(593,930
)
 
(518,463
)
Proceeds from sales of loans and leases
13,478

 
16,182

 
39,787

 
17,264

Net loan and lease collections (originations)
(397,181
)
 
(492,134
)
 
18,230

 
(536,945
)
Net decrease in other noninterest-bearing investments
6,445

 
5,522

 
12,174

 
10,318

Net purchases of premises and equipment
(17,655
)
 
(19,295
)
 
(32,817
)
 
(39,480
)
Proceeds from sales of other real estate owned
58,485

 
95,036

 
97,884

 
186,877

Net cash paid for sale of branch

 

 
(22,568
)
 

Net cash used in investing activities
(567,889
)
 
(655,844
)
 
(631,769
)
 
(627,349
)
 
 
 
 
 
 
 
 
CASH FLOWS FROM FINANCING ACTIVITIES
 
 
 
 
 
 
 
Net increase in deposits
61,160

 
598,817

 
313,997

 
256,275

Net change in short-term funds borrowed
318,039

 
(190,675
)
 
149,208

 
(110,583
)
Proceeds from issuance of long-term debt
266,636

 
30,250

 
599,386

 
30,250

Repayments of long-term debt
(255,038
)
 
(175
)
 
(255,179
)
 
(331
)
Cash paid for preferred stock redemption
(142,500
)
 

 
(842,500
)
 

Proceeds from issuance of common stock and preferred stock
141,661

 
195

 
142,003

 
25,407

Dividends paid on common and preferred stock
(35,522
)
 
(40,303
)
 
(76,318
)
 
(74,904
)
Other, net
(4,767
)
 
(2,603
)
 
(7,307
)
 
(3,310
)
Net cash provided by financing activities
349,669

 
395,506

 
23,290

 
122,804

Net increase (decrease) in cash and due from banks
42,487

 
85,888

 
(99,677
)
 
110,902

Cash and due from banks at beginning of period
1,082,186

 
949,140

 
1,224,350

 
924,126

Cash and due from banks at end of period
$
1,124,673

 
$
1,035,028

 
$
1,124,673

 
$
1,035,028

 
 
 
 
 
 
 
 
Cash paid for interest
$
44,539

 
$
51,039

 
$
107,328

 
$
142,320

Net cash paid (refund received) for income taxes
9,771

 
536

 
(11,897
)
 
428

See accompanying notes to consolidated financial statements.

7


ZIONS BANCORPORATION AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(Unaudited)
June 30, 2012

1.
BASIS OF PRESENTATION
The accompanying unaudited consolidated financial statements of Zions Bancorporation (“the Parent”) and its majority-owned subsidiaries (collectively “the Company,” “Zions,” “we,” “our,” “us”) have been prepared in accordance with U.S. generally accepted accounting principles (“GAAP”) for interim financial information and with the instructions to Form 10-Q and Article 10 of Regulation S-X. Accordingly, they do not include all of the information and footnotes required by GAAP for complete financial statements. In the opinion of management, all adjustments (consisting of normal recurring accruals) considered necessary for a fair presentation have been included. References to GAAP as promulgated by the Financial Accounting Standards Board (“FASB”) are made according to sections of the Accounting Standards Codification (“ASC”) and to Accounting Standards Updates (“ASU”). Certain prior period amounts have been reclassified to conform to the current period presentation.
Operating results for the three and six months ended June 30, 2012 and 2011 are not necessarily indicative of the results that may be expected in future periods. The consolidated balance sheet at December 31, 2011 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 2011 Annual Report on Form 10-K.
The Company provides a full range of banking and related services through banking subsidiaries in ten Western and Southwestern states as follows: Zions First National Bank (“Zions Bank”), in Utah and Idaho; California Bank & Trust (“CB&T”); Amegy Corporation (“Amegy”) and its subsidiary, Amegy Bank, in Texas; National Bank of Arizona (“NBA”); Nevada State Bank (“NSB”); Vectra Bank Colorado (“Vectra”), in Colorado and New Mexico; The Commerce Bank of Washington (“TCBW”); and The Commerce Bank of Oregon (“TCBO”). The Parent also owns and operates certain nonbank subsidiaries that engage in wealth management and other financial related services.

