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EX-32 - CERTIFICATION BY CEO AND CFO - ZIONS BANCORPORATION, NATIONAL ASSOCIATION /UT/exh32certofceocfo10-k20180.htm
EX-31.2 - CERTIFICATION BY CFO - ZIONS BANCORPORATION, NATIONAL ASSOCIATION /UT/exh312certofcfo10-q20180331.htm
EX-31.1 - CERTIFICATION BY CEO - ZIONS BANCORPORATION, NATIONAL ASSOCIATION /UT/exh311certofceo10-k20180331.htm


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, 2018
or
¨
TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934
For the transition period from         to        
COMMISSION FILE NUMBER 001-12307
ZIONS BANCORPORATION
(Exact name of registrant as specified in its charter)
UTAH
87-0227400
(State or other jurisdiction of
incorporation or organization)
(I.R.S. Employer
Identification No.)
 
 
One South Main, 15th Floor
Salt Lake City, Utah
84133
(Address of principal executive offices)
(Zip Code)
Registrant’s telephone number, including area code: (801) 844-7637
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
¨
 
 
 
 
 
 
Emerging growth company
¨
If an emerging growth company, indicate by check mark if the registrant has elected not to use the extended transition period for complying with any new or revised financial accounting standards provided pursuant to Section 13(a) of the Exchange Act. ¨
Indicate by check mark whether the registrant is a shell company (as defined in Rule 12b-2 of the Exchange Act).    Yes  ¨    No  ý
Indicate the number of shares outstanding of each of the issuer’s classes of common stock, as of the latest practicable date.
Common Stock, without par value, outstanding at April 30, 2018
197,114,982 shares

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ZIONS BANCORPORATION AND SUBSIDIARIES
Table of Contents



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ZIONS BANCORPORATION AND SUBSIDIARIES

PART I.
FINANCIAL INFORMATION
ITEM 2.
MANAGEMENT’S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS
FORWARD-LOOKING INFORMATION
This Quarterly Report on Form 10-Q includes forward-looking statements within the meaning of Section 21E of the Securities Exchange Act of 1934, as amended, or the Exchange Act. 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, targets, commitments, designs, 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,” “target,” “commit,” “design,” “plan,” “projects,” and the negative thereof and similar words and expressions.
These forward-looking statements are not guarantees of future performance, nor should they be relied upon as representing management’s views as of any subsequent date. Forward-looking statements by their nature address matters that are, to different degrees, uncertain, such as statements about future financial and operating results, the potential timing or consummation of the proposed transaction described in the presentation and receipt of regulatory approvals or determinations, or the anticipated benefits thereof, including without limitation, future financial and operating results. 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. Important risk factors that may cause such material differences include, but are not limited to:
the Company’s ability to successfully execute its business plans, manage its risks, and achieve its objectives, including its restructuring and efficiency initiatives and its capital plan;
changes in local, national and international political and economic conditions, including without limitation the political and economic effects of the economic and fiscal imbalance in the United Sates and other countries, potential or actual downgrades in ratings of sovereign debt issued by the United States and other countries, and other major developments, including wars, military actions, and terrorist attacks;
changes in financial and commodity market prices and conditions, either internationally, nationally or locally in areas in which the Company conducts its operations, including without limitation rates of business formation and growth, commercial and residential real estate development, real estate prices, and oil and gas-related commodity prices;
changes in markets for equity, fixed income, commercial paper and other securities, commodities, including availability, market liquidity levels, and pricing;
any impairment of our goodwill or other intangibles, or any adjustment of valuation allowances on our deferred tax assets due to adverse changes in the economic environment, declining operations of the reporting unit, or a change to the corporate statutory tax rate or other similar changes if and as implemented by local and national governments, or other factors;
changes in interest rates, the quality and composition of the loan and securities portfolios, demand for loan products, deposit flows and competition;
the impact of acquisitions, dispositions, and corporate restructurings;
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 United States (“U.S.”) Department of Treasury, the Office of the Comptroller of the Currency (“OCC”), the Board of Governors of the Federal Reserve System, the Federal Deposit Insurance

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ZIONS BANCORPORATION AND SUBSIDIARIES

Corporation (“FDIC”), the Securities and Exchange Commission, and the Consumer Financial Protection Bureau;
the impact of executive compensation rules under the Dodd-Frank Wall Street Reform and Consumer Protection Act (“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 Basel III, and rules and regulations thereunder, on our required regulatory capital and liquidity levels, governmental assessments on us (including, but not limited to, the Federal Reserve reviews of our annual capital plan), the scope of business activities in which we may engage, the manner in which we engage in such activities, 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;
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
ACL
Allowance for Credit Losses
Dodd-Frank Act
Dodd-Frank Wall Street Reform and Consumer Protection Act
AFS
Available-for-Sale
DTA
Deferred Tax Asset
ALCO
Asset/Liability Committee
EaR
Earnings at Risk
ALLL
Allowance for Loan and Lease Losses
ERM
Enterprise Risk Management
Amegy
Amegy Bank, a division of ZB, N.A.
EVE
Economic Value of Equity at Risk
AOCI
Accumulated Other Comprehensive Income
FAMC
Federal Agricultural Mortgage Corporation, or “Farmer Mac”
ASC
Accounting Standards Codification
FDIC
Federal Deposit Insurance Corporation
ASU
Accounting Standards Update
FHLB
Federal Home Loan Bank
ATM
Automated Teller Machine
FRB
Federal Reserve Board
BHC
Bank Holding Company
FTP
Funds Transfer Pricing
bps
basis points
GAAP
Generally Accepted Accounting Principles
CB&T
California Bank & Trust, a division of ZB, N.A.
HECL
Home Equity Credit Line
CCAR
Comprehensive Capital Analysis and Review
HQLA
High-Quality Liquid Assets
CLTV
Combined Loan-to-Value Ratio
HTM
Held-to-Maturity
CRE
Commercial Real Estate
IMG
International Manufacturing Group
DFAST
Dodd-Frank Act Stress Test
LCR
Liquidity Coverage Ratio
LIBOR
London Interbank Offered Rate
PPNR
Pre-provision Net Revenue

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ZIONS BANCORPORATION AND SUBSIDIARIES

