ZION 10-Q Quarterly Report March 31, 2014 | Alphaminr
ZIONS BANCORPORATION, NATIONAL ASSOCIATION /UT/
ALPHAMINR

ZION 10-Q Quarter ended March 31, 2014

Balance Sheet
Cash Flow
Income Statement
Debt
ZIONS BANCORPORATION, NATIONAL ASSOCIATION /UT/
10-Qs and 10-Ks
10-Q
 		Quarter ended June 30, 2025
10-Q
 		Quarter ended March 31, 2025
10-K
 		Fiscal year ended Dec. 31, 2024
10-Q
 		Quarter ended Sept. 30, 2024
10-Q
 		Quarter ended June 30, 2024
10-Q
 		Quarter ended March 31, 2024
10-K
 		Fiscal year ended Dec. 31, 2023
10-Q
 		Quarter ended Sept. 30, 2023
10-Q
 		Quarter ended June 30, 2023
10-Q
 		Quarter ended March 31, 2023
10-K
 		Fiscal year ended Dec. 31, 2022
10-Q
 		Quarter ended Sept. 30, 2022
10-Q
 		Quarter ended June 30, 2022
10-Q
 		Quarter ended March 31, 2022
10-K
 		Fiscal year ended Dec. 31, 2021
10-Q
 		Quarter ended Sept. 30, 2021
10-Q
 		Quarter ended June 30, 2021
10-Q
 		Quarter ended March 31, 2021
10-K
 		Fiscal year ended Dec. 31, 2020
10-Q
 		Quarter ended Sept. 30, 2020
10-Q
 		Quarter ended June 30, 2020
10-Q
 		Quarter ended March 31, 2020
10-K
 		Fiscal year ended Dec. 31, 2019
10-Q
 		Quarter ended Sept. 30, 2019
10-Q
 		Quarter ended June 30, 2019
10-Q
 		Quarter ended March 31, 2019
10-K
 		Fiscal year ended Dec. 31, 2018
10-Q
 		Quarter ended Sept. 30, 2018
10-Q
 		Quarter ended June 30, 2018
10-Q
 		Quarter ended March 31, 2018
10-K
 		Fiscal year ended Dec. 31, 2017
10-Q
 		Quarter ended Sept. 30, 2017
10-Q
 		Quarter ended June 30, 2017
10-Q
 		Quarter ended March 31, 2017
10-K
 		Fiscal year ended Dec. 31, 2016
10-Q
 		Quarter ended Sept. 30, 2016
10-Q
 		Quarter ended June 30, 2016
10-Q
 		Quarter ended March 31, 2016
10-K
 		Fiscal year ended Dec. 31, 2015
10-Q
 		Quarter ended Sept. 30, 2015
10-Q
 		Quarter ended June 30, 2015
10-Q
 		Quarter ended March 31, 2015
10-K
 		Fiscal year ended Dec. 31, 2014
10-Q
 		Quarter ended Sept. 30, 2014
10-Q
 		Quarter ended June 30, 2014
10-Q
 		Quarter ended March 31, 2014
10-K
 		Fiscal year ended Dec. 31, 2013
10-Q
 		Quarter ended Sept. 30, 2013
10-Q
 		Quarter ended June 30, 2013
10-Q
 		Quarter ended March 31, 2013
10-K
 		Fiscal year ended Dec. 31, 2012
10-Q
 		Quarter ended Sept. 30, 2012
10-Q
 		Quarter ended June 30, 2012
10-Q
 		Quarter ended March 31, 2012
10-K
 		Fiscal year ended Dec. 31, 2011
10-Q
 		Quarter ended Sept. 30, 2011
10-Q
 		Quarter ended June 30, 2011
10-Q
 		Quarter ended March 31, 2011
10-K
 		Fiscal year ended Dec. 31, 2010
10-Q
 		Quarter ended Sept. 30, 2010
10-Q
 		Quarter ended June 30, 2010
10-Q
 		Quarter ended March 31, 2010
10-K
 		Fiscal year ended Dec. 31, 2009
PROXIES
DEF 14A
 		Filed on March 20, 2025
DEF 14A
 		Filed on March 14, 2024
DEF 14A
 		Filed on March 24, 2023
DEF 14A
 		Filed on March 17, 2022
DEF 14A
 		Filed on March 18, 2021
DEF 14A
 		Filed on March 19, 2020
DEF 14A
 		Filed on April 18, 2019
DEF 14A
 		Filed on April 19, 2018
DEF 14A
 		Filed on April 20, 2017
DEF 14A
 		Filed on April 14, 2016
DEF 14A
 		Filed on April 9, 2015
DEF 14A
 		Filed on April 17, 2014
DEF 14A
 		Filed on April 11, 2013
DEF 14A
 		Filed on April 12, 2012
DEF 14A
 		Filed on April 14, 2011
DEF 14A
 		Filed on April 15, 2010
10-Q 1 zion-20140331x10q.htm 10-Q ZION-2014.03.31-10Q



UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
FORM 10-Q
ý
QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934
For the quarterly period ended March 31, 2014
or
¨
TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934
For the transition period from to
COMMISSION FILE NUMBER 001-12307
ZIONS BANCORPORATION
(Exact name of registrant as specified in its charter)
UTAH
87-0227400
(State or other jurisdiction of
incorporation or organization)
(I.R.S. Employer
Identification No.)
One South Main, 15 th 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 April 30, 2014
184,895,233 shares


ZIONS BANCORPORATION AND SUBSIDIARIES
INDEX


2

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

March 31,
2014
December 31,
2013
(Unaudited)
ASSETS
Cash and due from banks
$
1,341,319

$
1,175,083

Money market investments:
Interest-bearing deposits
8,157,837

8,175,048

Federal funds sold and security resell agreements
379,947

282,248

Investment securities:
Held-to-maturity, at adjusted cost (approximate fair value $635,379 and $609,547)
606,279

588,981

Available-for-sale, at fair value
3,423,205

3,701,886

Trading account, at fair value
56,172

34,559

4,085,656

4,325,426

Loans held for sale
126,344

171,328

Loans and leases, net of unearned income and fees
39,198,136

39,043,365

Less allowance for loan losses
736,953

746,291

Loans, net of allowance
38,461,183

38,297,074

Other noninterest-bearing investments
848,775

855,642

Premises and equipment, net
785,519

726,372

Goodwill
1,014,129

1,014,129

Core deposit and other intangibles
33,562

36,444

Other real estate owned
39,248

46,105

Other assets
807,325

926,228

$
56,080,844

$
56,031,127

LIABILITIES AND SHAREHOLDERS’ EQUITY
Deposits:
Noninterest-bearing demand
$
19,257,889

$
18,758,753

Interest-bearing:
Savings and money market
23,097,351

23,029,928

Time
2,528,735

2,593,038

Foreign
1,648,111

1,980,161

46,532,086

46,361,880

Federal funds and other short-term borrowings
279,837

340,348

Long-term debt
2,158,701

2,273,575

Reserve for unfunded lending commitments
88,693

89,705

Other liabilities
435,311

501,056

Total liabilities
49,494,628

49,566,564

Shareholders’ equity:
Preferred stock, without par value, authorized 4,400,000 shares
1,003,970

1,003,970

Common stock, without par value; authorized 350,000,000 shares; issued
and outstanding 184,895,182 and 184,677,696 shares
4,185,513

4,179,024

Retained earnings
1,542,195

1,473,670

Accumulated other comprehensive income (loss)
(145,462
)
(192,101
)
Total shareholders’ equity
6,586,216

6,464,563

$
56,080,844

$
56,031,127

See accompanying notes to consolidated financial statements.

3

ZIONS BANCORPORATION AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF INCOME
(Unaudited)
(In thousands, except shares and per share amounts)
Three Months Ended
March 31,
2014
2013
Interest income:
Interest and fees on loans
$
434,344

$
453,433

Interest on money market investments
5,130

5,439

Interest on securities
28,094

25,876

Total interest income
467,568

484,748

Interest expense:
Interest on deposits
12,779

15,642

Interest on short- and long-term borrowings
38,324

50,991

Total interest expense
51,103

66,633

Net interest income
416,465

418,115

Provision for loan losses
(610
)
(29,035
)
Net interest income after provision for loan losses
417,075

447,150

Noninterest income:
Service charges and fees on deposit accounts
42,594

43,580

Other service charges, commissions and fees
43,519

42,731

Wealth management income
7,077

6,994

Capital markets and foreign exchange
5,000

7,486

Dividends and other investment income
7,864

12,724

Loan sales and servicing income
6,474

10,951

Fair value and nonhedge derivative loss
(8,539
)
(5,445
)
Equity securities gains, net
912

2,832

Fixed income securities gains, net
30,914

3,299

Impairment losses on investment securities:
Impairment losses on investment securities
(27
)
(31,493
)
Noncredit-related losses on securities not expected to be sold (recognized in other comprehensive income)
—

21,376

Net impairment losses on investment securities
(27
)
(10,117
)
Other
2,531

6,184

Total noninterest income
138,319

121,219

Noninterest expense:
Salaries and employee benefits
233,406

229,789

Occupancy, net
28,305

27,389

Furniture, equipment and software
27,944

26,074

Other real estate expense
1,607

1,977

Credit-related expense
6,906

10,482

Provision for unfunded lending commitments
(1,012
)
(6,354
)
Professional and legal services
10,995

10,471

Advertising
6,398

5,893

FDIC premiums
7,922

9,711

Amortization of core deposit and other intangibles
2,882

3,819

Other
72,710

78,097

Total noninterest expense
398,063

397,348

Income before income taxes
157,331

171,021

Income taxes
56,121

60,634

Net income
101,210

110,387

Net loss applicable to noncontrolling interests
—

(336
)
Net income applicable to controlling interest
101,210

110,723

Preferred stock dividends
(25,020
)
(22,399
)
Net earnings applicable to common shareholders
$
76,190

$
88,324

Weighted average common shares outstanding during the period:
Basic shares
184,440

183,396

Diluted shares
185,123

183,655

Net earnings per common share:
Basic
$
0.41

$
0.48

Diluted
0.41

0.48

See accompanying notes to consolidated financial statements.

4

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

Three Months Ended
March 31,
(In thousands)
2014
2013
Net income
$
101,210

$
110,387

Other comprehensive income (loss), net of tax:
Net unrealized holding gains on investment securities
71,066

48,796

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

(12,754
)
Reclassification to earnings for realized net fixed income securities gains
(24,840
)
(2,037
)
Reclassification to earnings for net credit-related impairment losses on investment securities
17

5,999

Accretion of securities with noncredit-related impairment losses not expected to be sold
286

209

Net unrealized holding gains (losses) on derivative instruments
320

(2
)
Reclassification adjustment for increase in interest income recognized in earnings on derivative instruments
(210
)
(957
)
Other comprehensive income
46,639

39,254

Comprehensive income
147,849

149,641

Comprehensive loss applicable to noncontrolling interests
—

(336
)
Comprehensive income applicable to controlling interest
$
147,849

$
149,977

See accompanying notes to consolidated financial statements.

5

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

184,677,696

$
4,179,024

$
1,473,670

$
(192,101
)
$
—

$
6,464,563

Net income for the period
101,210

—

101,210

Other comprehensive income, net of tax
46,639

46,639

Net activity under employee plans and related tax benefits
217,486

6,489

6,489

Dividends on preferred stock


(25,020
)
(25,020
)
Dividends on common stock, $0.04 per share
(7,436
)
(7,436
)
Change in deferred compensation
(229
)
(229
)
Balance at March 31, 2014
$
1,003,970

184,895,182

$
4,185,513

$
1,542,195

$
(145,462
)
$
—

$
6,586,216

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

184,199,198

$
4,166,109

$
1,203,815

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

Net income (loss) for the period
110,723

(336
)
110,387

Other comprehensive income, net of tax
39,254

39,254

Issuance of preferred stock
171,827

(3,076
)
168,751

Subordinated debt converted to preferred stock
1,160

(169
)
991

Net activity under employee plans and related tax benefits
47,273

7,438

7,438

Dividends on preferred stock


(22,399
)
(22,399
)
Dividends on common stock, $0.01 per share
(1,833
)
(1,833
)
Change in deferred compensation
(175
)
(175
)
Other changes in noncontrolling interests
586

(988
)
(402
)
Balance at March 31, 2013
$
1,301,289

184,246,471

$
4,170,888

$
1,290,131

$
(406,903
)
$
(4,752
)
$
6,350,653

See accompanying notes to consolidated financial statements.

6

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

Three Months Ended
March 31,
2014
2013
CASH FLOWS FROM OPERATING ACTIVITIES
Net income for the period
$
101,210

$
110,387

Adjustments to reconcile net income to net cash provided by
operating activities:
Net impairment losses on investment securities
27

10,117

Provision for credit losses
(1,622
)
(35,389
)
Depreciation and amortization
32,404

38,258

Fixed income securities gains, net
(30,914
)
(3,299
)
Deferred income tax expense
78,278

1,282

Net increase in trading securities
(21,862
)
(11
)
Net decrease in loans held for sale
41,195

89,996

Change in other liabilities
(77,580
)
(48,477
)
Change in other assets
3,086

51,580

Other, net
2,336

(12,153
)
Net cash provided by operating activities
126,558

202,291

CASH FLOWS FROM INVESTING ACTIVITIES
Net decrease (increase) in money market investments
(80,488
)
628,887

Proceeds from maturities and paydowns of investment securities
held-to-maturity
18,935

53,612

Purchases of investment securities held-to-maturity
(35,750
)
(45,800
)
Proceeds from sales, maturities, and paydowns of investment securities available-for-sale
847,288

359,223

Purchases of investment securities available-for-sale
(452,123
)
(486,975
)
Proceeds from sales of loans and leases
6,142

6,011

Net loan and lease originations
(168,628
)
(126,862
)
Net purchases of premises and equipment
(76,916
)
(15,800
)
Proceeds from sales of other real estate owned
11,825

27,974

Other, net
5,617

7,388

Net cash provided by investing activities
75,902

407,658

CASH FLOWS FROM FINANCING ACTIVITIES
Net increase (decrease) in deposits
170,206

(1,642,878
)
Net change in short-term funds borrowed
(60,511
)
(25,853
)
Proceeds from issuance of long-term debt
—

19,362

Repayments of long-term debt
(124,755
)
(18,398
)
Proceeds from issuances of common and preferred stock
2,880

169,399

Dividends paid on common and preferred stock
(23,741
)
(24,232
)
Other, net
(303
)
(439
)
Net cash used in financing activities
(36,224
)
(1,523,039
)
Net increase (decrease) in cash and due from banks
166,236

(913,090
)
Cash and due from banks at beginning of period
1,175,083

1,841,907

Cash and due from banks at end of period
$
1,341,319

$
928,817

Cash paid for interest
$
40,849

$
62,131

Net cash paid (refunds received) for income taxes
(81
)
3,565

See accompanying notes to consolidated financial statements.

7

ZIONS BANCORPORATION AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(Unaudited)
March 31, 2014

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

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

The Company provides a full range of banking and related services through subsidiary banks in 10 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 (“NBAZ”); Nevada State Bank (“NSB”); Vectra Bank Colorado (“Vectra”), in Colorado and New Mexico; The Commerce Bank of Washington (“TCBW”); and The Commerce Bank of Oregon (“TCBO”). The Parent and its subsidiary banks also own and operate certain nonbank subsidiaries that engage in financial services.

2.
CERTAIN RECENT ACCOUNTING PRONOUNCEMENTS
In January 2014, the FASB issued ASU 2014-04, Reclassification of Residential Real Estate Collateralized Consumer Mortgage Loans upon Foreclosure . This new guidance under ASU 310-40, Receivables – Troubled Debt Restructurings by Creditors , clarifies that a creditor should be considered to have physical possession of a residential real estate property collateralizing a residential mortgage loan and thus would reclassify the loan to other real estate owned when certain conditions are satisfied. The new amendments will require additional financial statement disclosures and may be applied on either a prospective or a modified retrospective basis, with early adoption permitted. For public companies, adoption is required for interim or annual periods beginning after December 15, 2014. Management is currently evaluating the impact this new guidance may have on its financial statement disclosures.

In January 2014, the FASB issued ASU 2014-01, Accounting for Investments in Qualified Affordable Housing Projects . This new accounting guidance under ASC 323, Investments – Equity Method and Joint Ventures , revised the conditions that an entity must meet to elect to use the effective yield method when accounting for qualified affordable housing project investments. The final consensus of the EITF changed the method of amortizing a Low Income Housing Tax Credit (“LIHTC”) investment from the effective yield method to a proportional amortization method. The amortization would be proportional to the tax credits and tax benefits received but, under a practical expedient that would be available in certain circumstances, amortization could be proportional to only the tax credits. Reporting entities that invest in LIHTC investments through a limited liability entity could elect the proportional amortization method if certain conditions are met. The guidance would not extend to other types of tax

8

ZIONS BANCORPORATION AND SUBSIDIARIES

credit investments. The final consensus would be applied retrospectively with early adoption and other adjustments permitted. For public companies, adoption is required for interim or annual periods beginning after December 15, 2014. Management is currently evaluating the impact this new guidance may have on its financial statements.

3.
SUPPLEMENTAL CASH FLOW INFORMATION
Noncash activities are summarized as follows:
(In thousands)
Three Months Ended
March 31,
2014
2013
Loans transferred to other real estate owned
$
6,338

$
23,442

Loans held for sale transferred to loans and leases
3,789

96

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

169

Subordinated debt converted to preferred stock
—

991


4.
CASH AND MONEY MARKET INVESTMENTS
Gross and net information for selected financial instruments in the balance sheet is as follows:
March 31, 2014
(In thousands)
Gross amounts not offset in the balance sheet
Description
Gross amounts recognized
Gross amounts offset in the balance sheet
Net amounts presented in the balance sheet
Financial instruments
Cash collateral received/pledged
Net amount
Assets:
Federal funds sold and security resell agreements
$
379,947

$
—

$
379,947

$
—

$
—

$
379,947

Derivatives (included in other assets)
57,683

—

57,683

(8,646
)
760

49,797

$
437,630

$
—

$
437,630

$
(8,646
)
$
760

$
429,744

Liabilities:
Federal funds and other short-term borrowings
$
279,837

$
—

$
279,837

$
—

$
—

$
279,837

Derivatives (included in other liabilities)
62,589

—

62,589

(8,646
)
(29,260
)
24,683

$
342,426

$
—

$
342,426

$
(8,646
)
$
(29,260
)
$
304,520


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

$
—

$
282,248

$
—

$
—

$
282,248

Derivatives (included in other assets)
65,683

—

65,683

(11,650
)
2,210

56,243

$
347,931

$
—

$
347,931

$
(11,650
)
$
2,210

$
338,491

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

$
—

$
340,348

$
—

$
—

$
340,348

Derivatives (included in other liabilities)
68,397

—

68,397

(11,650
)
(26,997
)
29,750

$
408,745

$
—

$
408,745

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


9

ZIONS BANCORPORATION AND SUBSIDIARIES


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

5.
INVESTMENT SECURITIES
Investment securities are summarized below. Note 10 discusses the process to estimate fair value for investment securities.
March 31, 2014
Recognized in OCI 1
Not recognized in OCI
(In thousands)
Amortized
cost
Gross
unrealized
gains
Gross
unrealized
losses
Carrying
value
Gross
unrealized
gains
Gross
unrealized
losses
Estimated
fair
value
Held-to-maturity
Municipal securities
$
567,935

$
—

$
—

$
567,935

$
14,429

$
1,707

$
580,657

Asset-backed securities:
Trust preferred securities – banks and insurance
79,351

—

41,107

38,244

17,603

1,225

54,622

Other debt securities
100

—

—

100

—

—

100

647,386

—

41,107

606,279

32,032

2,932

635,379

Available-for-sale
U.S. Treasury securities
1,471

75

—

1,546

1,546

U.S. Government agencies and corporations:
Agency securities
561,153

2,595

5,997

557,751

557,751

Agency guaranteed mortgage-backed securities
301,020

10,662

844

310,838

310,838

Small Business Administration loan-backed securities
1,366,783

19,964

4,868

1,381,879

1,381,879

Municipal securities
150,897

1,213

704

151,406

151,406

Asset-backed securities:
Trust preferred securities – banks and insurance
934,353

13,578

188,520

759,411

759,411

Auction rate securities
6,508

87

35

6,560

6,560

Other
1,462

290

—

1,752

1,752

3,323,647

48,464

200,968

3,171,143


3,171,143

Mutual funds and other
257,643

180

5,761

252,062

252,062

3,581,290

48,644

206,729

3,423,205

3,423,205

Total
$
4,228,676

$
48,644

$
247,836

$
4,029,484

$
4,058,584


1
Other comprehensive income

10

ZIONS BANCORPORATION AND SUBSIDIARIES

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

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

$
—

$
—

$
551,055

$
11,295

$
4,616

$
557,734

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

—

41,593

37,826

15,195

1,308

51,713

Other debt securities
100

—

—

100

—

—

100

630,574

—

41,593

588,981

26,490

5,924

609,547

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

104

—

1,546

1,546

U.S. Government agencies and
corporations:

Agency securities
517,905

1,920

901

518,924

518,924

Agency guaranteed mortgage-backed securities
308,687

9,926

1,237

317,376

317,376

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

21,129

2,771

1,221,259

1,221,259

Municipal securities
65,425

1,329

490

66,264

66,264

Asset-backed securities:

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

13,439

282,843

1,238,820

1,238,820

Trust preferred securities – real estate investment trusts
22,996

—

—

22,996

22,996

Auction rate securities
6,507

118

26

6,599

6,599

Other
27,540

359

—

27,899

27,899

3,661,627

48,324

288,268

3,421,683

3,421,683

Mutual funds and other
287,603

21

7,421

280,203

280,203

3,949,230

48,345

295,689

3,701,886

3,701,886

Total
$
4,579,804

$
48,345

$
337,282

$
4,290,867

$
4,311,433


The amortized cost and estimated fair value of investment debt securities are shown subsequently as of March 31, 2014 by expected maturity distribution for collateralized debt obligations (“CDOs”) and by contractual maturity for other debt securities. Actual maturities may differ from expected or contractual maturities because borrowers may have the right to call or prepay obligations with or without call or prepayment penalties.

Held-to-maturity
Available-for-sale
(In thousands)
Amortized
cost
Estimated
fair
value
Amortized
cost
Estimated
fair
value
Due in one year or less
$
77,395

$
56,283

$
510,870

$
497,041

Due after one year through five years
195,088

161,077

1,212,400

1,205,205

Due after five years through ten years
135,308

138,806

709,151

697,454

Due after ten years
239,595

279,213

891,226

771,443

$
647,386

$
635,379

$
3,323,647

$
3,171,143



11

ZIONS BANCORPORATION AND SUBSIDIARIES

The following is a summary of the amount of gross unrealized losses for investment securities and the estimated fair value by length of time the securities have been in an unrealized loss position:
March 31, 2014
Less than 12 months
12 months or more
Total
(In thousands)
Gross
unrealized
losses
Estimated
fair
value
Gross
unrealized
losses
Estimated
fair
value
Gross
unrealized
losses
Estimated
fair
value
Held-to-maturity
Municipal securities
$
1,414

$
43,060

$
293

$
5,721

$
1,707

$
48,781

Asset-backed securities:

Trust preferred securities – banks and insurance
56

71

42,276

54,551

42,332

54,622

1,470

43,131

42,569

60,272

44,039

103,403

Available-for-sale
U.S. Government agencies and corporations:
Agency securities
5,936

326,547

61

5,803

5,997

332,350

Agency guaranteed mortgage-backed securities
792

48,560

52

3,054

844

51,614

Small Business Administration loan-backed securities
3,537

347,883

1,331

37,832

4,868

385,715

Municipal securities
57

7,127

647

2,824

704

9,951

Asset-backed securities:



Trust preferred securities – banks and insurance
1,280

52,845

187,240

624,501

188,520

677,346

Auction rate securities
11

1,603

24

889

35

2,492

11,613

784,565

189,355

674,903

200,968

1,459,468

Mutual funds and other
—

—

5,761

124,331

5,761

124,331

11,613

784,565

195,116

799,234

206,729

1,583,799

Total
$
13,083

$
827,696

$
237,685

$
859,506

$
250,768

$
1,687,202



12

ZIONS BANCORPORATION AND SUBSIDIARIES

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

$
70,400

$
591

$
9,103

$
4,616

$
79,503

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

—

42,901

51,319

42,901

51,319

4,025

70,400

43,492

60,422

47,517

130,822

Available-for-sale
U.S. Government agencies and corporations:
Agency securities
828

47,862

73

5,874

901

53,736

Agency guaranteed mortgage-backed securities
1,231

64,533

6

935

1,237

65,468

Small Business Administration loan-backed securities
1,709

187,680

1,062

39,256

2,771

226,936

Municipal securities
73

8,834

417

3,179

490

12,013

Asset-backed securities:
Trust preferred securities – banks and insurance
2,539

51,911

280,304

847,990

282,843

899,901

Auction rate securities
5

1,609

21

892

26

2,501

6,385

362,429

281,883

898,126

288,268

1,260,555

Mutual funds and other
943

24,057

6,478

103,614

7,421

127,671

7,328

386,486

288,361

1,001,740

295,689

1,388,226

Total
$
11,353

$
456,886

$
331,853

$
1,062,162

$
343,206

$
1,519,048

At March 31, 2014 and December 31, 2013 , respectively, 126 and 157 held-to-maturity (“HTM”) and 334 and 317 available -for-sale (“AFS”) investment securities were in an unrealized loss position.

Other-Than-Temporary Impairment
Ongoing Policy
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 (the vast majority of the investment portfolio are debt securities). 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.

Noncredit-related OTTI in securities we intend to sell is recognized in earnings as is any credit-related OTTI in securities, regardless of our intent. Noncredit-related OTTI on AFS securities not expected to be sold is recognized in OCI. The amount of noncredit-related OTTI in a security is quantified as the difference in a security’s amortized cost after adjustment for credit impairment, and its lower fair value. 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 using the effective interest rate method to the credit-adjusted expected cash flow amounts of the securities over future periods.


13

ZIONS BANCORPORATION AND SUBSIDIARIES

Effect of Volcker Rule and Interim Final Rule
On December 10, 2013, the final Volcker Rule (“VR”) was published pursuant to the Dodd-Frank Act. The VR significantly restricted certain activities by covered bank holding companies, including restrictions on certain types of securities, proprietary trading, and private equity investing. On January 14, 2014, the VR’s application to certain CDO securities was revised by an Interim Final Rule (“IFR”) related primarily to bank trust preferred CDO securities.

Certain of the Company’s CDO securities backed primarily by insurance trust preferred securities, real estate investment trust (“REIT”) securities, and asset-backed securities (“ABS”) became disallowed to be held effective July 21, 2015 under the VR and the IFR. This regulatory change resulted in the Company no longer being able to hold these securities to maturity. Further, to reduce the risk profile of the portfolio, we determined as of December 31, 2013, an intent to sell certain disallowed as well as other allowed CDO securities.

During the first quarter of 2014, we recorded a total of $993 million par amount of sales and paydowns of CDO securities. Total sales proceeds were $607 million and, together with approximately $5 million of gains on paydowns, resulted in net gains of $31 million . Sales made reflected price improvement during the first quarter of 2014.

The sales included those announced on February 12, 2014 of $631 million par amount of CDO securities resulting in pretax gains of $65 million . These securities had been identified for sale as of December 31, 2013 and their amortized cost was adjusted to fair value as of that date.

Late in the first quarter, we sold an additional $301 million par amount of primarily insurance CDOs. These sales resulted in net realized pretax losses of $39 million . Unrealized losses on these securities were approximately $65 million at December 31, 2013. Their amortized cost was not adjusted to fair value at December 31, 2013 because the Company did not, at that date, intend to sell these securities.

OTTI Conclusions
Our 2013 Annual Report on Form 10-K describes in more detail our OTTI evaluation process. The following summarizes the conclusions from our OTTI evaluation for the security type that has significant gross unrealized losses at March 31, 2014 :

OTTI – Asset-Backed Securities
Trust preferred securities – banks and insurance – These CDO securities are interests in variable rate pools of trust preferred securities issued by trusts related to bank holding companies 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”). The more junior securities were purchased generally at par, while the senior securities were purchased from Lockhart Funding LLC (“Lockhart”), a previously consolidated qualifying special-purpose entity securities conduit, at their carrying values (generally par) and then adjusted to their lower fair values. 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 elevated. The financial crisis and economic downturn resulted in significant utilization of both the unique five-year deferral option, which each collateral issuer maintains during the life of the CDO, and the payment in kind (“PIK”) feature described subsequently. The resulting increase in the rate of return demanded by the market for trust preferred CDOs remains substantially higher than the contractual interest rates. CDO tranches backed by bank trust preferred securities continue to be characterized by uncertainty surrounding collateral behavior, specifically including, but not limited to, prepayments; the future number, size and timing of bank failures; holding company bankruptcies; and allowed deferrals and subsequent resumption of payment or default due to nonpayment of contractual interest.

