UNITED STATES SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
FORM 10-Q
[ X ] QUARTERLY REPORT UNDER SECTION 13 OR 15(d) OF THE SECURITIES
EXCHANGE ACT OF 1934
For the quarterly period ended June 30, 1998
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 0-2610
ZIONS BANCORPORATION
(Exact name of Registrant as specified in its charter)
UTAH 87-0227400
- --------------------------------- -------------------
(State or other jurisdiction (I.R.S. Employer
of incorporation or organization) Identification No.)
ONE SOUTH MAIN, SUITE 1380
SALT LAKE CITY, UTAH 84111
- ---------------------------------------- ----------
(Address of principal executive offices) (Zip Code)
Registrant's telephone number, including area code: (801) 524-4787
Indicate by check mark whether the registrant (1) has filed all reports required
to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during
the preceding 12 months and (2) has been subject to such filing requirement for
the past 90 days. Yes [ X ] No
Indicate the number of shares outstanding of each of the issuer's classes of
common stock, as of the latest practicable date.
Common Stock, without par value, outstanding at
August 13, 1998 75,048,706 shares
1
<PAGE>
ZIONS BANCORPORATION AND SUBSIDIARIES
INDEX
Page
----
PART I. FINANCIAL INFORMATION
---------------------
ITEM 1. Financial Statements (unaudited)
Consolidated Balance Sheets 3
Consolidated Statements of Income 4
Consolidated Statements of Cash Flows 5
Consolidated Statements of Changes in Shareholders' Equity 7
Notes to Consolidated Financial Statements 8
ITEM 2. Management's Discussion and Analysis 9
PART II. OTHER INFORMATION
-----------------
ITEM 4. Submission of Matters to a Vote of Shareholders 27
ITEM 6. Exhibits and Reports on Form 8-K 28
SIGNATURES 29
- ----------
2
<PAGE>
<TABLE>
<CAPTION>
ZIONS BANCORPORATION AND SUBSIDIARIES
CONSOLIDATED BALANCE SHEETS
(Unaudited)
June 30, December 31, June 30,
(In thousands, except share amounts) 1998 1997 1997
------------ ------------ ------------
<S> <C> <C> <C>
ASSETS
Cash and due from banks .......................................................... $ 682,130 $ 693,492 $ 533,839
Money market investments:
Interest-bearing deposits ................................................... 56,525 61,886 51,264
Federal funds sold .......................................................... 50,703 402,879 212,799
Security resell agreements .................................................. 1,133,869 349,338 567,113
Securities:
Held to maturity at cost (approximate market value $2,236,802, $2,193,095
and $1,846,558):
Taxable ................................................................ 1,982,108 1,951,277 1,635,596
Nontaxable ............................................................. 239,933 221,641 198,856
Available for sale at market:
Taxable ................................................................ 489,550 716,495 661,360
Nontaxable ............................................................. 14,531 31,645 40,310
Trading account securities at market ........................................ 401,914 83,681 437,994
------------ ------------ ------------
3,128,036 3,004,739 2,974,116
Loans:
Loans held for sale at cost, which approximates market ...................... 198,180 178,642 156,708
Loans, leases and other receivables ......................................... 5,969,118 5,380,480 4,847,725
------------ ------------ ------------
6,167,298 5,559,122 5,004,433
Less:
Unearned income and fees, net of related costs .......................... 42,191 43,985 41,567
Allowance for loan losses ............................................... 96,043 89,203 86,869
------------ ------------ ------------
6,029,064 5,425,934 4,875,997
Premises and equipment, at cost, less accumulated depreciation ................... 169,850 154,957 139,714
Goodwill and core deposit intangibles ............................................ 170,993 174,433 121,144
Other real estate owned .......................................................... 3,593 5,738 3,998
Other assets ..................................................................... 355,774 297,330 216,295
------------ ------------ ------------
Total assets ........................................................... $ 11,780,537 $ 10,570,726 $ 9,696,279
============ ============ ============
LIABILITIES AND SHAREHOLDERS' EQUITY
Deposits:
Noninterest-bearing demand .................................................. $ 2,164,799 $ 2,009,988 $ 1,656,160
Interest-bearing:
Savings and money market ............................................... 4,123,814 3,859,842 3,350,474
Time under $100,000 .................................................... 1,220,807 1,158,887 971,137
Time over $100,000 ..................................................... 627,672 508,702 403,003
Foreign ................................................................ 175,002 183,044 148,942
------------ ------------ ------------
8,312,094 7,720,463 6,529,716
Securities sold, not yet purchased ............................................... 225,833 45,067 161,316
Federal funds purchased .......................................................... 373,623 350,109 499,720
Security repurchase agreements ................................................... 1,045,612 1,005,590 1,208,773
Accrued liabilities .............................................................. 374,092 171,080 124,684
Federal Home Loan Bank advances and other borrowings:
Less than one year .......................................................... 20,384 68,933 94,194
Over one year ............................................................... 118,011 210,681 110,132
Long-term debt ................................................................... 386,243 280,641 263,246
------------ ------------ ------------
Total liabilities ...................................................... 10,855,892 9,852,564 8,991,781
------------ ------------ ------------
Shareholders' equity:
Capital stock:
Preferred stock, without par value; authorized 3,000,000
shares; issued and outstanding, none .............................. -- -- --
Common stock, without par value; authorized 200,000,000
100,000,000 and 100,000,000 shares; issued and outstanding,
75,033,242, 69,707,084 and 69,562,253 shares ....................... 313,071 179,211 219,487
Accumulated other comprehensive income (loss) ............................... (627) 1,484 (2,670)
Retained earnings ........................................................... 612,201 537,467 487,681
------------ ------------ ------------
Total shareholders' equity ............................................. 924,645 718,162 704,498
------------ ------------ ------------
Total liabilities and shareholders' equity ............................. $ 11,780,537 $ 10,570,726 $ 9,696,279
============ ============ ============
</TABLE>
3
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<TABLE>
<CAPTION>
ZIONS BANCORPORATION AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF INCOME
(Unaudited)
Three Months Ended Six Months Ended
June 30, June 30,
----------------------------------------------
(In thousands, except per share amounts) 1998 1997 1998 1997
--------- --------- --------- ---------
<S> <C> <C> <C> <C>
Interest income:
Interest and fees on loans ................................ $ 139,044 $ 112,538 $ 269,079 $ 213,634
Interest on loans held for sale ........................... 3,660 3,083 7,216 5,951
Lease financing ........................................... 2,879 3,707 6,211 6,720
Interest on money market investments ...................... 24,382 23,308 47,001 44,418
Interest on securities:
Held to maturity:
Taxable ......................................... 25,476 26,372 57,996 47,620
Nontaxable ...................................... 3,296 2,552 6,546 5,386
Available for sale:
Taxable ......................................... 7,153 11,190 15,570 21,981
Nontaxable ...................................... 193 589 488 1,162
Trading account ...................................... 7,235 4,790 12,246 8,135
--------- --------- --------- ---------
Total interest income ................................ 213,318 188,129 422,353 355,007
--------- --------- --------- ---------
Interest expense:
Interest on savings and money market deposits ............. 35,930 28,965 70,654 55,876
Interest on time deposits under $100,000 ................. 16,482 11,858 32,707 22,326
Interest on time deposits over $100,000 .................. 8,304 5,116 15,754 9,204
Interest on foreign deposits .............................. 1,869 1,450 3,774 3,031
Interest on securities sold, not yet purchased ............ 2,892 1,414 4,606 2,658
Interest on borrowed funds ................................ 29,698 41,662 63,517 76,669
--------- --------- --------- ---------
Total interest expense ............................... 95,175 90,465 191,012 169,764
--------- --------- --------- ---------
Net interest income .................................. 118,143 97,664 231,341 185,243
Provision for loan losses ...................................... 3,215 1,767 6,741 3,710
--------- --------- --------- ---------
Net interest income after provision for loan losses .. 114,928 95,897 224,600 181,533
--------- --------- --------- ---------
Noninterest income:
Service charges on deposit accounts ....................... 12,821 11,459 26,210 22,190
Other service charges, commissions and fees ............... 12,565 8,201 23,681 18,082
Trust income .............................................. 2,034 1,233 3,641 2,795
Investment securities gains, net .......................... 2,224 414 2,995 443
Trading account income .................................... 2,189 1,377 4,132 2,168
Loan sales and servicing income ........................... 11,934 10,724 23,405 20,057
Other income .............................................. 2,772 1,821 7,036 4,195
--------- --------- --------- ---------
Total noninterest income ............................. 46,539 35,229 91,100 69,930
--------- --------- --------- ---------
Noninterest expense:
Salaries and employee benefits ............................ 53,050 42,725 104,946 82,490
Occupancy, net ............................................ 6,075 4,690 11,852 8,987
Furniture and equipment ................................... 8,529 6,071 16,263 11,556
Other real estate expense (income) ........................ 206 11 (48) 225
Legal and professional services ........................... 4,112 1,921 6,951 3,617
Supplies .................................................. 2,618 2,179 5,131 4,094
Postage ................................................... 2,062 1,679 4,208 3,416
Advertising ............................................... 2,490 2,417 5,118 4,369
FDIC premiums ............................................. 349 230 665 411
Merger expense ............................................ 3,662 -- 5,635 --
Amortization of goodwill and core deposit intangibles ..... 2,397 1,301 4,777 2,316
Amortization of mortgage servicing assets ................. 1,289 399 2,421 769
Other expenses ............................................ 19,565 15,459 37,480 28,567
--------- --------- --------- ---------
Total noninterest expense ............................ 106,404 79,082 205,399 150,817
--------- --------- --------- ---------
Income before income taxes ..................................... 55,063 52,044 110,301 100,646
Income taxes ................................................... 17,614 18,707 35,144 35,810
--------- --------- --------- ---------
Net income ..................................................... $ 37,449 $ 33,337 $ 75,157 $ 64,836
========= ========= ========= =========
Weighted average common shares outstanding ..................... 72,843 68,556 71,931 68,279
Weighted average common and common-equivalent shares outstanding 74,027 70,755 73,037 70,436
Basic net income per common share .............................. $ 0.51 $ 0.48 $ 1.04 $ 0.94
Diluted net income per common share ............................ $ 0.51 $ 0.47 $ 1.03 $ 0.91
</TABLE>
4
<PAGE>
<TABLE>
<CAPTION>
ZIONS BANCORPORATION AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF CASH FLOWS
(Unaudited)
Three Months Ended Six Months Ended
June 30, June 30,
----------------------------- ------------------------------
(In thousands) 1998 1997 1998 1997
------------ ------------ ------------ ------------
<S> <C> <C> <C> <C>
Cash flows from operating activities:
Net income ..................................................... $ 37,449 $ 33,337 $ 75,157 $ 64,836
Adjustments to reconcile net income to net cash
