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Section 1: 10-K (10-K)

ZION-2012.12.31-10K

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UNITED STATES SECURITIES AND EXCHANGE COMMISSION Washington, D.C. 20549
FORM 10-K
ý ANNUAL REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934
For the fiscal year ended December 31, 2012
OR
¨ TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934
For the transition period from ___________ to ___________
COMMISSION FILE NUMBER 001-12307
ZIONS BANCORPORATION
(Exact name of Registrant as specified in its charter)
UTAH	87-0227400
(State or other jurisdiction of incorporation or organization)	(Internal Revenue Service Employer Identification Number)
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
Securities registered pursuant to Section 12(b) of the Act:
Title of Each Class		Name of Each Exchange on Which Registered
Guarantee related to 8.00% Capital Securities of Zions Capital Trust B Convertible 6% Subordinated Notes due September 15, 2015 Depositary Shares each representing a 1/40^th ownership interest in a share of Series A Floating-Rate Non-Cumulative Perpetual Preferred Stock Depositary Shares each representing a 1/40^th ownership interest in a share of Series C 9.5% Non-Cumulative Perpetual Preferred Stock Depositary Shares each representing a 1/40^th ownership interest in a share of Series F 7.9% Non-Cumulative Perpetual Preferred Stock Warrants to Purchase Common Stock of Zions Bancorporation Common Stock, without par value Depositary Shares each representing a 1/40th ownership interest in a share of Series G Fixed/Floating Rate Non-Cumulative Perpetual Preferred Stock Warrants (expiring November 14, 2018) 3.50% Senior Notes due September 15, 2015		New York Stock Exchange New York Stock Exchange New York Stock Exchange New York Stock Exchange New York Stock Exchange The NASDAQ Stock Market LLC The NASDAQ Stock Market LLC New York Stock Exchange The NASDAQ Stock Market LLC New York Stock Exchange
Securities registered pursuant to Section 12(g) of the Act: None.

Indicate by check mark if the registrant is a well-known seasoned issuer, as defined in Rule 405 of the Securities Act. Yes ý No ¨
Indicate by check mark if the registrant is not required to file reports pursuant to Section 13 or Section 15(d) of the Act. Yes ¨ No ý
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 if disclosure of delinquent filers pursuant to Item 405 of Regulation S-K (Section 229.405 of this chapter) is not contained herein, and will not be contained, to the best of registrant’s knowledge, in definitive proxy or information statements incorporated by reference in Part III of this Form 10-K or any amendment to this Form 10-K. ¨
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
Aggregate Market Value of Common Stock Held by Non-affiliates at June 30, 2012 $3,475,749,090
Number of Common Shares Outstanding at February 15, 2013 184,188,095 shares
Documents Incorporated by Reference: Portions of the Company’s Proxy Statement – Incorporated into Part III

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FORM 10-K TABLE OF CONTENTS



		Page
PART I
Item 1.	Business	5
Item 1A.	Risk Factors	13
Item 1B.	Unresolved Staff Comments	18
Item 2.	Properties	18
Item 3.	Legal Proceedings	18
Item 4.	Mine Safety Disclosures	18

PART II
Item 5.	Market for Registrant’s Common Equity, Related Stockholder Matters and Issuer Purchases of Equity Securities	18
Item 6.	Selected Financial Data	21
Item 7.	Management’s Discussion and Analysis of Financial Condition and Results of Operations	22
Item 7A.	Quantitative and Qualitative Disclosures About Market Risk	93
Item 8.	Financial Statements and Supplementary Data	94
Item 9.	Changes in and Disagreements with Accountants on Accounting and Financial Disclosure	184
Item 9A.	Controls and Procedures	184
Item 9B.	Other Information	184

PART III
Item 10.	Directors, Executive Officers and Corporate Governance	184
Item 11.	Executive Compensation	184
Item 12.	Security Ownership of Certain Beneficial Owners and Management and Related Stockholder Matters	184
Item 13.	Certain Relationships and Related Transactions, and Director Independence	185
Item 14.	Principal Accounting Fees and Services	185

PART IV
Item 15.	Exhibits, Financial Statement Schedules	185
Signatures		191

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PART I

FORWARD-LOOKING INFORMATION

Statements in this Annual Report on Form 10-K 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, and the FDIC;


•	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, 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;

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•	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.

AVAILABILITY OF INFORMATION

We also make available free of charge on our website, www.zionsbancorporation.com, annual reports on Form 10-K, quarterly reports on Form 10-Q, and current reports on Form 8-K and amendments to those reports filed or furnished pursuant to Section 13(a) or 15(d) of the Securities Exchange Act of 1934, as well as proxy statements, as soon as reasonably practicable after we electronically file such material with, or furnish it to, the U.S. Securities and Exchange Commission.

GLOSSARY OF ACRONYMS



ABS	Asset-Backed Security	CMC	Capital Management Committee
ACL	Allowance for Credit Losses	COSO	Committee of Sponsoring Organizations of the Treadway Commission
AFS	Available-for-Sale	CPP	Capital Purchase Program
ALCO	Asset/Liability Committee	CPR	Constant Prepayment Rate
ALLL	Allowance for Loan and Lease Losses	CRA	Community Reinvestment Act
Amegy	Amegy Corporation	CRE	Commercial Real Estate
AOCI	Accumulated Other Comprehensive Income	DB	Deutsche Bank AG
ARRA	American Recovery and Reinvestment Act	DBRS	Dominion Bond Rating Service
ASC	Accounting Standards Codification	DDA	Demand Deposit Account
ASU	Accounting Standards Update	Dodd-Frank Act	Dodd-Frank Wall Street Reform and Consumer Protection Act
ATM	Automated Teller Machine	DTA	Deferred Tax Asset
BCBS	Basel Committee on Banking Supervision	DTL	Deferred Tax Liability
BHC Act	Bank Holding Company Act	EESA	Emergency Economic Stabilization Act
bps	basis points	FAMC	Federal Agricultural Mortgage Corporation, or “Farmer Mac”
BSA	Bank Secrecy Act	FASB	Financial Accounting Standards Board
CB&T	California Bank & Trust	FDIC	Federal Deposit Insurance Corporation
CDO	Collateralized Debt Obligation	FDICIA	Federal Deposit Insurance Corporation Improvement Act
CDR	Constant Default Rate	FHLB	Federal Home Loan Bank
CET1	Common Equity Tier 1	FICO	Fair Isaac Corporation
CFPB	Consumer Financial Protection Bureau	FINRA	Financial Industry Regulatory Authority
CLTV	Combined Loan-to-Value Ratio	FRB	Federal Reserve Board

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FTE	Full-time Equivalent	OTC	Over-the-Counter
GAAP	Generally Accepted Accounting Principles	OTTI	Other-Than-Temporary Impairment
GDP	Gross Domestic Product	Parent	Zions Bancorporation
GLB Act	Gramm-Leach-Bliley Act	PCAOB	Public Company Accounting Oversight Board
HECL	Home Equity Credit Line	PCI	Purchased Credit-Impaired
HTM	Held-to-Maturity	PD	Probability of Default
IA	Indemnification Asset	PIK	Payment in Kind
IFRS	International Financial Reporting Standards	REIT	Real Estate Investment Trust
ISDA	International Swap Dealer Association	RSU	Restricted Stock Unit
LCR	Liquidity Coverage Ratio	RULC	Reserve for Unfunded Lending Commitments
LGD	Loss Given Default	SBA	Small Business Administration
LIBOR	London Interbank Offered Rate	SBIC	Small Business Investment Company
Lockhart	Lockhart Funding LLC	SEC	Securities and Exchange Commission
MCC	Model Control Committee	SIFI	Systemically Important Financial Institutions
MD&A	Management’s Discussion and Analysis	SOC	Securitization Oversight Committee
MVE	Market Value of Equity	SSU	Salary Stock Units
NASDAQ	National Association of Securities Dealers Automated Quotations	TARP	Troubled Asset Relief Program
NBA	National Bank of Arizona	TCBO	The Commerce Bank of Oregon
NIM	Net Interest Margin	TCBW	The Commerce Bank of Washington
NOL	Net Operating Loss	TDR	Troubled Debt Restructuring
NOW	Negotiable Order of Withdrawal	TRS	Total Return Swap
NPR	Notices of Proposed Rulemaking	Vectra	Vectra Bank Colorado
NRSRO	Nationally Recognized Statistical Rating Organization	VIE	Variable Interest Entity
NSB	Nevada State Bank	WNTC	Western National Trust Company
NSFR	Net Stable Funding Ration	ZCTB	Zions Capital Trust B
OCC	Office of the Comptroller of the Currency	Zions Bank	Zions First National Bank
OCI	Other Comprehensive Income	ZMFU	Zions Municipal Funding
OREO	Other Real Estate Owned	ZMSC	Zions Management Services Company

ITEM 1. BUSINESS

DESCRIPTION OF BUSINESS

Zions Bancorporation (“the Parent”) is a financial holding company organized under the laws of the State of Utah in 1955, and registered under the BHC Act, as amended. The Parent and its subsidiaries (collectively “the Company”) own and operate eight commercial banks with a total of 480 domestic branches at year-end 2012. The Company provides a full range of banking and related services through its banking and other subsidiaries, primarily in Utah, California, Texas, Arizona, Nevada, Colorado, Idaho, Washington, and Oregon. Full-time equivalent employees totaled 10,368 at year-end 2012. For further information about the Company’s industry segments, see “Business Segment Results” on page 44 in MD&A and Note 21 of the Notes to Consolidated Financial Statements. For information about the Company’s foreign operations, see “Foreign Operations” on page 44 in MD&A. The “Executive Summary” on page 22 in MD&A provides further information about the Company.

PRODUCTS AND SERVICES

The Company focuses on providing community banking services by continuously strengthening its core business lines of 1) small and medium-sized business and corporate banking; 2) commercial and residential development, construction and term lending; 3) retail banking; 4) treasury cash management and related products and services; 5) residential mortgage; 6) trust and wealth management; and 7) investment activities. It operates eight different banks

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in ten Western and Southwestern states with each bank operating under a different name and each having its own board of directors, chief executive officer, and management team. The banks provide a wide variety of commercial and retail banking and mortgage lending products and services. They also provide a wide range of personal banking services to individuals, including home mortgages, bankcard, other installment loans, home equity lines of credit, checking accounts, savings accounts, time certificates of deposits of various types and maturities, trust services, safe deposit facilities, direct deposit, and 24-hour ATM access. In addition, certain banking subsidiaries provide services to key market segments through their Women’s Financial, Private Client Services, and Executive Banking Groups. We also offer wealth management services through various subsidiaries, including Contango Capital Advisors and Western National Trust Company, and online and traditional brokerage services through Zions Direct and Amegy Investments.

In addition to these core businesses, the Company has built specialized lines of business in capital markets and public finance, and is a leader in SBA lending. Through its eight banking subsidiaries, the Company provides SBA 7(a) loans to small businesses throughout the United States and is also one of the largest providers of SBA 504 financing in the nation. The Company owns an equity interest in Farmer Mac and is one of the nation’s top originators of secondary market agricultural real estate mortgage loans through Farmer Mac. The Company is a leader in municipal finance advisory and underwriting services.

COMPETITION

The Company operates in a highly competitive environment. The Company’s most direct competition for loans and deposits comes from other commercial banks, credit unions, and thrifts, including institutions that do not have a physical presence in our market footprint but solicit via the Internet and other means. In addition, the Company competes with finance companies, mutual funds, brokerage firms, securities dealers, investment banking companies, and a variety of other types of companies. Many of these companies have fewer regulatory constraints and some have lower cost structures or tax burdens.

The primary factors in competing for business include pricing, convenience of office locations and other delivery methods, range of products offered, and the level of service delivered. The Company must compete effectively along all of these parameters to remain successful.

SUPERVISION AND REGULATION

The banking and financial services business in which we engage is highly regulated. Such regulation is intended, among other things, to improve the stability of banking and financial companies and to protect the interests of customers, including depositors. These regulations are not, however, generally intended to protect the interests of our shareholders or creditors. Described below are the material elements of selected laws and regulations applicable to the Company. The descriptions are not intended to be complete and are qualified in their entirety by reference to the full text of the statutes and regulations described. Changes in applicable law or regulations, and in their application by regulatory agencies, cannot be predicted, but they may have a material effect on the business and results of the Company.

The Parent is a bank holding company and a financial holding company as provided by the BHC Act, as modified by the GLB Act. The BHC Act and other federal statutes, as modified by the GLB Act and the Dodd-Frank Act, provide the regulatory framework for bank holding companies and financial holding companies which have as their umbrella regulator the FRB. The functional regulation of the separately regulated subsidiaries of a bank holding company is conducted by each subsidiary’s primary functional regulator and the laws and regulations administered by those regulators. The GLB Act allows our bank subsidiaries to engage in certain financial activities through financial subsidiaries. To qualify for and maintain status as a financial holding company, or to do business through a financial subsidiary, the Parent and its subsidiary banks must satisfy certain ongoing criteria. The Company currently engages in only limited activities for which financial holding company status is required.

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The Parent’s subsidiary banks and WNTC are subject to the provisions of the National Bank Act or other statutes governing national banks or, for those that are state-chartered banks, the banking laws of their various states, as well as the rules and regulations of the OCC (for those that are national banks), the FRB and the FDIC. They are also subject to periodic examination and supervision by the OCC or their respective state banking departments, the FRB, and the FDIC. Many of our nonbank subsidiaries are also subject to regulation by the FRB and other federal and state agencies. These bank regulatory agencies may exert considerable influence over our activities through their supervisory and examination role. Our brokerage and investment advisory subsidiaries are regulated by the SEC, FINRA and/or state securities regulators.

The Dodd-Frank Act

The events of the past few years have led to numerous new laws in the United States and internationally for financial institutions. The Dodd-Frank Act, which was enacted in July 2010, is one of the most far reaching legislative actions affecting the financial services industry in decades and significantly restructures the financial regulatory regime in the United States.

The Dodd-Frank Act and regulations adopted under the Dodd-Frank Act broadly affect the financial services industry by creating new resolution authorities, requiring ongoing stress testing of our capital, mandating higher capital and liquidity requirements, increasing regulation of executive and incentive-based compensation, requiring banks to pay increased fees to regulatory agencies, and requiring numerous other provisions aimed at strengthening the sound operation of the financial services sector. Among other things affecting capital standards, the Dodd-Frank Act provides that:


•	the requirements applicable to large bank holding companies (those with consolidated assets of greater than $50 billion) be more stringent than those applicable to other financial companies;


•	standards applicable to bank holding companies be no less stringent than those applied to insured depository institutions; and


•	bank regulatory agencies implement countercyclical elements in their capital requirements.

These provisions will require us to maintain greater levels of capital and liquid assets and will limit the forms of capital that we will be able to rely upon for regulatory purposes. For example, provisions of the Dodd-Frank Act require us to deduct all trust preferred securities from our Tier 1 capital over a three-year phase-out period that began January 1, 2013. In addition, in their supervisory role with respect to our stress testing and capital planning, the bank regulatory agencies may effectively regulate certain of our capital-related actions, such as dividends and stock repurchases. As implemented by the bank regulatory agencies, the stress testing and capital plan process could substantially reduce our flexibility to respond to market developments and opportunities in such areas as capital raising and acquisitions.

The Dodd-Frank Act’s provisions and related regulations also affect the fees we must pay to regulatory agencies and pricing of certain products and services, including the following:


•	The assessment base for federal deposit insurance was changed to consolidated assets less tangible capital instead of the amount of insured deposits.


•	The federal prohibition on the payment of interest on business transaction accounts was repealed.


•	The FRB enacted regulations to limit interchange fees charged for debit card transactions to no more than 21 cents per transaction and 5 basis points (“bps”) multiplied by the value of the transaction.

The Dodd-Frank Act also created the CFPB, which is responsible for promulgating regulations designed to protect consumers’ financial interests and examining financial institutions for compliance with, and enforcing, those regulations. The Dodd-Frank Act adds prohibitions on unfair, deceptive or abusive acts and practices to the scope of consumer protection regulations overseen and enforced by the CFPB. The CFPB was recently established and its impact on our subsidiary banks remains uncertain. The Dodd-Frank Act subjected national banks to the possibility of further regulation by restricting the preemption of state laws by federal laws, which had enabled national banks

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and their subsidiaries to comply with federal regulatory requirements without complying with various state laws. In addition, the Act gives greater power to state attorneys general to pursue legal actions against banking organizations for violations of federal law.

The Dodd-Frank Act contains numerous provisions that limit or place significant burdens and costs on activities traditionally conducted by banking organizations, such as originating and securitizing mortgage loans and other financial assets, arranging and participating in swap and derivative transactions, proprietary trading and investing in private equity and other funds. For the affected activities, these provisions may result in increased compliance and other costs, increased legal risk and decreased scope of product offerings.

The federal regulators have proposed regulations to implement the so-called “Volcker Rule” of the Dodd-Frank Act, which would significantly restrict certain activities by covered bank holding companies, including restrictions on proprietary trading and private equity investing. The statutory provision became effective in July 2012, and banking entities subject to the Volcker Rule have until July 2014 to bring their activities and investments into compliance with the rule’s requirements. However, the federal financial regulatory agencies have not yet adopted rules implementing the Volcker Rule.

The Company and other companies subject to the Dodd-Frank Act are being subjected to a number of requirements regarding the time, manner and form of compensation given to its key executives and other personnel receiving incentive compensation, which are being imposed through the supervisory process as well as published guidance and proposed rules. These requirements generally implement the compensation restrictions imposed by the Dodd-Frank Act and include documentation and governance, deferral, and claw-back requirements.

As discussed further throughout this section, many aspects of Dodd-Frank are subject to further rulemaking and will take effect over several years, making it difficult to anticipate the overall financial impact on the Company or the industry. As of the end of 2012, approximately one-third of the total regulations to implement the Dodd-Frank Act had not yet been published for comment or adopted in final form.

Capital Standards – Basel Framework

The FRB has established capital guidelines for bank holding companies. The OCC, the FDIC and the FRB have also issued regulations establishing capital requirements for banks. These bank regulatory agencies’ risk-based capital guidelines are based upon the 1988 capital accord (“Basel I”) of the BCBS. The BCBS is a committee of central banks and bank supervisors/regulators from the major industrialized countries that develops broad policy guidelines that each country’s supervisors can use to determine the supervisory policies they apply.

In 2004, the BCBS proposed a new capital accord (“Basel II”) to replace Basel I. Basel II provides two approaches for setting capital standards for credit risk, an advanced internal ratings-based approach tailored to individual institutions’ circumstances, and a standardized approach that bases risk weightings on external credit assessments to a much greater extent than permitted in existing guidelines. Basel II also sets capital requirements for operational risk and refines the existing capital requirements for market risk exposures.

In December 2007, U.S. banking regulators published the final rule for Basel II implementation, requiring banks with over $250 billion in consolidated total assets or on-balance sheet foreign exposure of $10 billion (core banks) to adopt the advanced approaches of Basel II while allowing other banks to elect to “opt in.” The Company is not required to comply with Basel II. In July 2008, the agencies issued a proposed rule that would give banking organizations that do not use the advanced approaches the option to implement a new risk-based capital framework which would adopt the standardized approach of Basel II for credit risk, the basic indicator approach of Basel II for operational risk and related disclosure requirements. A definitive rule has not been issued.

In December 2010, the BCBS released its final framework for strengthening international capital and liquidity regulation, now officially identified by the BCBS as “Basel III.” Basel III, when implemented by the U.S. bank

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regulatory agencies and fully phased-in, will require bank holding companies and their bank subsidiaries to maintain substantially more capital, with a greater emphasis on common equity. As currently proposed, the Basel III capital framework, among other things:


•	introduces as a new capital measure, Common Equity Tier 1 (“CET1”), more commonly known in the United States as “Tier 1 Common,” and defines CET1 narrowly by requiring that most adjustments to regulatory capital measures be made to CET1 and not to the other components of capital, and expands the scope of the adjustments as compared to existing regulations;


•	when fully phased in on January 1, 2019, requires banks to maintain:


◦	as a newly adopted international standard, a minimum ratio of CET1 to risk-weighted assets of at least 4.5%, plus a 2.5% “capital conservation buffer” (which is added to the 4.5% CET1 ratio as that buffer is phased in, effectively resulting in a minimum ratio of CET1 to risk-weighted assets of at least 7%);

◦

an additional “SIFI buffer” for those large institutions deemed to be systemically important, ranging from 1.0% to 2.5%, and up to 3.5% under certain conditions; Zions is not subject to this buffer under Basel III; however, some FRB officials have indicated that when U.S. implementing regulations are proposed, they may include an additional buffer of 0% to 1.0% for financial institutions defined as systemically important under the Dodd-Frank Act but not so deemed by the BCBS;


◦	a minimum ratio of Tier 1 capital to risk-weighted assets of at least 6.0%, plus the capital conservation buffer (which is added to the 6.0% Tier 1 capital ratio as that buffer is phased in, effectively resulting in a minimum Tier 1 capital ratio of 8.5% upon full implementation);


◦	a minimum ratio of Total (that is, Tier 1 plus Tier 2) capital to risk-weighted assets of at least 8.0%, plus the capital conservation buffer (which is added to the 8.0% total capital ratio as that buffer is phased in, effectively resulting in a minimum total capital ratio of 10.5% upon full implementation); and


◦	as a newly adopted international standard, a minimum leverage ratio of 3%, calculated as the ratio of Tier 1 capital to balance sheet exposures plus certain off-balance sheet exposures (as the average for each quarter of the month-end ratios for the quarter); and


•	provides for an additional “countercyclical capital buffer,” generally to be imposed when national regulators determine that excess aggregate credit growth becomes associated with a buildup of systemic risk, that would be a CET1 add-on to the capital conservation buffer in the range of 0% to 2.5% when fully implemented.

The Basel III final framework also requires banks and bank holding companies to measure their liquidity against specific liquidity tests that, although similar in some respects to liquidity measures historically applied by banks and regulators for management and supervisory purposes, going forward will be required by regulation. One test, referred to as the liquidity coverage ratio (“LCR”), is designed to ensure that the banking entity maintains an adequate level of unencumbered high-quality liquid assets equal to the entity’s expected net cash outflow for a 30-day time horizon (or, if greater, 25% of its expected total cash outflow) under an acute liquidity stress scenario. The other, referred to as the net stable funding ratio (“NSFR”), is designed to promote more medium and long-term funding of the assets and activities of banking entities over a one-year time horizon. These requirements will incent banking entities to increase their holdings of U.S. Treasury securities and other sovereign debt as a component of assets and increase the use of long-term debt as a funding source. The Basel III liquidity framework contemplates that the LCR will be subject to an observation period continuing through mid-2013 and, subject to any revisions resulting from the analyses conducted and data collected during the observation period, implemented as a minimum standard on January 1, 2015. Similarly, it contemplates that the NSFR will be subject to an observation period through mid-2016 and, subject to any revisions resulting from the analyses conducted and data collected during the observation period, implemented as a minimum standard by January 1, 2018. These new standards are subject to rulemaking by the federal regulatory authorities and their terms may well change before implementation.

In June 2012, the U.S. bank regulatory agencies issued three joint notices of proposed rulemaking (NPR) that, taken together, would implement the capital reforms of the Basel III framework and changes required by the Dodd-Frank Act. The first NPR, the Basel III NPR, generally follows the final Basel III framework described above and

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proposes higher minimum regulatory capital requirements and a more restrictive definition of regulatory capital, as well as introduces limits on dividends and other capital distributions and certain discretionary bonuses if capital conservation buffers are not held. The second NPR, the Standardized Approach NPR, proposes changes to the current, Basel I derived generalized risk-based capital requirements for determining 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 number of categories, depending on the nature of the assets, generally ranging from 0% for U.S. government and agency securities to 600% for certain equity exposures, and resulting in higher risk weights for a variety of asset categories. Lastly, the Advanced Approaches NPR proposes changes to the advanced approaches rules to be consistent with requirements of Basel II in its most current form and with the Dodd-Frank Act. The U.S. bank regulatory agencies have not proposed rules implementing the final liquidity framework of Basel III and have not determined to what extent they will apply to U.S. banks that are not large, internationally active banks.

Although the Basel III NPR does not specify an effective date or implementation date, it was contemplated that it would coincide with the international Basel III implementation schedule, which commenced on January 1, 2013. The Standardized Approach NPR contemplated an effective date of January 1, 2015, subject to early adoption at the option of subject institutions. However, in November 2012, the U.S. bank regulatory agencies announced that they do not expect any of the three NPRs implementing Basel III in the United States to become effective on January 1, 2013. There can be no guarantee that the Basel III and the Standardized Approach NPRs will be adopted in their current form, what changes may be made before adoption, or when ultimate adoption will occur. Given that the Basel III rules are subject to change, and the scope and content of capital regulations that the U.S. banking agencies may adopt under Dodd-Frank is uncertain, we cannot be certain of the impact new capital regulations will have on our capital ratios.

Stress Testing, Prudential Standards, and Early Remediation

As a bank holding company with assets greater than $50 billion, the Company is required by the Dodd-Frank Act to participate in an annual stress test known as the Capital Plan Review. The Company timely submitted its capital plan and stress test results to the FRB in January 2013. In this capital plan, the Company was required to forecast under a variety of economic scenarios for nine quarters ending the fourth quarter of 2014, its estimated regulatory capital ratios under Basel I rules, its Tier 1 common ratio under Basel I rules, the same ratios under Basel III rules, and its GAAP tangible common equity ratio; as noted, implementing regulations that define how many of these ratios are to be calculated by U.S. institutions have not been adopted. Under the implementing regulations for the Capital Plan Review, bank holding company may generally raise and redeem capital, pay dividends and repurchase stock and take similar capital-related actions only under a capital plan as to which the FRB has not objected.

In December 2011, the FRB published new proposed regulations entitled “Enhanced Prudential Standards and Early Remediation Requirements for Covered Companies,” which if adopted would apply to all bank holding companies with assets greater than $50 billion. The comment period on these proposed regulations for systemically important financial institutions (Proposed SIFI Rules) expired April 30, 2012, but except as described below regarding stress testing, the Proposed SIFI Rules have not become final as of February 2013. The Proposed SIFI Rules would implement many of the proposed aspects of the Basel III capital and liquidity regime, and would specify conditions under which a bank holding company would be placed under enhanced nonpublic or public supervision and restrictions. The Proposed SIFI Rules would also require each covered institution to establish a risk committee of its board of directors that would include a “risk expert.” The Proposed SIFI Rules proposed to expand the stress testing requirements to include, among other things, stress testing by the FRB under three economic and financial scenarios: baseline, adverse and severely adverse scenarios. In October 2012, the Federal Reserve published final rules implementing that portion of the Proposed SIFI Rules expanding the stress testing requirements (including public disclosure of results).

Prompt Corrective Action

The Federal Deposit Insurance Corporation Improvement Act, or FDICIA, requires each federal banking agency to take prompt corrective action to resolve the problems of insured depository institutions, including but not limited to

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those that fall below one or more prescribed minimum capital ratios. Pursuant to FDICIA, the FDIC promulgated regulations defining the following five categories in which an insured depository institution will be placed, based on the level of its capital ratios: well-capitalized, adequately capitalized, undercapitalized, significantly undercapitalized and critically undercapitalized. Under the prompt corrective action provisions of FDICIA, an insured depository institution generally will be classified as well-capitalized if it has a Tier 1 capital ratio of at least 6%, a total capital ratio of at least 10% and a Tier 1 leverage ratio of at least 5%, and an insured depository institution generally will be classified as undercapitalized if its total risk-based capital is less than 8% or its Tier 1 risk-based capital or leverage ratio is less than 4%. An institution that, based upon its capital levels, is classified as “well-capitalized,” “adequately capitalized” or “undercapitalized” may be treated as though it were in the next lower capital category if the appropriate federal banking agency, after notice and opportunity for hearing, determines that an unsafe or unsound condition or an unsafe or unsound practice warrants such treatment. The June 2012 Basel III NPR described above would also revise the prompt corrective action regime by (i) introducing a CETI ratio requirement at every level (other than critically undercapitalized), with the required CETI ratio being 6.5% for well-capitalized status; (ii) increasing the minimum Tier 1 capital ratio requirement for each category, with the minimum Tier 1 capital ratio for well-capitalized status being 8% (as compared to the current 6%); and (iii) eliminating the current provision that provides that a bank with a composite supervisory rating of 1 may have a 3% leverage ratio and still be well-capitalized. At each successive lower capital category, an insured depository institution is subject to more restrictions and prohibitions, including restrictions on growth, restrictions on interest rates paid on deposits, restrictions or prohibitions on payment of dividends and restrictions on the acceptance of brokered deposits. Furthermore, if a bank is classified in one of the undercapitalized categories, it is required to submit a capital restoration plan to the federal bank regulator, and the holding company must guarantee the performance of that plan.

Other Regulation

The Company is subject to a wide range of other requirements and restrictions contained in both the laws of the United States and the states in which its banks and other subsidiaries operate. These regulations include but are not limited to the following:

•

Requirements that the Parent serve as a source of strength for its banking subsidiaries. The FRB has a policy that a bank holding company is expected to act as a source of financial and managerial strength to each of its bank subsidiaries and, under appropriate circumstances, to commit resources to support each subsidiary bank. The Dodd-Frank Act codifies this policy as a statutory requirement. In addition, the regulators may order an assessment of the Parent if the capital of one of its bank subsidiaries were to fall below capital levels required by the regulators.

•

Limitations on dividends payable by subsidiaries. A substantial portion of the Parent’s cash, which is used to pay dividends on our common and preferred stock and to pay principal and interest on our debt obligations, is derived from dividends paid by the Parent’s subsidiary banks. These dividends are subject to various legal and regulatory restrictions. See Note 18 of the Notes to Consolidated Financial Statements.


•	Limitations on dividends payable to shareholders. The Parent’s ability to pay dividends on both its common and preferred stock may be subject to regulatory restrictions. See discussion under “Liquidity Management Actions” on page 84.

•

Cross-guarantee requirements. All of the Parent’s subsidiary banks are insured by the FDIC. Each commonly controlled FDIC-insured bank can be held liable for any losses incurred, or reasonably expected to be incurred, by the FDIC due to another commonly controlled FDIC-insured bank being placed into receivership, and for any assistance provided by the FDIC to another commonly controlled FDIC-insured bank that is subject to certain conditions indicating that receivership is likely to occur in the absence of regulatory assistance.

•

Safety and soundness requirements. Federal and state laws require that our banks be operated in a safe and sound manner. We are subject to additional safety and soundness standards prescribed in the Federal Deposit Insurance Corporate Improvement Act of 1991, including standards related to internal controls, information systems, internal audit, loan documentation, credit underwriting, interest rate exposure, asset growth and

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compensation, as well as other operational and management standards deemed appropriate by the federal banking agencies. The safety and soundness requirements give bank regulatory agencies significant latitude in their supervisory authority over us.

•

Requirements for approval of acquisitions and activities and restrictions on other activities. Prior approval of the FRB is required under the BHC Act for a financial holding company to acquire or hold more than a 5% voting interest in any bank, to acquire substantially all the assets of a bank or to merge with another financial or bank holding company. The BHC Act also requires approval for certain nonbanking acquisitions, restricts the activities of bank holding companies that are not financial holding companies to banking, managing or controlling banks and other activities that the FRB has determined to be so closely related to banking as to be a proper incident thereto and restricts the nonbanking activities of a financial holding company to those that are permitted for financial holding companies or that have been determined by the FRB to be financial in nature, incidental to financial activities, or complementary to a financial activity. Laws and regulations governing national and state-chartered banks contain similar provisions concerning acquisitions and activities.


•	Limitations on the amount of loans to a borrower and its affiliates.


•	Limitations on transactions with affiliates. The Dodd-Frank Act significantly expanded the coverage and scope of the limitations on affiliate transactions within a banking organization.


•	Restrictions on the nature and amount of any investments and ability to underwrite certain securities.


•	Requirements for opening of branches and the acquisition of other financial entities.


•	Fair lending and truth in lending requirements to provide equal access to credit and to protect consumers in credit transactions.

•

Broker-dealer and investment advisory regulations. Certain of our subsidiaries are broker-dealers that engage in securities underwriting and other broker-dealer activities. These companies are registered with the SEC and are members of FINRA. Certain other subsidiaries are registered investment advisers under the Investment Advisers Act of 1940, as amended, and as such are supervised by the SEC. They are also subject to various U.S. federal and state laws and regulations. These laws and regulations generally grant supervisory agencies broad administrative powers, including the power to limit or restrict the carrying on of business for failure to comply with such laws.


•	Provisions of the GLB Act and other federal and state laws dealing with privacy for nonpublic personal information of individual customers.

•

CRA requirements. The CRA requires banks to help serve the credit needs in their communities, including providing credit to low and moderate income individuals. If the Company or its subsidiaries fail to adequately serve their communities, penalties may be imposed including denials of applications to add branches, relocate, add subsidiaries and affiliates, and merge with or purchase other financial institutions.

•

Anti-money laundering regulations. The BSA, Title III of the Uniting and Strengthening of America by Providing Appropriate Tools Required to Intercept and Obstruct Terrorism Act of 2001 (“USA Patriot Act”), and other federal laws require financial institutions to assist U.S. Government agencies in detecting and preventing money laundering and other illegal acts by maintaining policies, procedures and controls designed to detect and report money laundering, terrorist financing, and other suspicious activity.

The Parent is subject to the disclosure and regulatory requirements of the Securities Act of 1933, as amended, and the Securities Exchange Act of 1934, as amended, both as administered by the SEC. As a company listed on the NASDAQ Global Select Market, the Parent is subject to NASDAQ listing standards for quoted companies.

The Company is subject to the Sarbanes-Oxley Act of 2002, the Dodd-Frank Act, and other federal and state laws and regulations which address, among other issues, corporate governance, auditing and accounting, executive compensation, and enhanced and timely disclosure of corporate information. NASDAQ has also adopted corporate

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governance rules, which are intended to allow shareholders and investors to more easily and efficiently monitor the performance of companies and their directors.

The Board of Directors of the Parent has implemented a comprehensive system of corporate governance practices. This system includes Corporate Governance Guidelines, a Code of Business Conduct and Ethics for Employees, a Directors Code of Conduct, a Related Party Transaction Policy, Stock Ownership and Retention Guidelines, a Compensation Clawback Policy and charters for the Audit, Risk Oversight, Executive Compensation and Nominating and Corporate Governance Committees. More information on the Company’s corporate governance practices is available on the Company’s website at www.zionsbancorporation.com. (The Company’s website is not part of this Annual Report on Form 10-K.) In addition, the Company has adopted policies prohibiting hedging and restricting pledging of Company stock by insiders.

The Company has adopted policies, procedures and controls to address compliance with the requirements of the banking, securities and other laws and regulations described above or otherwise applicable to the Company. The Company intends to make appropriate revisions to reflect any changes required.

Regulators, Congress, state legislatures and international consultative bodies continue to enact rules, laws, and policies to regulate the financial services industry and public companies and to protect consumers and investors. The nature of these laws and regulations and the effect of such policies on future business and earnings of the Company cannot be predicted.

GOVERNMENT MONETARY POLICIES

The earnings and business of the Company are affected not only by general economic conditions, but also by policies adopted by various governmental authorities. The Company is particularly affected by the monetary policies of the FRB, which affect both short-term and long-term interest rates and the national supply of bank credit. The tools available to the FRB which may be used to implement monetary policy include:


•	open-market operations in U.S. Government and other securities;


•	adjustment of the discount rates or cost of bank borrowings from the FRB;


•	imposing or changing reserve requirements against bank deposits;


•	term auction facilities collateralized by bank loans; and


•	other programs to purchase assets and inject liquidity directly in various segments of the economy.

These methods are used in varying combinations to influence the overall growth or contraction of bank loans, investments and deposits, and the interest rates charged on loans or paid for deposits.

In view of the changing conditions in the economy and the effect of the FRB’s monetary policies, it is difficult to predict future changes in loan demand, deposit levels and interest rates, or their effect on the business and earnings of the Company. FRB monetary policies have had a significant effect on the operating results of commercial banks in the past and are expected to continue to do so in the future.