2.
CERTAIN RECENT ACCOUNTING PRONOUNCEMENTS
In December 2011, the FASB issued ASU 2011-11, Disclosures about Offsetting Assets and Liabilities. This new guidance under ASC 210, Balance Sheet, provides convergence to International Financial Reporting Standards (“IFRS”) to provide common disclosure requirements for the offsetting of financial instruments. Existing GAAP guidance allowing balance sheet offsetting, including industry-specific guidance, remains unchanged. The new guidance is effective on a retrospective basis, including all prior periods presented, for interim and annual periods beginning on or after January 1, 2013. Management is currently evaluating the impact this new guidance may have on the disclosures in the Company’s financial statements.
In June 2011, the FASB issued ASU 2011-05, Presentation of Comprehensive Income. This new accounting guidance under ASC 220, Comprehensive Income, provides convergence to IFRS and no longer allows presentation of the components of other comprehensive income (“OCI”) in the statement of changes in shareholders’ equity. We adopted this new guidance effective January 1, 2012 as required and elected to present the components of OCI in a separate statement consecutive to the statement of income. There was otherwise no effect on the accompanying financial statements.
 
In December 2011, the FASB issued ASU 2011-12, Deferral of the Effective Date for Amendments to the Presentation of Reclassifications of Items Out of Accumulated Other Comprehensive Income in Accounting Standards Update No. 2011-05. This ASU under ASC 220 defers the requirements of ASU 2011-05 to display reclassification adjustments for each component of OCI in both the statement of income and the statement of comprehensive income and to present the components of OCI in interim financial statements. During 2012, the FASB has indicated it will reconsider the reclassification requirements and the timing of their implementation. Management is currently evaluating the impact this ASU will have on the disclosures in the Company’s financial statements.
In April 2011, the FASB issued ASU 2011-03, Reconsideration of Effective Control for Repurchase Agreements. The primary feature of this new accounting guidance under ASC 860, Transfers and Servicing, relates to the criteria that determine whether a sale or a secured borrowing occurred based on the transferor’s maintenance of effective control over the transferred financial assets. The new guidance focuses on the transferor’s contractual rights and obligations with respect to the transferred financial assets and not on the transferor’s ability to perform under those rights and obligations. Accordingly, the collateral maintenance

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ZIONS BANCORPORATION AND SUBSIDIARIES



requirement is eliminated by ASU 2011-3 from the assessment of effective control. We adopted this new guidance effective January 1, 2012 as required. There was no material effect on the accompanying financial statements.
Additional recent accounting pronouncements are discussed where applicable in the Notes to Consolidated Financial Statements.

3.
SUPPLEMENTAL CASH FLOW INFORMATION
 
Noncash activities are summarized as follows:
 
Three Months Ended June 30,
 
Six Months Ended
June 30,
(In thousands)
2012
 
2011
 
2012
 
2011
Loans transferred to other real estate owned
$
51,724

 
$
85,129

 
$
104,299

 
$
174,658

Beneficial conversion feature transferred from common stock to preferred stock as a result of subordinated debt conversions
8,537

 
23,139

 
13,602

 
37,744

Subordinated debt converted to preferred stock
50,192

 
138,469

 
79,966

 
224,318


4.
INVESTMENT SECURITIES
 
Investment securities are summarized as follows:
 
June 30, 2012
 
 
 
Recognized in OCI 1
 
 
 
Not recognized in OCI
 
 
(In thousands)
 
Amortized
cost
 
Gross
unrealized
gains
 
Gross
unrealized
losses
 
Carrying
value
 
Gross
unrealized
gains
 
Gross
unrealized
losses
 
Estimated
fair
value
Held-to-maturity
 
 
 
 
 
 
 
 
 
 
 
 
 
