Zions Bancorporation(ZION) - 2020 Q1 - Quarterly Report

Filing Information General Information This section details the filing of the Form 10-Q for the quarterly period ended March 31, 2020, by Zions Bancorporation, National Association, including its address and identification numbers - Registrant: ZIONS BANCORPORATION, NATIONAL ASSOCIATION[3] - Filing Type: Form 10-Q for the quarterly period ended March 31, 2020[2] Securities Registered and Registrant Status The company's securities, including Common Stock, Warrants, Preferred Stock, and Subordinated Notes, are registered on The NASDAQ Stock Market LLC. Zions Bancorporation is classified as a large accelerated filer and is not a shell company, with 163.9 million common shares outstanding as of April 23, 2020 Securities Registered on NASDAQ | Title of Each Class | Trading Symbols | Name of Each Exchange on Which Registered | | :---------------------------------------------------------- | :-------------- | :----------------------------------- | | Common Stock, par value $0.001 | ZION | The NASDAQ Stock Market LLC | | Warrants to Purchase Common Stock (expiring May 22, 2020) | ZIONW | The NASDAQ Stock Market LLC | | Depositary Shares each representing a 1/40th ownership interest in a share of: | | | | Series A Floating-Rate Non-Cumulative Perpetual Preferred Stock | ZIONP | The NASDAQ Stock Market LLC | | Series G Fixed/Floating-Rate Non-Cumulative Perpetual Preferred Stock | ZIONO | The NASDAQ Stock Market LLC | | Series H 5.75% Non-Cumulative Perpetual Preferred Stock | ZIONN | The NASDAQ Stock Market LLC | | 6.95% Fixed-to-Floating Rate Subordinated Notes due September 15, 2028 | ZIONL | The NASDAQ Stock Market LLC | - Registrant Status: Large accelerated filer[5] - Shell Company Status: No[5] - Common Shares Outstanding (April 23, 2020): 163,861,950 shares[6] PART I. FINANCIAL INFORMATION ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS This section provides management's perspective on the company's financial condition and operational results, highlighting the impact of the COVID-19 pandemic, interest rate changes, and strategic initiatives FORWARD-LOOKING INFORMATION This section outlines the inherent risks and uncertainties associated with forward-looking statements, including the impact of the COVID-19 pandemic and regulatory changes - Forward-looking statements are subject to known and unknown risks, uncertainties, and other factors that may cause actual results to differ materially[10] - Key risk factors include the effects of the COVID-19 pandemic on businesses and financial results, changes in governmental policy and regulation (e.g., PPP), and changes in economic conditions and interest rates[12][14][15] - The Bank disclaims any obligation to update forward-looking statements, except as required by law[16] GLOSSARY OF ACRONYMS This section provides a comprehensive list of acronyms used throughout the report to ensure clarity and understanding of financial and operational terms - Provides a comprehensive list of acronyms used throughout the report, such as ACL (Allowance for Credit Losses), AFS (Available-for-Sale), ALCO (Asset/Liability Committee), CECL (Current Expected Credit Loss), FDIC (Federal Deposit Insurance Corporation), LIBOR (London Interbank Offered Rate), NIM (Net Interest Margin), OCC (Office of the Comptroller of the Currency), PPNR (Pre-provision Net Revenue), and SBA (Small Business Administration)[18] GAAP to NON-GAAP RECONCILIATIONS This section reconciles GAAP to non-GAAP financial measures, offering additional insights into the Bank's performance and capital adequacy - Non-GAAP financial measures are presented to provide investors with additional information and a meaningful base for period-to-period and company-to-company comparisons, used by management to assess performance and financial position[19] - Non-GAAP measures have inherent limitations and should not be considered in isolation or as a substitute for GAAP results[20] RETURN ON AVERAGE TANGIBLE COMMON EQUITY (NON-GAAP) This section presents the non-GAAP measure of return on average tangible common equity, providing insight into the Bank's use of shareholders' equity and income-generating asset performance - Return on average tangible common equity is a non-GAAP measure providing insight into the Bank's use of shareholders' equity and the performance of income-generating assets[21] Return on Average Tangible Common Equity (Non-GAAP) | (Dollar amounts in millions) | March 31, 2020 | December 31, 2019 | September 30, 2019 | March 31, 2019 | | :--------------------------------------------------------------------------------- | :------------- | :---------------- | :----------------- | :------------- | | Net earnings applicable to common shareholders (GAAP) | $6 | $174 | $214 | $205 | | Net earnings applicable to common shareholders, excluding adjustment, net of tax (non-GAAP) | $6 | $174 | $214 | $205 | | Average common equity (GAAP) | $6,924 | $6,866 | $7,002 | $7,005 | | Average goodwill and intangibles | (1,014) | (1,014) | (1,014) | (1,014) | | Average tangible common equity (non-GAAP) | $5,910 | $5,852 | $5,988 | $5,991 | | Return on average tangible common equity (non-GAAP) | 0.4% | 11.8% | 14.2% | 13.9% | TANGIBLE EQUITY RATIO, TANGIBLE COMMON EQUITY RATIO, AND TANGIBLE BOOK VALUE PER COMMON SHARE (ALL NON-GAAP MEASURES) This section presents non-GAAP measures of tangible equity ratios and tangible book value per common share, offering additional insights into the Bank's capital adequacy - These non-GAAP measures provide additional useful information about capital adequacy by focusing on tangible assets and equity[23] Tangible Equity Ratios and Book Value per Share (Non-GAAP) | (Dollar amounts in millions, except per share amounts) | March 31, 2020 | December 31, 2019 | September 30, 2019 | March 31, 2019 | | :----------------------------------------------------- | :------------- | :---------------- | :----------------- | :------------- | | Total shareholders' equity (GAAP) | $7,472 | $7,353 | $7,509 | $7,588 | | Goodwill and intangibles | (1,014) | (1,014) | (1,014) | (1,014) | | Tangible equity (non-GAAP) | 6,458 | 6,339 | 6,495 | 6,574 | | Preferred stock | (566) | (566) | (566) | (566) | | Tangible common equity (non-GAAP) | $5,892 | $5,773 | $5,929 | $6,008 | | Total assets (GAAP) | $71,467 | $69,172 | $70,361 | $69,195 | | Goodwill and intangibles | (1,014) | (1,014) | (1,014) | (1,014) | | Tangible assets (non-GAAP) | $70,453 | $68,158 | $69,347 | $68,181 | | Common shares outstanding (thousands) | 163,852 | 165,057 | 170,373 | 182,513 | | Tangible equity ratio (non-GAAP) | 9.2% | 9.3% | 9.4% | 9.6% | | Tangible common equity ratio (non-GAAP) | 8.4% | 8.5% | 8.5% | 8.8% | | Tangible book value per common share (non-GAAP) | $35.96 | $34.98 | $34.80 | $32.92 | EFFICIENCY RATIO (NON-GAAP) AND ADJUSTED PRE-PROVISION NET REVENUE (NON-GAAP) This section provides non-GAAP measures of the efficiency ratio and adjusted pre-provision net revenue, assessing