14

ZIONS BANCORPORATION AND SUBSIDIARIES

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 noted. Throughout the crisis starting in 2008, certain banks within our CDO pools have exercised this prerogative. The extent to which these deferrals are likely to either transition to default or, alternatively, come current prior to the five-year deadline is extremely difficult for market participants to assess.
A second structural feature that is difficult to model is the 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 capitalized or deferred. The delay in payment caused by PIKing results in lower security fair values even if PIKing is projected to be fully cured.
3)
The ratings from one NRSRO remain below-investment-grade for even some of the most senior tranches that originally were rated AAA or the equivalent. Ratings on a number of CDO tranches vary significantly among rating agencies. 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.
Our ongoing review of these securities determined that OTTI should be recorded for the three months ended March 31, 2014 .

The following is a tabular rollforward of the total amount of credit-related OTTI:
(In thousands)

Three Months Ended
March 31, 2014
Three Months Ended
March 31, 2013
HTM
AFS
Total
HTM
AFS
Total
Balance of credit-related OTTI at beginning
of period
$
(9,052
)
$
(176,833
)
$
(185,885
)
$
(13,549
)
$
(394,494
)
$
(408,043
)
Additions recognized in earnings during the period:
Credit-related OTTI on securities not previously impaired
—

—

—

(403
)
—

(403
)
Additional credit-related OTTI on securities previously impaired
(27
)
—

(27
)
—

(9,714
)
(9,714
)
Subtotal of amounts recognized in earnings
(27
)
—

(27
)
(403
)
(9,714
)
(10,117
)
Reductions for securities sold or paid off during the period
—

12,919

12,919

—

—

—

Balance of credit-related OTTI at end of period
$
(9,079
)
$
(163,914
)
$
(172,993
)
$
(13,952
)
$
(404,208
)
$
(418,160
)

To determine the credit component of OTTI for all security types, we utilize projected cash flows. 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 and external models may be utilized. See Note 10 for further discussion. To determine the credit-related portion of OTTI in accordance with applicable accounting guidance, we use the security specific effective interest rate when estimating the present value of cash flows.

For those securities with credit-related OTTI recognized in the statement of income, the amounts of pretax noncredit-related OTTI recognized in OCI were as follows:
(In thousands)
Three Months Ended
March 31,
2014
2013
HTM
$
—

$
16,114

AFS
—

5,262

$
—

$
21,376



15

ZIONS BANCORPORATION AND SUBSIDIARIES

The following summarizes gains and losses, including OTTI, that were recognized in the statement of income:
Three Months Ended
March 31, 2014
March 31, 2013
(In thousands)
Gross gains
Gross losses
Gross gains
Gross losses
Investment securities:
Held-to-maturity
$
—

$
27

$
24

$
403

Available-for-sale
72,561

41,647

3,276

9,715

Other noninterest-bearing investments:
Nonmarketable equity securities
912

—

2,857

25

73,473

41,674

6,157

10,143

Net gains (losses)
$
31,799

$
(3,986
)
Statement of income information:
Net impairment losses on investment securities
$
(27
)
$
(10,117
)
Equity securities gains, net
912

2,832

Fixed income securities gains, net
30,914

3,299

Net gains (losses)
$
31,799

$
(3,986
)

Interest income by security type was as follows:
Three Months Ended
March 31, 2014
March 31, 2013
(In thousands)
Taxable
Nontaxable
Total
Taxable
Nontaxable
Total
Investment securities:
Held-to-maturity
$
3,828

$
2,836

$
6,664

$
5,073

$
2,901

$
7,974

Available-for-sale
20,424

524

20,948

17,173

539

17,712

Trading
482

—

482

190

—

190

$
24,734

$
3,360

$
28,094

$
22,436

$
3,440

$
25,876


Securities with a carrying value of $1.5 billion at March 31, 2014 and December 31, 2013 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.



16

ZIONS BANCORPORATION AND SUBSIDIARIES

6.
LOANS AND ALLOWANCE FOR CREDIT LOSSES
Loans and Loans Held for Sale
Loans are summarized as follows according to major portfolio segment and specific loan class:
(In thousands)
March 31,
2014
December 31,
2013
Loans held for sale
$
126,344

$
171,328

Commercial:
Commercial and industrial
$
12,511,630

$
12,481,083

Leasing
389,576

387,929

Owner occupied
7,347,813

7,437,195

Municipal
482,074

449,418

Total commercial
20,731,093

20,755,625

Commercial real estate:
Construction and land development
2,263,920

2,182,821

Term
8,080,348

8,005,837

Total commercial real estate
10,344,268

10,188,658

Consumer:
Home equity credit line
2,165,285

2,133,120

1-4 family residential
4,795,484

4,736,665

Construction and other consumer real estate
330,215

324,922

Bankcard and other revolving plans
360,389

356,240

Other
186,089

197,864

Total consumer
7,837,462

7,748,811

FDIC-supported loans
285,313

350,271

Total loans
$
39,198,136

$
39,043,365

Loan balances are presented net of unearned income and fees, which amounted to $144.5 million at March 31, 2014 and $141.7 million at December 31, 2013 .

Owner occupied and commercial real estate (“CRE”) loans include unamortized premiums of approximately $44.1 million at March 31, 2014 and $47.2 million at December 31, 2013 .
Municipal loans generally include loans to municipalities with the debt service being repaid from general funds or pledged revenues of the municipal entity, or to private commercial entities or 501(c)(3) not-for-profit entities utilizing a pass-through municipal entity to achieve favorable tax treatment.
Land development loans included in the construction and land development loan class were $589.1 million at March 31, 2014 and $561.3 million at December 31, 2013 .

FDIC-supported loans were acquired during 2009 and are indemnified by the Federal Deposit Insurance Corporation (“FDIC”) under loss sharing agreements. The FDIC-supported loan balances presented in the accompanying schedules include purchased credit-impaired (“PCI”) loans accounted for at their carrying values rather than their outstanding balances. See subsequent discussion under Purchased Loans.
Loans with a carrying value of approximately $23.5 billion at March 31, 2014 and $23.0 billion at December 31, 2013 have been pledged at the Federal Reserve and various Federal Home Loan Banks (“FHLB”) as collateral for current and potential borrowings.
We sold loans totaling $337.6 million and $447.6 million for the three months ended March 31, 2014 , and 2013 , respectively, that were classified as loans held for sale. Loans classified as loans held for sale primarily consist of

17

ZIONS BANCORPORATION AND SUBSIDIARIES

conforming residential mortgages. Amounts added to loans held for sale during these periods were $295.5 million and $358.9 million , respectively. Income from loans sold, excluding servicing, for these same periods was $3.5 million and $8.5 million .

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

Allowance for Loan and Lease Losses
The ALLL represents our estimate of probable and estimable losses inherent in the loan and lease portfolio as of the balance sheet date. Losses are charged to the ALLL when recognized. Generally, commercial loans are charged off or charged down at the point at which they are determined to be uncollectible in whole or in part, or when 180 days past due unless the loan is well secured and in the process of collection. Consumer loans are either charged off or charged down to net realizable value no later than the month in which they become 180 days past due. Closed-end 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 ALLL by analyzing the portfolio at least quarterly, and we adjust the provision for loan losses so the ALLL is at an appropriate level at the balance sheet date.

We determine our ALLL as the best estimate within a range of estimated losses. The methodologies we use to estimate the ALLL depend upon the impairment status and portfolio segment of the loan. The methodology for impaired loans is discussed subsequently. For the commercial and CRE segments, we use a comprehensive loan grading system to assign probability of default (“PD”) and loss given default (“LGD”) grades to each loan. The credit quality indicators discussed subsequently are based on this grading system. PD and LGD grades are based on both financial and statistical models and loan officers’ judgment. We create groupings of these grades for each subsidiary bank and loan class and calculate historic loss rates using a loss migration analysis that attributes historic realized losses to these loan grade groupings over the period of January 2008 through the most recent full quarter.
For the consumer loan segment, we use roll rate models to forecast probable inherent losses. Roll rate models measure the rate at which consumer loans migrate from one delinquency category to the next worse delinquency category, and eventually to loss. We estimate roll rates for consumer loans using recent delinquency and loss experience by segmenting our consumer loan portfolio into separate pools based on common risk characteristics and separately calculating historical delinquency and loss experience for each pool. These roll rates are then applied to current delinquency levels to estimate probable inherent losses. Roll rates incorporate housing market trends inasmuch as these trends manifest themselves in charge-offs and delinquencies. In addition, our qualitative and environmental factors discussed subsequently incorporate the most recent housing market trends.
For FDIC-supported loans purchased with evidence of credit deterioration, we determine the ALLL according to separate accounting guidance. The accounting for these loans, including the allowance calculation, is described in the Purchased Loans section following.

The current status and historical changes in qualitative and environmental factors may not be reflected in our quantitative models. Thus, after applying historical loss experience, as described above, we review the quantitatively derived level of ALLL for each segment using qualitative criteria and use those criteria to determine our estimate within the range. We track various risk factors that influence our judgment regarding the level of the ALLL across the portfolio segments. These factors primarily include:
•
Asset quality trends
•
Risk management and loan administration practices
•
Risk identification practices
•
Effect of changes in the nature and volume of the portfolio

18

ZIONS BANCORPORATION AND SUBSIDIARIES

•
Existence and effect of any portfolio concentrations
•
National economic and business conditions
•
Regional and local economic and business conditions
•
Data availability and applicability
•
Effects of other external factors
The magnitude of the impact of these factors on our qualitative assessment of the ALLL changes from quarter to quarter according to the extent these factors are already reflected in historic loss rates and according to the extent these factors diverge from one to another. We also consider the uncertainty inherent in the estimation process when evaluating the ALLL.

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

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

Three Months Ended March 31, 2014
(In thousands)
Commercial
Commercial
real estate
Consumer
FDIC-
supported 1
Total
Allowance for loan losses:
Balance at beginning of period
$
465,145

$
213,363

$
60,865

$
6,918

$
746,291

Additions:
Provision for loan losses
11,682

(1,567
)
(8,868
)
(1,857
)
(610
)
Adjustment for FDIC-supported loans
—

—

—

(817
)
(817
)
Deductions:
Gross loan and lease charge-offs
(9,124
)
(7,854
)
(3,114
)
(703
)
(20,795
)
Recoveries
6,845

2,604

2,197

1,238

12,884

Net loan and lease charge-offs
(2,279
)
(5,250
)
(917
)
535

(7,911
)
Balance at end of period
$
474,548

$
206,546

$
51,080

$
4,779

$
736,953

Reserve for unfunded lending commitments:
Balance at beginning of period
$
48,345

$
37,485

$
3,875

$
—

$
89,705

Provision charged (credited) to earnings
1,525

(2,212
)
(325
)
—

(1,012
)
Balance at end of period
$
49,870

$
35,273

$
3,550

$
—

$
88,693

Total allowance for credit losses at end of period:
Allowance for loan losses
$
474,548

$
206,546

$
51,080

$
4,779

$
736,953

Reserve for unfunded lending commitments
49,870

35,273

3,550

—

88,693

Total allowance for credit losses
$
524,418

$
241,819

$
54,630

$
4,779

$
825,646





19

ZIONS BANCORPORATION AND SUBSIDIARIES

Three Months Ended March 31, 2013
(In thousands)
Commercial
Commercial
real estate
Consumer
FDIC-
supported 1
Total
Allowance for loan losses:
Balance at beginning of period
$
510,908

$
276,976

$
95,656

$
12,547

$
896,087

Additions:
Provision for loan losses
(3,229
)
(18,628
)
(5,020
)
(2,158
)
(29,035
)
Adjustment for FDIC-supported loans
—

—

—

(7,429
)
(7,429
)
Deductions:
Gross loan and lease charge-offs
(18,100
)
(7,224
)
(9,937
)
(206
)
(35,467
)
Recoveries
7,351

5,297

3,923

1,054

17,625

Net loan and lease charge-offs
(10,749
)
(1,927
)
(6,014
)
848

(17,842
)
Balance at end of period
$
496,930

$
256,421

$
84,622

$
3,808

$
841,781

Reserve for unfunded lending commitments:
Balance at beginning of period
$
67,374

$
37,852

$
1,583

$
—

$
106,809

Provision charged (credited) to earnings
(1,742
)
(4,612
)
—

—

(6,354
)
Balance at end of period
$
65,632

$
33,240

$
1,583

$
—

$
100,455

Total allowance for credit losses at end of period:
Allowance for loan losses
$
496,930

$
256,421

$
84,622

$
3,808

$
841,781

Reserve for unfunded lending commitments
65,632

33,240

1,583

—

100,455

Total allowance for credit losses
$
562,562

$
289,661

$
86,205

$
3,808

$
942,236

1 The Purchased Loans section following contains further discussion related to FDIC-supported loans.
The ALLL and outstanding loan balances according to the Company’s impairment method are summarized as follows:
March 31, 2014
(In thousands)
Commercial
Commercial
real estate
Consumer
FDIC-
supported
Total
Allowance for loan losses:
Individually evaluated for impairment
$
41,739

$
7,409

$
10,137

$
—

$
59,285

Collectively evaluated for impairment
432,809

199,137

40,943

528

673,417

Purchased loans with evidence of credit deterioration
—

—

—

4,251

4,251

Total
$
474,548

$
206,546

$
51,080

$
4,779

$
736,953

Outstanding loan balances:
Individually evaluated for impairment
$
329,389

$
240,384

$
100,680

$
1,218

$
671,671

Collectively evaluated for impairment
20,401,704

10,103,884

7,736,782

35,128

38,277,498

Purchased loans with evidence of credit deterioration
—

—

—

248,967

248,967

Total
$
20,731,093

$
10,344,268

$
7,837,462

$
285,313

$
39,198,136


20

ZIONS BANCORPORATION AND SUBSIDIARIES

December 31, 2013
(In thousands)
Commercial
Commercial
real estate
Consumer
FDIC-
supported
Total
Allowance for loan losses:
Individually evaluated for impairment
$
39,288

$
12,510

$
10,701

$
—

$
62,499

Collectively evaluated for impairment
425,857

200,853

50,164

392

677,266

Purchased loans with evidence of credit deterioration
—

—

—

6,526

6,526

Total
$
465,145

$
213,363

$
60,865

$
6,918

$
746,291

Outstanding loan balances:
Individually evaluated for impairment
$
315,604

$
262,907

$
101,545

$
1,224

$
681,280

Collectively evaluated for impairment
20,440,021

9,925,751

7,647,266

37,963

38,051,001

Purchased loans with evidence of credit deterioration
—

—

—

311,084

311,084

Total
$
20,755,625

$
10,188,658

$
7,748,811

$
350,271

$
39,043,365

Nonaccrual and Past Due Loans
Loans are generally placed on nonaccrual status when payment in full of principal and interest is not expected, or the loan is 90 days or more past due as to principal or interest, unless the loan is both well secured and in the process of collection. Factors we consider in determining whether a loan is 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 interest and principal is uncertain.
A nonaccrual loan may be returned to accrual status when all delinquent interest and principal become current in accordance with the terms of the loan agreement; the loan, if secured, is well secured; the borrower has paid according to the contractual terms for a minimum of six months; and analysis of the borrower indicates a reasonable assurance of the ability and willingness to maintain payments. Payments received on nonaccrual loans are applied as a reduction to the principal outstanding.
Closed-end loans with payments scheduled monthly are reported as past due when the borrower is in arrears for two or more monthly payments. Similarly, open-end credit such as charge-card plans and other revolving credit plans are reported as past due when the minimum payment has not been made for two or more billing cycles. Other multi-payment obligations (i.e., quarterly, semiannual, etc.), single payment, and demand notes are reported as past due when either principal or interest is due and unpaid for a period of 30 days or more.

21

ZIONS BANCORPORATION AND SUBSIDIARIES

Nonaccrual loans are summarized as follows:
(In thousands)
March 31,
2014
December 31,
2013
Commercial:
Commercial and industrial
$
108,618

$
97,960

Leasing
684

757

Owner occupied
127,140

136,281

Municipal
9,947

9,986

Total commercial
246,389

244,984

Commercial real estate:
Construction and land development
29,061

29,205

Term
59,202

60,380

Total commercial real estate
88,263

89,585

Consumer:
Home equity credit line
9,624

8,969

1-4 family residential
48,023

53,002

Construction and other consumer real estate
3,424

3,510

Bankcard and other revolving plans
882

1,365

Other
944

804

Total consumer loans
62,897

67,650

FDIC-supported loans
4,117

4,394

Total
$
401,666

$
406,613

Past due loans (accruing and nonaccruing) are summarized as follows:
March 31, 2014
(In thousands)
Current
30-89 days
past  due
90+ days
past  due
Total
past  due
Total
loans
Accruing
loans
90+ days
past due
Nonaccrual
loans
that are
current 1
Commercial:
Commercial and industrial
$
12,403,866

$
53,684

$
54,080

$
107,764

$
12,511,630

$
826

$
45,137

Leasing
389,201

181

194

375

389,576

—

490

Owner occupied
7,262,832

44,218

40,763

84,981

7,347,813

130

71,445

Municipal
473,263

—

8,811

8,811

482,074

—

1,136

Total commercial
20,529,162

98,083

103,848

201,931

20,731,093

956

118,208

Commercial real estate:
Construction and land development
2,246,891

5,518

11,511

17,029

2,263,920

—

16,934

Term
8,023,737

31,597

25,014

56,611

8,080,348

3,992

21,690

Total commercial real estate
10,270,628

37,115

36,525

73,640

10,344,268

3,992

38,624

Consumer:
Home equity credit line
2,151,938

6,305

7,042

13,347

2,165,285

—

2,145

1-4 family residential
4,765,571

11,351

18,562

29,913

4,795,484

702

25,889

Construction and other consumer real estate
326,297

3,035

883

3,918

330,215

—

2,100

Bankcard and other revolving plans
357,596

1,722

1,071

2,793

360,389

1,008

739

Other
184,687

625

777

1,402

186,089

3

127

Total consumer loans
7,786,089

23,038

28,335

51,373

7,837,462

1,713

31,000

FDIC-supported loans
247,399

4,390

33,524

37,914

285,313

31,530

1,572

Total
$
38,833,278

$
162,626

$
202,232

$
364,858

$
39,198,136

$
38,191

$
189,404


22

ZIONS BANCORPORATION AND SUBSIDIARIES

December 31, 2013
(In thousands)
Current
30-89 days
past  due
90+ days
past  due
Total
past due
Total
loans
Accruing
loans
90+ days
past due
Nonaccrual
loans
that are
current 1
Commercial:
Commercial and industrial
$
12,387,546

$
48,811

$
44,726

$
93,537

$
12,481,083

$
1,855

$
52,412

Leasing
387,526

173

230

403

387,929

36

563

Owner occupied
7,357,618

36,718

42,859

79,577

7,437,195

744

82,072

Municipal
440,608

3,307

5,503

8,810

449,418

—

1,176

Total commercial
20,573,298

89,009

93,318

182,327

20,755,625

2,635

136,223

Commercial real estate:
Construction and land development
2,162,018

8,967

11,836

20,803

2,182,821

23

17,311

Term
7,971,327

15,362

19,148

34,510

8,005,837

5,580

42,624

Total commercial real estate
10,133,345

24,329

30,984

55,313

10,188,658

5,603

59,935

Consumer:
Home equity credit line
2,122,549

8,001

2,570

10,571

2,133,120

98

2,868

1-4 family residential
4,704,852

8,526

23,287

31,813

4,736,665

667

27,592

Construction and other consumer real estate
322,807

1,038

1,077

2,115

324,922

—

2,232

Bankcard and other revolving plans
353,060

2,093

1,087

3,180

356,240

900

1,105

Other
196,327

827

710

1,537

197,864

54

125

Total consumer loans
7,699,595

20,485

28,731

49,216

7,748,811

1,719

33,922

FDIC-supported loans
305,709

12,026

32,536

44,562

350,271

30,391

1,975

Total
$
38,711,947

$
145,849

$
185,569

$
331,418

$
39,043,365

$
40,348

$
232,055

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

Credit Quality Indicators
In addition to the past due and nonaccrual criteria, we also analyze loans using loan risk grading systems, which vary based on the size and type of credit risk exposure. The internal risk grades assigned to loans follow our definitions of Pass, Special Mention, Substandard, and Doubtful, which are consistent with published definitions of regulatory risk classifications.

Definitions of Pass, Special Mention, Substandard, and Doubtful 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 remote.
Special Mention – A Special Mention asset has potential weaknesses that deserve management’s close attention. If left uncorrected, these potential weaknesses may result in deterioration of the repayment prospects for the asset or in the bank’s credit position at some future date.
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.

We generally assign internal risk grades to commercial and CRE loans with commitments equal to or greater than $750,000 based on financial and statistical models, individual credit analysis, and loan officer judgment. For these

23

ZIONS BANCORPORATION AND SUBSIDIARIES

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 or certain small commercial loans with commitments equal to or less than $750,000 , 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.

Outstanding loan balances (accruing and nonaccruing) categorized by these credit quality indicators are summarized as follows:
March 31, 2014
(In thousands)
Pass
Special
Mention
Sub-
standard
Doubtful
Total
loans
Total
allowance
Commercial:
Commercial and industrial
$
11,722,928

$
340,409

$
436,572

$
11,721

$
12,511,630

Leasing
383,454

992

5,130

—

389,576

Owner occupied
6,762,002

167,655

417,828

328

7,347,813

Municipal
472,127

—

9,947

—

482,074

Total commercial
19,340,511

509,056

869,477

12,049

20,731,093

$
474,548

Commercial real estate:
Construction and land development
2,192,237

14,181

57,502

—

2,263,920

Term
7,675,747

149,016

253,739

1,846

8,080,348

Total commercial real estate
9,867,984

163,197

311,241

1,846

10,344,268

206,546

Consumer:
Home equity credit line
2,140,762

—

24,523

—

2,165,285

1-4 family residential
4,732,423

—

63,061

—

4,795,484

Construction and other consumer real estate
321,328

—

8,887

—

330,215

Bankcard and other revolving plans
358,045

—

2,344

—

360,389

Other
184,863

—

1,226

—

186,089

Total consumer loans
7,737,421

—

100,041

—

7,837,462

51,080

FDIC-supported loans
181,100

19,366

84,847

—

285,313

4,779

Total
$
37,127,016

$
691,619

$
1,365,606

$
13,895

$
39,198,136

$
736,953



24

ZIONS BANCORPORATION AND SUBSIDIARIES

December 31, 2013
(In thousands)
Pass
Special
Mention
Sub-
standard
Doubtful
Total
loans
Total
allowance
Commercial:
Commercial and industrial
$
11,807,825

$
303,598

$
360,391

$
9,269

$
12,481,083

Leasing
380,268

2,050

5,611

—

387,929

Owner occupied
6,827,464

184,328

425,403

—

7,437,195

Municipal
439,432

—

9,986

—

449,418

Total commercial
19,454,989

489,976

801,391

9,269

20,755,625

$
465,145

Commercial real estate:
Construction and land development
2,107,828

15,010

59,983

—

2,182,821

Term
7,569,472

172,856

263,509

—

8,005,837

Total commercial real estate
9,677,300

187,866

323,492

—

10,188,658

213,363

Consumer:
Home equity credit line
2,111,475

—

21,645

—

2,133,120

1-4 family residential
4,668,841

—

67,824

—

4,736,665

Construction and other consumer real estate
313,881

—

11,041

—

324,922

Bankcard and other revolving plans
353,618

—

2,622

—

356,240

Other
196,770

—

1,094

—

197,864

Total consumer loans
7,644,585

—

104,226

—

7,748,811

60,865

FDIC-supported loans
232,893

22,532

94,846

—

350,271

6,918

Total
$
37,009,767

$
700,374

$
1,323,955

$
9,269

$
39,043,365

$
746,291


Impaired Loans
Loans are considered impaired when, based on current information and events, it is probable that we will be unable to collect all amounts due in accordance with the contractual terms of the loan agreement, including scheduled interest payments. For our non-purchased credit impaired loans, if a nonaccrual loan has a balance greater than $1 million or if a loan is a troubled debt restructuring (“TDR”), including TDRs that subsequently default, we individually evaluate the loan for impairment and estimate a specific reserve for the loan for all portfolio segments under applicable accounting guidance. Smaller nonaccrual loans are pooled for ALLL estimation purposes. PCI loans in our FDIC-supported portfolio segment are included in impaired loans and are accounted for under separate accounting guidance. See subsequent discussion under Purchased Loans.

When a loan is impaired, 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, 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 previously under nonaccrual loans. When we base the impairment amount on the fair value of the loan’s underlying collateral, we generally charge off the portion of the balance that is impaired, such that these loans do not have a specific reserve in the ALLL. 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 months ended March 31, 2014 and 2013 was not significant.

Information on impaired loans individually evaluated is summarized as follows, including the average recorded investment and interest income recognized for the three months ended March 31, 2014 and 2013 :


25

ZIONS BANCORPORATION AND SUBSIDIARIES

March 31, 2014
(In thousands)

Unpaid
principal
balance
Recorded investment
Total
recorded
investment
Related
allowance
with no
allowance
with
allowance
Commercial:
Commercial and industrial
$
201,765

$
36,155

$
140,988

$
177,143

$
31,319

Owner occupied
146,504

59,435

71,281

130,716

8,487

Total commercial
348,269

95,590

212,269

307,859

39,806

Commercial real estate:
Construction and land development
70,088

28,680

30,460

59,140

2,865

Term
175,713

70,196

62,043

132,239

3,634

Total commercial real estate
245,801

98,876

92,503

191,379

6,499

Consumer:
Home equity credit line
18,145

13,095

2,177

15,272

67

1-4 family residential
94,639

39,589

39,841

79,430

9,790

Construction and other consumer real estate
4,241

2,341

986

3,327

179

Other
630

630

—

630

—

Total consumer loans
117,655

55,655

43,004

98,659

10,036

FDIC-supported loans
321,798

91,487

158,698

250,185

4,251

Total
$
1,033,523

$
341,608

$
506,474

$
848,082

$
60,592


December 31, 2013
(In thousands)

Unpaid
principal
balance
Recorded investment
Total
recorded
investment
Related
allowance
with no
allowance
with
allowance
Commercial:
Commercial and industrial
$
178,281

$
30,092

$
126,692

$
156,784

$
23,687

Owner occupied
151,499

50,361

88,584

138,945

13,900

Total commercial
329,780

80,453

215,276

295,729

37,587

Commercial real estate:
Construction and land development
85,440

19,206

50,744

69,950

3,483

Term
171,826

34,258

112,330

146,588

7,981

Total commercial real estate
257,266

53,464

163,074

216,538

11,464

Consumer:
Home equity credit line
17,547

12,568

2,200

14,768

178

1-4 family residential
95,613

38,775

42,132

80,907

10,276

Construction and other consumer real estate
4,713

2,643

933

3,576

175

Bankcard and other revolving plans
726

726

—

726

—

Other
—

—

—

—

—

Total consumer loans
118,599

54,712

45,265

99,977

10,629

FDIC-supported loans
404,308

83,917

228,392

312,309

6,526

Total
$
1,109,953

$
272,546

$
652,007

$
924,553

$
66,206


26

ZIONS BANCORPORATION AND SUBSIDIARIES

Three Months Ended
March 31, 2014
Three Months Ended
March 31, 2013
(In thousands)

Average
recorded
investment
Interest
income
recognized
Average
recorded
investment
Interest
income
recognized
Commercial:
Commercial and industrial
$
175,155

$
1,024

$
177,745

$
856

Owner occupied
137,175

752

182,825

806

Total commercial
312,330

1,776

360,570

1,662

Commercial real estate:
Construction and land development
62,548

552

147,225

664

Term
149,425

1,294

289,103

1,836

Total commercial real estate
211,973

1,846

436,328

2,500

Consumer:
Home equity credit line
14,952

135

11,455

59

1-4 family residential
80,154

448

99,191

382

Construction and other consumer real estate
3,332

35

6,122

46

Other
704

—

1,816

—

Total consumer loans
99,142

618

118,584

487

FDIC-supported loans
283,782

22,305

1
447,841

25,153

1
Total
$
907,227

$
26,545

$
1,363,323

$
29,802

1 The balance of interest income recognized results primarily from accretion of interest income on impaired FDIC-supported loans.
Modified and Restructured Loans
Loans may be modified in the normal course of business for competitive reasons or to strengthen the Company’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. These modifications are structured on a loan-by-loan basis and, depending on the circumstances, may include extended payment terms, a modified interest rate, forgiveness of principal, or other concessions. Loans that have been modified to accommodate a borrower who is experiencing financial difficulties, and for which the Company has granted a concession that it would not otherwise consider, are considered TDRs.

We consider many factors in determining whether to agree to a loan modification involving concessions, and seek a solution that will both minimize potential loss to the Company and attempt to help the borrower. We evaluate borrowers’ current and forecasted future cash flows, their ability and willingness to make current contractual or proposed modified payments, the value of the underlying collateral (if applicable), the possibility of obtaining additional security or guarantees, and the potential costs related to a repossession or foreclosure and the subsequent sale of the collateral.