Municipal securities
$
543,367

 
$

 
$

 
$
543,367

 
$
14,780

 
$
435

 
$
557,712

Asset-backed securities:
 
 
 
 
 
 
 
 
 
 
 
 
 
Trust preferred securities – banks and insurance
262,511

 

 
53,472

 
209,039

 
282

 
63,637

 
145,684

Other
23,383

 

 
2,873

 
20,510

 
246

 
8,542

 
12,214

Other debt securities
100

 

 

 
100

 

 

 
100

 
$
829,361

 
$

 
$
56,345

 
$
773,016

 
$
15,308

 
$
72,614

 
$
715,710

Available-for-sale
 
 
 
 
 
 
 
 
 
 
 
 
 
U.S. Treasury securities
$
4,379

 
$
259

 
$

 
$
4,638

 
 
 
 
 
$
4,638

U.S. Government agencies and corporations:
 
 
 
 
 
 
 
 
 
 
 
 
 
Agency securities
138,364

 
5,298

 
138

 
143,524

 
 
 
 
 
143,524

Agency guaranteed mortgage-backed securities
476,200

 
20,463

 
50

 
496,613

 
 
 
 
 
496,613

Small Business Administration loan-backed securities
1,179,718

 
18,481

 
1,960

 
1,196,239

 
 
 
 
 
1,196,239

Municipal securities
118,189

 
3,273

 
2,385

 
119,077

 
 
 
 
 
119,077

Asset-backed securities:
 
 
 
 
 
 
 
 
 
 
 
 
 
Trust preferred securities – banks and insurance
1,757,601

 
13,052

 
844,019

 
926,634

 
 
 
 
 
926,634

Trust preferred securities – real estate investment trusts
40,361

 

 
25,930

 
14,431

 
 
 
 
 
14,431

Auction rate securities
7,149

 
94

 
77

 
7,166

 
 
 
 
 
7,166

Other
54,795

 
932

 
9,435

 
46,292

 
 
 
 
 
46,292

 
3,776,756

 
61,852

 
883,994

 
2,954,614

 
 
 
 

2,954,614

Mutual funds and other
212,792

 
202

 
18

 
212,976

 
 
 
 
 
212,976

 
$
3,989,548

 
$
62,054

 
$
884,012

 
$
3,167,590

 
 
 
 
 
$
3,167,590

 

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ZIONS BANCORPORATION AND SUBSIDIARIES



 
December 31, 2011
 
 
 
Recognized in OCI 1
 
 
 
Not recognized in OCI
 
 
(In thousands) 

Amortized
cost
 
Gross
unrealized
gains
 
Gross
unrealized
losses
 
Carrying
value
 
Gross
unrealized
gains
 
Gross
unrealized
losses
 
Estimated
fair
value
Held-to-maturity
 
 
 
 
 
 
 
 
 
 
 
 
 
Municipal securities
$
564,468

 
$

 
$

 
$
564,468

 
$
8,807

 
$
1,083

 
$
572,192

Asset-backed securities:
 
 
 
 
 
 
 
 
 
 
 
 
 
Trust preferred securities – banks and insurance
262,853

 

 
40,546

 
222,307

 
207

 
78,191

 
144,323

Other
24,310

 

 
3,381

 
20,929

 
303

 
7,868

 
13,364

Other debt securities
100

 

 

 
100

 

 
5

 
95

 
$
851,731

 
$

 
$
43,927

 
$
807,804

 
$
9,317

 
$
87,147

 
$
729,974

Available-for-sale
 
 
 
 
 
 
 
 
 
 
 
 
 
U.S. Treasury securities
$
4,330

 
$
304

 
$

 
$
4,634

 
 
 
 
 
$
4,634

U.S. Government agencies and corporations:
 
 
 
 
 
 
 
 
 
 
 
 

Agency securities
153,179

 
5,423

 
122

 
158,480

 
 
 
 
 
158,480

Agency guaranteed mortgage-backed securities
535,228

 
18,211

 
102

 
553,337

 
 