the Bank's cost management and capital generation capabilities - The efficiency ratio provides insight into the cost of generating revenue, while adjusted PPNR assesses the Bank's ability to generate capital to cover credit losses[24] Efficiency Ratio and Adjusted Pre-Provision Net Revenue (Non-GAAP) | (Dollar amounts in millions) | March 31, 2020 | December 31, 2019 | March 31, 2019 | Year Ended December 31, 2019 | | :----------------------------------------------------- | :------------- | :---------------- | :------------- | :--------------------------- | | Noninterest expense (GAAP) | $408 | $472 | $430 | $1,742 | | Total adjustments | 1 | 37 | (1) | 38 | | Adjusted noninterest expense (non-GAAP) | $407 | $435 | $431 | $1,704 | | Net interest income (GAAP) | $548 | $559 | $576 | $2,272 | | Fully taxable-equivalent adjustments | 7 | 7 | 6 | 26 | | Taxable-equivalent net interest income (non-GAAP) | 555 | 566 | 582 | 2,298 | | Noninterest income (GAAP) | 134 | 152 | 132 | 562 | | Combined income (non-GAAP) | 689 | 718 | 714 | 2,860 | | Total adjustments (noninterest income) | (17) | 8 | (2) | (6) | | Adjusted taxable-equivalent revenue (non-GAAP) | $706 | $710 | $716 | $2,866 | | Pre-provision net revenue (PPNR) (non-GAAP) | $281 | $246 | $284 | $1,118 | | Adjusted PPNR (non-GAAP) | $299 | $275 | $285 | $1,162 | | Efficiency ratio (non-GAAP) | 57.7% | 61.3% | 60.2% | 59.5% | RESULTS OF OPERATIONS This section analyzes the Bank's financial performance, including the impact of economic conditions, strategic initiatives, and the COVID-19 pandemic Executive Summary The first quarter of 2020 saw moderate loan and deposit growth and improved customer fees, but was significantly impacted by the COVID-19 pandemic and interest rate reductions - First quarter 2020 performance showed moderate loan and deposit growth, improved customer-related fees, and expense control, but was negatively impacted by the COVID-19 pandemic, Federal Funds rate reductions, and declining oil and gas prices[27] - Provision for credit losses significantly increased due to the uncertain economic impact of COVID-19[27] - Net interest margin compression was a challenge due to declining loan yields, partially offset by lower cost of deposits and borrowed funds[27] COVID-19 Pandemic This section details the Bank's response to the COVID-19 pandemic, including operational adjustments, capital preservation, and community support efforts - The Bank rapidly responded to the COVID-19 pandemic by enhancing remote work capabilities, adjusting branch operations, offering loan payment and fee forbearance programs, moving offshore operations domestically, and investing in communities[28] - Capital ratios were maintained at strong levels, and the allowance for credit losses (ACL) was materially augmented by $221 million, a 40% increase[28] - Loan utilization increased by approximately two percentage points in Q1 2020, particularly in retail-related, dentists, hotels, restaurants, construction, financials (non-banks), and manufacturing industries[30] SBA Paycheck Protection Program This section outlines the Bank's participation in the SBA Paycheck Protection Program, including loan volumes, terms, and fee recognition - The Bank processed approximately $4.4 billion in PPP loans for over 14,000 customers in the first round, ranking ninth by dollar volume[32] - PPP loans have a 1% interest rate with payments deferred for six months; loans can be forgiven in whole or part[32] - Loan processing fees from the SBA are recognized as yield adjustments over the loan life, with unamortized fees recognized as interest income upon early payoff or forgiveness[33] First Quarter 2020 Financial Performance This section summarizes the Bank's key financial performance indicators for Q1 2020, highlighting significant changes compared to the prior year Key Financial Performance Indicators (Q1 2020 vs. Q1 2019) | Metric | Q1 2020 | Q1 2019 | Change (YoY) | | :------------------------------------- | :------ | :------ | :----------- | | Net earnings applicable to common shareholders | $6 million | $205 million | -$199 million | | Diluted common share | $0.04 | $1.04 | -$1.00 | | Net income | $14 million | $213 million | -$199 million | | Provision for credit losses | $258 million | $4 million | +$254 million | | Net interest income | $548 million | $576 million | -$28 million | | Adjusted PPNR | $299 million | $285 million | +$14 million (5%) | | Efficiency ratio | 57.7% | 60.2% | -2.5 percentage points | | Net charge-offs to average loans | 0.06% | 0.00% | +0.06 percentage points | | Classified loans increase | | | +$152 million (21%) | | Nonaccrual loans increase | | | +$40 million (17%) | - The significant decline in net earnings was primarily due to a substantial increase in the provision for credit losses ($254 million) and a decrease in net interest income, partially offset by reduced income taxes and increased customer-related fees[35][40] - The Bank strengthened its allowance for credit losses, anticipating an increase in loan charge-offs in subsequent quarters due to the COVID-19 pandemic[38] - Average loan portfolio increased by $1.6 billion (3%) YoY, mainly in commercial loans, but loan yields decreased by 51 bps[45] - Oil and gas-related loans represented 5% of the total loan portfolio at March 31, 2020, down from 8% at December 31, 2014, with improved underwriting standards[46] Areas of focus for 2020 This section outlines the Bank's strategic priorities for 2020, emphasizing support for customers, communities, and employees amidst the COVID-19 pandemic - The Bank's focus for 2020 shifted to servicing customers, communities, and employees impacted by the COVID-19 pandemic, while also continuing normal operations and profitability initiatives[47] Net Interest Income and Net Interest Margin This section analyzes the trends in net interest income and net interest margin, detailing the factors influencing changes in interest revenue and expense - Net interest income decreased by $28 million to $548 million in Q1 2020 from $576 million in Q1 2019, primarily due to lower interest and fees on loans and securities, partially offset by decreased interest expense[49] - Net Interest Margin (NIM) decreased to 3.41% in Q1 2020 from 3.68% in Q1 2019, driven by lower yields on assets and increased interest-bearing deposits, partially offset by loan growth and lower funding costs[50] - Average interest-earning assets increased by $1.2 billion YoY, but average rates decreased by 44 bps. Average interest-bearing liabilities increased by $1.1 billion, with average rates paid decreasing by 31 bps[53] - Average total deposits increased to $56.9 billion in Q1 2020 from $53.9 billion in Q1 2019, with interest-bearing deposits growing 9% and noninterest-bearing deposits growing 2%[59][57] Consolidated Average Balance Sheets, Yields and Rates (Q1 2020 vs. Q1 2019) | (Dollar amounts in millions) | Three Months Ended March 31, 2020 | Three Months Ended March 31, 2019 | | :--------------------------- | :-------------------------------- | :-------------------------------- | | ASSETS | | | | Total interest-earning assets | $65,363 (3.87%) | $64,162 (4.31%) | | Loans and leases | $48,797 (4.42%) | $47,171 (4.93%) | | Total securities | $14,444 (2.34%) | $15,660 (2.57%) | | LIABILITIES | | | | Total interest-bearing liabilities | $37,979 (0.78%) | $36,864 (1.09%) | | Total interest-bearing deposits | $33,310 (0.62%) | $30,695 (0.75%) | | Total borrowed funds | $4,669 (1.95%) | $6,169 (2.78%) | | Noninterest-bearing demand deposits | $23,599 | $23,221 | | KEY RATIOS | | | | Spread on average interest-bearing funds | 3.09% | 3.22% | | Net interest margin | 3.41% | 3.68% | | Total cost of deposits | 0.36% | 0.43% | Provision for Credit Losses This section details the significant increase in the provision for credit losses, primarily driven by the economic impact of the COVID-19 pandemic and energy price stress - The provision for credit losses surged to $258 million in Q1 2020, up from $4 million in Q1 2019, primarily due to the uncertain economic impact of the COVID-19 pandemic and prolonged stress in energy prices[66] - The Allowance for Credit Losses (ACL) increased by $221 million to $777 million at March 31, 2020[66] - Upon adopting the CECL accounting standard on January 1, 2020, the ACL for loans and leases was $526 million, resulting in a $20 million after-tax increase to retained earnings[67] - The Bank adopted an interim final rule allowing an adjustment to dampen CECL's impact on regulatory capital ratios, improving the CET1 capital ratio by 8 bps at March 31, 2020[68] Noninterest Income This section analyzes the components of noninterest income, highlighting growth in customer-related fees despite overall modest increases - Noninterest income increased by $2 million (2%) to $134 million in Q1 2020 compared to $132 million in Q1 2019, representing 20% of net revenue[70] - Customer-related fees, a key strategic priority, increased by $21 million (17%) YoY, driven by higher loan-related fees (mortgage originations and sales) and capital markets/foreign exchange fees (customer interest rate swaps)[71][73] - Dividends and other income decreased by $12 million, primarily due to an $11 million negative credit valuation adjustment on client-related interest rate swaps[74] Noninterest Income Components (Q1 2020 vs. Q1 2019) | (Dollar amounts in millions) | 2020 | 2019 | Amount change | Percent change | | :--------------------------- | :--- | :--- | :------------ | :------------- | | Commercial account fees | $31 | $30 | $1 | 3% | | Card fees | 21 | 22 | (1) | (5)% | | Retail and business banking fees | 19 | 18 | 1 | 6% | | Loan-related fees and income | 26 | 16 | 10 | 63% | | Capital markets and foreign exchange fees | 24 | 17 | 7 | 41% | | Wealth management and trust fees | 16 | 14 | 2 | 14% | | Other customer-related fees | 6 | 5 | 1 | 20% | | Customer-related fees | 143 | 122 | 21 | 17% | | Dividends and other income | (3) | 9 | (12) | NM | | Securities gains (losses), net | (6) | 1 | (7) | NM | | Total noninterest income | $134 | $132 | $2 | 2% | Noninterest Expense This section examines the Bank's noninterest expenses, highlighting a decrease due to ongoing expense reduction efforts and workforce adjustments - Noninterest expense decreased by $22 million (5%) to $408 million in Q1 2020, reflecting ongoing expense reduction efforts and a workforce reduction announced in October 2019[75][78] - Salaries and employee benefits decreased by $13 million, primarily due to lower incentive compensation and profit-sharing contributions, and a reduction of 325 full-time equivalent employees[78] - The Bank's efficiency ratio improved to 57.7% in Q1 2020 from 60.2% in Q1 2019[79] Noninterest Expense Components (Q1 2020 vs. Q1 2019) | (Dollar amounts in millions) | 2020 | 2019 | Amount change | Percent change | | :--------------------------- | :--- | :--- | :------------ | :------------- | | Salaries and employee benefits | $274 | $287 | $(13) | (5)% | | Occupancy, net | 33 | 33 | — | — | | Furniture, equipment and software, net | 32 | 32 | — | — | | Other real estate expense, net | — | (1) | 1 | NM | | Credit-related expense | 4 | 6 | (2) | (33)% | | Professional and legal services | 12 | 11 | 1 | 9% | | Advertising | 3 | 5 | (2) | (40)% | | FDIC premiums | 5 | 6 | (1) | (17)% | | Other | 45 | 51 | (6) | (12)% | | Total noninterest expense | $408 | $430 | $(22) | (5)% | | Adjusted noninterest expense | $407 | $431 | $(24) | (6)% | - The termination of the defined benefit pension plan is expected to be completed in 2020, resulting in a one-time charge of $10 million to $15 million and a reclassification of an approximate $17 million loss out of AOCI into earnings[80] Income Taxes This section details the decrease in income tax expense and the effective tax rate, primarily due to lower pretax income - Income tax expense decreased to $2 million in Q1 2020 from $61 million in Q1 2019, due to lower income[81] - The effective income tax rate was 12.5% in Q1 2020, down from 22.3% in Q1 2019, primarily due to the proportional increase in nontaxable items and tax credits relative to pretax book income[81] Preferred Stock Dividends This section reports on the consistent level of preferred stock dividends paid during the first quarter of 2020 - Preferred stock dividends remained consistent at $8 million for both Q1 2020 and Q1 2019[82] BALANCE SHEET ANALYSIS This section provides a detailed analysis of the Bank's balance sheet components, including interest-earning assets, investment securities, loan portfolio, and deposits Interest-Earning Assets This section analyzes the composition and growth of the Bank's interest-earning assets, which constitute a significant portion of total assets - Average interest-earning assets increased to $65.4 billion in Q1 2020 from $64.2 billion in Q1 2019, representing 93% of total average assets[84] - Average loans increased to $48.8 billion in Q1 2020 from $47.2 billion in Q1 2019, accounting for 70% of total average assets[85] - Average money market investments increased by 59% to $2.0 billion, while average securities decreased by 8% YoY[86] Investment Securities Portfolio This section details the composition and changes in the Bank's investment securities portfolio, including amortized cost and fair value - The amortized cost of investment securities increased by 2% from December 31, 2019, with approximately 29% being floating-rate as of March 31, 2020[90] - Premium amortization for Q1 2020 was $28 million, down from $31 million in Q1 2019[91] Investment Securities Portfolio (March 31, 2020 vs. December 31, 2019) | (In millions) | March 31, 2020 | December 31, 2019 | | :------------------------------------------ | :------------- | :---------------- | | Held-to-maturity | | | | Municipal securities | $585 | $592 | | Available-for-sale | | | | U.S. Treasury securities | 25 | 25 | | U.S. Government agencies and corporations | 1,347 | 1,301 | | Agency guaranteed mortgage-backed securities | 9,918 | 9,518 | | Small Business Administration loan-backed securities | 1,418 | 1,535 | | Municipal securities | 1,265 | 1,282 | | Other debt securities | 25 | 25 | | Total available-for-sale | 13,998 | 13,686 | | Total investment securities (Amortized Cost) | $14,583 | $14,278 | | Total investment securities (Estimated Fair Value) | $14,818 | $14,322 | Exposure to State and Local Governments This section details the Bank's direct credit exposure to municipalities, including loans and securities, and their credit quality - Total direct exposure to municipalities increased to $4.8 billion at March 31, 2020, from $4.6 billion at December 31, 2019[93] - No municipal loans were on nonaccrual at March 31, 2020, with most secured by real estate, equipment, or general obligations[93] Exposure to Municipalities (March 31, 2020 vs. December 31, 2019) | (In millions) | March 31, 2020 | December 31, 2019 | | :-------------------------------- | :------------- | :---------------- | | Loans and leases | $2,483 | $2,393 | | Held-to-maturity – municipal securities | 584 | 592 | | Available-for-sale – municipal securities | 1,299 | 1,319 | | Trading account – municipal securities | 135 | 107 | | Unfunded lending commitments | 326 | 200 | | Total direct exposure to municipalities | $4,827 | $4,611 | Foreign Exposure and Operations This section confirms that the Bank's foreign credit exposure and operations are not significant - The Bank's credit exposure to foreign sovereign risks and total foreign credit exposure is not significant, with no foreign deposits at March 31, 2020, and December 31, 2019[94] Loan Portfolio This section provides a detailed breakdown of the Bank's loan portfolio, highlighting growth trends and major categories - Average loans constituted 70% of total average assets in Q1 2020. Commercial and industrial loans were the largest category, at 31.1% of the total loan portfolio[95][97] - Loan portfolio growth in Q1 2020 was widespread across products and geographies, with particular strength in commercial and industrial, municipal, construction and land development, term commercial real estate, and commercial owner-occupied loans[97] Loan Portfolio Composition (March 31, 2020 vs. December 31, 2019) | (Dollar amounts in millions) | March 31, 2020 | % of total loans | December 31, 2019 | % of total loans | | :--------------------------- | :------------- | :--------------- | :---------------- | :--------------- | | Commercial: | | | | | | Commercial and industrial | $15,533 | 31.1% | $14,760 | 30.3% | | Leasing | 331 | 0.7% | 334 | 0.7% | | Owner-occupied | 8,045 | 16.1% | 7,901 | 16.2% | | Municipal | 2,483 | 5.0% | 2,393 | 4.9% | | Total commercial | 26,392 | 52.9% | 25,388 | 52.1% | | Commercial real estate: | | | | | | Construction and land development | 2,257 | 4.5% | 2,211 | 4.5% | | Term | 9,484 | 19.0% | 9,344 | 19.2% | | Total commercial real estate | 11,741 | 23.5% | 11,555 | 23.7% | | Consumer: | | | | | | Home equity credit line | 2,958 | 5.9% | 2,917 | 6.0% | | 1-4 family residential | 7,567 | 15.1% | 7,568 | 15.6% | | Construction and other consumer real estate | 629 | 1.3% | 624 | 1.3% | | Bankcard and other revolving plans | 488 | 1.0% | 502 | 1.0% | | Other | 152 | 0.3% | 155 | 0.3% | | Total consumer | 11,794 | 23.6% | 11,766 | 24.2% | | Total net loans | $49,927 | 100.0% | $48,709 | 100.0% | Other Noninterest-Bearing Investments This section details the Bank's other noninterest-bearing investments, including FHLB stock and Farmer Mac stock, and changes in their balances - The Bank increased short-term borrowings with the FHLB by $1.2 billion in Q1 2020, leading to a $48 million increase in FHLB activity stock[98] - Sales of Class C Farmer Mac stock were initiated in Q1 2020, with conditional regulatory approval to extend the sale deadline beyond September 30, 2020[99] Other Noninterest-Bearing Investments (March 31, 2020 vs. December 31, 2019) | (In millions) | March 31, 2020 | December 31, 2019 | | :------------------------------ | :------------- | :---------------- | | Bank-owned life insurance | $527 | $525 | | Federal Home Loan Bank stock | 98 | 50 | | Federal Reserve stock | 99 | 107 | | Farmer Mac stock | 52 | 47 | | SBIC investments | 125 | 154 | | Non-SBIC investment funds | 12 | 12 | | Other | 3 | 3 | | Total other noninterest-bearing investments | $916 | $898 | Premises, Equipment, and Software This section outlines the Bank's investments in premises, equipment, and software, including progress on core systems replacement projects - Net premises, equipment, and software increased by $2 million (0.2%) in Q1 2020[102] - The Bank completed the second phase of its core lending systems replacement project in Q1 2019, and is underway with the deposit servicing system conversion by 2022[102] Capitalized Costs for Core Replacement Project (March 31, 2020) | (In millions) | Phase 1 | Phase 2 | Phase 3 | Total | | :------------------------------------------ | :------ | :------ | :------ | :---- | | Total amount capitalized, less accumulated depreciation | $52 | $81 | $67 | $200 | Deposits This section analyzes the Bank's deposit trends, including growth in interest-bearing and noninterest-bearing deposits and changes in interest rates paid - Average total deposits increased by 6% in Q1 2020 compared to Q1 2019, with interest-bearing deposits up 9% and noninterest-bearing deposits up 2%[104] - The average interest rate paid for interest-bearing deposits decreased by 13 bps YoY[104] - Demand, savings, and money market deposits constituted 93% of total deposits at March 31, 2020[105] RISK ELEMENTS This section details the Bank's comprehensive risk management framework, covering credit, interest rate, market, liquidity, strategic, operational, technology, cyber, and capital/financial reporting risks - The Board of Directors' Risk Oversight Committee (ROC) oversees the Bank's risk management processes, which include credit risk, interest rate and market risk, liquidity risk, strategic risk, operational/technology risk, cyber risk, and capital/financial reporting risk[106][107] - The Bank manages interest rate risk (potential for reduced net interest income from adverse rate changes) and market risk (potential for loss from adverse changes in fair value of securities and derivatives)[146] - The Board of Directors approves overall policies, delegating management to the Asset/Liability Committee (ALCO)[147] Credit Risk Management This section defines credit risk as the potential for loss from a borrower's failure to perform under credit-related contracts - Credit risk is the potential for loss from a borrower's failure to perform under credit-related contracts, arising from lending activities and off-balance sheet instruments[108] Government Agency Guaranteed Loans This section describes the Bank's participation in government agency guaranteed lending programs and the associated loan balances - The Bank participates in various government agency guaranteed lending programs (SBA, FHA, VA, etc.)