ITEM 1A. RISK FACTORS

The Company’s Board of Directors has established a Risk Oversight Committee and an Enterprise Risk Management policy and has appointed an Enterprise Risk Management Committee to oversee and implement the policy. In addition to credit and interest rate risk, the Committee also monitors the following risk areas: market risk, liquidity risk, operational risk, compliance risk, information technology risk, strategic risk, compensation-related risk, and reputation risk.

The following list describes several risk factors which are significant to the Company including but not limited to:

The Company has been and could continue to be negatively affected by adverse economic conditions.

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The United States and many other countries recently faced a severe economic crisis, including a major recession. These adverse economic conditions have negatively affected the Company’s assets, including its loans and securities portfolios, capital levels, results of operations, and financial condition. In response to the economic crisis, the United States and other governments established a variety of programs and policies designed to mitigate the effects of the crisis. These programs and policies appear to have had a stabilizing effect in the United States following the severe financial crisis that occurred in the second half of 2008, but adverse

economic conditions continue to exist in the United States and globally. Concerns about the European Union’s sovereign debt crisis have continued to cause uncertainty for financial markets globally. It is possible economic conditions may again become more severe or that adverse economic conditions may continue for a substantial period of time. In addition, economic uncertainty resulting from possible changes in the ratings of sovereign debt issued by the United States and other nations, and fiscal imbalances in the United States, at federal, state and municipal levels, in the European Union and in other countries, combined with political difficulties in resolving these imbalances, may directly or indirectly adversely impact economic conditions faced by the Company and its customers. Any increase in the severity or duration of adverse economic conditions, including a recession or continued weak economic recovery, would adversely affect the Company.

Our information systems may experience an interruption or security breach.

We rely heavily on communications and information systems to conduct our business. We, our customers, and other financial institutions with which we interact, are subject to ongoing, continuous attempts to penetrate key systems by individual hackers, organized criminals, and in some cases, state-sponsored organizations. Any failure, interruption or breach in security of these systems could result in failures or disruptions in our customer relationship management, general ledger, deposit, loan and other systems, misappropriation of funds, and theft of proprietary Company or customer data. While we have policies and procedures designed to prevent or limit the effect of the possible failure, interruption or security breach of our information systems, there can be no assurance that any such failure, interruption or security breach will not occur or, if they do occur, that they will be adequately addressed. The occurrence of any failure, interruption or security breach of our information systems could damage our reputation, result in a loss of customer business, subject us to additional regulatory scrutiny, or expose us to civil litigation and possible financial liability.

The regulation of incentive compensation under the Dodd-Frank Act may adversely affect our ability to retain our highest performing employees.

The bank regulatory agencies have published guidance and proposed regulations which limit the manner and amount of compensation that banking organizations provide to employees. These regulations and guidance may adversely affect our ability to retain key personnel. If we were to suffer such adverse effects with respect to our employees, our business, financial condition and results of operations could be adversely affected, perhaps materially.

Stress testing and capital management under Dodd-Frank may limit our ability to increase dividends, repurchase shares of our stock, and access the capital markets.

Under stress testing and capital management standards implemented by bank regulatory agencies under Dodd-Frank, we may declare dividends, repurchase common stock, redeem preferred stock and debt, access capital markets for certain types of capital, make acquisitions, and enter into similar transactions only with bank regulatory approval. Any transactions not contemplated in our annual capital plan will require FRB approval. These limitations may significantly limit our ability to respond to and take advantage of market developments.

The Dodd-Frank Act imposes significant new limitations on our business activities and subjects us to increased regulation and additional costs.

The Dodd-Frank Act has material implications for the Company and the entire financial services industry. The Act places significant additional regulatory oversight and requirements on financial institutions, including the Company, with more than $50 billion of assets. In addition, among other things, the Act:

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•	affects the levels of capital and liquidity with which the Company must operate and how it plans capital and liquidity levels (including a phased-in elimination of the Company’s existing trust preferred securities as Tier 1 capital);


•	subjects the Company to new and/or higher fees paid to various regulatory entities, including but not limited to deposit insurance fees to the FDIC;


•	impacts the Company’s ability to invest in certain types of entities or engage in certain activities;


•	impacts a number of the Company’s business and risk management strategies;


•	regulates the pricing of certain of our products and services and restricts the revenue that the Company generates from certain businesses;


•	subjects the Company to new capital planning actions, including stress testing or similar actions and timing expectations for capital-raising;


•	subjects the Company to supervision by the Consumer Financial Protection Bureau, with very broad rule-making and enforcement authorities;


•	grants authority to state agencies to enforce state and federal laws against national banks;


•	subjects the Company to new and different litigation and regulatory enforcement risks; and


•	limits the amount and manner of compensation paid to executive officers and employees generally.

Because the responsible agencies are still in the process of proposing and finalizing many of the regulations required under the Dodd-Frank Act, the full impact of this legislation on the Company, its business strategies, and financial performance cannot be known at this time, and may not be known for some time. Individually and collectively, regulations adopted under the Dodd-Frank Act may materially adversely affect the Company’s business, financial condition, and results of operations.

U.S. regulatory agencies, in response to the adoption of Basel III and Title I of the Dodd-Frank Act, will require us to raise our capital and liquidity to levels that may exceed those that the market considers to be optimal.

Basel III was adopted in December 2010, and was updated in January 2013, by the BCBS and provides an international framework for the establishment of bank capital and liquidity standards. Title I of the Dodd-Frank Act requires that banking organizations of our size undergo regular stress testing of their capital, assets and profitability and authorizes bank regulatory agencies to promulgate new capital and liquidity standards. In 2012, the U.S. bank regulatory agencies published proposed regulations that, consistent with Basel III and the Dodd-Frank Act, would redefine the components of capital and require higher capital ratios for all banking organizations. The U.S. banking agencies are currently developing proposed rules to implement the Basel III liquidity framework for U.S. banking organizations. Maintaining higher capital and liquidity levels may reduce our profitability and performance measures.

Economic and other circumstances may require us to raise capital at times or in amounts that are unfavorable to the Company.

The Company’s subsidiary banks must maintain certain risk-based and leverage capital ratios as required by their banking regulators which can change depending upon general economic conditions and their particular condition, risk profile and growth plans. Compliance with capital requirements may limit the Company’s ability to expand and has required, and may require, capital investment from the Parent. These uncertainties and risks created by the legislative and regulatory uncertainties discussed above may themselves increase the Company’s cost of capital and other financing costs.

Credit quality has adversely affected us and may continue to adversely affect us.

Credit risk is one of our most significant risks. Although most credit quality indicators continued to improve during 2012, the Company’s credit quality may continue to show weakness in some loan types and markets in which the Company operates as the economic recovery progresses.

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If the strength of the U.S. economy in general and the strength of the local economies in which we and our subsidiary banks conduct operations decline further, this could result in, among other things, further deterioration in credit quality and/or continued reduced demand for credit, including a resultant adverse effect on the income from our loan portfolio, an increase in charge-offs and an increase in the allowance for loan and lease losses; if such developments occur, we may be required to raise additional capital.

Failure to effectively manage our credit concentration or counterparty risk could adversely affect us.

Increases in concentration or counterparty risk could adversely affect the Company. Concentration risk across our loan and investment portfolios could pose significant additional credit risk to the Company due to exposures which perform in a similar fashion. Counterparty risk could also pose additional credit risk, but it is routinely monitored and analyzed.

Failure to effectively manage our interest rate risk and prolonged periods of low interest rates could adversely affect us.

Net interest income is the largest component of the Company’s revenue. The management of interest rate risk for the Company and its subsidiary banks is centralized and overseen by an Asset Liability Management Committee appointed by the Company’s Board of Directors. We have been successful in our interest rate risk management as evidenced by achieving a relatively stable net interest margin over the last several years when interest rates have been volatile and the rate environment challenging; however, a failure to effectively manage our interest rate risk could adversely affect us. Factors beyond the Company’s control can significantly influence the interest rate environment and increase the Company’s risk. These factors include competitive pricing pressures for our loans and deposits, adverse shifts in the mix of deposits and other funding sources, and volatile market interest rates subject to general economic conditions and the policies of governmental and regulatory agencies, in particular the FRB.

The Company remains in an “asset sensitive” interest rate risk position, and the FRB has stated its expectations that short-term interest rates may remain low until unemployment is reduced to below 6.5% or inflationary expectations exceed 2.5%. Such a scenario may continue to create or exacerbate margin compression for us as a result of repricing of longer-term loans.

Our ability to maintain required capital levels and adequate sources of funding and liquidity has been and may continue to be adversely affected by market conditions.

We are required to maintain certain capital levels in accordance with banking regulations and any capital requirements imposed by our regulators. We must also maintain adequate funding sources in the normal course of business to support our operations and fund outstanding liabilities. Our ability to maintain capital levels, sources of funding, and liquidity has been and could continue to be impacted by changes in the capital markets in which we operate and deteriorating economic and market conditions.

Each of our subsidiary banks must remain well-capitalized and meet certain other requirements for us to retain our status as a financial holding company. Failure to comply with those requirements could result in a loss of our financial holding company status if such conditions are not corrected within 180 days or such longer period as may be permitted by the FRB, although we do not believe that the loss of such status would have an appreciable effect on our operations or financial results. In addition, failure by our bank subsidiaries to meet applicable capital guidelines or to satisfy certain other regulatory requirements can result in certain activity restrictions or a variety of enforcement remedies available to the federal regulatory authorities that include limitations on the ability to pay dividends, the issuance by the regulatory authority of a capital directive to increase capital and the termination of deposit insurance by the FDIC.

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Funding availability continued to improve during 2012. However, because liquidity stresses are often a consequence of the occurrence of other risks, they will continue to be a risk factor in 2013 and beyond for the Company, the Parent and its subsidiary banks.

The quality and liquidity of our asset-backed investment securities portfolio has adversely affected us and may continue to adversely affect us.

The Company’s asset-backed investment securities portfolio includes collateralized debt obligations collateralized by trust preferred securities issued by bank holding companies, insurance companies, and REITs that may have some exposure to construction loan, commercial real estate, and the subprime markets and/or to other categories of distressed assets. In addition, asset-backed securities also include structured asset-backed CDOs (also known as diversified structured finance CDOs) which have exposure to subprime and home equity mortgage securitizations. Many factors, some of which are beyond the Company’s control, significantly influence the fair value and impairment status of these securities. These factors include, but are not limited to, prepayments, defaults, deferrals and restructurings by debt issuers, the views of banking regulators, changes in our accounting treatment with respect to these securities, rating agency downgrades of securities, lack of market pricing of securities, or the return of market pricing that varies from the Company’s current model valuations, and changes in prepayment rates and future interest rates. For example, during the fourth quarter of 2012, we disclosed our expectation that increased prepayments experienced in our CDO portfolio during the fourth quarter would lead to higher other-than-temporary impairment charges as a result of the use of higher constant prepayment rate speeds in our valuation models for these securities. Additionally we also disclosed that, following discussions with federal banking regulators, we were reviewing assumptions in our valuation models for certain bank holding company trust preferred securities that underlie certain of our CDO securities – namely, those that are currently deferring distributions and nearing the end of their deferral periods. We disclosed that, in combination with the effect of the higher CPR speeds, this could lead to the incurrence of significant OTTI in our CDO portfolio. The occurrence of one or more of these factors could result in additional OTTI charges with respect to our CDO portfolio, which could be material. See “Investment Securities Portfolio” on page 49 for further details.

We and/or the holders of our securities could be adversely affected by unfavorable rating actions from rating agencies.

Our ability to access the capital markets is important to our overall funding profile. This access is affected by the ratings assigned by rating agencies to us, certain of our affiliates, and particular classes of securities that we and our affiliates issue. The interest rates that we pay on our securities are also influenced by, among other things, the credit ratings that we, our affiliates, and/or our securities receive from recognized rating agencies. In the past, rating agencies have downgraded our credit ratings. Further downgrades to us, our affiliates, or our securities could increase our costs or otherwise have a negative effect on our results of operations or financial condition or the market prices of our securities.

We could be adversely affected by accounting, financial reporting, and regulatory and compliance risk.

The Company is exposed to accounting, financial reporting, and regulatory/compliance risk. The level of regulatory/compliance oversight has been heightened in recent periods as a result of rapid changes in regulations that affect financial institutions. The administration of some of these regulations and related changes has required the Company to comply before their formal adoption.

The Company provides to its customers, invests in, and uses for its own capital, funding, and risk management needs, a number of complex financial products and services. Estimates, judgments, and interpretations of complex and changing accounting and regulatory policies are required in order to provide and account for these products and services. Changes in our accounting policies or in accounting standards could materially affect how we report our financial results and conditions. Identification, interpretation and implementation of complex and changing accounting standards as well as compliance with regulatory requirements therefore pose an ongoing risk.

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We could be adversely affected by legal and governmental proceedings.

The Company is subject to risks associated with legal claims, fines, litigation, and regulatory and other government proceedings. The Company’s exposure to these proceedings has increased and may further increase as a result of stresses on customers, counterparties and others arising from the current economic environment; new regulations promulgated under recently adopted statutes; and the creation of new examination and enforcement bodies.

We could be adversely affected by failure in our internal controls.

A failure in our internal controls could have a significant negative impact not only on our earnings, but also on the perception that customers, regulators and investors may have of the Company. We continue to devote a significant amount of effort, time and resources to continually strengthening our controls and ensuring compliance with complex accounting standards and regulations.

We could be adversely affected as a result of acquisitions.

From time to time the Company makes acquisitions including the acquisition of assets and liabilities of failed banks from the FDIC acting as a receiver. The FDIC-supported transactions are subject to loan loss sharing agreements. Failure to comply with the terms of the agreements could result in the loss of indemnification from the FDIC. The success of any acquisition depends, in part, on our ability to realize the projected cost savings from the acquisition and on the continued growth and profitability of the acquisition target. We have been successful with most prior acquisitions, but it is possible that the merger integration process with an acquired company could result in the loss of key employees, disruptions in controls, procedures and policies, or other factors that could affect our ability to realize the projected savings and successfully retain and grow the target’s customer base and revenues.

ITEM 1B. UNRESOLVED STAFF COMMENTS

There are no unresolved written comments that were received from the SEC’s staff 180 days or more before the end of the Company’s fiscal year relating to our periodic or current reports filed under the Securities Exchange Act of 1934.

ITEM 2. PROPERTIES

At December 31, 2012, the Company operated 480 domestic branches, of which 285 are owned and 195 are leased. The Company also leases its headquarters offices in Salt Lake City, Utah. Other operations facilities are either owned or leased. The annual rentals under long-term leases for leased premises are determined under various formulas and factors, including operating costs, maintenance, and taxes. For additional information regarding leases and rental payments, see Note 17 of the Notes to Consolidated Financial Statements.

ITEM 3. LEGAL PROCEEDINGS

The information contained in Note 17 of the Notes to Consolidated Financial Statements is incorporated by reference herein.

ITEM 4. MINE SAFETY DISCLOSURES

None.

PART II

ITEM 5. MARKET FOR REGISTRANT’S COMMON EQUITY, RELATED STOCKHOLDER MATTERS AND ISSUER PURCHASES OF EQUITY SECURITIES

MARKET INFORMATION

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The Company’s common stock is traded on the NASDAQ Global Select Market under the symbol “ZION.” The last reported sale price of the common stock on NASDAQ on February 15, 2013 was $24.34 per share.

The following schedule sets forth, for the periods indicated, the high and low sale prices of the Company’s common stock, as quoted on NASDAQ.



	2012				2011
	High		Low		High		Low

1st Quarter	$	22.81	$	16.40	$	25.60	$	22.08
2nd Quarter	21.55		17.45		24.92		21.36
3rd Quarter	21.68		17.58		24.71		14.07
4th Quarter	22.66		19.03		18.51		13.18

During 2012, the Company redeemed its Series D Fixed-Rate Cumulative Perpetual Preferred Stock (“TARP CPP”)in two installments of $700 million each on March 28, 2012 and September 26, 2012. The total of $1.4 billion was issued by the U.S. Department of the Treasury under the TARP CPP.

On May 7, 2012, the Company issued $143.75 million of a new series of Tier 1 Capital qualifying perpetual preferred stock with an annual dividend of 7.9%. The proceeds were used to redeem all outstanding shares of its Series E fixed-rate resettable non-cumulative perpetual preferred stock on June 15, 2012. The Series E securities had an aggregate par amount of $142.5 million and current dividend of 11.0%.

See Note 13 of the Notes to Consolidated Financial Statements for further information regarding equity transactions during 2012.

As of February 15, 2013, there were 5,606 holders of record of the Company’s common stock.

EQUITY CAPITAL AND DIVIDENDS

We have 4,400,000 authorized shares of preferred stock without par value and with a liquidation preference of $1,000 per share. As of December 31, 2012, 60,093, 798,257, and 143,750 of preferred shares series A, C, and F, respectively, have been issued and are outstanding. In addition, holders of $458 million of the Company’s subordinated debt have the right to convert that debt into either Series A or C preferred stock. In general, preferred shareholders may receive asset distributions before common shareholders; however, preferred shareholders have only limited voting rights generally with respect to certain provisions of the preferred stock, the issuance of senior preferred stock, and the election of directors. Preferred stock dividends reduce earnings available to common shareholders and are paid quarterly in arrears. The redemption amount is computed at the per share liquidation preference plus any declared but unpaid dividends. The series A, C, and F shares are registered with the SEC. See Note 13 of the Notes to Consolidated Financial Statements for further information regarding the Company’s preferred stock.

The frequency and amount of common stock dividends paid during the last two years are as follows:



	1st Quarter		2nd Quarter		3rd Quarter		4th Quarter

2012	$	0.01	$	0.01	$	0.01	$	0.01
2011	0.01		0.01		0.01		0.01

The Company’s Board of Directors approved a dividend of $0.01 per common share payable on February 25, 2013 to shareholders of record on February 18, 2013. The Company expects to continue its policy of paying regular cash dividends on a quarterly basis, although there is no assurance as to future dividends because they depend on future earnings, capital requirements, financial condition, and regulatory approvals.

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SECURITIES AUTHORIZED FOR ISSUANCE UNDER EQUITY COMPENSATION PLANS

The information contained in Item 12 of this Form 10-K is incorporated by reference herein.

SHARE REPURCHASES

The following schedule summarizes the Company’s share repurchases for the fourth quarter of 2012.



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
October		1,302	$	21.05		—		$	—
November		192	21.58			—		—
December		981	21.04			—		—
Fourth quarter		2,475	21.09			—

¹Represents 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.

PERFORMANCE GRAPH

The following stock performance graph compares the five-year cumulative total return of Zions Bancorporation’s common stock with the Standard & Poor’s 500 Index and the KBW Bank Index, both of which include Zions Bancorporation. The KBW Bank Index is a market capitalization-weighted bank stock index developed and published by Keefe, Bruyette & Woods, Inc., a nationally recognized brokerage and investment banking firm specializing in bank stocks. The index is composed of 24 geographically diverse stocks representing national money center banks and leading regional financial institutions. The stock performance graph is based upon an initial investment of $100 on December 31, 2007 and assumes reinvestment of dividends.



	2007	2008	2009	2010	2011	2012

Zions Bancorporation	100.0	54.6	28.7	54.4	36.6	48.2
KBW Bank Index	100.0	52.5	51.6	63.7	48.9	65.1
S&P 500	100.0	63.0	79.7	91.7	93.6	108.6

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ITEM 6. SELECTED FINANCIAL DATA

FINANCIAL HIGHLIGHTS

(In millions, except per share amounts)	2012/2011 Change		2012			2011			2010			2009			2008
For the Year
Net interest income	-1	%	$	1,731.9		$	1,756.2		$	1,714.3		$	1,885.6		$	1,958.1
Noninterest income	-16	%	419.9			498.2			453.6			816.0			204.2
Total revenue	-5	%	2,151.8			2,254.4			2,167.9			2,701.6			2,162.3
Provision for loan losses	-81	%	14.2			74.5			852.7			2,017.1			648.6
Noninterest expense	-4	%	1,595.0			1,658.6			1,718.3			1,671.3			1,474.7
Impairment loss on goodwill	—	%	1.0			—			—			636.2			353.8
Income (loss) before income taxes	+4	%	541.6			521.3			(403.1		)	(1,623.0		)	(314.8		)
Income taxes (benefit)	-3	%	193.4			198.6			(106.8		)	(401.3		)	(43.4		)
Net income (loss)	+8	%	348.2			322.7			(296.3		)	(1,221.7		)	(271.4		)
Net income (loss) applicable to noncontrolling interests	-18	%	(1.3		)	(1.1		)	(3.6		)	(5.6		)	(5.1		)
Net income (loss) applicable to controlling interest	+8	%	349.5			323.8			(292.7		)	(1,216.1		)	(266.3		)
Net earnings (loss) applicable to common shareholders	+16	%	178.6			153.4			(412.5		)	(1,234.4		)	(290.7		)

Per Common Share
Net earnings (loss) – diluted	+17	%	0.97			0.83			(2.48		)	(9.92		)	(2.68		)
Net earnings (loss) – basic	+17	%	0.97			0.83			(2.48		)	(9.92		)	(2.68		)
Dividends declared	—	%	0.04			0.04			0.04			0.10			1.61
Book value¹	+7	%	26.73			25.02			25.12			27.85			42.65
Market price – end			21.40			16.28			24.23			12.83			24.51
Market price – high²			22.81			25.60			30.29			25.52			57.05
Market price – low			16.40			13.18			12.88			5.90			17.53

At Year-End
Assets	+4	%	55,512			53,149			51,035			51,123			55,093
Net loans and leases	+1	%	37,665			37,258			36,830			40,260			41,712
Deposits	+8	%	46,133			42,876			40,935			41,841			41,316
Long-term debt	+20	%	2,337			1,954			1,943			2,033			2,622
Shareholders’ equity:
Preferred equity	-53	%	1,128			2,377			2,057			1,503			1,582
Common equity	+7	%	4,924			4,608			4,591			4,190			4,920
Noncontrolling interests	-50	%	(3		)	(2		)	(1		)	17			27

Performance Ratios
Return on average assets			0.66		%	0.63		%	(0.57		)%	(2.25		)%	(0.50		)%
Return on average common equity			3.76		%	3.32		%	(9.26		)%	(28.35		)%	(5.69		)%
Net interest margin			3.57		%	3.77		%	3.70		%	3.91		%	4.15		%

Capital Ratios¹
Equity to assets			10.90		%	13.14		%	13.02		%	11.17		%	11.85		%
Tier 1 leverage			10.96		%	13.40		%	12.56		%	10.38		%	9.99		%
Tier 1 risk-based capital			13.38		%	16.13		%	14.78		%	10.53		%	10.22		%
Total risk-based capital			15.05		%	18.06		%	17.15		%	13.28		%	14.32		%
Tangible common equity			7.09		%	6.77		%	6.99		%	6.12		%	5.89		%
Tangible equity			9.15		%	11.33		%	11.10		%	9.16		%	8.91		%

Selected Information
Average common and common-equivalent shares (in thousands)			183,236			182,605			166,054			124,443			108,908
Common dividend payout ratio			4.14		%	4.80		%	na			na			na
Full-time equivalent employees			10,368			10,606			10,524			10,529			11,011
Commercial banking offices			480			486			495			491			513
ATMs			585			589			601			602			625


¹	At year-end.


²	The actual high price for 2008 was $107.21. However, this trading price was an anomaly resulting from electronic orders at the opening of the market on September 19, 2008 in response to the SEC’s announcement (prior to the market opening that day) of its temporary emergency action suspending short selling in financial companies. The closing price on September 19, 2008 was $52.83.

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ITEM 7.	MANAGEMENT’S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS

MANAGEMENT’S DISCUSSION AND ANALYSIS

EXECUTIVE SUMMARY

Company Overview

Zions Bancorporation (“the Parent”) and subsidiaries (collectively “the Company,” “Zions,” “we,” “our,” “us”) together comprise a $56 billion financial holding company headquartered in Salt Lake City, Utah. The Company is considered a “systemically important” financial institution under the Dodd-Frank Act.


•	As of December 31, 2012, the Company was the 20^th largest domestic bank holding company in terms of deposits and is included in the S&P 500 and NASDAQ Financial 100 indices. It is the largest independent regional banking company in the western U.S.


•	At December 31, 2012, the Company operated banking businesses through 480 domestic branches in ten western and southwestern states.


•	The Company ranked in the top 10 nationally for loans provided to small businesses, under both the Small Business Administration’s 7(a) and 504 programs.


•	It has been awarded numerous “Excellence” awards by Greenwich Associates, having received 13 awards for the 2012 survey. Only 11 banks received more than 10 awards, while the nation’s largest banks received a median three such awards.


•	The Company provides also public finance, wealth management and brokerage services.


•	Revenues and profits are primarily derived from commercial customers.

Long-Term Strategy

We strive to maintain a local community/regional bank approach for customer-facing elements of our business. We believe that our target customers, consisting largely of small and mid-sized businesses, appreciate local branding, product customization and speedy decision-making by local management. By retaining a significant degree of autonomy in product offerings and pricing, we believe our banks have a sustainable competitive advantage over larger national banks where loan and deposit products are often homogeneous. However, we strive to centralize noncustomer facing operations, such as risk and capital management, and technology and operations. By centralizing many of these functions, we believe we can generally achieve greater economies of scale and stronger risk management, and that our portfolio of community banks has superior access to the capital markets, investment portfolio and treasury management, liquidity resources, and technological advances than do smaller independent community banks.

Our strategy is driven by four key factors:


•	focus on growth markets;


•	maintain a sustainable competitive advantage over large national and global banks by keeping many decisions that affect customers local;


•	maintain a sustainable competitive advantage over community banks through superior products, productivity, efficiency and a lower cost of capital; and


•	centralize and standardize policies and oversight of key risks, technology and operations.

Focus on Growth Markets

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The Company seeks to grow both organically and through acquisitions in growth markets. The states in our geographic footprint have experienced higher rates of economic growth than other states. Our footprint is well diversified by industry, strong business formation rates, real estate development and general economic expansion. While some states in our footprint experienced a significant slowing in economic activity during the recent recession, others have experienced above-average growth and stronger resistance to the economic downturn. We believe the Company can continue to experience above-average revenue growth in the long term, in part because the majority of our footprint is concentrated in states that have above average GDP, population, and job growth, and where the economies are well diversified.


•	GDP growth in our footprint has exceeded nominal U.S. GDP by an average of 1.1% per year (compounded) over the last ten years; i.e., from 2001-2011, nominal U.S. GDP grew by 3.9%, while nominal GDP in Zions’ footprint (weighted by 12/31/12 assets) grew by 5.1%.


•	Job creation within the Zions footprint greatly exceeded the national rate during the past ten years. U.S. nonfarm payroll jobs increased by 3.4% during the last ten years; however, job creation in Zions’ footprint increased by 11.4%.

The higher economic growth indicators of GDP and job creation in our footprint are driven by the economies of Texas, California and Utah where more than 75% of the Company’s assets are located.

Texas has a well diversified economy that is the third largest in the United States. Significant drivers of its growth are the energy, health care, manufacturing, real estate, and computer technology sectors. These sectors have propelled the Texas economy to outperform the nation, as employers have added jobs in the past 12 months, which has resulted in the unemployment rate declining to 6.1% compared to the national rate of 7.8%. Amegy’s three primary markets, Houston, Dallas and San Antonio, experienced job growth in 2012. Amegy has $13 billion in assets, which represent 24% of the Company’s assets. In addition, the Texas economic environment benefits from business-friendly growth policies, affordable housing markets, and a relatively small percentage of homeowner borrowers in a negative equity situation. See “Business Segment Results” on page 44 for further discussion on the 2012 performance of Amegy.

California’s economy is the largest in the United States, representing approximately 13% of the nation’s GDP and is based on a diverse group of business sectors. The state has been experiencing improvements in residential and CRE values. Additionally, voters recently approved increases in taxes to shore up the state’s budget shortfall. However, state and local finances remain under strain; California has one of the lowest state credit ratings, and several major municipalities filed for or remained under bankruptcy protection in 2012. California Bank & Trust’s (“CB&T”) primary markets – the major metropolitan areas in California including the San Francisco Bay area, Los Angeles County, Orange County, and San Diego – continued to experience economic improvements in 2012 compared to 2011. CB&T has approximately $11 billion in assets, which represent 20% of the Company’s assets. Trends in unemployment, home foreclosures, and bank credit problems continue to improve throughout California, resulting in corresponding reductions in problem credits and nonperforming assets at CB&T. The state’s unemployment rate declined from its peak as follows – 12.4% in October 2010, 11.2% in December 2011, and 9.8% in December 2012 – but remains well above the 7.8% national average. Unemployment rates are much lower in CB&T’s primary markets compared to the state as a whole. See “Business Segment Results” on page 44 for further discussion on the 2012 performance of CB&T.

The Utah economy is primarily based on the energy, agriculture, real estate, computer technology, education, health care, and financial services sectors. During 2012, Utah employment grew at a 2.9% rate compared to the national employment growth rate of 1.4%. This growth decreased Utah’s overall unemployment rate to 5.2% in 2012 from 5.8% in 2011. Zions Bank is the second largest full-service commercial bank in the state of Utah as measured by domestic deposits, and operates in all submarkets of the state. Zions Bank has approximately $18 billion in assets, which represent 32% of the Company’s assets. In addition, the Utah state government has been recognized for its policies promoting a business-friendly climate, providing a predictable and stable tax policy, and controlling

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government spending levels. See “Business Segment Results” on page 44 for further discussion on the 2012 performance of Zions Bank.

Keep Decisions That Affect Customers Local

We believe that over the long term, ensuring that local management teams retain the authority over many of the decisions that affect their customers is a strategy that ultimately generates superior growth in our banking businesses, as supported by stronger organic loan and deposit growth relative to other banks.


•	We operate eight different community/regional banks, each under a different name, and each with its own charter, chief executive officer and management team.


•	We believe that this approach allows us to attract and retain exceptional management, and provides service of the highest quality to our targeted customers. The results of this service are evident in the results of the Greenwich Associates annual survey, wherein the Company consistently ranks “Excellent” for overall satisfaction among small and middle-market businesses.


•	This structure helps to ensure that many of the decisions related to customers are made at a local level:


◦	branding and marketing strategies;


◦	product offerings and pricing;


◦	credit decisions (within the limits of established corporate policy); and


◦	relationship management strategies and the integration of various business lines.

Maintain a Sustainable Competitive Advantage Over Community Banks

To create a sustainable competitive advantage over other smaller community banks, we focus on achieving product selection, productivity, economies of scale, availability of liquidity, and a lower cost of capital. Compared to community banks:


•	We use the combined scale of all of our banking operations to create a broad product offering.


•	Our larger capital base and product offerings allows us to lend to business customers of a wide range of sizes, from small businesses to large companies.


•	For certain products for which economies of scale are believed to be critical, the Company “manufactures” the product centrally or is able to obtain services from third-party vendors at lower costs due to volume-driven pricing power.


•	Our combined size and diversification affords us superior access to the capital markets for debt and equity financing; over the long term, this advantage has historically, and should in the future, result in a lower cost of capital than our subsidiary banks could achieve on their own.

Centralize and Standardize Policies and Oversight of Key Risks

We seek to standardize policies and practices related to the management of key risks in order to assure a consistent risk profile in an otherwise decentralized management model. Among these key risks and functions are credit, interest rate, liquidity, and market risks.


•	The Company conducts regular stress testing of the loan portfolio using multiple economic scenarios. Such tests help to identify pockets of risk and enable management to reduce risk.


•	The Company oversees credit risk using a single credit policy and specialists in business, commercial real estate consumer lending, and in concentration risk management.


•	The Company regularly measures interest rate and liquidity risk and uses capital markets instruments to adjust risks to within Board-approved levels.


•	The Company centrally monitors and oversees operational risk. Centralized internal audit, credit examination, and compliance functions test compliance with established policies.

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MANAGEMENT’S OVERVIEW OF 2012 PERFORMANCE

The Company reported net earnings applicable to common shareholders for 2012 of $178.6 million or $0.97 per diluted common shared compared to $153.4 million or $0.83 per diluted common share for 2011.

While we are encouraged with the 2012 results, we are also encouraged by future opportunities to expand our return on equity through both financing and operating channels.

Areas Experiencing Strength in 2012

•

The Company improved its profitability, generating a 5.18% tangible return on average tangible common equity compared to 4.72% in 2011. Two major items had a significant adverse impact on profitability during the year: 1) amortization of the discount related to convertible subordinated debt, and 2) securities impairment losses on investment securities, net of securities gains. Together, these items reduced earnings by approximately $148.1 million pretax.

•

Common equity Tier 1 capital improved and we began to reduce the cost of our high-cost capital structure (see Chart 3). In 2012, we fully redeemed our $1.4 billion TARP CPP preferred stock. We also refinanced our Series E preferred shares with the lower-cost Series F preferred shares, which resulted in an annualized $91 million preferred dividend expense in the fourth quarter of 2012 compared to an annualized $178 million preferred dividend expense in the fourth quarter of 2011. Our Common Equity Tier 1 ratio further improved to 9.80% at December 31, 2012.


•	Asset quality improved significantly, with the Company experiencing a 30% decline in nonperforming lending-related assets (see Chart 2) and a 66% decline in net charge-offs. As a result, credit costs, including the provision for loan losses, other real estate expense, and credit-related expense, declined more than 60%.

•

Loans, our primary revenue driver, increased $407 million, or 1.1%, compared to December 31, 2011, including increases of $809 million in commercial and industrial, $429 million in 1-4 family residential, and $180 million in commercial real estate term loans. This loan growth came despite the net run-off of $570 million in owner occupied loans, $326 million in construction and land development loans, and $223 million in FDIC-supported loans, all of which were planned reductions to reduce risk. Unfunded lending commitments increased $1.7 billion in 2012, which is expected to result in improved loan growth in 2013.


•	Despite a difficult interest rate environment and modest loan growth, we successfully maintained relatively stable net interest income in 2012 compared to 2011 (see Chart 1). We also worked to contain operating costs. Noninterest expense, excluding other real estate and credit-related expenses, was relatively stable during the year, increasing at a rate less than inflation of only 0.4%.

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Areas Experiencing Weakness in 2012

•

Our net interest margin declined to 3.57% from 3.77% in 2011, but continued to remain reasonably strong relative to other peer banks. This decline was predominately due to the substantial increase in low-yielding money market investments, which was driven by a strong increase in noninterest-bearing demand deposits. Additional pressure on the NIM in 2012 was also due to loan maturities and resets. Many loans that were originated in prior years had higher rates than market rates during 2012, and thus when such loans mature or the rates reset, the yield frequently declines compared to the prior yield.


•	High cost debt and preferred equity weighed significantly on returns. The high cost of debt and preferred equity is a byproduct of our efforts to stabilize the Company’s capital base during the recent recession. While we issued fewer common shares than many banks to shore up our capital base, we did issue high cost debt and perpetual preferred stock.


•	While some credit quality ratios, such as net charge-offs as a percentage of average loans, have improved to pre-recession levels, other ratios, such as nonperforming lending-related assets as a percentage of loans and other real estate owned, are still inferior to long-term averages.

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Areas of Focus for 2013


•	Reduce costs related to high-cost debt and preferred equity, as previously discussed.


•	Increase the loan growth rate, primarily through continued strong business lending and additional growth in residential mortgage lending.


•	Further reduce nonaccrual and classified loans.


•	Increase fee income through changes to product pricing, improved product distribution, and improved cross sales.


•	Carefully manage expenses, including expenses related to loan quality other than the provision for loan losses, e.g., other real estate and credit-related expenses.