 
 
 
553,337

Small Business Administration loan-backed securities
1,153,039

 
12,119

 
4,496

 
1,160,662

 
 
 
 
 
1,160,662

Municipal securities
120,677

 
3,191

 
1,700

 
122,168

 
 
 
 
 
122,168

Asset-backed securities:
 
 
 
 
 
 
 
 
 
 
 
 

Trust preferred securities – banks and insurance
1,794,427

 
15,792

 
880,509

 
929,710

 
 
 
 
 
929,710

Trust preferred securities – real estate investment trusts
40,259

 

 
21,614

 
18,645

 
 
 
 
 
18,645

Auction rate securities
71,338

 
164

 
1,482

 
70,020

 
 
 
 
 
70,020

Other
64,646

 
1,028

 
15,302

 
50,372

 
 
 
 
 
50,372

 
3,937,123

 
56,232

 
925,327

 
3,068,028

 
 
 
 
 
3,068,028

Mutual funds and other
162,606

 
167

 
6

 
162,767

 
 
 
 
 
162,767

 
$
4,099,729

 
$
56,399

 
$
925,333

 
$
3,230,795

 
 
 
 
 
$
3,230,795

 
1The gross unrealized losses recognized in OCI resulted from a previous transfer of available-for-sale (AFS) securities to held-to-maturity (HTM).

The amortized cost and estimated fair value of investment debt securities are shown subsequently as of June 30, 2012 by expected maturity distribution for structured asset-backed collateralized debt obligations (“ABS CDOs”) and by contractual maturity distribution for other debt securities. Actual maturities may differ from expected or contractual maturities because borrowers may have the right to call or prepay obligations with or without call or prepayment penalties:
 
 
Held-to-maturity
 
Available-for-sale
(In thousands)
 
Amortized
cost
 
Estimated
fair
value
 
Amortized
cost
 
Estimated
fair
value
Due in one year or less
$
54,912

 
$
55,321

 
$
450,929

 
$
420,393

Due after one year through five years
207,047

 
201,654

 
1,108,393

 
1,006,558

Due after five years through ten years
172,813

 
154,922

 
690,377

 
602,812

Due after ten years
394,589

 
303,813

 
1,527,057

 
924,851

 
$
829,361

 
$
715,710

 
$
3,776,756

 
$
2,954,614

 

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ZIONS BANCORPORATION AND SUBSIDIARIES



The following is a summary of the amount of gross unrealized losses for debt securities and the estimated fair value by length of time the securities have been in an unrealized loss position:
 
June 30, 2012
 
Less than 12 months
 
12 months or more
 
Total
(In thousands)
 
Gross
unrealized
losses
 
Estimated
fair
value
 
Gross
unrealized
losses
 
Estimated
fair
value
 
Gross
unrealized
losses
 
Estimated
fair
value
Held-to-maturity
 
 
 
 
 
 
 
 
 
 
 
Municipal securities
$
225

 
$
11,399

 
$
210

 
$
14,646

 
$
435

 
$
26,045

Asset-backed securities:
 
 
 
 
 
 
 
 

 
 
Trust preferred securities – banks and insurance

 

 
117,109

 
145,346

 
117,109

 
145,346

Other

 

 
11,415

 
11,232

 
11,415

 
11,232

 
$
225

 
$
11,399

 
$
128,734

 
$
171,224

 
$
128,959

 
$
182,623

Available-for-sale
 
 
 
 
 
 
 
 
 
 
 
U.S. Government agencies and corporations:
 
 
 
 
 
 
 
 
 
 
 
Agency securities
$
54

 
$
21,836

 
$
84

 
$
7,168

 
$
138

 
$
29,004

Agency guaranteed mortgage-backed securities
48

 
11,668

 
2

 
241

 
50

 
11,909

Small Business Administration loan-backed securities
235

 
56,975

 
1,725

 
165,355

 
1,960

 
222,330

Municipal securities
169

 
5,420

 
2,216

 
11,478

 
2,385

 
16,898

Asset-backed securities:
 
