FAIR VALUE

Fair Value Measurement

Fair value is defined as the exchange price that would be received for an asset or paid to transfer a liability (an exit price) in the principal or most advantageous market for the asset or liability in an orderly transaction between market participants on the measurement date. For a discussion of the Company’s valuation methodologies for assets and liabilities measured at fair value and the fair value hierarchy, see Note 20 of our 2016 Annual Report on Form 10-K.

Quantitative Disclosure by Fair Value Hierarchy

Assets and liabilities measured at fair value by class on a recurring basis are summarized as follows:



(In millions)	June 30, 2017
	Level 1		Level 2		Level 3		Total
ASSETS
Investment securities:
Available-for-sale: ¹
U.S. Treasury, agencies and corporations	$	25	$	13,919	$	—	$	13,944
Municipal securities			1,317				1,317
Other debt securities			25				25
Money market mutual funds and other	54		1				55
	79		15,262		—		15,341
Trading account			61				61
Other noninterest-bearing investments:
Bank-owned life insurance			502				502
Private equity investments ²	9				82		91
Other assets:
Agriculture loan servicing and interest-only strips					19		19
Deferred compensation plan assets	95						95
Derivatives:
Interest rate swaps and forwards			1				1
Interest rate swaps for customers			37				37
Foreign currency exchange contracts	8						8
	8		38		—		46
	$	191	$	15,863	$	101	$	16,155
LIABILITIES
Securities sold, not yet purchased	$	118	$	—	$	—	$	118
Other liabilities:
Deferred compensation plan obligations	95						95
Derivatives:
Interest rate swaps for customers			32				32
Foreign currency exchange contracts	6						6
	6		32		—		38
	$	219	$	32	$	—	$	251

¹ We used a third-party pricing service to measure fair value for approximately 92% of our AFS Level 2 securities.

² The Level 1 private equity investments amount relates to the portion of our SBIC investments that are now publicly traded.



(In millions)	December 31, 2016
	Level 1		Level 2		Level 3		Total
ASSETS
Investment securities:
Available-for-sale: ¹
U.S. Treasury, agencies and corporations	$	—	$	12,009	$	—	$	12,009
Municipal securities			1,154				1,154
Other debt securities			24				24
Money market mutual funds and other	184		1				185
	184		13,188		—		13,372
Trading account			115				115
Other noninterest-bearing investments:
Bank-owned life insurance			497				497
Private equity investments ¹	18				73		91
Other assets:
Agriculture loan servicing and interest-only strips					20		20
Deferred compensation plan assets	91						91
Derivatives:
Interest rate swaps and forwards			4				4
Interest rate swaps for customers			49				49
Foreign currency exchange contracts	11						11
	11		53		—		64
	$	304	$	13,853	$	93	$	14,250
LIABILITIES
Securities sold, not yet purchased	$	25	$	—	$	—	$	25
Other liabilities:
Deferred compensation plan obligations	91						91
Derivatives:
Interest rate swaps and forwards			1				1
Interest rate swaps for customers			49				49
Foreign currency exchange contracts	9						9
	9		50		—		59
	$	125	$	50	$	—	$	175

¹ We used a third-party pricing service to measure fair value for approximately 91% of our AFS Level 2 securities.

² The Level 1 private equity investments amount relates to the portion of our SBIC investments that are now publicly traded.

Level 3 Valuations

Private Equity Investments

Private equity investments are generally measured under Level 3. Certain investments that have converted to being publicly traded are measured under Level 1. The majority of these private equity investments (“PEIs”) are held in Zions’ Small Business Investment Company (“SBIC”) and are early stage venture investments. The fair value measurements of these investments are updated at least on a quarterly basis, including whenever a new round of financing occurs. Certain of these investments are measured using multiples of operating performance. The fair value measurements of PEIs are reviewed on a quarterly basis by the Securities Valuation Committee. The Equity Investments Committee, consisting of executives familiar with the investments, reviews periodic financial information, including audited financial statements when available.

Certain valuation analytics may be employed that include current and projected financial performance, recent financing activities, economic and market conditions, market comparables, market liquidity, sales restrictions, and other factors. A significant change in the expected performance of the individual investment would result in a change in the fair value measurement of the investment. The amount of unfunded commitments to invest is disclosed in Note 5. Certain restrictions apply for the redemption of these investments and certain investments are prohibited by the Volcker Rule. See discussions in Note 5.

Agriculture Loan Servicing

This asset results from our servicing of agriculture loans approved and funded by Federal Agricultural Mortgage Corporation (“FAMC”). We provide this servicing under an agreement with FAMC for loans they own. The asset’s fair value represents our projection of the present value of future cash flows measured under Level 3 using discounted cash flow methodologies.

Interest-Only Strips

Interest-only strips are created as a by-product of the securitization process. When the guaranteed portions of Small Business Administration (“SBA”) 7(a) loans are pooled, interest-only strips may be created in the pooling process. The asset’s fair value represents our projection of the present value of future cash flows measured under Level 3 using discounted cash flow methodologies.