TDRs are classified as either accrual or nonaccrual loans. A loan on nonaccrual and restructured as a TDR will remain on nonaccrual status until the borrower has proven the ability to perform under the modified structure for a minimum of six months, and there is evidence that such payments can and are likely to continue as agreed. Performance prior to the restructuring, or significant events that coincide with the restructuring, are included in assessing whether the borrower can meet the new terms and may result in the loan being returned to accrual at the time of restructuring or after a shorter performance period. If the borrower’s ability to meet the revised payment schedule is uncertain, the loan remains classified as a nonaccrual loan. A TDR loan that specifies an interest rate that at the time of the restructuring is greater than or equal to the rate the bank is willing to accept for a new loan with comparable risk may not be reported as a TDR or an impaired loan in the calendar years subsequent to the restructuring if it is in compliance with its modified terms.


27

ZIONS BANCORPORATION 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:
March 31, 2014
Recorded investment resulting from the following modification types:
(In thousands)

Interest
rate below
market
Maturity
or term
extension
Principal
forgiveness
Payment
deferral
Other 1
Multiple
modification
types 2
Total
Accruing
Commercial:
Commercial and industrial
$
640

$
8,738

$
21

$
3,553

$
4,214

$
64,547

$
81,713

Owner occupied
22,484

1,072

980

1,282

9,573

21,437

56,828

Total commercial
23,124

9,810

1,001

4,835

13,787

85,984

138,541

Commercial real estate:
Construction and land development
—

8,003

—

1,077

562

23,328

32,970

Term
8,603

8,980

188

3,695

4,151

59,215

84,832

Total commercial real estate
8,603

16,983

188

4,772

4,713

82,543

117,802

Consumer:
Home equity credit line
742

34

10,158

—

164

426

11,524

1-4 family residential
2,608

55

6,966

638

1,437

37,323

49,027

Construction and other consumer real estate
123

326

49

—

—

1,494

1,992

Total consumer loans
3,473

415


17,173


638


1,601


39,243

62,543

Total accruing
35,200

27,208

18,362

10,245

20,101

207,770

318,886

Nonaccruing
Commercial:
Commercial and industrial
1,881

6,412

—

412

409

18,800

27,914

Owner occupied
2,678

1,184

1,037

1,558

6,917

16,599

29,973

Total commercial
4,559

7,596

1,037

1,970

7,326

35,399

57,887

Commercial real estate:
Construction and land development
11,555

1,075

—

—

1,645

11,895

26,170

Term
2,311

84

—

1,867

392

15,577

20,231

Total commercial real estate
13,866

1,159

—

1,867

2,037

27,472

46,401

Consumer:
Home equity credit line
—

—

793

—

217

69

1,079

1-4 family residential
4,249

48

1,784

—

3,257

14,581

23,919

Construction and other consumer real estate
4

1,105

—

—

—

139

1,248

Bankcard and other revolving plans
—

—

—

—

—

—

—

Total consumer loans
4,253

1,153

2,577

—

3,474

14,789

26,246

Total nonaccruing
22,678

9,908

3,614

3,837

12,837

77,660

130,534

Total
$
57,878

$
37,116

$
21,976

$
14,082

$
32,938

$
285,430

$
449,420


28

ZIONS BANCORPORATION AND SUBSIDIARIES

December 31, 2013
Recorded investment resulting from the following modification types:
(In thousands)

Interest
rate below
market
Maturity
or term
extension
Principal
forgiveness
Payment
deferral
Other 1
Multiple
modification
types 2
Total
Accruing
Commercial:
Commercial and industrial
$
1,143

$
9,848

$
11,491

$
3,217

$
4,308

$
53,117

$
83,124

Owner occupied
22,841

1,482

987

1,291

9,659

23,576

59,836

Total commercial
23,984

11,330

12,478

4,508

13,967

76,693

142,960

Commercial real estate:
Construction and land development
1,067

8,231

—

1,063

4,119

28,295

42,775

Term
7,542

9,241

190

3,783

14,932

61,024

96,712

Total commercial real estate
8,609

17,472

190

4,846

19,051

89,319

139,487

Consumer:
Home equity credit line
743

—

9,438

—

323

332

10,836

1-4 family residential
2,628

997

6,814

643

3,083

35,869

50,034

Construction and other consumer real estate
128

329

11

—

—

1,514

1,982

Total consumer loans
3,499

1,326

16,263

643

3,406

37,715

62,852

Total accruing
36,092

30,128

28,931

9,997

36,424

203,727

345,299

Nonaccruing
Commercial:
Commercial and industrial
2,028

6,989

—

473

8,948

10,395

28,833

Owner occupied
3,020

1,489

1,043

1,593

10,482

14,927

32,554

Total commercial
5,048

8,478

1,043

2,066

19,430

25,322

61,387

Commercial real estate:
Construction and land development
11,699

1,555

—

—

5,303

8,617

27,174

Term
2,126

—

—

1,943

315

14,861

19,245

Total commercial real estate
13,825

1,555

—

1,943

5,618

23,478

46,419

Consumer:
Home equity credit line
—

—

1,036

—

221

—

1,257

1-4 family residential
4,315

1,396

1,606

—

3,901

14,109

25,327

Construction and other consumer real estate
4

1,260

—

—

—

229

1,493

Bankcard and other revolving plans
—

252

—

—

—

—

252

Total consumer loans
4,319

2,908

2,642

—

4,122

14,338

28,329

Total nonaccruing
23,192

12,941

3,685

4,009

29,170

63,138

136,135

Total
$
59,284

$
43,069

$
32,616

$
14,006

$
65,594

$
266,865

$
481,434

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.
Unused commitments to extend credit on TDRs amounted to approximately $3.8 million at March 31, 2014 and $5.6 million at December 31, 2013 .

29

ZIONS BANCORPORATION AND SUBSIDIARIES

The total recorded investment of all TDRs in which interest rates were modified below market was $186.2 million at March 31, 2014 and $172.6 million at December 31, 2013 . These loans are included in the previous table 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 is summarized in the following schedule:
(In thousands)
Three Months Ended
March 31,
2014
2013
Commercial:
Commercial and industrial
$
212

$
(181
)
Owner occupied
(1,709
)
(1,060
)
Total commercial
(1,497
)
(1,241
)
Commercial real estate:
Construction and land development
(666
)
(416
)
Term
(1,778
)
(2,659
)
Total commercial real estate
(2,444
)
(3,075
)
Consumer:
Home equity credit line
(24
)
(39
)
1-4 family residential
(3,601
)
(3,860
)
Construction and other consumer real estate
(105
)
(109
)
Total consumer loans
(3,730
)
(4,008
)
Total decrease to interest income 1
$
(7,671
)
$
(8,324
)
1 Calculated based on the difference between the modified rate and the premodified rate applied to the recorded investment.
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.
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
March 31, 2014
Three Months Ended
March 31, 2013
(In thousands)
Accruing
Nonaccruing
Total
Accruing
Nonaccruing
Total
Commercial:
Commercial and industrial
$
—

$
—

$
—

$
—

$
25

$
25

Owner occupied
—

—

—

—

135

135

Total commercial
—

—

—

—

160

160

Commercial real estate:
Term
—

84

84

—

1,071

1,071

Total commercial real estate
—

84

84

—

1,071

1,071

Consumer:
Home equity credit line
—

217

217

—

85

85

Construction and other consumer real estate
—

26

26

—

—

—

Total consumer loans
—

243

243

—

85

85

Total
$
—

$
327

$
327

$
—

$
1,316

$
1,316

Note: Total loans modified as TDRs during the 12 months previous to March 31, 2014 and 2013 were $142.4 million and $181.5 million , respectively.


30

ZIONS BANCORPORATION AND SUBSIDIARIES

Concentrations of Credit Risk
We perform an ongoing analysis of our loan portfolio to evaluate whether there is any significant exposure to any concentrations of credit risk. These potential concentrations include, but are not limited to, individual borrowers, groups of borrowers, industries, geographies, collateral types, sponsors, etc. Such credit risks (whether on- or off-balance sheet) may occur when groups of borrowers or counterparties have similar economic characteristics and are similarly affected by changes in economic or other conditions. Credit risk also includes the loss that would be recognized subsequent to the reporting date if counterparties failed to perform as contracted. See Note 7 for a discussion of counterparty risk associated with the Company’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. 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. Certain other loans acquired by the Company that are not credit-impaired include loans with revolving privileges and are excluded from the PCI tabular disclosures following. Interest income for these loans is accounted for on a contractual 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.

During 2009, CB&T and NSB acquired failed banks from the FDIC as receiver and entered into loss sharing agreements with the FDIC for the acquired loans and foreclosed assets. In general, the FDIC assumed 80% of credit losses up to a specified threshold and 95% above that threshold. The five-year agreements for commercial loans, which comprised the major portion of the covered portfolio, expire in 2014 through September 30. The ten-year agreements for single family residential loans, which are a small portion of the covered portfolio, will expire in 2019. Due to their declining balances, the “FDIC-supported loans” are included with “Loans and leases” in the Company’s balance sheet. However, they continue to be shown separately in this footnote and in other disclosures, and include both PCI and certain other acquired loans.

Outstanding Balances and Accretable Yield
The outstanding balances of all required payments and the related carrying amounts for PCI loans are as follows:
(In thousands)
March 31,
2014
December 31,
2013
Commercial
$
130,834

$
150,191

Commercial real estate
173,714

233,720

Consumer
23,724

28,608

Outstanding balance
$
328,272

$
412,519

Carrying amount
$
249,563

$
311,797

ALLL
4,203

6,478

Carrying amount, net
$
245,360

$
305,319

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.


31

ZIONS BANCORPORATION AND SUBSIDIARIES

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, which were not significant at March 31, 2014 and December 31, 2013 .

Changes in the accretable yield for PCI loans were as follows:
(In thousands)
Three Months Ended
March 31,
2014
2013
Balance at beginning of period
$
77,528

$
134,461

Accretion
(22,307
)
(25,266
)
Reclassification from nonaccretable difference
8,920

14,872

Disposals and other
1,624

2,292

Balance at end of period
$
65,765

$
126,359

Note: Amounts have been adjusted based on refinements to the original estimates of the accretable yield. Because of the estimation process required, we expect that additional adjustments to these amounts may be necessary in future periods.
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 determined without giving consideration to the amounts recoverable from the FDIC through loss sharing agreements. These amounts recoverable were separately accounted for in the FDIC indemnification asset (“IA”) and are thus presented “gross” in the balance sheet. The FDIC IA is included in other assets in the balance sheet and is discussed subsequently. The ALLL for acquired loans is included in the overall ALLL in the balance sheet. The provision for loan losses is reported net of changes in the amounts recoverable under the loss sharing agreements.

During the three months ended March 31, 2014 , and 2013 , we adjusted the ALLL for acquired loans by recording a negative provision for loan losses of $(2.7) million and $(9.6) million , respectively. The negative provision is net of the ALLL reversals discussed subsequently. As separately discussed and in accordance with the loss sharing agreements, portions of the provision reductions result in a corresponding decrease of the FDIC IA. For the three months ended March 31, 2014 , and 2013 , these adjustments resulted in net recoveries of $1.2 million and $0.9 million , respectively.

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 months ended March 31, total reversals to the ALLL were $2.9 million

32

ZIONS BANCORPORATION AND SUBSIDIARIES

in 2014 and $9.7 million in 2013 , 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. Any related decrease to the FDIC IA is recorded through a charge to other noninterest expense. Changes that increase cash flows have been due primarily to (1) the enhanced economic status of borrowers compared to original evaluations, (2) improvements in the Southern California market where the majority of these loans were originated, and (3) efforts by our credit officers and loan workout professionals to resolve problem loans.

For the three months ended March 31, the impact of increased cash flow estimates recognized in the statement of income for acquired loans with no ALLL was approximately $18.5 million in 2014 and $19.0 million in 2013 , respectively, of additional interest income; and $16.0 million in 2014 and $20.3 million in 2013 , respectively, of additional other noninterest expense due to the reduction of the FDIC IA.

FDIC Indemnification Asset
The balance of the FDIC IA was 13.2 million at March 31, 2014 and 26.4 million at December 31, 2013. In accordance with applicable accounting guidance, the balance will reduce to a de minimus level by September 30, 2014 when the final commercial loan loss sharing agreement expires. The remaining amount of the FDIC IA will relate to the residential loan loss sharing agreements and to in-process amounts with the FDIC.

7.
DERIVATIVE INSTRUMENTS AND HEDGING ACTIVITIES
We record all derivatives on the balance sheet at fair value. Note 10 discusses the process to estimate fair value for derivatives. The accounting for changes in the fair value of derivatives depends on the intended use of the derivative and the resulting designation. Derivatives used to hedge the exposure to changes in the fair value of an asset, liability, or firm commitment attributable to a particular risk, such as interest rate risk, are considered fair value hedges. Derivatives used to hedge the exposure to variability in expected future cash flows, or other types of forecasted transactions, are considered cash flow hedges.

For derivatives designated as fair value hedges, the effective portion of changes in the fair value of the derivative are recognized in earnings together with changes in the fair value of the related hedged item. The net amount, if any, representing hedge ineffectiveness, is reflected in earnings. In previous periods, we used fair value hedges to manage interest rate exposure to certain long-term debt. These hedges have been terminated and their remaining balances are being amortized to earnings, as discussed subsequently.

For derivatives designated as cash flow hedges, the effective portion of changes in the fair value of the derivative is recorded in OCI and recognized in earnings when the hedged transaction affects earnings. The ineffective portion of changes in the fair value of cash flow hedges is recognized directly in earnings.

No derivatives have been designated for hedges of investments in foreign operations.

We assess the effectiveness of each hedging relationship by comparing the changes in fair value or cash flows on the derivative hedging instrument with the changes in fair value or cash flows on the designated hedged item or transaction. For derivatives not designated as accounting hedges, changes in fair value are recognized in earnings.

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. To accomplish these objectives, we use interest rate swaps as part of our cash flow hedging strategy. These derivatives are used to hedge the variable cash flows associated with designated loans.

Exposure to credit risk arises from the possibility of nonperformance by counterparties. These counterparties primarily consist of financial institutions that are well established and well capitalized. We control this credit risk through credit approvals, limits, pledges of collateral, and monitoring procedures. No losses on derivative

33

ZIONS BANCORPORATION AND SUBSIDIARIES

instruments have occurred as a result of counterparty nonperformance. Nevertheless, the related credit risk is considered and measured when and where appropriate.

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. At March 31, 2014 , the fair value of our derivative liabilities was $62.6 million , for which we were required to pledge cash collateral of approximately $38.5 million in the normal course of business. If our credit rating were downgraded one notch by either Standard & Poor’s or Moody’s at March 31, 2014 , the additional amount of collateral we could be required to pledge is approximately $1.4 million . Since July 2013, as required by the Dodd-Frank Act, all new 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.

Interest rate swap agreements designated as cash flow hedges involve the receipt of fixed-rate amounts in exchange for variable-rate payments over the life of the agreements without exchange of the underlying principal amount. Derivatives not designated as accounting hedges, including basis swap agreements, are not speculative and are used to economically manage our exposure to interest rate movements and other identified risks, but do not meet the strict hedge accounting requirements.

Selected information with respect to notional amounts and recorded gross fair values at March 31, 2014 and December 31, 2013 , and the related gain (loss) of derivative instruments for the three months ended March 31, 2014 and 2013 is summarized as follows:
March 31, 2014
December 31, 2013
Notional
amount
Fair value
Notional
amount
Fair value
(In thousands)
Other
assets
Other
liabilities
Other
assets
Other
liabilities
Derivatives designated as hedging instruments
Asset derivatives
Cash flow hedges:
Interest rate swaps
$
150,000

$
298

$
492

$
100,000

$
202

$
583

Total derivatives designated as hedging instruments
150,000

298

492

100,000

202

583

Derivatives not designated as hedging instruments
Interest rate swaps
60,967

332

286

65,850

420

421

Interest rate swaps for customers 2
2,900,444

50,644

51,000

2,902,776

55,447

54,688

Foreign exchange
434,058

6,409

5,412

751,066

9,614

8,643

Total return swap
1,159,686

—

5,399

1,159,686

—

4,062

Total derivatives not designated as hedging instruments
4,555,155

57,385

62,097

4,879,378

65,481

67,814

Total derivatives
$
4,705,155

$
57,683

$
62,589

$
4,979,378

$
65,683

$
68,397




34

ZIONS BANCORPORATION AND SUBSIDIARIES

Three Months Ended March 31, 2014
Three Months Ended March 31, 2013
Amount of derivative gain (loss) recognized/reclassified
(In thousands)
OCI
Reclassified
from AOCI
to interest
income 3
Noninterest
income
(expense)
Offset to
interest
expense
OCI
Reclassified
from AOCI
to interest
income 3
Noninterest
income
(expense)
Offset to
interest
expense
Derivatives designated as hedging instruments
Asset derivatives
Cash flow hedges 1 :
Interest rate swaps
$
538

$
351

$
—

$
(4
)
$
1,605

$
—

538

351

—

(4
)
1,605

—

Liability derivatives
Fair value hedges:
Terminated swaps on long-term debt
$
718

$
766

Total derivatives designated as hedging instruments
538

351

—

718

(4
)
1,605

—

766

Derivatives not designated as hedging instruments
Interest rate swaps
6

(67
)
Interest rate swaps for customers 2
(549
)
1,458

Futures contracts
—

1

Foreign exchange
1,711

2,754

Total return swap
(7,427
)
(5,558
)
Total derivatives not designated as hedging instruments
(6,259
)
(1,412
)
Total derivatives
$
538

$
351

$
(6,259
)
$
718

$
(4
)
$
1,605

$
(1,412
)
$
766

Note: These schedules are not intended to present at any given time the Company’s long/short position with respect to its derivative contracts.
1 Amounts recognized in OCI and reclassified from accumulated OCI (“AOCI”) represent the effective portion of the derivative gain (loss).
2
Amounts include both the customer swaps and the offsetting derivative contracts.
3 Amounts for the three months ended March 31 2014 and 2013 of $0.4 million and $1.6 million , respectively, are the amounts of reclassification to earnings from AOCI presented in Note 8.

At March 31, the fair values of derivative assets and liabilities were reduced (increased) by net credit valuation adjustments of $1.6 million and $1.2 million in 2014 , and $3.0 million and $(0.1) million in 2013 , respectively. These adjustments are required to reflect both our own nonperformance risk and the respective counterparty’s nonperformance risk.

We offer interest rate swaps to our customers to assist them in managing their exposure to changing interest rates. Upon issuance, all of these customer swaps are immediately “hedged” by offsetting derivative contracts, such that the Company minimizes its net risk exposure resulting from such transactions. Fee income from customer swaps is included in other service charges, commissions and fees. As with other derivative instruments, we have credit risk for any nonperformance by counterparties.

The remaining balances of any derivative instruments terminated prior to maturity, including amounts in AOCI for swap hedges, are accreted or amortized to interest income or expense over the period corresponding to their previously stated maturity dates.

Amounts in AOCI are reclassified to interest income as interest is earned on variable rate loans and as amounts for terminated hedges are accreted or amortized to earnings. For the 12 months following March 31, 2014 , we estimate that an additional $1.3 million will be reclassified.


35

ZIONS BANCORPORATION AND SUBSIDIARIES

Total Return Swap
Since July 28, 2010, we had a total return swap and related interest rate swaps (“TRS”) with Deutsche Bank AG (“DB”) relating to a portfolio of $1.16 billion par amount of our bank and insurance trust preferred CDOs. As a result of the TRS, DB had assumed all of the credit risk of this CDO portfolio, providing timely payment of all scheduled payments of interest and principal when contractually due to the Company (without regard to acceleration or deferral events). The transaction reduced regulatory risk-weighted assets and improved the Company’s risk-based capital ratios.

The fair value of the TRS derivative liability was $5.4 million at March 31, 2014 and $4.1 million at December 31, 2013 .

Effective April 28, 2014, we canceled the TRS and will recognize approximately $0.5 million of TRS expenses during the second quarter of 2014 beyond that already accrued. At March 31, 2014, the par amount of the portfolio covered by the TRS was $545 million , or less than half of the original balance. This significant decrease was due to intervening CDO sales, paydowns and payoffs, as discussed in Note 5, and led to our cancellation of the TRS. At March 31, 2014, the TRS reduced risk-weighted assets by approximately $1 billion . We expect that, absent significant additional sales or paydowns, this cancellation will increase risk weighted assets by a similar amount at the end of the second quarter of 2014.

8.
DEBT AND SHAREHOLDERS’ EQUITY
Debt Redemptions
During the three months ended March 31, 2014 under our senior medium-term note program, we redeemed $125 million of long-term notes. At March 31, 2014 , the outstanding notes in this program amounted to $210.8 million , with interest rates from 2.55% to 5.50% and maturities through November 2019 .

Accumulated Other Comprehensive Income
Changes in AOCI by component are as follows:
(In thousands)

Net unrealized gains (losses) on investment securities
Net unrealized gains (losses) on derivative instruments
Pension and post-retirement
Total
Three Months Ended March 31, 2014
Balance at December 31, 2013
$
(167,032
)
$
(217
)
$
(24,852
)
$
(192,101
)
Other comprehensive income before reclassifications, net of tax
71,066

320

—

71,386

Amounts reclassified from AOCI, net of tax
(24,537
)
(210
)
—

(24,747
)
Other comprehensive income
46,529

110

—

46,639

Balance at March 31, 2014
$
(120,503
)
$
(107
)
$
(24,852
)
$
(145,462
)
Income tax expense included in other comprehensive income
$
38,636

$
77

$
—

$
38,713

Three Months Ended March 31, 2013
Balance at December 31, 2012
$
(397,616
)
$
1,794

$
(50,335
)
$
(446,157
)
Other comprehensive income (loss) before reclassifications, net of tax
36,042

(2
)
—

36,040

Amounts reclassified from AOCI, net of tax
4,171

(957
)
—

3,214

Other comprehensive income (loss)
40,213

(959
)
—

39,254

Balance at March 31, 2013
$
(357,403
)
$
835

$
(50,335
)
$
(406,903
)
Income tax expense (benefit) included in other comprehensive income (loss)
$
23,853

$
(650
)
$
—

$
23,203



36

ZIONS BANCORPORATION AND SUBSIDIARIES

Amounts reclassified from AOCI 1
Statement of income (SI) Balance sheet
(BS)
(In thousands)
Three Months Ended March 31,
Details about AOCI components
2014
2013
Affected line item
Net realized gains on investment securities
$
30,914

$
3,299

SI
Fixed income securities gains, net
Income tax expense
6,074

1,262

24,840

2,037

Net unrealized losses on investment
securities
(27
)
(9,714
)
SI
Net impairment losses on investment securities
Income tax benefit
(10
)
(3,715
)
(17
)
(5,999
)
Accretion of securities with noncredit-related impairment losses not expected to be sold
(482
)
(344
)
BS
Investment securities, held-to-maturity
Deferred income taxes
196

135

BS
Other assets
$
24,537

$
(4,171
)
Net unrealized gains on derivative instruments
$
351

$
1,605

SI
Interest and fees on loans
Income tax expense
141

648

$
210

$
957

1 Negative reclassification amounts indicate decreases to earnings in the statement of income and increases to balance sheet assets. The opposite applies to positive reclassification amounts.
Basel III Capital Framework
The Federal Reserve has published final rules establishing a new capital framework for U.S. banking organizations. These new rules implement the Basel Committee’s December 2010 framework, commonly referred to as Basel III, which will become effective for the Company on January 1, 2015, with the fully phased-in requirements becoming effective in 2018.
Among other things, the new rules revise capital adequacy guidelines and the regulatory framework for prompt corrective action, and they modify specified quantitative measures of our assets, liabilities, and capital. The impact of these new rules will require the Company to maintain capital in excess of current “well-capitalized” regulatory standards, and in excess of historical levels.

9.
INCOME TAXES
Income tax expense for the three months ended March 31, 2014 and 2013 was lower than the blended statutory rate of 38.25% primarily because of the non-taxability of certain income items.
Net deferred tax assets were approximately $187 million at March 31, 2014 and $304 million at December 31, 2013 . We evaluate net deferred tax assets on a regular basis to determine whether an additional valuation allowance is required. Based on this evaluation, and considering the weight of the positive evidence compared to the negative evidence, we have concluded that an additional valuation allowance is not required as of March 31, 2014 .

10.
FAIR VALUE
Fair Value Measurement
Fair value is defined as the exchange price that would be received for an asset or paid to transfer a liability (an exit price) in the principal or most advantageous market for the asset or liability in an orderly transaction between market participants on the measurement date. To measure fair value, a hierarchy has been established that requires an entity to maximize the use of observable inputs and minimize the use of unobservable inputs. This hierarchy uses three levels of inputs to measure the fair value of assets and liabilities as follows:
Level 1 – Quoted prices in active markets for identical assets or liabilities in active markets that the Company has the ability to access;
Level 2 – Observable inputs other than Level 1 including quoted prices for similar assets or liabilities in active markets, quoted prices for identical or similar assets or liabilities in less active markets, observable inputs other than quoted prices that are used in the valuation of an asset or liability, and inputs that are derived principally from or corroborated by observable market data by correlation or other means; and
Level 3 – Unobservable inputs supported by little or no market activity for financial instruments whose value is determined by pricing models, discounted cash flow methodologies, or similar techniques, as well as instruments for which the determination of fair value requires significant management judgment or estimation.
The level in the fair value hierarchy within which the fair value measurement is classified is determined based on the lowest level input that is significant to the fair value measure in its entirety. Market activity is presumed to be orderly in the absence of evidence of forced or disorderly sales, although such sales may still be indicative of fair value. Applicable accounting guidance precludes the use of blockage factors or liquidity adjustments due to the quantity of securities held by an entity.

We use fair value to measure certain assets and liabilities on a recurring basis when fair value is the primary measure for accounting. Fair value is used on a nonrecurring basis to measure certain assets when adjusting carrying values, such as the application of lower of cost or fair value accounting, including recognition of impairment on assets. Fair value is also used when providing required disclosures for certain financial instruments.

Fair Value Policies and Procedures
We have various policies, processes and controls in place to ensure that fair values are reasonably developed, reviewed and approved for use. These include a Securities Valuation and Securitization Oversight Committee (“SOC”) comprised of executive management that reports directly to the Board of Directors. The SOC reviews and approves on a quarterly basis the key components of fair value estimation, including critical valuation assumptions for Level 3 modeling. Attribution analyses are completed when significant changes occur between quarters. The SOC also requires quarterly back testing of certain significant assumptions. A Model Risk Management Group conducts model validations, including the internal model, and sets policies and procedures for revalidation, including the timing of revalidation.

Third Party Service Providers
We use a third party pricing service to provide pricing for approximately 89% of our AFS Level 2 securities, and an internal model to estimate fair value for approximately 98% of our AFS Level 3 securities. Fair values for the remaining AFS Level 2 and Level 3 securities generally use standard form discounted cash flow modeling with certain inputs corroborated by market data.

For Level 2 securities, the third party pricing service provides documentation on an ongoing basis that presents market corroborative data, including detail pricing information and market reference data. The documentation includes benchmark yields, reported trades, broker/dealer quotes, issuer spreads, two-sided markets, benchmark securities, bids, offers, and reference data, including information from the vendor trading platform. We review, test and validate this information as appropriate.

For Level 3 securities, we review and evaluate on a quarterly basis the relevant third party modeling assumptions. These include PDs, loss-given-default rates, over-collateralization levels, and rating transition probability matrices from ratings agencies. In addition, we also compare the results and valuation with our information about market trends and trading data. This includes information regarding trading prices, implied discounts, outlier information, valuation assumptions, etc.

Absent observable trade data, we do not adjust prices from our third party sources. The procedures described help ensure that resulting fair value estimates were determined in accordance with applicable accounting guidance.

37

ZIONS BANCORPORATION AND SUBSIDIARIES

The following describes the hierarchy designations, valuation methodologies, and key inputs to measure fair value on a recurring basis for designated financial instruments:
Available-for-Sale and Trading
U.S. Treasury, Agencies and Corporations
U.S. Treasury securities are measured under Level 1 using quoted market prices. U.S. agencies and corporations are measured under Level 2 generally using the previously-discussed third party pricing service.

Municipal Securities
Municipal securities are measured under Level 2 using the third party pricing service, or under Level 3 using a discounted cash flow approach. Valuation inputs include BBB and Baa municipal curves, as well as FHLB and London Interbank Offered Rate (“LIBOR”) swap curves. Additional valuation inputs include internal credit scoring, and security- and client-type groupings.