 
 
 
 
 
 
 

 


Trust preferred securities – banks and insurance
1,162

 
37,728

 
842,857

 
706,134

 
844,019

 
743,862

Trust preferred securities – real estate investment trusts

 

 
25,930

 
14,431

 
25,930

 
14,431

Auction rate securities
27

 
2,038

 
50

 
1,057

 
77

 
3,095

Other

 

 
9,435

 
15,701

 
9,435

 
15,701

 
1,695

 
135,665

 
882,299

 
921,565

 
883,994

 
1,057,230

Mutual funds and other
18

 
20,053

 

 

 
18

 
20,053

 
$
1,713

 
$
155,718

 
$
882,299

 
$
921,565

 
$
884,012

 
$
1,077,283


 

11


ZIONS BANCORPORATION AND SUBSIDIARIES



 
 
December 31, 2011
 
 
Less than 12 months
 
12 months or more
 
Total
 
(In thousands)
 
Gross unrealized losses
 
Estimated fair value
 
Gross unrealized losses
 
Estimated fair value
 
Gross unrealized losses
 
Estimated fair value
 
 
 
Held-to-maturity
 
 
 
 
 
 
 
 
 
 
 
 
Municipal securities
$
415

 
$
10,855

 
$
668

 
$
22,188

 
$
1,083

 
$
33,043

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

 

 
118,737

 
144,053

 
118,737

 
144,053

 
Other

 

 
11,249

 
13,364

 
11,249

 
13,364

 
Other debt securities
5

 
95

 

 

 
5

 
95

 
 
$
420

 
$
10,950

 
$
130,654

 
$
179,605

 
$
131,074

 
$
190,555

 
Available-for-sale
 
 
 
 
 
 
 
 
 
 
 
 
U.S. Government agencies and corporations:
 
 
 
 
 
 
 
 
 
 
 
 
Agency securities
$
60

 
$
13,308

 
$
62

 
$
3,880

 
$
122

 
$
17,188

 
Agency guaranteed mortgage-backed securities
102

 
52,267

 

 

 
102

 
52,267

 
Small Business Administration loan-backed securities
1,783

 
260,865

 
2,713

 
191,339

 
4,496

 
452,204

 
Municipal securities
1,305

 
15,011

 
395

 
4,023

 
1,700

 
19,034

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

 

 
880,509

 
695,365

 
880,509

 
695,365

 
Trust preferred securities – real estate investment trusts

 

 
21,614

 
18,645

 
21,614

 
18,645

 
Auction rate securities
158

 
27,998

 
1,324

 
34,115

 
1,482

 
62,113

 
Other

 

 
15,302

 
18,585

 
15,302

 
18,585

 
 
3,408

 
369,449

 
921,919

 
965,952

 
925,327

 
1,335,401

 
Mutual funds and other
6

 
167

 

 

 
6

 
167

 
 
$
3,414

 
$
369,616

 
$
921,919

 
$
965,952

 
$
925,333

 
$
1,335,568

At June 30, 2012 and December 31, 2011, respectively, 89 and 72 HTM and 365 and 525 AFS investment securities were in an unrealized loss position.
Other-Than-Temporary Impairment
We conduct a formal review of investment securities on a quarterly basis for the presence of other-than-temporary impairment (“OTTI”). We assess whether OTTI is present when the fair value of a debt security is less than its amortized cost basis at the balance sheet date. Under these circumstances, OTTI is considered to have occurred if (1) we intend to sell the security; (2) it is “more likely than not” we will be required to sell the security before recovery of its amortized cost basis; or (3) the present value of expected cash flows is not sufficient to recover the entire amortized cost basis.
Credit-related OTTI is recognized in earnings while noncredit-related OTTI on securities not expected to be sold is recognized in OCI. Noncredit-related OTTI is based on other factors, including illiquidity. Presentation of OTTI is made in the statement of income on a gross basis with an offset for the amount of OTTI recognized in OCI. For securities classified as HTM, the amount of noncredit-related OTTI recognized in OCI is accreted to the credit-adjusted expected cash flow amounts of the securities over future periods.
Our 2011 Annual Report on Form 10-K describes in more detail our OTTI evaluation process. The following summarizes the conclusions from our OTTI evaluation for those security types that have significant gross unrealized losses at June 30, 2012:
OTTI Municipal Securities
The HTM securities are purchased directly from municipalities and are generally not rated by a credit rating agency. The AFS securities are rated as investment grade by various credit rating agencies. Both the HTM and AFS securities are at fixed and variable rates with maturities from one to 25 years. Fair value changes of these securities are largely driven by interest rates. We perform credit quality reviews on these securities at each reporting period. Because the decline in fair value is not attributable to credit quality, no OTTI for these securities was recorded for the three months ended June 30, 2012.