Reconciliation of Level 3 Fair Value Measurements

The following reconciles the beginning and ending balances of assets and liabilities that are measured at fair value by class on a recurring basis using Level 3 inputs:



	Level 3 Instruments
	Three Months Ended										Six Months Ended
	June 30, 2017						June 30, 2016				June 30, 2017						June 30, 2016
(In millions)	Private equity investments			Ag loan svcg and int-only strips			Private equity investments		Ag loan svcg and int-only strips		Private equity investments			Ag loan svcg and int-only strips			Private equity investments		Ag loan svcg and int-only strips

Balance at beginning of period	$	78		$	20		$	61	$	17	$	73		$	20		$	58	$	14
Securities gains (losses), net	(1		)	—			1		—		2			—			2		—
Other noninterest income	—			(1		)	—		1		—			(1		)	—		4
Purchases	5			—			2		—		12			—			4		—
Redemptions and paydowns	—			—			—		—		(5		)	—			—		—
Balance at end of period	$	82		$	19		$	64	$	18	$	82		$	19		$	64	$	18

No transfers of assets or liabilities occurred among Levels 1, 2 or 3 for the three and six months ended June 30, 2017 and 2016.

The reconciliation of Level 3 instruments includes the following realized gains in the statement of income:



(In millions)	Three Months Ended June 30,				Six Months Ended June 30,
	Three Months Ended June 30,				Six Months Ended June 30,
	2017		2016		2017		2016

Securities gains, net	$	—	$	—	$	3	$	—

Nonrecurring Fair Value Measurements

Included in the balance sheet amounts are the following amounts of assets that had fair value changes measured on a nonrecurring basis.



(In millions)	Fair value at June 30, 2017								Fair value at December 31, 2016
(In millions)	Level 1		Level 2		Level 3		Total		Level 1		Level 2		Level 3		Total
ASSETS
Private equity investments	$	—	$	—	$	1	$	1	$	—	$	—	$	1	$	1
Impaired loans	—		15		—		15		—		52		—		52
Other real estate owned	—		—		—		—		—		1		—		1
	$	—	$	15	$	1	$	16	$	—	$	53	$	1	$	54

The previous fair values may not be current as of the dates indicated, but rather as of the date the fair value change occurred, such as a charge for impairment. Accordingly, carrying values may not equal current fair value.



	Gains (losses) from fair value changes
(In millions)	Three Months Ended June 30,						Six Months Ended June 30,
(In millions)	2017			2016			2017			2016
ASSETS
Private equity investments	$	—		$	—		$	(1	)	$	—
Impaired loans	(6		)	(14		)	(7		)	(29		)
Other real estate owned	—			(1		)	—			(1		)
	$	(6	)	$	(15	)	$	(8	)	$	(30	)

During the three and six months ended June 30, we recognized an insignificant amount of net gains in 2017 and $1 million and $3 million in 2016 from the sale of other real estate owned (“OREO”) properties that had a carrying value at the time of sale of approximately $3 million and $5 million during the six months ended June 30, 2017 and 2016, respectively. Previous to their sale in these periods, we recognized impairment on these properties of an insignificant amount in 2017 and 2016.

Private equity investments carried at cost were measured at fair value for impairment purposes according to the methodology previously discussed for these investments. Amounts of PEIs carried at cost were $10 million at June 30, 2017 and $13 million at December 31, 2016. Amounts of other noninterest-bearing investments carried at cost were $330 million at June 30, 2017 and $211 million at December 31, 2016, which were comprised of Federal Reserve and Federal Home Loan Bank (“FHLB”) stock. Private equity investments accounted for using the equity method were $38 million at June 30, 2017 and $35 million at December 31, 2016.

Impaired (or nonperforming) loans that are collateral dependent were measured at fair value based on the fair value of the collateral. OREO was measured initially at fair value based on collateral appraisals at the time of transfer and subsequently at the lower of cost or fair value. For additional information regarding the measurement of fair value for impaired loans, collateral-dependent loans, and OREO, see Note 20 of our 2016 Annual Report on Form 10-K.

Fair Value of Certain Financial Instruments

Following is a summary of the carrying values and estimated fair values of certain financial instruments:



	June 30, 2017					December 31, 2016
(In millions)	Carrying value		Estimated fair value		Level	Carrying value		Estimated fair value		Level
Financial assets:
HTM investment securities	$	775	$	774	2	$	868	$	850	2
Loans and leases (including loans held for sale), net of allowance	43,192		42,723		3	42,254		42,111		3
Financial liabilities:
Time deposits	3,041		3,021		2	2,757		2,744		2
Other short-term borrowings	3,400		3,400		2	500		500		2
Long-term debt	383		406		2	535		552		2

This summary excludes financial assets and liabilities for which carrying value approximates fair value and financial instruments that are recorded at fair value on a recurring basis. For additional information regarding the financial instruments within the scope of this disclosure, and the methods and significant assumptions used to estimate their fair value, see Note 20 of our 2016 Annual Report on Form 10-K.