[109] - As of March 31, 2020, the principal balance of these loans was $590 million, with a guaranteed portion of $439 million, mostly by the SBA[110] Government Agency Guaranteed Loans (March 31, 2020 vs. December 31, 2019) | (Dollar amounts in millions) | March 31, 2020 | Percent guaranteed | December 31, 2019 | Percent guaranteed | | :--------------------------- | :------------- | :----------------- | :---------------- | :----------------- | | Commercial | $566 | 74% | $555 | 74% | | Commercial real estate | 17 | 76% | 18 | 78% | | Consumer | 7 | 100% | 7 | 100% | | Total loans | $590 | 74% | $580 | 75% | Commercial Lending This section details the industry concentrations within the Bank's commercial lending portfolio, with retail trade, real estate, and manufacturing as the largest segments - Retail trade, real estate, rental and leasing, and manufacturing are the largest industry concentrations in the commercial lending portfolio[113] Commercial Lending by Industry Group (March 31, 2020 vs. December 31, 2019) | (Dollar amounts in millions) | March 31, 2020 | Percent | December 31, 2019 | Percent | | :--------------------------- | :------------- | :------ | :---------------- | :------ | | Retail trade | $2,782 | 10.5% | $2,606 | 10.3% | | Real estate, rental and leasing | 2,382 | 9.0% | 2,401 | 9.5% | | Manufacturing | 2,245 | 8.5% | 2,160 | 8.5% | | Healthcare and social assistance | 2,047 | 7.8% | 1,916 | 7.5% | | Finance and insurance | 2,026 | 7.7% | 1,837 | 7.2% | | Wholesale trade | 1,729 | 6.6% | 1,639 | 6.4% | | Transportation and warehousing | 1,488 | 5.6% | 1,454 | 5.7% | | Utilities | 1,475 | 5.6% | 1,411 | 5.6% | | Mining, quarrying, and oil and gas extraction | 1,381 | 5.2% | 1,429 | 5.6% | | Construction | 1,288 | 4.9% | 1,158 | 4.6% | | Public administration | 1,272 | 4.8% | 1,189 | 4.7% | | Professional, scientific, and technical services | 1,035 | 3.9% | 950 | 3.7% | | Hospitality and food services | 1,014 | 3.8% | 983 | 3.9% | | Other services (except public administration) | 892 | 3.4% | 890 | 3.5% | | Other | 3,336 | 12.7% | 3,365 | 13.3% | | Total | $26,392 | 100.0% | $25,388 | 100.0% | Oil and Gas-Related Exposure This section details the Bank's credit exposure to the oil and gas sector, highlighting active risk management and improved underwriting standards - Total oil and gas-related credit exposure was approximately $4.6 billion at March 31, 2020[115] - Oil and gas-related loans represented 5% of the total loan portfolio at March 31, 2020, down from 8% at December 31, 2014, reflecting active risk management and a shift towards lower-risk segments[118] - For Q1 2020, the classified oil and gas-related loan ratio was 3.4%, net charge-offs were $1 million, and the ACL exceeded 5%[119] Oil and Gas-Related Exposure (March 31, 2020 vs. December 31, 2014) | (in millions) | March 31, 2020 | Percent | December 31, 2014 | Percent | | :-------------------------- | :------------- | :------ | :---------------- | :------ | | Loans and leases | | | | | | Upstream | $1,025 | 40% | $1,107 | 36% | | Midstream | 889 | 34% | 579 | 19% | | Oil and gas services | 470 | 18% | 1,277 | 41% | | Downstream | 195 | 8% | 110 | 4% | | Total loan and lease balances | 2,579 | 100% | 3,073 | 100% | | Unfunded lending commitments | 2,039 | | 2,700 | | | Total oil and gas-related credit exposure | $4,618 | | $5,773 | | | Credit quality measures | | | | | | Classified loan ratio | 3.4% | | 4.4% | | | Nonaccrual loan ratio | 0.7% | | 0.6% | | | Ratio of nonaccrual loans that are current | 70.6% | | 58.8% | | | Net charge-offs, annualized | 0.2% | | —% | | Commercial Real Estate Loans This section describes the Bank's commercial real estate loan portfolio, including construction and land development and term loans, and their typical maturity and guarantee structures - CRE construction and land development and term loan portfolios represent approximately 24% of the total loan portfolio at March 31, 2020[124] - The majority of CRE loans are secured by real estate within the Bank's geographical footprint, with approximately 21% maturing in the next 12 months[124] - Construction and land development loans typically mature in 18-36 months with recourse guarantees, while term CRE loans mature in 3-7 years with various guarantee structures and operating covenants[125] Consumer Loans This section details the Bank's consumer loan portfolio, focusing on prime quality mortgages and home equity credit lines, including underwriting standards - The Bank primarily originates prime quality first and second mortgages, holding variable-rate loans and selling conforming fixed-rate loans to third parties[127] - The Home Equity Credit Line (HECL) portfolio totaled $3.0 billion at March 31, 2020, with 89% still in the draw period[128][130] - Underwriting standards for HECL generally include a maximum 80% CLTV with high credit scores at origination, and less than 1% of the portfolio had CLTVs above 100% at March 31, 2020[129] HECL Portfolio by Lien Status (March 31, 2020 vs. December 31, 2019) | (In millions) | March 31, 2020 | December 31, 2019 | | :-------------------------- | :------------- | :---------------- | | Secured by first deeds of trust | $1,410 | $1,392 | | Secured by second (or junior) liens | 1,548 | 1,525 | | Total | $2,958 | $2,917 | Nonperforming Assets This section analyzes the Bank's nonperforming assets, including nonaccrual loans and other real estate owned, and their changes over time - Nonperforming assets as a percentage of loans and leases and OREO increased to 0.56% at March 31, 2020, from 0.51% at December 31, 2019[131] - Total nonaccrual loans increased by $31 million from December 31, 2019, primarily in the commercial and industrial loan portfolio[131] Nonperforming Assets (March 31, 2020 vs. December 31, 2019) | (Dollar amounts in millions) | March 31, 2020 | December 31, 2019 | | :----------------------------------------------------- | :------------- | :---------------- | | Nonaccrual loans | $274 | $243 | | Other real estate owned | 6 | 8 | | Total nonperforming assets | $280 | $251 | | Ratio of nonperforming assets to net loans and leases and other real estate owned | 0.56% | 0.51% | | Accruing loans past due 90 days or more | $8 | $10 | | Ratio of accruing loans past due 90 days or more to loans and leases | 0.02% | 0.02% | | Nonaccrual loans and accruing loans past due 90 days or more | $282 | $253 | | Ratio of nonaccrual loans and accruing loans past due 90 days or more to loans and leases | 0.56% | 0.52% | | Accruing loans past due 30-89 days | $135 | $75 | | Nonaccrual loans current as to principal and interest payments | 58.5% | 53.1% | Restructured Loans This section discusses Troubled Debt Restructurings (TDRs), including their increase in Q1 2020 and the conditions for returning them to accrual status - Troubled Debt Restructurings (TDRs) increased by $14 million (9%) in Q1 2020, reflecting modifications for borrowers experiencing financial difficulties[134] - TDRs can be returned to accrual status