Asset-Backed Securities: Trust Preferred Collateralized Debt Obligations
The majority of the CDO portfolio is measured under Level 3 primarily with the internal model using an income-based cash flow modeling approach incorporating several methodologies. The Company inputs its own key valuation assumptions:
Trust preferred – banks and insurance – We primarily use an internal model for our bank and insurance CDO securities. Our “ratio-based approach” utilizes a statistical regression of regulatory ratios we have identified as predictive of future bank failures and bank holding company defaults to create a credit-specific PD for each bank issuer. The approach generally references trailing quarter regulatory data, financial ratios and macroeconomic factors.
The PDs used depend on whether the collateral is performing or deferring. Deferring PDs increase, all else being equal, as the deferral ages and approaches the end of its allowable five-year deferral period. The internal model includes the expectation that deferrals that do not default will pay their contractually required back interest and return to a current status at the end of five years. Estimates of loss for the individual pieces of underlying collateral are aggregated to arrive at a pool-level loss rate for each CDO. These loss assumptions are applied to the CDO’s structure to generate cash flow projections for each tranche of the CDO.
We utilize a present value technique to identify both the OTTI present in the CDO tranches and to estimate fair value. To estimate fair value, we discount the credit-adjusted cash flows of each CDO tranche at a tranche-specific discount rate derived from trading data and a measure of the credit risk in the CDO tranche. Because these securities are not traded on exchanges and trading prices are not posted on the TRACE ® system (Trade Reporting and Compliance Engine ® ), we seek information from market participants to obtain trade price information.
Trading data is generally limited and may include trades of tranches within our same CDO. We use this limited trade data along with our modeled expected credit adjusted cash flows to determine a relationship between the market required yield and the downside variability of the returns of each CDO security. The loss/downside variability for this purpose is a measure of the downside variability of cash flows from the mean estimate of cash flow.
During the three months ended March 31, 2014, as shown in the Level 3 reconciliation schedules following, two insurance CDO securities and two single-name bank trust preferred securities, were transferred from Level 3 to Level 2 primarily due to the increasing ability to utilize fair value inputs corroborated by observed market data. The securities constitute the Company’s entire holding of each asset class.

Trust preferred – REITS, Other – During the three months ended March 31, 2014, substantially all of these securities were sold, as discussed in Note 5.

38

ZIONS BANCORPORATION AND SUBSIDIARIES

Auction Rate Securities
Auction rate securities are measured under Level 3 primarily using valuation inputs that include AAA corporate bond yield curves, municipal yield curves, credit ratings and leverage of each closed-end fund, market yields for commercial paper, and any observable trade commentaries.
Bank-Owned Life Insurance
Bank-owned life insurance is measured under Level 2 according to cash surrender values (“CSVs”) of the insurance contracts that are provided by a third party service. Nearly all CSVs are computed based on valuations and earnings of the underlying assets in the insurance companies’ general accounts. The underlying investments include predominantly fixed income securities consisting of investment grade corporate bonds and various types of mortgage instruments. Average duration ranges from five to eight years. Management regularly reviews investment performance, including concentrations of investments and regulatory restrictions.
Private Equity Investments
Private equity investments are measured under Level 2 or Level 3. The Other Equity Investments Committee, consisting of executives familiar with the investments, reviews periodic financial information, including audited financial statements when available. The amount of unfunded commitments to these partnerships is disclosed in Note 11. Certain restrictions apply for the redemption of these investments. Approximately $59 million of private equity investments at March 31, 2014 are prohibited by the Volcker Rule.
Private equity investments under Level 2 include partnerships that invest in certain financial services and real estate companies, some of which are publicly traded. Fair values are determined from net asset values, or their equivalents, provided by the partnerships. These fair values are determined on the last business day of the month using values from the primary exchange. In the case of illiquid or nontraded assets, the partnerships obtain fair values from independent sources.
Private equity investments are measured under Level 3 primarily using current and projected financial performance, recent financing activities, economic and market conditions, market comparables, market liquidity, sales restrictions, and other factors.
Agriculture Loan Servicing
This asset results from our servicing of agriculture loans approved by the Federal Agricultural Mortgage Corporation (“FAMC,” or “Farmer Mac”) and funded by them. We provide this servicing under an agreement with Farmer Mac for loans they own. The asset’s fair value represents our projection of the present value of future cash flows measured under Level 3 using discounted cash flow methodologies.
Interest-Only Strips
Interest-only strips are created as a by-product of the securitization process. When the guaranteed portion of Small Business Administration (“SBA”) 7(a) loans are pooled, interest-only strips may be created in the pooling process. The asset’s fair value represents our projection of the present value of future cash flows measured under Level 3 using discounted cash flow methodologies.
Deferred Compensation Plan Assets and Obligations
Invested assets in the deferred compensation plan consists of shares of registered investment companies. These mutual funds are valued under Level 1 at quoted market prices, which represents the net asset value of shares held by the plan at the end of the period.
Derivatives
Derivatives are measured according to their classification as either exchange-traded or over-the-counter (“OTC”). Exchange-traded derivatives consist of forward currency exchange contracts measured under Level 1 because they are traded in active markets. OTC derivatives, including those for customers, consist of interest rate swaps and options. These derivatives are measured under Level 2 using third party services. Observable market inputs include yield curves (the LIBOR swap curve and applicable basis swap curves), foreign exchange rates, commodity prices,

39

ZIONS BANCORPORATION AND SUBSIDIARIES

option volatilities, counterparty credit risk, and other related data. Credit valuation adjustments are required to reflect nonperformance risk for both the Company and the respective counterparty. These adjustments are determined generally by applying a credit spread to the total expected exposure of the derivative.
Securities Sold, Not Yet Purchased
Securities sold, not yet purchased, are measured under Level 1 using quoted market prices. If not available, quoted prices under Level 2 for similar securities are used.
Quantitative Disclosure of Fair Value Measurements
Assets and liabilities measured at fair value by class on a recurring basis are summarized as follows:
(In thousands)
March 31, 2014
Level 1
Level 2
Level 3
Total
ASSETS
Investment securities:
Available-for-sale:
U.S. Treasury, agencies and corporations


$
2,252,014

$
2,252,014

Municipal securities
141,222

$
10,184

151,406

Asset-backed securities:
Trust preferred – banks and insurance
69,194

690,217

759,411

Trust preferred – real estate investment trusts
—

—

Auction rate
6,560

6,560

Other
1,722

30

1,752

Mutual funds and stock
$
231,405

20,657

252,062

231,405

2,484,809

706,991

3,423,205

Trading account
56,172

56,172

Other noninterest-bearing investments:
Bank-owned life insurance
469,241

469,241

Private equity
4,923

81,052

85,975

Other assets:
Agriculture loan servicing and interest-only strips



11,207

11,207

Deferred compensation plan assets
88,606





88,606

Derivatives:
Interest rate related and other
630

630

Interest rate swaps for customers
50,644

50,644

Foreign currency exchange contracts
6,409

6,409

6,409

51,274

57,683

$
326,420

$
3,066,419

$
799,250

$
4,192,089

LIABILITIES
Securities sold, not yet purchased
$
1,340



$
1,340

Other liabilities:
Deferred compensation plan obligations
88,606



88,606

Derivatives:
Interest rate related and other
$
778

778

Interest rate swaps for customers
51,000

51,000

Foreign currency exchange contracts
5,412

5,412

Total return swap
$
5,399

5,399

5,412

51,778

5,399

62,589

Other
233

233

$
95,358

$
51,778

$
5,632

$
152,768


40

ZIONS BANCORPORATION AND SUBSIDIARIES

(In thousands)
December 31, 2013
Level 1
Level 2
Level 3
Total
ASSETS
Investment securities:
Available-for-sale:
U.S. Treasury, agencies and corporations
$
—

$
2,059,105

$
2,059,105

Municipal securities
55,602

$
10,662

66,264

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

1,238,820

1,238,820

Trust preferred – real estate investment trusts
22,996

22,996

Auction rate
6,599

6,599

Other
2,099

25,800

27,899

Mutual funds and stock
259,750

20,453

280,203

259,750

2,137,259

1,304,877

3,701,886

Trading account
34,559

34,559

Other noninterest-bearing investments:
Bank-owned life insurance
466,428

466,428

Private equity
4,822

82,410

87,232

Other assets:
Agriculture loan servicing and interest-only strips



8,852

8,852

Deferred compensation plan assets
86,184





86,184

Derivatives:
Interest rate related and other
622

622

Interest rate swaps for customers
55,447

55,447

Foreign currency exchange contracts
9,614

9,614

9,614

56,069

65,683

$
355,548

$
2,699,137

$
1,396,139

$
4,450,824

LIABILITIES
Securities sold, not yet purchased
$
73,606

$
73,606

Other liabilities:
Deferred compensation plan obligations
86,184



86,184

Derivatives:
Interest rate related and other
$
1,004

1,004

Interest rate swaps for customers
54,688

54,688

Foreign currency exchange contracts
8,643

8,643

Total return swap
$
4,062

4,062

8,643

55,692

4,062

68,397

Other
241

241

$
168,433

$
55,692

$
4,303

$
228,428


The fair value of the Level 3 bank and insurance CDO portfolio would generally be adversely affected by significant increases in the constant default rate (“CDR”) for performing collateral, the loss percentage expected from deferring collateral, and the discount rate used. The fair value of the portfolio would generally be positively affected by increases in interest rates and prepayment rates. For a specific tranche within a CDO, the directionality of the fair value change for a given assumption change may differ depending on the seniority level of the tranche. For example, faster prepayment may increase the fair value of a senior most tranche of a CDO while decreasing the fair value of a more junior tranche.

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:

41

ZIONS BANCORPORATION AND SUBSIDIARIES

Level 3 Instruments
Three Months Ended March 31, 2014
(In thousands)
Municipal
securities
Trust
preferred – banks and insurance
Trust
preferred
– REIT
Auction
rate
Other
asset-backed
Private
equity
investments
Ag loan svcg and int-only strips
Derivatives
and other
liabilities
Balance at December 31, 2013
$
10,662

$
1,238,820

$
22,996

$
6,599

$
25,800

$
82,410

$
8,852

$
(4,303
)
Net gains (losses) included in:
Statement of income:
Accretion of purchase discount on securities available-for-sale
10

720



1



Dividends and other investment income
(1,695
)
Fair value and nonhedge derivative loss

(7,427
)
Fixed income securities gains, net
16

18,582

1,399



10,917

Other noninterest income
481

Other noninterest expense
8

Other comprehensive income
(274
)
94,462



(40
)
(15
)
Purchases
1,356

2,077

Sales
(546,388
)
(24,395
)
(36,669
)
(824
)
Redemptions and paydowns
(230
)
(46,786
)


(3
)
(195
)
(203
)
6,090

Transfers to Level 2
(69,193
)
Balance at March 31, 2014
$
10,184

$
690,217

$
—

$
6,560

$
30

$
81,052

$
11,207

$
(5,632
)


Level 3 Instruments
Three Months Ended March 31, 2013
(In thousands)
Municipal
securities
Trust
preferred – banks and insurance
Trust
preferred – REIT
Auction
rate
Other
asset-backed
Private
equity
investments
Ag loan svcg and int-only strips
Derivatives
and other
liabilities
Balance at December 31, 2012
$
16,551

$
949,271

$
16,403

$
6,515

$
15,160

$
64,223

$
8,334

$
(5,251
)
Net gains (losses) included in:
Statement of income:
Accretion of purchase discount on securities available-for-sale
21

815

63

1

5

Dividends and other investment income
2,989

Fair value and nonhedge derivative loss

(5,558
)
Equity securities gains, net
2,399

Fixed income securities gains, net
21

3,226



30

Net impairment losses on investment securities
(9,714
)

Other noninterest income
119

Other noninterest expense
(71
)
Other comprehensive income
725

78,650

840

8

2,651

Purchases
959

Sales

(733
)
Redemptions and paydowns
(275
)
(19,146
)


(2,453
)
(131
)
(201
)
5,810

Balance at March 31, 2013
$
17,043

$
1,003,102

$
17,306

$
6,524

$
15,393

$
69,706

$
8,252

$
(5,070
)



42

ZIONS BANCORPORATION AND SUBSIDIARIES

The preceding reconciling amounts using Level 3 inputs include the following realized gains:
(In thousands)
Three Months Ended March 31,
2014
2013
Dividends and other investment income
$
34

$
15

Fixed income securities gains, net
30,914

3,277


Except as previously discussed, no other transfers of assets or liabilities occurred among Levels 1, 2 or 3 for the three months ended March 31, 2014 and 2013. Transfers are considered to have occurred as of the end of the reporting period.

Following is a summary of quantitative information relating to the principal valuation techniques and significant unobservable inputs for Level 3 instruments measured on a recurring basis:
Level 3 Instruments
Quantitative information at March 31, 2014
(Dollar amounts in thousands)
Fair value
Principal valuation techniques
Significant unobservable inputs
Range of inputs
(% annually)
Asset-backed securities:
Trust preferred – predominantly banks 1
$
744,840

Discounted cash flow
Market comparables
Constant prepayment rate
until 2016 – 5.50% to 23.30%
2016 to maturity – 3.0%
Constant default rate
yr 1 – 0.30% to 2.17%
yrs 2-5 – 0.48% to 0.82 %
yrs 6 to maturity – 0.59% to 0.65%
Loss given default
100%
Loss given deferral
13.56% to 100%
Discount rate
(spread over forward LIBOR)
5.3% to 5.6%
1 Amount consists of $690.2 million AFS and $54.6 million HTM.


43

ZIONS BANCORPORATION AND SUBSIDIARIES

Level 3 Instruments
Quantitative information at December 31, 2013
(Dollar amounts in thousands)
Fair value
Principal valuation techniques
Significant unobservable inputs
Range of inputs
(% annually)
Asset-backed securities:
Trust preferred – predominantly banks
$
921,819

Discounted cash flow
Market comparables
Constant prepayment rate
until 2016 – 5.50% to 20.73%
2016 to maturity – 3.0%
Constant default rate
yr 1 – 0.30% to 1.94%
yrs 2-5 – 0.49% to 1.14%
yrs 6 to maturity – 0.58% to 0.65%
Loss given default
100%
Loss given deferral
14.39% to 100%
Discount rate
(spread over forward LIBOR)
5.6% to 7.7%
Trust preferred – predominantly insurance
346,390

Discounted cash flow
Market comparables
Constant prepayment rate
until maturity – 5.0%
Constant default rate
yr 1 – 0.38% to 1.03%
yrs 2-5 – 0.53% to 0.89%
yrs 6 to maturity – 0.50% to 0.55%
Loss given default
100%
Loss given deferral
2.18% to 30.13%
Discount rate
(spread over forward LIBOR)
3.72% to 6.49%
Trust preferred – individual banks
22,324

Market comparables
Yield
6.6% to 7.8%
Price
81.25% to 109.6%
Trust preferred – real estate investment trust
22,996

Discounted cash flow
Market comparables
Constant prepayment rate
until maturity – 0.0%
Constant default rate
yr 1 – 4.1% to 10.6%
yrs 2-3 – 4.6% to 5.5%
yrs 4-6 – 1.0%
yrs 7 to maturity – 0.50%
Loss given default
60% to 100%
Discount rate
(spread over forward LIBOR)
5.5% to 15%
Other (predominantly ABS CDOs)
25,800

Discounted cash flow
Constant default rate
0.01% to 100%
Loss given default
70% to 92%
Discount rate
(spread over forward LIBOR)
9% to 22%


44

ZIONS BANCORPORATION AND SUBSIDIARIES

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 thousands)
Fair value at March 31, 2014
Fair value at December 31, 2013
Level 1
Level 2
Level 3
Total
Level 1
Level 2
Level 3
Total
ASSETS
HTM securities adjusted for OTTI
$
—

$
—

$
71

$
71

$
—

$
—

$
8,483

$
8,483

Private equity investments, carried at cost
—

—

—

—

—

—

13,270

13,270

Impaired loans
—

21,943

—

21,943

—

11,765

—

11,765

Other real estate owned
—

13,720

—

13,720

—

24,684

—

24,684

$
—

$
35,663

$
71

$
35,734

$
—

$
36,449

$
21,753

$
58,202


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
(In thousands)

Three Months Ended
March 31,
2014
2013
ASSETS
HTM securities adjusted for OTTI
$
(27
)
$
(403
)
Private equity investments, carried at cost
—

(820
)
Impaired loans
(2,177
)
(883
)
Other real estate owned
(2,234
)
(4,691
)
$
(4,438
)
$
(6,797
)

During the three months ended March 31, we recognized net gains of $1.0 million in 2014 and $3.9 million in 2013 from the sale of other real estate owned (“OREO”) properties that had a carrying value at the time of sale of approximately $10.0 million and $22.0 million , respectively. Previous to their sale in these periods, we recognized impairment on these properties of $0.2 million in 2014 and $0.1 million in 2013.

HTM securities adjusted for OTTI were measured at fair value using the same methodology for trust preferred CDO securities.

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 private equity investments carried at cost were $50.4 million at March 31, 2014 and $53.6 million at December 31, 2013. Amounts of other noninterest-bearing investments carried at cost were $243.1 million at March 31, 2014 and $248.4 million at December 31, 2013, which were comprised of Federal Reserve, Federal Home Loan Bank, and Farmer Mac stock.

Impaired (or nonperforming) loans that are collateral-dependent were measured at fair value based on the fair value of the collateral. OREO was measured at fair value at the lower of cost or fair value based on property appraisals at the time the property is recorded in OREO and as appropriate thereafter.

Measurement of fair value for collateral-dependent loans and OREO was based on third party appraisals that utilize one or more valuation techniques (income, market and/or cost approaches). Any adjustments to calculated fair value were made based on recently completed and validated third party appraisals, third party appraisal services, automated valuation services, or our informed judgment. Evaluations were made to determine that the appraisal process met the relevant concepts and requirements of applicable accounting guidance.


45

ZIONS BANCORPORATION AND SUBSIDIARIES

Automated valuation services may be used primarily for residential properties when values from any of the previous methods were not available within 90 days of the balance sheet date. These services use models based on market, economic, and demographic values. The use of these models has only occurred in a very few instances and the related property valuations have not been significant to consider disclosure under Level 3 rather than Level 2.

Impaired loans not collateral-dependent were measured at fair valued based on the present value of future cash flows discounted at the expected coupon rates over the lives of the loans. Because the loans were not discounted at market interest rates, the valuations do not represent fair value and have been excluded from the nonrecurring fair value balance in the preceding schedules.

Fair Value of Certain Financial Instruments
Following is a summary of the carrying values and estimated fair values of certain financial instruments:
March 31, 2014
December 31, 2013
(In thousands)
Carrying
value
Estimated
fair value
Level
Carrying
value
Estimated
fair value
Level
Financial assets:
HTM investment securities
$
606,279

$
635,379

3
$
588,981

$
609,547

3
Loans and leases (including loans held for sale), net of allowance
38,587,527

38,333,815

3
38,468,402

38,088,242

3
Financial liabilities:
Time deposits
2,528,735

2,536,904

2
2,593,038

2,602,955

2
Foreign deposits
1,648,111

1,647,876

2
1,980,161

1,979,805

2
Long-term debt (less fair value hedges)
2,155,606

2,301,239

2
2,269,762

2,423,643

2

This summary excludes financial assets and liabilities for which carrying value approximates fair value. For financial assets, these include cash and due from banks and money market investments. For financial liabilities, these include demand, savings and money market deposits, and federal funds purchased and security repurchase agreements. The estimated fair value of demand, savings and money market deposits is the amount payable on demand at the reporting date. Carrying value is used because the accounts have no stated maturity and the customer has the ability to withdraw funds immediately. Also excluded from the summary are financial instruments recorded at fair value on a recurring basis, as previously described.

HTM investment securities primarily consist of municipal securities and bank and insurance trust preferred CDOs. They were measured at fair value according to the methodologies previously discussed for these investment types.

Loans are measured at fair value according to their status as nonimpaired or impaired. For nonimpaired loans, fair value is estimated by discounting future cash flows using the LIBOR yield curve adjusted by a factor which reflects the credit and interest rate risk inherent in the loan. These future cash flows are then reduced by the estimated “life-of-the-loan” aggregate credit losses in the loan portfolio. These adjustments for lifetime future credit losses are derived from the methods used to estimate the ALLL for our loan portfolio and are adjusted quarterly as necessary to reflect the most recent loss experience. Impaired loans are already considered to be held at fair value, except those whose fair value is determined by discounting cash flows, as discussed previously. See Impaired Loans in Note 6 for details on the impairment measurement method for impaired loans. Loans, other than those held for sale, are not normally purchased and sold by the Company, and there are no active trading markets for most of this portfolio.

Time and foreign deposits, and any other short-term borrowings, are measured at fair value by discounting future cash flows using the LIBOR yield curve to the given maturity dates.

Long-term debt is measured at fair value based on actual market trades (i.e., an asset value) when available, or discounting cash flows to maturity using the LIBOR yield curve adjusted for credit spreads.

46

ZIONS BANCORPORATION AND SUBSIDIARIES


These fair value disclosures represent our best estimates based on relevant market information and information about the financial instruments. Fair value estimates are based on judgments regarding current economic conditions, future expected loss experience, risk characteristics of the various instruments, and other factors. These estimates are subjective in nature, involve uncertainties and matters of significant judgment, and cannot be determined with precision. Changes in these methodologies and assumptions could significantly affect the estimates.

11.
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 thousands)
March 31,
2014
December 31,
2013
Unfunded commitments to extend credit
$
16,443,367

$
16,174,326

Standby letters of credit:
Financial
812,011

779,811

Performance
180,453

159,485

Commercial letters of credit
72,806

80,218

Total unfunded lending commitments
$
17,508,637

$
17,193,840


The Company’s 2013 Annual Report on Form 10-K contains further information about these commitments and guarantees including their terms and collateral requirements. At March 31, 2014 , the Company had recorded approximately $10.6 million as a liability for the guarantees associated with the standby letters of credit, which consisted of $7.9 million attributable to the RULC and $2.7 million of deferred commitment fees.

At March 31, 2014 , the Parent has guaranteed $15 million of debt of affiliated trusts issuing trust preferred securities.

At March 31, 2014 , we had unfunded commitments for private equity and other noninterest-bearing investments of $27.8 million . These obligations have no stated maturity. However, at March 31, 2014, substantially all of the private equity investments related to these commitments are prohibited by the Volcker Rule. See further discussions in Notes 5 and 10.

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. At any given time, 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. Current putative class actions and similar claims include the following:
•
a complaint relating to our banking relationships with customers that allegedly engaged in wrongful telemarketing practices in which the plaintiff seeks a trebled monetary award under the federal RICO Act, Reyes v. Zions First National Bank, et. al. , brought in the United States District Court for the Eastern District of Pennsylvania; and
•
a complaint arising from our banking relationships with Frederick Berg and a number of investment funds controlled by him using the “Meridian” brand name, in which the liquidating trustee for the funds seeks an award from us, on the basis of aiding and abetting and other claims, for monetary damages suffered by victims of a fraud allegedly perpetrated by Berg, In re Consolidated Meridian Funds a/k/a Meridian Investors Trust,

47

ZIONS BANCORPORATION AND SUBSIDIARIES

Mark Calvert as Liquidating Trustee, et. al. vs. Zions Bancorporation and The Commerce Bank of Washington, N.A. , pending in the United States Bankruptcy Court for the Western District of Washington.

In the third quarter of 2013, the District Court denied the plaintiff’s motion for class certification in the Reyes case. In the first quarter of 2014, the Third Circuit Court of Appeals approved the plaintiff’s motion to appeal the District Court decision.

Discovery has been completed in the Reyes case and is in process in the Meridian Funds case.

In the third quarter of 2013, we entered into definitive settlement agreements with respect to complaints relating to allegedly wrongful acts in our processing of overdraft fees on debit card transactions, Barlow, et. al. v. Zions First National Bank and Zions Bancorporation . The settlement agreements, which cover all of our affiliates alleged to have engaged in wrongful processing, were approved by the court and paid into escrow in the first quarter of 2014.

At any given time, 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. Significant investigations and similar inquiries to which we are currently subject relate to:
•
possible money laundering activities of a customer of one of our subsidiary banks and the anti-money laundering practices of that bank (conducted by the United States Attorneys Office for the Southern District of New York); and
•
the practices of our subsidiary, Zions Bank; our former subsidiary, NetDeposit, LLC; and possibly other of our affiliates relating primarily to payment processing for allegedly fraudulent telemarketers and other customer types (conducted by the Department of Justice).
These two matters appear to be ongoing.

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.

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. We currently estimate the aggregate range of reasonably possible losses for those matters to be from $0 million to roughly $50 million in excess of amounts accrued. This estimated range of reasonably possible losses is based on information currently available as of March 31, 2014 . 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 an 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

48

ZIONS BANCORPORATION AND SUBSIDIARIES

financial condition, results of operations, or cash flows. However, in light of the significant uncertainties involved in these matters, and the very large or indeterminate damages sought in some of these matters, an adverse outcome in one or more of these matters could be material to our financial condition, results of operations, or cash flows for any given reporting period.

Any estimate or determination relating to the future resolution of litigation, arbitration, governmental or self-regulatory examinations, investigations or actions or similar matters is inherently uncertain and involves significant judgment. This is particularly true in the early stages of a legal matter, when legal issues and facts have not been well articulated, reviewed, analyzed, and vetted through discovery, preparation for trial or hearings, substantive and productive mediation or settlement discussions, or other actions. It is also particularly true with respect to class action and similar claims involving multiple defendants, matters with complex procedural requirements or substantive issues or novel legal theories, and examinations, investigations and other actions conducted or brought by governmental and self-regulatory agencies, in which the normal adjudicative process is not applicable. Accordingly, we usually are unable to determine whether a favorable or unfavorable outcome is remote, reasonably likely, or probable, or to estimate the amount or range of a probable or reasonably likely loss, until relatively late in the course of a legal matter, sometimes not until a number of years have elapsed. Accordingly, our judgments and 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.

12.
RETIREMENT PLANS
The following discloses the net periodic benefit cost (credit) and its components for the Company’s pension and postretirement plans:
Pension benefits
Supplemental
retirement
benefits
Postretirement
benefits
(In thousands)
Three Months Ended March 31,
2014
2013
2014
2013
2014
2013
Service cost
$
—


$
—

$
—

$
—

$
8

$
8

Interest cost
1,880


1,739

113


101

12

10

Expected return on plan assets
(3,326
)

(3,027
)
Amortization of prior service
cost (credit)
13


31

—

(37
)
Amortization of net actuarial
(gain) loss
797


2,157

5


17

(18
)
(19
)
Net periodic benefit cost (credit)
$
(649
)
$
869

$
131

$
149

$
2

$
(38
)

As disclosed in the Company’s 2013 Annual Report on Form 10-K, the Company has frozen its participation and benefit accruals for the pension plan and its contributions for individual benefit payments in the postretirement benefit plan.


49

ZIONS BANCORPORATION AND SUBSIDIARIES

13.
OPERATING SEGMENT INFORMATION
We manage our operations and prepare management reports and other information with a primary focus on geographical area. As of March 31, 2014 , we operate eight community/regional banks in distinct geographical areas. Performance assessment and resource allocation are based upon this geographical structure. Zions Bank operates 98 branches in Utah and 26 branches in Idaho. CB&T operates 95 branches in California. Amegy operates 84 branches in Texas. NBAZ operates 71 branches in Arizona. NSB operates 48 branches in Nevada. Vectra operates 37 branches in Colorado and one branch in New Mexico. TCBW operates one branch in the state of Washington. TCBO operates one branch in Oregon.

The operating segment identified as “Other” includes the Parent, Zions Management Services Company (“ZMSC”), certain nonbank financial service subsidiaries, TCBO, and eliminations of transactions between segments. The Parent’s operations are significant to the Other segment. Net interest income is substantially affected by the Parent’s interest on long-term debt. Net impairment losses on investment securities relate to the Parent. ZMSC provides internal technology and operational services to affiliated operating businesses of the Company. ZMSC charges most of its costs to the affiliates on an approximate break-even basis.

The accounting policies of the individual operating segments are the same as those of the Company. Transactions between operating segments are primarily conducted at fair value, resulting in profits that are eliminated for reporting consolidated results of operations. Operating segments pay for centrally provided services based upon estimated or actual usage of those services.