Schedule 1 presents the key drivers of the Company’s performance during 2012 and 2011:

Schedule 1

KEY DRIVERS OF PERFORMANCE

2012 COMPARED TO 2011



Driver	2012			2011			Change better/(worse)

	(In billions)
Average net loans and leases	$	37.0		$	36.9		0.27	%
Average money market investments	7.9			5.4			46	%
Average noninterest-bearing deposits	16.7			14.5			15	%
Average total deposits	43.4			41.3			5	%

	(In millions)
Net interest income	$	1,731.9		$	1,756.2		(1	)%
Provision for loan losses	(14.2		)	(74.5		)	81	%
Net impairment losses on investment securities	(104.1		)	(33.7		)	(209	)%
Other noninterest income	524.0			531.9			(1	)%
Noninterest expense	1,596.0			1,658.6			4	%

Nonaccrual loans ²	648			911			29	%

Net interest margin	3.57		%	3.77		%	(20) bps
Ratio of nonperforming lending-related assets to net loans and leases and other real estate owned ¹	1.96		%	2.83		%	87 bps
Ratio of total allowance for credit losses to net loans and leases outstanding	2.66		%	3.10		%	44 bps
Common equity Tier 1 capital ratio	9.80		%	9.57		%	23 bps

¹ Includes loans for sale

² Includes FDIC-supported loans

CRITICAL ACCOUNTING POLICIES AND SIGNIFICANT ESTIMATES

Note 1 of the Notes to Consolidated Financial Statements contains a summary of the Company’s significant accounting policies. Further explanations of significant accounting policies are included where applicable in the remaining Notes to Consolidated Financial Statements. Discussed below are certain significant accounting policies that we consider critical to the Company’s financial statements. These critical accounting policies were selected because the amounts affected by them are significant to the financial statements. Any changes to these amounts, including changes in estimates, may also be significant to the financial statements. We believe that an understanding of certain of these policies, along with the related estimates we are required to make in recording the financial

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transactions of the Company, is important to have a complete picture of the Company’s financial condition. In addition, in arriving at these estimates, we are required to make complex and subjective judgments, many of which include a high degree of uncertainty. The following discussion of these critical accounting policies includes the significant estimates related to these policies. We have discussed each of these accounting policies and the related estimates with the Audit Committee of the Board of Directors.

We have included where applicable in this document sensitivity schedules and other examples to demonstrate the impact of the changes in estimates made for various financial transactions. The sensitivities in these schedules and examples are hypothetical and should be viewed with caution. Changes in estimates are based on variations in assumptions and are not subject to simple extrapolation, as the relationship of the change in the assumption to the change in the amount of the estimate may not be linear. In addition, the effect of a variation in one assumption is in reality likely to cause changes in other assumptions, which could potentially magnify or counteract the sensitivities.

Fair Value Estimates

The Company measures or monitors many of its assets and liabilities on a fair value basis. Fair value is the price that could be received to sell an asset or paid to transfer a liability in an orderly transaction between market participants. To increase consistency and comparability in fair value measures, current accounting guidance has established a three-level hierarchy to prioritize the valuation inputs among (1) observable inputs that reflect quoted prices in active markets, (2) inputs other than quoted prices with observable market data, and (3) unobservable data such as the Company’s own data or single dealer nonbinding pricing quotes.

When observable market prices are not available, fair value is estimated using modeling techniques such as discounted cash flow analysis. These modeling techniques utilize assumptions that market participants would use in pricing the asset or the liability, including assumptions about the risk inherent in a particular valuation technique, the effect of a restriction on the sale or use of an asset, the related life of the asset and applicable growth rate, the risk of nonperformance, and other related assumptions.

The selection and weighting of the various fair value techniques may result in a fair value higher or lower than carrying value. Considerable judgment may be involved in determining the amount that is most representative of fair value.

For assets and liabilities recorded at fair value, the Company’s policy is to maximize the use of observable inputs

and minimize the use of unobservable inputs when developing fair value measurements for those items where there is an active market. In certain cases, when market observable inputs for model-based valuation techniques may not be readily available, the Company is required to make judgments about assumptions market participants would use in estimating the fair value of the financial instrument. The models used to determine fair value adjustments are periodically evaluated by management for relevance under current facts and circumstances.

Changes in market conditions may reduce the availability of quoted prices or observable data. For example, reduced

liquidity in the capital markets or changes in secondary market activities could result in observable market inputs becoming unavailable. Therefore, when market data is not available, the Company would use valuation techniques requiring more management judgment to estimate the appropriate fair value.

Fair value is used on a recurring basis for certain assets and liabilities in which fair value is the primary measure of accounting. Fair value is used on a nonrecurring basis to measure certain assets or liabilities (including HTM securities, loans held for sale, and OREO) for impairment or for disclosure purposes in accordance with current accounting guidance.

Impairment analysis also relates to long-lived assets, goodwill, and core deposit and other intangible assets. An impairment loss is recognized if the carrying amount of the asset is not likely to be recoverable and exceeds its fair

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value. In determining the fair value, management uses models and applies the techniques and assumptions previously discussed.

Investment securities are valued using several methodologies which depend on the nature of the security, availability of current market information, and other factors. Certain CDOs are valued using an internal model and the assumptions are analyzed for sensitivity. “Investment Securities Portfolio” on page 49 provides more information regarding this analysis.

Investment securities are reviewed formally on a quarterly basis for the presence of OTTI. The evaluation process takes into account current market conditions, the fair value of the security, and many other factors. The decision to deem these securities OTTI is based on a specific analysis of the structure of each security and an evaluation of the underlying collateral. 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. The “more likely than not” criteria is a lower threshold than the “probable” criteria.

Notes 1, 5, 7, 9 and 20 of the Notes to Consolidated Financial Statements and “Investment Securities Portfolio” on page 49 contain further information regarding the use of fair value estimates.

Allowance for Credit Losses

The allowance for credit losses includes the allowance for loan losses and the reserve for unfunded lending commitments. The allowance for loan losses provides for probable losses that have been identified with specific customer relationships and for probable losses believed to be inherent in the loan portfolio, but which have not been specifically identified. The determination of the appropriate level of the allowance is based on periodic evaluations of the portfolios. This process includes a quantitative analysis, as well as a qualitative review of its results. The qualitative review requires a significant amount of judgment, and is described in more detail in Note 6 of the Notes to Consolidated Financial Statements.

The reserve for unfunded lending commitments provides for potential losses associated with off-balance sheet lending commitments and standby letters of credit. The reserve is estimated using the same procedures and methodologies as for the allowance for loan losses, plus assumptions regarding the probability and amount of unfunded commitments being drawn.

There are numerous components that enter into the evaluation of the allowance for loan losses, which includes a quantitative and a qualitative process. Although we believe that our processes for determining an appropriate level for the allowance adequately address the various components that could potentially result in credit losses, the processes and their elements include features that may be susceptible to significant change. Any unfavorable differences between the actual outcome of credit-related events and our estimates and projections could require an additional provision for credit losses. As an example, if a total of $1.5 billion of Pass grade loans were to be immediately classified as Special Mention, Substandard or Doubtful (as defined in Note 6 of the Notes to Consolidated Financial Statements) in the same proportion and in the same loan categories as the existing criticized and classified loans to the whole portfolio, the quantitatively determined amount of the allowance for loan losses at December 31, 2012 would increase by approximately $76 million. This sensitivity analysis is hypothetical and has been provided only to indicate the potential impact that changes in the level of the criticized and classified loans may have on the allowance estimation process.

Although the qualitative process is subjective, it represents the Company’s best estimate of qualitative factors impacting the determination of the allowance for loan losses. Such factors include but are not limited to national and regional economic trends and indicators. We believe that given the procedures we follow in determining the allowance for loan losses for the loan portfolio, the various components used in the current estimation processes are appropriate.

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Note 6 of the Notes to Consolidated Financial Statements and “Credit Risk Management” on page 64 contain further information and more specific descriptions of the processes and methodologies used to estimate the allowance for credit losses.

Accounting for Goodwill

Goodwill is initially recorded at fair value and is subsequently evaluated at least annually for impairment in accordance with current accounting guidance. We perform this annual test as of October 1 of each year, or more often if events or circumstances indicate that carrying value may not be recoverable. The goodwill impairment test for a given reporting unit (generally one of our subsidiary banks) compares its fair value with its carrying value. If the carrying amount exceeds fair value, an additional analysis must be performed to determine the amount, if any, by which goodwill is impaired.

To determine the fair value, we generally use a combination of up to three separate methods: comparable publicly traded financial service companies (primarily banks and bank holding companies) in the western and southwestern states (“Market Value”); where applicable, comparable acquisitions of financial services companies in the western and southwestern states (“Transaction Value”); and the discounted present value of management’s estimates of future cash flows. Critical assumptions that are used as part of these calculations include:


•	selection of comparable publicly traded companies based on location, size, and business focus and composition;


•	selection of market comparable acquisition transactions based on location, size, business focus and composition, and date of the transaction;


•	the discount rate, which is based on Zions estimate of its cost of capital, applied to future cash flows;


•	the potential future earnings and cash flows of the reporting unit;


•	the relative weight given to the valuations derived by the three methods described; and


•	the control premium associated with reporting units.

We apply a control premium in the Market Value approach to determine the reporting units’ equity values. Control premiums represent the ability of a controlling shareholder to change how the Company is managed and can cause the fair value of a reporting unit as a whole to exceed its market capitalization. Based on a review of historical bank acquisition transactions within the Company’s geographic footprint, and a comparison of the target banks’ market values 30 days prior to the announced transaction to the deal value, we have determined that a control premium of 25% was appropriate at the most recent test date.

Since estimates are an integral part of the impairment computations, changes in these estimates could have a significant impact on any calculated impairment amount. Estimates include economic conditions, which impact the assumptions related to interest and growth rates, loss rates and imputed cost of equity capital. The fair value estimates for each reporting unit incorporate current economic and market conditions, including Federal Reserve monetary policy expectations and the impact of legislative and regulatory changes. Additional factors that may significantly affect the estimates include, among others, competitive forces, customer behaviors and attrition, loan losses, changes in growth trends, cost structures and technology, changes in equity market values and merger and acquisition valuations, and changes in industry conditions.

Weakening in the economic environment, a decline in the performance of the reporting units or other factors could cause the fair value of one or more of the reporting units to fall below carrying value, resulting in a goodwill impairment charge. Additionally, new legislative or regulatory changes not anticipated in management’s expectations may cause the fair value of one or more of the reporting units to fall below the carrying value, resulting in a goodwill impairment charge. Any impairment charge would not affect the Company’s regulatory capital ratios, tangible common equity ratio, or liquidity position.

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During the fourth quarter of 2012, we performed our annual goodwill impairment evaluation of the entire organization, effective October 1, 2012. Upon completion of the evaluation process, we concluded that the Commerce Bank of Oregon was the only one of our subsidiary banks that was impaired. The Company recorded an impairment charge of $1 million, which was the total amount of goodwill associated with that subsidiary. Furthermore, the evaluation process determined that the fair values of Amegy, CB&T, and Zions Bank exceeded their carrying values by 18%, 33% and 15%, respectively. Additionally, we performed a hypothetical sensitivity analysis on the discount rate assumption to evaluate the impact of an adverse change to this assumption. If the discount rate applied to future earnings were increased by 100 bps, then the fair values of Amegy, CB&T, and Zions Bank would exceed their carrying values by 12%, 28%, and 5%, respectively. Note 9 of the Notes to Consolidated Financial Statements contains additional information related to goodwill.

Accounting for Derivatives

Our interest rate risk management strategy involves the use of hedging to mitigate our exposure to potential adverse effects from changes in interest rates.

The derivative contracts used by the Company are exchange-traded or OTC. Exchange-traded derivatives consist of forward currency exchange contracts, which are part of the Company’s services provided to commercial customers. OTC derivatives consist of interest rate swaps, options and futures contracts.

We record all derivatives at fair value on the balance sheet. When quoted market prices are not available, the valuation of derivative instruments is determined using widely accepted valuation techniques including discounted cash flow analysis on the expected cash flows of each derivative. These future net cash flows, however, are susceptible to change due primarily to fluctuations in interest rates (most significantly), and foreign exchange rates. As a result, the estimated values of these derivatives will change over time as cash is received and paid and as market conditions change. As these changes take place, they may have a positive or negative impact on our estimated valuations.

We incorporate credit valuation adjustments to appropriately reflect both the Company’s own nonperformance risk and the respective counterparty’s nonperformance risk in the fair value measurements of its OTC derivatives, based on a total expected exposure credit model. In adjusting the fair value of our derivative contracts for the effect of nonperformance risk, we have considered the impact of netting and any applicable credit enhancements, such as collateral postings, current threshold amounts, mutual puts, and guarantees. Additionally, we actively monitor counterparty credit ratings for significant changes.

Notes 1, 7 and 20 of the Notes to Consolidated Financial Statements and “Interest Rate and Market Risk Management” on page 78 contain further information on our use of derivatives and the methodologies used to estimate fair value.

Income Taxes

The Company is subject to the income tax laws of the United States, its states and other jurisdictions where the Company conducts business. These laws are complex and subject to different interpretations by the taxpayer and the various taxing authorities. In determining the provision for income taxes, management must make judgments and estimates about the application of these laws and related regulations. In the process of preparing the Company’s tax returns, management attempts to make reasonable interpretations of the tax laws. These interpretations are subject to challenge by the tax authorities upon audit or to reinterpretation based on management’s ongoing assessment of facts and evolving case law.

The Company had net Deferred Tax Assets (“DTAs”) of $406 million at December 31, 2012, compared to $509 million at December 31, 2011. The most significant portions of the deductible temporary differences relate to (1) the allowance for loan losses and (2) fair value adjustments or impairment write-downs related to securities. No valuation allowance has been recorded as of December 31, 2012 related to DTAs except for a full valuation reserve

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related to certain acquired net operating losses from an immaterial nonbank subsidiary. In assessing the need for a valuation allowance, both the positive and negative evidence about the realization of DTAs were evaluated. The ultimate realization of DTAs is based on the Company’s ability to (1) carry back net operating losses to prior tax periods, (2) implement tax planning strategies that are prudent and feasible, (3) utilize the reversal of taxable temporary differences to offset deductible temporary differences, and (4) generate future taxable income.

After considering the weight of the positive evidence compared to the negative evidence, management has concluded it is more likely than not that the Company will realize the existing DTAs and that an additional valuation allowance is not needed.

On a quarterly basis, management assesses the reasonableness of its effective tax rate based upon its current best estimate of net income and the applicable taxes expected for the full year. Deferred tax assets and liabilities are also reassessed on a regular basis. Reserves for contingent tax liabilities are reviewed quarterly for adequacy based upon developments in tax law and the status of examinations or audits. The Company has tax reserves at December 31, 2012 of approximately $1.8 million, net of federal and/or state benefits, for uncertain tax positions primarily for various state tax contingencies in several jurisdictions.

Note 14 of the Notes to Consolidated Financial Statements and “Income Taxes” on page 31 contain additional information.

RECENT ACCOUNTING PRONOUNCEMENTS AND DEVELOPMENTS

Note 2 of the Notes to Consolidated Financial Statements discusses the expected impact of accounting pronouncements recently issued but not yet required to be adopted. Where applicable, the other Notes to Consolidated Financial Statements and MD&A discuss new accounting pronouncements adopted during 2012 to the extent they materially affect the Company’s financial condition, results of operations, or liquidity.

RESULTS OF OPERATIONS

In 2012, the Company reclassified credit card interchange fee income from interest and fees on loans to other service charges, commissions and fees. Additionally, income on factored receivables was reclassified from other service charges, commissions and fees to interest and fees on loans. There was no change in net earnings for any prior year presented and the reclassification did not significantly impact the Company’s net interest margin. See Note 1 of the Notes to Consolidated Financial Statements for additional information.

The Company reported net earnings applicable to common shareholders for 2012 of $178.6 million, or $0.97 per diluted share, compared to $153.4 million, or $0.83 per diluted share for 2011. The following changes had a favorable impact on net earnings:


•	$60.3 million decrease in the provision for loan losses;


•	$57.8 million decrease in other real estate expense;


•	$20.5 million decrease in FDIC premiums;


•	$13.4 million increase in dividends and other investment income; and


•	$11.9 million increase in loan sales and servicing income.

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


•	$70.4 million increase in net impairment losses on investment securities;


•	$24.2 million decrease in net interest income;


•	$16.8 million increase in fair value and nonhedge derivative loss;


•	$16.5 million decrease in other noninterest income; and


•	$13.7 million increase in the provision for unfunded lending commitments.

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The Company reported net earnings applicable to common shareholders for 2011 of $153.4 million, or $0.83 per diluted share, compared to a net loss applicable to common shareholders of $412.5 million, or $2.48 per diluted share for 2010. The significant improvement in net earnings was mainly caused by the following favorable changes:


•	$778.2 million decrease in the provision for loan losses;


•	$67.2 million decrease in other real estate expense;


•	$51.7 million decrease in net impairment losses on investment securities;


•	$41.9 million increase in net interest income; and


•	$38.1 million decrease in FDIC premiums.

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


•	$305.4 million increase in income tax expense;


•	$48.9 million increase in salaries and employee benefits;


•	$47.5 million increase in preferred stock dividends;


•	$25.3 million decrease in service charges and fees on deposit accounts; and


•	$14.5 million decrease in gain on subordinated debt exchange.

During 2009, the Company executed a subordinated debt modification and exchange transaction. The original discount on the resulting convertible subordinated debt was $679 million and the remaining discount at December 31, 2012 was $149 million. It included the following components:


•	the fair value discount on the debt; and


•	the value of the beneficial conversion feature which added the right of the debt holder to convert the debt into preferred stock.

The discount associated with the convertible subordinated debt is amortized to interest expense using the interest method over the remaining term of the subordinated debt (referred to herein as “discount amortization”). When holders of the convertible subordinated notes convert into preferred stock, the rate of amortization is accelerated by immediately expensing any unamortized discount associated with the converted debt (referred to herein as “accelerated discount amortization”).

Excluding the impact of these noncash expenses, income before income taxes and subordinated debt conversions for 2012 was $616.4 million compared to $682.8 million for 2011, as shown in Schedule 2:

Schedule 2

IMPACT OF CONVERTIBLE SUBORDINATED DEBT



(In millions)	Year Ended December 31,
	2012			2011			2010

Income (loss) before income taxes (GAAP)		$	541.6		$	521.3		$	(403.1	)
Convertible subordinated debt discount amortization		43.3			46.0			58.0
Accelerated convertible subordinated debt discount amortization		31.5			115.6			172.4
Income (loss) before income taxes and subordinated debt conversions (non-GAAP)		$	616.4		$	682.9		$	(172.7	)

The impact of the conversion of subordinated debt into preferred stock is further discussed in “Capital Management” on page 88.

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Net Interest Income, Margin and Interest Rate Spreads

Net interest income is the difference between interest earned on interest-earning assets and interest incurred on interest-bearing liabilities. Taxable-equivalent net interest income is the largest portion of the Company’s revenue. For 2012, taxable-equivalent net interest income was $1,750.2 million, compared to $1,776.4 million and $1,736.0 million for 2011and 2010, respectively. The tax rate used for calculating all taxable-equivalent adjustments was 35% for all periods presented.

Net interest margin in 2012 vs. 2011

The net interest margin was 3.57% and 3.77% for 2012 and 2011, respectively. The 20 bps decrease was primarily caused by:


•	lower yields on loans; and


•	increased balance of low-yielding money market investments.

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


•	decreased accelerated amortization on convertible subordinated debt; and


•	lower cost of funding due to continued favorable change in the mix of funding sources and rates.

Even though the Company’s average loan portfolio, excluding FDIC-supported loans, was $359 million higher in 2012 than in the previous year, the average interest rate earned on those assets was 41 bps lower. The 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) maturing loans, many of which had rate floors, being replaced with new loans at lower original coupons and/or lower floors compared to the rates at which loans were originated when spreads were higher.

During 2012, most of the Company’s excess liquidity was invested in money market assets, primarily deposits with the Federal Reserve Bank. Average money market investments increased to 16.2% of total interest-earning assets in 2012 compared to 11.4% in the previous year. The average rate earned by these investments was 0.27% in 2012, essentially unchanged from 2011.

Noninterest-bearing demand deposits provided the Company with low cost funding and comprised 38.4% of average total deposits in 2012 compared to 35.2% in 2011. Additionally, the average rate paid on interest-bearing deposits in 2012 decreased by 18 bps from the previous year.

Net interest margin in 2011 vs. 2010

In 2011 the net interest margin increased by 7 bps to 3.77% compared to 3.70% in 2010. The increase was primarily caused by:


•	lower amortization and accelerated amortization expense on convertible subordinated debt;


•	lower rates paid on interest-bearing deposits; and


•	lower cost of funding due to favorable change in the mix of funding sources and rates.

The impact of these positive developments was partially offset by:


•	decreased loan portfolio and lower yields on loans; and


•	increased balance of, and lower rates earned on low-yielding money market investments.

The average rate paid on interest-bearing deposits declined 21 bps to 0.48% in 2011 from 0.69% in 2010. The decline in interest rates paid during 2011 reflects a lower interest rate environment, and management’s efforts to control excess liquidity while preserving key customer relationships. Average noninterest-bearing demand deposits increased during 2011 and were 35.2% of average total deposits compared to 31.9% in 2010.

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The average loan portfolio, excluding FDIC-supported loans, decreased to $36.0 billion in 2011 from $37.1 billion in 2010. The average interest rate earned on these loans declined 20 bps to 5.34% in 2011 from 5.54% in 2010.

Chart 4 illustrates recent trends in the net interest margin and the average federal funds rate.

See “Interest Rate and Market Risk Management” on page 78 for further discussion of how we manage the portfolios of interest-earning assets, interest-bearing liabilities, and associated risk.

The spread on average interest-bearing funds was 3.16%, 3.21%, and 3.08% for 2012, 2011, and 2010, respectively. The spread on average interest-bearing funds for 2012 was affected by the same factors that had an impact on the net interest margin.

We believe the following factors may positively impact net interest income in the next several quarters: decreased level of nonperforming assets, decreased long-term debt service cost, and moderate loan growth. However, net loan growth has proven to be difficult to forecast, even though our pipelines and new commitment originations remain relatively strong. We also believe the following factors may adversely affect net interest income: competitive loan pricing conditions, lower yields on resetting or maturing older loans, and declines in the reference index rates for adjustable rate loans. On balance, we expect the trend in net interest income to be generally stable for the next several quarters.

The unamortized discount on the convertible subordinated debt was $149 million as of December 31, 2012, or 32.6% of the $458 million of remaining outstanding convertible subordinated notes, and will be amortized to interest expense over the remaining life of the debt using the interest method. At December 31, 2011 the unamortized discount on the convertible subordinated debt was $224 million, or 41% of the $547 million of convertible subordinated notes which were outstanding at that time.

The Company expects to remain “asset-sensitive” with regard to interest rate risk. The current period of historically 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 more than most peers, and it expects to maintain this more asset sensitive position for what may be a prolonged period. With interest rates at historically 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. See ”Interest Rate Risk” on page 79 for additional information.

Schedule 3 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.

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Schedule 3

DISTRIBUTION OF ASSETS, LIABILITIES, AND SHAREHOLDERS’ EQUITY

AVERAGE BALANCE SHEETS, YIELDS AND RATES



	2012							2011
(Amounts in millions)	Average balance			Amount of interest ¹		Average rate		Average balance			Amount of interest ¹		Average rate
ASSETS
Money market investments	$	7,930		$	21.1	0.27	%	$	5,356		$	13.8	0.26	%
Securities:
Held-to-maturity	774			42.3		5.47		818			44.7		5.47
Available-for-sale	3,047			94.2		3.09		3,895			89.6		2.30
Trading account	24			0.7		3.13		58			2.0		3.45
Total securities	3,845			137.2		3.57		4,771			136.3		2.86
Loans held for sale	187			6.6		3.51		146			5.7		3.94
Loans ²:
Loans and leases	36,400			1,796.1		4.93		36,041			1,924.5		5.34
FDIC-supported loans	637			95.9		15.06		856			128.5		15.01
Total loans	37,037			1,892.0		5.11		36,897			2,053.0		5.56
Total interest-earning assets	48,999			2,056.9		4.20		47,170			2,208.8		4.68
Cash and due from banks	1,102							1,056
Allowance for loan losses	(986		)					(1,272		)
Goodwill	1,015							1,015
Core deposit and other intangibles	60							78
Other assets	3,089							3,363
Total assets	$	53,279						$	51,410
LIABILITIES
Interest-bearing deposits:
Saving and money market	$	22,061		52.3		0.24		$	21,476		84.8		0.39
Time	3,208			23.1		0.72		3,750			35.6		0.95
Foreign	1,493			4.7		0.31		1,515			8.1		0.53
Total interest-bearing deposits	26,762			80.1		0.30		26,741			128.5		0.48
Borrowed funds:
Securities sold, not yet purchased	8			0.2		2.58		33			1.4		4.21
Federal funds purchased and security repurchase agreements	471			0.6		0.13		653			0.8		0.12
Other short-term borrowings	19			0.6		2.96		146			4.5		3.08
Long-term debt	2,235			225.2		10.08		1,913			297.2		15.54
Total borrowed funds	2,733			226.6		8.29		2,745			303.9		11.07
Total interest-bearing liabilities	29,495			306.7		1.04		29,486			432.4		1.47
Noninterest-bearing deposits	16,668							14,531
Other liabilities	605							523
Total liabilities	46,768							44,540
Shareholders’ equity:
Preferred equity	1,768							2,257
Common equity	4,745							4,614
Controlling interest shareholders’ equity	6,513							6,871
Noncontrolling interests	(2		)					(1		)
Total shareholders’ equity	6,511							6,870
Total liabilities and shareholders’ equity	$	53,279						$	51,410
Spread on average interest-bearing funds						3.16	%						3.21	%
Taxable-equivalent net interest income and net yield on interest-earning assets				$	1,750.2	3.57	%				$	1,776.4	3.77	%

¹ Taxable-equivalent rates used where applicable.

² Net of unearned income and fees, net of related costs. Loans include nonaccrual and restructured loans.

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2010							2009							2008
Average balance			Amount of interest ¹		Average rate		Average balance			Amount of interest ¹		Average rate		Average balance			Amount of interest ¹		Average rate

$	4,085		$	11.0	0.27	%	$	2,380		$	7.9	0.33	%	$	1,889		$	47.8	2.53	%

866			44.3		5.12		1,263			66.9		5.29		1,516			101.3		6.68
3,416			91.5		2.68		3,313			104.2		3.14		3,266			162.1		4.97
61			2.2		3.64		75			2.7		3.65		43			1.9		4.41
4,343			138.0		3.18		4,651			173.8		3.73		4,825			265.3		5.50
187			8.9		4.78		226			11.0		4.88		182			10.1		5.52

37,116			2,056.1		5.54		40,511			2,269.7		5.60		40,835			2,660.9		6.52
1,210			114.4		9.46		1,058			64.4		6.09		—			—
38,326			2,170.5		5.66		41,569			2,334.1		5.62		40,835			2,660.9		6.52
46,941			2,328.4		4.96		48,826			2,526.8		5.17		47,731			2,984.1		6.25
1,214							1,245							1,380
(1,556		)					(1,105		)					(547		)
1,015							1,174							1,937
101							125							137
3,912							3,783							3,124
$	51,627						$	54,048						$	53,762


$	22,039		126.5		0.57		$	22,548		238.0		1.06		$	18,185		370.6		2.04
4,747			59.8		1.26		7,235			168.0		2.32		7,077			258.1		3.65
1,626			9.8		0.60		2,011			18.7		0.93		3,166			84.2		2.66
28,412			196.1		0.69		31,794			424.7		1.34		28,428			712.9		2.51

40			1.8		4.50		41			2.2		5.22		33			1.6		4.82
920			1.4		0.16		1,923			5.7		0.30		2,733			53.3		1.95
189			9.3		4.93		305			6.8		2.24		4,699			124.0		2.64
1,980			383.8		19.38		2,438			178.4		7.32		2,577			110.5		4.29
3,129			396.3		12.67		4,707			193.1		4.10		10,042			289.4		2.88
31,541			592.4		1.88		36,501			617.8		1.69		38,470			1,002.3		2.61
13,318							11,053							9,145
576							558							578
45,435							48,112							48,193

1,732							1,558							432
4,452							4,354							5,108
6,184							5,912							5,540
8							24							29
6,192							5,936							5,569
$	51,627						$	54,048						$	53,762
					3.08	%						3.48	%						3.64	%
			$	1,736.0	3.70	%				$	1,909.0	3.91	%				$	1,981.8	4.15	%

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Schedule 4 analyzes the year-to-year changes in net interest income on a fully taxable-equivalent basis for the years indicated. For purposes of calculating the yields in these schedules, the average loan balances also include the principal amounts of nonaccrual and restructured loans. However, interest received on nonaccrual loans is included in income only to the extent that cash payments have been received and not applied to principal reductions. In addition, interest on restructured loans is generally accrued at reduced rates.

Schedule 4

ANALYSIS OF INTEREST CHANGES DUE TO VOLUME AND RATE



	2012 over 2011									2011 over 2010
	Changes due to						Total changes			Changes due to						Total changes
(Amounts in millions)	Volume			Rate¹						Volume			Rate¹
INTEREST-EARNING ASSETS
Money market investments	$	6.7		$	0.6		$	7.3		$	3.1		$	(0.3	)	$	2.8
Securities:
Held-to-maturity	(2.4		)	—			(2.4		)	(2.4		)	2.8			0.4
Available-for-sale	(19.5		)	24.1			4.6			11.0			(12.9		)	(1.9		)
Trading account	(1.1		)	(0.2		)	(1.3		)	(0.1		)	(0.1		)	(0.2		)
Total securities	(23.0		)	23.9			0.9			8.5			(10.2		)	(1.7		)
Loans held for sale	1.5			(0.6		)	0.9			(1.6		)	(1.6		)	(3.2		)
Loans ²:
Loans and leases	19.3			(147.7		)	(128.4		)	(57.5		)	(74.1		)	(131.6		)
FDIC-supported loans	(32.9		)	0.3			(32.6		)	(33.4		)	47.5			14.1
Total loans	(13.6		)	(147.4		)	(161.0		)	(90.9		)	(26.6		)	(117.5		)
Total interest-earning assets	(28.4		)	(123.5		)	(151.9		)	(80.9		)	(38.7		)	(119.6		)

INTEREST-BEARING LIABILITIES
Interest-bearing deposits:
Saving and money market	0.8			(33.3		)	(32.5		)	(1.2		)	(40.5		)	(41.7		)
Time	(3.9		)	(8.6		)	(12.5		)	(9.5		)	(14.7		)	(24.2		)
Foreign	—			(3.4		)	(3.4		)	(0.5		)	(1.2		)	(1.7		)
Total interest-bearing deposits	(3.1		)	(45.3		)	(48.4		)	(11.2		)	(56.4		)	(67.6		)
Borrowed funds:
Securities sold, not yet purchased	(0.6		)	(0.6		)	(1.2		)	(0.3		)	(0.1		)	(0.4		)
Federal funds purchased and security repurchase agreements	(0.2		)	—			(0.2		)	(0.3		)	(0.3		)	(0.6		)
Other short-term borrowings	(3.8		)	(0.1		)	(3.9		)	(1.3		)	(3.5		)	(4.8		)
Long-term debt	32.4			(104.4		)	(72.0		)	(10.5		)	(76.1		)	(86.6		)
Total borrowed funds	27.8			(105.1		)	(77.3		)	(12.4		)	(80.0		)	(92.4		)
Total interest-bearing liabilities	24.7			(150.4		)	(125.7		)	(23.6		)	(136.4		)	(160.0		)
Change in taxable-equivalent net interest income	$	(53.1	)	$	26.9		$	(26.2	)	$	(57.3	)	$	97.7		$	40.4

¹ Taxable-equivalent rates used where applicable.

²Net of unearned income and fees, net of related costs. Loans include nonaccrual and restructured loans.

In the analysis of interest changes due to volume and rate, changes due to the volume/rate variance are allocated to volume with the following exceptions: when volume and rate both increase, the variance is allocated proportionately to both volume and rate; when the rate increases and volume decreases, the variance is allocated to rate.

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

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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” on page 64 for more information on how we determine the appropriate level for the ALLL and the RULC.

The provision for loan losses for 2012 was $14.2 million compared to $74.5 million and $852.7 million for 2011 and 2010, respectively. The Company continues to exercise caution with regard to the appropriate level of the allowance for loan losses, given the slow economic recovery. However, during the past 24 months, the Company has experienced a significant improvement in credit quality metrics, including lower levels of criticized and classified loans and lower realized loss rates in most loan segments. At December 31, 2012, classified loans were $1.9 billion, compared to $2.3 billion and $3.7 billion at December 31, 2011 and December 31, 2010, respectively. Additionally, construction and land development loans declined to 5.1% of the loan portfolio at December 31, 2012 compared to 6.1% a year earlier.

Net loan and lease charge-offs declined to $155 million in 2012 from $456 million in 2011 and $983 million in 2010. In the fourth quarter of 2012, the annualized ratio of net loan and lease charge-offs to average loans declined to 0.20%, and is approaching prerecessionary levels. The ratio of net loan and lease charge-offs to average loans was 0.17% in 2007. However, net charge-offs were favorably impacted by a relatively high level of recoveries in 2012. Gross charge-offs for the fourth quarter of 2012 were $54.7 million, or 0.59% annualized of average loans. See “Nonperforming Assets” on page 73 and “Allowance and Reserve for Credit Losses” on page 76 for further details.

During 2012, the Company recorded a $4.4 million provision for unfunded lending commitments compared to reductions in the provision of $9.3 million in 2011 and $4.7 million in 2010. The increased provision for 2012 is primarily caused by a higher level of unfunded loan commitments, which outpaced improvements in credit quality. During 2011 and 2010, the credit quality of unfunded loans improved more rapidly than the increase in unfunded loan commitments, allowing the Company to release previously recorded reserves. From period to period, the expense related to the reserve for unfunded lending commitments may be subject to sizeable fluctuations due to changes in the timing and volume of loan commitments, originations, and funding, as well as fluctuations in credit quality.

Although classified and nonperforming loan volumes continue to be elevated when compared to long-term historical levels, most measures of credit quality continued to show improvement in 2012. Barring any significant economic downturn, we expect the Company’s credit costs to remain low for the next several quarters. We also anticipate continued declines in balances of criticized and classified loans of most types, and continued low levels of net charge-offs for the next several quarters, compared to the elevated levels experienced from 2008 through 2011.

Noninterest Income

Noninterest income represents revenues the Company earns for products and services that have no interest rate or yield associated with them. For 2012, noninterest income was $419.9 million compared to $498.2 million in 2011 and $453.6 million in 2010.

Schedule 5 presents a comparison of the major components of noninterest income for the past three years.

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Schedule 5

NONINTEREST INCOME



(Amounts in millions)	2012			Percent change		2011			Percent change		2010

Service charges and fees on deposit accounts	$	176.4		1.1	%	$	174.4		(12.7	)%	$	199.7
Other service charges, commissions and fees	174.4			(6.2	)	185.9			4.2		178.4
Trust and wealth management income	28.4			6.4		26.7			(2.9	)	27.5
Capital markets and foreign exchange	26.8			(14.6	)	31.4			(16.5	)	37.6
Dividends and other investment income	55.8			31.6		42.4			28.1		33.1
Loan sales and servicing income	40.0			42.3		28.1			(4.4	)	29.4
Fair value and nonhedge derivative loss	(21.8		)	(336.0	)	(5.0		)	68.4		(15.8		)
Equity securities gains (losses), net	11.3			73.8		6.5			208.3		(6.0		)
Fixed income securities gains, net	19.6			64.7		11.9			7.2		11.1
Impairment losses on investment securities:
Impairment losses on investment securities	(166.3		)	(115.1	)	(77.3		)	50.6		(156.5		)
Noncredit-related losses on securities not expected to
be sold (recognized in other comprehensive income)	62.2			42.7		43.6			(38.7	)	71.1
Net impairment losses on investment securities	(104.1		)	(208.9	)	(33.7		)	60.5		(85.4		)
Gain on subordinated debt exchange	—			—		—			(100.0	)	14.5
Other	13.1			(55.7	)	29.6			0.3		29.5
Total	$	419.9		(15.7	)	$	498.2		9.8		$	453.6

Service charges and fees on deposit accounts remained stable in 2012 when compared to the prior year. In 2011, this revenue decreased by $25.3 million or 12.7% from 2010, primarily due to a decline in nonsufficient funds fees and a decrease in fees earned from business accounts.