Municipalities
State and Local Governments
ROC
Risk Oversight Committee
NBAZ
National Bank of Arizona, a division of ZB, N.A.
RULC
Reserve for Unfunded Lending Commitments
NIM
Net Interest Margin
S&P
Standard and Poor's
NM
Not Meaningful
SBA
Small Business Administration
NSB
Nevada State Bank, a division of ZB, N.A.
SBIC
Small Business Investment Company
NSFR
Net Stable Funding Ratio
TCBW
The Commerce Bank of Washington, a division of ZB, N.A.
OCC
Office of the Comptroller of the Currency
TDR
Troubled Debt Restructuring
OCI
Other Comprehensive Income
Tier 1
Common Equity Tier 1 (Basel III)
OREO
Other Real Estate Owned
Topic 606
ASC Topic 606, “Revenue from Contracts with Customers
OTTI
Other-Than-Temporary Impairment
U.S.
United States
PAGA
Private Attorney General Act
Vectra
Vectra Bank Colorado, a division of ZB, N.A.
Parent
Zions Bancorporation
ZB, N.A.
ZB, National Association
PEI
Private Equity Investment
Zions Bank
Zions Bank, a division of ZB, N.A.
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 2017 Annual Report on Form 10-K.
GAAP to NON-GAAP RECONCILIATIONS
This Form 10-Q presents non-GAAP financial measures, in addition to generally accepted accounting principles (“GAAP”) financial measures, to provide investors with additional information. The adjustments to reconcile from the applicable GAAP financial measures to the non-GAAP financial measures are presented in the following schedules. The Company considers these adjustments to be relevant to ongoing operating results and provide a meaningful base for period-to-period and company-to-company comparisons. These non-GAAP financial measures are used by management to assess the performance and financial position of the Company and for presentations of Company performance to investors. The Company further believes that presenting these non-GAAP financial measures will permit investors to assess the performance of the Company on the same basis as that applied by management.
Non-GAAP financial measures have inherent limitations, and are not required to be uniformly applied by individual entities. Although non-GAAP financial measures are frequently used by stakeholders to evaluate a company, they have limitations as an analytical tool and should not be considered in isolation or as a substitute for analysis of results reported under GAAP.
The following are non-GAAP financial measures presented in this Form 10-Q and a discussion of why management uses these non-GAAP measures:
Return on Average Tangible Common Equity – this schedule also includes “net earnings applicable to common shareholders, excluding the effects of the adjustment, net of tax” and “average tangible common equity.” Return on average tangible common equity is a non-GAAP financial measure that management believes provides useful information about the Company’s use of shareholders’ equity. Management believes the use of ratios that utilize tangible equity provides additional useful information because they present measures of those assets that can generate income.
Tangible Equity Ratio, Tangible Common Equity Ratio, and Tangible Book Value per Common Share – this schedule also includes “tangible equity,” “tangible common equity,” and “tangible assets.” Tangible equity ratio, tangible common equity ratio, and tangible book value per common share are non-GAAP financial measures that management believes provides additional useful information about the levels of tangible assets and tangible equity between each other and in relation to outstanding shares of common stock. Management believes the use of ratios that utilize tangible equity provides additional useful information because they present measures of those assets that can generate income.

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ZIONS BANCORPORATION AND SUBSIDIARIES

Efficiency Ratio – this schedule also includes “adjusted noninterest expense,” “taxable-equivalent net interest income,” “adjusted taxable-equivalent revenue,” and “adjusted pre-provision net revenue (“PPNR”).” The methodology of determining the efficiency ratio may differ among companies. Management makes adjustments to exclude certain items as identified in the subsequent schedule which it believes allows for more consistent comparability among periods. Management believes the efficiency ratio provides useful information regarding the cost of generating revenue. Adjusted noninterest expense provides a measure as to how well the Company is managing its expenses, and adjusted PPNR enables management and others to assess the Company’s ability to generate capital to cover credit losses through a credit cycle. Taxable-equivalent net interest income allows management to assess the comparability of revenue arising from both taxable and tax-exempt sources.
RETURN ON AVERAGE TANGIBLE COMMON EQUITY (NON-GAAP)
 
 
Three Months Ended
(Dollar amounts in millions)
 
March 31,
2018
 
December 31,
2017
 
September 30,
2017
 
March 31,
2017
 
 
 
 
 
 
 
 
 
Net earnings applicable to common shareholders (GAAP)
 
$
231

 
$
114

 
$
152

 
$
129

Adjustment, net of tax:
 
 
 
 
 
 
 
 
Amortization of core deposit and other intangibles
 

 
1

 
1

 
1

Net earnings applicable to common shareholders, excluding the effects of the adjustment, net of tax (non-GAAP)
(a)
$
231

 
$
115

 
$
153

 
$
130

Average common equity (GAAP)
 
$
7,061

 
$
7,220

 
$
7,230

 
$
6,996

Average goodwill and intangibles
 
(1,016
)
 
(1,017
)
 
(1,018
)
 
(1,022
)
Average tangible common equity (non-GAAP)
(b)
$
6,045

 
$
6,203

 
$
6,212

 
$
5,974

Number of days in quarter
(c)
90

 
92

 
92

 
90

Number of days in year
(d)
365

 
365

 
365

 
365

Return on average tangible common equity (non-GAAP)
(a/b/c)*d
15.5
%
 
7.4
%
 
9.8
%
 
8.8
%
TANGIBLE EQUITY (NON-GAAP) AND TANGIBLE COMMON EQUITY (NON-GAAP)
(Dollar amounts in millions, except per share amounts)
 
March 31,
2018
 
December 31,
2017
 
September 30,
2017
 
March 31,
2017
 
 
 
 
 
 
 
 
 
Total shareholders’ equity (GAAP)
 
$
7,644

 
$
7,679

 
$
7,761

 
$
7,730

Goodwill and intangible
 
(1,016
)
 
(1,016
)
 
(1,017
)
 
(1,021
)
Tangible equity (non-GAAP)
(a)
6,628

 
6,663

 
6,744

 
6,709

Preferred stock
 
(566
)
 
(566
)
 
(566
)
 
(710
)
Tangible common equity (non-GAAP)
(b)
$
6,062

 
$
6,097

 
$
6,178

 
$
5,999

Total assets (GAAP)
 
$
66,481

 
$
66,288

 
$
65,564

 
$
65,463

Goodwill and intangible
 
(1,016
)
 
(1,016
)
 
(1,017
)
 
(1,021
)
Tangible assets (non-GAAP)
(c)
$
65,465

 
$
65,272

 
$
64,547

 
$
64,442

Common shares outstanding (thousands)
(d)
197,050

 
197,532

 
199,712

 
202,595

Tangible equity ratio (non-GAAP)
(a/c)
10.12
%
 
10.21
%
 
10.45
%
 
10.41
%
Tangible common equity ratio (non-GAAP)
(b/c)
9.26
%
 
9.34
%
 
9.57
%
 
9.31
%
Tangible book value per common share (non-GAAP)
(b/d)
$
30.76

 
$
30.87

 
$
30.93

 
$
29.61


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ZIONS BANCORPORATION AND SUBSIDIARIES

EFFICIENCY RATIO (NON-GAAP) AND ADJUSTED PRE-PROVISION NET REVENUE (NON-GAAP)
(Dollar amounts in millions)
 
Three Months Ended
 
Year Ended
 
March 31,
2018
 
December 31,
2017
 
March 31,
2017
 
December 31,
2017
 
 
 
 
 
 
 
 
 
Noninterest expense (GAAP)
(a)
$
412

 
$
417

 
$
414

 
$
1,649

Adjustments:
 
 
 
 
 
 
 
 
Severance costs
 

 
1

 
5

 
7

Other real estate expense, net
 

 

 

 
(1
)
Provision for unfunded lending commitments
 
(7
)
 
(1
)
 
(5
)
 
(7
)
Amortization of core deposit and other intangibles
 

 
1

 
2

 
6

Restructuring costs
 

 
1

 
1

 
4

Total adjustments
(b)
(7
)
 
2

 
3

 
9

Adjusted noninterest expense (non-GAAP)
(a-b)=
(c)
$
419

 
$
415

 
$
411

 
$
1,640

Net interest income (GAAP)
(d)
$
542

 
$
526

 
$
489

 
$
2,065

Fully taxable-equivalent adjustments
 
5

 
9


8

 
35

Taxable-equivalent net interest income (non-GAAP)1
(d+e)=f
547

 
535

 
497

 
2,100

Noninterest income (GAAP)
g
138

 
139

 
132

 
544

Combined income 
  (non-GAAP)
(f+g)=
(h)
685

 
674

 
629

 
2,644

Adjustments:
 