if the borrower performs under modified terms for at least six months and repayment is reasonably assured[135] Accruing and Nonaccruing Troubled Debt Restructured Loans (March 31, 2020 vs. December 31, 2019) | (In millions) | March 31, 2020 | December 31, 2019 | | :-------------------------- | :------------- | :---------------- | | Restructured loans – accruing | $79 | $78 | | Restructured loans – nonaccruing | 88 | 75 | | Total | $167 | $153 | Troubled Debt Restructured Loans Rollforward (Q1 2020 vs. Q1 2019) | (In millions) | Three Months Ended March 31, 2020 | Three Months Ended March 31, 2019 | | :-------------------------- | :-------------------------------- | :-------------------------------- | | Balance at beginning of period | $153 | $202 | | New identified TDRs and principal increases | 27 | 6 | | Payments and payoffs | (10) | (28) | | Charge-offs | — | (4) | | No longer reported as TDRs | (2) | — | | Sales and other | (1) | (2) | | Balance at end of period | $167 | $174 | COVID-19 modifications This section clarifies that loan modifications exclusively due to the COVID-19 pandemic are not classified as Troubled Debt Restructurings, consistent with recent guidance - Loan modifications for borrowers experiencing financial difficulties exclusively related to the COVID-19 pandemic (short-term modifications or payment deferrals) are not classified as TDRs, consistent with recent guidance[139] - Approximately 3% of total loan balances had been processed for modifications or payment deferrals as of April 26, 2020, with additional requests expected[139] Allowance for Credit Losses This section details the significant increase in the Allowance for Credit Losses (ACL), driven by the economic impact of COVID-19 and energy price stress, and the adoption of CECL - The Allowance for Loan and Lease Losses (ALLL) increased by $235 million in Q1 2020, driven by the uncertain economic impact of COVID-19 and prolonged stress in energy prices[143] - The Reserve for Unfunded Lending Commitments (RULC) was $47 million at March 31, 2020, a decrease of $12 million from December 31, 2019[144] Summary of Loan Loss Experience (Q1 2020 vs. Q1 2019) | (Dollar amounts in millions) | March 31, 2020 | December 31, 2019 | March 31, 2019 | | :----------------------------------------------------- | :------------- | :---------------- | :------------- | | Loans and leases outstanding (net of unearned income) | $49,927 | $48,709 | $47,606 | | Average loans and leases outstanding (net of unearned income) | $48,797 | $48,265 | $47,171 | | Allowance for loan losses: | | | | | Balance at beginning of period | $497 | $495 | $495 | | Provision for loan losses | 240 | 37 | 2 | | Total Charge-offs | 13 | 78 | 12 | | Total Recoveries | 6 | 41 | 12 | | Net loan and lease charge-offs (recoveries) | 7 | 37 | — | | Balance at end of period | $730 | $495 | $497 | | Ratio of annualized net charge-offs to average loans and leases | 0.06% | 0.08% | —% | | Ratio of allowance for loan losses to net loans and leases, at period end | 1.46% | 1.02% | 1.04% | | Ratio of allowance for loan losses to nonaccrual loans, at period end | 266% | 204% | 212% | Interest Rate and Market Risk Management This section describes the Bank's strategies for managing interest rate and market risks, aiming to reduce net income volatility and protect equity value - The Board of Directors approves overall policies, delegating management to the Asset/Liability Committee (ALCO)[147] Interest Rate Risk This section details the Bank's efforts to manage balance sheet sensitivity to interest rate changes, including the use of interest rate swaps - The Bank aims to manage balance sheet sensitivity to reduce net income volatility from interest rate changes, having actively reduced asset sensitivity in recent years[148][149] - In late March 2020, the Bank terminated $1.0 billion of fixed-to-floating interest rate swaps hedging long-term debt, reducing the effective interest rate on the debt[150] ALM Interest Rate Derivatives (March 31, 2020 vs. December 31, 2019) | (Dollar amounts in millions) | March 31, 2020 Total Notional Amount | December 31, 2019 Total Notional Amount | | :--------------------------- | :----------------------------------- | :------------------------------------ | | Cash flow hedges (Receive-fixed interest rate swaps) | $3,538 | $3,588 | | Fair value hedges (Receive-fixed interest rate swaps) | $500 | $1,500 | | Total ALM interest rate derivatives | $4,038 | $5,088 | Interest Rate Risk Measurement This section explains how the Bank monitors interest rate risk using Net Interest Income Simulation (EaR) and Economic Value of Equity at Risk (EVE) - Interest rate risk is monitored using Net Interest Income Simulation (Earnings at Risk, EaR) and Economic Value of Equity at Risk (EVE)[154] - As of March 31, 2020, EaR declined by 6% for a 200 bps decline in rates, an improvement from 12% at December 31, 2018, reflecting a move to a less asset-sensitive position[156] - EVE measures expected changes in the fair value of equity in response to interest rate changes, with a policy trigger for an 8% decline[157] Income Simulation – Change in Net Interest Income (March 31, 2020) | Repricing scenario | -100 bps | 0 bps | +100 bps | +200 bps | +300 bps | | :----------------- | :------- | :---- | :------- | :------- | :------- | | Earnings at Risk | (5.6)% | —% | 6.4% | 11.1% | 15.2% | Changes in Economic Value of Equity (March 31, 2020) | Repricing scenario | -100 bps | 0 bps | +100 bps | +200 bps | +300 bps | | :----------------- | :------- | :---- | :------- | :------- | :------- | | Economic Value of Equity | 12.7% | —% | 4.2% | 4.8% | 4.1% | - The Bank has exposure to LIBOR in various financial contracts and is working to determine an appropriate replacement index due to its expected discontinuation at the end of 2021[174] Market Risk – Fixed Income This section discusses the Bank's exposure to market risk from fixed-income securities, particularly municipal securities, and changes in trading assets - The Bank engages in underwriting and trading municipal securities, exposing it to price changes[175] - Trading assets were $160 million at March 31, 2020, down from $182 million at December 31, 2019[175] - The after-tax change in AOCI attributable to AFS securities increased by $147 million in Q1 2020, largely due to interest rate environment changes[176] Market Risk – Equity Investments This section addresses the market risk associated with the Bank's equity investments in publicly-traded, private, and governmental entities - The Bank holds equity securities in publicly-traded, private, and governmental entities, exposing it to fluctuations in investment value[177][178] - Equity exposure to Small Business Investment Company (SBIC) venture capital funds was $125 million at March 31, 2020, down from $154 million at December 31, 2019[179] Liquidity Risk Management This section outlines the Bank's liquidity management strategies, ensuring it can meet cash and collateral obligations