12


ZIONS BANCORPORATION AND SUBSIDIARIES



OTTI – Asset-Backed Securities
Trust preferred securities – banks and insurance: These CDO securities are interests in variable rate pools of trust preferred securities related to banks and insurance companies (“collateral issuers”). They are rated by one or more Nationally Recognized Statistical Rating Organizations (“NRSROs”), which are rating agencies registered with the Securities and Exchange Commission (“SEC”). They were purchased generally at par. The primary drivers that have given rise to the unrealized losses on CDOs with bank and insurance collateral are listed below:
1)
Market yield requirements for bank CDO securities remain very high. The credit crisis resulted in significant utilization of both the unique five-year deferral option each collateral issuer maintains during the life of the CDO and the ability of junior CDO bonds to defer the payment of current interest. The resulting increase in the rate of return demanded by the market for trust preferred CDOs remains dramatically higher than the effective interest rates. All structured product fair values, including bank CDOs, deteriorated significantly during the credit crisis, generally reaching a low in mid-2009. Prices for some structured products, other than bank CDOs, have since rebounded as the crucial unknowns related to value became resolved and as trading increased in these securities. Unlike these other structured products, CDO tranches backed by bank trust preferred securities continue to have unresolved questions surrounding collateral behavior, specifically including, but not limited to, the future number, size and timing of bank failures, and of allowed deferrals and subsequent resumption of payment of contractual interest.
2)
Structural features of the collateral make these CDO tranches difficult for market participants to model. The first feature unique to bank CDOs is the interest deferral feature previously discussed. During the credit crisis starting in 2008, certain banks within our CDO pools have exercised this prerogative. The extent to which these deferrals either transition to default or alternatively come current prior to the five-year deadline is extremely difficult for market participants to assess. Our CDO pools include banks which first exercised this deferral option in the second quarter of 2008. At June 30, 2012, 53 banks in our CDO pools had come current after a period of deferral, while 215 were deferring, but remained within the allowed deferral period.
A second structural feature that is difficult to model is the payment in kind (“PIK”) feature which provides that upon reaching certain levels of collateral default or deferral, certain junior CDO tranches will not receive current interest but will instead have the interest amount that is unpaid be capitalized or deferred. The cash flow that would otherwise be paid to the junior CDO securities and the income notes is instead used to pay down the principal balance of the most senior CDO securities. If the current market yield required by market participants equaled the effective interest rate of a security, a market participant should be indifferent between receiving current interest and capitalizing and compounding interest for later payment. However, given the difference between current market rates and effective interest rates of the securities, market participants are not indifferent. The delay in payment caused by PIKing results in lower security fair values even if PIKing is projected to be fully cured. This feature is difficult to model and assess. It increases the risk premium the market applies to these securities.
3)
Ratings are generally below-investment-grade for even some of the most senior tranches. Rating agency opinions can vary significantly on a CDO tranche. The presence of a below-investment-grade rating by even a single rating agency will severely limit the pool of buyers, which causes greater illiquidity and therefore most likely a higher implicit discount rate/lower price with regard to that CDO tranche.