provided by (used in) operating activities:
Provision for loan losses ................................. 3,215 1,767 6,741 3,710
Write-downs of other real estate owned .................... 137 64 157 161
Depreciation of premises and equipment .................... 6,269 4,979 12,183 9,462
Amortization of premium core deposits and other intangibles 3,671 1,700 7,198 3,085
Amortization of net premium/discount on
investment securities ................................ 1,470 1,400 3,114 2,630
Accretion of unearned income and fees, net of
related costs ........................................ (618) 608 (2,169) (596)
Proceeds from sales of trading account securities ......... 42,399,035 28,383,292 77,526,251 54,094,572
Increase in trading account securities .................... (42,524,672) (28,663,329) (77,844,484) (54,498,490)
Net gain on sales of investment securities ................ (2,224) (414) (2,995) (443)
Proceeds from loans held for sale ......................... 369,861 165,837 613,066 320,192
Increase in loans held for sale ........................... (315,540) (150,135) (627,433) (322,866)
Net gain on sales of loans, leases and other assets ....... (10,241) (6,364) (18,983) (14,517)
Net (gain) loss on sales of other real estate owned ....... 139 (79) (119) (70)
Change in accrued income taxes ............................ (9,021) (12,258) 7,725 3,325
Change in accrued interest receivable ..................... 6,664 (5,225) 6,510 (11,282)
Change in other assets .................................... 8,989 (16,836) (54,238) (29,975)
Change in accrued interest payable ........................ (5,293) (3,445) 1,002 2,694
Change in accrued liabilities ............................. 196,798 6,895 192,194 (3,088)
------------ ------------ ------------ ------------
Net cash used in operating
activities ...................................... (166,088) (258,206) (99,123) (376,660)
------------ ------------ ------------ ------------
Cash flows from investing activities:
Net decrease (increase) in money market investments ........... (54,559) 223,312 (376,414) (209,827)
Proceeds from maturities of investment securities
held to maturity ......................................... 805,355 101,922 1,396,800 210,375
Purchases of investment securities held to maturity ........... (1,110,732) (401,801) (1,164,324) (535,065)
Proceeds from sales of investment securities
available for sale ....................................... 30,888 124,234 139,970 134,377
Proceeds from maturities of investment securities
available for sale ....................................... 102,462 12,541 111,169 91,924
Purchases of investment securities available for sale ......... (84,083) (105,202) (193,854) (162,862)
Proceeds from sales of loans and leases ....................... 213,254 367,226 419,530 550,086
Net increase in loans and leases .............................. (392,271) (352,873) (743,243) (816,560)
Principal collections on leveraged leases ..................... -- -- 1,067 --
Proceeds from sales of premises and equipment ................. 2,141 560 2,385 704
Purchases of premises and equipment ........................... (11,014) (7,913) (22,445) (16,274)
Proceeds from sales of other real estate owned ................ 393 1,452 3,500 1,736
Proceeds from sales of mortgage servicing rights .............. 271 151 609 374
Purchases of mortgage servicing rights ........................ (760) (115) (1,463) (173)
Proceeds from sales of other assets ........................... 425 120 595 270
Purchases of other assets ..................................... -- 50 -- --
Cash paid for acquisitions, net of cash received .............. 16,870 682 26,995 14,717
------------ ------------ ------------ ------------
Net cash used in investing
activities ..................................... (481,360) (35,654) (399,123) (736,198)
------------ ------------ ------------ ------------
</TABLE>
5
<PAGE>
<TABLE>
<CAPTION>
ZIONS BANCORPORATION AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF CASH FLOWS (Continued)
(Unaudited)
Three Months Ended Six Months Ended
June 30, June 30,
-------------------------- --------------------------
(In thousands) 1998 1997 1998 1997
----------- ----------- ----------- -----------
<S> <C> <C> <C> <C>
Cash flows from financing activities:
Net increase in deposits .................... 2,618 130,694 186,861 309,572
Net change in short-term funds borrowed ..... 159,044 204,334 192,316 849,094
Proceeds from FHLB advances over one year ... -- 40,000 -- 40,000
Payments on FHLB advances over one year ..... (3,410) (4,398) (97,620) (16,743)
Payments on leveraged leases ................ -- -- (1,067) --
Proceeds from issuance of long-term debt .... 110,000 16,603 110,000 24,103
Payments on long-term debt .................. (644) (33) (3,007) (449)
Proceeds from issuance of common stock ...... 131,142 381 131,801 1,154
Payments to redeem common stock ............. (620) (28,986) (13,402) (55,111)
Dividends paid .............................. (10,675) (7,744) (18,998) (14,520)
----------- ----------- ----------- -----------
Net cash provided by
financing activities ........ 387,455 350,851 486,884 1,137,100
----------- ----------- ----------- -----------
Net increase (decrease) in cash and due from banks 72,183 56,991 (11,362) 24,242
Cash and due from banks at beginning of period ... 609,947 476,848 693,492 509,597
----------- ----------- ----------- -----------
Cash and due from banks at end of period ......... $ 682,130 $ 533,839 $ 682,130 $ 533,839
=========== =========== =========== ===========
</TABLE>
<TABLE>
<CAPTION>
SUPPLEMENTAL DISCLOSURES OF CASH FLOW INFORMATION
(Unaudited)
Three Months Ended Six Months Ended
June 30, June 30,
(In thousands) 1998 1997 1998 1997
-------- -------- -------- --------
<S> <C> <C> <C> <C>
Cash paid for:
Interest .............................. $100,569 $ 92,548 $188,573 $165,603
Income taxes .......................... 22,501 31,473 22,501 31,856
Loans transferred to other real estate owned 784 961 1,188 3,298
</TABLE>
6
<PAGE>
<TABLE>
<CAPTION>
ZIONS BANCORPORATION AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF CHANGES IN SHAREHOLDERS' EQUITY
(Unaudited)
Six Months Ended
June 30, 1998
------------------------------------------------------------------------
Accumulated
Other Total
Common Comprehensive Comprehensive Retained Shareholders'
(In thousands) Stock Income Income (Loss) Earnings Equity
--------- ------------- ------------- --------- -------------
<S> <C> <C> <C> <C>
Balance, January 1, 1998 .................. $ 179,211 $ 1,484 $ 537,467 $ 718,162
Net income for the period ................. $ 75,157 75,157 75,157
Other comprehensive income, net of tax
Unrealized holding gain (loss) on
securities available for sale net of
reclassification adjustment ........ (2,132) (2,132) (2,132)
-------------
Total comprehensive income ............ $ 73,025
=============
Cash dividends:
Preferred, paid by subsidiaries to
minority shareholders .............. (30) (30)
Common, $.26 per share ................ (18,799) (18,799)
Dividends of acquired company prior
to merger .......................... (169) (169)
Net proceeds from stock offering .......... 129,871 129,871
Issuance of common shares for acquisitions 9,721 21 18,575 28,317
Conversion of acquired company
convertible debt prior to acquisition .. 4,546 4,546
Stock redeemed and retired ................ (13,402) (13,402)
Stock options exercised ................... 3,124 3,124
--------- ------------- --------- -------------
Balance, June 30, 1998 .................... $ 313,071 $ (627) $ 612,201 $ 924,645
========== ============= ========= =============
</TABLE>
<TABLE>
<CAPTION>
Six Months Ended
June 30, 1997
------------------------------------------------------------------------
Accumulated
Other Total
Common Comprehensive Comprehensive Retained Shareholders'
(In thousands) Stock Income Income (Loss) Earnings Equity
--------- ------------- ------------- --------- -------------
<S> <C> <C> <C> <C>
Balance, January 1, 1997 .................. $ 181,084 $ (5,476) $ 437,365 $ 612,973
Net income for the period ................. $ 64,836 64,836 64,836
Other comprehensive income, net of tax
Unrealized holding gain (loss) on
securities available for sale net of
reclassification adjustment ........ 2,806 2,806 2,806
-------------
Total comprehensive income ............ $ 67,642
=============
Cash dividends:
Preferred, paid by subsidiaries to
minority shareholders .............. (18) (18)
Common, $.23 per share ................ (13,573) (13,573)
Dividends of acquired company prior
to merger .......................... (929) (929)
Issuance of common shares for acquisitions 92,015 92,015
Stock redeemed and retired ................ (55,111) (55,111)
Stock options exercised ................... 1,499 1,499
--------- ------------- --------- -------------
Balance, June 30, 1997 .................... $ 219,487 $ (2,670) $ 487,681 $ 704,498
========= ============= ========= =============
</TABLE>
Total comprehensive income for the three months ended June 30, 1998 and 1997 was
$37,405 and $37,684, respectively.
7
<PAGE>
ZIONS BANCORPORATION AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(Unaudited)
Basis of Presentation
The unaudited consolidated financial statements have been prepared in accordance
with generally accepted accounting principles for interim financial information
and with the instructions to Form 10-Q and Rule 10-01 of Regulation S-X.
Accordingly, they do not include all of the information and footnotes required
by generally accepted accounting principles for complete financial statements.
In the opinion of management, all adjustments (consisting of normal recurring
accruals) considered necessary for a fair presentation have been included. On
January 6, 1998 the Company acquired Vectra Banking Corporation and its banking
subsidiary Vectra Bank. On May 22, 1998 the Company acquired FP Bancorp, Inc.
and its banking subsidiary First Pacific National Bank. Both acquisitions were
accounted for as pooling of interests and were considered significant.
Accordingly, prior period amounts have been restated. Certain amounts in the
1997 consolidated financial statements have also been reclassified to conform to
the 1998 presentation. Operating results for the six months ended June 30, 1998
are not necessarily indicative of the results that may be expected for the year
ended December 31, 1998. For further information, refer to the consolidated
financial statements and footnotes thereto included in Zions Bancorporation's
Annual Report to Shareholders on Form 10-K for the year ended December 31, 1997.
The Company adopted Statement of Financial Accounting Standards No. 130
(Statement 130), "Reporting Comprehensive Income", effective January 1, 1998.
Statement 130 establishes standards for reporting and displaying comprehensive
earnings and its components in financial statements. Prior interim periods have
been reclassified to conform for comparative presentation.
In June 1997, the Financial Accounting Standards Board issued Statement No. 131,
Disclosures about Segments of an Enterprise and Related Information. The
provisions of this statement require disclosure of financial reports issued to
shareholders. This statement is effective for fiscal years beginning after
December 15, 1997; however, it is not required to be applied for interim
reporting in the initial year of application.
In February 1998, the Financial Accounting Standards Board issued Statement No.
132, Employers' Disclosures about Pensions and Other Postretirement Benefits.
This statement standardizes the disclosure requirements for pensions and other
postretirement benefits to the extent practicable, requires additional
information on changes in the benefit obligations and fair values of plan assets
that will facilitate financial analysis, and eliminates certain previously
required disclosures. It does not change the measurement or recognition of those
plans. This Statement is effective for fiscal years beginning after December 15,
1997.
In June 1998, the Financial Accounting Standards Board issued Statement No. 133,
Accounting for Derivative Instruments and Hedging Activities. This statement
addresses the accounting for derivative instruments including certain derivative
instruments embedded in other contracts and hedging activities. This statement
is effective for fiscal quarters of all fiscal years beginning after June 15,
1999. The Company is currently studying the statement to determine its future
effects.
8
<PAGE>
ZIONS BANCORPORATION AND SUBSIDIARIES
ITEM 2.