Other service charges, commissions, and fees, which are comprised of ATM fees, insurance commissions, bankcard merchant fees, debit and credit card interchange fees, cash management fees, lending commitment fees, syndication and servicing fees, and other miscellaneous fees decreased by $11.5 million in 2012 from the prior year. Most of the decline can be attributed to decreased debit card interchange and ATM fees, partially offset by growth in credit card interchange fees and loan fees. See Note 1 of the Notes to the Consolidated Financial Statements for information regarding the reclassification of fees.

On June 29, 2011, the Federal Reserve voted to adopt regulations implementing the Durbin Amendment of The Dodd-Frank Act, which placed limits on debit card interchange fees charged by banks. The Durbin Amendment became effective in the fourth quarter of 2011 and resulted in a significant decrease in other service charges, commissions, and fees during 2012.

Other service charges, commissions, and fees increased $7.5 million in 2011 compared to 2010. Most of the increase can be attributed to increased credit card fees, loan fees and fees earned from other banks’ customers using the Company’s ATMs, partially offset by decreased debit card fees and remote deposit capture licensing fees. The Company sold substantially all of the assets of its NetDeposit subsidiary in the third quarter of 2010, and therefore did not earn any licensing fees in 2011.

Capital markets and foreign exchange includes trading income, public finance fees, foreign exchange income, and other capital market related fees. In 2012 these fees were $26.8 million compared to $31.4 million in the prior year. The decrease was primarily caused by lower income from trading fixed income corporate bonds and decreased foreign exchange income, partially offset by higher fees from municipal bond transactions. In 2012, in anticipation of the adoption of the “Volcker Rule” of the Dodd-Frank Act, the Company discontinued the trading of corporate bonds.

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Capital markets and foreign exchange income was $31.4 million in 2011, compared to $37.6 million in 2010. The decrease was caused mainly by lower income from trading fixed income corporate bonds and a reduction in consulting fees related to municipal bond transactions.

Dividends and other investment income consists of revenue from the Company’s bank-owned life insurance 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 and certain alternative venture investments. For 2012, this income increased by 31.6% from the prior year, mainly due to higher earnings from unconsolidated subsidiaries.

Dividends and other investment income increased by 28.1% in 2011 from $33.1 million in 2010. The increase was primarily caused by higher income from several unconsolidated affiliates, partially offset by decreased income from bank-owned life insurance contracts.

Loan sales and servicing income increased by $11.9 million in 2012 or 42.3% from the prior year. The increase is primarily due to larger gains from loan sales. Loan sales and servicing income remained fairly stable from 2010 to 2011.

Fair value and nonhedge derivative loss consists of the following:

Schedule 6

FAIR VALUE AND NONHEDGE DERIVATIVE LOSS



(Amounts in millions)	2012			Percent change		2011			Percent change		2010

Nonhedge derivative income	$	(1.5	)	(122.1	)%	$	6.8		(35.2	)%	$	10.5
Total return swap	(21.7		)	(102.8	)	(10.7		)	53.1		(22.8		)
Derivative fair value credit adjustments	1.4			227.3		(1.1		)	68.6		(3.5		)
Total	$	(21.8	)	336.0		$	(5.0	)	68.4		$	(15.8	)

Fair value and nonhedge derivative losses were $21.8 million in 2012, $5.0 million in 2011, and $15.8 million in 2010. The increased loss in 2012 is mainly due to higher fees related to the TRS agreement and a decrease in income from Eurodollar futures. TRS fees were lower in 2011 than in 2012 and 2010 due to the timing of expense recognition.

During 2012, the Company recorded $11.3 million in equity securities gains, compared to $6.5 million in 2011, and losses of $6.0 million in 2010. The gains recognized in 2012 were primarily attributable to SBIC investments. The gains realized in 2011 were principally due to the sale of BServ, Inc. stock, which the Company acquired in September 2010 when it sold the assets of its NetDeposit subsidiary. The loss incurred in 2010 was primarily the result of valuation losses related to venture fund investments.

The Company recorded $19.6 million of fixed income securities gains in 2012, compared to $11.9 million in 2011 and $11.1 million in 2010. Gains in 2012 and 2011 were primarily the result of cash principal payments received on CDOs that were originally purchased from Lockhart Funding and written down to fair value at the time of purchase. The gains in 2010 are mainly the result of the sale of certain auction rate securities which were previously written down to fair value but sold at par.

The Company recognized net impairment losses on CDO investment securities of $104.1 million in 2012, $33.7 million in 2011 and $85.4 million in 2010. See “Investment Securities Portfolio” on page 49 for additional information.

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During 2010, the Company exchanged $55.6 million of nonconvertible subordinated debt for 2,165,391 shares of common stock, resulting in a $14.5 million gain.

Other noninterest income for 2012 was $13.1 million, compared to $29.6 million in 2011. In 2011, the Company received payments from the FDIC related to certain acquired loans which had been determined to be covered by a loss sharing agreement. In 2010, other noninterest income was $29.5 million, which included a $13.7 million pretax gain recognized from the sale of substantially all of the assets of a wholly-owned subsidiary, NetDeposit.

Noninterest Expense

Noninterest expense decreased by 3.8% to $1,596.0 million in 2012 compared to 2011. During the past year, the Company made significant progress in resolving problem loans and improving the credit quality of its loan portfolio, which resulted in significantly lower other real estate and credit-related expenses. The improved credit quality contributed to lower FDIC premiums. Schedule 7 presents a comparison of the major components of noninterest expense for the past three years.

Schedule 7

NONINTEREST EXPENSE



(Amounts in millions)	2012		Percent change		2011			Percent change		2010

Salaries and employee benefits	$	885.7	1.3	%	$	874.3		5.9	%	$	825.3
Occupancy, net	112.9		0.4		112.5			(1.0	)	113.6
Furniture and equipment	109.0		3.1		105.7			4.5		101.1
Other real estate expense	19.7		(74.6	)	77.6			(46.4	)	144.8
Credit-related expense	50.5		(18.0	)	61.6			(13.5	)	71.2
Provision for unfunded lending commitments	4.4		147.3		(9.3		)	(97.9	)	(4.7		)
Legal and professional services	52.5		34.6		39.0			(1.3	)	39.5
Advertising	25.7		(5.5	)	27.2			9.7		24.8
FDIC premiums	43.4		(32.1	)	63.9			(37.4	)	102.0
Amortization of core deposit and other intangibles	17.0		(15.4	)	20.1			(21.2	)	25.5
Other	275.2		(3.8	)	286.0			3.9		275.2
Total	$	1,596.0	(3.8	)	$	1,658.6		(3.5	)	$	1,718.3

Salaries and employee benefits increased by 1.3% during 2012 compared to 5.9% in 2011. Salary expense for 2012 included share-based compensation expense of $31.5 million. Bonus and incentive expenses were lower in 2012 than in 2011 because certain long-term incentive compensation plans are no longer expected to pay out, or to pay out at a reduced amount. Additionally, the Company’s workforce declined by 2.2% during 2012.

Salary and bonus expense increased in 2011 by 3.4% from 2010. Most of the increase during 2011 was due to higher base salary and bonus expenses, which resulted from hiring additional staff necessary to meet new regulatory reporting requirements and from the Company’s improved financial performance. Salary expense for 2011 included share-based compensation expense of approximately $29.0 million. Retirement expense and the cost of employee health and other insurance benefits also increased, mainly due to higher retirement related accruals.

Salaries and employee benefits are shown in greater detail in Schedule 8.

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Schedule 8

SALARIES AND EMPLOYEE BENEFITS



(Dollar amounts in millions)	2012		Percent change		2011		Percent change		2010

Salaries and bonuses	$	745.7	1.6	%	$	733.7	3.4	%	$	709.5
Employee benefits:
Employee health and insurance	48.6		(1.0	)	49.1		13.9		43.1
Retirement	40.8		(4.0	)	42.5		58.0		26.9
Payroll taxes and other	50.6		3.3		49.0		7.0		45.8
Total benefits	140.0		(0.4	)	140.6		21.4		115.8
Total salaries and employee benefits	$	885.7	1.3		$	874.3	5.9		$	825.3

Full-time equivalent (“FTE”) employees at December 31	10,368		(2.2	)	10,606		0.8		10,524

Other real estate expense decreased in 2012 by 74.6% from the prior year. The decrease is primarily due to a 35.9% reduction in OREO balances during the last 12 months, which resulted in reduced holding expenses, as well as lower write-downs of collateral carrying values.

Other real estate expense decreased by 46.4% in 2011 compared to 2010. The decrease is primarily driven by a 48.9% reduction in OREO balances between these two years, lower write-downs of OREO values during work-out, as well as larger net gains from OREO property sales.

Credit related expense includes costs incurred during the foreclosure process prior to the Company obtaining title to collateral and recording an asset in OREO, as well as other out-of-pocket costs related to the management of problem loans and other assets. Credit related expense was $50.5 million in 2012 compared to $61.6 million in 2011. The decrease is primarily attributable to lower property tax and legal costs incurred during work-out. In 2011 credit related expenses were 13.5% lower than in 2010, mainly due to a reduction in collection and foreclosure costs.

Legal and professional services were $13.5 million higher in 2012 than in the previous year. The increase is mostly due to regulatory, legal, and contractual matters. Legal and professional services remained practically unchanged from 2010 to 2011.

FDIC premiums decreased by 32.1% during 2012, following a 37.4% decrease in the prior year. These decreases resulted from the combination of a change in the premium assessment formulas prescribed by the FDIC and improved risk factors employed in those formulas.

Other noninterest expense decreased by $10.8 million in 2012 from the previous year. The decline is primarily the result of lower write-downs of the FDIC indemnification asset attributable to loans purchased from the FDIC in 2009. FDIC-supported loans continued to perform better than expected, including pay-offs and pay-downs. The balance of the FDIC indemnification asset continues to decline although at a slower rate compared to prior years. Other noninterest expense in 2012 included a $1.0 million goodwill impairment.

Other noninterest expense for 2011 increased by 3.9% compared to 2010, primarily as a result of an increased write-down of the FDIC indemnification asset attributable to loans purchased from the FDIC in 2009. FDIC-supported loans continued to perform better than expected and the balance of the FDIC indemnification asset declined.

Impairment Loss on Goodwill

The Company performed a goodwill impairment analysis in the fourth quarter of 2012, and recorded a $1.0 million goodwill impairment loss at The Commerce Bank of Oregon. This goodwill originally arose from the Company’s acquisition of a bank in order to operate a bank in Oregon. In 2012, Oregon law was changed to no longer require

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the purchase of an existing bank by a bank holding company seeking to enter that state. No goodwill impairment loss was incurred in 2011 or 2010. See Note 9 of the Notes to Consolidated Financial Statements and “Accounting for Goodwill” on page 30 for additional information.

Foreign Operations

Zions Bank and Amegy operate branches in Grand Cayman, Grand Cayman Islands, B.W.I. The foreign branches only accept deposits from qualified domestic customers. While deposits in these branches are not subject to FRB reserve requirements, there are no federal or state income tax benefits to the Company or any customers as a result of these operations.

Foreign deposits at December 31, 2012 and 2011 were $1.8 billion and $1.6 billion, respectively, and averaged $1.5 billion for both 2012 and 2011. Foreign deposits are related to domestic customers of our subsidiary banks.

Income Taxes

The Company’s income tax expense was $193.4 million for 2012 compared to $198.6 million for 2011 and an income tax benefit of $106.8 million for 2010. The Company’s effective income tax rates, including the effects of noncontrolling interests, were 35.6% in 2012, 38.0% in 2011, and 26.7% in 2010. The tax expense rates for 2012 and 2011 were reduced by nontaxable municipal interest income and nontaxable income from certain bank-owned life insurance. These rate reductions were mostly offset by the nondeductibility of a portion of the accelerated discount amortization from the conversion of subordinated debt to preferred stock during both years. However, in 2011, the amount of the nondeductible amortization from conversions of subordinated debt to preferred stock was significantly higher than the amount in 2012, increasing the tax rate for 2011.

As discussed in previous filings, the Company has received federal income tax credits under the U.S. Government’s Community Development Financial Institutions Fund that are recognized over a seven-year period from the year of investment. The effect of these tax credits provided an income tax benefit of $1.2 million in 2012, $2.4 million in 2011, and $6.0 million in 2010.

The Company had a net DTA balance of approximately $406 million at December 31, 2012, compared to $509 million at December 31, 2011. The decrease in the net DTA resulted primarily from items related to nonaccruing loans, fair value adjustments on securities, NOL utilization, and OREO. The net decrease in DTA was offset by a decrease in the deferred tax liability related to the nondeductibility of a portion of the accelerated discount amortization from the conversion of subordinated debt to preferred stock. The Company did not record any additional valuation allowance for GAAP purposes as of December 31, 2012. See Note 14 of the Notes to Consolidated Financial Statements and “Critical Accounting Policies and Significant Estimates” on page 27 for additional information.

BUSINESS SEGMENT RESULTS

The Company manages its banking operations and prepares management reports with a primary focus on its subsidiary banks and the geographies in which they operate. As discussed in the “Executive Summary” on page 22, most of the lending and other decisions affecting customers are made at the local level. Each subsidiary bank holds its own banking charter. Those with national bank charters (Zions Bank, Amegy, NBA, Vectra, and TCBW) are subject to regulatory oversight by the OCC. Those with state charters (CB&T, NSB, and TCBO) are regulated by the FDIC and applicable state authorities. The operating segment identified as “Other” includes the Parent, Zions Management Services Company, certain nonbank financial service subsidiaries, TCBO, and eliminations of transactions between segments.

The accounting policies of the individual segments are the same as those of the Company. The Company allocates the cost of centrally provided services to the business segments based upon estimated or actual usage of those

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services. Note 21 of the Notes to Consolidated Financial Statements contains selected information from the respective balance sheets and statements of income for all segments.

During 2012, the Company’s banking subsidiaries experienced improved financial performance. Common areas of financial performance experienced at various levels of the segments include:


•	improved levels of profitability;


•	declining credit-related costs including reduced provisions for loan losses;


•	slow recovering loan growth; and


•	high levels of deposit growth invested in low-yielding cash-equivalent assets.

Schedule 9

SELECTED SEGMENT INFORMATION



(Dollar amounts in millions)	Zions Bank									CB&T									Amegy
(Dollar amounts in millions)	2012			2011			2010			2012			2011			2010			2012			2011			2010
KEY FINANCIAL INFORMATION
Total assets	$	17,930		$	17,531		$	16,157		$	11,069		$	10,894		$	10,766		$	13,119		$	12,282		$	11,406
Total deposits	15,575			14,905			13,631			9,483			9,192			9,219			10,706			9,731			8,906
Net income (loss)	189.3			150.5			(48.3		)	127.1			134.4			58.8			166.7			161.6			58.6
Net interest margin	4.04		%	4.53		%	4.29		%	4.71		%	5.17		%	5.02		%	3.44		%	3.95		%	4.02		%
RISK-BASED CAPITAL RATIOS
Tier 1 leverage	10.58		%	11.59		%	10.43		%	10.37		%	10.96		%	9.94		%	12.03		%	14.41		%	13.84		%
Tier 1 risk-based capital	12.96		%	13.37		%	11.66		%	12.92		%	13.81		%	12.40		%	13.91		%	15.99		%	15.60		%
Total risk-based capital	14.17		%	14.61		%	12.88		%	14.18		%	15.08		%	13.68		%	15.17		%	17.26		%	16.89		%
CREDIT QUALITY
Provision for loan losses	$	88.3		$	128.3		$	350.6		$	(7.9	)	$	(9.5	)	$	149.9		$	(63.9	)	$	(37.4	)	$	119.3
Net loan and lease charge-offs	74.4			179.5			321.8			19.8			53.9			152.0			4.6			71.4			157.9
Ratio of net charge-offs to average loans and leases	0.60		%	1.41		%	2.39		%	0.24		%	0.65		%	1.77		%	0.06		%	0.91		%	2.00		%
Allowance for loan losses	$	350		$	336		$	388		$	146		$	186		$	258		$	164		$	233		$	342
Ratio of allowance for loan losses to net loans and leases, at year-end	2.80		%	2.64		%	3.01		%	1.77		%	2.22		%	3.05		%	1.94		%	2.89		%	4.52		%
Nonperforming lending-related assets	$	259.0		$	287.6		$	563.0		$	150.7		$	200.2		$	273.6		$	138.8		$	248.4		$	409.2
Ratio of nonperforming lending-related assets to net loans and leases and other real estate owned	2.05		%	2.23		%	4.31		%	1.82		%	2.37		%	3.22		%	1.63		%	3.07		%	5.34		%
Accruing loans past due 90 days or more	$	2.6		$	5.1		$	8.9		$	54.2		$	79.7		$	123.3		$	3.4		$	4.8		$	7.8
Ratio of accruing loan past due 90 days or more to net loans and leases	0.02		%	0.04		%	0.07		%	0.66		%	0.95		%	1.46		%	0.04		%	0.06		%	0.10		%

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(Dollar amounts in millions)	NBA									NSB									Vectra									TCBW
	2012			2011			2010			2012			2011			2010			2012			2011			2010			2012			2011			2010
KEY FINANCIAL INFORMATION
Total assets	$	4,575		$	4,485		$	4,397		$	4,061		$	4,100		$	4,017		$	2,511		$	2,341		$	2,299		$	961		$	874		$	850
Total deposits	3,874			3,731			3,696			3,604			3,546			3,424			2,164			2,004			1,923			791			693			662
Net income (loss)	30.9			25.5			(7.9		)	21.8			46.6			(70.3		)	18.9			(10.1		)	6.6			7.9			2.7			(0.5		)
Net interest margin	4.00		%	4.14		%	4.30		%	3.19		%	3.41		%	3.60		%	4.82		%	4.92		%	5.02		%	3.25		%	3.52		%	3.76		%
RISK-BASED CAPITAL RATIOS
Tier 1 leverage	12.12		%	13.65		%	12.71		%	10.30		%	11.70		%	12.66		%	11.52		%	11.01		%	12.05		%	9.39		%	10.10		%	10.62		%
Tier 1 risk-based capital	14.53		%	17.71		%	16.90		%	18.94		%	21.58		%	21.12		%	12.32		%	12.52		%	12.55		%	12.30		%	13.63		%	12.90		%
Total risk-based capital	15.79		%	18.98		%	18.19		%	20.22		%	22.89		%	22.48		%	13.58		%	13.79		%	13.83		%	13.56		%	14.90		%	14.16		%

CREDIT QUALITY
Provision for loan losses	$	(0.6	)	$	9.6		$	53.4		$	(9.6	)	$	(38.3	)	$	133.3		$	7.0		$	14.0		$	28.2		$	0.4		$	7.8		$	17.4
Net loan and lease charge-offs	14.0			54.4			111.8			29.8			55.1			190.5			9.1			32.5			32.3			2.7			9.0			15.7
Ratio of net charge-offs to average loans and leases	0.41		%	1.66		%	3.33		%	1.38		%	2.32		%	7.48		%	0.45		%	1.77		%	1.72		%	0.48		%	1.55		%	2.72		%
Allowance for loan losses	$	83		$	98		$	143		$	90		$	132		$	226		$	49		$	51		$	70		$	12		$	14		$	15
Ratio of allowance for loan losses to net loans and leases, at year-end	2.31		%	2.96		%	4.36		%	4.30		%	5.89		%	9.42		%	2.30		%	2.67		%	3.84		%	2.06		%	2.49		%	2.65		%
Nonperforming lending-related assets	$	70.9		$	130.1		$	209.9		$	73.1		$	114.7		$	250.6		$	42.3		$	70.7		$	100.3		$	10.7		$	12.0		$	20.9
Ratio of nonperforming lending-related assets to net loans and leases and other real estate owned	1.94		%	3.89		%	6.22		%	3.47		%	5.07		%	10.31		%	1.93		%	3.61		%	5.44		%	1.88		%	2.12		%	3.64		%
Accruing loans past due 90 days or more	$	0.6		$	3.9		$	1.6		$	0.9		$	0.1		$	0.2		$	—		$	0.1		$	0.2		$	—		$	—		$	—
Ratio of accruing loans past due 90 days or more to net loans and leases	0.02		%	0.12		%	0.05		%	0.04		%	0.01		%	0.01		%	—		%	—		%	0.01		%	—		%	—		%	—		%

The above amounts do not include intercompany eliminations.

Zions First National Bank

Zions Bank is headquartered in Salt Lake City, Utah and is primarily responsible for conducting the Company’s operations in Utah and Idaho. Zions Bank is the 2^nd largest full-service commercial bank in Utah and the 3^rd largest in Idaho, as measured by domestic deposits in these states. Zions Bank conducts the largest portion of the Company’s Capital Markets operations, which include Zions Direct, Inc., fixed income securities trading, correspondent banking, public finance, trust and investment advisory services, and Western National Trust Company.

The net interest margin decreased to 4.04% in 2012 from 4.53% in 2011. Nonperforming lending-related assets decreased 9.9% from the prior year due to extensive efforts to work out problem loans and to sell OREO properties. Additionally, the higher credit quality of loans originated since the beginning of the financial crisis also contributed to the improved credit quality of the portfolio.

The loan portfolio decreased by $261 million during 2012, which included a $73 million decrease in CRE loans, a $24 million decrease in consumer loans, and a $164 million decrease in commercial loans. The decline in commercial loans was the result of a reduction in the National Real Estate owner occupied loan portfolio. Accruing loans past due 90 days or more at December 31, 2012 decreased to $3 million from $5 million a year earlier. Total deposits at December 31, 2012 were 4.5% higher than at December 31, 2011.

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California Bank & Trust

California Bank & Trust is the 14^th largest full-service commercial bank in California as measured by domestic deposits. Its core business is built on relationship banking by providing commercial, real estate and consumer lending, depository services, international banking, cash management, and community development services.

CB&T’s profitability during 2012 and 2011 was favorably impacted by the better-than-expected performance of FDIC-supported loans. In 2012, CB&T was able to significantly reduce its nonperforming lending-related assets, which declined 24.5% from the prior year. Total deposits increased 3.2% from December 31, 2011.

Excluding the impact of FDIC-supported loans, CB&T’s loan portfolio increased in 2012 by $78 million from the prior year. In 2012, consumer loans increased $16 million and CRE loans increased $74 million, offset by a $12 million decrease in commercial lending. FDIC-supported loans declined by $211 million in 2012. The balance of FDIC-supported loans continues to decline over time as the portfolio matures, and no additional loans have been purchased since the 2009 acquisitions. The credit quality of CB&T’s loan portfolio improved during 2012, resulting in a 63.3% reduction in net loan and lease charge-offs.

Amegy Corporation

Amegy is headquartered in Houston, Texas and operates Amegy Bank, Amegy Mortgage Company, Amegy Investments, and Amegy Insurance Agency. Amegy Bank is the 9^th largest full-service commercial bank in Texas as measured by domestic deposits in the state.

Over the past three years, Amegy has been able to maintain increased profitability over each year even with constant net interest margin compression during this same time frame. Nonperforming lending-related assets decreased by 44.1% from the prior year. Total deposits increased 10.0% from 2011, driven by higher balances in business customers’ accounts. During 2012, Amegy’s loan portfolio increased by $419 million. Commercial loans grew by $376 million and consumer loans increased by $222 million, offset by a $179 million decrease in CRE loans.

National Bank of Arizona

National Bank of Arizona is the 4^th largest full-service commercial bank in Arizona as measured by domestic deposits in the state.

NBA had net income of $30.9 million in 2012, a $5.4 million or 21.2% increase from 2011. Nonperforming lending-related assets decreased by 45.5% from the prior year. During 2012, the loan portfolio increased by $300 million in all lending product segments, including $114 million in commercial lending, $144 million in commercial real estate, and $42 million in consumer loans. Total deposits increased 3.8% over the prior year.

Nevada State Bank

Nevada State Bank is the 4^th largest full-service commercial bank in Nevada as measured by domestic deposits in the state. NSB focuses on serving small and mid-sized businesses as well as retail consumers, with an emphasis in relationship banking.

The markets in which NSB operates are dependent on tourism and construction, and were severely impacted by the recent recession. At December 31, 2012, Nevada’s unemployment rate was the highest in the nation, and its housing market continued to suffer from a high rate of foreclosures. In 2012, NSB had net income of $21.8 million compared to $46.6 million in 2011. Net loan and lease charge-offs declined 45.9% from 2011, and nonperforming lending-related assets declined 36.3%. Deposits increased 1.6% and the net interest margin decreased 22 bps from the prior year.

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During 2012, NSB’s commercial lending and commercial real estate portfolios declined by $101 million and $68 million, respectively, partially offset by a $45 million increase in consumer loans.

Vectra Bank Colorado

Vectra Bank Colorado, N.A. is the 7^th largest full-service commercial bank in Colorado as measured by domestic deposits in the state.

Vectra’s net interest margin was 4.82% in 2012 compared to 4.92% in 2011. Total loans increased $214 million during 2012, including increases of $140 million in consumer loans and $126 million in commercial lending, partially offset by a decrease of $52 million in commercial real estate loans. Nonperforming lending-related assets decreased 40.2% from the prior year. Total deposits at December 31, 2012 were 8.0% higher than a year earlier.

The Commerce Bank of Washington

The Commerce Bank of Washington is headquartered in Seattle, Washington, and operates out of a single office located in the Seattle central business district. Its business strategy focuses on serving the financial needs of commercial businesses, including professional services firms. TCBW has been successful in serving the greater Seattle/Puget Sound region without requiring extensive investments in a traditional branch network. It has been innovative in effectively utilizing couriers, bank by mail, remote deposit image capture, and other technologies.

TCBW had net income of $7.9 million in 2012 compared to $2.7 million in 2011. Nonperforming lending-related assets decreased 10.8% from the prior year. The commercial lending portfolio increased by $2 million and commercial real estate loans increased by $8 million; however, consumer loans decreased by $1 million. Total deposits were 14.1% higher at December 31, 2012 than a year earlier.

Other Segment

Operating components in the “Other” segment, as shown in Notes 21 and 23 of the Notes to Consolidated Financial Statements, relate primarily to the Parent, ZMSC and eliminations of transactions between segments. The major components at the Parent include net interest income, which includes interest expense on other borrowed funds, and net impairment losses on investment securities.

Significant changes in 2012 compared to 2011 include (1) a $75.6 million improvement in net interest income primarily related to lower interest expense resulting from reduced accelerated discount amortization on convertible subordinated debt, as discussed in “Net Interest Income, Margin and Interest Rate Spreads” on page 34, and (2) a $68.2 million increase in net impairment losses on investment securities, as discussed in “Investment Securities Portfolio” on page 49. Significant changes in 2011 compared to 2010 include a $73.3 million improvement in net interest income related to reduced accelerated discount amortization, and a $51.3 million reduction in net impairment losses on investment securities.

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, and loans, and leases. Schedule 3, which we referred to in our discussion of net interest income, includes the average balances of the Company’s interest earning assets, the amount of revenue generated by them, and their respective yields. 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 and 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 consistently achieve these goals.

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Average interest-earning assets were $49.0 billion in 2012 compared to $47.2 billion in the previous year. Average interest-earning assets as a percentage of total average assets were 92.0% in 2012 and 91.8% in 2011.

Average loans, including FDIC-supported loans, were $37.0 billion and $36.9 billion in 2012 and 2011, respectively. Average loans as a percentage of total average assets in 2012 was 69.5% compared to 71.8% in the previous year.

Average money market investments, consisting of interest-bearing deposits, federal funds sold and security resell agreements, increased by 48.1% to $7.9 billion in 2012 compared to $5.4 billion in 2011. Average securities decreased by 19.4% from 2011. Average total deposits increased by 5.2% while average total loans increased by 0.4% for 2012 when compared to the prior year. Increased deposits combined with moderate loan growth resulted in higher balances of excess cash available for 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. Schedule 10 presents 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 credit impairment losses. The estimated fair value measurement levels and methodology are discussed in detail in Note 20 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. The Dodd-Frank Act required that after July 21, 2011, federal agencies could no longer mandate the use of rating agency ratings. Final regulations and effective dates for this provision were issued in June 2012. Pursuant to these rules, during 2012 the Company began relying on its internal credit quality methodology to determine credit quality grading for investment securities held by the subsidiary banks, which had the effect of improving the credit quality grades on some of the securities.

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Schedule 10

INVESTMENT SECURITIES PORTFOLIO



	December 31, 2012						December 31, 2011
(In millions)	Amortized cost		Carrying value		Estimated fair value		Amortized cost		Carrying value		Estimated fair value
Held-to-maturity
Municipal securities	$	525	$	525	$	537	$	565	$	565	$	572
Asset-backed securities:
Trust preferred securities – banks and insurance	255		213		126		263		222		144
Other	22		19		12		24		21		14
	802		757		675		852		808		730
Available-for-sale
U.S. Treasury securities	104		105		105		4		5		5
U.S. Government agencies and corporations:
Agency securities	109		113		113		153		158		158
Agency guaranteed mortgage-backed securities	407		425		425		535		553		553
Small Business Administration loan-backed securities	1,124		1,153		1,153		1,153		1,161		1,161
Municipal securities	75		76		76		121		122		122
Asset-backed securities:
Trust preferred securities – banks and insurance	1,596		949		949		1,794		930		930
Trust preferred securities – real estate investment trusts	41		16		16		40		19		19
Auction rate securities	7		7		7		71		70		70
Other	26		19		19		65		50		50
	3,489		2,863		2,863		3,936		3,068		3,068
Mutual funds and other	228		228		228		163		163		163
	3,717		3,091		3,091		4,099		3,231		3,231
Total	$	4,519	$	3,848	$	3,766	$	4,951	$	4,039	$	3,961

The amortized cost of investment securities on December 31, 2012 decreased by 8.7% from the balances on December 31, 2011, primarily due to reductions in agency guaranteed mortgage-backed securities, reductions and impairment of asset-backed securities, partially offset by increased investments in U.S. Treasury securities, and mutual funds and other securities.

The amortized cost of investment securities at December 31, 2011 decreased by 14.8% from the previous year. This was primarily due to the sale of U.S. Treasury securities and reductions in asset-backed securities, partially offset by increased investments in SBA loan-backed securities.

As of December 31, 2012, 10.4% of the $3.1 billion fair value of available-for-sale (“AFS”) securities portfolio was valued at Level 1, 57.1% was valued at Level 2, and 32.5% was valued at Level 3 under the GAAP fair value accounting valuation hierarchy. At December 31, 2011, 5.0% of the $3.2 billion fair value of AFS securities portfolio was valued at Level 1, 61.6% was valued at Level 2, and 33.4% was valued at Level 3. See Note 20 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 $1,684 million at December 31, 2012 and the fair value of these securities was $1,004 million. The securities valued at Level 3 were comprised of ABS CDOs, primarily bank and insurance company trust preferred CDOs, and municipal securities. For these Level 3 securities, net pretax unrealized loss recognized in OCI at December 31, 2012 was $680 million. As of December 31, 2012, we believe that 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.

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Schedule 11 presents the Company’s CDOs according to performing tranches without credit impairment, and nonperforming tranches. These CDOs are the majority of our asset-backed securities and consist of both HTM and AFS securities.

Schedule 11

CDOs BY PERFORMANCE STATUS



	December 31, 2012												% of carrying value to par
								Net unrealized losses recognized in AOCI ¹			Weighted average discount rate ²

(Amounts in millions)	No. of tranches	Par amount		Amortized cost		Carrying value							December 31,
	No. of tranches	Par amount		Amortized cost		Carrying value							2012		2011		Change
Performing CDOs
Predominantly bank CDOs	28	$	811	$	727	$	538	$	(189	)	7.8	%	66	%	64	%	2	%
Insurance-only CDOs	22	454		449		327		(122		)	8.6		72		79		(7	)
Other CDOs	6	54		43		38		(5		)	9.4		70		76		(6	)
Total performing CDOs	56	1,319		1,219		903		(316		)	8.1		68		69		(1	)

Nonperforming CDOs ³
CDOs credit impaired prior to last 12 months	18	369		251		109		(142		)	10.7		30		18		12
CDOs credit impaired during last 12 months	39	732		441		181		(260		)	9.6		25		12		13
Total nonperforming CDOs	57	1,101		692		290		(402		)	10.0		26		16		10

Total CDOs	113	$	2,420	$	1,911	$	1,193	$	(718	)	9.0		49		47		2



	December 31, 2011
(Amounts in millions)	No. of tranches	Par amount		Amortized cost		Carrying value		Net unrealized losses recognized in AOCI ¹				Weighted average discount rate ²		% of carrying value to par
Performing CDOs
Predominantly bank CDOs	32	$	956	$	846	$	615		$	(231	)		7.1%	64%
Insurance-only CDOs	21	455		449		359			(90		)		5.8	79
Other CDOs	7	86		74		65			(9		)		6.9	76
Total performing CDOs	60	1,497		1,369		1,039			(330		)		6.7	69
Nonperforming CDOs ³
Deferring interest, but no credit impairment	3	72		72		17			(55		)		15.2	24
Credit impairment prior to last 12 months	37	676		498		120			(378		)		15.3	18
Credit impairment during last 12 months	18	365		217		43			(174		)		16.2	12
Total nonperforming CDOs	58	1,113		787		180			(607		)		15.6	16
Total CDOs	118	$	2,610	$	2,156	$	1,219		$	(937	)		10.5	47

¹Accumulated 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.

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As shown in Schedule 12, the Company had 36 of its CDO securities, representing 42.4% of the CDO portfolio’s fair value at December 31, 2012, that were upgraded by one or more NRSROs during the previous 12 months. These upgrades were attributed to improvements in over-collateralization ratios and deleveraging combined with less severe rating agency assumptions and methodology.

Schedule 12

BANK AND INSURANCE TRUST PREFERRED CDOs



		December 31, 2012
(In millions)	No. of securities		Par amount		Amortized cost			Fair value
Year-to-date rating changes ¹
Upgrade		36	$	994		$	898	$	448
No change		61	1,227			881		501
Downgrade		5	69			48		106
		102	$	2,290		$	1,827	$	1,055

¹By any NRSRO

Significant Assumption Changes for 2012

Probability of Default of Deferring Bank Holding Company Trust Preferred Collateral

Historically, our ratio-based valuation model assessed both performing and deferring issuers. Ratios predictive of bank failure were used in our model to identify the PD of bank holding company issuers of trust preferred securities. The reduction of the weighted average assumed loss rate on deferring collateral from 2009 onward was due to a combination of factors. These included the increased predictive ability of the model during that period in identifying which holding companies would have its sole bank or primary bank closed by regulators and which did not appear to be in danger of closure. Bank closures were largely the driver of bank holding company defaults on trust preferred securities during the 2009 to late 2012 period. As the highest PD institutions defaulted, and relatively stronger new deferrals were added, the averages declined. For more information about the ratio-based model, please refer to Note 20 of the Notes to Consolidated Financial Statements.

Effective in the fourth quarter of 2012, we developed and began using an additional probability of default overlay model for deferring bank trust preferred issuers. We utilized the higher of the PDs from the ratio-based model and the PD overlay model, thus increasing the PD of deferring issuers. The majority of these deferring issuers face a reperformance-or-default deadline within the next two and a half years. Increased regulatory and restructuring risk as evidenced by several fourth quarter 2012 events and developments led to our modeling change.

Prior to the fourth quarter of 2012, we had observed only a few bankruptcies of holding company issuers of trust preferred securities. These were generally confined to the weakest institutions. Thus we assumed no recovery.

In the fourth quarter of 2012, several regulatory and restructuring events were observed that negatively affected our assessment of current conditions for those issuers still in deferral and our forecast for these deferrals:

We observed the first Section 363 bankruptcy of a bank holding company whose bank did not appear to be in danger of regulatory closure. While the bank had a 2.18% modeled PD, the effective loss will be all of the back interest or approximately 8% of the par amount. In this case, the relative strength of the bank did not bring a sale price for the bank stock held by the holding company sufficient to fully pay off the trust preferred security issued by the holding company.