50

ZIONS BANCORPORATION AND SUBSIDIARIES

The following table presents selected operating segment information for the three months ended March 31, 2014 and 2013 :
(In millions)
Zions Bank
CB&T
Amegy
NBAZ
NSB
2014
2013
2014
2013
2014
2013
2014
2013
2014
2013
CONDENSED INCOME STATEMENT
Net interest income
$
142.5

$
151.5

$
109.2

$
114.6

$
94.7

$
95.4

$
40.3

$
40.5

$
27.9

$
27.4

Provision for loan losses
(8.7
)
1.8

(2.1
)
(6.8
)
16.9

(13.8
)
(3.0
)
—

(2.6
)
(0.2
)
Net interest income after provision for loan losses
151.2

149.7

111.3


121.4

77.8

109.2

43.3

40.5

30.5

27.6

Net impairment losses on investment securities
—

—

—

—

—

—

—

—

—

—

Other noninterest income
44.0

50.3

5.8

21.6

32.0

38.4

8.3

8.2

4.9

8.9

Noninterest expense
121.5

115.0

85.3

90.3

87.0

84.2

37.3

34.2

32.1

31.7

Income (loss) before income taxes
73.7

85.0

31.8

52.7

22.8

63.4

14.3

14.5

3.3

4.8

Income tax expense (benefit)
26.8

31.0

12.1

20.8

7.3

21.3

5.2

5.4

1.0

1.6

Net income (loss)
$
46.9

$
54.0

$
19.7

$
31.9

$
15.5

$
42.1

$
9.1

$
9.1

$
2.3

$
3.2

AVERAGE BALANCE SHEET DATA
Total assets
$
18,275

$
17,055

$
10,889

$
10,922

$
13,467

$
12,690

$
4,612

$
4,592

$
3,991

$
4,052

Cash and due from banks
340

350

166

175

322

321

73

69

89

86

Money market investments
3,545

2,507

1,129

1,327

2,503

2,183

288

479

699

994

Total securities
1,596

1,239

327

344

242

412

365

274

781

742

Total loans
12,247

12,357

8,538

8,275

9,362

8,595

3,696

3,552

2,306

2,098

Total deposits
15,980

14,743

9,272

9,309

11,099

10,291

3,952

3,894

3,598

3,593

Shareholder’s equity:
Preferred equity
280

280

162

162

153

251

120

180

50

139

Common equity
1,538

1,509

1,350

1,327

1,849

1,744

422

401

318

298

Noncontrolling interests
—

—

—

—

—

—

—

—

—

—

Total shareholder’s equity
1,818

1,789

1,512

1,489

2,002

1,995

542

581

368

437

Vectra
TCBW
Other
Consolidated
Company
2014
2013
2014
2013
2014
2013
2014
2013
CONDENSED INCOME STATEMENT
Net interest income
$
25.3

$
25.6

$
7.0

$
6.5

$
(30.4
)
$
(43.4
)
$
416.5

$
418.1

Provision for loan losses
(1.8
)
(8.6
)
0.7

(0.9
)
—

(0.5
)
(0.6
)
(29.0
)
Net interest income after provision for loan losses
27.1

34.2

6.3

7.4

(30.4
)
(42.9
)
417.1

447.1

Net impairment losses on investment securities
—

—

—

—

—

(10.1
)
—

(10.1
)
Other noninterest income
3.8

7.0

(1.0
)
1.0

40.5

(4.1
)
138.3

131.3

Noninterest expense
25.3

25.1

4.5

4.9

5.1

11.9

398.1

397.3

Income (loss) before income taxes
5.6

16.1

0.8

3.5

5.0

(69.0
)
157.3

171.0

Income tax expense (benefit)
1.8

5.8

0.3

1.2

1.6

(26.5
)
56.1

60.6

Net income (loss)
$
3.8

$
10.3

$
0.5

$
2.3

$
3.4

$
(42.5
)
$
101.2

$
110.4

AVERAGE BALANCE SHEET DATA
Total assets
$
2,569

$
2,463

$
873

$
880

$
758

$
1,207

$
55,434

$
53,861

Cash and due from banks
47

52

21

19

(17
)
(9
)
1,041

1,063

Money market investments
14

46

118

181

(159
)
395

8,137

8,112

Total securities
164

184

90

101

552

519

4,117

3,815

Total loans
2,280

2,092

631

565

65

64

39,125

37,598

Total deposits
2,168

2,107

742

735

(1,033
)
(262
)
45,778

44,410

Shareholder’s equity:
Preferred equity
70

70

3

3

166

145

1,004

1,230

Common equity
247

227

88

82

(217
)
(598
)
5,595

4,990

Noncontrolling interests
—

—

—

—

—

(4
)
—

(4
)
Total shareholder’s equity
317

297

91

85

(51
)
(457
)
6,599

6,216


51

ZIONS BANCORPORATION AND SUBSIDIARIES

ITEM 2.
MANAGEMENT’S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS

FORWARD-LOOKING INFORMATION
Statements in this Quarterly Report on Form 10-Q that are based on other than historical data are forward-looking within the meaning of the Private Securities Litigation Reform Act of 1995. Forward-looking statements provide current expectations or forecasts of future events and include, among others:
•
statements with respect to the beliefs, plans, objectives, goals, guidelines, expectations, anticipations, and future financial condition, results of operations and performance of Zions Bancorporation (“the Parent”) and its subsidiaries (collectively “the Company,” “Zions,” “we,” “our,” “us”); and
•
statements preceded by, followed by or that include the words “may,” “could,” “should,” “would,” “believe,” “anticipate,” “estimate,” “expect,” “intend,” “plan,” “projects,” or similar 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 risks and uncertainties and actual results may differ materially from those presented, either expressed or implied, including, but not limited to, those presented in Management’s Discussion and Analysis. Factors that might cause such differences include, but are not limited to:
•
the Company’s ability to successfully execute its business plans, manage its risks, and achieve its objectives;
•
changes in local, national and international political and economic conditions, including without limitation the political and economic effects of the recent economic crisis, delay of recovery from that crisis, economic conditions and fiscal imbalances in the United States and other countries, potential or actual downgrades in rating of sovereign debt issued by the United States and other countries, and other major developments, including wars, military actions, and terrorist attacks;
•
changes in financial market conditions, either internationally, nationally or locally in areas in which the Company conducts its operations, including without limitation reduced rates of business formation and growth, commercial and residential real estate development and real estate prices;
•
fluctuations in markets for equity, fixed-income, commercial paper and other securities, 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;
•
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;
•
the impact of the Dodd-Frank Act and of new international standards known as Basel III, and rules and regulations thereunder, many of which have not yet been promulgated or are not yet effective, on our required regulatory capital and liquidity levels, governmental assessments on us, the scope of business activities in which we may engage, the manner in which we engage in such activities, the fees we may charge for certain products and services, and other matters affected by the Dodd-Frank Act and these international standards;
•
continuing consolidation in the financial services industry;
•
new legal claims against the Company, 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 and savings habits;

52

ZIONS BANCORPORATION AND SUBSIDIARIES

•
increased competitive challenges and expanding product and pricing pressures among financial institutions;
•
inflation and deflation;
•
technological changes and the Company’s implementation of new technologies;
•
the Company’s ability to develop and maintain secure and reliable information technology systems;
•
legislation or regulatory changes which adversely affect the Company’s operations or business;
•
the Company’s ability to comply with applicable laws and regulations;
•
changes in accounting policies or procedures as may be required by the Financial Accounting Standards Board or regulatory agencies; and
•
costs of deposit insurance and changes with respect to FDIC insurance coverage levels.
Except to the extent required by law, the Company 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.
GLOSSARY OF ACRONYMS
ABS
Asset-Backed Security
FASB
Financial Accounting Standards Board
ACL
Allowance for Credit Losses
FDIC
Federal Deposit Insurance Corporation
AFS
Available-for-Sale
FHLB
Federal Home Loan Bank
ALCO
Asset/Liability Committee
FRB
Federal Reserve Board
ALLL
Allowance for Loan and Lease Losses
FTE
Full-Time Equivalent
Amegy
Amegy Corporation
GAAP
Generally Accepted Accounting Principles
AOCI
Accumulated Other Comprehensive Income
HECL
Home Equity Credit Line
ASC
Accounting Standards Codification
HTM
Held-to-Maturity
ASU
Accounting Standards Update
IA
Indemnification Asset
BOLI
Bank-Owned Life Insurance
IFR
Interim Final Rule
bps
basis points
ISDA
International Swap Dealer Association
CB&T
California Bank & Trust
LCR
Liquidity Coverage Ratio
CCAR
Comprehensive Capital Analysis and Review
LGD
Loss Given Default
CDO
Collateralized Debt Obligation
LIBOR
London Interbank Offered Rate
CDR
Constant Default Rate
LIHTC
Low-Income Housing Tax Credit
CET1
Common Equity Tier 1 (Basel III)
Lockhart
Lockhart Funding LLC
CFPB
Consumer Financial Protection Bureau
MVE
Market Value of Equity
CLTV
Combined Loan-to-Value Ratio
NBAZ
National Bank of Arizona
CRE
Commercial Real Estate
NRSRO
Nationally Recognized Statistical Rating Organization
CSV
Cash Surrender Value
NSFR
Net Stable Funding Ratio
DB
Deutsche Bank AG
NSB
Nevada State Bank
DBRS
Dominion Bond Rating Service
OCC
Office of the Comptroller of the Currency
DFAST
Dodd-Frank Act Stress Test
OCI
Other Comprehensive Income
Dodd-Frank Act
Dodd-Frank Wall Street Reform and Consumer Protection Act
OREO
Other Real Estate Owned
DTA
Deferred Tax Asset
OTC
Over-the-Counter
EITF
Emerging Issues Task Force
OTTI
Other-Than-Temporary Impairment
FAMC
Federal Agricultural Mortgage Corporation, or “Farmer Mac”
Parent
Zions Bancorporation

53

ZIONS BANCORPORATION AND SUBSIDIARIES

PCI
Purchased Credit Impaired
T1C
Tier 1 Common (Basel I)
PD
Probability of Default
TCBO
The Commerce Bank of Oregon
PIK
Payment in Kind
TCBW
The Commerce Bank of Washington
REIT
Real Estate Investment Trust
TDR
Troubled Debt Restructuring
RULC
Reserve for Unfunded Lending Commitments
TRS
Total Return Swap
SBA
Small Business Administration
Vectra
Vectra Bank Colorado
SBIC
Small Business Investment Company
VR
Volcker Rule
SEC
Securities and Exchange Commission
Zions Bank
Zions First National Bank
SOC
Securitization Oversight Committee
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 2013 Annual Report on Form 10-K.

RESULTS OF OPERATIONS
The Company reported net earnings applicable to common shareholders of $76.2 million, or $0.41 per diluted common share for the first three months of 2014, compared to $88.3 million, or $0.48 per diluted common share for the same prior year period. The following notable changes had a negative impact on net earnings applicable to common shareholders:

•
$28.4 million decrease in the negative provision for loan losses;
•
$5.3 million increase in provision for unfunded lending commitments;
•
$4.9 million decline in dividends and other investment income;
•
$4.5 million decrease in loan sales and servicing income;
•
$3.6 million increase in salaries and employee benefits; and
•
$3.1 million increase in fair value and nonhedge derivative loss.

The impact of these items was partially offset by the following positive items:

•
$27.6 million increase in net gains from fixed income securities;
•
$10.1 million decrease in net impairment losses on investment securities;
•
$5.4 million reduction in other noninterest expense; and
•
$4.5 million decline in income tax expense.

Net Interest Income, Margin and Interest Rate Spreads
Net interest income is the difference between interest earned on interest-earning assets and interest paid on interest-bearing liabilities; net interest income is the largest portion of the Company’s revenue. For the first quarters of 2014 and 2013, taxable-equivalent net interest income was $420.3 million and $422.3 million, respectively, and $435.7 million in the fourth quarter of 2013. The tax rate used for calculating all taxable-equivalent adjustments was 35% for all periods presented.

Net interest margin in 2014 vs. 2013
The net interest margin was 3.31% and 3.44% for the first quarters of 2014 and 2013, respectively, and 3.33% for the fourth quarter of 2013. The decreased net interest margin for the first quarter of 2014 compared to the same prior year period resulted primarily from:
•
decreased income from FDIC-supported loans due to lower average balances; and
•
lower yields on loans held for investment.

54

ZIONS BANCORPORATION AND SUBSIDIARIES

The impact of these items was partially offset by the following favorable developments:
•
decreased average balance and lower yields on long-term debt;
•
lower costs of deposit funding; and
•
higher average balance and higher yields on securities available for sale.

The average balance of the FDIC-supported portfolio at March 31, 2014 was 35.9% lower than at March 31, 2013, yet the yield was 7.9% higher. The decline in the balance is primarily due to paydowns and payoffs; no new loans were added to this portfolio during the period. The yield on this portfolio was 29.4% in the first quarter of 2014, generating approximately $23 million of interest income. The higher yield is attributed primarily to certain loans paying off at amounts exceeding our modeled expectations. The amount of accretable yield for PCI loans at March 31, 2014, which is the major portion of the FDIC-supported loans, is approximately $66 million. This amount is currently estimated to approximate the interest income that would be recognized over the remaining life of the loans based on our experience with these loans as adjusted by our changes in estimates of cash flows. See further discussion in Note 6 of the Notes to Consolidated Financial Statements.
Even though the Company’s average loan portfolio, excluding FDIC-supported loans, was $1.7 billion higher during the first quarter of 2014, compared to the first quarter of 2013, the average interest rate earned on those assets was 7.9% (37 bps) lower. This decline in interest income was primarily caused by (1) adjustable rate loans originated in the past resetting to lower rates due to the current repricing index being lower than the rate when the loans were originated, and (2) loans originated at lower rates than the weighted average rate of the existing portfolio. The primary reason for the narrowing of credit and interest rate spreads is believed to be competitive pricing pressures, which are the result of a more stable economic environment than a few years ago; a portion of the narrowing of the spreads may be attributed to the improved fundamental condition of the Company’s borrowers, such as a stronger earnings and improved leverage ratios, as asset values have appreciated in the recent several quarters.
The average HTM securities portfolio was $587.5 million during the first quarter of 2014, compared to $756.7 during the same prior year period. During the fourth quarter of 2013, the Company reclassified a substantial portion of its CDO securities from HTM to AFS as a result of the impact of the Volcker Rule. The average yield earned during the first quarter of 2014 on HTM securities was 54 bps higher than the yield in the same prior year period, primarily due to the reclassification of low-yielding CDO securities into the AFS portfolio during the fourth quarter of 2013.
The average balance of AFS securities for the first quarter of 2014 was 14.3% higher and the average yield was 7 bps higher than in the corresponding prior year period. The increased average yield is primarily due to improved yields on SBA and asset-backed securities, partially offset by lower yields from agency securities due in part to lower benchmark interest rates. Additionally, the fair values of many securities increased due to higher market prices.

The CDO portfolio has a $244 million difference between par amount and amortized cost of which 47% was estimated by the Company at March 31, 2014 to be recoverable through maturity. This potential resulting benefit amount will be recognized over time through accretion into income or, upon prepayment, will produce realized gains on the CDOs.

Average noninterest-bearing demand deposits provided the Company with low cost funding and comprised 40.5% of average total deposits for the first quarter of 2014, compared to 38.8% for the same prior year period. Average interest-bearing deposits were essentially unchanged from the year ago period; however, the rate paid declined by 4 bps to 19 bps, thus continuing the difficulty to reduce deposit costs further as these costs approach zero.

During 2013, the Company refinanced a portion of its long-term debt by repurchasing higher cost debt while issuing lower cost debt. During the first quarter of 2014, the average balance of long-term debt was $93.9 million, or 4% lower than during the same prior year period, and the average interest rate paid on long-term debt decreased by 192 bps, or 22%. Refer to the “Liquidity Management Actions” section for more information.

55

ZIONS BANCORPORATION AND SUBSIDIARIES


During the first quarter of 2014, most of the Company’s cash in excess of that needed to fund earning assets was invested in money market assets, primarily deposits with the Federal Reserve Bank. Average money market investments were 15.8% of total interest-earning assets, compared to 16.3% in the same prior year period.

See “Interest Rate and Market Risk Management” for further discussion of how we manage the portfolios of interest-earning assets, interest-bearing liabilities, and the associated risk.

The spread on average interest-bearing funds was 3.01% and 3.08% for the first quarters of 2014 and 2013, respectively. The spread on average interest-bearing funds for the first quarter was affected by the same factors that impacted the net interest margin.

We expect the mix of interest-earning assets to change over the next several quarters due to further decreases in the FDIC-supported loan portfolio, and slight-to-moderate loan growth. Loan yields are likely to continue to experience downward pressure due to competitive pricing and lower benchmark indices (such as LIBOR). The expected decline in income from FDIC-supported loans is likely to reduce the net interest margin by approximately 18 bps, although this decline will take several quarters to fully manifest. We believe that some of the downward pressure on the net interest margin will be mitigated by the lower interest expense on long-term debt resulting from the 2013 refinancing transactions. We expect to further reduce interest expense in 2014 by using cash on deposit at the Federal Reserve to pay down debt maturities; much of this debt carries very high interest costs, and in isolation, the elimination of this debt would add approximately 12-14 bps to the net interest margin. We also believe we can offset some of the pressure on the net interest margin through loan growth. However, excluding the effects of the declining income from FDIC-supported loans, we expect net interest income to increase modestly over the next several quarters.

The Company expects to remain “asset-sensitive” with regard to interest rate risk. The current period of low interest rates has lasted for several years. During this time, the Company has maintained an interest rate risk position that is more asset-sensitive than it was prior to the economic crisis, and it expects to maintain this more asset-sensitive position for what may be a prolonged period. With interest rates at low levels, there is a reduced need to protect against falling interest rates. Our estimates of the Company’s actual 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, a substantial portion of our deposit balances, are particularly reliant on assumptions for which there is little historical experience. Further detail on interest rate risk is discussed in “Interest Rate Risk.”

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.

56

ZIONS BANCORPORATION AND SUBSIDIARIES

CONSOLIDATED AVERAGE BALANCE SHEETS, YIELDS AND RATES
(Unaudited)
Three Months Ended
March 31, 2014
Three Months Ended
March 31, 2013
(In thousands)
Average
balance
Amount of
interest 1
Average
rate
Average
balance
Amount of
interest 1
Average
rate
ASSETS
Money market investments
$
8,137,123

$
5,130

0.26
%
$
8,111,798

$
5,439

0.27
%
Securities:
Held-to-maturity
587,473

8,191

5.65
%
756,739

9,536

5.11
%
Available-for-sale
3,470,983

21,230

2.48
%
3,035,592

18,002

2.41
%
Trading account
58,543

482

3.34
%
22,620

190

3.41
%
Total securities
4,116,999

29,903

2.95
%
3,814,951

27,728

2.95
%
Loans held for sale
157,170

1,400

3.61
%
204,597

1,764

3.50
%
Loans 2 :
Loans and leases
38,805,192

411,840

4.30
%
37,099,182

427,605

4.67
%
FDIC-supported loans
319,695

23,135

29.35
%
498,654

26,349

21.43
%
Total loans
39,124,887

434,975

4.51
%
37,597,836

453,954

4.90
%
Total interest-earning assets
51,536,179

471,408

3.71
%
49,729,182

488,885

3.99
%
Cash and due from banks
1,040,906

1,063,314

Allowance for loan losses
(745,671
)
(884,363
)
Goodwill
1,014,129

1,014,129

Core deposit and other intangibles
35,072

49,069

Other assets
2,552,965

2,889,354

Total assets
$
55,433,580

$
53,860,685

LIABILITIES AND SHAREHOLDERS’ EQUITY
Interest-bearing deposits:
Savings and money market
$
22,908,201

8,852

0.16
%
$
22,735,258

10,412

0.19
%
Time
2,560,283

3,083

0.49
%
2,935,316

4,475

0.62
%
Foreign
1,751,910

844

0.20
%
1,528,665

755

0.20
%
Total interest-bearing deposits
27,220,394

12,779

0.19
%
27,199,239


15,642

0.23
%
Borrowed funds:
Federal funds and other short-term borrowings
249,043

67

0.11
%
294,249

92

0.13
%
Long-term debt
2,237,457

38,257

6.93
%
2,331,314

50,899

8.85
%
Total borrowed funds
2,486,500

38,324

6.25
%
2,625,563

50,991

7.88
%
Total interest-bearing liabilities
29,706,894

51,103

0.70
%
29,824,802

66,633

0.91
%
Noninterest-bearing deposits
18,577,992

17,211,214

Other liabilities
569,361

608,206

Total liabilities
48,854,247

47,644,222

Shareholders’ equity:
Preferred equity
1,003,970

1,229,708

Common equity
5,595,363

4,990,317

Controlling interest shareholders’ equity
6,599,333

6,220,025

Noncontrolling interests
—

(3,562
)
Total shareholders’ equity
6,599,333

6,216,463

Total liabilities and shareholders’ equity
$
55,453,580

$
53,860,685

Spread on average interest-bearing funds
3.01
%
3.08
%
Taxable-equivalent net interest income and net yield on interest-earning assets
$
420,305

3.31
%
$
422,252

3.44
%
1 Taxable-equivalent rates used where applicable.
2 Net of unearned income and fees, net of related costs. Loans include nonaccrual and restructured loans.


57

ZIONS BANCORPORATION AND SUBSIDIARIES

Provisions for Credit Losses
The provision for loan losses is the amount of expense that, in our judgment, is required to maintain the allowance for loan losses at an adequate level based upon the inherent risks in the loan portfolio. The provision for unfunded lending commitments is used to maintain the reserve for unfunded lending commitments at an adequate level based upon the inherent risks associated with such commitments. In determining adequate levels of the allowance and reserve, we perform periodic evaluations of the Company’s various loan portfolios, the levels of actual charge-offs, credit trends, and external factors. See Note 6 of the Notes to Consolidated Financial Statements and “Credit Risk Management” for more information on how we determine the appropriate level for the ALLL and the RULC.

The provision for loan losses for the first quarter of 2014 was $(0.6) million compared to $(29.0) million for the same prior year period. During the past few years, the Company has experienced a significant improvement in credit quality metrics, including lower realized loss rates in most loan segments. Net loan and lease charge-offs declined to $7.9 million in the first quarter of 2014 from $17.8 million in the same prior year period. During the first quarter of 2014, the annualized ratio of net loan and lease charge-offs to average loans declined to 0.08%. See “Nonperforming Assets” and “Allowance and Reserve for Credit Losses” for further details.

Most measures of credit quality continued to show improvement during the first quarter of 2014; however, levels of criticized and classified loans slightly increased during the first quarter. At March 31, 2014, classified loans were $1.4 billion, compared to $1.3 billion at December 31, 2013 and $1.9 billion at March 31, 2013. The Company continues to exercise caution with regard to the appropriate level of the ALLL, given the slow economic recovery. Barring any significant economic downturn, we expect the Company’s credit costs to remain low for the foreseeable future.

During the first quarter of 2014, the Company recorded a $(1.0) million provision for unfunded lending commitments compared to $(6.4) million for the same prior year period. Similar to the conditions reducing the ALLL, the Company has also experienced some improvement in credit quality metrics for unfunded lending commitments. These improvements are offset by increases in levels of unfunded loan commitments. From period to period, the expense related to the reserve for unfunded lending commitments may be subject to sizable fluctuations due to changes in the timing and volume of loan commitments, originations, and funding, as well as changes in credit quality.

A significant portion of net earnings in recent periods is attributable to the reduction in the allowance for credit losses. This is primarily attributable to continued reduction in both the quantity of problem loans and their loss severity. Although we currently expect further reductions in the allowance based on expected improvements in credit quality, this source of earnings is not sustainable into perpetuity; furthermore, a deterioration in economic conditions within our footprint would likely result in net additions to the allowance, which could result in a significant change in profitability.

Noninterest Income
Noninterest income represents revenues the Company earns for products and services that have no associated interest rate or yield. For the first quarter of 2014, noninterest income was $138.3 million compared to $121.2 million for the same prior year period. The $17.1 million increase was primarily attributable to the $27.6 million increase in fix income securities gains. The following are major components of noninterest income line items impacting the first quarter change.

Capital markets and foreign exchange income includes trading income, public finance fees, foreign exchange income, and other capital market related fees. In the first quarter of 2014, capital markets and foreign exchange income decreased by $2.5 million from the same period in 2013. The decrease was primarily caused by lower income from trading fixed income corporate bonds, decreased foreign exchange income, and decreased fees from municipal bond transactions.


58

ZIONS BANCORPORATION AND SUBSIDIARIES

Dividends and other investment income consists of revenue from the Company’s bank-owned life insurance (“BOLI”) program and revenues from other investments. Revenues from other investments include dividends on FHLB and Federal Reserve Bank stock, and earnings from other equity investments, including Federal Agricultural Mortgage Corporation (“FAMC”) and certain alternative venture investments. For the first quarter of 2014, this income was $7.9 million, compared to $12.7 million in the first quarter of 2013. The decrease is mostly caused by lower income from alternative venture investments, primarily at Amegy Bank, and lower BOLI income.

Loan sales and servicing income declined $4.5 million during the first quarter, or 41%, compared to the prior year period. The decrease is primarily caused by decreased income from loan sales, partly offset by increased servicing fees. In first quarter of 2014, the Company originated fewer mortgages and retained more loans in its portfolio than in the same period of 2013.

Fair value and nonhedge derivative losses were $8.5 million in the first quarter of 2014 and $5.4 million in the comparable period in 2013. Approximately $2 million of the increased losses in 2014 was mainly due to higher payments related to the TRS agreement. The TRS was terminated on April 28, 2014 and the expected cost of the TRS in the second quarter of 2014 will be approximately $0.5 million, after which it will be zero.

Fixed income securities gains were $30.9 million in the first quarter of 2014, compared to gains of $3.3 million in the first quarter of 2013. The net gain recorded in the first quarter was primarily due to sales of CDOs whose amortized cost was written down to fair value at December 31, 2013. See “Investment Securities Portfolio” on page 61 for additional information.

The Company recognized net impairment losses on investment securities of $27 thousand in the first quarter of 2014, compared to $10.1 million in the first quarter of 2013. See “Investment Securities Portfolio” on page 61 for additional information.

Noninterest Expense
Noninterest expense increased by 0.2% or $0.7 million to $398.1 million in the first quarter of 2014 compared to the same prior year period. The increase was primarily caused by increased salaries and employee benefits and a higher provision for unfunded lending commitments, offset by a lower credit-related expense and other expenses. The following are major components of noninterest expense line items impacting the first quarter change.

Salaries and employee benefits increased by 1.6% during the first quarter of 2014, compared to the same prior year period. Most of the increase can be attributed to higher base salaries and bonuses driven by an increase of 182 in FTEs from the first quarter of 2013.

Credit-related expense declined $3.6 million to $6.9 million in the first quarter of 2014, compared to the same prior year period. The decrease in 2014 is primarily attributable to lower workout costs and legal expenses, which was a result of lower levels of problem credits compared to 2013.

Professional and legal services were $11.0 million in the first quarter of 2014, compared to $10.5 million in the first quarter of 2013. Most of these costs are attributed to higher consulting expenses for projects to replace and/or upgrade the Company’s core loan, deposit, and accounting systems.

Other noninterest expense for the first quarter of 2014 was $72.7 million, compared to $78.1 million for first quarter of 2013. The decrease is mostly the result of decreased write-downs of the FDIC indemnification asset. The balance of FDIC-supported loans has declined significantly since the first quarter of 2013, primarily due to pay-downs and pay-offs.

As of March 31, 2014, the Company had 10,482 full-time equivalent employees, compared to 10,300 at March 31, 2013.


59

ZIONS BANCORPORATION AND SUBSIDIARIES

Income Taxes
The Company’s income tax expense for the first quarter of 2014 was $56.1 million, compared to $60.6 million for the first quarter of 2013. The effective income tax rates, including the effects of noncontrolling interests for the first quarters of 2014 and 2013, were 35.7% and 35.4%, respectively. The tax expense rate for the first quarters of 2014 and 2013 were both benefited primarily by the non-taxability of certain income items. The tax rate for the first quarter of 2014 was slightly higher compared to the same period in 2013 due to a slight decrease in the amount of nontaxable items relative to pretax income as well as a reduction of tax credits available to the Company in 2014.

The Company had a net deferred tax asset (“DTA”) balance of $187 million at March 31, 2014, compared to $304 million at December 31, 2013. The decrease in the DTA during the first quarter of 2014 resulted primarily from the sale of CDO securities, loan charge-offs in excess of loan loss provisions, and the payout of accrued compensation. The decrease in the deferred tax liability related to premises and equipment. The deferred gain on the Company’s 2009 debt exchange offset some of the overall decrease in DTA.

BALANCE SHEET ANALYSIS
Interest-Earning Assets
Interest-earning assets are those assets that have interest rates or yields associated with them. One of our goals is to maintain a high level of interest-earning assets relative to total assets, while keeping nonearning assets at a minimum. Interest-earning assets consist of money market investments, securities, loans, and leases. Another goal is to maintain a higher-yielding mix of interest-earning assets, such as loans, relative to lower-yielding assets, such as money market investments or securities, while maintaining adequate levels of highly liquid assets. The current period of slow economic growth accompanied by the moderate loan demand experienced in recent quarters has made it difficult to achieve these goals.

Average interest-earning assets were $51.5 billion for the first quarter of 2014, compared to $49.7 billion in first quarter of 2013. Average interest-earning assets as a percentage of total average assets for the first quarter of 2014 was 93.0%, compared to 92.3% for the same prior year period.

Average total loans, including FDIC-supported loans, were $39.1 billion and $37.6 billion for the first quarters of 2014 and 2013, respectively. Average loans as a percentage of total average assets for the first quarter of 2014 was 70.6% compared to 69.8% in the corresponding prior year period.

Average money market investments, consisting of interest-bearing deposits, federal funds sold, and security resell agreements, increased by 0.3% to $8.1 billion for the first quarter of 2014, essentially unchanged from the same period in 2013. Average securities increased by 7.9% from the first quarter of 2013. Average total deposits increased by 3.1% while average total loans increased by 4.1% for the first quarter of 2014 compared to the same prior year period. Increased deposits combined with moderate loan growth resulted in higher balances of excess cash that were deployed in money market investments.
Investment Securities Portfolio
We invest in securities to generate revenues for the Company; portions of the portfolio are also available as a source of liquidity. The following schedules present a profile of the Company’s investment securities portfolio. The amortized cost amounts represent the Company’s 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 detail in Note 10 of the Notes to Consolidated Financial Statements.
We have included selected credit rating information for certain of the investment securities schedules because this information is one indication of the degree of credit risk to which we are exposed, and significant declines in ratings for our investment portfolio could indicate an increased level of risk for the Company.

60

ZIONS BANCORPORATION AND SUBSIDIARIES

INVESTMENT SECURITIES PORTFOLIO
March 31, 2014
December 31, 2013
(In millions)
Amortized
cost
Carrying
value
Estimated
fair
value
Amortized
cost
Carrying
value
Estimated
fair
value
Held-to-maturity
Municipal securities
$
568

$
568

$
581

$
551

$
551

$
558

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

38

54

80

38

51

647

606

635

631

589

609

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

1

1

1

2

2

U.S. Government agencies and corporations:
Agency securities
561

558

558

518

519

519

Agency guaranteed mortgage-backed securities
301

311

311

309

317

317

Small Business Administration loan-backed securities
1,367

1,382

1,382

1,203

1,221

1,221

Municipal securities
151

151

151

65

66

66

Asset-backed securities:
Trust preferred securities – banks and insurance
934

759

759

1,508

1,239

1,239

Trust preferred securities – real estate investment trusts
—

—

—

23

23

23

Auction rate securities
7

7

7

7

7

7

Other
2

2

2

28

28

28

3,324

3,171

3,171

3,662

3,422

3,422

Mutual funds and other
258

252

252

287

280

280

3,582

3,423

3,423

3,949

3,702

3,702

Total
$
4,229

$
4,029

$
4,058

$
4,580

$
4,291

$
4,311

The amortized cost of investment securities on March 31, 2014 decreased by 7.7% from the balances at December 31, 2013, primarily due to the decreased investments in CDO securities, agency guaranteed mortgage-backed securities, and mutual funds, partially offset by Small Business Administration loan-backed securities, and municipal securities. The CDO securities sold during the first quarter of 2014 consisted of the following:
SECURITIES SOLD IN 2014
March 31, 2014
Three Months Ended March 31, 2014
(In millions)
Par value
Amortized cost
Carrying value
Sales proceeds
Gain (loss) realized
Performing CDOs
Predominantly bank CDOs
$
4

$
2

$
5

$
2

$
—

Insurance CDOs
368

352

345

313

(40
)
Other CDOs
43

26

26

28

3

Total performing CDOs
415

380

376

343

(37
)
Nonperforming CDOs 1
CDOs credit impaired prior to last 12 months
197

74

73

90

16

CDOs credit impaired during last 12 months
320

127

128

174

47

Total nonperforming CDOs
517

201

201

264

63

Total
$
932

$
581

$
577

$
607

$
26

1 Defined as either deferring current interest (“PIKing”) or OTTI.

61

ZIONS BANCORPORATION AND SUBSIDIARIES


As of March 31, 2014, 6.8% of the $3.4 billion fair value of available-for-sale (“AFS”) securities portfolio was valued at Level 1, 72.6% was valued at Level 2, and 20.6% was valued at Level 3 under the GAAP fair value accounting hierarchy. At December 31, 2013, 7.0% of the $3.7 billion fair value of AFS securities portfolio was valued at Level 1, 57.7% was valued at Level 2, and 35.3% was valued at Level 3. See Note 10 of the Notes to Consolidated Financial Statements for further discussion of fair value accounting.

The amortized cost of AFS investment securities valued at Level 3 was $879 million at March 31, 2014 and the fair value of these securities was $707 million. The securities valued at Level 3 were comprised of primarily bank and insurance trust preferred CDOs and municipal securities. For these Level 3 securities, net pretax unrealized losses recognized in OCI at March 31, 2014 were $172 million. As of March 31, 2014, we believe we will receive on settlement or maturity at least the amortized cost amounts of the Level 3 AFS securities. This expectation applies to both those securities for which OTTI has been recognized and those for which no OTTI has been recognized.

Estimated fair value determined under ASC 820 precludes the use of “blockage factors” or liquidity adjustments due to the quantity of securities held by the Company. The Company’s ability to sell in a short period of time a substantial portion of its CDO securities at the indicated estimated fair values, particularly those valued under Level 3, is highly dependent upon market conditions at the time of sale. The market for such securities, which showed substantial improvement in late 2013 and early 2014, remains difficult to predict. Please refer to Notes 5 and 10 of the Notes to Consolidated Financial Statements for more information.

The following schedule presents the Company’s CDOs according to performing tranches without credit impairment, and nonperforming tranches. These CDOs constitute our holdings of our asset-backed securities and consist of both HTM and AFS securities.

CDOs BY PERFORMANCE STATUS
March 31, 2014
Net unrealized losses recognized in AOCI 1
Weighted average discount rate 2
% of carrying value to par
(Dollar amounts in millions)
No. of
tranches
Par
amount
Amortized
cost
Carrying
value
March 31, 2014
December 31, 2013
Change
Performing CDOs
Predominantly bank CDOs
23

$
655

$
591

$
486

$
(105
)
5.3
%
74%
73%
1
%
Insurance-only CDOs
2

50

48

46

(2
)
2.2

92
80
12

Other CDOs
—

—

—

—

—

—

—
60
nm

Total performing CDOs
25

705

639

532

(107
)
5.1

75
75
—



Nonperforming CDOs 3


CDOs credit impaired prior to last 12 months
18

383

291

200

(91
)
5.5

52
46
6

CDOs credit impaired during last 12 months
8

145

59

42

(17
)
5.5

29
33
(4
)
Total nonperforming CDOs
26

528

350

242

(108
)
5.5

46
41
5

Total CDOs
51

$
1,233

$
989

$
774

$
(215
)
5.3

63
59
4



62

ZIONS BANCORPORATION AND SUBSIDIARIES

December 31, 2013
Net unrealized losses recognized in AOCI 1
Weighted average discount rate 2
% of carrying value to par
(Dollar amounts in millions)
No. of
tranches
Par
amount
Amortized
cost
Carrying
value
Performing CDOs
Predominantly bank CDOs
23

$
687

$
617

$
499

$
(118
)
5.6
%
73
%
Insurance-only CDOs
22

433

413

346

(67
)
4.9

80

Other CDOs
3

43

26

26

—

10.6

60

Total performing CDOs
48

1,163

1,056

871

(185
)
5.5

75

Nonperforming CDOs 3
CDOs credit impaired prior to last 12 months
32

614

369

285

(84
)
7.0

46

CDOs credit impaired during last 12 months
23

448

187

147

(40
)
6.5

33

Total nonperforming CDOs
55

1,062

556

432

(124
)
6.8

41

Total CDOs
103

$
2,225

$
1,612

$
1,303

$
(309
)
6.1

59

1 Accumulated other comprehensive income, amounts presented are pretax.
2 Margin over related LIBOR index.
3 Defined as either deferring current interest (“PIKing”) or OTTI; the majority are predominantly bank CDOs.

As shown in the following schedule, 10 of the Company’s CDO securities, representing 32.5% of the CDO bank and insurance portfolio’s fair value at March 31, 2014, were upgraded by one or more NRSROs during 2014. The Company attributes these upgrades to improvements in over-collateralization ratios and de-leveraging combined with certain less severe rating agency assumptions and methodologies.

BANK AND INSURANCE TRUST PREFERRED CDOs
March 31, 2014
(Dollar amounts in millions)
No. of securities
Par
amount
Amortized cost
Fair
value
Year-to-date rating changes 1
Upgrade
10

$
349

$
311

$
257

No change
41

884

678

534

Downgrade
—

—

—

—

51

$
1,233

$
989

$
791

`
1 By any NRSRO

Significant Assumption Changes
The only significant assumption change in 2014 was the reduction in the discount rates used for fair value purposes by approximately 30 bps. In the first quarter of 2014, the Company observed increased prices in market trades and incorporated these observations into the process used to estimate fair value. This trade information included sales of CDO securities by the Company and by third parties throughout the quarter. Accordingly, the fair value of the Company’s CDO portfolio increased in the first quarter, consistent with observable CDO trades.


63

ZIONS BANCORPORATION AND SUBSIDIARIES

Valuation Sensitivity of Level 3 Bank and Insurance CDOs
The following schedule sets forth the sensitivity of the current internally modeled CDOs ’ fair values to changes in the most significant assumptions utilized in the model.

SENSITIVITY OF INTERNAL MODEL
(Amounts in millions)
Held-to-maturity
Available-for-sale
Fair value at March 31, 2014
$
54
$
736
Incremental
Cumulative
Incremental
Cumulative
Currently Modeled Assumptions
Expected collateral credit losses 1
Loss percentage from currently defaulted or deferring collateral 2
15.7
%
26.8
%
Projected loss percentage from currently performing collateral
1-year
0.3
%
16.0
%
0.3
%
27.1
%
years 2-5
1.7
%
17.7
%
1.5
%
28.6
%
years 6-30
11.9
%
29.6
%
9.9
%
38.5
%
Discount rate 3
Weighted average spread over LIBOR
546

bps
527

bps
Sensitivity of Modeled Assumptions
Increase (decrease) in fair value due to increase in projected loss percentage from currently performing collateral 4
25%
$
(0.8
)
$
(7.4
)
50%
(1.7
)
(11.1
)
100%
(3.5
)
(19.0
)
Increase (decrease) in fair value due to increase in projected loss percentage from currently performing collateral 4 and the immediate default of all deferring collateral with no recovery
25%
$
(2.7
)
$
(28.2
)
50%
(3.7
)
(31.9
)
100%
(5.8
)
(38.9
)
Increase (decrease) in fair value due to
increase in discount rate
+100 bps
$
(5.5
)
$
(51.1
)
+200 bps
(10.2
)
(92.8
)
Increase (decrease) in fair value due to increase in forward LIBOR curve
+100 bps
$
2.3

$
11.2

Increase (decrease) in fair value due to:
increase in prepayment assumption 5
+1%
$
0.5

$
14.0

increase in prepayment assumption 6
+2%
1.1

29.9

1 The Company uses an incurred credit loss model which specifies cumulative losses at the 1-year, 5-year, and 30-year points from the date of valuation. These current and projected losses are reflected in the CDO’s fair value.
2
Weighted average percentage of collateral that is defaulted due to bank failures, or deferring payment as allowed under the terms of the security, including a 0% recovery rate on defaulted collateral and a credit-specific probability of default on deferring collateral which ranges from 2.18% to 100%.
3 The discount rate is a spread over the forward LIBOR curve at the date of valuation.
4 Percentage increase is applied to incremental projected loss percentages from currently performing collateral. For example, the 50% and 100% stress scenarios for AFS securities would result in cumulative 30-year losses of 44.3% = 38.5%+50% (0.3%+1.5%+9.9%) and 50.1% = 38.5%+100% (0.3%+1.5%+9.9%), respectively.
5 Prepayment rate for small banks increased to 6.5% per year for the first 1.75 years and to 4% per year thereafter through maturity.
6
Prepayment rate for small banks increased to 7.5% per year for the first 1.75 years and to 5% per year thereafter through maturity.

During the first quarter, the market level discount rates applicable to bank and insurance CDOs declined and fair values rose. The discount rate, or credit spread, in the above sensitivity analysis of valuation assumptions is approximately 30 bps lower than that used at December 31, 2013 for the same securities. The increase in the expected collateral credit loss rates over those reported at December 31, 2013 is due to the Company’s sale of insurance CDOs in the first quarter. Insurance CDOs suffered much less collateral default and deferral in the recent

64

ZIONS BANCORPORATION AND SUBSIDIARIES

cycle than did bank CDOs; therefore, selling the insurance CDOs increased the average loss on the remaining, mostly bank, CDOs.

Bank Collateral Deferral Experience
The Company’s loss and recovery experience on defaults as of March 31, 2014 (and our Level 3 modeling assumption) is essentially a 100% loss on defaulted bank collateral in CDOs, although we have, to date, received several, generally small, recoveries on a few defaults. Securities sales during 2013 and 2014 year to date resulted in the Company reducing its exposure to some unresolved deferring banks. At March 31, 2014, the Company had exposure to 87 deferring issuers of which 80 were in their initial deferral period and seven were redeferrals. We continue to expect that future losses on these deferrals may result from actions other than bank failures – primarily holding company bankruptcies and debt restructurings.

A significant number of previous deferrals have resumed interest payments; 131 issuing banks have either come current and resumed interest payments on their trust preferred securities or have announced they intend to do so at the next payment date. Banks may come current on their trust preferred securities for one or more quarters and then redefer. Such redeferral has occurred in seven of the 87 banks that are currently deferring. Further information on the Company’s valuation process is detailed in Note 10 of the Notes to Consolidated Financial Statements.

The following schedule provides additional information on the below-investment-grade rated bank and insurance trust preferred CDOs’ portions of the AFS and HTM portfolios. The schedule reflects data and assumptions that are included in the calculations of fair value and OTTI. The schedule utilizes the lowest rating assigned by any rating agency to identify those securities below investment grade. The schedule segments the securities by whether or not they have been determined to have credit-related OTTI, and by original ratings level to provide granularity on the seniority level of the securities and the distribution of unrealized losses.

BANK AND INSURANCE TRUST PREFERRED CDO VALUES CURRENTLY RATED BELOW-INVESTMENT-GRADE – SORTED BY WHETHER CREDIT RELATED OTTI HAS BEEN TAKEN AND BY ORIGINAL RATINGS
At March 31, 2014
Total
Credit OTTI loss
Valuation losses 1
(Dollar amounts in millions)
Number
of securities
% of
portfolio
Par
value
Amortized
cost
Estimated
fair value
Unrealized
gain (loss)
Current
year
Life-to-
date
Life-to-
date
Original ratings of securities, no credit OTTI recognized:
Original AAA
18
48.8
%
$
542

$
495

$
389

$
(106
)
$
—

$
—

$
(65
)
Original A
1
1.0

12

12

10

(2
)
—

—

—

Original BBB
1
2.7

30

29

27

(2
)
—

—

(1
)
Total Non-OTTI
52.5

584

536

426

(110
)
—

—

(66
)
Original ratings of securities, credit OTTI recognized:
Original AAA
1
4.5

50

43

29

(14
)
—

(5
)
(2
)
Original A
24
40.7

452

307

231

(76
)
—

(143
)
—

Original BBB
1
2.3

25

—

—

—

—

(25
)
—

Total OTTI
47.5

527

350

260

(90
)
—

(173
)
(2
)
Total below-investment-grade bank and insurance CDOs
100.0
%
$
1,111

$
886

$
686

$
(200
)
$
—

$
(173
)
$
(68
)
1 Valuation losses relate to securities purchased from Lockhart Funding LLC prior to its consolidation in June 2009.

Other-Than-Temporary Impairment – Investments in Debt Securities
We review investments in debt securities each quarter for the presence of OTTI. For our bank and insurance CDO securities, we use an internal income-based cash flow model which produces a loss-adjusted expected cash flow for the security. The presence of OTTI is identified and the amount of the credit component of OTTI is calculated by

65

ZIONS BANCORPORATION AND SUBSIDIARIES

discounting this loss-adjusted cash flow at the security-specific effective interest rate and comparing that value to the Company’s amortized cost of the security.
We review the relevant facts and circumstances each quarter to assess our intentions regarding any potential sales of securities, as well as the likelihood that we would be required to sell prior to recovery of amortized cost for AFS securities and prior to maturity for HTM securities. At March 31, 2014, for each AFS security whose fair value is below amortized cost, we have determined that we do not intend to sell the security, and that it was not more likely than not we will be required to sell the security before recovery of its amortized cost basis.

At March 31, 2014, credit-related impairment of $27 thousand was identified in securities that we do not intend to sell. We evaluate the difference between the fair value and the amortized cost of each security and identify if any of the difference is due to credit. The credit component of the difference is recognized by writing down the amortized cost of each security found to have OTTI.

Exposure to State and Local Governments
The Company provides multiple products and services to state and local governments (referred together as “municipalities”), including deposit services, loans, and investment banking services, and the Company invests in securities issued by the municipalities.
The following schedule summarizes the Company’s exposure to state and local municipalities.
MUNICIPALITIES
(In millions)
March 31, 2014
December 31, 2013
Loans and leases
$
482

$
449

Held-to-maturity – municipal securities
568

551

Available-for-sale – municipal securities
151

66

Available-for-sale – auction rate securities
7

7

Trading account – municipal securities
42

27

Unused commitments to extend credit
18

17

Total direct exposure to municipalities
$
1,268

$
1,117

At March 31, 2014, two municipalities had $10 million of loans that were on nonaccrual. A significant amount of the municipal loan and lease portfolio is secured by real estate and equipment, and approximately 91% of the outstanding credits were originated by Zions Bank, CB&T, Amegy, and Vectra. See Note 6 of the Notes to Consolidated Financial Statements for additional information about the credit quality of these municipal loans.
All municipal securities are reviewed quarterly for OTTI; see Note 5 of the Notes to Consolidated Financial Statements for more information. HTM securities consist of unrated bonds issued by small local government entities and are purchased through private placements, often in situations in which one of the Company’s subsidiaries has acted as a financial advisor to the municipality. Prior to purchase, the issuers of municipal securities are evaluated by the Company for their creditworthiness, and some of the securities are guaranteed by third parties. Of the AFS municipal securities, 94% are rated by major credit rating agencies and were rated investment grade as of March 31, 2014. Municipal securities in the trading account are held for resale to customers. The Company also underwrites municipal bonds and sells most of them to third party investors.
European Exposure
The Company has de minimis credit exposure to foreign sovereign risks, and does not believe its total foreign credit exposure is material. In the normal course of business, the Company may enter into transactions with subsidiaries of companies and financial institutions headquartered in foreign countries. Such transactions may include deposits, loans, letters of credit, and derivatives, as well as foreign currency exchange agreements. As of March 31, 2014, these transactions did not present any material direct or indirect risk exposure to the Company.


66

ZIONS BANCORPORATION AND SUBSIDIARIES

The Company canceled its Total Return Swap (“TRS”) with Deutsche Bank AG (“DB”) effective April 28, 2014 due to the removal, mostly through sale, of over half of the CDOs originally covered by the TRS. See “Noninterest Income” and Note 7 of the Notes to Consolidated Financial Statements for additional information. The CDO portfolio at March 31, 2014, pro forma reflecting cancellation of the TRS, would have been risk-weighted at 200% of amortized cost.

Loan Portfolio
As displayed in the following schedule, commercial and industrial loans were the largest category and constituted 32.0% of the Company’s loan portfolio at March 31, 2014. Construction and land development loans were 5.8% and 5.6% of total loans at March 31, 2014 and December 31, 2013, respectively. Construction and land development loans have declined and continue to remain significantly lower than pre-recession levels of 20.1% of total loans at the end of 2007.

LOAN PORTFOLIO DIVERSIFICATION
March 31, 2014
December 31, 2013
(Amounts in millions)
Amount
% of
total loans
Amount
% of
total loans
Commercial:
Commercial and industrial
$
12,512

32.0
%
$
12,481

32.0
%
Leasing
389

1.0

388

1.0

Owner occupied
7,348

18.8

7,437

19.0

Municipal
482

1.2

449

1.2

Total commercial
20,731

53.0

20,755

53.2

Commercial real estate:
Construction and land development
2,264

5.8

2,183

5.6

Term
8,080

20.6

8,006

20.5

Total commercial real estate
10,344

26.4

10,189

26.1

Consumer:
Home equity credit line
2,165

5.5

2,133

5.5

1-4 family residential
4,796

12.2

4,737

12.1

Construction and other consumer real estate
330

0.8

325

0.8

Bankcard and other revolving plans
361

0.9

356

0.9

Other
186

0.5

198

0.5

Total consumer
7,838

19.9

7,749

19.8

FDIC-supported loans 1
285

0.7

350

0.9

Total net loans
$
39,198

100.0
%
$
39,043

100.0
%
1 FDIC-supported loans represent loans acquired from the FDIC subject to loss sharing agreements.
As of March 31, 2014, total net loans and leases were $39.2 billion compared to $39.0 billion at December 31, 2013. Most of the loan portfolio growth during the first three months of 2014 occurred in commercial and industrial, 1-4 family residential, and commercial real estate construction and land development loans. The impact of these increases was partially offset by declines in commercial owner occupied and FDIC-supported loans. The loan portfolio increased primarily at Amegy, CB&T and NSB, while balances declined at Zions Bank.
Commercial and industrial, 1-4 family residential, and commercial real estate construction and land development loan balances grew in part due to reduced volume of prepayments. Commercial owner occupied loans declined mostly due to strategic runoff and attrition of the National Real Estate loan portfolio at Zions Bank. We expect commercial real estate construction and land development loan balances to increase at a modest rate over the next several quarters. The balance of FDIC-supported loans declined mainly due to pay-downs and pay-offs, and the fact that the Company has not purchased additional loans with FDIC loss sharing coverage since 2009. During 2014, the FDIC-supported loan loss share agreements will expire, with the exception of coverage for a small amount of residential mortgage loans. See Note 6 of the Notes to Consolidated Financial Statements for additional information regarding FDIC-supported loans and loss share agreements.

67

ZIONS BANCORPORATION AND SUBSIDIARIES

Other Noninterest-Bearing Investments
The following schedule sets forth the Company’s other noninterest-bearing investments.
OTHER NONINTEREST-BEARING INVESTMENTS
March 31, 2014
December 31, 2013
(In millions)
Bank-owned life insurance
$
469

$
466

Federal Home Loan Bank stock
105

105

Federal Reserve stock
119

121

SBIC investments
61

61

Non-SBIC investment funds and other
95

103

$
849

$
856

See “Market Risk – Equity Investments” on page 81 for additional information on the impact of the Dodd Frank Act on the non-SBIC investments.
Premises and Equipment
Premises and equipment increased $59 million during the first quarter of 2014 due primarily to the acquisition of land to develop a new corporate facility for the Company’s Amegy Bank subsidiary in Texas.
Deposits
Deposits, both interest-bearing and noninterest-bearing, are a primary source of funding for the Company. Average total deposits for the first quarter of 2014 increased by 3.1%, compared to the same prior year period, with average interest-bearing deposits increasing by 0.1% and average noninterest-bearing deposits increasing 7.8%. The increase in noninterest-bearing deposits was largely driven by increased deposits from business customers. The average interest rate paid for interest-bearing deposits was 4 bps lower during the first quarter of 2014 than in the comparable prior year period.
Core deposits at March 31, 2014, which exclude time deposits larger than $100,000 and brokered deposits, increased by 0.5%, or $201 million, from December 31, 2013. The increase was mainly due to increases in noninterest-bearing and interest-bearing demand deposits, partially offset by decreased savings and money market accounts, foreign deposits and time deposits. Demand and savings and money market deposits comprised 91.0% of total deposits at March 31, 2014, compared with 90.1% at December 31, 2013.
Throughout 2013, the Company maintained a low level of brokered deposits with the primary purpose of keeping that funding source available in case of a future need. At March 31, 2014, total deposits included $39 million of brokered deposits, compared to $29 million at December 31, 2013.
See “Liquidity Risk Management” for additional information on funding and borrowed funds.

RISK ELEMENTS
Since risk is inherent in substantially all of the Company’s operations, management of risk is an integral part of its operations and is also a key determinant of its overall performance. We apply various strategies to reduce the risks to which the Company’s operations are exposed, including credit, interest rate and market, liquidity, and operational risks.
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 the Company’s lending activities, as well as from off-balance sheet credit instruments.
Centralized oversight of credit risk is provided through credit policies, credit administration, and credit examination functions at the Parent. We have structured the organization to separate the lending function from the credit

68

ZIONS BANCORPORATION AND SUBSIDIARIES

administration function, which has added strength to the control over, and the independent evaluation of, credit activities. Formal loan policies and procedures provide the Company with a framework for consistent underwriting and a basis for sound credit decisions. In addition, the Company has a well-defined set of standards for evaluating its loan portfolio and management utilizes a comprehensive loan grading system to determine the risk potential in the portfolio. Furthermore, an independent internal credit examination department periodically conducts examinations of the Company’s lending departments. These examinations are designed to review credit quality, adequacy of documentation, appropriate loan grading administration and compliance with lending policies, and reports thereon are submitted to management and to the Risk Oversight Committee of the Board of Directors. New, expanded, or modified products and services, as well as new lines of business, are approved by the corporate New Product Review Committee.
Both the credit policy and the credit examination functions are managed centrally. Each subsidiary bank can be more conservative in its operations under the corporate credit policy; however, formal corporate approval must be obtained if a bank wishes to invoke a more liberal policy. Historically, there have been only a limited number of such approvals. This entire process has been designed to place an emphasis on strong underwriting standards and early detection of potential problem credits so that action plans can be developed and implemented on a timely basis to mitigate any potential losses.
Credit risk associated with counterparties to off-balance sheet credit instruments is generally limited to the hedging of interest rate risk through the use of swaps and futures. Our subsidiary banks that engage in this activity have ISDA agreements in place under which derivative transactions are entered into with major derivative dealers. Each ISDA agreement details the collateral arrangements between our subsidiary banks and their counterparties. In every case, the amount of the collateral required to secure the exposed party in the derivative transaction is determined by the fair value of the derivative and the credit rating of the party with the obligation. Some of the counterparties are domiciled in Europe; however, the Company’s maximum exposure that is not cash collateralized to any single counterparty was not material as of March 31, 2014.
The Company’s credit risk management strategy includes diversification of its loan portfolio. The Company attempts to avoid the risk of an undue concentration of credits in a particular collateral type or with an individual customer or counterparty. The Company has adopted and adheres to concentration limits on various types of CRE lending, particularly construction and land development lending, leveraged lending, municipal lending, and lending to the energy sector. All of these limits are continually monitored and revised as necessary. These concentration limits, particularly with regard to various categories of CRE and real estate development are materially lower than they were in 2007 and 2008, just prior to the emergence of the recent economic downturn. The majority of the Company’s business activity is with customers located within the geographical footprint of its subsidiary banks.
The credit quality of the Company’s loan portfolio remained strong during the first three months of 2014. Nonperforming lending-related assets at March 31, 2014 decreased by 2.4% and 35.5% from December 31, 2013, and March 31, 2013, respectively. The decrease was offset by a slight increase of 4.5% in the level of classified loans. Gross charge-offs for the first quarter of 2014 declined to $20.8 million from $37.4 million for the fourth quarter of 2013. Net charge-offs decreased to $7.9 million from $19.2 million for the same periods.
A more comprehensive discussion of our credit risk management is contained in the Company’s 2013 Annual Report on Form 10-K.
FDIC-Supported Loans
The Company’s loan portfolio includes loans that were acquired from failed banks in 2009: Alliance Bank, Great Basin Bank, and Vineyard Bank. These loans include nonperforming loans and other loans with characteristics indicative of a high credit risk profile. Substantially all of these loans were covered under loss sharing agreements with the FDIC for which the FDIC generally assumed 80% of losses up to a specified threshold and 95% of losses above that threshold. The Company does not expect total losses to exceed the higher threshold because acquired loans have performed better than originally expected. Beginning in 2014 through September 30, the loss sharing agreements expire for a substantial portion of these loans. FDIC-supported loans represented 0.7% and 0.9% of the Company’s total loan portfolio at March 31, 2014 and December 31, 2013, respectively. Refer to Note 6 of the

69

ZIONS BANCORPORATION AND SUBSIDIARIES

Notes to Consolidated Financial Statements for more information.
NET LOSSES COVERED BY FDIC LOSS SHARING AGREEMENTS
Inception through
March 31, 2014
(In millions)
Total actual net losses
Threshold
Alliance Bank
$
165

$
275

Great Basin Bank
11

40

Vineyard Bank
194

465

$
370

$
780

Government Agency Guaranteed Loans
The Company participates in various guaranteed lending programs sponsored by U.S. government agencies, such as the Small Business Administration, Federal Housing Authority, Veterans’ Administration, Export-Import Bank of the U.S., and the U.S. Department of Agriculture. As of March 31, 2014, the principal balance of these loans was $564 million, and the guaranteed portion was approximately $424 million. Most of these loans were guaranteed by the Small Business Administration.
The following schedule presents the composition of government agency guaranteed loans, excluding FDIC-supported loans.
GOVERNMENT GUARANTEES
(Amounts in millions)
March 31, 2014
Percent
guaranteed
December 31,
2013
Percent
guaranteed
Commercial
$
542

75
%
$
552

75
%
Commercial real estate
18

77

17

76

Consumer
4

100

4

100

Total loans excluding FDIC-supported loans
$
564

76

$
573

76

Commercial Lending
The following schedule provides selected information regarding lending concentrations to certain industries in our commercial lending portfolio.
COMMERCIAL LENDING BY INDUSTRY GROUP
March 31, 2014
December 31, 2013
(Amounts in millions)
Amount
Percent
Amount
Percent
Real estate, rental and leasing
$
2,940

14.2
%
$
2,937

14.1
%
Mining, quarrying and oil and gas extraction
2,238

10.8

2,205

10.6

Manufacturing
2,210

10.7

2,181

10.5

Retail trade
1,768

8.5

1,737

8.4

Wholesale trade
1,478

7.1

1,464

7.1

Healthcare and social assistance
1,214

5.9

1,211

5.8

Finance and insurance
1,168

5.6

1,168

5.6

Transportation and warehousing
1,068

5.2

1,074

5.2

Construction
929

4.5

925

4.5

Professional, scientific and technical services
893

4.3

928

4.5

Accommodation and food services
794

3.8

799

3.8

Other 1
4,031

19.4

4,126

19.9

Total
$
20,731

100.0
%
$
20,755

100.0
%
1 No other industry group exceeds 5%.