 
 
 
 
 
 
 
Fair value and nonhedge derivative income (loss)
 
1

 

 

 
(2
)
Securities gains, net
 

 

 
5

 
14

Total adjustments
(i)
1

 

 
5

 
12

Adjusted taxable-equivalent revenue (non-GAAP)
(h-i)=
(j)
$
684

 
$
674

 
$
624

 
$
2,632

Pre-provision net revenue
(h)-(a)
$
273

 
$
257

 
$
215

 
$
995

Adjusted PPNR (non-GAAP)
(j-c)
265

 
259

 
213

 
992

Efficiency ratio (non-GAAP)
(c/j)
61.3
%
 
61.6
%
 
65.9
%
 
62.3
%
RESULTS OF OPERATIONS
Executive Summary
The Company reported net earnings applicable to common shareholders of $231 million, or $1.09 per diluted common share for the first quarter of 2018, compared with net earnings applicable to common shareholders of $129 million, or $0.61 per diluted common share for the first quarter of 2017, and $114 million, or $0.54 per diluted common share for the fourth quarter of 2017. The improved financial performance reflects revenue growth, continued expense control and improved credit quality, in addition to the decline in the corporate tax rate from 35% to 21%. We continue to focus on delivering a simple, easy, and fast experience for customers and employees.

Net income in the first quarter of 2018 increased from the first quarter of 2017 due to a $53 million increase in net interest income, from growth in our lending portfolio, and short-term rate increases that positively impacted loan yields. Net income increased significantly from a $65 million decline in the provision for credit losses and $11 million from four loan interest income recoveries. Noninterest income increased by $6 million and noninterest expense decreased by $2 million from the first quarter of 2017 to the first quarter of 2018. Net interest margin (“NIM”) was 3.56% in the first quarter of 2018, compared with 3.38% in the first quarter of 2017 and 3.45% in the fourth quarter of 2017.

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ZIONS BANCORPORATION AND SUBSIDIARIES

Highlights from the First Quarter of 2018
Net interest income, which is more than three-quarters of our revenue, improved by $53 million from $489 million in the first quarter of 2017 to $542 million in the first quarter of 2018. The increase was driven by growth in the average balances of loan and investment securities portfolios and increases in short-term benchmark interest rates. NIM was 3.56% in the first quarter of 2018 compared with 3.38% in the first quarter of 2017. For more discussion on the changes in net interest income and NIM see “Net Interest Income” and “Net Interest Margin and Interest Rate Spreads.”
Adjusted PPNR of $265 million for the first quarter of 2018 was up $52 million, or 24%, from the first quarter of 2017. This increase reflects operating leverage improvement resulting from loan growth and a more profitable average earning asset mix. The higher adjusted PPNR in the first quarter of 2018, compared with the same prior year period, drove an improvement in the Company’s efficiency ratio from 65.9% in the first quarter of 2017 to 61.3% in the first quarter of 2018. See “GAAP to Non-GAAP Reconciliations” on page 5 for more information regarding the calculation of adjusted PPNR.
Our lending portfolio grew $2.3 billion, or 5% since the first quarter of 2017. We have seen widespread growth across most products and geographies, with particular strength in commercial and industrial, 1-4 family residential, municipal, and owner-occupied lending. We saw slight declines in our oil and gas-related and commercial real estate (“CRE”) term portfolios and are currently comfortable with the concentrations in both portfolios.
Asset quality has continued to improve during the past several quarters. Credit quality in the oil and gas-related portfolio continues to strengthen and it has remained strong in the rest of the lending portfolio. Overall, from the first quarter of 2017 to the first quarter of 2018, criticized, classified, and nonaccrual loans declined by $460 million, $441 million, and $198 million, respectively.
We continue to increase the return on- and of- capital. Return on average tangible common equity was 15.5% for the first quarter of 2018, up 670 basis points (“bps”) from the same prior year period. Regarding the return of capital, during the first quarter of 2018, the Company repurchased 2.2 million shares of common stock for $115 million. Dividends per common share were $0.20 in the first quarter of 2018, compared with $0.08 for the first quarter of 2017. In June 2017, we announced that the Federal Reserve did not object to the capital actions in the Company’s 2017 capital plan (the binding portion of which spans the timeframe of July 2017 to June 2018). The plan included stepped quarterly common dividend increases, rising to $0.24 per share by the second quarter of 2018, and up to $465 million in common stock repurchases. See “Capital Management” on page 31 for more information regarding the 2017 capital plan.
Areas of focus for 2018
In 2018, we are focused on ongoing initiatives related to Company profitability, including returns on equity. Both our profitability and returns on equity have improved in the first quarter of 2018 when compared to the first quarter of 2017 and the fourth quarter of 2017, as discussed subsequently. We continue to implement technology upgrades and process simplification to ensure current and future performance. See “Areas of focus for 2018” in our 2017 Annual Report on Form 10-K for a discussion of the major areas of emphasis in 2018.
Net Interest Income
Net interest income is the difference between interest earned on interest-earning assets and interest paid on interest-bearing liabilities. Net interest income increased to $542 million in the first quarter of 2018 from $489 million in the first quarter of 2017. The $53 million, or 11%, increase in net interest income was primarily due to a $64 million increase in interest and fees on loans resulting from loan growth in commercial and consumer loans and increases in short-term interest rates. Interest on securities also increased $8 million during this same time as the average investment securities portfolio increased $907 million, or 6%. Interest income in the first quarter of 2018 was positively impacted by $11 million of interest income recoveries, most notably four commercial loan interest income recoveries that were individually greater than $1 million. Interest expense increased $21 million from the first quarter of 2017 to the first quarter of 2018 primarily due to a $17 million increase in interest on short-term

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ZIONS BANCORPORATION AND SUBSIDIARIES

borrowings and a $7 million increase in interest on deposits. The increase in interest on short-term borrowings was due to both larger balances and higher rates while the increase in interest on deposits was due to higher interest rates as interest-bearing deposits decreased slightly. We have remained disciplined in our deposit pricing, as over the past twelve months the Federal Reserve has increased the overnight benchmark Federal Funds rate by 75 bps, while the rate paid on the Company’s interest-bearing deposits increased 9 bps and the rate paid on total deposits increased 5 bps.
We expect the size of the securities portfolio to be relatively stable during the next several quarters, and we are not assuming any further increases in benchmark interest rates in our forecasts. Therefore, we expect net interest income to increase at a moderate pace over the next twelve months.
Net Interest Margin and Interest Rate Spreads
The NIM was 3.56% and 3.38% for the first quarters of 2018 and 2017, respectively, and 3.45% for the fourth quarter of 2017. The increased NIM for the first quarter of 2018, compared with the same prior year period, resulted from average loan growth of 5%, the material expansion of the yield on earning assets, which increased 31 bps, and the combination of several other factors. The NIM was positively impacted by changes in asset mix, by moving funds from lower-yielding money market investments to purchase investment securities primarily during the first quarter of 2017. Average interest-earning assets increased $2.6 billion from the first quarter of 2017 to the first quarter of 2018, with average rates improving 31 bps. The decrease in the corporate tax rate from 35% to 21% decreased the taxable-equivalent yield on $3.1 billion of tax-exempt assets, which had a 3 bps negative impact on the taxable-equivalent yield of interest-earning assets. The previously-mentioned loan interest income recoveries positively impacted the loan yield by approximately 9 bps and the net interest margin by approximately 7 bps in the first quarter of 2018.
Average interest-bearing liabilities increased $2.5 billion in the first quarter of 2018 compared with the first quarter of 2017 as a result of wholesale borrowings to fund some of the balance sheet growth. The average rate on interest-bearing liabilities increased 22 bps during this same time period due to rising interest rates.
The average loan portfolio increased $2.3 billion, or 5% between the first quarter of 2018 and the first quarter of 2017. Most of this growth was in commercial and industrial, municipal, and owner-occupied loans, as well as 1-4 family residential loans. The average loan yield increased 37 bps over the same period, with increases in the average rates for commercial, CRE, and consumer loans of 48 bps, 40 bps, and 12 bps, respectively. Benchmark interest rates have increased several times beginning in the fourth quarter of 2015, which has had a positive impact on NIM and spreads, as our earning assets generally reprice quicker than our funding sources. A portion of our variable-rate loans were not affected by these changes primarily due to having longer reset frequencies, or because a substantial portion of our earning assets are tied to longer-term rate indices. The longer-term rates were impacted by a relatively flat yield curve during the last several quarters. We expect overall loan growth to be moderate.
Average available-for-sale (“AFS”) securities balances increased $0.9 billion from the first quarter of 2017 to the first quarter of 2018. Yields on average AFS securities increased slightly by 4 bps over the same period. The increased yield was a result of rising market interest rates on variable-rate securities.
Average noninterest-bearing demand deposits provided us with low cost funding and comprised 45% of average total deposits for both the first quarters of 2017 and 2018. Average total deposits were $52.0 billion for the first quarter of 2018 compared with $52.2 billion for the first quarter of 2017. Average interest-bearing deposits were $28.6 billion in the first quarter of 2018, compared with $28.8 billion for the same prior year period, and the average rate paid increased 9 bps. We have been selectively increasing deposit pricing, but we have not generally experienced significant pressure to increase deposit rates. Although we consider a wide variety of sources when determining our funding needs, we benefit from access to deposits from a significant number of small to mid-sized business customers, particularly noninterest-bearing deposits, that provide us with a low cost of funds and have a positive impact on our NIM. Further detail on deposit betas is discussed in “Interest Rate and Market Risk Management” on page 24.

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ZIONS BANCORPORATION AND SUBSIDIARIES

The average balance of long-term debt was $138 million lower for the first quarter of 2018 compared with the same prior year period, as a result of maturities during the first quarter of 2017. The average interest rate paid on long-term debt decreased slightly by an immaterial amount. As mentioned previously, the Company has used short-term Federal Home Loan Bank (“FHLB”) borrowings to fund some of its balance sheet growth. Average short-term borrowings increased $2.8 billion and the average interest rate paid increased by 83 bps as a result of rising short-term interest rates.
The rate paid on total deposits and interest-bearing liabilities increased 15 bps from 0.18% for the first quarter of 2017 to 0.33% for the first quarter of 2018, primarily due to an increase in both the amount of wholesale funding and the rate paid on wholesale funding and deposits. The total cost of deposits for the first quarter of 2018 was 0.15%, compared with 0.10% for the first quarter of 2017.
The spread on average interest-bearing funds was 3.32% and 3.23% for the first quarters of 2018 and 2017, respectively. The spread on average interest-bearing funds for these periods was affected by the same factors that had an impact on the NIM.
We expect the mix of interest-earning assets to continue to change over the next several quarters due to growth in residential mortgage and municipal loans, in addition to growth in both CRE and non-oil and gas-related commercial and industrial loans. We anticipate this growth will be partially offset by continued modest reduction in the National Real Estate portfolio.
Interest rate spreads and margin are impacted by the mix of assets we hold, the composition of our loan and securities portfolios and the type of funding used. Assuming no additional increases in the Federal Funds rate, we expect the yield on the securities portfolio to increase slightly, as the cash flow from the portfolio is redeployed into securities with yields that are slightly accretive to the overall portfolio.
Our estimates of the Company’s interest rate risk position are highly dependent upon a number of assumptions regarding the repricing behavior of various deposit and loan types in response to changes in both short-term and long-term interest rates, balance sheet composition, and other modeling assumptions, as well as the actions of competitors and customers in response to those changes. Further detail on interest rate risk is discussed in “Interest Rate and Market Risk Management” on page 24.
Refer to the “Liquidity Risk Management” section beginning on page 27 for more information on how we manage liquidity 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.

10


ZIONS BANCORPORATION AND SUBSIDIARIES

CONSOLIDATED AVERAGE BALANCE SHEETS, YIELDS AND RATES
(Unaudited)
 
Three Months Ended
March 31, 2018
 
Three Months Ended
March 31, 2017
(Dollar amounts in millions)
Average
balance
 
Amount of
interest 1
 
Average
yield/rate
 
Average
balance
 
Amount of
interest 1
 
Average
yield/rate
ASSETS
 
 
 
 
 
 
 
 
 
 
 
Money market investments
$
1,495

 
$
6

 
1.70
%
 
$
1,983

 
$
5

 
0.93
%
Securities:
 
 
 
 
 
 
 
 
 
 
 
Held-to-maturity
789

 
7

 
3.54

 
847

 
8

 
3.90

Available-for-sale
14,948

 
80

 
2.18

 
14,024

 
73

 
2.14

Trading account
102

 
1

 
4.00

 
61

 
1

 
3.75

Total securities 2
15,839

 
88

 
2.25

 
14,932

 
82

 
2.24

Loans held for sale
51

 

 
3.94

 
132

 
1

 
3.22

Loans and leases 3
 
 
 
 
 
 
 
 
 
 
 
Commercial
23,040

 
267

 
4.70

 
21,606

 
225

 
4.22

Commercial real estate
11,065

 
128

 
4.67

 
11,241

 
118

 
4.27

Consumer
10,759

 
105

 
3.94

 
9,719

 
92

 
3.82

Total loans and leases
44,864

 
500

 
4.51

 
42,566

 
435

 
4.14

Total interest-earning assets
62,249

 
594

 
3.87

 
59,613

 
523

 
3.56

Cash and due from banks
592

 
 
 
 
 
974

 
 
 
 
Allowance for loan losses
(523
)
 
 
 
 
 
(566
)
 
 
 
 
Goodwill and intangibles
1,016

 
 
 
 
 
1,022

 
 
 
 
Other assets
3,032

 
 
 
 
 
2,952

 
 
 
 
Total assets
$
66,366

 
 
 
 
 
$
63,995

 
 
 
 
LIABILITIES AND SHAREHOLDERS’ EQUITY
 
 
 
 
 
 
 
 
 
 
Interest-bearing deposits:
 
 
 
 
 
 
 
 
 
 
 
Savings and money market
$
25,296

 
12

 
0.19
%
 
$
25,896

 
9

 
0.14
%
Time
3,280

 
8

 
1.00

 
2,856

 
4

 
0.59

Total interest-bearing deposits
28,576

 
20

 
0.28

 
28,752

 
13

 
0.19

Borrowed funds:
 
 
 
 
 
 
 
 
 
 
 
Federal funds and other short-term borrowings
5,707

 
22

 
1.54

 
2,924

 
5

 
0.71

Long-term debt
383

 
5

 
5.83

 
521

 
8

 
5.92

Total borrowed funds
6,090

 
27

 
1.81

 
3,445

 
13

 
1.50

Total interest-bearing liabilities
34,666

 
47

 
0.55

 
32,197

 
26

 
0.33

Noninterest-bearing deposits
23,417

 
 