MANAGEMENT'S DISCUSSION AND ANALYSIS
------------------------------------
<TABLE>
<CAPTION>
FINANCIAL HIGHLIGHTS
(Unaudited)
Three Months Ended Six Months Ended
June 30, June 30,
----------------------------------------------------------------
1998 1997 % Change 1998 1997 % Change
-------- -------- ----- -------- -------- ------
(In thousands, except per share and ratio data)
<S> <C> <C> <C> <C> <C> <C>
EARNINGS
Taxable-equivalent net interest income $120,219 $ 99,347 21.01 % $235,378 $188,704 24.73 %
Net interest income .................. 118,143 97,664 20.97 % 231,341 185,243 24.89 %
Noninterest income ................... 46,539 35,229 32.10 % 91,100 69,930 30.27 %
Provision for loan losses ............ 3,215 1,767 81.95 % 6,741 3,710 81.70 %
Noninterest expense .................. 106,404 79,082 34.55 % 205,399 150,817 36.19 %
Income before income taxes ........... 55,063 52,044 5.80 % 110,301 100,646 9.59 %
Income taxes ......................... 17,614 18,707 (5.84)% 35,144 35,810 (1.86)%
Net income ........................... 37,449 33,337 12.33 % 75,157 64,836 15.92 %
PER COMMON SHARE
Net income (diluted) ................. 0.51 0.47 8.51 % 1.03 0.91 13.19 %
Dividends ............................ 0.14 0.12 16.67 % 0.26 0.23 13.04 %
Book value ........................... 12.32 10.13 21.62 %
SELECTED RATIOS
Return on average assets ............. 1.30% 1.33% 1.33% 1.36%
Return on average common equity ...... 18.57% 20.16% 19.59% 20.40%
Efficiency ratio ..................... 63.81% 58.76% 62.91% 58.31%
Net interest margin .................. 4.56% 4.32% 4.55% 4.31%
OPERATING CASH EARNINGS*
Taxable-equivalent net interest income $120,219 $ 99,347 21.01 % $235,378 $188,704 24.73 %
Net interest income .................. 118,143 97,664 20.97 % 231,341 185,243 24.89 %
Noninterest income ................... 46,539 35,229 32.10 % 91,100 69,930 30.27 %
Provision for loan losses ............ 3,215 1,767 81.95 % 6,741 3,710 81.70 %
Noninterest expense .................. 100,345 77,781 29.01 % 194,987 148,501 31.30 %
Income before income taxes ........... 61,122 53,345 14.58 % 120,713 102,962 17.24 %
Income taxes ......................... 18,172 18,714 (2.90)% 36,202 35,845 1.00 %
Net income ........................... 42,950 34,631 24.02 % 84,511 67,117 25.92 %
PER COMMON SHARE
Net income (diluted) ................. 0.58 0.49 18.37 % 1.16 0.95 22.11 %
Dividends ............................ 0.14 0.12 16.67 % 0.26 0.23 13.04 %
Book value ........................... 10.04 8.39 19.67 %
SELECTED RATIOS
Return on average assets ............. 1.51% 1.40% 1.51% 1.42%
Return on average common equity ...... 27.28% 24.44% 28.33% 23.98%
Efficiency ratio ..................... 60.17% 57.80% 59.72% 57.42%
Net interest margin .................. 4.56% 4.32% 4.55% 4.31%
</TABLE>
* Before amortization of goodwill and core deposit intangible assets and merger
charges.
9
<PAGE>
<TABLE>
<CAPTION>
ZIONS BANCORPORATION AND SUBSIDIARIES
FINANCIAL HIGHLIGHTS (Continued)
(Unaudited)
Three Months Ended Six Months Ended
June 30, June 30,
---------------------------------- ----------------------------------------
(In thousands, except per share and ratio data) 1998 1997 % Change 1998 1997 % Change
----------- ----------- ------ ----------- ----------- ------
<S> <C> <C> <C> <C> <C> <C>
AVERAGE BALANCES
Total assets ................................ $11,574,164 $10,027,480 15.42% $11,430,048 $ 9,580,772 19.30%
Securities .................................. 2,778,415 2,741,843 1.33% 2,906,621 2,558,495 13.61%
Net loans and leases ........................ 5,998,996 4,816,063 24.56% 5,831,128 4,641,846 25.62%
Goodwill and core deposit intangibles ....... 170,073 94,943 79.13% 172,161 76,530 124.96%
Total deposits .............................. 8,126,887 6,167,565 31.77% 7,979,270 5,956,348 33.96%
Shareholders' equity ........................ 808,690 663,225 21.93% 773,734 641,047 20.70%
Weighted average common and common-
equivalent shares outstanding .......... 74,027,000 70,755,000 4.62% 73,037,000 70,436,000 3.69%
AT PERIOD END
Total assets ................................ $11,780,537 $ 9,696,279 21.50%
Securities .................................. 3,128,036 2,974,116 5.18%
Net loans and leases ........................ 6,125,107 4,962,866 23.42%
Allowance for loan losses ................... 96,043 86,869 10.56%
Goodwill and core deposit intangibles ....... 170,993 121,144 41.15%
Total deposits .............................. 8,312,094 6,529,716 27.30%
Shareholders' equity ........................ 924,645 704,498 31.25%
Common shares outstanding ................... 75,033,242 69,562,253 7.86%
Average equity to average assets ............ 6.99% 6.61% 6.77% 6.69%
Common dividend payout ...................... 28.05% 21.55% 25.01% 20.93%
Nonperforming assets ........................ 29,333 20,781 41.15%
Loans past due 90 days or more .............. 15,566 8,170 90.53%
Nonperforming assets to net loans and leases,
other real estate owned and other
nonperforming assets at June 30 ........ .48% .42%
</TABLE>
10
<PAGE>
ZIONS BANCORPORATION AND SUBSIDIARIES
OPERATING RESULTS
Zions Bancorporation achieved record earnings for the quarter and half-year
ended June 30, 1998. Consolidated net income for the second quarter of 1998 was
$37.4 million or $0.51 per diluted share, an increase of 12.3% and 8.5%,
respectively, over the restated $33.3 million or $0.47 earned in the second
quarter of 1997. Consolidated net income for the second quarter of 1998
decreased .7% and 1.9%, respectively, from the restated $37.7 million or $0.52
per diluted share for the first quarter of 1998. The quarterly dividend per
share increased 16.7% to $0.14 from $0.12 in the second quarter of 1997 and the
first quarter of 1998.
Consolidated net income was $75.2 million or $1.03 per diluted share for the
first six months of 1998, compared to $64.8 million or $0.91 per diluted share
for the first six months of 1997, which constituted increases of 15.9% and 13.2%
respectively.
The annualized return on average assets for the second quarter and for the first
six months of 1998 was 1.30% and 1.33% compared to 1.33% and 1.36%,
respectively, in 1997, resulting in an annualized return on average common
shareholders' equity of 18.57% and 19.59% for the second quarter and for the
first six months of 1998, compared to 20.16% and 20.40% for the same periods of
1997. The Company's "efficiency ratio," or noninterest expenses as a percentage
of total taxable-equivalent net revenues for the second quarter and for the
first six months of 1998 was 63.81% and 62.91%, respectively, compared to 58.76%
and 58.31% for the same periods of 1997.
OPERATING CASH EARNINGS RESULTS
The Company is also providing its earnings performance on an operating cash
basis since it believes that its cash performance is a better reflection of its
financial position and shareholder value creation as well as its ability to
support growth, pay dividends, and repurchase stock than reported net income.
The use of purchase accounting results in increased levels of goodwill and core
deposit intangible assets recognized and amortized. Operating cash earnings are
earnings before amortization of goodwill and core deposit intangible assets and
merger expenses. Operating cash performance ratios are determined as if goodwill
and core deposit intangible assets and their associated amortization have not
been recognized on the financial statements.
Operating cash earnings for the quarter were $43.0 million or $0.58 per diluted
share, an increase of 24.0% and 18.4%, respectively, over the $34.6 million or
$0.49 per diluted share earned in the second quarter of 1997. Operating cash
earnings for the second quarter of 1998 increased 3.4% over the $41.6 million
earned during the first quarter of 1998. Operating cash earnings per diluted
share were $0.58 for both the first and second quarters of 1998. Year-to-date
operating cash earnings were $84.5 million or $1.16 per diluted share, an
increase of 25.9% and 22.1%, respectively, over the $67.1 million or $0.95 per
diluted share earned in the first half of 1997.
The operating cash annualized return on average assets for the second quarter
and for the first six months of 1998 was 1.51% and 1.51% compared to 1.40% and
1.42%, respectively, in 1997. Operating cash annualized return on average common
shareholders' equity was 27.28% and 28.33% for the second quarter and for the
first six months of 1998, compared to 24.44% and 23.98% for the same periods of
1997. The Company's cash efficiency ratio for the second quarter and for the
first six months of 1998 was 60.17% and 59.72%, respectively, compared to 57.80%
and 57.42% for the same periods of 1997.
11
<PAGE>
ZIONS BANCORPORATION AND SUBSIDIARIES
The Company's second-quarter $4.1 million (12.3%) increase in earnings relative
to the same period a year ago reflects a $20.5 million (21.0%) increase in net
interest income, a $11.3 million (32.1%) increase in noninterest income,
partially offset by a $1.4 million (82.0%) increase in the provision for loan
losses, a $27.3 million (34.6%) increase in noninterest expenses and a $1.1
million (5.8%) decrease in income tax expense.
The Company's $10.3 million (15.9%) increase in net income for the six-month
period ended June 30, 1998 compared to the similar period in 1997, reflects a
$46.1 million (24.9%) increase in net interest income, a $21.2 million (30.3%)
increase in noninterest income, partially offset by a $3.0 million (81.7%)
increase in the provision for loan losses, a $54.6 million (36.2%) increase in
noninterest expenses and a $ .7 million (1.9%) decrease in income tax expense.
NET INTEREST INCOME AND INTEREST RATE SPREADS
Net interest income for the second quarter of 1998, adjusted to a fully
taxable-equivalent basis, increased 21.0% to $120.2 million compared to $99.3
million for the second quarter of 1997 and increased 4.4% from $115.2 million
for the first quarter of 1998. Net interest margin was 4.56%, compared to 4.32%
for the second quarter of 1997 and 4.54% for the first quarter of 1998.
Six-month net interest income, on a fully taxable-equivalent basis, was $235.4
million in 1998, an increase of 24.7% compared to $188.7 million for the first
six months of 1997. Net interest margin for the first six months of 1998 was
4.55%, compared to 4.31% for the first six months of 1997.
The yield on average earning assets decreased 8 basis points during the second
quarter of 1998 as compared to the second quarter of 1997, and decreased 14
basis points from the first quarter of 1998. The average rate paid this quarter
on interest-bearing funds decreased 26 basis points from the second quarter of
1997 and decreased 16 basis points from the first quarter of 1998. Comparing the
first six months of 1998 with 1997, the yield on average earning assets
increased 6 basis points, while the cost of interest-bearing funds decreased by
13 basis points.
The spread on average interest-bearing funds for the second quarter of 1998 was
3.75%, up from the 3.57% for the second quarter of 1997 and up from the 3.73%
for the first quarter of 1998. The spread on average interest-bearing funds for
the first six months of 1998 was 3.75% compared with 3.56% for the same period
in 1997.