2)	We observed the uncertainty of recovery amounts for trust preferred securities issued by bank holding companies when those holding companies file Section 363 bankruptcies. The extent to which a recovery is achieved for the trust preferred security is highly dependent on multiple factors, including the active

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participation by CDO trustees under the direction of collateral managers or noteholders. We cannot assume that high levels of participation will be achieved in every future case.


3)	We observed what appeared to be the first instance of regulatory involvement in support of a bank holding company bankruptcy.

We observed bank holding companies starting into the last year of the allowable five-year deferral period with a well capitalized and in some cases also a profitable bank and several years of improved financial performance and related ratios. In particular, we observed maintenance of regulatory orders precluding, or requiring permission for, holding companies bringing deferred payments current and subsidiary banks making dividend payments to the holding company which, if left in place, will trigger default of the trust preferred securities issued by the holding company and collateralizing the CDOs. After discussion with regulators, we are unable to rule out the possibility that such regulatory orders may cause default.


5)	We observed a collateral manager for a CDO allowing the restructuring of a holding company trust preferred security from an issuer with a relatively strong underlying bank such that the loss exceeded our modeled PD.

The issuers with the earliest deferrals to which we are exposed will face the end of the allowable deferral period starting in 2013. Our fourth quarter 2012 experiences and observations led us to identify greater than previously assessed risk to the collectability of deferring bank holding company issuers, even when the underlying bank is not at risk of regulatory closure. Events seen in the fourth quarter of 2012 indicated that our previous assumption that a well capitalized and profitable bank has a low probability of its bank holding company defaulting should be supplemented with additional analysis. Said differently, the subsidiary of a deferring bank holding company may be in an apparently reasonable financial condition, but because cash may be trapped at the subsidiary due to regulatory constraints, the bank holding company may simply be unable to bring the trust preferred obligation current once its five-year deferral period is up. Alternatively, debt restructurings approved by a CDO collateral manager and Section 363 bankruptcies approved by relevant courts may result in losses greater than our previously modeled probabilities of default.

The addition of the “deferral PD overlay model” to our historic ratio-based PD model in the fourth quarter of 2012, addresses these risks by sorting remaining deferrals within our CDO pools into four “buckets” based on four factors indicative of bank holding company strength at the start of their deferral period. We then assume that the historical failure rate we have observed within our CDO pool for collateral in each bucket will be the future default rate of current deferrals in each bucket. Where the overlay PD of a deferral is higher than the PD identified by our traditional ratio-based PD model, we use the higher overlay PD. We expect to recalibrate the expected default curve for each bucket periodically as the outcome for more deferring issuers becomes known over time.

Adoption and utilization of the PD overlay model for deferrals effective December 31, 2012 raised our weighted average loss assumption on deferring collateral from 20% under our base model to 49% under the overlay model. The assumption change generated $50.4 million pretax of OTTI.

Assumption Changes Regarding Prepayment Rate

In the fourth quarter of 2012, the Company increased the prepayment assumptions for small banks because of the extent of observed prepayments made by these types of banks. The prepayment rate assumption for small banks was increased from 3% per year for each year to 10% per year for three years and 3% thereafter. The Company expects a few years of this higher prepayment rate as regulatory and economic driven capital restructuring and industry consolidation continues in the near term, a period we estimate will continue through 2015. This produced $2.4 million of OTTI by itself and another $30.7 million of OTTI in combination with PD increases on deferring issuers described previously. We changed this assumption because our CDO pools experienced significant and increasing prepayments of small bank trust preferred securities during the latter part of 2012. We define “small banks” as collateral that is not subject to the phased-in disallowance of bank trust preferred securities as Tier 1 Capital

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required by the Dodd-Frank Act, the majority of which would be subject to a more lengthy phased-in disallowance under capital rules proposed by the Federal Reserve and other banking regulators. These are primarily banks with assets below $15 billion.

Since the third quarter of 2010, we have assumed that large banks with investment grade ratings will fully prepay by the end of 2015. The Dodd-Frank Act became effective during the third quarter of 2010, and it phases in the disallowance of the inclusion of trust preferred securities in Tier 1 capital for banks with assets over $15 billion (“large banks”). For those institutions within each pool with investment grade ratings, we assume that trust preferred securities will be called prior to the end of the disallowance period. The pace of these large bank prepayments to date have been consistent with our assumption with just over 40% of large banks having prepaid within our pools by year end 2012.

Given the 10% small bank prepayment rate assumption until the end of 2015 and 3% thereafter and the differing extent of large banks remaining in CDO pools, the pool specific prepayment rate until the end of 2015 is calculated with reference to both (a) the percentage of each pool’s performing collateral consisting of small banks, as well as, (b) the percentage which consists of collateral from large banks with investment grade ratings. After 2015 each pool is assumed to prepay at a 3% annual rate.

For the fourth quarter of 2012, the resulting average annual prepayment rate assumption for pools, which includes both large and small banks, is 14% for each year through 2015, followed by an annual prepayment rate assumption of 3% thereafter. For pools without large banks, we assume a 10% annual prepayment rate for each year through 2015 and 3% thereafter. Increased prepayment rates are generally favorable for the fair value of the most senior tranches and adverse to the fair value of the more junior tranches.

Schedule 13

EFFECT OF BANK AND INSURANCE CDO ASSUMPTION CHANGES ON OTTI AND FAIR VALUES



	Bank and insurance CDOs at Level 3
	Bank and insurance CDOs at Level 3
(In millions)	Held-to-maturity			Available-for-sale
OTTI
Old assumptions	$	(0.2	)	$	—
Old assumptions with:
PD overlay	(4.5		)	(46.2		)
Increased prepayment	(1.1		)	(1.6		)
New assumptions
PD overlay and increased prepayment	(6.4		)	(77.4		)
Effect of new assumptions on OTTI	(6.2		)	(77.4		)

Fair value
Old assumptions	123			884
Old assumptions with:
PD overlay	122			857
Increased prepayment	125			930
PD overlay and increased prepayment	123			901
New assumptions
PD overlay, increased prepayment and fourth quarter 2012 discount rate	126			925
Effect of new assumptions on fair value	3			41

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Valuation Sensitivity of Level 3 Bank and Insurance CDOs

Schedule 14 sets forth the sensitivity of the current internally modeled CDOs’ fair values to changes in the most significant assumptions utilized in the model.

Schedule 14

SENSITIVITY OF INTERNAL MODEL



(Amounts in millions)
		Held-to-maturity						Available-for-sale

Fair value at December 31, 2012		$	126					$	925
		Incremental				Cumulative		Incremental				Cumulative
Currently Modeled Assumptions
Expected collateral credit losses ¹
Loss percentage from currently defaulted or deferring collateral ²						5.8	%					24.3	%
Projected loss percentage from currently performing collateral
1-year		0.3		%		6.1	%	0.3		%		24.6	%
years 2-5		1.7		%		7.8	%	1.3		%		25.9	%
years 6-30		11.1		%		18.9	%	9.4		%		35.3	%
Discount rate ³
Weighted average spread over LIBOR		860			bps			859			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	)				$	(8.8	)
	50%	(1.5		)				(17.3		)
	100%	(3.1		)				(34.5		)
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%	$	(6.4	)				$	(104.8	)
	50%	(7.2		)				(111.1		)
	100%	(9.0		)				(124.1		)
Increase (decrease) in fair value due to increase in discount rate	+100 bps	$	(11.0	)				$	(56.8	)
	+200 bps	(20.6		)				(107.3		)
Increase (decrease) in fair value due to increase in forward LIBOR curve	+100 bps	$	8.6					$	37.0
Increase (decrease) in fair value due to:
increase in prepayment assumption⁵	+1%	$	4.1					$	25.3
increase in prepayment assumption⁶	+2%	8.3						48.2

¹The 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 12.03% to 100%.

³The discount rate is a spread over the forward LIBOR curve at the date of valuation.

⁴Percentage 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 40.8% = 35.3%+50%(0.3%+1.3%+9.4%) and 46.3% = 35.3%+100%(0.3%+1.3%+9.4%), respectively.

⁵Prepayment rate for small banks increased to 11% per year for the first three years and to 4% per year thereafter through maturity.


⁶	Prepayment rate for small banks increased to 12% per year for the first three years and to 5% per year thereafter through maturity.

The 2012 sensitivity analysis of valuation assumptions, when compared to the same projection for 2011, identifies the impact of the faster prepayment rate assumption change combined with the increased PD assigned to collateral

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remaining in deferral at year end. The effect was to increase assumed collateral credit losses in both the short- and long-term beyond those projected at 2011.

The discount rates applicable to CDO tranches decreased during the year consistent with observed improved discount rates for riskier assets. The result was an increase in the fair values of the CDOs.

Bank Collateral Deferral Experience

The Company’s loss and recovery experience as of December 31, 2012 (and our Level 3 modeling assumption) is essentially a 100% loss on defaults of bank collateral in CDOs, although we have, to date, received several, generally small, recoveries on defaults. Our experience with deferring bank collateral has been that 50% has defaulted, and approximately 30% remains within the allowable deferral period. This 30% is comprised of 196 deferring bank holding companies. Late 2012 events led the Company to increase its loss assumptions on these remaining deferrals, most of which are more than half-way through their allowable deferral period. We expect that future losses on these deferrals may result from actions other than bank failures - primarily bankruptcies and debt restructurings.

In contrast, a significant number of previous deferrals have resumed interest payments. 71 issuing banks, with collateral aggregating to 20% of all deferrals and 40% of all surviving deferrals, have either come current and resumed interest payments on their trust preferred securities or have announced that 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 re-defer. This pattern has occurred in seven of the 71 banks which had resumed payment after deferring. Further information on the Company’s valuation process is detailed in Note 20 of the Notes to Consolidated Financial Statements.

Schedules 15 and 16 provide additional information on the below-investment-grade rated bank and insurance trust preferred CDOs’ portion of the AFS and HTM portfolios. The schedules reflect data and assumptions that are included in the calculations of fair value and OTTI. The schedules utilize the lowest rating assigned by any rating agency to identify those securities below investment grade. The schedules segment the securities by whether or not they have been determined to have OTTI, and by original ratings level to provide granularity on the seniority level of the securities and the distribution of unrealized losses. The best and worst pool-level statistic for each original ratings subgroup is presented, not the best and worst single security within the original ratings grouping. The number of issuers and the number of currently performing issuers noted in Schedule 16 are from the same security. The remaining statistics may not be from the same security.

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Schedule 15

BANK AND INSURANCE TRUST PREFERRED CDO VALUES CURRENTLY RATED BELOW-INVESTMENT-GRADE –SORTED BY WHETHER OTTI HAS BEEN TAKEN AND BY ORIGINAL RATINGS

At December 31, 2012



				Total									Credit loss						Valuation losses ¹
(Dollar amounts in millions)	Number of securities	% of portfolio		Par value		Amortized cost		Estimated fair value		Unrealized loss			Current year			Life-to- date			Life-to- date
Original ratings of securities, no OTTI recognized:
Original AAA	24	34.4	%	$	752	$	680	$	495	$	(185	)	$	—		$	—		$	(98	)
Original A	16	16.5		361		361		177		(184		)	—			—			—
Original BBB	5	2.1		46		46		20		(26		)	—			—			—
Total Non-OTTI		53.0		1,159		1,087		692		(395		)	—			—			(98		)
Original ratings of securities, OTTI recognized:
Original AAA	1	2.3		50		44		20		(24		)	—			(5		)	(2		)
Original A	45	41.6		908		600		254		(346		)	(87		)	(312		)	—
Original BBB	6	3.1		67		7		3		(4		)	(17		)	(60		)	—
Total OTTI		47.0		1,025		651		277		(374		)	(104		)	(377		)	(2		)
Total below-investment-grade bank and insurance CDOs		100.0	%	$	2,184	$	1,738	$	969	$	(769	)	$	(104	)	$	(377	)	$	(100	)



	Average amount of each security held ²
(In millions)	Par value		Amortized cost		Estimated fair value		Unrealized gain (loss)
Original ratings of securities, no OTTI recognized:
Original AAA	$	30	$	27	$	20	$	(7	)
Original A	15		15		7		(8		)
Original BBB	9		9		4		(5		)
Original ratings of securities, OTTI recognized:
Original AAA	50		43		20		(23		)
Original A	17		11		5		(6		)
Original BBB	11		1		1		—

¹ Valuation losses relate to securities purchased from Lockhart Funding LLC prior to its consolidation in June 2009.

²The Company may have more than one holding of the same security.

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Schedule 16

POOL LEVEL PERFORMANCE AND PROJECTIONS FOR BELOW-INVESTMENT-GRADE RATED BANK AND INSURANCE TRUST PREFERRED CDOs

At December 31, 2012



	Current lowest rating	# of issuers in collateral pool	# of issuers currently performing¹	% of original collateral defaulted ²		% of original collateral deferring ³		Subordination as a % of performing collateral ⁴			Collateral- ization %⁵			Present value of expected cash flows discounted at effective rate as a % of par		Lifetime additional assumed incurred loss from performing collateral⁶

Original ratings of securities, non-OTTI:
Original AAA
Best	BB	22	20	2.6	%	4.3	%	79.9	%		643.0	%		100	%	—
Weighted average				16.9		10.2		40.1			242.5			100		10.5	%
Worst	CC	31	15	28.7		23.1		12.4			145.1			100		13.7
Original A
Best	B	32	32	—		—		27.0			309.3			100		11.6
Weighted average				2.1		4.4		18.3			153.5			100		12.6
Worst	CC	6	4	9.0		7.1		(0.7	)	⁷	97.3		⁸	100		13.7
Original BBB
Best	CCC	32	32	—		—		19.4			355.8			100		11.6
Weighted average				1.3		3.2		12.5			275.8			100		12.8
Worst	CC	21	18	4.0		6.7		7.6			234.7			100		13.7
Original ratings of securities, OTTI:
Original AAA
Single security	CCC	43	26	19.9		18.8		23.6			195.0			100		9.7
Original A
Best	CC	35	30	0.8		1.9		(5.9	)		87.4			99		—
Weighted average				12.5		12.7		(22.3	)		52.5			68		11.4
Worst	C	3	—	33.3		27.2		(131.9	)		12.8			25		16.3
Original BBB
Best	C	40	34	6.3		6.5		(8.1	)		62.3			66		7.1
Weighted average				16.7		15.9		(44.5	)		(220.1	)		10		9.9
Worst	C	32	13	22.0		19.6		(84.1	)		(407.3	)		—		13.4


¹	Excludes both defaulted issuers and issuers that have elected to defer payment of current interest.


²	Collateral is identified as defaulted when a regulator closes an issuing bank.


³	Collateral is identified as deferring when the Company becomes aware that an issuer has announced or elected to defer interest payment on trust preferred debt.

⁴

“Subordination” in the schedule includes the effects of seniority level within the CDOs’ liability structure, the Company’s loss and recovery rate assumption for deferring but not defaulted collateral and a 0% recovery rate for defaulted collateral. The numerator is all collateral less the sum of (i) 100% of the defaulted collateral, (ii) the sum of the projected net loss amounts for each piece of deferring but not defaulted collateral and (iii) the amount of each CDO’s debt which is either senior to or pari passu with our security’s priority level. The denominator is all collateral less the sum of (i) 100% of the defaulted collateral and (ii) the sum of the projected net loss amounts for each piece of deferring but not defaulted collateral. The calculations utilize the Company’s loss assumption of 100% on defaulted collateral and the Company’s issuer specific loss assumption of from 12.03% to 100% dependent on credit for each deferring piece of collateral.

⁵

“Collateralization” in the schedule identifies the portion of a CDO tranche that is backed by nondefaulted collateral. The numerator is all collateral less the sum of (i) 100% of the defaulted collateral, (ii) the sum of the projected net loss amounts for each piece of deferring but not defaulted collateral and (iii) the amount of each CDO’s debt which is senior to our security’s priority level. The denominator is the par amount of the tranche. Par is defined as the original par less any principal paydowns. The calculations utilize the Company’s loss assumption of 100% on defaulted collateral and the Company’s issuer specific loss assumption ranging from 12.03% to 100% dependent on credit for each deferring piece of collateral.


⁶	This is the same statistic presented in the preceding sensitivity schedule and incorporated in the fair value and OTTI calculations. The statistic is the sum of incremental projected loss percentages from currently paying collateral for year one, years two through five and years six through thirty.


⁷	Negative subordination is projected to be remedied by excess spread prior to maturity.


⁸	Collateralization shortfall is projected to be remedied by excess spread prior to maturity.

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Certain original A-rated securities described in the previous schedule currently have negative subordination and are therefore under-collateralized, and yet are not identified as having OTTI. This is because our cash flow projections for these securities show negative subordination being cured prior to the securities’ maturities. The collateral that backs a tranche can increase if the more senior liabilities of the CDO decrease. This occurs when collateral deterioration due to defaults and deferral triggers alternative waterfall provisions for the cash flow. A structural credit protection feature reroutes cash (interest collections) from the more junior classes of debt and income notes to pay down the principal of the most senior liabilities. As the most senior liabilities are paid down while the collateral remains unchanged (and if there are no additional unexpected defaults), the next level of tranches becomes better secured. The rerouting continues to divert cash away from the most junior classes of debt or income notes and gives better security to our tranche. Our cash flow projections predict full payment of amortized cost and interest.

Schedule 17 presents the maturities of the different types of investments that the Company owned and the corresponding average yield as of December 31, 2012 based on amortized cost. It should be noted that most of the SBA loan-backed securities and asset-backed securities are variable rate and their repricing periods are significantly less than their contractual maturities. See “Liquidity Risk Management” on page 83 and Notes 1, 5 and 7 of the Notes to Consolidated Financial Statements for additional information about the Company’s investment securities and their management.

Schedule 17

MATURITIES AND AVERAGE YIELDS ON SECURITIES

At December 31, 2012



	Total securities				Within one year				After one but within five years				After five but within ten years				After ten years
(Amounts in millions)	Amount		Yield*		Amount		Yield*		Amount		Yield*		Amount		Yield*		Amount		Yield*
Held-to-maturity
Municipal securities	$	525	6.2	%	$	67	5.8	%	$	192	5.9	%	$	126	6.2	%	$	140	6.8	%
Asset-backed securities:
Trust preferred securities – banks and insurance	255		2.1		1		2.4		2		2.3		45		2.1		207		2.1
Other	22		1.1		—				7		1.2		11		1.2		4		1.0
	802		4.8		68		5.7		201		5.7		182		4.9		351		4.0

Available-for-sale
U.S. Treasury securities	104		0.2		103		0.1		1		8.3		—				—
U.S. Government agencies and corporations:
Agency securities	109		4.5		15		4.5		43		4.4		37		4.2		14		5.0
Agency guaranteed mortgage-backed securities	407		3.0		67		3.0		174		3.0		98		2.9		68		2.9
Small Business Administration loan-backed securities	1,124		2.5		224		2.5		540		2.5		249		2.5		111		2.4
Municipal securities	75		6.7		2		7.5		18		6.7		34		8.2		21		4.2
Asset-backed securities:
Trust preferred securities – banks and insurance	1,596		1.2		100		1.4		262		1.3		199		1.2		1,035		1.1
Trust preferred securities – real estate investment trusts	41		0.8		—				—				6		0.8		35		0.8
Auction rate securities	7		1.0		—				—				—				7		1.0
Other	26		1.7		4		3.3		9		1.6		4		1.2		9		1.2
	3,489		2.0		515		1.9		1,047		2.4		627		2.5		1,300		1.4
Mutual funds and other	228		1.3		228		1.3		—				—				—
	3,717		1.9		743		1.7		1,047		2.4		627		2.5		1,300		1.4
Total	$	4,519	2.4		$	811	2.1		$	1,248	2.9		$	809	3.1		$	1,651	1.9

*Taxable-equivalent rates used where applicable.

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As shown in Schedule 18, the investment securities portfolio at December 31, 2012 includes $578 million of nonrated municipal, single-issuer trust preferred, and certain other fixed-income securities compared to $607 million at December 31, 2011. Nonrated municipal securities held in the portfolio were underwritten by Zions Bank’s Municipal Credit Department in accordance with its established municipal credit standards. In addition to the amounts shown in Schedule 18, we invest in debt securities of certain U.S. Government agencies and corporations which, while considered to be of high credit quality, are not specifically rated by any NRSROs.

Schedule 18

NONRATED SECURITIES



	December 31,
(In millions)	2012		2011

Municipal securities	$	515	$	554
Other nonrated debt securities	63		53
	$	578	$	607

Other-Than-Temporary Impairment – Investments in Debt Securities

We review investments in debt securities each quarter for the presence of OTTI. For securities where an internal income-based cash flow model or third party valuation service 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 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 in order 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. To date, for each security whose fair value is below amortized cost, we have determined that we do not intend to sell the security, and that it is not more likely than not that we will be required to sell the security before recovery of its amortized cost basis. We then 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.

For some CDO tranches, for which we have previously recorded OTTI, expected future cash flows have remained stable or have slightly improved subsequent to the quarter that OTTI was identified and recorded. For other CDO tranches, an adverse change in the expected future cash flow has resulted in the recording of additional OTTI. In both situations, while a large difference may remain between fair value and amortized cost, the difference is not due to credit. The expected future cash flow substantiates the return of the full amortized cost. We utilize a present value technique to both identify the OTTI present in the CDO tranches and to estimate fair value. The primary drivers of unrealized losses in these CDOs are further discussed in Note 5 of the Notes to Consolidated Financial Statements.

During 2012, the Company recognized credit-related net impairment losses on CDOs of $104.1 million, compared to losses of $33.7 million in 2011. Schedule 19 identifies the sources of OTTI:

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Schedule 19

OTTI SOURCES



	December 31,
(In millions)	2012		2011

Assumption changes on bank collateral:
Increased prepayment rate ¹	$	2.4	$	11.0
PD overlay	50.4
Combination of increased prepayment rate and PD overlay	30.7
Increased medium-term PDs ²			4.6
Increased long-term PDs ²			2.5
Prepayments in our CDO pools	6.2
Credit deterioration	14.4		11.3
Homebuilder bankruptcy			4.3
	$	104.1	$	33.7

¹For 2012, we increased prepayment rates for small banks for the first 3 years to 10%, then 3% thereafter; for 2011, we increased prepayment rates to 3% for each year.

² For best performing banks

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, investment banking services, and the Company invests in securities issued by the municipalities.

Schedule 20 summarizes the Company’s exposure to state and local municipalities:

Schedule 20

MUNICIPALITIES



	December 31,
(In millions)	2012		2011

Loans and leases	$	494	$	441
Held-to-maturity – municipal securities	525		565
Available-for-sale – municipal securities	75		121
Available-for-sale – auction rate securities	7		70
Trading account – municipal securities	21		9
Unused commitments to extend credit	33		103
Total direct exposure to municipalities	$	1,155	$	1,309

Company policy requires that extensions of credit to municipalities be subjected to specific underwriting standards. At December 31, 2012, one municipality had $9 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 94% 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 governmental 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.

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Of the AFS municipal securities, 91% are rated by major credit rating agencies and were rated investment grade as of December 31, 2012. 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 is monitoring global economic conditions and is aware of concerns over the creditworthiness of the governments of Portugal, Ireland, Italy, Greece, and Spain. The Company has not granted loans to and does not own securities issued by these governments, and does not have any material exposure to companies or individuals in those countries.

In the normal course of business, the Company may enter into transactions with subsidiaries of companies and financial institutions headquartered in Portugal, Ireland, Italy, Greece, or Spain. Such transactions may include deposits, loans, letters of credit, and derivatives, as well as foreign currency exchange agreements. As of December 31, 2012, these transactions did not present any material direct or indirect risk exposure to the Company. Among the derivative transactions, the Company has a TRS agreement with Deutsche Bank AG (“DB”) with regard to certain bank and insurance trust preferred CDOs. See Note 7 of the Notes to Consolidated Financial Statements for additional information regarding the TRS. If DB were unable to perform under the TRS, the agreement would terminate at little or no cost to Zions. There would be only an immaterial balance sheet impact from cancellation, and the Company would save approximately $5.4 million in fees quarterly. However, if the TRS were canceled, the Company would lose the potential future risk mitigation benefits of the TRS, and regulatory risk weighted assets under the Basel I framework would increase by approximately $3.2 billion, which would reduce regulatory risk-based capital ratios by approximately 6% to 7%.

Loans Held for Sale

Loans held for sale, consisting primarily of consumer mortgage and small business loans to be sold in the secondary market, were $252 million at December 31, 2012, compared to $202 million at December 31, 2011. Consumer loans are primarily fixed rate mortgages that are originated and sold to third parties.

Loan Portfolio

As of December 31, 2012, net loans and leases accounted for 67.9% of total assets compared to 70.1% at the end of 2011. Schedule 21 presents the Company’s loans outstanding by type of loan as of the five most recent year-ends. The schedule also includes a maturity profile for the loans that were outstanding as of December 31, 2012. However, while this schedule reflects the contractual maturity and repricing characteristics of these loans, in certain cases the Company has hedged the repricing characteristics of its variable-rate loans as more fully described in “Interest Rate Risk” on page 79.

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Schedule 21

LOAN PORTFOLIO BY TYPE AND MATURITY



	December 31, 2012								December 31,
(Amounts in millions)	One year or less		One year through five years		Over five years		Total		2011		2010		2009		2008
Commercial:
Commercial and industrial	$	6,416	$	3,687	$	1,154	$	11,257	$	10,448	$	9,198	$	9,653	$	11,210
Leasing	39		283		101		423		380		365		409		381
Owner occupied	385		1,307		5,897		7,589		8,159		8,212		8,745		8,737
Municipal	46		104		344		494		441		438		355		288
Total commercial	6,886		5,381		7,496		19,763		19,428		18,213		19,162		20,616
Commercial real estate:
Construction and land development	735		1,007		197		1,939		2,265		3,558		5,535		7,490
Term	1,011		3,282		3,770		8,063		7,883		7,564		7,240		6,183
Total commercial real estate	1,746		4,289		3,967		10,002		10,148		11,122		12,775		13,673
Consumer:
Home equity credit line	26		122		2,030		2,178		2,187		2,145		2,138		2,009
1-4 family residential	37		129		4,184		4,350		3,921		3,504		3,647		3,881
Construction and other consumer real estate	132		12		177		321		306		342		458		773
Bankcard and other revolving plans	144		139		24		307		291		297		341		374
Other	31		158		27		216		226		236		294		386
Total consumer	370		560		6,442		7,372		6,931		6,524		6,878		7,423
FDIC-supported loans	158		215		155		528		751		971		1,445		—
Total net loans	$	9,160	$	10,445	$	18,060	$	37,665	$	37,258	$	36,830	$	40,260	$	41,712

Loans maturing:
With fixed interest rates	$	1,259	$	4,016	$	3,517	$	8,792
With variable interest rates	7,901		6,429		14,543		28,873
Total	$	9,160	$	10,445	$	18,060	$	37,665

As of December 31, 2012, net loans and leases were $37.7 billion, reflecting a 1.1% increase from the prior year. The increase is primarily attributable to new loan originations, as well as a decrease in charge-offs of existing loans.

Most of the loan portfolio growth during 2012 occurred in commercial and industrial, 1-4 family residential, and CRE term loans. The impact of these increases was partially offset by declines in owner occupied, construction and land development loans, and FDIC-supported loans. The loan portfolio increased primarily at Amegy, NBA and Vectra, while balances declined at Zions Bank, NSB and CB&T.

Commercial and industrial loans as well as 1-4 family residential consumer loans improved due to increased customer demand, while the increase in commercial real estate term loans was driven, in part, by construction loans converting to term loans when projects are completed. Commercial owner occupied loans declined due to active management of the National Real Estate loan portfolio at Zions Bank. Construction and land development loans declined primarily due to pay-downs and the completion of construction projects. The demand for these types of loans began to increase during 2012 following very weak demand experienced throughout 2011. We expect construction and land development loan balances to increase at a moderate rate in 2013. 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, and we expect FDIC-supported loan balances to decline significantly over the next few years.

Loans serviced for the benefit of others amounted to approximately $2.6 billion and $2.3 billion, at December 31, 2012, and 2011, respectively.

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Foreign loans consist primarily of commercial and industrial loans and totaled $99 million and $46 million at December 31, 2012 and 2011, respectively.

Other Noninterest-Bearing Investments

Schedule 22 sets forth the Company’s other noninterest-bearing investments:

Schedule 22

OTHER NONINTEREST-BEARING INVESTMENTS



	December 31,
(In millions)	2012		2011

Bank-owned life insurance	$	456	$	443
Federal Home Loan Bank stock	109		116
Federal Reserve stock	123		132
SBIC investments	46		39
Non-SBIC investment funds and other	107		121
Trust preferred securities	14		14
	$	855	$	865

Deposits

Deposits, both interest-bearing and noninterest-bearing, are a primary source of funding for the Company. Average total deposits increased by 5.2% during 2012, with average interest-bearing deposits increasing by 0.1% and average noninterest-bearing deposits increasing 14.7%. 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 18 bps lower in 2012 than in 2011.

Core deposits at December 31, 2012, which exclude time deposits larger than $100,000 and brokered deposits, increased by 9.0%, or $3,688 million, from December 31, 2011. The increase was mainly due to increases in noninterest-bearing and interest-bearing demand deposits and savings and money market accounts, partially offset by decreases in time deposits.

Demand and savings and money market deposits comprised 89.7% of total deposits at December 31, 2012, compared with 88.4% at December 31, 2011.

During 2012 and 2011, 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 December 31, 2012, total deposits included $37 million of brokered deposits compared to $204 million at December 31, 2011.

See Notes 10 and 11 of the Notes to Consolidated Financial Statements and “Liquidity Risk Management” on page 83 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 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 affiliate bank is able to 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 subsidiaries 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 December 31, 2012.

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 banking subsidiaries.

The credit quality of the Company’s loan portfolio improved during 2012. Nonperforming lending-related assets decreased by 29.9% from December 31, 2011. Gross charge-offs for 2012 declined to $267 million from $560 million in the previous year. Net charge-offs decreased to $155 million from $456 million for the same periods.

As displayed in Schedule 23, commercial and industrial loans were the largest category and constituted 29.9% of the Company’s loan portfolio at December 31, 2012. Construction and land development loans decreased to 5.1% of total loans at the end of 2012 compared to 6.1% at the end of 2011. Construction and land development loans have declined significantly from a pre-recession level of 20.1% of total loans at the end of 2007.

Schedule 23

LOAN PORTFOLIO DIVERSIFICATION



	December 31, 2012				December 31, 2011
(Amounts in millions)	Amount		% of total loans		Amount		% of total loans
Commercial:
Commercial and industrial	$	11,257	29.9	%	$	10,448	28.0	%
Leasing	423		1.1		380		1.0
Owner occupied	7,589		20.1		8,159		21.9
Municipal	494		1.3		441		1.2
Total commercial	19,763				19,428
Commercial real estate:
Construction and land development	1,939		5.1		2,265		6.1
Term	8,063		21.4		7,883		21.2
Total commercial real estate	10,002				10,148
Consumer:
Home equity credit line	2,178		5.8		2,187		5.9
1-4 family residential	4,350		11.6		3,921		10.5
Construction and other consumer real estate	321		0.9		306		0.8
Bankcard and other revolving plans	307		0.8		291		0.8
Other	216		0.6		226		0.6
Total consumer	7,372				6,931
FDIC-supported loans	528		1.4		751		2.0
Total net loans	$	37,665	100.0	%	$	37,258	100.0	%

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 are covered under loss sharing agreements with the FDIC for which the FDIC generally will assume 80% of the first $275 million of credit losses for the Alliance Bank assets, $40 million of credit losses for the Great Basin Bank assets, $465 million of credit losses for the Vineyard Bank assets and 95% of the credit losses in excess of those amounts. The Company does not expect total losses to exceed this higher threshold because acquired loans have performed better than originally expected. FDIC-supported loans represented 1.4% and 2.0% of the Company’s total loan portfolio at December 31, 2012, and 2011, respectively.

Schedule 24

NET LOSSES COVERED BY FDIC LOSS SHARING AGREEMENTS



	Inception through December 31, 2012
(In millions)	Total actual net losses			Threshold

Alliance Bank		$	171		$	275
Great Basin Bank		11			40
Vineyard Bank		210			465
		$	392		$	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 December 31, 2012, the principal balance of these loans

was $590 million, and the guaranteed portion was approximately $440 million. Most of these loans were guaranteed by the Small Business Administration.

Schedule 25 presents the composition of government agency guaranteed loans, excluding FDIC-supported loans:

Schedule 25

GOVERNMENT GUARANTEES



(Amounts in millions)	December 31, 2012			Percent guaranteed		December 31, 2011			Percent guaranteed
Commercial		$	567		74%		$	581		74%
Commercial real estate		20			76		20			75
Consumer		3			100		2			100
Total loans excluding FDIC-supported loans		$	590		75		$	603		74

Commercial Lending

Schedule 26 provides selected information regarding lending concentrations to certain industries in our commercial lending portfolio:

Schedule 26

COMMERCIAL LENDING BY INDUSTRY GROUP



(Amounts in millions)	December 31, 2012				December 31, 2011
	Amount		Percent		Amount		Percent
Real estate, rental and leasing	$	2,782	14.1	%	$	2,755	14.2	%
Manufacturing	1,999		10.1		2,069		10.6
Mining, quarrying and oil and gas extraction	1,992		10.1		1,763		9.1
Retail trade	1,661		8.4		1,646		8.5
Wholesale trade	1,521		7.7		1,600		8.2
Healthcare and social assistance	1,205		6.1		1,245		6.4
Finance and insurance	1,093		5.5		865		4.5
Construction	1,016		5.1		1,083		5.6
Transportation and warehousing	1,001		5.1		949		4.9
Professional, scientific and technical services	968		4.9		953		4.9
Accommodation and food services	786		4.0		825		4.2
Other ¹	3,739		18.9		3,675		18.9
Total	$	19,763	100.0	%	$	19,428	100.0	%

¹ No other industry group exceeds 5%.

Commercial Real Estate Loans

As reflected in Schedule 27, the CRE portfolio is well diversified by property type, purpose, and collateral location.