through diverse funding sources - Liquidity management ensures the Bank can meet cash and collateral obligations, with sources including deposits, borrowings, equity, and unencumbered assets[180] - Highly liquid assets (investment securities and cash/money market investments) comprised 24% of total assets at March 31, 2020[182] - Total deposits increased to $57.5 billion at March 31, 2020, from $57.1 billion at December 31, 2019, driven by increases in noninterest-bearing demand and savings/money market deposits[184] - The Bank's credit ratings remained investment-grade, though Fitch and S&P revised their outlook to Negative due to COVID-19 and oil and gas exposure[187][188] - Available FHLB and Federal Reserve borrowings increased to $18.2 billion at March 31, 2020, from $15.3 billion at December 31, 2019[190] - The Federal Reserve's Payroll Protection Program Liquidity Facility (PPPLF) provides an additional source of liquidity for PPP loans[191] Operational/Technology and Cyber Risk Management This section addresses the Bank's management of operational, technology, and cyber risks, including mitigation strategies and the inherent challenges of cybersecurity - Operational risk, arising from inadequate internal processes, human errors, or adverse external events, is managed through the ERM department, transactional documentation, and monitoring systems[195][196] - To combat increasing cyberattacks, the Bank has upgraded detection software, expanded staff expertise, and elevated oversight to the Board and an advisory group of cyber experts[197] - Despite significant resources, there is no assurance that future security breaches will not occur or be adequately addressed, potentially leading to material adverse consequences[198] CAPITAL MANAGEMENT This section discusses the Bank's capital management strategies, emphasizing the importance of a strong capital position for profitability and investor confidence Overview This section highlights the importance of a strong capital position for the Bank's profitability and investor confidence, and its use of stress testing for capital decisions - A strong capital position is vital for profitability and investor confidence, with a financial objective to produce superior risk-adjusted returns on shareholders' capital[200] - The Bank's primary regulator is the OCC, and it uses stress testing to inform capital decisions based on economic conditions[201][202] Capital Management Actions This section details the Bank's capital management activities, including changes in shareholders' equity, share repurchases, and dividend payments - Total shareholders' equity was $7.5 billion at March 31, 2020, increasing by $216 million from Q4 2019 due to an increase in the fair value of AFS securities[203] - The Bank repurchased 1.7 million common shares for $75 million in Q1 2020 at an average price of $45.02 per share[204] - Common dividends of $56 million were paid in Q1 2020, with a quarterly common dividend of $0.34 per share approved for May 2020[205] - As of March 31, 2020, 29.2 million common stock warrants (ZIONW) were outstanding with an exercise price of $33.67, expiring on May 22, 2020[206] Basel III Capital Requirements This section confirms the Bank's compliance with Basel III capital adequacy requirements and details the impact of the CECL interim final rule on capital ratios - The Bank met all Basel III capital adequacy requirements as of March 31, 2020[211] - The interim final rule for CECL adoption improved CET1, Tier 1 risk-based, and Total risk-based capital ratios by 8 bps each, and Tier 1 leverage capital ratio by 5 bps[212] Capital Ratios (March 31, 2020 vs. December 31, 2019 vs. March 31, 2019) | | March 31, 2020 | December 31, 2019 | March 31, 2019 | | :----------------------------------------------------- | :------------- | :---------------- | :------------- | | Tangible common equity ratio | 8.4% | 8.5% | 8.8% | | Tangible equity ratio | 9.2% | 9.3% | 9.6% | | Average equity to average assets (three months ended) | 10.7% | 10.7% | 11.0% | | Basel III risk-based capital ratios: | | | | | Common equity tier 1 capital | 10.0% | 10.2% | 11.3% | | Tier 1 leverage | 9.0% | 9.2% | 9.9% | | Tier 1 risk-based | 11.0% | 11.2% | 12.3% | | Total risk-based | 13.2% | 13.2% | 13.5% | | Return on average common equity (three months ended) | 0.3% | 10.1% | 11.9% | | Return on average tangible common equity (three months ended) | 0.4% | 11.8% | 13.9% | CRITICAL ACCOUNTING POLICIES AND SIGNIFICANT ESTIMATES This section discusses the Bank's critical accounting policies and significant estimates, particularly focusing on the adoption and impact of the CECL accounting standard - The Bank adopted ASU 2016-13 (CECL) on January 1, 2020, recording an initial ACL for loans and leases of $526 million, resulting in a $20 million after-tax increase to retained earnings[215] - The ACL was $777 million at March 31, 2020, with the CECL allowance calculated based on quantitative models and management judgment, considering economic forecasts, prepayment rates, and credit quality[215][217] - The adoption of CECL, along with regulatory guidance, allows for a two-year deferral of its impact on regulatory capital ratios, phasing in 25% annually from January 1, 2022[216] - The ACL is expected to become more volatile under CECL due to its reliance on economic forecasts[218] ITEM 1. FINANCIAL STATEMENTS (Unaudited) This section presents the unaudited consolidated financial statements for Zions Bancorporation, National Association, including the balance sheets, income statements, statements of comprehensive income, changes in shareholders' equity, and cash flows, along with detailed notes explaining the accounting policies and significant estimates CONSOLIDATED BALANCE SHEETS This section presents the unaudited consolidated balance sheets, detailing the Bank's assets, liabilities, and shareholders' equity as of March 31, 2020, and December 31, 2019 Consolidated Balance Sheets (March 31, 2020 vs. December 31, 2019) | (In millions) | March 31, 2020 | December 31, 2019 | | :------------------------------------------------------------------------------------------------ | :------------- | :---------------- | | ASSETS | | | | Cash and due from banks | $730 | $705 | | Money market investments | 1,775 | 1,227 | | Investment securities | 14,976 | 14,499 | | Loans held for sale | 140 | 129 | | Loans and leases, net of unearned income and fees | 49,927 | 48,709 | | Less allowance for loan losses | 730 | 495 | | Loans held for investment, net of allowance | 49,197 | 48,214 | | Other noninterest-bearing investments | 916 | 898 | | Premises, equipment and software, net | 1,144 | 1,142 | | Goodwill and intangibles | 1,014 | 1,014 | | Other real estate owned | 6 | 8 | | Other assets | 1,569 | 1,336 | | Total Assets | $71,467 | $69,172 | | LIABILITIES AND SHAREHOLDERS' EQUITY | | | | Deposits: | | | | Noninterest-bearing demand | $24,380 | $23,576 | | Interest-bearing: Savings and money market | 28,901 | 28,790 | | Interest-bearing: Time | 4,237 | 4,719 | | Total deposits | 57,518 | 57,085 | | Federal funds purchased and other short-term borrowings | 3,765 | 2,053 | | Long-term debt | 1,795 | 1,723 | | Reserve for unfunded lending commitments | 47 | 59 | | Other liabilities | 870 | 899 | | Total liabilities | 63,995 | 61,819 | | Shareholders' equity: | | | | Preferred stock | 566 | 566 | | Common stock and additional paid-in capital | 2,668 | 2,735 | | Retained earnings | 3,979 | 4,009 | | Accumulated other comprehensive income (loss) | 259 | 43 | | Total shareholders' equity | 7,472 | 7,353 | | Total liabilities and shareholders' equity | $71,467 | $69,172 | CONSOLIDATED STATEMENTS OF INCOME This section presents the unaudited consolidated statements of income, detailing the Bank's revenues, expenses, and net earnings for the three months ended March 31, 2020, and 2019 Consolidated Statements of Income (Three Months Ended March 31, 2020 vs. 2019) | (In millions, except shares and per share amounts) | 2020 | 2019 | | :------------------------------------------------- | :--- | :--- | | Interest income: | | | | Interest and fees on loans | $532 | $570 | | Interest on money market investments | 8 | 9 | | Interest on securities | 82 | 96 | | Total interest income | 622 | 675 | | Interest expense: | | | | Interest on deposits | 51 | 57 | | Interest on short- and long-term borrowings | 23 | 42 | | Total interest expense | 74 | 99 | | Net interest income | 548 | 576 | | Provision for credit losses: | | | | Provision for loan losses | 240 | 2 | | Provision for unfunded lending commitments | 18 | 2 | | Total provision for credit losses | 258 | 4 | | Net interest income after provision for credit losses | 290 | 572 | | Noninterest income: | | | | Customer-related fees | 143 | 122 | | Dividends and other investment income | (3) | 9 | | Securities gains (losses), net | (6) | 1 | | Total noninterest income | 134 | 132 | | Noninterest expense: | | | | Salaries and employee benefits | 274 | 287 | | Occupancy, net | 33 | 33 | | Furniture, equipment and software, net | 32 | 32 | | Other real estate expense, net | — | (1) | | Credit-related expense | 4 | 6 | | Professional and legal services | 12 | 11 | | Advertising | 3 | 5 | | FDIC premiums | 5 | 6 | | Other | 45 | 51 | | Total noninterest expense | 408 | 430 | | Income before income taxes | 16 | 274 | | Income taxes | 2 | 61 | | Net income | 14 | 213 | | Preferred stock dividends | (8) | (8) | | Net earnings applicable to common shareholders | $6 | $205 | | Weighted average common shares outstanding (Basic, in thousands) | 164,143 | 184,767 | | Weighted average common shares outstanding (Diluted, in thousands) | 172,998 | 195,241 | | Net earnings per common share (Basic) | $0.04 | $1.10 | | Net earnings per common share (Diluted) | $0.04 | $1.04 | CONSOLIDATED STATEMENTS OF COMPREHENSIVE INCOME This section presents the unaudited consolidated statements of comprehensive income, detailing net income and other comprehensive income components for the three months ended March 31, 2020, and 2019 Consolidated Statements of Comprehensive Income (Three Months Ended March 31, 2020 vs. 2019) | (In millions) | 2020 | 2019 | | :----------------------------------------------------- | :--- | :--- | | Net income for the period | $14 | $213 | | Other comprehensive income (loss), net of tax: | | | | Net unrealized holding gains on investment securities | 147 | 122 | | Net unrealized gains (losses) on other noninterest-bearing investments | 2 | (3) | | Net unrealized holding gains on derivative instruments | 69 | 8 | | Reclassification adjustment for (increase) decrease in interest income recognized in earnings on derivative instruments | (2) | 1 | | Other comprehensive income | 216 | 128 | | Comprehensive income | $230 | $341 | CONSOLIDATED STATEMENTS OF CHANGES IN SHAREHOLDERS' EQUITY This section presents the unaudited consolidated statements of changes in shareholders' equity, outlining movements in preferred stock, common stock, retained earnings, and accumulated other comprehensive income Consolidated Statements of Changes in Shareholders' Equity (Three Months Ended March 31, 2020 vs. 2019) | (In millions, except shares and per share amounts) | Balance at Dec 31, 2019 | Q1 2020 Activity | Balance at Mar 31, 2020 | Balance at Dec 31, 2018 | Q1 2019 Activity | Balance at Mar 31, 2019 | | :------------------------------------------------- | :---------------------- | :--------------- | :---------------------- | :---------------------- | :--------------- | :---------------------- | | Preferred stock | $566 | — | $566 | $566 | — | $566 | | Common stock and additional paid-in capital | $2,735 | $(67) | $2,668 | $3,806 | $(265) | $3,541 | | Retained earnings | $4,009 | $(30) | $3,979 | $3,456 | $144 | $3,603 | | Accumulated other comprehensive income (loss) | $43 | $216 | $259 | $(250) | $128 | $(122) | | Total shareholders' equity | $7,353 | $119 | $7,472 | $7,578 | $10 | $7,588 | | Net income for the period | | $14 | | | $213 | | | Other comprehensive income, net of tax | | $216 | | | $128 | | | Cumulative effect adjustment, adoption of ASU 2016-13 | | $20 | | | $(3) | | | Bank common stock repurchased | | $(75) | | | $(276) | | | Dividends on preferred stock | | $(8) | | | $(7) | | | Dividends on common stock | | $(56) | | | $(56) | | CONSOLIDATED STATEMENTS OF CASH FLOWS This section presents the unaudited consolidated statements of cash flows, detailing the cash inflows and outflows from operating, investing, and financing activities for the three months ended March 31, 2020, and 2019 Consolidated Statements of Cash Flows (Three Months Ended March 31, 2020 vs. 2019) | (In millions) | 2020 | 2019 | | :----------------------------------------------------- | :--- | :--- | | CASH FLOWS FROM OPERATING ACTIVITIES | | | | Net income for the period | $14 | $213 | | Provision for credit losses | 258 | 4 | | Depreciation and amortization | 45 | 44 | | Deferred income tax expense (benefit) | (46) | 15 | | Net cash provided by (used in) operating activities | 153 | (42) | | CASH FLOWS FROM INVESTING ACTIVITIES | | | | Net decrease (increase) in money market investments | (547) | 940 | | Proceeds from sales, maturities and paydowns of investment securities available-for-sale | 828 | 587 | | Purchases of investment securities available-for-sale | (1,164) | (623) | | Net change in loans and leases | (1,211) | (860) | | Net cash provided by (used in) investing activities | (2,125) | 87 | | CASH FLOWS FROM FINANCING ACTIVITIES | | | | Net increase in deposits | 433 | 435 | | Net change in short-term funds borrowed | 1,712 | (709) | | Bank common stock repurchased | (75) | (276) | | Dividends paid on common and preferred stock | (66) | (66) | | Net cash provided by (used in) financing activities | 1,997 | (123) | | Net increase (decrease) in cash and due from banks | 25 | (78) | | Cash and due from banks at beginning of period | 705 | 614 | | Cash and due from banks at end of period | $730 | $536 | | Cash paid