 
 
 
23,460

 
 
 
 
Total deposits and interest-bearing liabilities
58,083

 
47

 
0.33


55,657

 
26

 
0.18

Other liabilities
656

 
 
 
 
 
632

 
 
 
 
Total liabilities
58,739

 
 
 
 
 
56,289

 
 
 
 
Shareholders’ equity:
 
 
 
 
 
 
 
 
 
 
 
Preferred equity
566

 
 
 
 
 
710

 
 
 
 
Common equity
7,061

 
 
 
 
 
6,996

 
 
 
 
Total shareholders’ equity
7,627

 
 
 
 
 
7,706

 
 
 
 
Total liabilities and shareholders’ equity
$
66,366

 
 
 
 
 
$
63,995

 
 
 
 
Spread on average interest-bearing funds
 
 
 
 
3.32
%
 
 
 
 
 
3.23
%
Taxable-equivalent net interest income and net yield on interest-earning assets
 
 
$
547

 
3.56
%
 
 
 
$
497

 
3.38
%
1 
Rates are calculated using amounts in thousands and taxable-equivalent rates used where applicable. The taxable-equivalent rates used are the rates that were applicable at the time of each respective reporting period.
2 
Quarter-to-date interest on total securities includes $33 million and $32 million of premium amortization, as of March 31, 2018 and March 31, 2017, respectively.
3 
Net of unearned income and fees, net of related costs. Loans include nonaccrual and restructured loans.

11


ZIONS BANCORPORATION AND SUBSIDIARIES

Provision for Credit Losses
The provision for credit losses is the combination of both the provision for loan losses and the provision for unfunded lending commitments. Note 6 of our 2017 Annual Report on Form 10-K and “Credit Risk Management” on page 18 contains information on how we determine the appropriate level for the allowance for loan and lease losses (“ALLL”) and the reserve for unfunded lending commitments (“RULC”).
The provision for loan losses was $(40) million in the first quarter of 2018, compared with $23 million in the same prior year period. The negative provision in the first quarter of 2018 was a result of improving credit quality, particularly in the oil and gas-related portfolio, and minimal incurred losses-to-date from Hurricane Harvey. The provision in the first quarter of 2017 was largely a result of charge-offs related to an isolated event with a single, non-oil and gas-related borrower. Asset quality during the first quarter of 2018 continued to improve for the entire loan portfolio when compared with the first quarter of 2017, primarily due to improvements in the oil and gas-related portfolio and decreases in overall classified and nonperforming assets. Classified and nonaccrual loans in the total portfolio declined by $441 million and $198 million, respectively, from the first quarter of 2017. Net charge-offs totaled $5 million in the first quarter of 2018, compared with $46 million in the first quarter of 2017.
During the first quarter of 2018, we recorded a $(7) million provision for unfunded lending commitments, compared with a $(5) million provision in the first quarter of 2017. The negative provisions recognized in the first quarters of 2018 and 2017 were a result of credit quality improvement in the oil and gas-related portfolio. From quarter to quarter, the provision for unfunded lending commitments may be subject to sizable fluctuations due to changes in the timing and volume of loan commitments, originations, fundings, and changes in credit quality.

The allowance for credit losses (“ACL”), which is the combination of both the ALLL and the RULC, decreased $80 million from the first quarter of 2017 to the first quarter of 2018. Even with loan growth and the minimal Hurricane Harvey impact, solid credit quality and decreased net charge-offs in the total loan portfolio were responsible for much of this reduction. Further, declining oil and gas-related exposure and increasing non-oil and gas-related C&I and 1-4 family residential mortgage exposure improved the risk profile of the portfolio.
Noninterest Income
Noninterest income represents revenues we earn for products and services that have no associated interest rate or yield. For the first quarter of 2018, noninterest income increased $6 million, or 5% compared with the first quarter of 2017. We believe a subtotal of customer-related fees provides a better view of income over which we have more direct control. It excludes items such as dividends, insurance-related income, mark-to-market adjustments on certain derivatives, and securities gains and losses. The following schedule presents a comparison of the major components of noninterest income.
NONINTEREST INCOME
Three Months Ended
March 31,
 
Amount
change
Percent
change
(Dollar amounts in millions)
2018
 
2017
 
 
 
 
 
 
 
 
Service charges and fees on deposit accounts
$
42

 
$
42

 
$

 %
Other service charges, commissions and fees
55

 
49

 
6

12

Wealth management and trust income
12

 
10

 
2

20

Loan sales and servicing income
6

 
7

 
(1
)
(14
)
Capital markets and foreign exchange
8

 
7

 
1

14

Customer-related fees
123

 
115

 
8

7

Dividends and other investment income
11

 
12

 
(1
)
(8
)
Securities gains, net

 
5

 
(5
)
(100
)
Other
4

 

 
4

NM

Total noninterest income
$
138

 
$
132

 
$
6

5

Customer-related fees increased $8 million, or 7%, from the first quarter of 2017 to the first quarter of 2018. Other service charges, commissions and fees increased $6 million, or 12%, due to customer interest rate swap

12


ZIONS BANCORPORATION AND SUBSIDIARIES

management fees, loan syndication fees, and other fees. Wealth management and trust income increased by $2 million, or 20%, due to both increased corporate and personal trust income. Improvements in platform and product simplifications contributed to this increase. We expect moderate growth in customer-related fees over the next twelve months.
Other noninterest income increased $4 million, primarily due to favorable credit valuations on client-related derivative instruments and net gains on sales of assets. These increases were partially offset by a $5 million decrease in securities gains as a result of increases in the market value of the Company’s Small Business Investment Company (“SBIC”) investments in the first quarter of 2017 that did not recur in similar magnitudes in the first quarter of 2018.
Noninterest Expense
Noninterest expense decreased by $2 million, or less than 1%, over the first quarter of 2017. The Company remains focused on expense control efforts, while continuing to invest in technology and simplification initiatives. The following schedule presents a comparison of the major components of noninterest expense.
NONINTEREST EXPENSE
Three Months Ended
March 31,
 
Amount
change
Percent
change
(Dollar amounts in millions)
2018
 
2017
 
 
 
 
 
 
 
 
Salaries and employee benefits
$
269

 
$
261

 
$
8

3
 %
Occupancy, net
31

 
34

 
(3
)
(9
)
Furniture, equipment and software, net
33

 
32

 
1

3

Credit-related expense
7

 
7

 


Provision for unfunded lending commitments
(7
)
 
(5
)
 
(2
)
(40
)
Professional and legal services
12

 
14

 
(2
)
(14
)
Advertising
5

 
5

 


FDIC premiums
13

 
12

 
1

8

Other
49

 
54

 
(5
)
(9
)
Total noninterest expense
$
412

 
$
414

 
$
(2
)

Adjusted noninterest expense 1
$
419

 
$
411

 
$
8

2

1 For information on non-GAAP financial measures see “GAAP to Non-GAAP Reconciliations” on page 5
Salary and benefits expense was up $8 million in the first quarter of 2018 compared with the first quarter of 2017 primarily due to a $5 million increase in salaries and bonuses. As a result of the recent tax reform, the Company awarded salary increases to employees earning less than $50,000 per year, and committed to pay $1,000 bonuses in late 2018 to employees earning up to $100,000 and employed at the end of 2017. The increase in salary and employee benefits during the first quarter of 2018 was also impacted by a $4 million increase in employee medical expenses.
Noninterest expense was reduced by slight decreases in occupancy, provision for unfunded lending commitments, professional and legal services, and other noninterest expense. Occupancy expense decreased primarily due to increased net rental income from a newly constructed office building. Professional and legal services decreased primarily from a $4 million decrease in consulting fees. Other noninterest expense decreased from a combination of several miscellaneous items.
The Company’s provision for unfunded lending commitments has remained relatively steady over the past twelve months. For further information see “Provision for Credit Losses” on page 12.
Adjusted noninterest expense for the first quarter of 2018 increased $8 million, or 2%, to $419 million, compared with $411 million for the same prior year period. To arrive at adjusted noninterest expense, GAAP noninterest expense is adjusted to exclude certain expense items, which are the same as those items excluded in arriving at the efficiency ratio (see “GAAP to Non-GAAP Reconciliations” on page 5 for more information regarding the calculation of the efficiency ratio). The main variance between noninterest expense and adjusted noninterest

13


ZIONS BANCORPORATION AND SUBSIDIARIES

expense for the first quarter of 2018 is the provision for unfunded lending commitments, which was $(7) million. The aforementioned 2% year-over-year increase is in line with our expectations that noninterest expense is likely to experience an increase in the low single-digit percentage range relative to the prior year, as we continue to invest in people and technology.
Income Taxes
Income tax expense for the first quarter of 2018 was $70 million, compared with $45 million for the same prior year period. The effective tax rates were 22.7% and 24.5% for the first quarters of 2018 and 2017, respectively. The income tax rate for the first quarter of 2018 was positively impacted by the decrease in the corporate federal income tax rate to 21% from 35% due to the Tax Cuts and Jobs Act, which was effective January 1, 2018. This rate benefit was partially reduced by the non-deductibility of FDIC premiums and certain fringe benefits as enacted by the new tax law. The relatively low tax rate for the first quarter of 2017 was primarily driven by a one-time $14 million benefit to tax expense related to state tax adjustments. The tax rates for the first quarters of 2018 and 2017 were reduced by nontaxable municipal interest income and nontaxable income from certain bank-owned life insurance.
We had a net deferred tax asset (“DTA”) balance of $123 million at March 31, 2018, compared with $93 million at December 31, 2017. The increase in the net DTA resulted primarily from the increase of unrealized losses in other comprehensive income (“OCI”) related to securities and the decrease in deferred tax liabilities related to premises and equipment and the deferred gain on a prior period debt exchange. Net charge-offs exceeding the provision for loan losses offset some of the overall increase in DTA.
Preferred Dividends
Preferred dividends of $7 million during the first quarter of 2018 decreased $3 million when compared with the first quarter of 2017. This decrease was a result of our redemption of all outstanding shares of our 7.9% Series F preferred stock during the second quarter of 2017. Preferred dividends are expected to be $34 million for all of 2018.
BALANCE SHEET ANALYSIS
Interest-Earning Assets
Interest-earning assets are those assets that have interest rates or yields associated with them. One of our goals is to maintain a high level of interest-earning assets relative to total assets while keeping nonearning assets at a minimum. Interest-earning assets consist of money market investments, securities, loans, and leases.
Another goal is to maintain a higher-yielding mix of interest-earning assets, such as loans, relative to lower-yielding assets, while maintaining adequate levels of highly liquid assets. As a result of this goal we redeployed funds from lower-yielding money market investments, in addition to using wholesale borrowings, to purchase agency securities.
For information regarding the average balances of our interest-earning assets, the amount of revenue generated by them, and their respective yields, see the average balance sheet on page 11.
Average interest-earning assets were $62.2 billion for the first three months of 2018, compared with $59.6 billion for the first three months of 2017. Average interest-earning assets as a percentage of total average assets for the first three months of 2018 and 2017 were 93.8% and 93.2%, respectively.
Average loans were $44.9 billion and $42.6 billion for the first three months of 2018 and 2017, respectively. Average loans as a percentage of total average assets for the first three months of 2018 were 67.6%, compared with 66.5% in the same prior year period.
Average money market investments, consisting of interest-bearing deposits, federal funds sold, and security resell agreements, decreased by 24.6% to $1.5 billion for the first three months of 2018, compared with $2.0 billion for the first three months of 2017. Average securities increased by 6.1% for the first three months of 2018, compared with the first three months of 2017.

14


ZIONS BANCORPORATION AND SUBSIDIARIES

Investment Securities Portfolio
We invest in securities to actively manage liquidity and interest rate risk, in addition to generating revenue for the Company. Refer to the “Liquidity Risk Management” section on page 27 for additional information on management of liquidity and funding and compliance with Basel III and Liquidity Coverage Ratio (“LCR”) requirements. The following schedule presents a profile of our investment securities portfolio. The amortized cost amounts represent the original cost of the investments, adjusted for related accumulated amortization or accretion of any yield adjustments, and for impairment losses, including credit-related impairment. The estimated fair value measurement levels and methodology are discussed in Note 3 of our 2017 Annual Report on Form 10-K.
INVESTMENT SECURITIES PORTFOLIO
 
March 31, 2018
 
December 31, 2017
(In millions)
Par value
 
Amortized
cost
 
Estimated
fair
value
 
Par value
 
Amortized
cost
 
Estimated
fair
value
Held-to-maturity
 
 
 
 
 
 
 
 
 
 
 
Municipal securities
$
768

 
$
768

 
$
752

 
$
771

 
$
770

 
$
762

Available-for-sale
 
 
 
 
 
 
 
 
 
 
 
U.S. Treasury securities
25

 
25

 
25

 
25

 
25

 
25

U.S. Government agencies and corporations:
 
 
 
 
 
 
 
 
 
 
 
Agency securities
1,827

 
1,826

 
1,803

 
1,830

 
1,830

 
1,818

Agency guaranteed mortgage-backed securities
9,658

 
9,835

 
9,580

 
9,605

 
9,798

 
9,666

Small Business Administration loan-backed securities
1,967

 
2,176

 
2,159

 
2,007

 
2,227

 
2,222

Municipal securities
1,189

 
1,328

 
1,305

 
1,193

 
1,336

 
1,334

Other debt securities
25

 
25

 
24

 
25

 
25

 
24

  Total available-for-sale debt securities
14,691

 
15,215

 
14,896

 
14,685

 
15,241

 
15,089

Money market mutual funds and other
 
 
 
 
 
 
72

 
72

 
72

  Total available-for-sale
14,691

 
15,215

 
14,896

 
14,757

 
15,313

 
15,161

Total
$
15,459

 
$
15,983

 
$
15,648

 
$
15,528

 
$
16,083

 
$
15,923

The amortized cost of investment securities at March 31, 2018 decreased by 0.6% from the balances at December 31, 2017.
The investment securities portfolio includes $524 million of net premium that is distributed across various asset classes as illustrated in the preceding schedule. The purchase premiums and discounts for both held-to-maturity (“HTM”) and AFS securities are amortized and accreted at a constant effective yield to the contractual maturity date and no assumption is made concerning prepayments. As principal prepayments occur, the portion of the unamortized premium or discount associated with the principal reduction is recognized as interest income in the period the principal is reduced. For the three months ended March 31, 2018, premium amortization reduced the yield on securities by 89 bps compared with a 91 bps impact for the same period in 2017.
As of March 31, 2018, under the GAAP fair value accounting hierarchy, 0.2% of the $14.9 billion fair value of the AFS securities portfolio was valued at Level 1, 99.8% was valued at Level 2, and there were no Level 3 AFS securities. At December 31, 2017, 1% of the $15.2 billion fair value of AFS securities portfolio was valued at Level 1, 99% was valued at Level 2, and there were no Level 3 AFS securities. See Note 3 of our 2017 Annual Report on Form 10-K for further discussion of fair value accounting.
Exposure to State and Local Governments
We provide multiple products and services to state and local governments (referred to collectively as “municipalities”), including deposit services, loans, and investment banking services, and we invest in securities issued by the municipalities.

15


ZIONS BANCORPORATION AND SUBSIDIARIES

The following schedule summarizes our exposure to state and local municipalities:
MUNICIPALITIES
(In millions)
March 31,
2018
 
December 31,
2017
 
 
 
 
Loans and leases
$
1,299

 
$
1,271

Held-to-maturity – municipal securities
768

 
770

Available-for-sale – municipal securities
1,305

 
1,334

Trading account – municipal securities
101

 
146

Unfunded lending commitments
153

 
152

Total direct exposure to municipalities
$
3,626

 
$
3,673

At March 31, 2018, one municipal loan with a balance of $1 million was on nonaccrual. A significant amount of the municipal loan and lease portfolio is secured by real estate and equipment, and 80% of the outstanding credits were originated by California Bank & Trust (“CB&T”), Zions Bank, and Vectra Bank Colorado (“Vectra”). See Note 6 of the Notes to Consolidated Financial Statements for additional information about the credit quality of these municipal loans.
Foreign Exposure and Operations
Our credit exposure to foreign sovereign risks and total foreign credit exposure is not significant. We also do not have significant foreign exposure to derivative counterparties. We had no foreign deposits at March 31, 2018 and December 31, 2017.
Loan Portfolio
For the first three months of 2018 and 2017, average loans accounted for 68% and 67%, respectively, of total average assets. As presented in the following schedule, the largest category was commercial and industrial loans, which constituted 31% of our loan portfolio at March 31, 2018.
LOAN PORTFOLIO
 
March 31, 2018
 
December 31, 2017
(Dollar amounts in millions)
Amount
 
% of
total loans
 
Amount
 
% of
total loans
Commercial:
 
 
 
 
 
 
 
Commercial and industrial
$
14,125

 
31.3
%
 
$
14,003

 
31.3
%
Leasing
371

 
0.8

 
364

 
0.8

Owner-occupied
7,345

 
16.3

 
7,288

 
16.3

Municipal
1,299

 
2.9

 
1,271

 
2.8

Total commercial
23,140

 
51.3

 
22,926

 
51.2

Commercial real estate:
 
 
 
 
 
 
 
Construction and land development
2,099

 
4.7

 
2,021

 
4.5

Term
9,023

 
20.0

 
9,103

 
20.3

Total commercial real estate
11,122

 
24.7

 
11,124

 
24.8

Consumer:
 
 
 
 
 
 
 
Home equity credit line
2,792

 
6.2

 
2,777

 
6.2

1-4 family residential
6,768

 
15.0

 
6,662

 
15.0

Construction and other consumer real estate
599

 
1.3

 
597

 
1.3

Bankcard and other revolving plans
488

 
1.1

 
509

 
1.1

Other
174

 
0.4

 
185

 
0.4

Total consumer
10,821

 
24.0

 
10,730

 
24.0

Total net loans
$
45,083

 
100.0
%
 
$
44,780

 
100.0
%

16


ZIONS BANCORPORATION AND SUBSIDIARIES

Loan portfolio growth during the first three months of 2018 was widespread across loan products and geographies with particular strength in consumer 1-4 family residential and commercial and industrial loans. The impact of these increases was partially offset by a decrease in the CRE term portfolio.
Commercial owner-occupied loans also increased during the first three months of 2018; however, we experienced continued runoff and attrition of the National Real Estate portfolio. The National Real Estate business is a wholesale business that depends on loan referrals from other community banking institutions. Due to generally soft loan demand nationally, many community banking institutions are retaining, rather than selling, their loan production.
Other Noninterest-Bearing Investments
During the first three months of 2018, the Company increased its short-term borrowings with the FHLB by $850 million. This increase required a further investment in FHLB activity stock, which consequently increased by $31 million during the year. Aside from this increase, other noninterest-bearing investments remained relatively stable as set forth in the following schedule.
OTHER NONINTEREST-BEARING INVESTMENTS
(In millions)
March 31,
2018
 
December 31,
2017
 
 
 
 
Bank-owned life insurance
$
509

 
$
506

Federal Home Loan Bank stock
185

 
154

Federal Reserve stock
188

 
184

Farmer Mac stock
46

 
43

SBIC investments
130

 
127

Non-SBIC investment funds
12

 
12

Other
3

 
3

  Total other noninterest-bearing investments
$
1,073

 
$
1,029

Premises, Equipment and Software
Net premises, equipment and software increased $4 million, or 0.4%, during the first three months of 2018. The Company continues to capitalize certain costs related to its technology initiatives, but associated depreciation has also increased following the successful implementation, in 2017, of the first phase of our core lending and deposit systems replacement project.
Deposits
Deposits, both interest-bearing and noninterest-bearing, are a primary source of funding for the Company. Average total deposits for the first three months of 2018 decreased by 0.4%, compared with the first three months of 2017, with average interest-bearing deposits decreasing by 0.6% and average noninterest-bearing deposits decreasing by 0.2%. The average interest rate paid for interest-bearing deposits was 9 bps higher during the first three months of 2018, compared with the first three months of 2017.
Demand and savings and money market deposits were 93% and 94% of total deposits at March 31, 2018 and December 31, 2017, respectively. At March 31, 2018 and December 31, 2017, total deposits included $2.0 billion and $1.6 billion, respectively, of brokered deposits.
See “Liquidity Risk Management” on page 27 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. The Board of Directors has appointed a Risk Oversight Committee (“ROC”) that consists of appointed Board members who oversee the Company’s risk management processes. The ROC meets on a regular basis to monitor and review Enterprise Risk Management
(“ERM”) activities. As required by its charter, the ROC performs oversight for various ERM activities and approves ERM policies and activities as detailed in the ROC charter.
Management applies various strategies to reduce the risks to which the Company’s operations are exposed, including credit, interest rate and market, liquidity, and operational risks. These risks are overseen by the various management committees of which the Enterprise Risk Management Committee is the focal point for the monitoring and review of enterprise risk.
Credit Risk Management
Credit risk is the possibility of loss from the failure of a borrower, guarantor, or another obligor to fully perform under the terms of a credit-related contract. Credit risk arises primarily from our lending activities, as well as from off-balance sheet credit instruments. For a more comprehensive discussion of credit risk management, see “Credit Risk Management” in our 2017 Annual Report on Form 10-K.
Government Agency Guaranteed Loans
We participate in various guaranteed lending programs sponsored by U.S. government agencies, such as the Small Business Administration (“SBA”), Federal Housing Authority, Veterans’ Administration, Export-Import Bank of the U.S., and the U.S. Department of Agriculture. As of March 31, 2018, the principal balance of these loans was $540 million, and the guaranteed portion of these loans was $410 million. Most of these loans were guaranteed by the SBA.
The following schedule presents the composition of government agency guaranteed loans.
GOVERNMENT GUARANTEES
(Dollar amounts in millions)
March 31, 2018
 
Percent
guaranteed
 
December 31, 2017
 
Percent
guaranteed
 
 
 
 
 
 
 
 
Commercial
$
517

 
76
%
 
$
507

 
75
%
Commercial real estate
13

 
75

 
14

 
75

Consumer
10

 
100

 
16

 
92

Total loans
$
540

 
76

 
$
537

 
76

Commercial Lending
The following schedule provides selected information regarding lending concentrations to certain industries in our commercial lending portfolio.

17


ZIONS BANCORPORATION AND SUBSIDIARIES

COMMERCIAL LENDING BY INDUSTRY GROUP
 
March 31, 2018
 
December 31, 2017
(Dollar amounts in millions)
Amount
 
Percent
 
Amount
 
Percent
 
 
 
 
 
 
 
 
Real estate, rental and leasing
$
2,835

 
12.3
%
 
$
2,807

 
12.3
%
Retail trade 1
2,303

 
10.0

 
2,257

 
9.8

Manufacturing
2,162

 
9.3

 
2,116

 
9.2

Finance and insurance
1,935

 
8.4

 
2,026

 
8.8

Wholesale trade
1,595

 
6.9

 
1,543

 
6.7

Healthcare and social assistance
1,535

 
6.6

 
1,556

 
6.8

Transportation and warehousing
1,325

 
5.7

 
1,343

 
5.9

Construction
1,144

 
4.9

 
1,094

 
4.8

Mining, quarrying, and oil and gas extraction
1,040

 
4.5

 
1,010

 
4.4

Utilities 2
990

 
4.3

 
905

 
4.0

Professional, scientific, and technical services
923

 
4.0

 
879

 
3.8

Accommodation and food services
910

 
3.9

 
932

 
4.1

Other Services (except Public Administration)
891

 
3.9

 
896

 
3.9

Other 3
3,552

 
15.3

 
3,562

 
15.5

Total
$
23,140

 
100.0
%
 
$
22,926

 
100.0
%
1 
At March 31, 2018, 84% of retail trade consist of motor vehicle and parts dealers, gas stations, grocery stores, building material suppliers, and direct-to-consumer retailers. For additional detail on our CRE retail exposure, see the Commercial Real Estate Loans section on page 20.
2 
Includes primarily utilities, power, and renewable energy.
3 
No other industry group exceeds 3.5%.


18


ZIONS BANCORPORATION AND SUBSIDIARIES

Commercial Real Estate Loans
Selected information indicative of credit quality regarding our CRE loan portfolio is presented in the following schedule.
COMMERCIAL REAL ESTATE PORTFOLIO BY LOAN TYPE AND COLLATERAL LOCATION
(Dollar amounts in millions)
 
Collateral Location
 
 
 
 
Loan type
 
As of
date
 
Arizona
 
California
 
Colorado
 
Nevada
 
Texas
 
Utah/
Idaho
 
Wash-ington
 
Other 1
 
Total
 
% of 
total
CRE
Commercial term
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
Balance outstanding
 
3/31/2018
 
$
1,089

 
$
2,906

 
$
495

 
$
545

 
$
1,640

 
$
1,351

 
$
470

 
$
527

 
$
9,023

 
81.1
%
% of loan type
 
 
 
12.1
%
 
32.2
%
 
5.5
%
 
6.0
%
 
18.2
%
 
15.0
%
 
5.2
%
 
5.8
%
 
100.0
%
 
 
Delinquency rates 2:
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
30-89 days
 
3/31/2018
 
%
 
0.2
%
 
0.8
%
 
1.3
%
 
0.2
%
 
0.1
%
 
%
 
0.4
%
 
0.3
%
 
 
 
 
12/31/2017
 
0.2
%
 
0.1
%
 
0.1
%
 
0.2
%
 
%
 
0.2
%
 
%
 
0.8
%
 
0.1
%
 
 
≥ 90 days
 
3/31/2018
 
0.2
%
 
0.2
%
 
%
 
0.2
%
 
%
 
0.1
%
 
%
 
0.4
%
 
0.1
%
 
 
 
 
12/31/2017
 
0.2
%
 
0.1
%
 
0.1
%
 
%
 
%
 
0.1
%
 
%
 
0.7
%
 
0.1
%
 
 
Accruing loans past due 90 days or more
 
3/31/2018
 
$

 
$
1

 
$

 
$

 
$

 
$

 
$

 
$

 
$
1

 
 
 
 
12/31/2017
 
1

 
1

 

 

 

 

 

 

 
2

 
 
Nonaccrual loans
 
3/31/2018
 
$
3

 
$
11

 
$

 
$
1

 
$
19

 
$
2

 
$

 
$
21

 
$
57

 
 
 
 
12/31/2017
 
4

 
7

 
1

 
2

 
17

 
1

 
4

 

 
36

 
 
Residential construction and land development
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
Balance outstanding
 
3/31/2018
 
$
50

 
$
264

 
$
44

 
$
3

 
$
212

 
$
36

 
$
2

 
$
8

 
$
619

 
5.6
%
% of loan type
 
 
 
8.1
%
 
42.6
%
 
7.1
%
 
0.5
%
 
34.3
%
 
5.8
%
 
0.3
%
 
1.3
%
 
100.0
%
 
 
Delinquency rates 2:
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
30-89 days
 
3/31/2018
 
%
 
%
 
%
 
%
 
%
 
%
 
%
 
%
 
%
 
 
 
 
12/31/2017
 
%
 
%
 
0.2
%
 
%
 
0.7
%
 
%
 
%
 
%
 
0.2
%
 
 
≥ 90 days
 
3/31/2018
 
%
 
%
 
%
 
%
 
%
 
%
 
%
 
%
 
%
 
 
 
 
12/31/2017
 
%
 
%
 
%
 
%
 
0.1
%
 
%
 
%
 
%
 
%
 
 
Accruing loans past due 90 days or more
 
3/31/2018
 
$

 
$

 
$

 
$

 
$

 
$

 
$

 
$

 
$

 
 
 
 
12/31/2017
 

 

 

 

 

 

 

 

 

 
 
Nonaccrual loans
 
3/31/2018
 
$

 
$

 
$

 
$

 
$

 
$

 
$

 
$

 
$

 
 
 
 
12/31/2017
 

 

 

 

 

 

 

 

 

 
 
Commercial construction and land development
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
Balance outstanding
 
3/31/2018
 
$
141

 
$
337

 
$
37

 
$
67

 
$
430

 
$
321

 
$
107

 
$
40

 
$
1,480

 
13.3
%
% of loan type
 
 
 
9.5
%
 
22.8
%
 
2.5
%
 
4.5
%
 
29.1
%
 
21.7
%
 
7.2
%
 
2.7
%
 
100.0
%
 
 
Delinquency rates 2:
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
30-89 days
 
3/31/2018
 
%
 
%
 
%
 
%
 
0.2
%
 
%
 
%
 
%
 
0.1
%
 
 
 
 
12/31/2017
 
0.1
%
 
0.2
%
 
%
 
%
 
0.2
%
 
0.1
%
 
%
 
%
 
0.1
%
 
 
≥ 90 days
 
3/31/2018
 
%
 
%
 
%
 
%
 
%
 
1.2
%
 
%
 
%
 
0.3
%
 
 
 
 
12/31/2017
 
%
 
%
 
%
 
%
 
%
 
1.3
%
 
%
 
%
 
0.3
%
 
 
Accruing loans past due 90 days or more
 
3/31/2018