Schedule 27

COMMERCIAL REAL ESTATE PORTFOLIO BY PROPERTY TYPE AND COLLATERAL LOCATION

Represents Percentages Based Upon Outstanding Commercial Real Estate Loans

At December 31, 2012



(Amounts in millions)			Collateral Location																		% of total CRE		% of loan type
Loan type	Balance ¹		Arizona		Northern California		Southern California		Nevada		Colorado		Texas		Utah/ Idaho		Wash-ington		Other		% of total CRE		% of loan type
Commercial term
Industrial			1.65	%	0.89	%	3.27	%	0.70	%	0.83	%	0.96	%	0.86	%	0.35	%	0.88	%	10.39	%	12.76	%
Office			2.08		1.66		4.13		0.82		0.92		1.41		2.74		0.36		0.95		15.07		18.52
Retail			2.31		1.28		3.80		1.73		0.96		3.21		1.39		0.36		1.74		16.78		20.60
Hotel/motel			2.20		0.95		1.49		0.79		0.91		1.21		1.42		0.20		2.74		11.91		14.62
Acquisition/development			0.05		0.06		0.52		0.06		0.01		—		—		—		—		0.70		0.86
Medical			0.60		0.08		0.76		0.77		0.03		0.43		0.30		0.09		0.09		3.15		3.87
Recreation/restaurant			0.41		0.09		0.72		0.19		0.09		0.33		0.20		0.09		0.63		2.75		3.37
Multifamily			1.79		0.51		5.51		0.27		0.78		1.41		1.74		0.46		0.92		13.39		16.45
Other			0.81		0.66		1.81		0.78		0.79		0.33		1.28		0.16		0.67		7.29		8.95
Total	$	7,909	11.90		6.18		22.01		6.11		5.32		9.29		9.93		2.07		8.62		81.43		100.00

Residential construction and land development
Single family housing			0.18		0.30		0.66		—		0.25		0.99		0.03		0.03		—		2.44		35.29
Acquisition/development			0.63		0.06		0.21		—		0.06		1.07		0.61		—		0.12		2.76		40.04
Loan lot investor			0.18		0.06		0.40		0.01		0.05		0.13		0.41		0.01		0.12		1.37		19.77
Condo			—		—		0.16		—		—		0.04		0.05		—		0.09		0.34		4.90
Total	671		0.99		0.42		1.43		0.01		0.36		2.23		1.10		0.04		0.33		6.91		100.00

Commercial construction and land development
Industrial			0.02		—		0.06		—		—		0.22		—		0.02		0.03		0.35		2.96
Office			0.01		0.14		0.44		0.05		—		0.62		0.17		—		0.03		1.46		12.52
Retail			0.11		0.04		0.18		0.03		0.10		0.34		0.42		—		0.03		1.25		10.71
Hotel/motel			0.06		—		0.05		—		0.05		0.15		0.06		—		0.02		0.39		3.37
Acquisition/development			0.33		0.23		0.29		0.34		0.47		0.96		0.81		0.07		0.05		3.55		30.53
Medical			0.04		—		—		—		—		0.05		0.17		—		—		0.26		2.26
Multifamily			0.25		0.06		0.94		0.06		0.17		1.32		0.67		0.03		0.05		3.55		30.36
Other			0.06		—		0.03		0.17		0.06		0.27		0.26		—		—		0.85		7.29
Total	1,133		0.88		0.47		1.99		0.65		0.85		3.93		2.56		0.12		0.21		11.66		100.00

Total construction and land development	1,804		1.87		0.89		3.42		0.66		1.21		6.16		3.66		0.16		0.54		18.57

Total commercial real estate	$	9,713	13.77		7.07		25.43		6.77		6.53		15.45		13.59		2.23		9.16		100.00

¹Excludes approximately $289 million of unsecured loans outstanding, but related to the real estate industry.

Selected information indicative of credit quality regarding our CRE loan portfolio is presented in Schedule 28.

Schedule 28

COMMERCIAL REAL ESTATE PORTFOLIO BY LOAN TYPE AND COLLATERAL LOCATION

At December 31, 2012



(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	12/31/2012	$	1,180		$	604		$	2,155		$	605		$	518		$	934		$	1,013		$	205		$	849		$	8,063		80.6	%
% of loan type		14.7		%	7.5		%	26.7		%	7.5		%	6.4		%	11.6		%	12.6		%	2.5		%	10.5		%	100.0		%
Delinquency rates ²:
30-89 days	12/31/2012	0.2		%	0.1		%	0.1		%	0.2		%	—			0.1		%	0.2		%	1.3		%	1.6		%	0.3		%
	12/31/2011	0.6		%	0.4		%	1.2		%	0.5		%	0.5		%	1.6		%	0.5		%	—			1.1		%	0.9		%
≥ 90 days	12/31/2012	0.3		%	1.3		%	0.5		%	0.8		%	0.7		%	0.5		%	0.1		%	—			2.1		%	0.7		%
	12/31/2011	0.9		%	0.3		%	0.3		%	0.4		%	—			1.7		%	0.6		%	—			2.1		%	0.8		%
Accruing loans past due 90 days or more	12/31/2012	$	—		$	—		$	—		$	—		$	—		$	—		$	—		$	—		$	—		$	—
	12/31/2011	—			—			—			—			—			3			—			—			1			4
Nonaccrual loans	12/31/2012	10			9			19			14			11			8			4			3			47			125
	12/31/2011	14			3			27			37			14			23			9			—			29			156
Residential construction and land development
Balance outstanding	12/31/2012	$	96		$	42		$	156		$	1		$	35		$	234		$	111		$	4		$	35		$	714		7.1	%
% of loan type		13.4		%	5.9		%	21.8		%	0.1		%	5.0		%	32.8		%	15.5		%	0.6		%	4.9		%	100.0		%
Delinquency rates ²:
30-89 days	12/31/2012	0.6		%	1.0		%	0.4		%	10.7		%	4.9		%	7.9		%	0.2		%	—			—			3.1		%
	12/31/2011	0.6		%	14.1		%	—			0.8		%	13.8		%	0.4		%	0.2		%	—			—			1.3		%
≥ 90 days	12/31/2012	0.7		%	—			0.2		%	—			0.5		%	6.7		%	—			—			—			2.4		%
	12/31/2011	2.7		%	—			3.9		%	6.8		%	5.3		%	11.6		%	4.5		%	24.1		%	—			6.7		%
Accruing loans past due 90 days or more	12/31/2012	$	—		$	—		$	—		$	—		$	—		$	1		$	—		$	—		$	—		$	1
	12/31/2011	1			—			—			—			—			—			—			—			—			1
Nonaccrual loans	12/31/2012	6			—			—			—			—			29			4			—			—			39
	12/31/2011	13			—			6			5			2			50			15			—			—			91
Commercial construction and land development
Balance outstanding	12/31/2012	$	86		$	49		$	194		$	68		$	85		$	452		$	254		$	12		$	25		$	1,225		12.3	%
% of loan type		7.0		%	4.0		%	15.8		%	5.6		%	6.9		%	36.9		%	20.7		%	1.0		%	2.1		%	100.0		%
Delinquency rates ²:
30-89 days	12/31/2012	2.4		%	—			—			27.9		%	0.4		%	2.0		%	2.3		%	—			7.3		%	3.1		%
	12/31/2011	1.6		%	—			—			—			4.4		%	1.7		%	—			—			—			1.2		%
≥ 90 days	12/31/2012	—			2.6		%	0.1		%	0.2		%	—			4.0		%	—			—			—			1.6		%
	12/31/2011	2.1		%	—			1.1		%	5.6		%	5.5		%	6.0		%	1.7		%	—			—			3.6		%
Accruing loans past due 90 days or more	12/31/2012	$	—		$	—		$	—		$	—		$	—		$	—		$	—		$	—		$	—		$	—
	12/31/2011	—			—			2			—			—			—			—			—			—			2
Nonaccrual loans	12/31/2012	—			1			—			22			—			29			14			3			—			69
	12/31/2011	6			—			—			12			9			82			20			—			—			129
Total construction and land development	12/31/2012	$	182		$	91		$	350		$	69		$	120		$	686		$	365		$	16		$	60		$	1,939
Total commercial real estate	12/31/2012	$	1,362		$	695		$	2,505		$	674		$	638		$	1,620		$	1,378		$	221		$	909		$	10,002		100.0	%

¹No other geography exceeds $104 million for all three loan types.

²Delinquency rates include nonaccrual loans.

Approximately 33% of the CRE term loans consist of mini-perm loans as of December 31, 2012. 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 67% of CRE loans are term loans with initial maturities generally of 15 to 20 years. The stabilization criteria for a project to qualify for a term loan differ by product type and include, for example, criteria related to the cash flow generated by the project, loan-to-value ratio, and occupancy rates.

Approximately 28% of the commercial construction and land development portfolio at December 31, 2012 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 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 economics of the project are primary 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.

Although lending for residential construction and development involves a different product type, many of the requirements previously mentioned, such as creditworthiness of the developer, up-front injection of the developer’s equity, remargining requirements, and the viability of the project are also important in underwriting a residential development loan. 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 credit officer and the borrower, generally by each bank’s appraisal review function, which is staffed by certified 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, on an “as completed basis,” 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, NBA, NSB, Vectra and Zions Bank. CBO and CBW perform such reviews annually.

Interest reserves are generally established as a loan disbursement budget item for real estate construction or development loans. We generally require borrowers to put their equity into the project prior to loan disbursements on these loans. This enables the bank to ensure the availability of equity to complete the project. The Company’s practice is to monitor the construction, sales and/or leasing progress to determine whether or not the project remains viable. If, at any time during the life of the credit, the project is determined not to be viable (including the adequacy of the remaining interest reserves), the bank takes appropriate action to protect its collateral position via negotiation and/or legal action as deemed necessary. At December 31, 2012 and 2011, Zions’ affiliates had 451 and 356 loans with an outstanding balance of $477 million and $413 million where available interest reserves amounted to $73 million and $36 million, respectively. In instances where projects have been determined not to be viable, the interest reserves and other disbursements have been frozen, as appropriate.

We have not been involved to any meaningful extent with insurance arrangements, credit derivatives, or any other default agreements as a mitigation strategy for CRE loans. However, we do make use of personal or other guarantees as risk mitigation strategies.

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.

Additionally, when we modify or extend a loan, we give consideration to whether the borrower is in financial difficulty, and whether a concession has been granted. In determining if an interest rate concession has been granted, we consider whether the interest rate on the modified loan is equivalent to current market rates for new debt with similar risk characteristics. If the rate in the modification is less than current market rates, it may indicate that a concession was granted and impairment exists. However, if additional collateral is obtained or if a strong guarantor exists who is believed to be able and willing to support the loan on an extended basis, we also consider the nature and amount of the additional collateral and guarantees in the ultimate determination of whether a concession has been granted.

We obtain and consider updated financial information for the guarantor as part of our determination to extend a loan. The quality and frequency of financial reporting collected and analyzed varies depending on the contractual requirements for reporting, the size of the transaction, and the strength of the guarantor.

Complete underwriting of the guarantor includes, but is not limited to, an analysis of the guarantor’s current financial statements, leverage, liquidity, global cash flow, global debt service coverage, contingent liabilities, etc. The assessment also includes a qualitative analysis of the guarantor’s willingness to perform in the event of a problem and demonstrated history of performing in similar situations. Additional analysis may include personal financial statements, tax returns, liquidity (brokerage) confirmations and other reports, as appropriate. All personal financial statements of customers entering into new relationships with the applicable bank must not be more than 60 days old on the date the transaction is approved. Personal financial statements that are required for existing customers must be no more than 15 months old. Evaluations of the financial strength of the guarantor are performed at least annually.

A qualitative assessment is performed on a case-by-case basis to evaluate the guarantor’s experience, performance track record, reputation, performance of other related projects with which we are familiar, and willingness to work with us. We also utilize market information sources, rating and scoring services in our assessment. This qualitative analysis coupled with a documented quantitative ability to support the loan may result in a higher-quality internal loan grade, which may reduce the level of allowance 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 (e.g., single action rule on real estate) and the overall cost of pursuing a guarantee compared to the ultimate amount we may be able to recover. In other instances, the guarantor may voluntarily support a loan without any formal pursuit of remedies.

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 has a portfolio of $348 million of stated income mortgage loans with generally high FICO® scores at origination, including “one-time close” loans to finance the construction of homes, which convert into permanent jumbo mortgages. As of December 31, 2012, approximately $28 million of these loans had refreshed FICO® scores of less than 620. These totals exclude held-for-sale loans. Stated income loans account for approximately $3.8 million, or 23%, of our credit losses in 1-4 family residential first mortgage loans during 2012, and were primarily at Zions Bank and NBA.

The Company is engaged in home equity credit line (“HECL”) lending. At December 31, 2012, the Company’s HECL portfolio totaled $2.2 billion, including FDIC-supported loans. 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. The outstanding balances and commitments by origination year for the junior lien HECLs are presented in Schedule 29:

Schedule 29

JR. LIEN HECLs – OUTSTANDING BALANCES AND TOTAL COMMITMENTS



(In millions)		December 31, 2012						December 31, 2011
Year of origination	Outstanding balance			Total commitments			Outstanding balance			Total commitments

2012		$	117		$	234
2011		97			182			$	109		$	206
2010		68			122			84			147
2009		65			125			83			149
2008		158			250			184			262
2007		189			295			228			299
2006 and prior		419			910			492			918
Total		$	1,113		$	2,118		$	1,180		$	1,981

More than 98% of the Company’s HECL portfolio is still in the draw period, and approximately 52% is scheduled to begin amortizing within the next five years; however, most of them 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. Of the total home equity credit line portfolio, including FDIC-supported loans, 0.27% was 90 or more days past due at December 31, 2012 as compared to 0.52% at December 31, 2011. During 2012, the Company modified $0.7 million of home equity credit lines. The annualized credit losses for the HECL portfolio were 86 and 105 bps for 2012 and 2011, respectively.

As of December 31, 2012, loans representing approximately 14% 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. The estimated current collateral value is based on projecting values forward from the most recent valuation of the underlying collateral using home price indices at the metropolitan area level. Generally, a valuation of collateral is performed at origination. For junior lien HECLs, the estimated current balance of prior liens is added to the numerator in the calculation of CLTV. Additional detail for the CLTV as of December 31, 2012 and 2011 is shown in Schedule 30:

Schedule 30

HECL PORTFOLIO BY COMBINED LOAN-TO-VALUE



	Percentage of HECL portfolio
	December 31,
CLTV	2012		2011

>100%	14	%	17	%
90-100%	9		11
80-89%	13		15
< 80%	64		57
	100	%	100	%

Underwriting standards for the HECL portfolio generally include a maximum 80% CLTV with high credit scores at origination. Credit bureau data, credit scores, and estimated CLTV are refreshed on a quarterly basis, and are used to monitor and manage accounts, including amounts available under the lines of credit. The allowance for loan losses is determined through the use of roll rate models, and first lien HECLs are modeled separately from junior lien HECLs. See Note 6 of the Notes to Consolidated Financial Statements for additional information on the allowance.

Nonperforming Assets

Nonperforming lending-related assets as a percentage of loans and leases and OREO decreased to 1.96% at December 31, 2012, compared with 2.83% at December 31, 2011.

Total nonaccrual loans, excluding FDIC-supported loans, at December 31, 2012 decreased by $255 million from the prior year. The decrease is primarily due to a $112 million decrease in construction and land development, a $36 million decrease in commercial and industrial, and a $33 million decrease in commercial owner occupied loans. The largest total decreases in nonaccrual loans occurred at Amegy, NBA, and Vectra.

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 a period of six months, the loan can be considered for return to accrual status. See “Restructured Loans” on page 75 for more information. Company policy does not allow for the conversion of nonaccrual construction and land development loans to CRE term loans. See Note 6 of the Notes to Consolidated Financial Statements for more information.

Schedule 31 sets forth the Company’s nonperforming lending-related assets:

Schedule 31

NONPERFORMING LENDING-RELATED ASSETS



(Amounts in millions)	December 31,
	2012			2011			2010			2009			2008
Nonaccrual loans:
Loans held for sale	$	—		$	18		$	—		$	—		$	30
Commercial:
Commercial and industrial	91			127			224			319			148
Leasing	1			2			1			11			8
Owner occupied	206			239			342			474			158
Municipal	9			—			2			—			—
Commercial real estate:
Construction and land development	108			220			494			825			457
Term	125			156			264			228			44
Consumer:
Real estate	89			121			163			162			97
Other	2			3			3			4			4
Nonaccrual loans, excluding FDIC-supported loans	631			886			1,493			2,023			946
Other real estate owned:
Commercial:
Commercial properties	45			58			99			85			36
Developed land	10			4			6			14			7
Land	8			17			33			35			2
Residential:
1-4 family	8			19			53			50			40
Developed land	14			21			50			119			71
Land	5			10			18			33			36
Other real estate owned, excluding FDIC-supported assets	90			129			259			336			192
Total nonperforming lending-related assets, excluding FDIC-supported assets	721			1,015			1,752			2,359			1,138
FDIC-supported nonaccrual loans	17			25			36			356			—
FDIC-supported other real estate owned	8			24			40			54			—
FDIC supported nonperforming lending-related assets	25			49			76			410			—
Total nonperforming lending-related assets	$	746		$	1,064		$	1,828		$	2,769		$	1,138
Ratio of nonperforming lending-related assets to loans and leases¹ and other real estate owned	1.96		%	2.83		%	4.90		%	6.78		%	2.70		%
Accruing loans past due 90 days or more:
Commercial	$	6		$	8		$	11		$	53		$	50
Commercial real estate	1			7			7			33			48
Consumer	3			4			5			21			32
Total excluding FDIC-supported loans	10			19			23			107			130
FDIC-supported nonaccrual loans	52			75			119			56			—
Total	$	62		$	94		$	142		$	163		$	130
Ratio of accruing loans past due 90 days or more to loans and leases¹	0.16		%	0.25		%	0.38		%	0.40		%	0.31		%

¹Includes 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 interest and principal 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 $160 million and $171 million at December 31, 2012 and 2011, respectively.

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 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 in determining whether or not a loan should be returned to accrual status.

Schedule 32

ACCRUING AND NONACCRUING TROUBLED DEBT RESTRUCTURED LOANS



	December 31,
(In millions)	2012		2011

Restructured loans – accruing	$	407	$	448
Restructured loans – nonaccruing	216		296
Total	$	623	$	744

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 approves the upgrading of a loan’s classification. See Note 6 of the Notes to Consolidated Financial Statements for additional information regarding TDRs.

Schedule 33

TROUBLED DEBT RESTRUCTURED LOANS ROLLFORWARD



	December 31,
(In millions)	2012			2011

Balance at beginning of year	$	744		$	755
New identified TDRs and principal increases	321			463
Payments and payoffs	(249		)	(154		)
Charge-offs	(32		)	(74		)
No longer reported as TDRs	(65		)	(174		)
Sales and other	(96		)	(72		)
Balance at end of year	$	623		$	744

As of December 31, 2012, TDR balances reflected recent changes in regulatory interpretative guidance from the OCC for national banks whose consumer borrowers had not reaffirmed their debt discharged in a Chapter 7 bankruptcy. During the fourth quarter of 2012, we adopted this guidance for all of our subsidiary banks. See Note 6 of the Notes to Consolidated Financial Statements for additional information.

Other Nonperforming Assets

In addition to the lending-related nonperforming assets, the Company had $187 million in fair value and $471 million in amortized cost of investments in debt securities (primarily bank and insurance company CDOs) that were on nonaccrual status at December 31, 2012, compared to $124 million and $613 million at December 31, 2011, 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.

Schedule 34 shows the changes in the allowance for loan losses and a summary of loan loss experience.

Schedule 34

SUMMARY OF LOAN LOSS EXPERIENCE



(Amounts in millions)	2012			2011			2010			2009			2008
Loans and leases outstanding on December 31, (net of unearned income)	$	37,665		$	37,258		$	36,830		$	40,260		$	41,712
Average loans and leases outstanding, (net of unearned income)	$	37,037		$	36,897		$	38,326		$	41,569		$	40,835
Allowance for loan losses:
Balance at beginning of year	$	1,052		$	1,442		$	1,532		$	688		$	460
Allowance associated with purchased securitized loans	—			—			—			—			2
Allowance of loans and leases sold	—			—			—			—			(1		)
Provision charged against earnings	14			75			853			2,017			648
Adjustment for FDIC-supported loans	(15		)	(9		)	40			2			—
Charge-offs:
Commercial	(121		)	(241		)	(417		)	(373		)	(100		)
Commercial real estate	(85		)	(229		)	(517		)	(713		)	(269		)
Consumer	(61		)	(90		)	(140		)	(170		)	(45		)
Total	(267		)	(560		)	(1,074		)	(1,256		)	(414		)
Recoveries:
Commercial	56			55			35			51			9
Commercial real estate	42			35			44			21			7
Consumer	14			14			12			9			5
Total	112			104			91			81			21
Net loan and lease charge-offs	(155		)	(456		)	(983		)	(1,175		)	(393		)
Reclassification to reserve for unfunded lending commitments	—			—			—			—			(28		)
Balance at end of year	$	896		$	1,052		$	1,442		$	1,532		$	688

Ratio of net charge-offs to average loans and leases	0.42		%	1.24		%	2.56		%	2.83		%	0.96		%
Ratio of allowance for loan losses to net loans and leases, on December 31,	2.38		%	2.82		%	3.92		%	3.81		%	1.65		%
Ratio of allowance for loan losses to nonperforming loans, on December 31,	138.25		%	115.43		%	94.32		%	64.40		%	72.66		%
Ratio of allowance for loan losses to nonaccrual loans and accruing loans past due 90 days or more, on December 31,	126.22		%	104.67		%	86.31		%	60.27		%	63.92		%

Schedule 35 provides a breakdown of the allowance for loan losses and the allocation among the portfolio segments.

Schedule 35

ALLOCATION OF THE ALLOWANCE FOR LOAN LOSSES

At December 31,



	2012					2011					2010					2009					2008
	% of total loans		Allocation of allowance			% of total loans		Allocation of allowance			% of total loans		Allocation of allowance			% of total loans		Allocation of allowance			% of total loans		Allocation of allowance
(Amounts in millions)	% of total loans		Allocation of allowance			% of total loans		Allocation of allowance			% of total loans		Allocation of allowance			% of total loans		Allocation of allowance			% of total loans		Allocation of allowance

Loan segment
Commercial	52.4	%		$	594	52.1	%	52.5	$	630	49.5	%		$	763	47.6	%		$	614	49.4	%		$	320
Commercial real estate	26.5			194		27.3		26.5	276		30.2			487		31.8			753		32.8			291
Consumer	19.7			96		18.6		19.6	123		17.7			154		17.0			165		17.8			77
FDIC-supported loans	1.4			12		2.0		1.4	23		2.6			38		3.6			—
Total	100.0	%		$	896	100.0	%		$	1,052	100.0	%		$	1,442	100.0	%		$	1,532	100.0	%		$	688

The total ALLL declined during 2012 by $156 million due to the positive credit trends experienced in our major loan portfolio segments and to somewhat improving economic conditions in some of our markets. See Note 6 of the Notes to Consolidated Financial Statements for additional information regarding positive and negative credit trends experienced in each portfolio segment.

The Company decreased the portion of the ALLL related to qualitative and environmental factors to reflect improving credit quality trends and stabilizing economic conditions in some of our markets. Otherwise, there were no significant changes to our qualitative and environmental factors. Credit trends experienced in the FDIC-supported portfolio are also described in Note 6 of the Notes to Consolidated Financial Statements.

The total ALLL at December 31, 2011 decreased by $390 million from the level at year-end 2010. The decreases in the ALLL for commercial lending, CRE, consumer, and FDIC-supported loans largely reflected improvements in credit quality and declines in loss rates in each of these major loan portfolio segments. Although credit quality improved in 2011, the Company increased the portion of the ALLL related to qualitative and environmental factors to keep changes in the level of the ALLL consistent with continued elevated levels of problem loans and moderate economic growth. The decrease in the ALLL for CRE loans also reflected the decrease in loans outstanding for the construction and land development portfolio.

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 increased by $4.4 million compared to December 31, 2011. The increase is primarily due to an increase in unfunded lending commitments. See Note 6 of the Notes to Consolidated Financial Statements for additional information related to the allowance for credit losses.

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 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. ALCO’s primary responsibilities include:


•	recommending policies to the Board and administering Board-approved policies that govern and limit the Company’s exposure to all interest rate and market risk, including policies that are designed to limit the Company’s adverse exposure to changes in interest rates;


•	approving procedures that support the Board-approved policies;


•	approving all material interest rate risk management strategies, including all hedging strategies and actions taken pursuant to managing interest rate risk and monitoring risk positions against approved limits;


•	approving limits and all financial derivative positions taken at both the Parent and subsidiaries for the purpose of hedging the Company’s interest rate and market risks;


•	providing the basis for integrated balance sheet, net interest income, and liquidity management;


•	calculating the estimated market value of each class of assets, liabilities, and on net equity, given defined interest rate scenarios;


•	managing the Company’s exposure to changes in net interest income and estimated market value of equity due to interest rate fluctuations; and


•	quantifying the effects of hedging instruments on the market value of equity and on net interest income under defined interest rate scenarios.

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 2012. 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. Our models indicate that decreasing market index rates by 200 bps, with a lower bound of 0%, would decrease rate sensitive income by approximately 2% over a one-year period in the income simulation when compared to a scenario of no change in interest rates. 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.

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.

The Company’s policy is generally to limit declines in MVE to 3% per 100 bp movement in interest rates in either direction. Schedule 36 presents the formal limits adopted by the Company’s Board of Directors:

Schedule 36

MARKET VALUE OF EQUITY DECLINE LIMITS



Parallel change in interest rates		Allowable decline in MVE

+/- 100 bps		3%
+/- 200 bps		6%
+/- 300 bps		9%
+/- 400 bps		12%
+/- 500 bps		15%

These MVE limits, adopted in late 2012, are a change from the previous policy which imposed limits on duration of equity. We had been calculating both measures in parallel for several quarters prior to the adoption of MVE as a primary policy limit, and no significant change in the Company’s interest rate risk position resulted from this policy change. Further, we still calculate and monitor both measures. Duration measures changes in MVE for small changes in interest rates only. The changes to the policy to limit declines in MVE over a wider range of rate movements enhanced the interest rate risk management practice of the Company. Changes to the MVE limits are subject to notification and approval by the Company’s Board of Directors. 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.

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.

As of the dates indicated, Schedule 37 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 -200 bps to +500 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, 2012, interest rates were at such a low level that repricing scenarios assuming -100 bps and -200 bps rate shocks produced similar results.

The second scenario assumes that those deposits reprice at a slower speed. For larger rate shocks, e.g. +500 bps, models reflecting consumer behavior in regards to both loan prepayments and deposit run-off are inherently prone to increased model uncertainty.

Schedule 37

INCOME SIMULATION-CHANGE IN INTEREST RATE SENSITIVE INCOME



	As of December 31, 2012
Repricing scenario	-200 bps		-100 bps		+100 bps		+200 bps		+300 bps		+400 bps		+500 bps

Fast	(1.8	)%	(1.8	)%	3.9	%	9.8	%	16.7	%	23.6	%	30.6	%
Slow	(2.0	)%	(2.0	)%	5.0	%	12.1	%	20.2	%	28.4	%	36.5	%



	As of December 31, 2011
Repricing scenario	-200 bps		-100 bps		+100 bps		+200 bps		+300 bps		+400 bps		+500 bps

Fast	(1.9	)%	(1.8	)%	2.8	%	7.4	%	13.1	%	18.9	%	24.8	%
Slow	(2.3	)%	(2.1	)%	4.1	%	10.0	%	17.0	%	24.1	%	31.3	%

Schedule 38 includes changes in the MVE from -200 bps to +500 bps parallel rate moves for both “fast” and “slow” scenarios.

Schedule 38

CHANGES IN MARKET VALUE OF EQUITY



	As of December 31, 2012
Repricing scenario	-200 bps		-100 bps		+100 bps		+200 bps		+300 bps		+400 bps		+500 bps

Fast	5.3	%	0.7	%	1.7	%	3.9	%	6.3	%	9.4	%	12.0	%
Slow	(0.5	)%	(2.8	)%	4.9	%	10.6	%	16.0	%	25.0	%	30.8	%



	As of December 31, 2011
Repricing scenario	-200 bps		-100 bps		+100 bps		+200 bps		+300 bps		+400 bps		+500 bps

Fast	2.9	%	0.1	%	0.7	%	1.6	%	2.5	%	3.3	%	4.1	%
Slow	(2.1	)%	(2.6	)%	3.1	%	6.7	%	9.9	%	12.9	%	15.6	%

During 2012, changes in interest rate sensitivity were primarily driven by a 14.6% year-over-year increase in noninterest-bearing demand deposits, with the majority of that increase being invested in short-term money market assets. Other factors which marginally affected the changes in interest rate sensitivity include the redemption of TARP preferred stock from cash reserves, changes in the modeling assumptions for capturing balloon payments, and changes to prepayment assumptions.

Our focus on business banking also plays a significant role in determining the nature of the Company’s asset-liability management posture. At the end of 2012 and 2011, approximately 77% and 76%, respectively, of the Company’s commercial lending and CRE portfolios were variable rate and primarily tied to either the prime rate or

LIBOR. In addition, certain of our consumer loans also have variable interest rates. See Schedule 21 for further information on fixed and variable interest rates of the loan portfolio.

Largely due to competitive pressures, the Company’s subsidiary banks have decreased the use of interest rate floors on new loans. As of December 31, 2012, and December 31, 2011, approximately 37.5% and 45.8% of all of the Company’s variable rate loan balances contain floors. Of the loans with floors, approximately 74.4% and 77.9% of the balances at December 31, 2012 and 2011, respectively, were priced at the floor rates, which were above the “index plus spread” rate by an average of 1.07% and 1.22%, respectively.

At December 31, 2012, the Company held $150 million (notional amount) of interest rate swap agreements, all of which will mature in 2013. See Notes 7 and 20 of the Notes to Consolidated Financial Statements for additional information regarding derivative instruments.

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 December 31, 2012, the Company had $28 million of trading assets and $27 million of securities sold, not yet purchased, compared with $40 million and $44 million, respectively, at the end of the prior year.

During the third quarter of 2012, the Company exited the business of trading corporate debt securities in preparation for the expected implementation of the Volcker Rule of the Dodd-Frank Act. We do not expect this change to have a material impact on the Company’s future earnings.

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 2012, the after-tax change in AOCI attributable to AFS and HTM securities was an increase of $149 million compared to a $93 million decrease in 2011. The decrease attributable to cash flow interest rate swaps was $8 million in 2012 and $21 million in 2011. If any of the AFS or HTM securities becomes other-than-temporarily impaired, the credit impairment is charged to operations. See “Investment Securities Portfolio” on page 49 for additional information on OTTI.

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.

The Company holds investments in pre-public companies through various venture capital funds. The Company’s equity exposure to these investments was approximately $56 million and $49 million at December 31, 2012 and 2011, respectively.

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. The carrying value of Amegy’s equity investments was $60 million and $71 million at December 31, 2012 and 2011, respectively.

At December 31, 2012 and 2011, the Company had a total remaining funding commitment of $32 million and $44

million, respectively, to SBIC, non-SBIC funds, and private equity investments. Of these commitments, approximately $22 million and $29 million, respectively, were at Amegy.

These private equity investments are subject to the provisions of the Dodd-Frank Act that prohibit bank holding company or bank investment in such funds, with limited exceptions. The Company is allowed to honor unfunded commitments made prior to the adoption of the Dodd-Frank Act, but is not allowed to make any new commitments to invest in private equity, except for SBIC funds. Therefore, 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.

Liquidity Risk Management

Overview

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.

Overseeing liquidity management is the responsibility of ALCO, which implements a Board-adopted corporate Liquidity and Funding Policy. This policy addresses maintaining adequate liquidity, diversifying funding positions, monitoring liquidity at consolidated as well as subsidiary bank levels, and anticipating future funding needs. The policy also includes liquidity ratio guidelines, for example, the “time to required funding” and fixed charges coverage ratios, that are used to monitor the liquidity positions of the Parent and bank subsidiaries, as well as various stress test and liquid asset measurements for the Parent and bank liquidity.

The management of liquidity and funding is performed centrally by Zions Bank’s Capital Markets/Investment Division under the direction of the Company’s Chief Investment Officer, with oversight by ALCO. The Chief Investment Officer is responsible for recommending changes to existing funding plans, as well as to the policy guidelines. These recommendations must be submitted for approval to ALCO. The subsidiary banks have authority to price deposits, borrow from their FHLB and the Federal Reserve, and sell/purchase Federal Funds to/from Zions Bank and/or correspondent banks. The banks may also make liquidity and funding recommendations to the Chief Investment Officer.

Contractual Obligations

Schedule 39 summarizes the Company’s contractual obligations at December 31, 2012.

Schedule 39

CONTRACTUAL OBLIGATIONS



(In millions)	One year or less		Over one year through three years		Over three years through five years		Over five years		Indeterminable maturity ¹		Total

Deposits	$	2,465	$	502	$	208	$	1	$	42,957	$	46,133
Commitments to extend credit	4,234		4,618		2,859		2,566				14,277
Standby letters of credit:
Financial	471		206		10		87				774
Performance	116		73		1						190
Commercial letters of credit	81		1				10				92
Commitments to make venture and other noninterest-bearing investments²	32										32
Securities sold, not yet purchased	27										27
Federal funds purchased and security repurchase agreements	320										320
Other short-term borrowings	5										5
Long-term debt ³	18		1,138		653		520				2,329
Operating leases, net of subleases	46		86		72		141				345
Unrecognized tax benefits, ASC 740	1		1								2
	$	7,816	$	6,625	$	3,803	$	3,325	$	42,957	$	64,526


¹	Indeterminable maturity deposits include noninterest-bearing demand, savings and money market, and non-time foreign.


²	Commitments to make venture and other noninterest-bearing investments do not have defined maturity dates. They have therefore been considered due on demand, maturing in one year or less.


³	The maturities on long-term borrowings do not include the associated hedges.

In addition to the commitments specifically noted in Schedule 39, the Company enters into a number of contractual commitments in the ordinary course of business. These include software licensing and maintenance, telecommunications services, facilities maintenance and equipment servicing, supplies purchasing, and other goods and services used in the operation of its business. Generally, these contracts are renewable or cancelable at least annually, although in some cases to secure favorable pricing concessions, the Company has committed to contracts that may extend to several years.

The Company also enters into derivative contracts under which it is required either to receive or pay cash, depending on changes in interest rates. These contracts are carried at fair value on the balance sheet with the fair value representing the net present value of the expected future cash receipts and payments based on market rates of interest as of the balance sheet date. The fair value of the contracts changes daily as interest rates change. See Note 7 of the Notes to Consolidated Financial Statements for further information on derivative contracts,.

Liquidity Management Actions

Consolidated cash and interest-bearing deposits held as investments at the Parent and its subsidiaries decreased to $7.8 billion at December 31, 2012 from $8.2 billion at December 31, 2011. The decrease during 2012 resulted from (1) the redemption of the $1.4 billion Series D Fixed-Rate Cumulative Perpetual Preferred Stock issued to the U.S. Department of the Treasury under its Troubled Asset Relief Program (“TARP”) Capital Purchase Program (“CPP”), (2) the payment of common and preferred dividends, (3) the purchase of additional security resell agreements and (4) the net funding of new loans. These decreases were partially offset by an increase in cash due to an increase in deposits, the issuance of long-term debt (net of repayments), and net cash provided by operating activities.

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,

including the TARP preferred stock until it was redeemed in September 2012. The Parent’s cash needs are usually met through dividends from its subsidiaries, interest and investment income, subsidiaries’ proportionate share of current income taxes, equity contributed through the exercise of stock options, and long-term debt and equity issuances.

During 2012, the Parent redeemed its $1.4 billion TARP preferred stock and purchased $575 million of security resell agreements. These uses of cash were partially offset by dividends received from its subsidiaries and the redemption of subsidiary preferred stock issued to the Parent. As a result of these capital actions, cash and interest-bearing deposits held as investments at the Parent decreased to $78 million at December 31, 2012 from $956 million at December 31, 2011.

During 2012, the Parent received common dividends totaling $181.6 million and preferred dividends totaling $65.0 million from its subsidiary banks, and common dividends totaling $55.4 million from nonbank subsidiaries. Also, the Parent received cash of $769.1 million from its subsidiary banks as a result of the redemption of preferred stock issued to the Parent. During 2011, the Parent received $181.9 million from bank and nonbank subsidiaries for common and preferred dividends and the redemption of preferred stock issued to the Parent. The dividends that our subsidiary banks can pay to the Parent are restricted by current and historical earning levels, retained earnings, and risk-based and other regulatory capital requirements and limitations. During 2012, all of the Company’s subsidiary banks, except TCBO, recorded a profit. We expect that this profitability will be sustained, thus permitting additional payments of dividends by the subsidiaries to the Parent, and/or returns of capital to the Parent during 2013. See Note 18 of the Notes to Consolidated Financial Statements for details of dividend capacities and limitations.

During 2012 and 2011, the Company has held the dividend on its common stock to $0.01 per share per quarter to conserve both capital and cash at the Parent.

During 2012, the Company adopted several new policy limits that govern liquidity risk. Most importantly, it adopted a target for the Parent’s time-to-required funding of 18-24 months, with a minimum policy limit of 12 months. As of December 31, 2012 and throughout 2012, the Company exceeded these policy limits.