70

ZIONS BANCORPORATION AND SUBSIDIARIES

Commercial Real Estate Loans
Selected information indicative of credit quality regarding our CRE loan portfolio is presented in the following schedule.

COMMERCIAL REAL ESTATE PORTFOLIO BY LOAN TYPE AND COLLATERAL LOCATION
(Amounts in millions)
Collateral Location
Loan type
As of
date
Arizona
Northern
California
Southern
California
Nevada
Colorado
Texas
Utah/
Idaho
Wash-ington
Other 1
Total
% of
total
CRE
Commercial term
Balance outstanding
3/31/2014
$
1,105

$
722

$
2,091

$
587

$
473

$
1,083

$
1,069

$
210

$
740

$
8,080

78.1
%
% of loan type
13.7
%
8.9
%
25.9
%
7.3
%
5.9
%
13.4
%
13.2
%
2.6
%
9.1
%
100.0
%
Delinquency rates 2 :
30-89 days
3/31/2014
0.2
%
0.5
%
0.1
%
1.8
%
0.1
%
0.1
%
0.1
%
—

1.4
%
0.4
%
12/31/2013
0.3
%
—

0.2
%
0.7
%
—

0.2
%
0.1
%
—

0.4
%
0.2
%
≥ 90 days
3/31/2014
0.4
%
0.3
%
0.2
%
—

—

0.3
%
0.5
%
—

0.7
%
0.3
%
12/31/2013
—

0.5
%
0.4
%
—

—

0.3
%
0.1
%
—

0.5
%
0.2
%
Accruing loans past due 90 days or more
3/31/2014
$
1

$
1

$
2

$
—

$
—

$
—

$
—

$
—

$
—

$
4

12/31/2013
—

1

5

—

—

—

—

—

—

6

Nonaccrual loans
3/31/2014
7

6

10

8

3

3

6

1

15

59

12/31/2013
7

4

13

8

1

7

6

1

13

60

Residential construction and land development
Balance outstanding
3/31/2014
$
56

$
38

$
273

$
7

$
38

$
217

$
86

$
16

$
16

$
747

7.2
%
% of loan type
7.5
%
5.1
%
36.5
%
0.9
%
5.1
%
29.0
%
11.5
%
2.2
%
2.2
%
100.0
%
Delinquency rates 2 :
30-89 days
3/31/2014
0.6
%
—

—

—

0.7
%
0.2
%
—

—

—

0.1
%
12/31/2013
1.0
%
—

—

—

0.4
%
—

—

—

—

0.1
%
≥ 90 days
3/31/2014
—

—

0.1
%
—

—

2.7
%
—

—

—

0.8
%
12/31/2013
—

—

0.1
%
—

—

3.0
%
0.2
%
—

—

0.9
%
Accruing loans past due 90 days or more
3/31/2014
$
—

$
—

$
—

$
—

$
—

$
—

$
—

$
—

$
—

$
—

12/31/2013
—

—

—

—

—

—

—

—

—

—

Nonaccrual loans
3/31/2014
1

—

—

—

—

9

—

—

—

10

12/31/2013
1

—

—

—

—

9

—

—

—

10

Commercial construction and land development
Balance outstanding
3/31/2014
$
94

$
78

$
309

$
91

$
142

$
350

$
356

$
41

$
56

$
1,517

14.7
%
% of loan type
6.2
%
5.1
%
20.4
%
6.0
%
9.3
%
23.1
%
23.5
%
2.7
%
3.7
%
100.0
%
Delinquency rates 2 :
30-89 days
3/31/2014
0.4
%
—

—

0.5
%
—

1.0
%
—

—

—

0.3
%
12/31/2013
0.7
%
0.8
%
0.5
%
4.9
%
—

0.3
%
—

—

—

0.6
%
≥ 90 days
3/31/2014
—

—

—

—

—

1.5
%
—

—

—

0.4
%
12/31/2013
—

—

—

—

—

1.5
%
—

—

—

0.4
%
Accruing loans past due 90 days or more
3/31/2014
$
—

$
—

$
—

$
—

$
—

$
—

$
—

$
—

$
—

$
—

12/31/2013
—

—

—

—

—

—

—

—

—

—

Nonaccrual loans
3/31/2014
—

—

—

1

—

5

13

—

—

19

12/31/2013
—

1

—

—

—

5

13

—

—

19

Total construction and land development
3/31/2014
$
150

$
116

$
582

$
98

$
180

$
567

$
442

$
57

$
72

$
2,264

Total commercial real estate
3/31/2014
$
1,255

$
838

$
2,673

$
685

$
653

$
1,650

$
1,511

$
267

$
812

$
10,344

100.0
%
1 No other geography exceeds $119 million for all three loan types.
2 Delinquency rates include nonaccrual loans.


71

ZIONS BANCORPORATION AND SUBSIDIARIES

Approximately 16% of the CRE term loans consist of mini-perm loans at March 31, 2014. For such loans, construction has been completed and the project has stabilized to a level that supports the granting of a mini-perm loan in accordance with our underwriting standards. Mini-perm loans generally have initial maturities of three to seven years. The remaining 84% of CRE loans are term loans with initial maturities generally of 5 to 20 years.
Approximately 17% of the commercial construction and land development portfolio at March 31, 2014 consists of acquisition and development loans. Most of these acquisition and development loans are secured by specific retail, apartment, office, or other projects. Underwriting on commercial properties is primarily based on the economic viability of the project with heavy consideration given to the creditworthiness and experience of the sponsor. We generally require that the owner’s equity be injected prior to bank advances. Remargining requirements 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 key 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 projects) we look for substantial pre-leasing in our underwriting and we generally require a minimum projected stabilized debt service coverage ratio of 1.20 or higher, depending on the project asset class. Heavy consideration is given to 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 and validated independently of the loan officer and the borrower, generally by each subsidiary bank’s internal appraisal review function, which is staffed by licensed appraisers. In some cases, reports from automated valuation services are used. Appraisals are ordered from outside appraisers at the inception, renewal or, for CRE loans, upon the occurrence of any event causing a downgrade to a “criticized” or “classified” designation. The frequency for obtaining updated appraisals for these adversely graded credits is increased when declining market conditions exist.
Advance rates will vary based on the viability of the project and the creditworthiness of the sponsor, but the Company’s 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 spec homes, 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. Additionally, loan-by-loan reviews of pass grade loans for all commercial and residential construction and land development loans are performed semiannually at Amegy, CB&T, NBAZ, NSB, Vectra and Zions Bank. TCBO and TCBW perform such reviews annually.

CRE loans are sometimes modified to increase the likelihood of collecting the maximum possible amount of the Company’s investment in the loan. In general, the existence of a guarantee that improves the likelihood of repayment is taken into consideration when analyzing a loan 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 into consideration this repayment source.

In general, we obtain and consider financial information for the guarantor as part of our underwriting decision to grant or extend credit. 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

72

ZIONS BANCORPORATION AND SUBSIDIARIES

track record, reputation, performance of other related projects with which we are familiar, and our relationship history with the guarantor. 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 the Company estimates. Previous documentation of the guarantor’s financial ability to support the loan is discounted if, at any point in time, 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 and the overall cost of pursuing a guarantee compared to the ultimate amount we may be able to recover otherwise.

Consumer Loans
The Company has mainly been an originator of first and second mortgages, generally considered to be of prime quality. Its practice historically has been to sell “conforming” fixed rate loans to third parties, including Fannie Mae and Freddie Mac, for which it makes representations and warranties that the loans meet certain underwriting and collateral documentation standards. It has also been the Company’s practice historically to hold variable rate loans in its portfolio. The Company estimates that it does not have any material financial risk as a result of either its foreclosure practices or loan “put-backs” by Fannie Mae or Freddie Mac, and has not established any reserves related to these items.

The Company is engaged in home equity credit line (“HECL”) lending. At March 31, 2014, the Company’s HECL portfolio totaled $2.2 billion. Approximately $1.1 billion of the portfolio is secured by first deeds of trust, while the remaining $1.1 billion is secured by junior liens.

As of March 31, 2014, loans representing approximately 6% 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, underwriting standards for the HECL portfolio generally include a maximum 80% CLTV with high credit scores at origination.

More than 97% of the Company’s HECL portfolio is still in the draw period, and approximately 39% is scheduled to begin amortizing within the next five years; however, most of the loans are expected to be renewed for a second 10-year period after a satisfactory review of the borrower’s credit history and ability to repay the loan. The annualized credit losses for the HECL portfolio were 3 bps and 40 bps for the first three months of 2014 and 2013, respectively. See Note 6 of the Notes to Consolidated Financial Statements for additional information on the credit quality of this portfolio.

Nonperforming Assets
Nonperforming lending-related assets as a percentage of loans and leases and OREO decreased to 1.12% at March 31, 2014, compared with 1.15% at December 31, 2013 and 1.80% at March 31, 2013.

Total nonaccrual loans, excluding FDIC-supported loans, at March 31, 2014 decreased by $5 million and $192 million from December 31, 2013 and March 31, 2013, respectively. The decrease is primarily due to decreases in commercial owner occupied loans, commercial real estate term loans, and 1-4 family residential loans. The largest total decreases in nonaccrual loans occurred at Zions Bank and Amegy.

The balance of nonaccrual loans can decrease due to pay-downs, 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” for more information. Company policy

73

ZIONS BANCORPORATION AND SUBSIDIARIES

does not allow for the conversion of nonaccrual construction and land development loans to commercial real estate term loans. See Note 6 of the Notes to Consolidated Financial Statements for more information.

The following schedule sets forth the Company’s nonperforming lending-related assets:

NONPERFORMING LENDING-RELATED ASSETS
(Amounts in millions)
March 31,
2014
December 31,
2013
Nonaccrual loans
$
398

$
402

Other real estate owned
38

43

Nonperforming lending-related assets, excluding FDIC-supported assets
436

445

FDIC-supported nonaccrual loans
4

4

FDIC-supported other real estate owned
1

3

FDIC-supported nonperforming lending-related assets
5

7

Total nonperforming lending-related assets
$
441

$
452

Ratio of nonperforming lending-related assets to net loans and leases 1 and other real estate owned
1.12
%
1.15
%
Accruing loans past due 90 days or more, excluding FDIC-supported loans
$
7

$
10

FDIC-supported loans past due 90 days or more
32

30

Ratio of accruing loans past due 90 days or more to loans 1 and leases
0.10
%
0.10
%
Nonaccrual loans and accruing loans past due 90 days or more
$
440

$
447

Ratio of nonaccrual loans and accruing loans past due 90 days or more to loans 1 and leases
1.12
%
1.14
%
Accruing loans past due 30 - 89 days, excluding FDIC-supported loans
$
111

$
105

FDIC-supported loans past due 30 - 89 days
4

12

Classified loans, excluding FDIC-supported loans
1,296

1,240

1 Includes loans held for sale.

Restructured Loans
TDRs are loans that have been modified to accommodate a borrower that is experiencing financial difficulties, and for which the Company has granted a concession that it would not otherwise consider. 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.

For certain TDRs, we split the loan into two new notes – an “A” note and a “B” note. The A note is structured to comply with our current lending standards at current market rates, and is tailored to suit the customer’s ability to make timely principal and interest payments. The B note includes the granting of the concession to the borrower and varies by situation. We may defer principal and interest payments until the A note has been paid in full. At the time of restructuring, the A note is identified and classified as a TDR. The B note is charged-off but the obligation is not forgiven to the borrower, and any payments collected on the B notes are accounted for as recoveries. The outstanding carrying value of loans restructured using the A/B note strategy was approximately $118 million at March 31, 2014, and $126 million at December 31, 2013.

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 the Company is reasonably assured of repayment of the modified

74

ZIONS BANCORPORATION AND SUBSIDIARIES

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 or not a loan should be returned to accrual status.

ACCRUING AND NONACCRUING TROUBLED DEBT RESTRUCTURED LOANS
March 31,
2014
December 31,
2013
(In millions)
Restructured loans – accruing
$
319

$
345

Restructured loans – nonaccruing
130

136

Total
$
449

$
481


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). Company policy requires that the removal of TDR status be approved at the same management level that approved the upgrading of a loan’s classification. See Note 6 of the Notes to Consolidated Financial Statements for additional information regarding TDRs.

TROUBLED DEBT RESTRUCTURED LOANS ROLLFORWARD
Three Months Ended
March 31,
(In millions)
2014
2013
Balance at beginning of period
$
481

$
623

New identified TDRs and principal increases
14

59

Payments and payoffs
(33
)
(53
)
Charge-offs
(1
)
(3
)
No longer reported as TDRs
(11
)
(3
)
Sales and other
(1
)
(13
)
Balance at end of period
$
449

$
610

Other Nonperforming Assets
In addition to lending-related nonperforming assets, the Company had $42 million in carrying value ($53 million at amortized cost) of investments in debt securities (primarily bank and insurance company CDOs) that were on nonaccrual status at March 31, 2014, compared to $224 million in carrying value ($239 million at amortized cost) at December 31, 2013, and $180 million and $455 million at March 31, 2013, respectively.

Allowance and Reserve for Credit Losses
In analyzing the adequacy of the allowance for loan losses, 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, the Company’s loan and lease portfolio is broken into segments based on loan type.


75

ZIONS BANCORPORATION AND SUBSIDIARIES

The following schedule shows the changes in the allowance for loan losses and a summary of loan loss experience:

SUMMARY OF LOAN LOSS EXPERIENCE
(Amounts in millions)

Three Months
Ended
March 31,
2014
Twelve Months
Ended
December 31,
2013
Three Months
Ended
March 31,
2013
Loans and leases outstanding (net of unearned income)
$
39,198

$
39,043

$
37,762

Average loans and leases outstanding (net of unearned income)
$
39,125

$
38,107

$
37,598

Allowance for loan losses:
Balance at beginning of period
$
746

$
896

$
896

Provision charged against earnings
(1
)
(87
)
(29
)
Adjustment for FDIC-supported loans
(1
)
(11
)
(7
)
Charge-offs:
Commercial
(10
)
(76
)
(18
)
Commercial real estate
(8
)
(26
)
(7
)
Consumer
(3
)
(29
)
(10
)
Total
(21
)
(131
)
(35
)
Recoveries:
Commercial
8

41

8

Commercial real estate
3

25

5

Consumer
2

13

4

Total
13

79

17

Net loan and lease charge-offs
(8
)
(52
)
(18
)
Balance at end of period
$
736

$
746

$
842

Ratio of annualized net charge-offs to average loans and leases
0.08
%
0.14
%
0.19
%
Ratio of allowance for loan losses to net loans and leases, at period end
1.88
%
1.91
%
2.23
%
Ratio of allowance for loan losses to nonperforming loans, at period end
183.47
%
183.54
%
141.68
%
Ratio of allowance for loan losses to nonaccrual loans and accruing loans past due 90 days or more, at period end
167.54
%
166.97
%
128.70
%

The total ALLL declined during the first quarter of 2014 due to the positive credit trends experienced in our major loan portfolio segments during the past few years. Recent and historic periods are weighted the same when determining historical loss factors. The quantitatively derived portion of the ALLL declined or was relatively stable in aggregate across the Company during the first quarter of 2014. Improvements in credit quality during the first quarter of 2014 were widespread geographically; however, CB&T and Amegy experienced moderate increases in levels of classified loans. The portion of the ALLL related to qualitative and environmental factors remained relatively unchanged in aggregate across the Company.

The reserve for unfunded lending commitments represents a reserve for potential losses associated with off-balance sheet commitments and standby letters of credit. The reserve is separately shown in the Company’s balance sheet and any related increases or decreases in the reserve are shown separately in the statement of income. The reserve decreased by $1.0 million from December 31, 2013, and $11.8 million from March 31, 2013.

See Note 6 of the Notes to Consolidated Financial Statements for additional information related to the allowance for credit losses and credit trends experienced in each portfolio segment.


76

ZIONS BANCORPORATION AND SUBSIDIARIES

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 sensitive income resulting from adverse changes in the level of interest rates. Market risk is the potential for loss arising from adverse changes in the fair value of fixed income securities, equity securities, other earning assets, and derivative financial instruments as a result of changes in interest rates or other factors. As a financial institution that engages in transactions involving an array of financial products, the Company is exposed to both interest rate risk and market risk.

The Company’s Board of Directors is responsible for approving the overall policies relating to the management of the financial risk of the Company, including interest rate and market risk management. The Boards of Directors of the Company’s subsidiary banks are also required to review and approve these policies. In addition, the Board establishes and periodically revises policy limits and reviews limit exceptions reported by management. The Board has established the Asset/Liability Committee (“ALCO”) consisting of members of management, to which it has delegated the responsibility of managing interest rate and market risk for the Company.

Interest Rate Risk
Interest rate risk is one of the most significant risks to which the Company is regularly exposed. In general, our goal in managing interest rate risk is to have the net interest margin increase slightly in a rising interest rate environment. We refer to this goal as being slightly “asset-sensitive.” This approach is based on our belief that in a rising interest rate environment, the market cost of equity, or implied rate at which future earnings are discounted, would also tend to rise. The asset sensitivity of the Company’s balance sheet changed minimally during 2013 and the first quarter of 2014.

Due to the low level of rates and the natural lower bound of zero for market indices, there is limited sensitivity to falling rates at the current time. However, if interest rates remain at their current historically low levels, given the Company’s asset sensitivity, it expects its net interest margin to be under continuing modest pressure assuming a stable balance sheet. If interest rates remain stable, this pressure may lead to a reduction in net interest income, unless its impact is offset by sufficient loan growth, interest rate swaps, securities purchases, or other means.

We attempt to minimize the impact of changing interest rates on net interest income primarily through the use of interest rate floors on variable rate loans, interest rate swaps, interest rate futures, and by avoiding large exposures to long-term fixed rate interest-earning assets that have significant negative convexity. Our earning assets are largely tied to the shorter end of the interest rate curve. The prime lending rate and the LIBOR curves are the primary indices used for pricing the Company’s loans. The interest rates paid on deposit accounts are set by individual banks so as to be competitive in each local market.

We monitor interest rate risk through the use of two complementary measurement methods: Market Value of Equity (“MVE”) and income simulation. In the MVE method, we measure the expected changes in the fair values of equity in response to changes in interest rates. In the income simulation method, we analyze the expected changes in income in response to changes in interest rates.
MVE is calculated as the fair value of all assets and derivative instruments minus the fair value of liabilities. We report changes in the dollar amount of MVE for parallel shifts in interest rates.
Due to embedded optionality and asymmetric rate risk, changes in MVE can be useful in quantifying risks not apparent for small rate changes. Examples of such risks may include out-of-the-money caps on loans, which have little effect for small rate movements but may become important if larger rate shocks were to occur, or substantial prepayment deceleration for low rate mortgages in a higher rate environment.
The Company’s policy is generally to limit declines in MVE to 3% per 100 bps movement in interest rates in either direction. Changes or exceptions to the MVE limits are subject to notification and approval by the Risk Oversight Committee of the Company’s Board of Directors.

77

ZIONS BANCORPORATION AND SUBSIDIARIES


Income simulation is an estimate of the net interest income and total rate sensitive income that would be recognized under different rate environments. Net interest income and total rate sensitive income are measured under several parallel and nonparallel interest rate environments and deposit repricing assumptions, taking into account an estimate of the possible exercise of options within the portfolio. For income simulation, Company policy requires that interest sensitive income from a static balance sheet be limited to a decline of no more than 10% during one year if rates were to immediately rise or fall in parallel by 200 bps.

Each of these measurement methods requires that we assess a number of variables and make various assumptions in managing the Company’s exposure to changes in interest rates. The assessments address loan and security prepayments, early deposit withdrawals, and other embedded options and noncontrollable events. As a result of uncertainty about the maturity and repricing characteristics of both deposits and loans, the Company estimates ranges of MVE and income simulation under a variety of assumptions and scenarios. The Company’s interest rate risk position changes as the interest rate environment changes and is actively managed to maintain an asset-sensitive position. However, positions at the end of any period may not be reflective of the Company’s position in any subsequent period.

The estimated MVE and income simulation results are highly sensitive to the assumptions used for deposits that do not have specific maturities, such as checking and savings and money market accounts, and also to prepayment assumptions used for loans with prepayment options. Given the uncertainty of these estimates, we view both the MVE and the income simulation results as falling within a wide range of possibilities. Management uses historical regression analysis as a guide to setting such assumptions; however, due to the current low interest rate environment, which has little historical precedent, estimated deposit durations may not reflect actual future results. Even modest variation of such assumptions may have significant impact on the calculation of income simulation and market value of equity shown below. These assumptions are as follows:
REPRICING SCENARIO ASSUMPTIONS BY DEPOSIT PRODUCT
As of March 31, 2014
Fast
Slow
Product
Effective duration (base)
Effective duration (+200 bps)
Effective duration (base)
Effective duration (+200 bps)
Demand deposits
(1.66
)%
(1.79
)%
(2.57
)%
(2.85
)%
Money market
(0.78
)%
(0.74
)%
(1.16
)%
(1.10
)%
Savings and interest on checking
(2.93
)%
(2.78
)%
(3.46
)%
(3.03
)%
Note: Effective duration measures the percent change in MVE for a 100 bps parallel shift in rates as compared to the Macaulay Duration, which measures weighted average life of cash flows in years and is not reported. The Company’s Demand Deposit Model assumes significant negative convexity in the current low rate environment.

As of the dates indicated, the following schedule shows the Company’s percentage change in interest rate sensitive income, based on a static balance sheet, in the first year after the rate change if interest rates were to sustain immediate parallel changes ranging from -100 bps to +300 bps. The Company estimates interest rate risk with two sets of deposit repricing scenarios.

The first scenario assumes that administered-rate deposits (money market, interest-earning checking, and savings) reprice at a faster speed in response to changes in interest rates. Additionally, interest rates cannot decline below zero. At December 31, 2013 and 2012, interest rates were at such a low level that repricing scenarios assuming -100 bps rate shocks produced negative results.

The second scenario assumes that those deposits reprice at a slower speed. For larger rate shocks, e.g., +300 bps, models reflecting consumer behavior in regards to both loan prepayments and deposit run-off are inherently prone

78

ZIONS BANCORPORATION AND SUBSIDIARIES

to increased model uncertainty.

INCOME SIMULATION – CHANGE IN INTEREST RATE SENSITIVE INCOME
As of March 31, 2014
Repricing scenario
-100 bps
+100 bps
+200 bps
+300 bps
Fast
(2.9
)%
6.0
%
12.5
%
18.8
%
Slow
(2.9
)%
7.3
%
15.0
%
22.5
%

As of December 31, 2013
Repricing scenario
-100 bps
+100 bps
+200 bps
+300 bps
Fast
(2.8
)%
5.7
%
12
%
18.1
%
Slow
(2.9
)%
7.0
%
14.5
%
21.8
%

The following schedule includes changes in the MVE from -100 bps to +300 bps parallel rate moves for both “fast” and “slow” scenarios.

CHANGES IN MARKET VALUE OF EQUITY
As of March 31, 2014
Repricing scenario
-100 bps
+100 bps
+200 bps
+300 bps
Fast
(0.1
)%
1.7
%
3.5
%
4.4
%
Slow
(4.1
)%
6.8
%
13.8
%
19.2
%
As of December 31, 2013
Repricing scenario
-100 bps
+100 bps
+200 bps
+300 bps
Fast
0.6
%
1.1
%
2.6
%
3.3
%
Slow
(3.5
)%
6.2
%
13.0
%
18.4
%

During the first quarter of 2014, changes in interest rate sensitivity were, among other things, driven primarily by balance sheet mix composition:

•
disposition of CDO securities; and
•
the maturity of long-term debt that was not replaced.

Market Risk – Fixed Income
The Company engages in the underwriting and trading of municipal securities. This trading activity exposes the Company to a risk of loss arising from adverse changes in the prices of these fixed income securities. At March 31, 2014, the Company had $56 million of trading assets and $1 million of securities sold, not yet purchased, compared with $35 million and $74 million, respectively, at December 31, 2013.

The Company is exposed to market risk through changes in fair value. The Company is 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 AOCI for each financial reporting period. During the first quarter of 2014, the after-tax change in AOCI attributable to AFS and HTM securities was an increase of $49 million compared to a $42 million increase in the same prior year period. The primary reason for the increase is the observed improvement in market values of trust preferred CDOs. If any of the AFS or HTM securities become other-than-temporarily impaired, the credit impairment is charged to operations. See “Investment Securities Portfolio” on page 61 for additional information on OTTI.

79

ZIONS BANCORPORATION AND SUBSIDIARIES


Market Risk – Equity Investments
Through its equity investment activities, the Company owns equity securities that are publicly traded. In addition, the Company owns equity securities in companies and governmental entities, e.g., Federal Reserve Bank and Federal Home Loan Banks, that are not publicly traded, and which are accounted for under cost, fair value, equity, or full consolidation methods of accounting, depending upon the Company’s ownership position and degree of involvement in influencing the investees’ affairs. Regardless of the accounting method, the value of the Company’s investment is subject to fluctuation. Since the fair value of these securities may fall below the Company’s investment costs, the Company is exposed to the possibility of loss. Equity investments in private and public companies are approved, monitored and evaluated by the Company’s Equity Investment Committee.
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 were generally not a part of the strategy since the underlying companies were typically not creditworthy.

These private equity investments are subject to the provisions of the Dodd-Frank Act. The Volcker Rule of the Dodd-Frank Act, as published on December 10, 2013, prohibits banks and bank holding companies from holding private equity investments beyond July 2015, except for SBIC funds. The Company may apply for two one-year exceptions that would extend the disposal deadline to July 2017. As of March 31, 2014, such prohibited private equity investments, except for SBIC funds, amounted to $59 million. The Company currently does not believe that this divestiture requirement will have a material negative impact on the value of these investments.The Company ’ s earnings from these investments, and the potential volatility of these earnings, are expected to decline over the next several years and will ultimately cease.

A more comprehensive discussion of the Company’s interest rate and market risk management is contained in the Company’s 2013 Annual Report on Form 10-K.

Liquidity Risk Management
Liquidity risk is the possibility that the Company’s cash flows may not be adequate to fund its ongoing operations and meet its 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 the Company’s liquidity to provide adequate funds to meet its anticipated financial and contractual obligations, including withdrawals by depositors, debt and capital service requirements and lease obligations, as well as to fund customers’ needs for credit. The management of liquidity and funding is performed centrally for the Parent and jointly by the Parent and bank management for its subsidiary banks.

Consolidated cash, interest-bearing deposits held as investments, and security resell agreements at the Parent and its subsidiaries increased to $9.5 billion at March 31, 2014 from $9.3 billion at December 31, 2013. The $0.2 billion increase during the first quarter of 2014 resulted primarily from (1) a decrease in investment securities, (2) an increase in deposits, and (3) net cash provided by operating activities. These increases were partially offset by (1) net loan originations and (2) repayments of debt.