12
<PAGE>
<TABLE>
<CAPTION>
ZIONS BANCORPORATION AND SUBSIDIARIES
CONSOLIDATED AVERAGE BALANCE SHEETS, YIELDS AND RATES
(Unaudited)
Three Months Ended Three Months Ended
June 30, 1998 June 30, 1997
-------------------------------------- ---------------------------------------
Average Amount of Average Average Amount of Average
(In thousands) Balance Interest(1) Rate Balance Interest(1) Rate
------------ ------------ ------- ------------ ------------ ------
<S> <C> <C> <C> <C> <C> <C>
ASSETS
Money market investments:
Interest-bearing deposits ........... $ 60,535 $ 797 5.28%$ 51,942 $ 644 4.97%
Federal funds sold and security
resell agreements .............. 1,738,653 23,585 5.44% 1,616,542 22,664 5.62%
------------ ------------ ------------ ------------
Total money market investments . 1,799,188 24,382 5.44% 1,668,484 23,308 5.60%
------------ ------------ ------------ ------------
Securities:
Held to maturity:
Taxable ........................ 1,527,959 25,476 6.69% 1,511,409 26,372 7.00%
Nontaxable ..................... 221,973 4,708 8.51% 201,924 3,646 7.24%
Available for sale:
Taxable ........................ 495,086 7,153 5.80% 665,590 11,190 6.74%
Nontaxable ..................... 14,614 276 7.58% 43,208 841 7.81%
Trading account ..................... 518,783 7,235 5.59% 319,712 4,790 6.01%
------------ ------------ ------------ ------------
Total securities ............... 2,778,415 44,848 6.47% 2,741,843 46,839 6.85%
------------ ------------ ------------ ------------
Loans:
Loans held for sale ................. 203,997 3,660 7.20% 164,121 3,083 7.53%
Net loans and leases 2 .............. 5,794,999 142,504 9.86% 4,651,942 116,582 10.05%
------------ ------------ ------------ ------------
Total loans .................... 5,998,996 146,164 9.77% 4,816,063 119,665 9.97%
------------ ------------ ------------ ------------
Total interest-earning assets ............ $ 10,576,599 $ 215,394 8.17%$ 9,226,390 $ 189,812 8.25%
------------ ------------
Cash and due from banks .................. 530,712 455,101
Allowance for loan losses ................ (96,125) (86,036)
Goodwill and core deposit intangibles .... 170,073 94,943
Other assets ............................. 392,905 337,082
------------ ------------
Total assets ............................. $ 11,574,164 $ 10,027,480
============ ============
LIABILITIES
Interest-bearing deposits:
Savings and NOW deposits ............ $ 949,407 $ 7,416 3.13%$ 863,015 $ 6,572 3.05%
Money market super NOW deposits ..... 3,179,179 28,514 3.60% 2,428,433 22,393 3.70%
Time deposits under $100,000 ........ 1,239,169 16,482 5.33% 930,299 11,858 5.11%
Time deposits $100,000 or more ...... 588,891 8,304 5.66% 363,721 5,116 5.64%
Foreign deposits .................... 162,611 1,869 4.61% 131,902 1,450 4.41%
------------ ------------ ------------ ------------
Total interest-bearing deposits 6,119,257 62,585 4.10% 4,717,370 47,389 4.03%
------------ ------------ ------------ ------------
Borrowed funds:
Securities sold, not yet purchased .. 239,185 2,892 4.85% 93,678 1,414 6.05%
Federal funds purchased and security
repurchase agreements .......... 1,802,733 20,613 4.59% 2,467,017 33,213 5.40%
FHLB advances and other borrowings:
Less than one year ............. 55,735 892 6.42% 124,580 1,038 3.34%
Over one year .................. 136,347 1,678 4.94% 79,526 1,220 6.15%
Long-term debt ...................... 275,994 6,515 9.47% 275,181 6,191 9.02%
------------ ------------ ------------ ------------
Total borrowed funds ........... 2,509,994 32,590 5.21% 3,039,982 43,076 5.68%
------------ ------------ ------------ ------------
Total interest-bearing liabilities ....... $ 8,629,251 $ 95,175 4.42%$ 7,757,352 $ 90,465 4.68%
------------ ------------
Noninterest-bearing deposits ............. 2,007,630 1,450,195
Other liabilities ........................ 128,593 156,708
------------ ------------
Total liabilities ........................ 10,765,474 9,364,255
Total shareholders' equity ............... 808,690 663,225
------------ ------------
Total liabilities and shareholders' equity $ 11,574,164 $ 10,027,480
============ ============
Spread on average interest-bearing funds . 3.75% 3.57%
==== ====
Net interest income and net yield on
interest-earning assets ............. $ 120,219 4.56% $ 99,347 4.32%
============ ==== ============ ====
1 Taxable-equivalent rates used where applicable.
2 Net of unearned income and fees, net of related costs. Loans include nonaccrual and restructured loans.
</TABLE>
13
<PAGE>
<TABLE>
<CAPTION>
ZIONS BANCORPORATION AND SUBSIDIARIES
CONSOLIDATED AVERAGE BALANCE SHEETS, YIELDS AND RATES
(Unaudited)
Six Months Ended Six Months Ended
June 30, 1998 June 30, 1997
-------------------------------------- ---------------------------------------
Average Amount of Average Average Amount of Average
(In thousands) Balance Interest(1) Rate Balance Interest(1) Rate
------------ ------------ ------- ------------ ------------ ------
<S> <C> <C> <C> <C> <C> <C>
ASSETS
Money market investments:
Interest-bearing deposits ........... $ 62,064 $ 1,622 5.27%$ 50,915 $ 1,274 5.05%
Federal funds sold and security
resell agreements .............. 1,626,830 45,379 5.63% 1,571,704 43,144 5.54%
------------ ------------ ------------ ------------
Total money market investments . 1,688,894 47,001 5.61% 1,622,619 44,418 5.52%
------------ ------------ ------------ ------------
Securities:
Held to maturity:
Taxable ........................ 1,705,572 57,996 6.86% 1,380,572 47,620 6.96%
Nontaxable ..................... 231,440 9,351 8.15% 200,865 7,694 7.72%
Available for sale:
Taxable ........................ 512,297 15,570 6.13% 658,602 21,981 6.73%
Nontaxable ..................... 18,013 697 7.80% 42,312 1,660 7.91%
Trading account ..................... 439,299 12,246 5.62% 276,144 8,135 5.94%
------------ ------------ ------------ ------------
Total securities ............... 2,906,621 95,860 6.65% 2,558,495 87,090 6.86%
------------ ------------ ------------ ------------
Loans:
Loans held for sale ................. 204,470 7,216 7.12% 159,302 5,951 7.53%
Net loans and leases 2 .............. 5,626,658 276,313 9.90% 4,482,544 221,009 9.94%
------------ ------------ ------------ ------------
Total loans .................... 5,831,128 283,529 9.81% 4,641,846 226,960 9.86%
------------ ------------ ------------ ------------
Total interest-earning assets ............ $ 10,426,643 $ 426,390 8.25%$ 8,822,960 $ 358,468 8.19%
------------ ------------
Cash and due from banks .................. 536,561 441,336
Allowance for loan losses ................ (95,039) (85,265)
Goodwill and core deposit intangibles .... 172,161 76,530
Other assets ............................. 389,722 325,211
------------ ------------
Total assets ............................. $ 11,430,048 $ 9,580,772
============ ============
LIABILITIES
Interest-bearing deposits:
Savings and NOW deposits ............ $ 1,011,650 $ 15,266 3.04%$ 842,135 $ 12,901 3.09%
Money market super NOW deposits ..... 3,061,150 55,388 3.65% 2,356,913 42,975 3.68%
Time deposits under $100,000 ........ 1,234,092 32,707 5.34% 885,844 22,326 5.08%
Time deposits $100,000 or more ...... 557,223 15,754 5.70% 329,941 9,204 5.63%
Foreign deposits .................... 164,021 3,774 4.64% 136,634 3,031 4.47%
------------ ------------ ------------ ------------
Total interest-bearing deposits 6,028,136 122,889 4.11% 4,551,467 90,437 4.01%
------------ ------------ ------------ ------------
Borrowed funds:
Securities sold, not yet purchased .. 183,036 4,606 5.07% 90,507 2,658 5.92%
Federal funds purchased and security
repurchase agreements .......... 1,843,345 44,332 4.85% 2,314,948 60,379 5.26%
FHLB advances and other borrowings:
Less than one year ............. 79,734 2,542 6.43% 98.965 2,073 4.22%
Over one year .................. 145,817 3,901 5.39% 75,523 2,292 6.12%
Long-term debt ...................... 277,447 12,742 9.26% 267,390 11,925 8.99%
------------ ------------ ------------ ------------
Total borrowed funds ........... 2,529,379 68,123 5.43% 2,847,333 79,327 5.62%
------------ ------------ ------------ ------------
Total interest-bearing liabilities ....... $ 8,557,515 $ 191,012 4.50%$ 7,398,800 $ 169,764 4.63%
------------ ------------
Noninterest-bearing deposits ............. 1,951,134 1,404,881
Other liabilities ........................ 147,665 136,044
------------ ------------
Total liabilities ........................ 10,656,314 8,939,725
Total shareholders' equity ............... 773,734 641,047
------------ ------------
Total liabilities and shareholders' equity $ 11,430,048 $ 9,580,772
============ ============
Spread on average interest-bearing funds . 3.75% 3.56%
==== ====
Net interest income and net yield on
interest-earning assets ............. $ 235,378 4.55% $ 188,704 4.31%
============ ==== ============ ====
1 Taxable-equivalent rates used where applicable.
2 Net of unearned income and fees, net of related costs. Loans include nonaccrual and restructured loans.
</TABLE>
14
<PAGE>
ZIONS BANCORPORATION AND SUBSIDIARIES
The Company manages its earnings sensitivity to interest rate movements, in
part, by matching the repricing characteristics of its assets and liabilities
and through the use of off-balance sheet arrangements such as caps, floors and
interest rate exchange contracts. Net interest income from the use of such
off-balance sheet arrangements for the first six months of 1998 was $2.7 million
compared to $.9 million for the first six months of 1997.
PROVISION FOR LOAN LOSSES
The provision for loan losses increased 82.0% to $3.2 million for the second
quarter of 1998, as compared with $1.8 million for the second quarter of 1997,
and decreased 8.8% from the $3.5 million for the first quarter of 1998. The
provision for loan losses for the first six months of 1998 totaled $6.7 million,
81.7% more than the $3.7 million provision for the first six months of 1997.
Annualized it is .23% of average loans for 1998 compared to .16% for 1997.
NONINTEREST INCOME
Noninterest income for the second quarter of 1998 was $46.5 million, an increase
of 32.1% from the $35.2 million for the second quarter of 1997 and an increase
of 4.4% over the $44.6 million for the first quarter of 1998. Primary
contributors to the increase in noninterest income were service charges on
deposit accounts; other service charges, commissions and fees; trust income;
trading income; and loan sales and servicing income. Comparing the segments of
noninterest income for the second quarter of 1998 and the second quarter of 1997
service charges on deposit accounts; other service charges, commissions and
fees; trust income; trading account income; loan sales and servicing income; and
other income increased 11.9%, 53.2%, 65.0%, 59.0%, 11.3%, and 52.2%,
respectively. Net gains of $2.2 million on the sale of investment securities was
realized during the second quarter of 1998 compared to net gains of $.4 million
during the second quarter of 1997.
Noninterest income for the six months ending June 30, 1998 was $91.1 million, an
increase of 30.3% over $69.9 million for the first six months of 1997. Comparing
the segments of noninterest income for the first six months of 1998 and the
first six months of 1997, service charges on deposit accounts; other service
charges, commissions and fees; trust income; trading account income; loan sales
and servicing income; and other income increased 18.1%, 31.0%, 30.3%, 90.6%,
16.7%, and 67.7%, respectively. Net gains of $3.0 million on the sale of
investment securities was realized during the first six months of 1998 compared
to $.4 million during the first six months of 1997.
15
<PAGE>
ZIONS BANCORPORATION AND SUBSIDIARIES
Noninterest expense for the second quarter of 1998 was $106.4 million, an
increase of 34.5% over $79.1 million for the second quarter of 1997, and an
increase of 7.5% from the $99.0 million for the first quarter of 1998. Comparing
significant noninterest expense segments for the second quarter of 1998 and the
second quarter of 1997, salaries and employee benefits increased 24.2%,
occupancy increased 29.5%, furniture and equipment expense increased 40.5% and
the total of all other expenses increased 51.4% which included significant
increases in legal and professional services, merger expenses, amortization of
intangible assets and other expenses.
Noninterest expense for the six months ending June 30, 1998 was $205.4 million,
an increase of 36.2% over $150.8 million for the first six months of 1997.
Comparing significant noninterest expense segments for the first six months of
1998 and the first six months of 1997, salaries and employee benefits increased
27.2%, occupancy increased 31.9%, furniture and equipment expenses increased
40.7%, and the total of all other expenses increased 51.4% which included
significant increases for legal and professional services, merger expenses,
amortization of intangible assets and other expenses.
The increase in noninterest expense in 1998 resulted primarily from
acquisitions, expansion of business lines and investment in personnel in
selected areas to enhance future revenue growth. At June 30, 1998, the Company
had 5,288 full-time equivalent employees, 266 offices and 531 ATMs compared to
4,243 full time equivalent employees, 198 offices and 474 ATMs at June 30, 1997.
INCOME TAXES
The Company's income taxes decreased 5.8% to $17.6 million for the second
quarter of 1998 compared to $18.7 million for the second quarter of 1997 and
increased .5% from the $17.5 million for the first quarter of 1998. The
Company's income taxes were $35.1 million for the first six months of 1998 as
compared to $35.8 million for the first six months of 1997. The Company's
effective income tax rate was 31.86% for the first six months of 1998, down from
35.58% for the first six months of 1997. The decreased effective tax rate
results primarily from the Company's efforts to restructure its balance sheet
and changes in estimates of tax benefits from NOL and refund claims.
ANALYSIS OF FINANCIAL CONDITION
EARNING ASSETS
Average earning assets increased 18.2% to $10,426.6 million for the six months
ended June 30, 1998, compared to $8,823.0 million for the six months ended June
30, 1997. Earning assets comprised 91.2% of total average assets for the first
six months of 1998, compared with 92.1% for the first six months of 1997.
Average money market investments, consisting of interest-bearing deposits,
federal funds sold and security resell agreements increased 4.1% to $1,688.9
million in the first six months of 1998 as compared to $1,622.6 million in the
first six months of 1997.
During the first six months of 1998, average securities increased 13.6% to
$2,906.6 million compared to $2,558.5 million in the first six months of 1997.
Average held to maturity securities increased 22.5%, available for sale
securities decreased 24.3%, and trading account securities increased 59.1%
compared with the first six months of 1997.
16
<PAGE>
ZIONS BANCORPORATION AND SUBSIDIARIES
Average net loans and leases increased 25.6% to $5,831.1 million for the first
six months of 1998 compared to $4,641.8 million in the first six months of 1997,
representing 55.9% of earning assets in the first six months of 1998 compared to
52.6% in the first six months of 1997. Average net loans and leases were 73.1%
of average total deposits for the six months ended June 30, 1998, as compared to
77.9% for the six months ended June 30, 1997.
INVESTMENT SECURITIES
The following table presents the Company's investment securities on June 30,
1998, December 31, 1997 and June 30, 1997.
<TABLE>
<CAPTION>
June 30, December 31, June 30,
1998 1997 1997
--------------------------- -------------------------- ---------------------------
Amortized Market Amortized Market Amortized Market
(In thousands) cost value cost value cost value
------------ ------------ ------------ ------------ ------------ ------------
<S> <C> <C> <C> <C> <C> <C>
Held to maturity
U.S. Treasury Securities ............. $ 1,002 $ 1,006 $ -- $ -- $ 13,397 $ 13,532
U.S. government agencies and
corporations:
Small Business
Administration loan-
backed securities ............ 395,676 401,220 440,615 448,867 468,106 474,959
Other agency securities ........... 1,440,447 1,443,991 1,414,405 1,420,211 1,062,506 1,063,591
States and political subdivisions .... 254,518 259,878 229,339 234,235 209,653 212,662
Mortgage-backed securities ........... 130,398 130,707 88,559 89,782 80,790 81,814
------------ ------------ ------------ ------------ ------------ ------------
2,222,041 2,236,802 2,172,918 2,193,095 1,834,452 1,846,558
------------ ------------ ------------ ------------ ------------ ------------
Available for sale
U.S. Treasury securities ............. 20,449 20,841 31,387 31,706 25,558 25,630
U.S. government agencies ............. 186,404 182,780 370,441 367,592 197,895 196,313
States and political subdivisions .... 14,349 14,531 30,490 31,645 40,931 42,271
Mortgage and other
asset-backed securities ........... 41,886 42,338 82,764 83,744 229,203 224,811
------------ ------------ ------------ ------------ ------------ ------------
263,138 260,490 515,082 514,687 493,587 489,025
------------ ------------ ------------ ------------ ------------ ------------
Equity securities:
Mutual funds:
Accessor Funds, Inc. ......... 109,534 109,653 109,530 110,958 108,989 108,903
Stock:
Federal Home Loan Bank ....... 103,033 103,033 97,711 97,711 93,658 93,658
Other ........................ 29,416 30,905 23,393 24,784 9,668 10,084
------------ ------------ ------------ ------------ ------------ ------------
241,983 243,591 230,634 233,453 212,315 212,645
------------ ------------ ------------ ------------ ------------ ------------
505,121 504,081 745,716 748,140 705,902 701,670
------------ ------------ ------------ ------------ ------------ ------------
Trading
U.S. Treasury Securities ............. 111,128 111,128 346 346 55,136 55,136
U.S. government agencies and
corporations:
Small Business Administration
loan-backed securities ....... -- -- 14 14 7,665 7,665
Other agency securities ........... 261,439 261,439 44,493 44,493 358,966 358,966
States and political subdivisions .... 5,467 5,467 8,498 8,498 9,067 9,067
Mortgage-backed securities ........... -- -- 630 630 7,160 7,160
Certificates of Deposit .............. 23,880 23,880 29,700 29,700 -- --
------------ ------------ ------------ ------------ ------------ ------------
401,914 401,914 83,681 83,681 437,994 437,994
------------ ------------ ------------ ------------ ------------ ------------
Total .................................... $ 3,129,076 $ 3,142,797 $ 3,002,315 $ 3,024,916 $ 2,978,348 $ 2,986,222
============ ============ ============ ============ ============ ============
</TABLE>
17
<PAGE>
ZIONS BANCORPORATION AND SUBSIDIARIES
LOANS
The Company has structured its organization to separate the lending function
from the credit administration function to strengthen the control and
independent evaluation of credit activities. 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 well-defined standards for
grading its loan portfolio, and management utilizes the comprehensive loan
grading system to determine risk potential in the portfolio. Another aspect of
the Company's credit risk management strategy is the diversification of the loan
portfolio. The Company has a well-diversified loan portfolio with no significant
exposure to highly leveraged transactions and has no foreign credits in its loan
portfolio.
The table below sets forth the amount of loans outstanding by type on June 30,
1998, December 31, 1997 and June 30, 1997.
(In thousands)
June 30, December 31, June 30,
Types 1998 1997 1997
- ----- ---------- ---------- ----------
Loans held for sale .................... $ 198,180 $ 178,642 $ 156,708
Commercial, financial, and agricultural 1,553,725 1,374,586 1,229,824
Real estate:
Construction .................... 569,018 517,888 481,886
Other:
Home equity credit line . 159,223 179,325 162,421
1-4 family residential .. 1,057,438 817,926 857,620
Other real estate-secured 1,993,930 1,725,921 1,493,397
---------- ---------- ----------
3,210,591 2,723,172 2,513,438
---------- ---------- ----------
3,779,609 3,241,060 2,995,324
Consumer:
Bankcard ........................ 56,949 65,521 42,238
Other ........................... 378,757 451,633 369,239
---------- ---------- ----------
435,706 517,154 411,477
Lease financing ........................ 174,318 176,514 158,767
Other receivables ...................... 25,760 71,166 52,333
---------- ---------- ----------
Total loans ..................... $6,167,298 $5,559,122 $5,004,433
========== ========== ==========
Loans held for sale on June 30, 1998 increased 10.9% from year-end 1997. All
other loans, net of unearned income and fees increased 11.1% to $5,926.9 million
on June 30, 1998 compared to $5,336.5 million on December 31, 1997. Commercial
loans, construction loans, and other real estate-secured loans increased from
year end 13.0%, 9.9%, and 17.9%, respectively, as consumer loans, lease
financing and other receivables decreased 18.7%, 1.2%, and 63.8%, respectively.
Within the other real estate-secured loan portfolio, home equity credit line
loans decreased 11.2%, 1-4 family residential loans increased 29.3% and all
other real estate loans increased 15.5% from year end.
18
<PAGE>
ZIONS BANCORPORATION AND SUBSIDIARIES
On June 30, 1998, long-term first mortgage real estate loans serviced for others
totaled $1,797.5 million and consumer and other loan securitizations, which
relate primarily to loans sold under revolving securitization structures,
totaled $1,033.8 million. During the first six months of 1998, the Company sold
$636.2 million of loans classified in held for sale, and securitized and sold
SBA 504 loans, home equity credit line loans, credit card receivables and
automobile loans totaling $409.9 million. During the first six months of 1998,
total loans sold were $1,046.1 million.
RISK ELEMENTS
The Company's nonperforming assets, which include nonaccruing loans,
restructured loans, other real estate owned and other nonperforming assets, were
$29.3 million on June 30, 1998, up from $23.5 million on December 31, 1997, and
up from $20.8 million on June 30, 1997. Such nonperforming assets as a
percentage of net loans and leases, other real estate owned and other
nonperforming assets were .48%, .43% and .42% on June 30, 1998, December 31,
1997, and June 30, 1997, respectively.
Accruing loans past due 90 days or more totaled $15.6 million on June 30, 1998,
up from $10.6 million on December 31, 1997, and up from $8.2 million on June 30,
1997. These loans equaled .25% of net loans and leases on June 30, 1998, as
compared to .19% on December 31, 1997 and .16% on June 30, 1997.
No loans to borrowers were considered potential problems at June 30, 1998 and
December 31, 1997. On June 30, 1997, there was one potential problem loan of
$2.5 million. Potential problem loans are defined as loans presently on accrual,
not contractually past due 90 days or more and not restructured, but about which
management has serious doubt as to the future ability of the borrower to comply
with present repayment terms and which may result in the reporting of the loans
as nonperforming assets.
The Company's total recorded investment in impaired loans included in nonaccrual
loans and leases, amounted to $15.5 million on June 30, 1998, as compared to
$7.1 million on December 31, 1997, and $6.8 million on June 30, 1997. The
Company considers a loan to be impaired when the accrual of interest has been
discontinued and it meets other criteria under the statements. The amount of the
impairment is measured based on the present value of expected cash flows, the
observable market price of the loan, or the fair value of the collateral.
Impairment losses are included in the allowance for loan losses through a
provision for loan losses. Included in the allowance for loan losses on June 30,
1998, December 31, 1997, and June 30, 1997, is a required allowance of $1.2
million, $46 thousand and $1.6 million, respectively, on $5.2 million, $.3
million and $3.3 million, respectively, of the recorded investment in impaired
loans.
19
<PAGE>
ZIONS BANCORPORATION AND SUBSIDIARIES
The following table sets forth the nonperforming assets on June 30, 1998,
December 31, 1997, and June 30, 1997.
June 30, December 31, June 30,
(In thousands) 1998 1997 1997
------- ------- -------
Nonaccrual loans ............................ $25,055 $16,299 $15,953
Restructured loans .......................... 685 1,510 830
Other real estate owned and other
nonperforming assets ................... 3,593 5,738 3,998
------- ------- -------
Total .................................. $29,333 $23,547 $20,781
======= ======= =======
% of net loans and leases*, other real estate
owned and other nonperforming assets ... .48% .43% .42%
Accruing loans past due 90 days or more ..... $15,566 $10,616 $ 8,170
======= ======= =======
% of net loans and leases* .................. .25% .19% .16%
*Includes loans held for sale
ALLOWANCE FOR LOAN LOSSES
The Company's allowance for loan losses was 1.57% of net loans and leases on
June 30, 1998, compared to 1.62% on December 31, 1997, and 1.75% on June 30,
1997. Net charge-offs during the second quarter of 1998 were $3.1 million, or
.21% of average net loans and leases, compared to $2.3 million, or .19% of
average net loans and leases for the second quarter of 1997. Net charge-offs for
the first six months of 1998 were $3.7 million, or .13% of average net loans and
leases, compared to $4.2 million or .18% of average net loans and leases for the
first six months of 1997.
The allowance, as a percentage of nonaccrual loans and restructured loans, was
373.13% on June 30, 1998, compared to 500.89% on December 31, 1997, and 517.60%
on June 30, 1997. The allowance, as a percentage of nonaccrual loans and
accruing loans past due 90 days or more was 236.44% on June 30, 1998, compared
to 331.42% on December 31, 1997 and 360.11% on June 30, 1997.
On June 30, 1998, December 31, 1997, and June 30, 1997, the allowance for loan
losses includes an allocation of $9.5 million, $8.9 million and $8.0 million,
respectively, related to commitments to extend credit on loans and standby
letters of credit. Commitments to extend credit on loans and standby letters of
credit on June 30, 1998, December 31, 1997 and June 30, 1997, totaled $3,045.4
million, $2,700.1 million and $2,363.4 million, respectively.
20
<PAGE>
ZIONS BANCORPORATION AND SUBSIDIARIES
In analyzing the adequacy of the allowance for loan and lease losses, management
utilizes a comprehensive loan grading system to determine risk potential in the
portfolio, and considers the results of independent internal and external credit
review, historical charge-off experience, and changes in the composition and
volume of the portfolio. Other factors, such as general economic conditions and
collateral values, are also considered. Larger problem credits are individually
evaluated to determine appropriate reserve allocations. Additions to the
allowance are based upon the resulting risk profile of the portfolio developed
through the evaluation of the above factors.
The following table shows the changes in the allowance for loan losses and a
summary of loan loss experience.
<TABLE>
<CAPTION>
Six Months Twelve Months Six Months
Ended Ended Ended
(In thousands) June 30, December 31, June 30,
1998 1997 1997
----------- ----------- -----------
<S> <C> <C> <C>
Average loans* and leases outstanding
(net of unearned income) ............. $ 5,831,128 $ 4,975,871 $ 4,641,846
=========== =========== ===========
Allowance for possible losses:
Balance at beginning of the period ........ $ 89,203 $ 84,163 $ 84,163
Allowance of companies acquired ........... 3,827 7,063 3,223
Provision charged against earnings ........ 6,741 7,458 3,710
Loans and leases charged-off:
Loans held for sale .................. -- -- --
Commercial, financial and agricultural (1,887) (6,157) (2,440)
Real estate .......................... (764) (1,148) (539)
Consumer ............................. (4,686) (8,939) (3,826)
Lease financing ...................... (3) (279) (90)
Other receivables .................... 289 -- --
----------- ----------- -----------
Total ........................... (7,629) (16,523) (6,895)
----------- ----------- -----------
Recoveries:
Loans held for sale .................. -- -- --
Commercial, financial and agricultural 1,680 2,540 1,002
Real estate .......................... 763 1,906 379
Consumer ............................. 1,396 2,450 1,284
Lease financing ...................... 53 146 3
Other receivables .................... 9 -- --
----------- ----------- -----------
Total ........................... 3,901 7,042 2,668
----------- ----------- -----------
Net loan and lease charge-offs ............ (3,728) (9,481) (4,227)
----------- ----------- -----------
Balance at end of the period .............. $ 96,043 $ 89,203 $ 86,869
=========== =========== ===========
*Includes loans held for sale
Ratio of net charge-offs to
average loans and leases ............. .13% .19% .18%
</TABLE>
21
<PAGE>
ZIONS BANCORPORATION AND SUBSIDIARIES
DEPOSITS
Average total deposits of $7,979.3 million for the first six months of 1998
increased 34.0% over the $5,956.3 million for the first six months of 1997, with
average demand deposits increasing 38.9%. Average money market and super NOW
deposits, time deposits under $100,000, time deposits over $100,000 and foreign
deposits for the first six months of 1998 increased 29.9%, 39.3%, 68.9% and
20.0% respectively, from the first six months of 1997. Average savings and NOW
deposits increased 20.1% during the first six months of 1998, compared with the
same period one year earlier.
Total deposits increased 7.7% to $8,312.1 million on June 30, 1998 as compared
to $7,720.5 million on December 31, 1997. Comparing June 30, 1998 to December
31, 1997, demand deposits, savings and money market deposits, time deposits
under $100,000, and time deposits over $100,000 increased 7.7%, 6.8%, 5.3%, and
23.4%, respectively, and foreign deposits decreased 4.4%.
LIQUIDITY AND INTEREST RATE SENSITIVITY
The Company manages its liquidity to provide adequate funds to meet its
financial obligations, including withdrawals by depositors and debt service
requirements, as well as to fund customers' demand for credit. Liquidity is
primarily provided by the regularly scheduled maturities of the Company's
investment and loan portfolios. The Company's liquidity is enhanced by the fact
that cash, money market securities and liquid investments, net of short-term or
"purchased" liabilities and wholesale deposits, totaled $2,209.0 million or
29.4% of core deposits on June 30, 1998.
The Company's core deposits, consisting of demand, savings and money market
deposits and time deposits under $100,000, constituted 90.3% of total deposits
on June 30, 1998 as compared to 91.0% on December 31, 1997 and 91.5% on June 30,
1997.
Maturing balances in loan portfolios provide flexibility in managing cash flows.
Maturity management of those funds is an important source of medium- to
long-term liquidity. The Company's ability to raise funds in the capital markets
through the securitization process and by debt issuance allows the Company to
take advantage of market opportunities to meet funding needs at reasonable cost.
The parent company's cash requirements consist primarily of debt service,
dividends to shareholders, operating expenses, income taxes, and share
repurchases. The parent company's cash needs are routinely satisfied through
payments by subsidiaries of dividends, management and other fees, principal and
interest payments on subsidiary borrowings from the parent company.
On June 15, 1998, the Company issued $110 million of subordinated debentures.
The capital qualifying securities are subordinate to the claims of depositors.
With the approval of banking regulators, the ten year securities are callable in
five years at par. The debentures bear interest at 70 basis points over 90-day
Libor for the first five years and 120 basis points over 90-day Libor for the
last five years and require quarterly interest payments.
Interest rate risk is the most significant market risk regularly undertaken by
Company. The Company believes there have been no significant changes in market
risk compared to the disclosures in Zions Bancorporation's Annual Report to
Shareholders on Form 10-K for the year ended December 31, 1997.
22
<PAGE>
ZIONS BANCORPORATION AND SUBSIDIARIES
Interest rate sensitivity measures the Company's financial exposure to changes
in interest rates. Interest rate sensitivity is, like liquidity, affected by
maturities of assets and liabilities. The Company assesses its interest rate
sensitivity using duration, simulation, and gap analysis. Duration is a measure
of the weighted average expected lives of the discounted cash flows from assets
and liabilities. Simulation is used to estimate net interest income over time
using alternative interest rate scenarios. Gap analysis compares the volumes of
assets and liabilities whose interest rates are subject to reset within
specified periods.
The Company, through the management of maturities and repricing of its assets
and liabilities and the use of off-balance sheet arrangements such as interest
rate caps, floors, futures, options, and interest rate exchange agreements,
attempts to minimize the effect on net income of changes in interest rates. The
Company's management exercises its best judgment in making assumptions with
respect to loan and security prepayments, early deposit withdrawals and other
noncontrollable events in managing the Company's exposure to changes in interest
rates. The interest rate risk position is actively managed and changes daily as
the interest rate environment changes; therefore, positions at the end of any
period may not be reflective of the Company's interest rate position in
subsequent periods. The prime lending rate is the primary basis used for pricing
the Company's loans and the short-term Treasury rate is the index used for
pricing many of the Company's deposits. The Company, however, is unable to
economically hedge the prime/91-day T-bill spread risk through the use of
off-balance sheet financial instruments.
CAPITAL RESOURCES AND DIVIDENDS
Total shareholders' equity on June 30, 1998 was $924.6 million, an increase of
28.8% over the $718.2 million on December 31, 1997, and an increase of 31.2%
over the $704.5 million on June 30, 1997. The ratio of average equity to average
assets for the first six months of 1998 was 6.77% as compared to 6.69% for the
same period in 1997. On June 30, 1998, the Company's Tier I risk-based capital
ratio was 13.50%, as compared to 11.52% on December 31, 1997 and 13.69% on June
30, 1997. On June 30, 1998 the Company's total risk-based capital ratio was
16.90%, as compared to 13.40% on December 31, 1997 and 15.83% on June 30, 1997.
The Company's leverage ratio on June 30, 1998 was 8.06%, as compared to 6.78% on
December 31, 1997 and 7.84% on June 30, 1997.
Dividends declared per common share for the second quarter of 1998 of $.14
increased 16.7%, as compared to $.12 for the second quarter of 1997 and the
first quarter of 1998. The common cash dividend payout of net income for the
first six months of 1998 was 25.01%, as compared to 20.93% for the first six
months of 1997.
On June 10, 1998, the Company completed a public offering of 2,760,000 shares of
its common stock. Net proceeds from the offering were $129.9 million. The
Company plans to use the proceeds for the Sumitomo acquisition.
During the first six months of 1998, the Company repurchased and retired 276,412
shares of its common stock at a cost of $12.4 million.
23
<PAGE>
ZIONS BANCORPORATION AND SUBSIDIARIES
MERGERS AND ACQUISITIONS
On May 22, 1998, the Company acquired FP Bancorp, Inc. of Escondido, California
and its banking subsidiary First Pacific National Bank for 1,914,731 shares of
common stock. First Pacific National Bank was merged with the Company's
California banking subsidiary Grossmont Bank. FP Bancorp, Inc. had total assets
of approximately $363 million at the date of acquisition. The transaction was
accounted for as a pooling-of-interests. The acquisition was considered
significant and prior year amounts have been restated.
On May 29, 1998, the Company acquired Routt County National Bank Corporation and
its banking subsidiary First National Bank of Colorado in Steamboat Springs, as
well as SBT Bankshares, Inc. and its banking subsidiary State Bank and Trust of
Colorado Springs. Zions Bancorporation exchanged 649,988 shares of its common
stock for all the shares of Routt County National Bank Corporation and 460,311
shares of its common stock for all the common and common equivalent shares of
SBT Bankshares, Inc. The acquisitions were not significant to the consolidated
financial statements and were accounted for as poolings-of-interests.
On March 25, 1998, the Company announced a definitive agreement to acquire The
Sumitomo Bank of California with headquarters in San Francisco, California. The
Company will pay approximately $546 million for the acquisition. At June 30,
1998, The Sumitomo Bank of California had total assets of approximately $4.7
billion. The transaction will be accounted for as purchase and is intended to
close in the third quarter of 1998. It is anticipated that The Sumitomo Bank of
California will be merged with Grossmont Bank and First Pacific National Bank
which was acquired during this quarter and the combined bank will be renamed
California Bank and Trust. The combined bank will be the fifth largest
commercial bank in the state.
On May 8, 1998, the Company and Kersey Bancorp, Inc., the parent company of
Independent Bank in Kersey, Colorado announced a definitive agreement to merge
Kersey Bancorp, Inc. with and into a subsidiary of Zions Bancorporation in
exchange for common shares of Zions Bancorporation. At December 31, 1997, Kersey
Bancorp, Inc. had total assets of $135 million and seven banking offices in
Northeastern Colorado. The merger is intended to be accounted for as a
pooling-of-interests, and is expected to close in the third quarter of 1998,
subject to the approval of banking regulators and the shareholders of Kersey
Bancorp, Inc.
On May 14, 1998, the Company and The Commerce Bancorporation, the parent company
of The Commerce Bank of Washington, N.A. in Seattle, Washington, announced a
definitive agreement to merge The Commerce Bancorporation with and into Zions
Bancorporation in exchange for common shares of Zions Bancorporation. At March
31, 1998, Commerce had total assets of $330 million and operated one office in
Seattle. The merger is intended to be accounted for as a pooling-of-interests
and is expected to close in the third quarter of 1998, subject to the approval
of banking regulators and the shareholders of The Commerce Bancorporation.
On May 15, 1998, the Company and Mountain Financial Holding Company, the parent
company of Mountain National Bank, in Woodland Park, Colorado, announced a
definitive agreement to merge Mountain Financial Holding Company with and into a
subsidiary of Zions Bancorporation in exchange for common shares of Zions
Bancorporation. As of December 31, 1997, Mountain Financial Holding Company had
total assets of $85 million and 2 banking offices in Woodland Park and Cripple
Creek, Colorado. The transaction is intended to be accounted for as a
pooling-of-interests. The merger is subject to the approval
24
<PAGE>
ZIONS BANCORPORATION AND SUBSIDIARIES
of banking regulators and the shareholders of Mountain Financial Holding Company
and is expected to close in the third quarter of 1998.
On June 3, 1998, the Company announced a definitive agreement to merge with
Eagle Holding Company, a bank holding company in Broomfield, Colorado. Eagle
Holding Company will merge with and into a subsidiary of Zions Bancorporation in
exchange for common shares of Zions. Eagle Bank has $41 million in assets and
one banking location. The merger is subject to the approval of banking
regulators and Eagle Holding Company's shareholders and is expected to close in
the third quarter of 1998.
YEAR 2000
A number of electronic systems utilize a two-digit field for year references,
e.g., 98 for 1998. Such systems may compute that the year 2000, if represented
as 00, to be 98 years ago rather than two years hence. If these systems are not
corrected prior to December 31, 1999, many processing failures could result.
This section describes the status of the Company's efforts to correct these
system deficiencies.
State of Readiness. The company is well underway with its Year 2000 remediation
effort for its in-house information systems and expects remediation to be
virtually completed by December 31, 1998, except for its personal trust and
mortgage systems for which the Company is awaiting vendor modifications. The
Company also has a number of small decentralized systems that are not critical
to the Company's mission or its internal controls that it does not expect to be
corrected by the end of this year. However, the Company anticipates that all of
its systems, including those mentioned above, will be compliant by June 30,
1999. The Company uses third party servicers for some of its information and
data processing needs and it is monitoring the progress of these entities in
addressing the Year 2000 issue and believes they will all be compliant by March
31, 1999. The Company is also assessing the operability of other devices after
1999, including vaults, fax machines, stand-alone personal computers, security
systems and elevators, and addressing deficiencies, if necessary. These efforts
are currently underway and we anticipate compliance to be achieved in 1999.
Costs. In order to achieve and confirm Year 2000 readiness, significant costs
are being incurred to test and modify or replace computer software and hardware,
as well as a variety of other items, e.g., ATMs. The Company believes that its
remediation costs have been mitigated since it has replaced the large
preponderance of its core banking systems during the past five years with Year
2000 compliant software. However, the considerable effort required to implement
new software and sufficiently test its compliance is consuming a substantial
portion of the Company's internal information technology resources. This
diversion of resources to the Year 2000 project has resulted in delays in
implementing enhancements to a number of the Company's systems and products. The
Company does not believe, however, that these delays will have a significant
effect on its revenue or expense growth. In addition, a significant portion of
the Company's ATM's and personal computers are expected to be replaced to
achieve Year 2000 compliance. The aggregate increase in expense to achieve Year
2000 readiness is estimated to be $3 million of which $1.5 million has been
incurred through June 30, 1998. This does not include an estimated capital
outlay of between $2 to $4 million to replace certain ATMs and personal
computers, a portion of which would have been incurred in the ordinary course of
business without regard to Year 2000 issues.
25
<PAGE>
ZIONS BANCORPORATION AND SUBSIDIARIES
Risks. If the Company's mission-critical applications are not compliant by 2000,
it may not be able to correctly process transactions in a reasonable period of
time. This scenario could result in a wide variety of claims against the Company
for improper handling of its assets as well as deposits and other borrowings
from its customers. The Company is also at risk if the credit worthiness of a
few of its large borrowers, or a significant number of its small borrowers, were
to deteriorate quickly and severely as a result of their inability to conduct
business operations after December 31, 1999, for whatever reason. The Company is
presently reviewing the Year 2000 plans of a number of its credit customers to
ascertain the sufficiency of their remediation efforts and the implication of
their actions on their credit worthiness. The Company explicitly disclaims,
however, any obligation or liability for the completeness, or lack thereof, of
its customers' Year 2000 remediation plans or actions.
Contingency Plans. The Company is in the process of developing contingency plans
for each business unit in the event that the remediation plan is not completed
in time or fails for reasons that are not presently foreseen. In the event of
such a failure, these plans will outline the steps that will be taken to deal
with the situation to minimize the effect on customers and losses to the
Company.
FORWARD-LOOKING INFORMATION
Statements in Management's Discussion and Analysis that are not based on
historical data are forward- looking, including, for example, the projected
performance of Zions and its operations. These statements constitute
forward-looking information within the meaning of the Private Securities
Litigation Reform Act of 1995. Actual results may differ materially from the
projections discussed in Management's Discussion and Analysis since such
projections involve significant risks and uncertainties. Factors that might
cause such differences include, but are not limited to: the timing of closing
proposed acquisitions being delayed or such acquisitions being prohibited,
competitive pressures among financial institutions increasing significantly,
economic conditions, either nationally or locally in areas in which Zions
conducts its operations, being less favorable than expected, legislation or
regulatory changes which adversely affect the ability of the Company to conduct,
or the accounting for, business combinations or share repurchases, or the cost
and effort required to correct Year 2000 processing deficiencies being more
difficult than expected due to the difficulty attracting and retaining qualified
systems personnel or vendor-supplied software releases being delayed or not
functioning properly. Zions disclaims any obligation to update any such factors
or to publicly announce the result of any revisions to any of the
forward-looking statements included herein to reflect future events or
developments.
26
<PAGE>
ZIONS BANCORPORATION AND SUBSIDIARIES
PART II. OTHER INFORMATION
-----------------
ITEM 4. SUBMISSION OF MATTERS TO A VOTE OF SHAREHOLDERS
-----------------------------------------------
The following is a summary of matters submitted to vote at the Annual Meeting of
Shareholders of Zions Bancorporation:
a) The Annual Meeting of Shareholders was held on April 24, 1998.
Total number of shares eligible for voting was 69,053,648.
b) Election of Directors
---------------------
Proxies were solicited by Zions Bancorporation's management
pursuant to Regulation 14A under the Securities Exchange Act
of 1934. There was no solicitation in opposition to
management's nominees as listed in the proxy statement, and
all of such nominees were elected pursuant to the vote of the
shareholders as indicated in the proxy statement.
c) The matters voted upon and the results were as follows:
(1) Election of Directors
---------------------
Withhold
For Authority
--- ---------
Roger B. Porter 54,123,397 369,946
L.E. Simmons 54,113,515 379,827
I.J. Wagner 54,051,597 441,346
(2) Approve an increase in the number of authorized shares
of Capital Stock of Zions Bancorporation
----------------------------------------
Approval to increase the authorized shares of Common
Stock, without par value to 200,000,000 shares
For Against Abstain
52,897,891 1,463,811 130,837
(3) Amend the Zions Bancorporation Key Employee Stock Option Plan
-------------------------------------------------------------
Amend the Plan to provide for automatic increases in the
aggregate number of shares available under the Plan.
For Against Abstain
43,624,887 2,459,168 516,249
27
<PAGE>
ZIONS BANCORPORATION AND SUBSIDIARIES
(4) Appointment of Independent Accountants
--------------------------------------
The selection of KPMG Peat Marwick LLP as the firm of
independent certified public accountants to audit the
books and accounts of Zions Bancorporation and its
subsidiaries for the year ending December 31, 1998 was
ratified
For Against Abstain
54,315,714 55,093 108,036
PART II. OTHER INFORMATION (CONTINUED)
ITEM 6. EXHIBITS AND REPORTS ON FORM 8-K
--------------------------------
a) Exhibits
Exhibit 3 Articles of Amendment to the Restated Articles of
Incorporation of Zions Bancorporation dated
April 24, 1998, and filed with the Department of
Business Regulation, Division of Corporations of
the State of Utah on April 27, 1998.
Exhibit 10 1998 Amendment to Zions Bancorporation Key
Employee Incentive Stock Option Plan
b) Reports on Form 8-K
Zions Bancorporation filed the following reports on Form 8-K during the quarter
ended June 30, 1998;
Form 8-K/A filed May 27, 1998 (Item 5) Zions Bancorporation filed an amendment
and supplement to Form 8-K dated April 3, 1998, which announced the Agreement
and Plan of Merger, by and among, Zions Bancorporation, SBC Acquisition Corp.,
and The Sumitomo Bank of California. Additionally, Zions Bancorporation and The
Sumitomo Bank of California entered into a Voting Agreement and an
Indemnification Agreement both dated as of March 25, 1998.
Form 8-K filed May 18, 1998 (Item 5) Zions Bancorporation filed The Sumitomo
Bank of California's unaudited balance sheet as of March 31, 1998 and unaudited
statements of income, changes in shareholders' equity and cash flows for the
three months ended March 31, 1998 and 1997.
Form 8-K filed April 15, 1998 (Item 5) Zions Bancorporation filed (I) The
Sumitomo Bank of California's audited balance sheets for the years ended
December 31, 1997 and 1996 and The Sumitomo Bank of California's audited
statements of income, changes in shareholders' equity and cash flows for the
years ended December 31, 1997, 1996 and 1995; and (II) unaudited summary pro
forma condensed balance sheet and income statement information for the pending
merger with The Sumitomo Bank of California.
28
<PAGE>
ZIONS BANCORPORATION AND SUBSIDIARIES
Form 8-K filed April 3, 1998 (Item 5) On March 25, 1998, Zions Bancorporation
issued a press release announcing the Agreement and Plan of Merger, by and
among, Zions Bancorporation, SBC Acquisition Corp. and The Sumitomo Bank of
California, pursuant to which SBC, an indirect wholly owned subsidiary of Zions
Bancorporation, will merge with and into The Sumitomo Bank of California.
S I G N A T U R E S
-------------------
Pursuant to the requirements of the Securities Exchange Act of 1934, the
Registrant has duly caused this report to be signed on its behalf by the
undersigned thereunto duly authorized.
ZIONS BANCORPORATION
/s/Harris H. Simmons
--------------------
Harris H. Simmons, President and
Chief Executive Officer
/s/Dale M. Gibbons
------------------
Dale M. Gibbons, Executive Vice
President and Chief Financial Officer
Dated August 13, 1998
29
EXHIBIT 3
ARTICLES OF AMENDMENT
TO THE
RESTATED ARTICLES OF INCORPORATION
OF
ZIONS BANCORPORATION
Pursuant to the provisions of Sections 16-10a-1001, et. seq, UTAH
CODE ANNOTATED (1953), as amended, ZIONS BANCORPORATION (the "Corporation")
hereby adopts these Articles of Amendment to its Restated Articles of
Incorporation:
1. The name of the Corporation is ZIONS BANCORPORATION.
2. By this amendment (the "Amendment"), Article VIII of the
Restated Articles of Incorporation of the Corporation is hereby amended to read
in its entirety as follows:
ARTICLE VIII
The aggregate number of shares of capital stock which this
corporation shall have authority to issue is 203,000,000, divided into two
classes as follows:
(A) 200,000,000 shares of Common Stock, without par
value, which shares shall be entitled to one
vote per share; and
(B) 3,000,000 shares of Preferred Stock, without
par value.
The Board of Directors of this corporation is expressly vested
with the authority to determine, with respect to any class of Preferred Stock,
the dividend rights (including rights as to cumulative, noncumulative or
partially cumulative dividends) and preferences, dividend rate, conversion
rights, voting rights, rights and terms of redemption (including sinking fund
provisions), redemption price or prices, and the liquidation preferences of any
such class of Preferred Stock. As to any series of Preferred Stock, the Board of
Directors is authorized to determine the number of shares constituting such
series, and to increase or decrease (but not below the number of shares of such
series then outstanding) the number of shares of that series.
The Board of Directors of this corporation is expressly vested
with the authority to divide the above-described class of Preferred Stock into
series and to fix and determine the variations in the relative rights and
preferences of the shares of Preferred Stock of any series so established,
including, without limitation, the following:
(i) the rate of dividend;
(ii) the price at and the terms and conditions on
which shares may be redeemed;
(iii) the amount payable upon shares in event of
involuntary liquidation;
(iv) the amount payable upon shares in event of
voluntary liquidation;
<PAGE>
(v) sinking fund provisions for the redemption or
purchase of shares;
(vi) the terms and conditions on which shares may be
converted, if the shares of any series are issued
with the privilege of conversion; and
(vii) such other variations in the relative rights
and preferences of such shares which at the
time of the establishment of such series are
not prohibited by law.
3. The date of the adoption of the Amendment by the shareholders
of the Corporation was April 24, 1998.
4. As of February 27, 1998, the record date of the meeting of
shareholders at which the Amendment was approved, there were outstanding
69,053,648 shares of the Corporation's Common Stock, without par value, the only
class of shares of the Corporation entitled to vote and to be counted with
respect to the adoption of the Amendment, each share of which was entitled to
one (1) vote on the adoption of the Amendment.
5. The number of votes indisputably represented at the meeting of
shareholders at which the Amendment was adopted was 54,493,343, and the number
of votes cast for the adoption of the Amendment was 52,897,891, the number of
votes cast against the adoption of the Amendment was 1,463,811, and the number
of votes abstaining from voting on the Amendment was 130,837. The number of
votes cast for the adoption of the Amendment was sufficient under the
Corporation's Restated Articles of Incorporation and applicable law for the
approval of the Amendment.
The undersigned does hereby acknowledge, under penalties of
perjury, that this document is the act and deed of the Corporation, and that the
facts herein stated are true.
DATED this 24th day of April 1998.
----
ZIONS BANCORPORATION
By:/s/Harris H. Simmons
-----------------------
Harris H. Simmons, President
EXHIBIT 10
1998 AMENDMENT TO
ZIONS BANCORPORATION
KEY EMPLOYEE INCENTIVE STOCK OPTION PLAN
Pursuant to the provisions of Section 3.8 of the Zions Bancorporation Key
Employee Incentive Stock Option Plan, as amended (the "Plan"), the Board of
Directors of Zions Bancorporation, a Utah corporation (the "Corporation") hereby
amends the Plan.
i. By this amendment (the "Amendment"), Section 1.3(a) of the Plan is
hereby amended to read in its entirety as follows:
1.3 Aggregate Limitation
--------------------
(a) The aggregate number of shares of Common Stock with respect
to which Incentive Stock Options may be granted under this
Plan on an annual basis shall not exceed one percent (1%) of
the issued and outstanding shares of Common Stock as of the
first day of each calendar year for which the Plan is in effect,
subject to adjustment in accordance with Section 3.1. Any
shares available in any year using this formula that are not
granted under this Plan will be available for use in subsequent
years.
ii. The date of the adoption of the Amendment by the shareholders of the
Corporation was April 24, 1998.
iii. As of February 27, 1998, the record date of the meeting of
shareholders at which the Amendment was approved, there were outstanding
69,053,648 shares of the Corporation's common stock, without par value, the only
class of shares of the Corporation entitled to vote and to be counted with
respect to the adoption of the Amendment, each share of which was entitled to
one (1) vote on the adoption of the Amendment.
iv. The number of votes indisputably represented at the meeting of
shareholders at which the Amendment was adopted was 54,493,343, and the number
of votes cast for the adoption of the Amendment was 52,897,891, the number of
votes cast against the adoption of the Amendment was 1,463,811, and the number
of votes abstaining from voting on the Amendment was 130,837. The number of
votes cast for the adoption of the Amendment was sufficient under the Plan and
the Corporation's Restated Articles of Incorporation and applicable law for the
approval of the Amendment.
The undersigned does hereby acknowledge, under penalties of perjury, that
this document is the act and deed of the Corporation, and that the facts herein
stated are true.
DATED effective this 24th day of April 1998.
ZIONS BANCORPORATION
By:/s/Harris H. Simmons
-----------------------
Harris H. Simmons, President
<TABLE> <S> <C>
<ARTICLE> 9
<LEGEND>
This schedule contains summary financial information extracted from the
unaudited consolidated balance sheet as of June 30, 1998 and the related
unaudited consolidated statement of income for the six months ended June 30,
1998 included in the company's form 10-Q for the period ended June 30, 1998 and
is qualified in its entirety by reference to such financial statements.
</LEGEND>
<CIK> 0000109380
<NAME> Zions Bancorporation /UT/
<MULTIPLIER> 1,000
<CURRENCY> U.S.
<S> <C>
<PERIOD-TYPE> 6-MOS
<FISCAL-YEAR-END> Dec-31-1998
<PERIOD-START> Apr-01-1998
<PERIOD-END> Jun-30-1998
<EXCHANGE-RATE> 1
<CASH> 682,130
<INT-BEARING-DEPOSITS> 56,525
<FED-FUNDS-SOLD> 1,184,572
<TRADING-ASSETS> 401,914
<INVESTMENTS-HELD-FOR-SALE> 504,081
<INVESTMENTS-CARRYING> 2,222,041
<INVESTMENTS-MARKET> 2,236,802
<LOANS> 6,125,107
<ALLOWANCE> 96,043
<TOTAL-ASSETS> 11,780,537
<DEPOSITS> 8,312,094
<SHORT-TERM> 1,665,452
<LIABILITIES-OTHER> 374,092
<LONG-TERM> 504,254
0
0
<COMMON> 313,071
<OTHER-SE> 611,574
<TOTAL-LIABILITIES-AND-EQUITY> 11,780,537
<INTEREST-LOAN> 282,506
<INTEREST-INVEST> 139,847
<INTEREST-OTHER> 0
<INTEREST-TOTAL> 422,353
<INTEREST-DEPOSIT> 122,889
<INTEREST-EXPENSE> 191,012
<INTEREST-INCOME-NET> 231,341
<LOAN-LOSSES> 6,741
<SECURITIES-GAINS> 2,995
<EXPENSE-OTHER> 205,399
<INCOME-PRETAX> 110,301
<INCOME-PRE-EXTRAORDINARY> 75,157
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> 75,157
<EPS-PRIMARY> 1.04
<EPS-DILUTED> 1.03
<YIELD-ACTUAL> 4.47
<LOANS-NON> 25,055
<LOANS-PAST> 15,566
<LOANS-TROUBLED> 685
<LOANS-PROBLEM> 0
<ALLOWANCE-OPEN> 89,203
<CHARGE-OFFS> 7,629
<RECOVERIES> 3,901
<ALLOWANCE-CLOSE> 96,043
<ALLOWANCE-DOMESTIC> 19,890
<ALLOWANCE-FOREIGN> 0
<ALLOWANCE-UNALLOCATED> 76,153
</TABLE>
<TABLE> <S> <C>
<ARTICLE> 9
<LEGEND>
This restated schedule contains summary financial information extracted from the
unaudited consolidated balance sheet as of June 30, 1997 and the related
unaudited consolidated statement of income for the six months ended June 30,
1997 which has been restated as a result of pooling of interests and included in
the company's form 10-Q for the period ended June 30, 1998 and is qualified in
its entirety by reference to such financial statements.
</LEGEND>
<CIK> 0000109380
<NAME> Zions Bancorporation /UT/
<MULTIPLIER> 1,000
<CURRENCY> U.S.
<S> <C>
<PERIOD-TYPE> 6-MOS
<FISCAL-YEAR-END> Dec-31-1997
<PERIOD-START> Apr-01-1997
<PERIOD-END> Jun-30-1997
<EXCHANGE-RATE> 1
<CASH> 533,839
<INT-BEARING-DEPOSITS> 51,264
<FED-FUNDS-SOLD> 779,912
<TRADING-ASSETS> 437,994
<INVESTMENTS-HELD-FOR-SALE> 701,670
<INVESTMENTS-CARRYING> 1,834,452
<INVESTMENTS-MARKET> 1,846,558
<LOANS> 4,962,866
<ALLOWANCE> 86,869
<TOTAL-ASSETS> 9,696,279
<DEPOSITS> 6,529,716
<SHORT-TERM> 1,964,003
<LIABILITIES-OTHER> 124,684
<LONG-TERM> 373,378
0
0
<COMMON> 219,487
<OTHER-SE> 485,011
<TOTAL-LIABILITIES-AND-EQUITY> 9,696,279
<INTEREST-LOAN> 226,305
<INTEREST-INVEST> 128,702
<INTEREST-OTHER> 0
<INTEREST-TOTAL> 355,007
<INTEREST-DEPOSIT> 90,437
<INTEREST-EXPENSE> 169,764
<INTEREST-INCOME-NET> 185,243
<LOAN-LOSSES> 3,710
<SECURITIES-GAINS> 443
<EXPENSE-OTHER> 150,817
<INCOME-PRETAX> 100,646
<INCOME-PRE-EXTRAORDINARY> 64,836
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> 64,836
<EPS-PRIMARY> .94
<EPS-DILUTED> .91
<YIELD-ACTUAL> 4.23
<LOANS-NON> 15,953
<LOANS-PAST> 8,170
<LOANS-TROUBLED> 830
<LOANS-PROBLEM> 2,500
<ALLOWANCE-OPEN> 84,163
<CHARGE-OFFS> 6,895
<RECOVERIES> 2,668
<ALLOWANCE-CLOSE> 86,869
<ALLOWANCE-DOMESTIC> 17,496
<ALLOWANCE-FOREIGN> 0
<ALLOWANCE-UNALLOCATED> 69,373
</TABLE>