General financial market and economic conditions impact the Company’s access to and cost of external financing and continued to improve during 2012. Access to funding markets for the Parent and subsidiary banks is also directly affected by the credit ratings they receive 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 2012 except for Moody’s senior debt rating which improved to Ba1 from Ba3, Moody’s subordinated debt rating which improved to Ba2 from B1, and Fitch’s outlook which improved to positive from stable. While Moody’s rates the Company’s senior debt as Ba1 or noninvestment grade, Standard & Poor’s, Fitch, Dominion Bond Rating Service (“DBRS”), and Kroll all rate the Company’s senior debt at a low investment grade level. In addition, all five rating agencies rate the Company’s subordinated debt as noninvestment grade.

Schedule 40 presents the Parent’s ratings as of December 31, 2012.

Schedule 40

CREDIT RATINGS



Rating agency	Outlook	Long-term issuer/senior debt rating	Subordinated debt rating

S&P	Negative	BBB-	BB+
Moody’s	Stable	Ba1	Ba2
Fitch	Positive	BBB-	BB+
DBRS	Stable	BBB (low)	BB (high)
Kroll	Stable	BBB	BBB-

During 2012, the primary sources of additional cash to the Parent in the capital markets were (1) $598 million issuance of four- to five-year unsecured senior notes; proceeds net of commissions, fees and discounts were $573 million, (2) $185 million issuance of one- to seven-year unsecured senior notes and (3) $144 million issuance of Series F 7.9% Fixed-Rate Non-Cumulative Perpetual Preferred Stock. The coupon interest rates and the yield-to-maturity interest rates at the time of issuance for the four- to five-year notes are summarized in Schedule 41.

Schedule 41

4-5 YEAR SENIOR NOTES



(Amounts in millions)
Senior notes issued		Coupon interest rate		Yield-to-maturity at issuance date

$	300	4.50	%	5.84	%
100		4.50		4.44
158		4.00		4.69
20		4.00		3.86
20		4.00		3.75
$	598

Primary uses of cash in the capital markets for the Parent during 2012 were the (1) redemption of $1.4 billion of TARP preferred stock, (2) redemption of $143 million Series E 11.0% preferred stock, (3) repayment of $255 million variable rate senior notes that were guaranteed under the FDIC’s Temporary Liquidity Guarantee Program, and (4) repayment of $184 million of medium-term senior notes with coupon interest rates ranging from 2.00% to 5.00%.

During 2012 and 2011, the Parent’s operating expenses included cash payments for interest of approximately $124 million and $127 million, respectively. Additionally, the Parent paid approximately $134 million and $156 million of dividends on preferred stock and common stock, respectively, for the same periods. Preferred stock dividends decreased in 2012 as a result of the redemption of the $1.4 billion TARP preferred stock and the replacement of the 11.0% Series E preferred stock with the 7.9% Series F preferred stock.

The Company’s cash receipts from subsidiaries and investments covered the Parent’s interest and dividend payments during 2012 and are expected to cover them in 2013. Note 23 of the Notes to Consolidated Financial Statements contains the Parent’s statements of income and cash flows for 2012, 2011 and 2010, as well as its balance sheets at December 31, 2012 and 2011.

Repayments of short-term borrowings by the Parent exceeded new issuances, which resulted in net cash outflows of $111 million during 2012.

At December 31, 2012, maturities of the Company’s long-term senior and subordinated debt ranged from February 2013 to November 2019, with interest rates from 2.0% to 7.75%.

See Note 12 of the Notes to Consolidated Financial Statements for a complete summary of the Company’s long-term debt.

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 December 31, 2012, these core deposits, excluding brokered deposits, in aggregate, constituted 96.6% of consolidated deposits, compared with 95.4% at December 31, 2011. On a consolidated basis, the Company’s net loan to total deposit ratio is at a recent historical low of 81.6% as of December 31, 2012, compared to 86.9% as of December 31, 2011.

Total deposits increased by $3.3 billion during 2012 mainly due to increases of $2.4 billion in noninterest-bearing demand deposits and $1.1 billion in savings and money market deposits, partly offset by a decrease of $451 million

in time deposits. Also, during 2012, the subsidiary banks’ investment in security resell agreements increased by $2.1 billion, at least partially funded by this significant increase in deposits.

The FDIC rule providing temporary unlimited insurance coverage for noninterest-bearing transaction accounts at all FDIC-insured depository institutions expired on December 31, 2012. Deposits held in noninterest-bearing transaction accounts are now aggregated with any interest-bearing deposits the owner may hold, and the combined total is insured up to $250,000.

The FHLB system and Federal Reserve Banks have been and are a source of back-up liquidity, and from time to time, a significant source of funding and back-up liquidity for each of the Company’s subsidiary banks. Zions Bank, TCBW, and TCBO are members of the FHLB of Seattle. CB&T, NSB, and NBA 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 requirements. The subsidiary banks are required to invest in FHLB stock to maintain their borrowing capacity. At December 31, 2012, the amount available for additional FHLB and Federal Reserve borrowings was approximately $14.4 billion. Loans with a carrying value of approximately $21.1 billion at both December 31, 2012 and 2011 have been pledged at the Federal Reserve and various FHLBs as collateral for current and potential borrowings. At December 31, 2012 the Company had a de minimus amount of long-term borrowings outstanding with the FHLB – approximately $23 million, which decreased slightly from $24 million at December 31, 2011. At December 31, 2012 and December 31, 2011, the subsidiary banks’ total investment in FHLB stock was approximately $109 million and $116 million, respectively.

The Company’s investment activities can provide or use cash, depending on the asset-liability management posture that is taken. During 2012, investment securities’ activities resulted in a decrease in investment securities holdings and a net increase of cash in the amount of $322 million.

Maturing balances in our subsidiary banks’ loan portfolios also provide additional flexibility in managing cash flows. Lending activity for 2012 resulted in a net cash outflow of $0.8 billion compared to a net cash outflow of $1.2 billion for 2011.

During 2012, the Company paid income taxes of $183 million compared to $4 million during 2011.

Operational Risk Management

Operational risk is the potential for unexpected losses attributable to human error, systems failures, fraud, or inadequate internal controls and procedures. In its ongoing efforts to identify and manage operational risk, the Company has a Corporate Risk Management Department whose responsibility is to help management identify and assess key risks and monitor the key internal controls and processes that the Company has in place to mitigate operational risk. We have documented 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 operating 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. In addition, 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 operations support in the event of natural or other disasters.

Efforts are continually underway to improve the Company’s oversight of operational risk, including enhancement of risk-control self assessments and antifraud measures, which are reported to the Enterprise Risk Management Committee and to the Risk Oversight Committee of the Board. We also mitigate operational risk through the

purchase of insurance, including errors and omissions and professional liability insurance. However, 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 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

The Board of Directors is responsible for approving the policies associated with capital management. The Board has established the Capital Management Committee (“CMC”) whose primary responsibility is to recommend and administer the approved capital policies that govern the capital management of the Company and its subsidiary banks. Other major CMC responsibilities include:


•	Setting overall capital targets within the Board-approved capital policy, monitoring performance compared to the firm’s risk appetite/risk capacity, and recommending changes to capital including dividends, common stock repurchases, subordinated debt, or to major strategies to maintain the Company and its bank subsidiaries at well capitalized levels;


•	Maintaining an adequate capital cushion to withstand adverse stress events while continuing to meet the lending needs of its customers, and to provide reasonable assurance of continued access to wholesale funding, consistent with fiduciary responsibilities to depositors and bondholders; and


•	Reviewing agency ratings of the Parent and its bank subsidiaries and establishing target ratings.

The Company has a fundamental financial objective to consistently produce superior risk-adjusted returns on its shareholders’ capital. We believe that a strong capital position is vital to continued profitability and to promoting depositor and investor confidence. Specifically, it is the policy of the Parent and each of the subsidiary banks to:


•	Maintain sufficient capital as defined by federal banking regulators to support current needs and to ensure that capital is available to support anticipated growth, see Note 18 of the Notes to Consolidated Financial Statements for additional information on capital;


•	Take into account the desirability of receiving an “investment grade” rating from major debt rating agencies on senior and subordinated unsecured debt when setting capital levels;


•	Develop capabilities to measure and manage capital on a risk-adjusted basis; and


•	Return excess capital to shareholders through dividends and repurchases of common stock.

In addition, the CMC oversees the Company’s capital stress testing under a variety of adverse economic and market scenarios. The Company has established processes to periodically conduct stress tests to evaluate potential impacts to the Company under hypothetical economic scenarios. These stress tests facilitate our contingency planning and management of capital and liquidity including quantitative limits reflecting the Board of Directors’ risk appetite. These processes are also used to conduct the stress testing required by the Federal Reserve as part of the Company’s Capital Plan Review process.

Filing a Capital Plan with the Federal Reserve based on stress-testing, and documented sound policies, processes, models and governance practices, and the subsequent review by the Federal Reserve, is an annual regulatory requirement. This Capital Plan, which is subject to objection by the Federal Reserve, governs all of the Company’s capital and significant unsecured debt financing actions for a period of five quarters. Among the actions governed by the Capital Plan are the repurchase of outstanding capital securities and the timing of new capital issuances, and whether the Company can pay or increase dividends. Any such action not included in a Capital Plan to which the Federal Reserve has not objected cannot be executed, without submission of a revised stress test and Capital Plan

for Federal Reserve review and non-objection; de minimus changes are allowed without a complete Plan resubmission, subject to receipt of a Federal Reserve non-objection. Additionally, the Federal Reserve has proposed regulations requiring future results of these stress tests to be disclosed, which may influence bank regulatory supervisory requirements concerning the Company and impact the amount or timing of dividends or distributions to the Company’s shareholders. The Company submitted its 2013 Capital Plan to the Federal Reserve on January 7, 2013, and does not expect to receive a non-objection/objection decision from the Federal Reserve until mid-March.

Controlling interest shareholders’ equity decreased by 13.4% from $7.0 billion at December 31, 2011 to $6.1 billion at December 31, 2012. The decrease in controlling interest shareholders’ equity from December 31, 2011 is primarily due to the redemption of the $1.4 billion of TARP preferred stock and $133.6 million of dividends paid on preferred and common stock, partially offset by $349.5 million of net income applicable to controlling interest, $89.6 million of convertible subordinated debt converted to preferred stock, and $148.8 million improvement in net unrealized losses on investment securities recorded in AOCI. The Company redeemed its TARP preferred stock in two installments of $700 million each on March 28, 2012 and September 26, 2012. The improvement in net unrealized losses on investment securities in 2012 was primarily a result of improvement in the discount rates on riskier assets and favorable changes in certain CDO tranche collateralization levels and the recognition of OTTI in the statement of income.

Note 18 of the Notes to Consolidated Financial Statements provides additional information on risk-based capital. In addition, “Liquidity Risk Management” on page 83 and Notes 12 and 13 of the Notes to Consolidated Financial Statements discuss the Company’s debt and equity transactions during 2012.

The Company paid $7.4 million in dividends on common stock in both 2012 and 2011. The dividends paid per share of $0.01 each quarter in 2012 were unchanged from the rate paid since the third quarter of 2009.

The Company recorded preferred stock dividends of $170.9 million and $170.4 million during 2012 and 2011, respectively. Preferred dividends for 2012 and 2011 include $79.1 million and $91.6 million, respectively, related to the TARP preferred stock, consisting of cash payments of $34.4 million and $70.0 million in 2012 and 2011, respectively, and accretion of $44.7 million and $21.6 million in 2012 and 2011, respectively, for the difference between the fair value and par amount of the TARP preferred stock when issued.

Conversions of convertible subordinated debt into preferred stock have augmented the Company’s capital position and reduced future debt refinancing needs. From the original modification in June 2009 through December 31, 2012, $752 million of debt has been extinguished and $878 million of preferred capital has been added as a result of these conversions. Schedule 42 shows the effect the conversions have had on Tier 1 capital and outstanding convertible subordinated debt.

Schedule 42

IMPACT OF CONVERTIBLE SUBORDINATED DEBT



	Year Ended December 31,
(In millions)	2012			2011			2010
Preferred equity:
Convertible subordinated debt converted to preferred stock	$	90		$	256		$	343
Beneficial conversion feature reclassified from common to preferred stock	15			43			57
Change in preferred equity	105			299			400

Common equity:
Accelerated convertible subordinated debt discount amortization, net of tax	(26		)	(94		)	(148		)
Beneficial conversion feature reclassified from common to preferred stock	(15		)	(43		)	(57		)
Change in common equity	(41		)	(137		)	(205		)

Net impact on Tier 1 capital	$	64		$	162		$	195

Convertible subordinated debt outstanding	$	458		$	547		$	803

As of December 31, 2012 and 2011 our preferred stock balance included $126 million and $111 million, respectively, related to the beneficial conversion feature. As shown in Schedule 42, a portion of the beneficial conversion feature is reclassified from common stock to preferred stock upon each conversion of convertible subordinated debt into preferred stock. In the event that the Series C preferred stock were to be redeemed, the $126 million would be reclassified into common equity. Note 13 of the Notes to Consolidated Financial Statements contains further information related to the beneficial conversion feature.

On May 7, 2012, the Company issued $143.75 million of a new series of Tier 1 Capital qualifying perpetual preferred stock at a dividend of 7.9%. The proceeds were used to redeem all outstanding shares of its Series E fixed-rate resettable non-cumulative perpetual preferred stock on June 15, 2012. The Series E securities had an aggregate par amount of $142.5 million and current dividend of 11.0%. The issuance of the new Series F preferred stock and redemption of the Series E preferred stock will reduce preferred stock dividends paid by the Company by approximately $4.3 million per year.

Banking organizations are required by capital regulations to maintain capital levels in excess of certain minimum standards as measured by several regulatory capital ratios. The Company’s capital ratios as of December 31, 2012 are shown in Schedule 43. The Company is in compliance with all currently applicable capital requirements.

Schedule 43

CAPITAL AND PERFORMANCE RATIOS



	December 31,
	2012		2011		2010

Tangible common equity ratio	7.09	%	6.77	%	6.99	%
Tangible equity ratio	9.15	%	11.33	%	11.10	%
Average equity to average assets	12.22	%	13.36	%	11.99	%
Risk-based capital ratios:
Common equity Tier 1	9.80	%	9.57	%	8.95	%
Tier 1 leverage	10.96	%	13.40	%	12.56	%
Tier 1 risk-based	13.38	%	16.13	%	14.78	%
Total risk-based	15.05	%	18.06	%	17.15	%

Return on average common equity	3.76	%	3.32	%	(9.26	)%
Tangible return on average tangible common equity	5.18	%	4.72	%	(11.89	)%

At December 31, 2012, regulatory Tier 1 risk-based capital and total risk-based capital were $5,884 million and $6,617 million, respectively, compared to $6,946 million and $7,780 million at December 31, 2011.

In June 2012, the FRB, OCC, and FDIC (collectively, the Agencies) each issued Notices of Proposed Rulemaking (“NPRs”) that would revise and replace the Agencies’ current regulatory capital rules to align with the June 2011 Bank for International Settlements regulatory framework, commonly referred to as Basel III. These capital standards meet certain requirements of the Dodd-Frank Act. Requirements included in the proposed NPRs would establish more restrictive capital definitions, higher risk-weightings for certain asset classes, capital buffers, higher minimum capital ratios, and new “prompt corrective action” triggers and restrictions. The revisions include revised methodologies for determining risk-weighted assets for residential mortgages, unused loan commitments, securitization exposures, nonperforming assets, and counterparty credit risk. We are currently evaluating the impact of the proposed NPRs on our regulatory capital ratios. While uncertainty exist as to the final form of the U.S. rules implementing the Basel III capital framework, we expect to meet the final requirements adopted by U.S. banking regulators within regulatory timelines.

Subsequent to December 31, 2012, the Company expects to execute several capital actions that should significantly reduce the cost of its capital and financing structure. On February 4, 2013, the Company filed a prospectus supplement for the issuance of $172 million of its fixed/floating rate (6.30% for the first ten years) Series G Preferred Stock, redeemable on March 15, 2023.

GAAP to NON-GAAP RECONCILIATIONS

1. Common equity Tier 1 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. Regulators have begun supplementing their assessment of the capital adequacy of a bank based on a variation of Tier 1 capital, known as common equity Tier 1 capital. The common equity Tier 1 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 common equity Tier 1 capital and those definitions using Basel III rules when fully phased in (which have not yet been formalized in regulation). The common equity Tier 1 risk-based capital ratios in Schedule 43 use the current Basel I definitions for determining the numerator. Because common equity Tier 1 capital is not formally defined by GAAP or codified in the federal banking regulations, this measure is considered to be a non-GAAP financial measure and other entities may calculate them differently than the Company’s disclosed calculations. Since banking regulators, investors and analysts may assess the Company’s capital adequacy using common equity Tier 1 capital, we believe it is useful to provide them the ability to assess the Company’s capital adequacy on this same basis.

Common equity Tier 1 capital is often expressed as a percentage of risk-weighted assets. Under the current risk-based capital framework, 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 banking subsidiaries, 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 common equity Tier 1 capital. Common equity Tier 1 capital is also divided by the risk-weighted assets to determine the common equity Tier 1 capital ratio. The amounts disclosed as risk-weighted assets are calculated consistent with banking regulatory requirements.

Schedule 44 provides a reconciliation of controlling interest shareholders’ equity (GAAP) to Tier 1 capital (regulatory) and to common equity Tier 1 capital (non-GAAP) using current U.S. regulatory treatment and not proposed Basel III calculations.

Schedule 44

COMMON EQUITY TIER 1 CAPITAL (NON-GAAP)



	December 31,
(Amounts in millions)	2012			2011			2010

Controlling interest shareholders’ equity (GAAP)	$	6,052		$	6,985		$	6,648
Accumulated other comprehensive loss (income)	446			592			461
Nonqualifying goodwill and intangibles	(1,065		)	(1,083		)	(1,103		)
Disallowed deferred tax assets	—			—			(106		)
Other regulatory adjustments	3			4			2
Qualifying trust preferred securities	448			448			448
Tier 1 capital (regulatory)	5,884			6,946			6,350
Qualifying trust preferred securities	(448		)	(448		)	(448		)
Preferred stock	(1,128		)	(2,377		)	(2,057		)
Common equity Tier 1 capital (non-GAAP)	$	4,308		$	4,121		$	3,845
Risk-weighted assets (regulatory)	$	43,970		$	43,077		$	42,950
Common equity Tier 1 capital to risk-weighted assets (non-GAAP)	9.80		%	9.57		%	8.95		%

2. Income (loss) before income taxes and subordinated debt conversions

This Annual Report on Form 10-K presents “income (loss) before income taxes and subordinated debt conversions” which excludes the effects of the (1) periodic discount amortization on convertible subordinated debt and (2) accelerated discount amortization on convertible subordinated debt which has been converted.

Schedule 2 provides a reconciliation of income (loss) before income taxes (GAAP) to income (loss) before income taxes and subordinated debt conversions (non-GAAP).

3. Tangible return on average tangible common equity

This Annual Report on Form 10-K 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.

Schedule 45 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).

Schedule 45

TANGIBLE RETURN ON AVERAGE TANGIBLE COMMON EQUITY (NON-GAAP)



	Year Ended December 31,
(Amounts in millions)	2012			2011			2010

Net earnings (loss) applicable to common shareholders (GAAP)	$	178.6		$	153.4		$	(412.5	)
Adjustments, net of tax:
Impairment loss on goodwill	0.6			—			—
Amortization of core deposit and other intangibles	10.8			12.7			16.0
Net earnings (loss) applicable to common shareholders, excluding the effects of the adjustments, net of tax (non-GAAP) (a)	$	190.0		$	166.1		$	(396.5	)

Average common equity (GAAP)	$	4,745		$	4,614		$	4,452
Average goodwill	(1,015		)	(1,015		)	(1,015		)
Average core deposit and other intangibles	(59		)	(77		)	(101		)
Average tangible common equity (non-GAAP) (b)	$	3,671		$	3,522		$	3,336
Tangible return on average tangible common equity (non-GAAP) (a/b)	5.18		%	4.72		%	(11.89		)%

4. Total shareholders’ equity to tangible equity and tangible common equity

This Annual Report on Form 10-K 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.

Schedule 46 provides a reconciliation of total shareholders’ equity (GAAP) to both tangible equity (non-GAAP) and tangible common equity (non-GAAP).

Schedule 46

TANGIBLE EQUITY (NON-GAAP) AND TANGIBLE COMMON EQUITY (NON-GAAP)



(Amounts in millions)	December 31,
	2012			2011			2010
Total shareholders’ equity (GAAP)	$	6,049		$	6,983		$	6,647
Goodwill	(1,014		)	(1,015		)	(1,015		)
Core deposit and other intangibles	(51		)	(68		)	(88		)
Tangible equity (non-GAAP) (a)	4,984			5,900			5,544
Preferred stock	(1,128		)	(2,377		)	(2,057		)
Noncontrolling interests	3			2			1
Tangible common equity (non-GAAP) (b)	$	3,859		$	3,525		$	3,488
Total assets (GAAP)	$	55,512		$	53,149		$	51,035
Goodwill	(1,014		)	(1,015		)	(1,015		)
Core deposit and other intangibles	(51		)	(68		)	(88		)
Tangible assets (non-GAAP) (c)	$	54,447		$	52,066		$	49,932
Tangible equity ratio (a/c)	9.15		%	11.33		%	11.10		%
Tangible common equity ratio (b/c)	7.09		%	6.77		%	6.99		%

For items 2, 3 and 4, 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 7A. QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK

Information required by this Item is included in “Interest Rate and Market Risk Management” in MD&A beginning on page 78 and is hereby incorporated by reference.

Table of Contents

ITEM 8. FINANCIAL STATEMENTS AND SUPPLEMENTARY DATA

REPORT ON MANAGEMENT’S ASSESSMENT OF INTERNAL CONTROL OVER FINANCIAL REPORTING

The management of Zions Bancorporation and subsidiaries (“the Company”) is responsible for establishing and maintaining adequate internal control over financial reporting for the Company as defined by Exchange Act Rules 13a-15 and 15d-15.

The Company’s management has used the criteria established in Internal Control – Integrated Framework issued by the Committee of Sponsoring Organizations of the Treadway Commission (“COSO”) to evaluate the effectiveness of the Company's internal control over financial reporting.

The Company’s management has assessed the effectiveness of the Company’s internal control over financial reporting as of December 31, 2012 and has concluded that such internal control over financial reporting is effective. There are no material weaknesses in the Company’s internal control over financial reporting that have been identified by the Company’s management.

Ernst & Young LLP, an independent registered public accounting firm, has audited the consolidated financial statements of the Company for the year ended December 31, 2012 and has also issued an attestation report, which is included herein, on internal control over financial reporting under Auditing Standard No. 5 of the Public Company Accounting Oversight Board (“PCAOB”).

REPORTS OF INDEPENDENT REGISTERED PUBLIC ACCOUNTING FIRM

REPORT ON INTERNAL CONTROL OVER FINANCIAL REPORTING

Audit Committee of the Board of Directors and Shareholders of Zions Bancorporation and Subsidiaries

We have audited Zions Bancorporation and subsidiaries' internal control over financial reporting as of December 31, 2012, based on criteria established in Internal Control – Integrated Framework issued by the Committee of Sponsoring Organizations of the Treadway Commission (the COSO criteria). Zions Bancorporation and subsidiaries' management is responsible for maintaining effective internal control over financial reporting, and for its assessment of the effectiveness of internal control over financial reporting included in the accompanying Report on Management's Assessment of Internal Control over Financial Reporting. Our responsibility is to express an opinion on the company's internal control over financial reporting based on our audit.

We conducted our audit in accordance with the standards of the Public Company Accounting Oversight Board (United States). Those standards require that we plan and perform the audit to obtain reasonable assurance about whether effective internal control over financial reporting was maintained in all material respects. Our audit included obtaining an understanding of internal control over financial reporting, assessing the risk that a material weakness exists, testing and evaluating the design and operating effectiveness of internal control based on the assessed risk, and performing such other procedures as we considered necessary in the circumstances. We believe that our audit provides a reasonable basis for our opinion.

A company's internal control over financial reporting is a process designed to provide reasonable assurance regarding the reliability of financial reporting and the preparation of financial statements for external purposes in accordance with generally accepted accounting principles. A company's internal control over financial reporting includes those policies and procedures that (1) pertain to the maintenance of records that, in reasonable detail, accurately and fairly reflect the transactions and dispositions of the assets of the company; (2) provide reasonable assurance that transactions are recorded as necessary to permit preparation of financial statements in accordance with generally accepted accounting principles, and that receipts and expenditures of the company are being made only in accordance with authorizations of management and directors of the company; and (3) provide reasonable assurance regarding prevention or timely detection of unauthorized acquisition, use or disposition of the company's assets that could have a material effect on the financial statements.

Because of its inherent limitations, internal control over financial reporting may not prevent or detect misstatements. Also, projections of any evaluation of effectiveness to future periods are subject to the risk that controls may become inadequate because of changes in conditions, or that the degree of compliance with the policies or procedures may deteriorate.

In our opinion, Zions Bancorporation and subsidiaries maintained, in all material respects, effective internal control over financial reporting as of December 31, 2012, based on the COSO criteria.

We also have audited, in accordance with the standards of the Public Company Accounting Oversight Board (United States), the consolidated balance sheets of Zions Bancorporation and subsidiaries as of December 31, 2012 and 2011 and the related consolidated statements of income and comprehensive income, changes in shareholders' equity, and cash flows for each of the three years in the period ended December 31, 2012 of Zions Bancorporation and subsidiaries and our report dated February 28, 2013 expressed an unqualified opinion thereon.

/s/ Ernst & Young LLP

Salt Lake City, Utah

February 28, 2013

REPORT ON CONSOLIDATED FINANCIAL STATEMENTS

Audit Committee of the Board of Directors and Shareholders of Zions Bancorporation and Subsidiaries

We have audited the accompanying consolidated balance sheets of Zions Bancorporation and subsidiaries as of December 31, 2012 and 2011, and the related consolidated statements of income and comprehensive income, changes in shareholders' equity, and cash flows for each of the three years in the period ended December 31, 2012. These financial statements are the responsibility of the Company's management. Our responsibility is to express an opinion on these financial statements based on our audits.

We conducted our audits in accordance with the standards of the Public Company Accounting Oversight Board (United States). Those standards require that we plan and perform the audit to obtain reasonable assurance about whether the financial statements are free of material misstatement. An audit includes examining, on a test basis, evidence supporting the amounts and disclosures in the financial statements. An audit also includes assessing the accounting principles used and significant estimates made by management, as well as evaluating the overall financial statement presentation. We believe that our audits provide a reasonable basis for our opinion.

In our opinion, the financial statements referred to above present fairly, in all material respects, the consolidated financial position of Zions Bancorporation and subsidiaries at December 31, 2012 and 2011, and the consolidated results of their operations and their cash flows for each of the three years in the period ended December 31, 2012, in conformity with U.S. generally accepted accounting principles.

We also have audited, in accordance with the standards of the Public Company Accounting Oversight Board (United States), Zions Bancorporation and subsidiaries' internal control over financial reporting as of December 31, 2012, based on criteria established in Internal Control – Integrated Framework issued by the Committee of Sponsoring Organizations of the Treadway Commission and our report dated February 28, 2013 expressed an unqualified opinion thereon.

/s/ Ernst & Young LLP

Salt Lake City, Utah

February 28, 2013

ZIONS BANCORPORATION AND SUBSIDIARIES CONSOLIDATED BALANCE SHEETS

(In thousands, except share amounts)	December 31,
	2012			2011
ASSETS
Cash and due from banks	$	1,841,907		$	1,224,350
Money market investments:
Interest-bearing deposits	5,978,978			7,020,895
Federal funds sold and security resell agreements	2,775,354			102,159
Investment securities:
Held-to-maturity, at adjusted cost (approximate fair value $674,741 and $729,974)	756,909			807,804
Available-for-sale, at fair value	3,091,310			3,230,795
Trading account, at fair value	28,290			40,273
	3,876,509			4,078,872

Loans held for sale	251,651			201,590
Loans, net of unearned income and fees:
Loans and leases	37,137,006			36,507,039
FDIC-supported loans	528,241			750,870
	37,665,247			37,257,909
Less allowance for loan losses	896,087			1,051,685
Loans, net of allowance	36,769,160			36,206,224

Other noninterest-bearing investments	855,462			865,231
Premises and equipment, net	708,882			719,276
Goodwill	1,014,129			1,015,129
Core deposit and other intangibles	50,818			67,830
Other real estate owned	98,151			153,178
Other assets	1,290,917			1,494,375
	$	55,511,918		$	53,149,109

LIABILITIES AND SHAREHOLDERS’ EQUITY
Deposits:
Noninterest-bearing demand	$	18,469,458		$	16,110,857
Interest-bearing:
Savings and money market	22,896,624			21,775,841
Time	2,962,931			3,413,550
Foreign	1,804,060			1,575,361
	46,133,073			42,875,609
Securities sold, not yet purchased	26,735			44,486
Federal funds purchased and security repurchase agreements	320,478			608,098
Other short-term borrowings	5,409			70,273
Long-term debt	2,337,113			1,954,462
Reserve for unfunded lending commitments	106,809			102,422
Other liabilities	533,660			510,531
Total liabilities	49,463,277			46,165,881

Shareholders’ equity:
Preferred stock, without par value, authorized 4,400,000 shares	1,128,302			2,377,560
Common stock, without par value; authorized 350,000,000 shares; issued and outstanding 184,199,198 and 184,135,388 shares	4,166,109			4,163,242
Retained earnings	1,203,815			1,036,590
Accumulated other comprehensive income (loss)	(446,157		)	(592,084		)
Controlling interest shareholders’ equity	6,052,069			6,985,308
Noncontrolling interests	(3,428		)	(2,080		)
Total shareholders’ equity	6,048,641			6,983,228
	$	55,511,918		$	53,149,109

See accompanying notes to consolidated financial statements.

ZIONS BANCORPORATION AND SUBSIDIARIES CONSOLIDATED STATEMENTS OF INCOME

(In thousands, except per share amounts)	Year Ended December 31,
	2012			2011			2010
Interest income:
Interest and fees on loans	$	1,889,884		$	2,049,928		$	2,172,093
Interest on money market investments	21,080			13,832			10,946
Interest on securities:
Held-to-maturity	34,751			35,716			33,405
Available-for-sale	92,261			87,105			88,035
Trading account	746			2,000			2,220
Total interest income	2,038,722			2,188,581			2,306,699
Interest expense:
Interest on deposits	80,146			128,479			196,112
Interest on short-term borrowings	1,406			6,685			12,561
Interest on long-term debt	225,230			297,232			383,783
Total interest expense	306,782			432,396			592,456
Net interest income	1,731,940			1,756,185			1,714,243
Provision for loan losses	14,227			74,532			852,693
Net interest income after provision for loan losses	1,717,713			1,681,653			861,550
Noninterest income:
Service charges and fees on deposit accounts	176,401			174,435			199,748
Other service charges, commissions and fees	174,420			185,836			178,487
Trust and wealth management income	28,402			26,683			27,452
Capital markets and foreign exchange	26,810			31,407			37,636
Dividends and other investment income	55,825			42,428			33,074
Loan sales and servicing income	39,929			28,072			29,382
Fair value and nonhedge derivative loss	(21,782		)	(4,980		)	(15,827		)
Equity securities gains (losses), net	11,253			6,511			(5,993		)
Fixed income securities gains, net	19,544			11,868			11,055
Impairment losses on investment securities:
Impairment losses on investment securities	(166,257		)	(77,325		)	(156,452		)
Noncredit-related losses on securities not expected to be sold (recognized in other comprehensive income)	62,196			43,642			71,097
Net impairment losses on investment securities	(104,061		)	(33,683		)	(85,355		)
Gain on subordinated debt exchange	—			—			14,471
Other	13,129			29,607			29,478
Total noninterest income	419,870			498,184			453,608
Noninterest expense:
Salaries and employee benefits	885,661			874,293			825,344
Occupancy, net	112,947			112,537			113,559
Furniture and equipment	108,990			105,703			101,061
Other real estate expense	19,723			77,570			144,815
Credit-related expense	50,518			61,629			71,205
Provision for unfunded lending commitments	4,387			(9,286		)	(4,737		)
Legal and professional services	52,509			38,992			39,540
Advertising	25,720			27,164			24,820
FDIC premiums	43,401			63,918			101,990
Amortization of core deposit and other intangibles	17,010			20,070			25,517
Other	275,151			285,974			275,212
Total noninterest expense	1,596,017			1,658,564			1,718,326
Income (loss) before income taxes	541,566			521,273			(403,168		)
Income taxes (benefit)	193,416			198,583			(106,819		)
Net income (loss)	348,150			322,690			(296,349		)
Net loss applicable to noncontrolling interests	(1,366		)	(1,114		)	(3,621		)
Net income (loss) applicable to controlling interest	349,516			323,804			(292,728		)
Preferred stock dividends	(170,885		)	(170,414		)	(122,884		)
Preferred stock redemption	—			—			3,107
Net earnings (loss) applicable to common shareholders	$	178,631		$	153,390		$	(412,505	)
Weighted average common shares outstanding during the year:
Basic shares	183,081			182,393			166,054
Diluted shares	183,236			182,605			166,054
Net earnings (loss) per common share:
Basic	$	0.97		$	0.83		$	(2.48	)
Diluted	0.97			0.83			(2.48		)

See accompanying notes to consolidated financial statements.

ZIONS BANCORPORATION AND SUBSIDIARIES CONSOLIDATED STATEMENTS OF COMPREHENSIVE INCOME

(In thousands)	Year Ended December 31,
(In thousands)	2012			2011			2010

Net income (loss)	$	348,150		$	322,690		$	(296,349	)
Other comprehensive income (loss), net of tax:
Net realized and unrealized holding gains (losses) on investments	129,330			(77,280		)	4,248
Reclassification for net losses on investments included in earnings	51,360			12,852			45,689
Noncredit-related impairment losses on securities not expected to be sold	(38,406		)	(26,481		)	(43,920		)
Accretion of securities with noncredit-related impairment losses not expected to be sold	6,863			410			131
Net unrealized losses on derivative instruments	(7,610		)	(21,298		)	(37,357		)
Pension and postretirement	4,390			(18,991		)	6,812
Other comprehensive income (loss)	145,927			(130,788		)	(24,397		)
Comprehensive income (loss)	494,077			191,902			(320,746		)
Comprehensive loss applicable to noncontrolling interests	(1,366		)	(1,114		)	(3,621		)
Comprehensive income (loss) applicable to controlling interest	$	495,443		$	193,016		$	(317,125	)

See accompanying notes to consolidated financial statements.

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

(In thousands, except share and per share amounts)	Preferred stock			Common stock				Retained earnings			Accumulated other comprehensive income (loss)				Noncontrolling interests				Total shareholders’ equity
(In thousands, except share and per share amounts)	Preferred stock			Shares	Amount			Retained earnings			Accumulated other comprehensive income (loss)				Noncontrolling interests				Total shareholders’ equity

Balance at December 31, 2009	$	1,502,784		150,425,070	$	3,318,417		$	1,308,356			$	(436,899	)		$	17,599		$	5,710,257
Net loss								(292,728		)						(3,621		)	(296,349		)
Other comprehensive loss, net of tax												(24,397		)					(24,397		)
Subordinated debt converted to preferred stock	399,785				(56,834		)												342,951
Issuance of preferred stock	142,500				(3,843		)												138,657
Preferred stock exchanged for common stock	(8,615		)	224,903	5,508			3,107											—
Issuance of common stock warrants					214,563														214,563
Subordinated debt exchanged for common stock				2,165,391	46,902														46,902
Issuance of common stock				29,553,957	623,469														623,469
Net activity under employee plans and related tax benefits				414,765	15,437														15,437
Dividends on preferred stock	20,218							(122,884		)									(102,666		)
Dividends on common stock, $0.04 per share								(6,650		)									(6,650		)
Change in deferred compensation								83											83
Other changes in noncontrolling interests																(15,043		)	(15,043		)
Balance at December 31, 2010	2,056,672			182,784,086	4,163,619			889,284				(461,296		)		(1,065		)	6,647,214
Net income (loss)								323,804								(1,114		)	322,690
Other comprehensive loss, net of tax												(130,788		)					(130,788		)
Subordinated debt converted to preferred stock	299,248				(43,139		)												256,109
Issuance of common stock				1,067,540	25,048														25,048
Net activity under employee plans and related tax benefits				283,762	17,714														17,714
Dividends on preferred stock	21,640							(170,414		)									(148,774		)
Dividends on common stock, $0.04 per share								(7,361		)									(7,361		)
Change in deferred compensation								1,277											1,277
Other changes in noncontrolling interests																99			99
Balance at December 31, 2011	2,377,560			184,135,388	4,163,242			1,036,590				(592,084		)		(2,080		)	6,983,228
Net income (loss)								349,516								(1,366		)	348,150
Other comprehensive income, net of tax												145,927							145,927
Issuance of preferred stock	143,750				(2,408		)												141,342
Preferred stock redemption	(1,542,500		)		3,830			(3,830		)									(1,542,500		)
Subordinated debt converted to preferred stock	104,796				(15,232		)												89,564
Net activity under employee plans and related tax benefits				63,810	16,677														16,677
Dividends on preferred stock	44,696							(170,885		)									(126,189		)
Dividends on common stock, $0.04 per share								(7,392		)									(7,392		)
Change in deferred compensation								(184		)									(184		)
Other changes in noncontrolling interests																18			18
Balance at December 31, 2012	$	1,128,302		184,199,198	$	4,166,109		$	1,203,815			$	(446,157	)		$	(3,428	)	$	6,048,641

See accompanying notes to consolidated financial statements.