Maturities of Long-Term Debt During Remainder of 2014
The Company’s long-term debt maturities during the remaining three quarters of 2014 include:

80

ZIONS BANCORPORATION AND SUBSIDIARIES

(Amounts in millions)
Coupon
Rate
March 31, 2014
Entity
Description
Carrying Balance
Par Amount
Maturity
Parent
Subordinated note
5.65%
$
30.3

$
30.2

May 15, 2014
Parent
Convertible subordinated note
5.65%
73.8

75.7

May 15, 2014
Parent
Senior note
7.75%
238.7

242.3

Sept 23, 2014
342.8

348.2

Amegy
Subordinated note
3mL + 1.25%
75.0

75.0

Sept 22, 2014
$
417.8

$
423.2

This schedule excludes long-term senior notes under our senior medium-term note program of approximately $175 million par amount at March 31, 2014 for which the Parent has early optional redemption provisions during the remainder of 2014. As of May 8, 2014, the Company was in process of exercising early redemptions for $130 million of senior medium-term notes. There are no required redemptions of senior medium-term notes during the remainder of 2014.
Proposed Liquidity Regulation
In October 2013, U.S. banking regulators issued a Notice of Proposed Rulemaking that would implement a quantitative liquidity requirement in the U.S. generally consistent with the Liquidity Coverage Ratio (“LCR”) minimum liquidity measure established under the Basel III liquidity framework. Under the proposed rule, the Company would be subject to a modified LCR standard, which required a financial institution to hold a buffer of high-quality, liquid assets to fully cover net cash outflows under a 21-day systematic liquidity stress scenario.
The Basel III liquidity framework includes a second minimum liquidity measure, the Net Stable Funding Ratio (“NSFR”), which required the amount of available longer-term, stable sources of funding to be at least 100 percent of the required amount of longer-term stable funding over a one-year period. U.S. banking regulators have announced that they expect to issue proposed rulemaking to implement the NFSR. The Company is closely monitoring the development of the proposed liquidity ratios and the potential impact upon its liquidity and funding.
Beginning in January 2015, the Company will be required to conduct monthly liquidity stress tests. These tests will incorporate scenarios designed by the Company subject to review by the Federal Reserve.
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 share of current income taxes, and long-term debt and equity issuances.
Cash, interest-bearing deposits held as investments, and security resell agreements at the Parent increased to $1,224 million at March 31, 2014 from $903 million at December 31, 2013. The $321 million increase during the first quarter of 2014 was primarily a result of dividends received from its subsidiaries and from sales and paydowns of CDO securities. These increases were partially offset by repayments of long-term debt, interest payments on debt, and the payment of preferred and common dividends.
Due to the Parent’s adequate level of cash and short-term investments, and the increase in these assets during the first quarter of 2014, the Parent did not access cash in the capital markets. The primary uses of cash in the capital markets for the Parent during the first quarter of 2014 were the repayment of senior notes totaling $125 million. As previously shown under “Maturities of Long-Term Debt During Remainder of 2014,” the Parent has long-term debt maturities in 2014 and may also repay other higher-cost long-term debt prior to maturity during this same period.
During the first quarter of 2014, the Parent received common dividends and return of common equity totaling $58 million from its subsidiary banks. During the first quarter of 2013, the Parent received $120 million from its subsidiaries for common dividends and return of common equity, and preferred dividends, and $25 million from the redemption of preferred stock issued to the Parent. The dividends that our subsidiary banks can pay to the Parent are

81

ZIONS BANCORPORATION AND SUBSIDIARIES

restricted by current and historical earning levels, retained earnings, and risk-based and other regulatory capital requirements and limitations. During the first quarter of 2014, all of the Company’s subsidiary banks recorded a profit, except TCBO, which operated at approximately break-even. We expect that this profitability will be sustained, thus permitting continued payments of dividends and/or returns of capital by the subsidiaries to the Parent during 2014.
General financial market and economic conditions impact the Company’s access to and cost of external financing. Access to funding markets for the Parent and subsidiary banks 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 by the various rating agencies for the Company did not change during the first quarter of 2014. Standard & Poor’s, Fitch, Dominion Bond Rating Service (“DBRS”), and Kroll all rate the Company’s senior debt at an investment grade level, while Moody’s rates the Company’s senior debt as Ba1 (one notch below investment grade). In addition, all of the previously mentioned rating agencies, except Kroll, rate the Company’s subordinated debt as noninvestment grade.
The following schedule presents the Parent’s balance sheet as of March 31, 2014, December 31, 2013, and March 31, 2013.
PARENT ONLY CONDENSED BALANCE SHEETS
(In thousands)
March 31,
2014
December 31,
2013
March 31,
2013
ASSETS
Cash and due from banks
$
1,223,423

$
902,697

$
1,779

Interest-bearing deposits
89

72

106,425

Security resell agreements
—

—

850,000

Investment securities:
Held-to-maturity, at adjusted cost (approximate fair value of $33,704,
$31,422 and $24,500)
17,336

17,359

19,654

Available-for-sale, at fair value
338,053

675,895

495,631

Loans
—

—

1,278

Other noninterest-bearing investments
30,161

37,154

48,785

Investments in subsidiaries:
Commercial banks and bank holding company
6,771,460

6,700,315

6,697,996

Other operating companies
30,456

31,535

35,580

Nonoperating – ZMFU II, Inc. 1
44,459

44,511

43,557

Receivables from subsidiaries:
Other operating companies
10,000

—

5,000

Other assets
216,296

278,392

257,540

$
8,681,733

$
8,687,930

$
8,563,225

LIABILITIES AND SHAREHOLDERS’ EQUITY
Other liabilities
$
187,348

$
200,729

$
106,663

Subordinated debt to affiliated trusts
15,464

15,464

309,278

Long-term debt:
Due to affiliates
266

17

—

Due to others
1,892,439

2,007,157

1,791,879

Total liabilities
2,095,517

2,223,367

2,207,820

Shareholders’ equity:
Preferred stock
1,003,970

1,003,970

1,301,289

Common stock
4,185,513

4,179,024

4,170,888

Retained earnings
1,542,195

1,473,670

1,290,131

Accumulated other comprehensive loss
(145,462
)
(192,101
)
(406,903
)
Total shareholders’ equity
6,586,216

6,464,563

6,355,405

$
8,681,733

$
8,687,930

$
8,563,225

1 ZMFU II, Inc. is a wholly-owned nonoperating subsidiary whose sole purpose is to hold a portfolio of municipal bonds, loans and leases.

82

ZIONS BANCORPORATION AND SUBSIDIARIES


During the first quarters of 2014 and 2013, the Parent’s operating expenses included cash payments for interest of approximately $26 million and $44 million, respectively. Additionally, the Parent paid approximately $24 million of dividends on preferred and common stock for both the first quarters of 2014 and 2013.

At March 31, 2014, maturities of the Parent’s long-term senior and subordinated debt ranged from May 2014 to September 2028.

Subsidiary Bank Liquidity
The subsidiary banks’ primary source of funding is their core deposits, consisting of demand, savings and money market deposits, time deposits under $100,000, and foreign deposits. At March 31, 2014, these core deposits, excluding brokered deposits, in aggregate, constituted 97.2% of consolidated deposits, compared with 97.1% at December 31, 2013. On a consolidated basis, the Company’s net loan to total deposit ratio was 84.2% at both March 31, 2014 and December 31, 2013.

Total deposits increased by $170 million to $46.5 billion at March 31, 2014 compared to December 31, 2013 due to increases of $499 million in noninterest-bearing demand deposits and $116 million in savings deposits, partially offset by decreases of $332 million in foreign deposits, $64 million in time deposits and $49 million in money market deposits. Average deposits during the first quarter of 2014 decreased by $476 million compared to the fourth quarter of 2013, mainly due to decreases of $284 million in noninterest-bearing demand deposits and $82 million in time deposits.

During the first quarter of 2014, the subsidiary banks increased their investments in security resell agreements by $39 million and decreased their interest-bearing deposits held for investment by $17 million.

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 for each of the Company’s subsidiary banks. Zions Bank, TCBW, and TCBO are members of the FHLB of Seattle. CB&T, NSB, and NBAZ are members of the FHLB of San Francisco. Vectra is a member of the FHLB of Topeka and Amegy Bank is a member of the FHLB of Dallas. The FHLB allows member banks to borrow against their eligible loans to satisfy liquidity and funding requirements. The subsidiary banks are required to invest in FHLB and Federal Reserve stock to maintain their borrowing capacity.

At March 31, 2014, the amount available for additional FHLB and Federal Reserve borrowings was approximately $16.9 billion. Loans with a carrying value of approximately $23.5 billion at March 31, 2014, and $23.0 billion at December 31, 2013, have been pledged at the Federal Reserve and various FHLBs as collateral for current and potential borrowings. The Company had a de minimis amount (approximately $23 million) of long-term borrowings outstanding with the FHLB at March 31, 2014, which was essentially unchanged from December 31, 2013, and had no short-term FHLB or Federal Reserve borrowings outstanding, which also was unchanged from December 31, 2013. At both March 31, 2014 and December 31, 2013, the subsidiary banks’ total investment in FHLB stock was approximately $105 million. The subsidiary banks’ total investment in Federal Reserve stock was approximately $119 million and $121 million for the same respective dates.

The Company’s investment activities can provide or use cash, depending on the asset-liability management posture taken. During the first quarter of 2014, investment securities’ activities resulted in a net decrease in investment securities and a net $378 million increase in cash compared with a net $120 million decrease in cash for the first quarter of 2013.

Maturing balances in our subsidiary banks’ loan portfolios also provide additional flexibility in managing cash flows. Lending activity for the first quarter of 2014 resulted in a net cash outflow of $169 million compared to a net cash outflow of $127 million for the first quarter of 2013.


83

ZIONS BANCORPORATION AND SUBSIDIARIES

As previously disclosed in “Maturities of Long-Term Debt During Remainder of 2014,” Amegy has a $75 million subordinated note due in September 2014.

A more comprehensive discussion of our liquidity management is contained in the Company’s 2013 Annual Report on Form 10-K.

Operational Risk Management
Operational risk is the risk to current or anticipated earnings or capital arising from inadequate or failed internal processes or systems, human errors or misconduct, or adverse external events. In its ongoing efforts to identify and manage operational risk, the Company has an Enterprise Risk Management department whose responsibility is to help employees, management and the Board to assess, understand, measure, monitor and manage risk in accordance with the Company’s Risk Appetite Framework. We have documented both controls and the Control Self Assessment related to financial reporting under Section 404 of the Sarbanes-Oxley Act of 2002 and the Federal Deposit Insurance Corporation Improvement Act of 1991.

To manage and minimize its operational risk, the Company has 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 the Company’s systems or telecommunications, access customer data, and/or deny normal access to those systems to the Company’s legitimate customers; regulatory compliance reviews; and periodic reviews by the Company’s internal audit and credit examination departments. Reconciliation procedures have been established to ensure that data processing systems consistently and accurately capture critical data. Further, we maintain contingency plans and systems 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.

Efforts are continually underway to improve the Company’s oversight of operational risk, including enhancement of risk and control self assessments and antifraud measures, which are reported to the Operational Risk Committee, the Enterprise Risk Management Committee, and the Risk Oversight Committee of the Board. Late in 2013, the Company further improved operational risk management by creating and staffing the position of Director of Operational Risk, to better coordinate and oversee the Company’s operational risk management. The number and sophistication of attempts to disrupt or penetrate the Company’s critical systems, sometimes referred to as hacking, cyberfraud, cyberattacks, cyberterrorism, or other similar names, also continues to grow. On a daily basis, the Company, its customers, and other financial institutions are subject to a large number of such attempts. The Company has established systems and procedures to monitor, thwart or mitigate damage from such attempts, and usually these efforts have been successful. However, in some instances we, or our customers, have been victimized by cyberfraud (related losses to the Company have not been material), or some of our customers have been temporarily unable to routinely access our online systems as a result of, for example, distributed denial of service attacks.

CAPITAL MANAGEMENT
We believe that a strong capital position is vital to continued profitability and to promoting depositor and investor confidence.

Controlling interest shareholders’ equity increased by 1.9% from $6.5 billion at December 31, 2013 to $6.6 billion at March 31, 2014. The increase in total controlling interest shareholders’ equity is primarily due to $101.2 million of net income applicable to the controlling interest and a $49.4 million improvement in net unrealized losses on investment securities recorded in AOCI, partially offset by $32.5 million of dividends recorded on preferred and common stock. The improvement in net unrealized losses on investment securities recorded during the first quarter of 2014 was primarily the result of an increase in the fair value of investment securities, partially offset by the recognition in earnings of net fixed income securities gains on investment securities sold.

84

ZIONS BANCORPORATION AND SUBSIDIARIES


During the first quarter of 2014, the Company maintained its quarterly dividend on common stock at $0.04 per share. During the second quarter of 2013, the Company increased its quarterly dividend on common stock from $0.01 per share to $0.04 per share. Reflecting this increase, the Company paid $7.4 million in dividends on common stock during the first quarter of 2014 compared to $1.8 million during the first quarter of 2013. During its April 25, 2014 meeting, the Board of Directors declared a dividend of $0.04 per common share payable on May 29, 2014 to shareholders of record on May 22, 2014.

The Company recorded preferred stock dividends of $25.0 million and $22.4 million for the first quarters of 2014 and 2013, respectively. Preferred stock dividends recorded in the first quarter of 2014 included an accrual of $8.7 million due to the phase-in of semiannual dividends on a newly issued series of preferred stock which will be paid in June 2014. The Company expects that preferred dividends recorded will be approximately $16 million per quarter through the remainder of 2014.

Banking organizations are required by capital regulations to maintain adequate levels of capital as measured by several regulatory capital ratios. The following schedule shows the Company’s capital and performance ratios as of March 31, 2014, December 31, 2013, and March 31, 2013.
CAPITAL RATIOS
March 31,
2014
December 31,
2013
March 31,
2013
Tangible common equity ratio
8.24
%
8.02
%
7.53
%
Tangible equity ratio
10.06
%
9.85
%
9.97
%
Average equity to average assets (three months ended)
11.90
%
11.20
%
11.54
%
Risk-based capital ratios:
Tier 1 common
10.56
%
10.18
%
10.07
%
Tier 1 leverage
10.71
%
10.48
%
11.55
%
Tier 1 risk-based
13.19
%
12.77
%
14.08
%
Total risk-based
15.11
%
14.67
%
15.75
%
Return on average common equity (three months ended)
5.52
%
(4.51
)%
7.18
%
Tangible return on average tangible common equity
(three months ended)
6.96
%
(5.45
)%
9.37
%

At March 31, 2014, regulatory Tier 1 risk-based capital and total risk-based capital were $5,840 million and $6,687 million, respectively, compared to $5,763 million and $6,622 million at December 31, 2013.

A more comprehensive discussion of our capital management is contained in the Company’s 2013 Annual Report on Form 10-K.

Capital Plan and Stress Test
The Company has an annual regulatory requirement to file a Capital Plan with the Federal Reserve based on the results of specified stress-testing and documented sound policies, processes, models, controls, and governance practices. The Capital Plan, which is reviewed by the Federal Reserve and is subject to its objection, governs all of the Company’s capital actions for five quarters. A more comprehensive discussion about our Capital Plan and Stress Tests is contained in the Company’s 2013 Annual Report on Form 10-K.

The Company originally submitted its 2014 Capital Plan to the Federal Reserve on January 6, 2014. The Company subsequently notified the Federal Reserve of its intention to resubmit its Capital Plan to reflect the impact of the Interim Final Rule (“IFR”), which amended the Volcker Rule, and its decision to sell certain CDO securities to improve the Company’s risk profile. In February 2014, the Federal Reserve granted its approval for a resubmission. In March 2014, the Federal Reserve notified the Company that, based upon its original Capital Plan, the Company’s

85

ZIONS BANCORPORATION AND SUBSIDIARIES

capital ratios would not have met certain of the minimum requirements of the Federal Reserve’s capital adequacy rules under results projected by the Federal Reserve using the hypothetical severely adverse economic stress scenario in the Dodd-Frank Act Stress Test (“DFAST”). The DFAST results were worse than those projected by the Company with regard to pretax, pre-provision net revenue, and also with regard to credit losses for some loan types. The Federal Reserve publishes only limited information about its DFAST models, so the Company is unable to determine with specificity the causes of the differences.

The Company resubmitted its 2014 Capital Plan and stress test on April 30, 2014 to the Federal Reserve. The IFR allows banking entities to retain investments in primarily bank TruPS CDOs. The resubmitted plan incorporated the impact of this exemption, as well as the impact of the sales of CDO securities that occurred in the first quarter of 2014. These sales of $932 million par amount of CDO securities resulted in net gains of $26 million during the first quarter of 2014. The resubmission, per the capital planning rules, did not include the effects of the CDO paydowns that occurred during the first quarter of 2014; hence, the total change in the portfolio used in the stress test differs from the total change recorded under GAAP.

The Company believes that the sales of these CDOs, which were projected to result in significant OTTI under the Federal Reserve’s severely adverse stress scenario, significantly improved its risk profile and projected capital position under stress. However, given the severity of the Federal Reserve’s DFAST projections for the Company, Zions estimates that a common equity issuance of approximately $400 million may be required to receive a non-objection to the Company’s Capital Plan. The Federal Reserve has up to 75 days to render its “object/does not object” decision with regard to the resubmitted Capital Plan.

The Company has made and will continue to make significant improvements to its internal stress testing, risk management, and related processes to meet the standards of the CCAR process and is allocating significant resources to the successful implementation of these improvements.

Basel III
In 2013, the FRB, FDIC, and OCC issued final rules (the “Basel III Capital Rules”) establishing a new comprehensive capital framework for U.S. banking organizations. The rules implement 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. The Basel III Capital Rules substantially revise the risk-based capital requirements applicable to bank holding companies and depository institutions, including the Company, compared to the current U.S. risk-based capital rules. The Basel III Capital Rules are effective for the Company on January 1, 2015 (subject to phase-in periods for certain of their components).

The Basel III Capital Rules, among other things, (i) introduce a new capital measure called “Common Equity Tier 1” (“CET1”), (ii) specify that Tier 1 capital consists of CET1 and “Additional Tier 1 capital” instruments meeting specified requirements, (iii) apply most deductions/adjustments to regulatory capital measures to CET1 and not to the other components of capital, thus potentially requiring higher levels of CET1 in order to meet minimum ratios, and (iv) expand the scope of the deductions/adjustments from capital as compared to existing regulations.

Under the Basel III Capital Rules, the minimum capital ratios as of January 1, 2015 will be as follows:
•
4.5% CET1 to risk-weighted assets.
•
6.0% Tier 1 capital (i.e., CET1 plus Additional Tier 1) to risk-weighted assets.
•
8.0% Total capital (i.e., Tier 1 plus Tier 2) to risk-weighted assets.
•
4.0% Tier 1 capital to average consolidated assets as reported on consolidated financial statements (known as the “leverage ratio”).
When fully phased in on January 1, 2019, the Basel III Capital Rules will also require the Company and its subsidiary banks to maintain a 2.5% “capital conservation buffer,” designed to absorb losses during periods of economic stress, composed entirely of CET1, on top of the minimum risk-weighted asset ratios, effectively resulting

86

ZIONS BANCORPORATION AND SUBSIDIARIES

in minimum ratios of (i) CET1 to risk-weighted assets of at least 7.0%, (ii) Tier 1 capital to risk-weighted assets of at least 8.5%, and (iii) Total capital to risk-weighted assets of at least 10.5%.

The Basel III Capital Rules also prescribe a standardized approach for calculating risk-weighted assets that expands the risk-weighting categories from the current four Basel I-derived categories (0%, 20%, 50% and 100%) to a much larger and more risk-sensitive number of categories.

Under current capital standards, the effects of AOCI items included in capital are excluded for purposes of determining regulatory capital ratios. Under the Basel III Capital Rules, the effects of certain AOCI items are not excluded; however, “non-advanced approaches banking organizations,” including the Company and its subsidiary banks, may make a one-time permanent election as of January 1, 2015 to continue to exclude these items. The Company has not yet determined whether to make this election.

A more comprehensive discussion about Basel III Capital Rules and the impact upon the Company is contained in the Company’s 2013 Annual Report on 10-K.

The Company believes that, as of March 31, 2014, the Company and its subsidiary banks would meet all capital adequacy requirements under the Basel III Capital Rules on a fully phased-in basis if such requirements were currently effective including after giving effect to the deduction described above.

GAAP to NON-GAAP RECONCILIATIONS
1. Tier 1 common capital
Traditionally, the Federal Reserve and other banking regulators have assessed a bank’s capital adequacy based on Tier 1 capital, the calculation of which is codified in federal banking regulations. In 2013, the FRB published final rules establishing a new comprehensive capital framework for U.S. banking organizations, including the new CET1 capital measure. The new capital rules are effective for the Company on January 1, 2015; however, some key regulatory changes to the calculation of this measure are phased in over several years. The CET1 capital ratio is the core capital component of the Basel III standards, and we believe that it increasingly is becoming a key ratio considered by regulators, investors, and analysts. There is a difference between this ratio calculated using Basel I definitions of Tier I common (“T1C”) capital and those definitions using Basel III rules. We present the calculation of key regulatory capital ratios, including T1C capital, using the governing definition at the end of each quarter, taking into account applicable phase-in rules.

T1C capital is often expressed as a percentage of risk-weighted assets. Under the current risk-based capital framework applicable to the Company, a bank’s balance sheet assets and credit equivalent amounts of off-balance sheet items are assigned to one of four broad “Basel I” risk categories for banks, like our subsidiary banks, that have not adopted the Basel II “Advanced Measurement Approach.” The aggregated dollar amount in each category is then multiplied by the risk weighting assigned to that category. The resulting weighted values from each of the four categories are added together and this sum is the risk-weighted assets total that, as adjusted, comprises the denominator of certain risk-based capital ratios. Tier 1 capital is then divided by this denominator (risk-weighted assets) to determine the Tier 1 capital ratio. Adjustments are made to Tier 1 capital to arrive at T1C capital. T1C capital is also divided by the risk-weighted assets to determine the T1C capital ratio. The amounts disclosed as risk-weighted assets are calculated consistent with banking regulatory requirements.

The following schedule provides a reconciliation of controlling interest shareholders’ equity (GAAP) to Tier 1 capital (regulatory) and to T1C capital (non-GAAP) using current U.S. regulatory treatment and not proposed Basel III calculations.


87

ZIONS BANCORPORATION AND SUBSIDIARIES

TIER 1 COMMON CAPITAL (NON-GAAP)
(Amounts in millions)
March 31,
2014
December 31,
2013
March 31,
2013
Controlling interest shareholders’ equity (GAAP)
$
6,586

$
6,465

$
6,355

Accumulated other comprehensive loss
145

192

407

Nonqualifying goodwill and intangibles
(1,048
)
(1,050
)
(1,061
)
Other regulatory adjustments
(6
)
(6
)
(2
)
Qualifying trust preferred securities
163

163

448

Tier 1 capital (regulatory)
5,840

5,764

6,147

Qualifying trust preferred securities
(163
)
(163
)
(448
)
Preferred stock
(1,004
)
(1,004
)
(1,301
)
Tier 1 common capital (non-GAAP)
$
4,673

$
4,597

$
4,398

Risk-weighted assets (regulatory)
$
44,267

$
45,146

$
43,666

Tier 1 common capital to risk-weighted assets (non-GAAP)
10.56
%
10.18
%
10.07
%

2. Tangible return on average tangible common equity
This Form 10-Q presents “tangible return on average tangible common equity” which excludes, net of tax, the amortization of core deposit and other intangibles and impairment loss on goodwill from net earnings applicable to common shareholders, and average goodwill and core deposit and other intangibles from average common equity.

The following schedule provides a reconciliation of net earnings applicable to common shareholders (GAAP) to net earnings applicable to common shareholders, excluding net of tax, the effects of amortization of core deposit and other intangibles and impairment loss on goodwill (non-GAAP), and average common equity (GAAP) to average tangible common equity (non-GAAP).

TANGIBLE RETURN ON AVERAGE TANGIBLE COMMON EQUITY (NON-GAAP)
Three Months Ended
(Amounts in thousands)
March 31,
2014
December 31,
2013
March 31,
2013
Net earnings (loss) applicable to common shareholders (GAAP)
$
76,190

$
(59,437
)
$
88,324

Adjustments, net of tax:
Amortization of core deposit and other intangibles
1,827

2,046

2,425

Net earnings (loss) applicable to common shareholders, excluding the effects of the adjustments, net of tax (non-GAAP) (a)
$
78,017

$
(57,391
)

$
90,749

Average common equity (GAAP)
$
5,595,363

$
5,233,422

$
4,990,317

Average goodwill
(1,014,129
)
(1,014,129
)
(1,014,129
)
Average core deposit and other intangibles
(35,072
)
(38,137
)
(49,069
)
Average tangible common equity (non-GAAP) (b)
$
4,546,162

$
4,181,156

$
3,927,119

Number of days in quarter (c)
90

92

90

Number of days in year (d)
365

365

365

Tangible return on average tangible common equity
(non-GAAP) (a/b/c*d)
6.96
%
(5.45
)%
9.37
%
3. Total shareholders’ equity to tangible equity and tangible common equity
This Form 10-Q presents “tangible equity” and “tangible common equity” which excludes goodwill and core deposit and other intangibles for both measures and preferred stock and noncontrolling interests for tangible common equity.

The following schedule provides a reconciliation of total shareholders’ equity (GAAP) to both tangible equity (non-GAAP) and tangible common equity (non-GAAP).

88

ZIONS BANCORPORATION AND SUBSIDIARIES

TANGIBLE EQUITY (NON-GAAP) AND TANGIBLE COMMON EQUITY (NON-GAAP)
(Amounts in millions)
March 31,
2014
December 31,
2013
March 31,
2013
Total shareholders’ equity (GAAP)
$
6,586

$
6,465

$
6,351

Goodwill
(1,014
)
(1,014
)
(1,014
)
Core deposit and other intangibles
(34
)
(36
)
(47
)
Tangible equity (non-GAAP) (a)
5,538

5,415

5,290

Preferred stock
(1,004
)
(1,004
)
(1,301
)
Noncontrolling interests
—

—

5

Tangible common equity (non-GAAP) (b)
$
4,534

$
4,411

$
3,994

Total assets (GAAP)
$
56,081

$
56,031

$
54,111

Goodwill
(1,014
)
(1,014
)
(1,014
)
Core deposit and other intangibles
(34
)
(36
)
(47
)
Tangible assets (non-GAAP) (c)
$
55,033

$
54,981

$
53,050

Tangible equity ratio (a/c)
10.06
%
9.85
%
9.97
%
Tangible common equity ratio (b/c)
8.24
%
8.02
%
7.53
%
For items 2 and 3, the identified adjustments to reconcile from the applicable GAAP financial measures to the non-GAAP financial measures are included where applicable in financial results or in the balance sheet presented in accordance with GAAP. We consider these adjustments to be relevant to ongoing operating results and financial position.

We believe that excluding the amounts associated with these adjustments to present the non-GAAP financial measures provides a meaningful base for period-to-period and company-to-company comparisons, which will assist regulators, investors, and analysts in analyzing the operating results or financial position of the Company and in predicting future performance. These non-GAAP financial measures are used by management and the Board of Directors to assess the performance of the Company’s business or its financial position for evaluating bank reporting segment performance, for presentations of the Company’s performance to investors, and for other reasons as may be requested by investors and analysts. We further believe that presenting these non-GAAP financial measures will permit investors and analysts to assess the performance of the Company on the same basis as that applied by management and the Board of Directors.

Non-GAAP financial measures have inherent limitations, are not required to be uniformly applied, and are not audited. Although these 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 as reported under GAAP.

ITEM 3.
QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK
Interest rate and market risks are among the most significant risks regularly undertaken by the Company, and they are closely monitored as previously discussed. A discussion regarding the Company’s 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
The Company’s management, with the participation of the Company’s Chief Executive Officer and Chief Financial Officer, has evaluated the effectiveness of the Company’s disclosure controls and procedures as of March 31, 2014 . Based on that evaluation, the Company’s Chief Executive Officer and Chief Financial Officer concluded that the Company’s disclosure controls and procedures were effective as of March 31, 2014 . There were no changes in the Company’s internal control over financial reporting during the first quarter of 2014 that have materially affected, or are reasonably likely to materially affect, the Company’s internal control over financial reporting.


89

ZIONS BANCORPORATION AND SUBSIDIARIES

PART II.
OTHER INFORMATION

ITEM 1.
LEGAL PROCEEDINGS
The information contained in Note 11 of the Notes to Consolidated Financial Statements is incorporated by reference herein.

ITEM 1A.
RISK FACTORS
The Company believes there have been no material changes in the risk factors included in Zions Bancorporation’s 2013 Annual Report on Form 10-K.

ITEM 2.
UNREGISTERED SALES OF EQUITY SECURITIES AND USE OF PROCEEDS
The following table summarizes the Company’s share repurchases for the first quarter of 2014:

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
January
34,457

$
29.87

—

$
—

February
475

27.99

—

—

March
463

30.68

—

—

First quarter
35,395

29.86

—

1
Represents common shares acquired from employees in connection with the Company’s stock compensation plan. Shares were acquired from employees to pay for their payroll taxes upon the vesting of restricted stock and restricted stock units under the “withholding shares” provision of an employee share-based compensation plan.


90

ZIONS BANCORPORATION AND SUBSIDIARIES

ITEM 6.
EXHIBITS
a) Exhibits
Exhibit
Number
Description
3.1
Restated Articles of Incorporation of Zions Bancorporation dated March 3, 2014, incorporated by reference to Exhibit 3.1 of Form 8-K filed on March 4, 2014.
*
3.2
Restated Bylaws of Zions Bancorporation dated November 8, 2011, incorporated by reference to Exhibit 3.13 of Form 10-Q for the quarter ended September 30, 2011.
*
31.1
Certification by Chief Executive Officer required by Rules 13a-15(f) and 15d-15(f) under the Securities Exchange Act of 1934 (filed herewith).
31.2
Certification by Chief Financial Officer required by Rules 13a-15(f) and 15d-15(f) under the Securities Exchange Act of 1934 (filed herewith).
32
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 pursuant to Rule 405 of Regulation S-T: (i) the Consolidated Balance Sheets as of March 31, 2014 and December 31, 2013, (ii) the Consolidated Statements of Income for the three months ended March 31, 2014 and March 31, 2013, (iii) the Consolidated Statements of Comprehensive Income for the three months ended March 31, 2014 and March 31, 2013, (iv) the Consolidated Statements of Changes in Shareholders’ Equity for the three months ended March 31, 2014 and March 31, 2013, (v) the Consolidated Statements of Cash Flows for the three months ended March 31, 2014 and March 31, 2013, and (vi) the Notes to Consolidated Financial Statements (filed herewith).
* Incorporated by reference



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
/s/ Harris H. Simmons
Harris H. Simmons, Chairman and
Chief Executive Officer
/s/ Doyle L. Arnold
Doyle L. Arnold, Vice Chairman and
Chief Financial Officer
Date: May 8, 2014

91
TABLE OF CONTENTS