100

ZIONS BANCORPORATION AND SUBSIDIARIES CONSOLIDATED STATEMENTS OF CASH FLOWS

(In thousands)	Year Ended December 31,
	2012			2011			2010
CASH FLOWS FROM OPERATING ACTIVITIES
Net income (loss)	$	348,150		$	322,690		$	(296,349	)
Adjustments to reconcile net income (loss) to net cash provided by operating activities:
Net impairment losses on investment securities, goodwill, and long-lived assets	106,545			35,686			87,105
Gain on subordinated debt exchanged for common stock	—			—			(14,471		)
Gains on divestitures	(2,510		)	—			(13,703		)
Provision for credit losses	18,614			65,246			847,956
Depreciation and amortization	214,617			299,948			372,754
Deferred income tax expense (benefit)	9,788			115,604			(28,665		)
Net write-downs of and gains/losses from sales of other real estate owned	17,166			58,676			136,232
Net decrease (increase) in trading securities	11,983			8,394			(25,124		)
Net decrease (increase) in loans held for sale	(31,445		)	50,696			(32,953		)
Change in other liabilities	27,439			19,370			241,936
Change in other assets	71,772			153,592			230,522
Other, net	(26,492		)	(1,691		)	(33,610		)
Net cash provided by operating activities	765,627			1,128,211			1,471,630

CASH FLOWS FROM INVESTING ACTIVITIES
Net increase in money market investments	(1,631,278		)	(2,416,741		)	(3,974,808		)
Proceeds from maturities and paydowns of investment securities held-to-maturity	128,278			101,893			154,906
Purchases of investment securities held-to-maturity	(86,790		)	(69,171		)	(86,568		)
Proceeds from sales, maturities, and paydowns of investment securities available-for-sale	1,212,047			2,206,881			1,084,074
Purchases of investment securities available-for-sale	(932,034		)	(1,423,141		)	(1,717,518		)
Proceeds from sales of loans and leases	66,223			17,609			154,428
Net loan and lease collections (originations)	(821,457		)	(1,245,151		)	1,742,889
Proceeds from surrender of bank-owned life insurance contracts	—			—			210,726
Net decrease in other noninterest-bearing investments	40,014			19,407			29,493
Net purchases of premises and equipment	(68,894		)	(77,669		)	(79,071		)
Proceeds from sales of other real estate owned	204,818			362,495			523,967
Net cash received from (paid for) divestitures	(19,901		)	—			21,149
Net cash used in investing activities	(1,908,974		)	(2,523,588		)	(1,936,333		)

CASH FLOWS FROM FINANCING ACTIVITIES
Net increase (decrease) in deposits	3,286,823			1,940,697			(903,224		)
Net change in short-term funds borrowed	(370,264		)	(208,541		)	(19,541		)
Proceeds from issuance of long-term debt	757,610			106,065			150,413
Repayments of long-term debt	(372,891		)	(8,663		)	(73,558		)
Cash paid for preferred stock redemption	(1,542,500		)	—			—
Proceeds from the issuance of common stock, preferred stock, and common stock warrants	143,240			25,686			977,145
Dividends paid on common and preferred stock	(133,581		)	(156,135		)	(109,316		)
Other, net	(7,533		)	(3,508		)	(3,279		)
Net cash provided by financing activities	1,760,904			1,695,601			18,640
Net increase (decrease) in cash and due from banks	617,557			300,224			(446,063		)
Cash and due from banks at beginning of year	1,224,350			924,126			1,370,189
Cash and due from banks at end of year	$	1,841,907		$	1,224,350		$	924,126

Cash paid for interest	$	214,673		$	263,338		$	358,156
Net cash paid (refunds received) for income taxes	183,348			3,743			(324,804		)

See accompanying notes to consolidated financial statements.

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Table of Contents

ZIONS BANCORPORATION AND SUBSIDIARIES

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

December 31, 2012


1.	SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES

Business

Zions Bancorporation (“the Parent”) is a financial holding company headquartered in Salt Lake City, Utah, which provides a full range of banking and related services through its banking subsidiaries in ten Western and Southwestern states as follows: Zions First National Bank (“Zions Bank”), in Utah and Idaho; California Bank & Trust (“CB&T”); Amegy Corporation (“Amegy”) and its subsidiary, Amegy Bank, in Texas; National Bank of Arizona (“NBA”); Nevada State Bank (“NSB”); Vectra Bank Colorado (“Vectra”), in Colorado and New Mexico; The Commerce Bank of Washington (“TCBW”); and The Commerce Bank of Oregon (“TCBO”). The Parent and its subsidiary banks also own and operate certain nonbank subsidiaries that engage in financial services.

Basis of Financial Statement Presentation

The consolidated financial statements include the accounts of the Parent and its majority-owned subsidiaries (“the Company,” “we,” “our,” “us”). Unconsolidated investments in which there is a greater than 20% ownership are accounted for by the equity method of accounting; those in which there is less than 20% ownership are accounted for under cost, fair value, or equity methods of accounting. All significant intercompany accounts and transactions have been eliminated in consolidation.

The consolidated financial statements have been prepared in accordance with U.S. generally accepted accounting principles (“GAAP”) and prevailing practices within the financial services industry. References to GAAP as promulgated by the Financial Accounting Standards Board (“FASB”) are made according to sections of the Accounting Standards Codification (“ASC”) and to Accounting Standards Updates (“ASU”).

In preparing the consolidated financial statements, we are required to make estimates and assumptions that affect the amounts reported in the financial statements and accompanying notes. Actual results could differ from those estimates.

Reclassifications

Certain amounts in prior years have been reclassified to conform to the current year presentation. These related primarily to reclassifications between interest income and noninterest income. Certain credit card interchange fees were reclassified from interest and fees on loans to other service charges, commissions and fees. Income from factored receivables was reclassified from other service charges, commissions and fees to interest and fees on loans. The net effect of these reclassifications decreased interest and fees on loans by $22.5 million in 2012, $16.3 million in 2011, and $13.1 million in 2010, and increased other service charges, commissions and fees by the same amounts. At December 31, 2012 and 2011, the reclassifications related to factored receivables increased loan and lease balances by $96 million and $113 million and the allowance for loan losses by $2 million and $2 million, and reduced other assets by $94 million and $111 million, respectively. The reclassification related to credit card interchange fees had no effect on the balance sheet. The changes were made primarily to conform with prevailing reporting practices in the banking industry. Affected balances for the reporting years included herein have been adjusted where appropriate. There was no change in net earnings for any prior year presented.

Variable Interest Entities

A variable interest entity (“VIE”) is consolidated when a company is the primary beneficiary of the VIE. Current accounting guidance requires continuous analysis on a qualitative rather than a quantitative basis to determine the primary beneficiary of a VIE. At the commencement of our involvement and periodically thereafter, we consider

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our consolidation conclusions for all entities with which we are involved. As of December 31, 2012, no VIEs have been consolidated in the Company’s financial statements.

Statement of Cash Flows

For purposes of presentation in the consolidated statements of cash flows, “cash and cash equivalents” are defined as those amounts included in cash and due from banks in the consolidated balance sheets.

Security Resell Agreements

Security resell agreements represent overnight and term agreements with the majority maturing within 30 days. These agreements are generally treated as collateralized financing transactions and are carried at amounts at which the securities were acquired plus accrued interest. Either the Company, or in some instances third parties on its behalf, take possession of the underlying securities. The fair value of such securities is monitored throughout the contract term to ensure that asset values remain sufficient to protect against counterparty default. We are permitted by contract to sell or repledge certain securities that we accept as collateral for security resell agreements. If sold, our obligation to return the collateral is recorded as a liability and included in the balance sheet as securities sold, not yet purchased. At December 31, 2012, we held approximately $2.7 billion of securities for which we were permitted by contract to sell or repledge. Security resell agreements averaged approximately $805 million during 2012, and the maximum amount outstanding at any month-end during 2012 was approximately $2.7 billion.

Investment Securities

We classify our investment securities according to their purpose and holding period. Gains or losses on the sale of securities are recognized using the specific identification method and recorded in noninterest income.

Held-to-maturity (“HTM”) debt securities are stated at adjusted cost, net of unamortized premiums and unaccreted discounts. The Company has the intent and ability to hold such securities until recovery of their amortized cost basis.

Available-for-sale (“AFS”) securities are stated at fair value and generally consist of debt securities held for investment and marketable equity securities not accounted for under the equity method. Unrealized gains and losses of AFS securities, after applicable taxes, are recorded as a component of other comprehensive income (“OCI”).

We review quarterly our investment securities portfolio for any declines in value that are considered to be other-than-temporary impairment (“OTTI”). The process, methodology and factors considered to evaluate securities for OTTI are discussed further in Note 5. Credit-related OTTI is recognized in earnings while noncredit-related OTTI on securities not expected to be sold is recognized in OCI. OTTI is recognized as a realized loss through earnings when our best estimate of discounted cash flows expected to be collected is less than our amortized cost basis.

Trading securities are stated at fair value and consist of securities acquired for short-term appreciation or other trading purposes. Realized and unrealized gains and losses are recorded in trading income, which is included in capital markets and foreign exchange.

The fair values of investment securities, as estimated under current accounting guidance, are discussed in Notes 7 and 20.

Loans and Allowance for Credit Losses

Loans are reported at the principal amount outstanding, net of unearned income. Unearned income, which includes deferred fees net of deferred direct loan origination costs, is amortized to interest income over the life of the loan using the interest method. Interest income is recognized on an accrual basis.

At the time of origination, we determine whether loans will be held for investment or held for sale. We may subsequently change our intent to hold loans for investment and reclassify them as held for sale. Loans held for sale

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are carried at the lower of aggregate cost or fair value. A valuation allowance is recorded when cost exceeds fair value based on reviews at the time of reclassification and periodically thereafter. Gains and losses are recorded in noninterest income based on the difference between sales proceeds and carrying value.

Loans that become other than current with respect to contractual payments due may be accounted for separately depending on the status of the loan, which is determined from certain credit quality indicators and analysis under the circumstances. The loan status includes past due, nonaccrual, impaired, modified, and restructured (including troubled debt restructurings). Our accounting policies for these loan types and our estimation of the related allowance for loan losses are discussed further in Note 6.

Certain purchased loans require separate accounting procedures that are also discussed in Note 6.

The Allowance for Credit Losses (“ACL”) includes the allowance for loan losses and the reserve for unfunded lending commitments (“RULC”), and represents our estimate of losses inherent in the loan portfolio that may be recognized from loans and lending commitments that are not recoverable. Further discussion of our estimation process for the ACL is included in Note 6.

Other Real Estate Owned

Other real estate owned (“OREO”) consists principally of commercial and residential real estate obtained in partial or total satisfaction of loan obligations. Amounts are recorded at the lower of cost or fair value (less any selling costs) based on property appraisals at the time of transfer and periodically thereafter.

Nonmarketable Investments

Nonmarketable investments, including private equity investments, are included in other noninterest-bearing investments on the balance sheet. These investments include venture capital securities and securities acquired for various debt and regulatory requirements.

Certain nonmarketable venture capital securities are accounted for under the equity method and reported at estimated fair values in the absence of readily ascertainable fair values. Changes in fair value and gains and losses from sales are recognized in noninterest income. The values assigned to the securities where no market quotations exist are based upon available information and may not necessarily represent amounts that will ultimately be realized. Such estimated amounts depend on future circumstances and will not be realized until the individual securities are liquidated. The valuation procedures applied include consideration of economic and market conditions, current and projected financial performance of the investee company, and the investee company’s management team. We believe that the cost of an investment is initially the best indication of estimated fair value unless there have been material subsequent positive or negative developments that justify an adjustment in the fair value estimate.

Other nonmarketable investments, including private equity investments and those acquired for various debt and regulatory requirements, are accounted for at cost. Periodic reviews are conducted for impairment by comparing carrying values with estimates of fair value determined according to the previous discussion. See further discussion in Note 20.

Premises and Equipment

Premises and equipment are stated at cost, net of accumulated depreciation and amortization. Depreciation, computed primarily on the straight-line method, is charged to operations over the estimated useful lives of the properties, generally from 25 to 40 years for buildings and from 3 to 10 years for furniture and equipment. Leasehold improvements are amortized over the terms of the respective leases or the estimated useful lives of the improvements, whichever is shorter.

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Business Combinations

Business combinations are accounted for under the purchase method of accounting. Upon initially obtaining control, we recognize 100% of all acquired assets and all assumed liabilities regardless of the percentage owned. The assets and liabilities are recorded at their estimated fair values, with goodwill being recorded when such fair values are less than the cost of acquisition. Certain transaction and restructuring costs are expensed as incurred. Changes to our tax valuation allowances and recorded accruals for uncertain tax positions from a business combination are recognized as an adjustment to goodwill over the measurement period, which cannot exceed one year from the acquisition date. Results of operations of the acquired business are included in our statement of income from the date of acquisition.

Goodwill and Identifiable Intangible Assets

Goodwill and intangible assets deemed to have indefinite lives are not amortized. We subject these assets to annual specified impairment tests as of the beginning of the fourth quarter and more frequently if changing conditions warrant. Core deposit assets and other intangibles with finite useful lives are generally amortized on an accelerated basis using an estimated useful life of up to 12 years.

Derivative Instruments

We use derivative instruments, including interest rate swaps and floors and basis swaps, as part of our overall interest rate risk management strategy. These instruments enable us to manage to desired asset and liability duration and to reduce interest rate exposure by matching estimated repricing periods of interest-sensitive assets and liabilities. We also execute derivative instruments with commercial banking customers to facilitate their risk management strategies. These derivatives are immediately hedged by offsetting derivatives such that we minimize our net risk exposure as a result of such transactions. We record all derivatives at fair value in the balance sheet as either other assets or other liabilities. See further discussion in Note 7.

Commitments and Letters of Credit

In the ordinary course of business, we enter into commitments to extend credit, commercial letters of credit, and standby letters of credit. Such financial instruments are recorded in the financial statements when they become payable. The credit risk associated with these commitments is evaluated in a manner similar to the allowance for loan losses. The RULC is presented separately in the balance sheet.

Share-Based Compensation

Share-based compensation generally includes grants of stock options, restricted stock, and other awards to employees and nonemployee directors. We recognize the share-based awards in the statement of income based on their fair values. See further discussion in Note 16.

Income Taxes

Deferred tax assets and liabilities are determined based on temporary differences between financial statement asset and liability amounts and their respective tax bases and are measured using enacted tax laws and rates. The effect on deferred tax assets and liabilities of a change in tax rates is recognized in income in the period that includes the enactment date. Deferred tax assets are recognized subject to management’s judgment that realization is more-likely-than-not. Unrecognized tax benefits for uncertain tax positions relate primarily to state tax contingencies. See further discussion in Note 14.

Net Earnings Per Common Share

Net earnings per common share is based on net earnings applicable to common shareholders, which is net of preferred stock dividends. Basic net earnings per common share is based on the weighted average outstanding common shares during each year. Unvested share-based awards with rights to receive nonforfeitable dividends are considered participating securities and included in the computation of basic earnings per share. Diluted net earnings per common share is based on the weighted average outstanding common shares during each year, including

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common stock equivalents (such as warrants, stock options and restricted stock). Diluted net earnings per common share excludes common stock equivalents whose effect is antidilutive. See further discussion in Note 15.


2.	CERTAIN RECENT ACCOUNTING PRONOUNCEMENTS

In February 2013, the FASB issued ASU 2013-02, Reporting of Amounts Reclassified Out of Accumulated Other Comprehensive Income. This new guidance under ASU 220, Comprehensive Income, follows ASUs 2011-12 and 2011-05, and finalizes the reporting requirements for reclassifications out of accumulated other comprehensive income (“AOCI”). Items reclassified out of AOCI to net income in their entirety must have the effect of the reclassification disclosed according to the respective income statement line item. Items not reclassified in their entirety must be cross-referenced to other disclosures in the footnotes. The entire reclassification information must be disclosed in one place, either on the face of the financial statements by income statement line item, or in a footnote. For public companies, adoption is required for interim or annual periods beginning after December 15, 2012, or the first quarter of 2013 for calendar-year companies. The guidance should be applied prospectively and allows for early adoption. Management currently does not expect the guidance to have a significant impact on the existing disclosures in the Company’s financial statements.

In January 2013, the FASB issued ASU 2013-01, Scope Clarification of Disclosures about Offsetting Assets and Liabilities. This ASU limits the scope of ASU 2011-11 that was issued in December 2011 under ASC 210, Balance Sheet, to provide convergence to International Financial Reporting Standards (“IFRS”) regarding common disclosure requirements for the offsetting of financial instruments. The new ASU only addresses offsetting disclosure requirements for derivatives (including bifurcated embedded derivatives), repurchase agreements and reverse repurchase agreements, and securities borrowing and lending transactions. Similar to ASU 2011-11, the new ASU is effective on a retrospective basis, including all prior periods presented, for interim and annual periods beginning on or after January 1, 2013. Management currently expects that this new guidance will not significantly impact the disclosures in the Company’s financial statements.

In April 2011, the FASB issued ASU 2011-03, Reconsideration of Effective Control for Repurchase Agreements. The primary feature of this new accounting guidance under ASC 860, Transfers and Servicing, relates to the criteria that determine whether a sale or a secured borrowing occurred based on the transferor’s maintenance of effective control over the transferred financial assets. The new guidance focuses on the transferor’s contractual rights and obligations with respect to the transferred financial assets and not on the transferor’s ability to perform under those rights and obligations. Accordingly, the collateral maintenance requirement is eliminated by ASU 2011-3 from the assessment of effective control. We adopted this new guidance effective January 1, 2012 as required. There was no material effect on the Company’s financial statements.

Additional recent accounting pronouncements are discussed where applicable in the Notes to Consolidated Financial Statements.


3.	MERGER AND ACQUISITION ACTIVITY

In August 2011, we recognized a $5.5 million gain in other noninterest income from the sale of BServ, Inc. (dba BankServ) stock. We acquired the stock of this privately-owned company when we sold substantially all of the assets of our NetDeposit subsidiary in September 2010. Similar to BankServ, NetDeposit specialized in remote deposit capture and electronic payment technologies. We recognized in other noninterest income a pretax gain of approximately $13.7 million when we sold NetDeposit.

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4.	SUPPLEMENTAL CASH FLOW INFORMATION

Noncash activities are summarized as follows:

(In thousands)	Year Ended December 31,
(In thousands)	2012		2011		2010

Loans transferred to other real estate owned	$	172,018	$	301,454	$	607,886
Beneficial conversion feature transferred from common stock to preferred stock as a result of subordinated debt conversions	15,232		43,139		56,834
Subordinated debt exchanged for common stock	—		—		46,902
Subordinated debt converted to preferred stock	89,564		256,109		342,951
Preferred stock exchanged for common stock	—		—		5,508


5.	INVESTMENT SECURITIES

Investment securities are summarized below. Note 20 discusses the process to estimate fair value for investment securities.



	December 31, 2012
			Recognized in OCI ¹						Not recognized in OCI
(In thousands)	Amortized cost		Gross unrealized gains		Gross unrealized losses		Carrying value		Gross unrealized gains		Gross unrealized losses		Estimated fair value
Held-to-maturity
Municipal securities	$	524,738	$	—	$	—	$	524,738	$	12,837	$	709	$	536,866
Asset-backed securities:
Trust preferred securities – banks and insurance	255,647		—		42,964		212,683		114		86,596		126,201
Other	21,858		—		2,470		19,388		709		8,523		11,574
Other debt securities	100		—		—		100		—		—		100
	$	802,343	$	—	$	45,434	$	756,909	$	13,660	$	95,828	$	674,741
Available-for-sale
U.S. Treasury securities	$	104,313	$	211	$	—	$	104,524					$	104,524
U.S. Government agencies and corporations:
Agency securities	108,814		3,959		116		112,657						112,657
Agency guaranteed mortgage-backed securities	406,928		18,598		16		425,510						425,510
Small Business Administration loan-backed securities	1,124,322		29,245		639		1,152,928						1,152,928
Municipal securities	75,344		2,622		1,970		75,996						75,996
Asset-backed securities:
Trust preferred securities – banks and insurance	1,596,156		16,687		663,451		949,392						949,392
Trust preferred securities – real estate investment trusts	40,485		—		24,082		16,403						16,403
Auction rate securities	6,504		79		68		6,515						6,515
Other	25,614		701		6,941		19,374						19,374
	3,488,480		72,102		697,283		2,863,299						2,863,299
Mutual funds and other	228,469		194		652		228,011						228,011
	$	3,716,949	$	72,296	$	697,935	$	3,091,310					$	3,091,310

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	December 31, 2011
			Recognized in OCI ¹						Not recognized in OCI
(In thousands)	Amortized cost		Gross unrealized gains		Gross unrealized losses		Carrying value		Gross unrealized gains		Gross unrealized losses		Estimated fair value
Held-to-maturity
Municipal securities	$	564,468	$	—	$	—	$	564,468	$	8,807	$	1,083	$	572,192
Asset-backed securities:
Trust preferred securities – banks and insurance	262,853		—		40,546		222,307		207		78,191		144,323
Other	24,310		—		3,381		20,929		303		7,868		13,364
Other debt securities	100		—		—		100		—		5		95
	$	851,731	$	—	$	43,927	$	807,804	$	9,317	$	87,147	$	729,974
Available-for-sale
U.S. Treasury securities	$	4,330	$	304	$	—	$	4,634					$	4,634
U.S. Government agencies and corporations:
Agency securities	153,179		5,423		122		158,480						158,480
Agency guaranteed mortgage-backed securities	535,228		18,211		102		553,337						553,337
Small Business Administration loan-backed securities	1,153,039		12,119		4,496		1,160,662						1,160,662
Municipal securities	120,677		3,191		1,700		122,168						122,168
Asset-backed securities:
Trust preferred securities – banks and insurance	1,794,427		15,792		880,509		929,710						929,710
Trust preferred securities – real estate investment trusts	40,259		—		21,614		18,645						18,645
Auction rate securities	71,338		164		1,482		70,020						70,020
Other	64,646		1,028		15,302		50,372						50,372
	3,937,123		56,232		925,327		3,068,028						3,068,028
Mutual funds and other	162,606		167		6		162,767						162,767
	$	4,099,729	$	56,399	$	925,333	$	3,230,795					$	3,230,795


¹	The gross unrealized losses recognized in OCI on HTM securities resulted from a previous transfer of AFS securities

to HTM and from OTTI.

The amortized cost and estimated fair value of investment debt securities are shown subsequently as of December 31, 2012 by expected maturity distribution for structured asset-backed collateralized debt obligations (“CDOs”) and by contractual maturity distribution for other debt securities. Actual maturities may differ from expected or contractual maturities because borrowers may have the right to call or prepay obligations with or without call or prepayment penalties.



	Held-to-maturity				Available-for-sale
(In thousands)	Amortized cost		Estimated fair value		Amortized cost		Estimated fair value

Due in one year or less	$	67,669	$	67,595	$	515,587	$	482,780
Due after one year through five years	201,691		200,803		1,047,327		957,269
Due after five years through ten years	181,721		156,202		625,883		554,217
Due after ten years	351,262		250,141		1,299,683		869,033
	$	802,343	$	674,741	$	3,488,480	$	2,863,299

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The following is a summary of the amount of gross unrealized losses for debt securities and the estimated fair value by length of time the securities have been in an unrealized loss position:

	December 31, 2012
	Less than 12 months				12 months or more				Total
(In thousands)	Gross unrealized losses		Estimated fair value		Gross unrealized losses		Estimated fair value		Gross unrealized losses		Estimated fair value
Held-to-maturity
Municipal securities	$	630	$	42,613	$	79	$	5,910	$	709	$	48,523
Asset-backed securities:
Trust preferred securities – banks and insurance	—		—		129,560		126,019		129,560		126,019
Other	—		—		10,993		10,904		10,993		10,904
	$	630	$	42,613	$	140,632	$	142,833	$	141,262	$	185,446
Available-for-sale
U.S. Government agencies and corporations:
Agency securities	$	35	$	18,633	$	81	$	6,916	$	116	$	25,549
Agency guaranteed mortgage-backed securities	10		6,032		6		629		16		6,661
Small Business Administration loan-backed securities	91		15,199		548		69,011		639		84,210
Municipal securities	61		4,898		1,909		11,768		1,970		16,666
Asset-backed securities:
Trust preferred securities – banks and insurance	—		—		663,451		765,421		663,451		765,421
Trust preferred securities – real estate investment trusts	—		—		24,082		16,403		24,082		16,403
Auction rate securities	—		—		68		2,459		68		2,459
Other	—		—		6,941		15,234		6,941		15,234
	197		44,762		697,086		887,841		697,283		932,603
Mutual funds and other	652		112,324		—		—		652		112,324
	$	849	$	157,086	$	697,086	$	887,841	$	697,935	$	1,044,927

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	December 31, 2011
	Less than 12 months				12 months or more				Total
(In thousands)	Gross unrealized losses		Estimated fair value		Gross unrealized losses		Estimated fair value		Gross unrealized losses		Estimated fair value


Held-to-maturity
Municipal securities	$	415	$	10,855	$	668	$	22,188	$	1,083	$	33,043
Asset-backed securities:
Trust preferred securities – banks and insurance	—		—		118,737		144,053		118,737		144,053
Other	—		—		11,249		13,364		11,249		13,364
Other debt securities	5		95		—		—		5		95
	$	420	$	10,950	$	130,654	$	179,605	$	131,074	$	190,555
Available-for-sale
U.S. Government agencies and corporations:
Agency securities	$	60	$	13,308	$	62	$	3,880	$	122	$	17,188
Agency guaranteed mortgage-backed securities	102		52,267		—		—		102		52,267
Small Business Administration loan-backed securities	1,783		260,865		2,713		191,339		4,496		452,204
Municipal securities	1,305		15,011		395		4,023		1,700		19,034
Asset-backed securities:
Trust preferred securities – banks and insurance	—		—		880,509		695,365		880,509		695,365
Trust preferred securities – real estate investment trusts	—		—		21,614		18,645		21,614		18,645
Auction rate securities	158		27,998		1,324		34,115		1,482		62,113
Other	—		—		15,302		18,585		15,302		18,585
	3,408		369,449		921,919		965,952		925,327		1,335,401
Mutual funds and other	6		167		—		—		6		167
	$	3,414	$	369,616	$	921,919	$	965,952	$	925,333	$	1,335,568

At December 31, 2012 and 2011, respectively, 89 and 72 HTM and 302 and 525 AFS investment securities were in an unrealized loss position.

Other-Than-Temporary Impairment

We conduct a formal review of investment securities on a quarterly basis for the presence of other-than-temporary impairment (“OTTI”). We assess whether OTTI is present when the fair value of a debt security is less than its amortized cost basis at the balance sheet date (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. The “more likely than not” criteria is a lower threshold than the “probable” criteria under previous guidance.

Credit-related OTTI is recognized in earnings while noncredit-related OTTI on securities not expected to be sold is recognized in OCI. Noncredit-related OTTI is based on other factors, including illiquidity. Presentation of OTTI is made in the statement of income on a gross basis with an offset for the amount of OTTI recognized in OCI. For securities classified as HTM, the amount of noncredit-related OTTI recognized in OCI is accreted using the effective interest rate method to the credit-adjusted expected cash flow amounts of the securities over future periods.

Our OTTI evaluation process takes into consideration current market conditions; fair value in relationship to cost; extent and nature of change in fair value; severity and duration of the impairment; recent events specific to the issuer or industry; creditworthiness of the issuer, including external credit ratings, changes, recent downgrades, and trends; volatility of

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earnings and trends; current analysts’ evaluations; all available information relevant to the collectibility of debt securities; and other key measures. In addition, we determine that we do not intend to sell the securities and it is not more likely than not that we will be required to sell the securities before recovery of their amortized cost basis. We consider any other relevant factors before concluding our evaluation for the existence of OTTI in our securities portfolio.

Additionally, under ASC 325-40, Beneficial Interests in Securitized Financial Assets, OTTI is recognized as a realized loss through earnings when there has been an adverse change in the holder’s best estimate of cash flows expected to be collected such that the entire amortized cost basis will not be received. This is a change from previous guidance that a holder’s best estimate of cash flows should be based upon those that “a market participant” would use.

The following summarizes the conclusions from our OTTI evaluation for those security types that incurred significant gross unrealized losses during 2012:

OTTI – Municipal Securities

The HTM securities are purchased directly from municipalities and are generally not rated by a credit rating agency. Most of the AFS securities are rated as investment grade by various credit rating agencies. Both the HTM and AFS securities are at fixed and variable rates with maturities from one to 25 years. Fair value changes of these securities are largely driven by interest rates. We perform credit quality reviews on these securities at each reporting period. Because the decline in fair value is not attributable to credit quality, no OTTI for these securities was recorded during 2012.

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”) 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:

Market yield requirements for bank CDO securities remain high. 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 feature described subsequently. The resulting increase in the rate of return demanded by the market for trust preferred CDOs remains dramatically higher than the contractual interest rates. Virtually all structured Asset-Backed Security (“ABS”) fair values, including bank CDOs, deteriorated significantly during the crisis, generally reaching a low in mid-2009. Prices for some structured products have since rebounded as the crucial unknowns related to value became resolved and as trading increased in these securities. Unlike these other structured products, CDO tranches backed by bank trust preferred securities continue to be characterized by considerable 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.

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. Our CDO pools include a bank that first exercised this deferral option as early as the second quarter of 2008. At December 31, 2012, 71 banks underlying our CDO tranches had come current after a period of deferral, while 196 were deferring, but remained within the allowed deferral period.

A second structural feature that is difficult to model is the payment in kind (“PIK”) feature, which provides that upon reaching certain levels of collateral default or deferral, certain junior CDO tranches will not receive current interest but will instead have the interest amount that is unpaid capitalized or deferred. The cash flow that would otherwise be paid to the junior CDO securities and the income notes is instead used to pay down the principal

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balance of the most senior CDO securities. If the current market yield required by market participants equaled the effective interest rate of a security, a market participant should be indifferent between receiving current interest and capitalizing and compounding interest for later payment. However, given the difference between current market rates and effective interest rates of the securities, market participants are not indifferent. The delay in payment caused by PIKing results in lower security fair values even if PIKing is projected to be fully cured. This feature is difficult to model and assess. It increases the risk premium the market applies to these securities.

Ratings are generally below-investment-grade for even some of the most senior tranches. 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.


4)	There is a lack of consistent disclosure by each CDO’s trustee of the identity of collateral issuers; in addition, complex structures make projecting tranche return profiles difficult for nonspecialists in the product.


5)	At purchase, the expectation of cash flow variability was limited. As a result of the crisis, we have seen extreme variability of collateral performance both compared to expectations and between different pools.

Our ongoing review of these securities determined that OTTI should be recorded for 2012.

Effective December 31, 2012, we added a probability of default (“PD”) overlay model for deferrals to the ratio-based PD model we have used for several years. While the historic ratio-based PD model had proven predictive of bank closures, we observed new emerging loss patterns from long-term deferrals in late 2012. Developments supported greater risk of bankruptcy, debt restructurings, or alternative actions that could cause loss in excess of ratio-based PDs for remaining deferrals. The PD overlay model for deferrals quantified these risks for the remaining deferrals. The effect of applying the PD overlay model generated additional OTTI in 2012 of approximately $50.4 million by itself and an additional $30.7 million when combined with the prepayment assumption change. See further discussion in Note 20.

Trust preferred securities – real estate investment trusts (“REITs”): These CDO securities are variable rate pools of trust preferred securities primarily related to REITs, and are rated by one or more NRSROs. They were purchased generally at par. Unrealized losses were caused mainly by severe deterioration in mortgage REITs and homebuilder credit in addition to the same factors previously discussed for banks and insurance CDOs. Based on our review, no OTTI for these securities was recorded during 2012.

Other asset-backed securities: Most of these CDO securities were purchased in 2009 from Lockhart at their carrying values and then adjusted to fair value. Certain of these CDOs consist of ABS CDOs (also known as diversified structured finance CDOs). Unrealized losses since acquisition were caused mainly by deterioration in collateral quality and widening of credit spreads for asset backed securities. Based on our review, OTTI for one security in this asset group was recorded for 2012.

OTTI – U.S. Government Agencies and Corporations

Small Business Administration (“SBA”) Loan-Backed Securities: These securities were generally purchased at premiums with maturities from five to 25 years and have principal cash flows guaranteed by the SBA. Because the decline in fair value is not attributable to credit quality, no OTTI for these securities was recorded during 2012.

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The following is a tabular rollforward of the total amount of credit-related OTTI, including amounts recognized in earnings:

(In thousands)	2012									2011
(In thousands)	HTM			AFS			Total			HTM			AFS			Total

Balance of credit-related OTTI at beginning of year	$	(6,126	)	$	(314,860	)	$	(320,986	)	$	(5,357	)	$	(335,682	)	$	(341,039	)
Additions recognized in earnings during the year:
Credit-related OTTI not previously recognized ¹	(2,890		)	(5,654		)	(8,544		)	(769		)	(3,007		)	(3,776		)
Credit-related OTTI previously recognized when there is no intent to sell and no requirement to sell before recovery of amortized cost basis²	(4,533		)	(90,984		)	(95,517		)	—			(29,907		)	(29,907		)
Subtotal of amounts recognized in earnings	(7,423		)	(96,638		)	(104,061		)	(769		)	(32,914		)	(33,683		)
Reductions for securities sold or paid off during the year				17,004			17,004						53,736			53,736
Balance of credit-related OTTI at end of year	$	(13,549	)	$	(394,494	)	$	(408,043	)	$	(6,126	)	$	(314,860	)	$	(320,986	)

¹Relates to securities not previously impaired.

²Relates to additional impairment on securities previously impaired.

To determine the credit component of OTTI for all security types, we utilize projected cash flows as the best estimate of fair value. These cash flows are credit adjusted using, among other things, assumptions for default probability assigned to each portion of performing collateral. The credit-adjusted cash flows are discounted at a security specific coupon rate to identify any OTTI, and then at a market rate for valuation purposes.

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)	2012		2011		2010

HTM	$	16,718	$	20,945	$	—
AFS	45,478		22,697		71,097
	$	62,196	$	43,642	$	71,097

The following summarizes gains and losses, including OTTI, that were recognized in the statement of income:

		2012				2011				2010
	(In thousands)	Gross gains		Gross losses		Gross gains		Gross losses		Gross gains		Gross losses
	(In thousands)	Gross gains		Gross losses		Gross gains		Gross losses		Gross gains		Gross losses
	Investment securities:
	Held-to-maturity	$	214	$	7,423	$	229	$	769	$	—	$	151
	Available-for-sale	25,120		102,428		21,793		43,068		11,153		85,302
	Other noninterest-bearing investments: