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 March 31, 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 May 11, 1998 69,171,676 shares
1
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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 6. Exhibits and Reports on Form 8-K 24
SIGNATURES 24
- ----------
2
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<TABLE>
<CAPTION>
ZIONS BANCORPORATION AND SUBSIDIARIES
CONSOLIDATED BALANCE SHEETS
(Unaudited)
March 31, December 31, March 31,
(In thousands, except share amounts) 1998 1997 1997
------------ ------------ ------------
<S> <C> <C> <C>
ASSETS
Cash and due from banks .......................................................... $ 586,031 $ 669,755 $ 455,266
Money market investments:
Interest-bearing deposits ................................................... 64,795 61,886 51,140
Federal funds sold .......................................................... 258,136 402,879 92,881
Security resell agreements .................................................. 831,107 349,338 902,547
Securities:
Held to maturity at cost (approximate market value $1,897,520, $2,169,315
and $1,499,408):
Taxable ................................................................ 1,652,246 1,940,140 1,296,713
Nontaxable ............................................................. 227,445 209,300 201,588
Available for sale at market:
Taxable ................................................................ 451,802 657,858 579,291
Nontaxable ............................................................. 14,695 31,645 40,921
Trading account securities at market ........................................ 276,277 83,681 157,957
------------ ------------ ------------
2,622,465 2,922,624 2,276,470
Loans:
Loans held for sale at cost, which approximates market ...................... 249,398 178,642 170,521
Loans, leases and other receivables ......................................... 5,441,734 5,148,769 4,320,075
------------ ------------ ------------
5,691,132 5,327,411 4,490,596
Less:
Unearned income and fees, net of related costs .......................... 41,530 42,776 40,148
Allowance for loan losses ............................................... 91,857 86,557 81,113
------------ ------------ ------------
5,557,745 5,198,078 4,369,335
Premises and equipment, at cost, less accumulated depreciation ................... 157,380 147,380 118,368
Goodwill and core deposit intangibles ............................................ 169,971 170,495 53,949
Other real estate owned .......................................................... 2,377 4,478 2,524
Other assets ..................................................................... 361,578 291,332 186,057
------------ ------------ ------------
Total assets ........................................................... $ 10,611,585 $ 10,218,245 $ 8,508,537
============ ============ ============
LIABILITIES AND SHAREHOLDERS' EQUITY
Deposits:
Noninterest-bearing demand .................................................. $ 2,040,917 $ 1,935,193 $ 1,418,854
Interest-bearing:
Savings and money market ............................................... 3,934,005 3,718,960 3,040,724
Time under $100,000 .................................................... 1,149,128 1,102,142 777,258
Time over $100,000 ..................................................... 516,115 471,622 312,118
Foreign ................................................................ 158,862 183,044 179,631
------------ ------------ ------------
7,799,027 7,410,961 5,728,585
Securities sold, not yet purchased ............................................... 155,434 45,067 109,446
Federal funds purchased .......................................................... 390,262 350,109 219,635
Security repurchase agreements ................................................... 869,632 994,490 1,347,809
Accrued liabilities .............................................................. 189,283 169,242 113,352
Federal Home Loan Bank advances and other borrowings:
Less than one year .......................................................... 86,325 68,933 69,895
Over one year ............................................................... 121,421 210,681 69,530
Long-term debt ................................................................... 276,387 276,066 258,704
------------ ------------ ------------
Total liabilities ...................................................... 9,887,771 9,525,549 7,916,956
------------ ------------ ------------
Shareholders' equity:
Capital stock:
Preferred stock, without par value; authorized 3,000,000
shares; issued and outstanding, none .............................. -- -- --
Common stock, without par value; authorized 100,000,000
shares; issued and outstanding,
69,075,665, 67,981,691 and 67,641,324 shares ....................... 149,588 154,701 133,317
Accumulated other comprehensive income (loss) ............................... (743) 1,209 (6,612)
Retained earnings ........................................................... 574,969 536,786 464,876
------------ ------------ ------------
Total shareholders' equity ............................................. 723,814 692,696 591,581
------------ ------------ ------------
Total liabilities and shareholders' equity ............................. $ 10,611,585 $ 10,218,245 $ 8,508,537
============ ============ ============
</TABLE>
3
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<TABLE>
<CAPTION>
ZIONS BANCORPORATION AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF INCOME
(Unaudited)
Three Months Ended
March 31,
----------------------
(In thousands, except per share amounts) 1998 1997
--------- ---------
<S> <C> <C>
Interest income:
Interest and fees on loans ................................ $ 124,132 $ 95,489
Interest on loans held for sale ........................... 3,556 2,845
Lease financing ........................................... 3,332 3,013
Interest on money market investments ...................... 22,557 21,087
Interest on securities:
Held to maturity:
Taxable ......................................... 32,341 21,079
Nontaxable ...................................... 3,068 2,834
Available for sale:
Taxable ......................................... 7,369 9,872
Nontaxable ...................................... 295 573
Trading account ...................................... 5,011 3,345
--------- ---------
Total interest income ................................ 201,661 160,137
--------- ---------
Interest expense:
Interest on savings and money market deposits ............. 33,975 26,213
Interest on time deposits under $100,000 .................. 15,468 9,874
Interest on time deposits over $100,000 ................... 6,858 3,726
Interest on foreign deposits .............................. 1,905 1,581
Interest on securities sold, not yet purchased ............ 1,714 1,244
Interest on borrowed funds ................................ 33,798 34,601
--------- ---------
Total interest expense ............................... 93,718 77,239
--------- ---------
Net interest income .................................. 107,943 82,898
Provision for loan losses ...................................... 3,256 1,835
--------- ---------
Net interest income after provision for loan losses .. 104,687 81,063
--------- ---------
Noninterest income:
Service charges on deposit accounts ....................... 12,993 10,414
Other service charges, commissions and fees ............... 10,890 9,729
Trust income .............................................. 1,607 1,562
Investment securities gains, net .......................... 668 29
Trading account income .................................... 1,943 791
Loan sales and servicing income ........................... 11,471 9,333
Other income .............................................. 4,222 2,278
--------- ---------
Total noninterest income ............................. 43,794 34,136
--------- ---------
Noninterest expense:
Salaries and employee benefits ............................ 49,903 37,866
Occupancy, net ............................................ 5,383 3,919
Furniture and equipment ................................... 7,463 5,201
Other real estate expense (income) ........................ (273) 182
Legal and professional services ........................... 2,778 1,592
Supplies .................................................. 2,448 1,826
Postage ................................................... 2,081 1,664
Advertising ............................................... 2,588 1,885
FDIC premiums ............................................. 307 154
Merger expense ............................................ 1,973 --
Amortization of goodwill and core deposit intangibles ..... 2,283 935
Amortization of mortgage servicing assets ................. 1,132 370
Other expenses ............................................ 17,348 12,582
--------- ---------
Total noninterest expense ............................ 95,414 68,176
--------- ---------
Income before income taxes ..................................... 53,067 47,023
Income taxes ................................................... 16,626 16,438
--------- ---------
Net income ..................................................... $ 36,441 $ 30,585
========= =========
Weighted average common shares outstanding ..................... 69,102 66,334
Weighted average common and common-equivalent shares outstanding 70,159 68,025
Basic net income per common share .............................. $ 0.53 $ 0.46
Diluted net income per common share ............................ $ 0.52 $ 0.45
</TABLE>
4
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<TABLE>
<CAPTION>
ZIONS BANCORPORATION AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF CASH FLOWS
(Unaudited)
Three Months Ended
March 31,
----------------------------
(In thousands) 1998 1997
------------ ------------
<S> <C> <C>
Cash flows from operating activities:
Net income ............................................. $ 36,441 $ 30,585
Adjustments to reconcile net income to net cash
provided by (used in) operating activities:
Provision for loan losses ......................... 3,256 1,835
Write-downs of other real estate owned ............ 5 97
Depreciation of premises and equipment ............ 5,688 4,207
Amortization of intangible assets ................. 3,415 1,305
Amortization of net premium/discount on
investment securities ........................ 1,625 1,230
Accretion of unearned income and fees, net of
related costs ................................ (1,420) (1,219)
Proceeds from sales of trading account securities . 35,127,216 25,711,280
Increase in trading account securities ............ (35,319,812) (25,835,161)
Net gain on sales of investment securities ........ (668) (29)
Proceeds from loans held for sale ................. 243,205 154,355
Increase in loans held for sale ................... (311,893) (172,731)
Net gain on sales of loans, leases and other assets (8,742) (8,153)
Net (gain) loss on sales of other real estate owned (231) 6
Change in accrued income taxes .................... 16,434 15,631
Change in accrued interest receivable ............. (177) (6,014)
Change in other assets ............................ (63,216) (14,068)
Change in accrued interest payable ................ 6,344 6,200
Change in accrued liabilities ..................... (4,759) (9,580)
------------ ------------
Net cash (used in) operating
activities .............................. (267,289) (120,224)
------------ ------------
Cash flows from investing activities:
Net increase in money market investments ............... (319,655) (433,139)
Proceeds from maturities of investment securities
held to maturity .................................. 589,919 108,423
Purchases of investment securities held to maturity .... (51,602) (132,262)
Proceeds from sales of investment securities
available for sale ................................ 100,027 10,143
Proceeds from maturities of investment securities
available for sale ................................ 6,528 77,270
Purchases of investment securities available for sale .. (94,625) (50,618)
Proceeds from sales of loans and leases ................ 206,276 182,860
Net increase in loans and leases ....................... (346,950) (453,029)
Principal collections on leveraged leases .............. 1,067 --
Proceeds from sales of premises and equipment .......... 244 144
Purchases of premises and equipment .................... (11,405) (8,007)
Proceeds from sales of other real estate owned ......... 2,775 104
Proceeds from sales of mortgage servicing rights ....... 338 223
Purchases of mortgage servicing rights ................. (703) (58)
Proceeds from sales of other assets .................... 170 150
Purchases of other assets .............................. -- (50)
Cash paid for acquisitions, net of cash received ....... 10,125 (7)
------------ ------------
Net cash provided by (used in) investing
activities .............................. 92,529 (697,853)
------------ ------------
</TABLE>
5
<PAGE>
ZIONS BANCORPORATION AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF CASH FLOWS (Continued)
(Unaudited)
Three Months Ended
March 31,
----------------------
(In thousands) 1998 1997
--------- ---------
Cash flows from financing activities:
Net increase in deposits ................ 163,759 169,542
Net change in short-term funds borrowed . 44,372 654,512
Payments on FHLB advances over one year . (94,210) (12,345)
Payments on leveraged leases ............ (1,067) --
Proceeds from issuance of long-term debt -- 7,500
Payments on long-term debt .............. (2,363) (416)
Proceeds from issuance of common stock .. 641 773
Payments to redeem common stock ......... (11,773) (26,125)
Dividends paid .......................... (8,323) (6,776)
--------- ---------
Net cash provided by
financing activities .... 91,036 786,665
--------- ---------
Net (decrease) in cash and due from banks .... (83,724) (31,412)
Cash and due from banks at beginning of period 669,755 486,678
--------- ---------
Cash and due from banks at end of period ..... $ 586,031 $ 455,266
========= =========
SUPPLEMENTAL DISCLOSURES OF CASH FLOW INFORMATION
(Unaudited)
Three Months Ended
March 31,
-----------------
(In thousands) 1998 1997
------- -------
Cash paid for:
Interest .............................. $86,498 $70,992
------- -------
Income taxes .......................... 1,205 365
Loans transferred to other real estate owned 404 1,638
6
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<TABLE>
<CAPTION>
ZIONS BANCORPORATION AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF CHANGES IN SHAREHOLDERS' EQUITY
(Unaudited)
Three Months Ended
March 31, 1998
--------------------------------------------------------
Accumulated
Other
Compre- Compre- Total
Common hensive hensive Retained Shareholders'
(In thousands) Stock Income income (Loss)Earnings Equity
-------- -------- -------- -------- --------
<S> <C> <C> <C> <C> <C> <C>
Balance, January 1, 1998 .................... $154,701 $ 1,209 $536,786 $692,696
Net income for the period ................... $ 36,441 36,441 36,441
Other comprehensive income, net of tax
Unrealized holding (loss) on
securities available for sale net of
reclassification adjustment .......... (1,913) (1,913) (1,913)
--------
Total comprehensive income .............. $ 34,528
========
Cash dividends:
Preferred, paid by subsidiaries to
minority shareholders ................ (21) (21)
Common, $.12 per share .................. (8,290) (8,290)
Dividends of acquired company prior
to merger ............................ (12) (12)
Issuance of common shares for acquisitions .. 5,964 (39) 10,065 15,990
Stock redeemed and retired .................. (11,773) (11,773)
Stock options exercised ..................... 696 696
-------- -------- -------- --------
Balance, March 31, 1998 ..................... $149,588 $ (743) $574,969 $723,814
======== ======== ======== ========
Three Months Ended
March 31, 1997
--------------------------------------------------------
Accumulated
Other
Compre- Compre- Total
Common hensive hensive Retained Shareholders'
(In thousands) Stock Income income (Loss)Earnings Equity
-------- -------- -------- -------- --------
Balance, January 1, 1997 .................... $156,510 $ (5,582) $441,067 $591,995
Net income for the period ................... $ 30,585 30,585 30,585
Other comprehensive income, net of tax
Unrealized holding (loss) on
securities available for sale net of
reclassification adjustment .......... (1,030) (1,030) (1,030)
--------
Total comprehensive income .............. $ 29,555
========
Cash dividends:
Preferred, paid by subsidiaries to
minority shareholders ................ (9) (9)
Common, $.11 per share .................. (6,390) (6,390)
Dividends of acquired company prior
to merger ............................ (377) (377)
Issuance of common shares for acquisitions .. 2,000 2,000
Stock redeemed and retired .................. (26,125) (26,125)
Stock options exercised ..................... 932 932
-------- -------- -------- --------
Balance, March 31, 1997 ..................... $133,317 $ (6,612) $464,876 $591,581
======== ======== ======== ========
</TABLE>
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. The merger was accounted for as a pooling of interests
and was considered significant. Accordingly, prior year 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 three months ended March 31, 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 (SFAS
130), "Reporting Comprehensive Income", effective January 1, 1998. SFAS 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 and descriptive
information about an enterprise's operating segments in annual and interim
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.
8
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ZIONS BANCORPORATION AND SUBSIDIARIES
ITEM 2.
MANAGEMENT'S DISCUSSION AND ANALYSIS
------------------------------------
FINANCIAL HIGHLIGHTS
(Unaudited)
Three Months Ended
March 31,
----------------------------
1998 1997 % Change
-------- -------- ------
(In thousands, except per share and ratio data)
EARNINGS
Taxable-equivalent net interest income $110,812 $ 84,643 30.92 %
Net interest income .................. 107,943 82,898 30.21 %
Noninterest income ................... 43,794 34,136 28.29 %
Provision for loan losses ............ 3,256 1,835 77.44 %
Noninterest expense .................. 95,414 68,176 39.95 %
Income before income taxes ........... 53,067 47,023 12.85 %
Income taxes ......................... 16,626 16,438 1.14 %
Net income ........................... 36,441 30,585 19.15 %
PER COMMON SHARE
Net income (diluted) ................. 0.52 0.45 15.56 %
Dividends ............................ 0.12 0.11 9.09 %
Book value ........................... 10.48 8.75 19.77 %
SELECTED RATIOS
Return on average assets ............. 1.35 1.41%
Return on average common equity ...... 20.84 20.75%
Efficiency ratio ..................... 61.71 57.40%
Net interest margin .................. 4.51 4.22%
OPERATING CASH EARNINGS*
Taxable-equivalent net interest income $110,812 $ 84,643 30.92 %
Net interest income .................. 107,943 82,898 30.21 %
Noninterest income ................... 43,794 34,136 28.29 %
Provision for loan losses ............ 3,256 1,835 77.44 %
Noninterest expense .................. 91,158 67,241 35.57 %
Income before income taxes ........... 57,323 47,958 19.53 %
Income taxes ......................... 17,114 16,445 4.07 %
Net income ........................... 40,209 31,513 27.60 %
PER COMMON SHARE
Net income (diluted) ................. 0.57 0.46 23.91 %
Dividends ............................ 0.12 0.11 9.09 %
Book value ........................... 8.02 7.95 .88 %
SELECTED RATIOS
Return on average assets ............. 1.51% 1.46%
Return on average common equity ...... 30.27% 23.52%
Efficiency ratio ..................... 58.96% 56.61%
Net interest margin .................. 4.51% 4.22%
* Before amortization of goodwill and core deposit intangible assets and merger
charges.
9
<PAGE>
ZIONS BANCORPORATION AND SUBSIDIARIES
FINANCIAL HIGHLIGHTS (Continued)
(Unaudited)
Three Months Ended
March 31,
---------------------------------------
(In thousands, except per share 1998 1997 % Change
and ratio data) ----------- ----------- -----
AVERAGE BALANCES
Total assets ........................ $10,944,611 $ 8,811,521 24.21%
Securities .......................... 2,948,283 2,313,412 27.44%
Net loans and leases ................ 5,433,927 4,248,672 27.90%
Goodwill and core deposit intangibles 170,367 54,384 213.27%
Total deposits ...................... 7,525,049 5,470,654 37.55%
Shareholders' equity ................ 709,097 597,689 18.64%
Weighted average common and common-
equivalent shares outstanding .. 70,159,000 68,025,000 3.14%
AT PERIOD END
Total assets ........................ $10,611,585 $ 8,508,537 24.72%
Securities .......................... 2,622,465 2,276,470 15.20%
Net loans and leases ................ 5,649,602 4,450,448 26.94%
Allowance for loan losses ........... 91,857 81,113 13.25%
Goodwill and core deposit intangibles 169,971 53,949 215.06%
Total deposits ...................... 7,799,027 5,728,585 36.14%
Shareholders' equity ................ 723,814 591,581 22.35%
Common shares outstanding ........... 69,075,665 67,641,324 2.12%
Average equity to average assets .... 6.48% 6.78%
Common dividend payout .............. 22.75% 20.89%
Nonperforming assets ................ 20,406 17,983 13.47%
Loans past due 90 days or more ...... 11,714 5,638 107.77%
Nonperforming assets to net loans and leases,
other real estate owned and other
nonperforming assets at March 31 .36% .40%
10
<PAGE>
ZIONS BANCORPORATION AND SUBSIDIARIES
OPERATING RESULTS
Zions Bancorporation achieved record earnings for the first quarter.
Consolidated net income for the quarter ended March 31, 1998 was $36.4 million
or $0.52 per share, an increase of 19.1% and 15.6%, respectively, over the $30.6
million or $0.45 earned in the first quarter of 1997. The quarterly dividend per
share increased 9.1% to $0.12 from $0.11 in the first quarter of 1997.
The annualized return on average assets for the first quarter of 1998 was 1.35%
compared to 1.41% for the first quarter of 1997. The annualized return on
average common shareholders' equity was 20.84%, compared to 20.75% for the first
quarter of 1997. The Company's "efficiency ratio," or noninterest expenses as a
percentage of total taxable-equivalent net revenues for the first quarter of
1998 was 61.71% compared to 57.40% for the first quarter of 1997.
The Company is also providing its earnings performance on an operating cash
basis since it believes that its cash operating 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 the amortization of goodwill and core deposit
intangible assets and merger expense. 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 $40.2 million or $0.57 per share,
an increase of 27.6% and 23.9%, respectively, over the $31.5 million or $0.46
per share earned in the first quarter of 1997.
The operating cash annualized return on average assets for the first quarter of
1998 was 1.51% compared to 1.46% for the first quarter of 1997, resulting in an
operating cash annualized return on average common shareholders' equity of
30.27% compared to 23.52% for the first quarter of 1997. The Company's operating
cash efficiency ratio for the first quarter of 1998 was 58.96% compared to
56.61% for the first quarter of 1997.
The Company's first-quarter $5.9 million (19.1%) increase in earnings relative
to the same period a year ago reflects a $25.0 million (30.2%) increase in net
interest income, a $9.7 million (28.3%) increase in noninterest income,
partially offset by a $1.4 million (77.4%) increase in the provision for loan
losses, a $27.2 million (40.0%) increase in noninterest expenses and a $.2
million (1.1%) increase in income tax expense.
NET INTEREST INCOME AND INTEREST RATE SPREADS
Net interest income for the first quarter of 1998, adjusted to a fully
taxable-equivalent basis, increased 30.9% to $110.8 million compared to $84.6
million for the first quarter of 1997. Net interest margin was 4.51% compared to
4.22% for the first quarter of 1997.
The yield on average earning assets increased 25 basis points during the first
quarter of 1998 as compared to the first quarter of 1997, and the average rate
paid this quarter on interest-bearing funds increased 2 basis points from the
first quarter of 1997. The spread on average interest-bearing funds for the
first quarter of 1998 was 3.70%, up from the 3.47% for the first quarter of
1997.
11
<PAGE>
<TABLE>
<CAPTION>
ZIONS BANCORPORATION AND SUBSIDIARIES
CONSOLIDATED AVERAGE BALANCE SHEETS, YIELDS AND RATES
(Unaudited)
Three Months Ended Three Months Ended
March 31, 1998 March 31, 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 ............. $ 79,586 $ 825 4.20% $ 49,888 $ 630 5.12%
Federal funds sold and security
resell agreements ................ 1,510,313 21,732 5.84% 1,524,954 20,457 5.44%
Total money market investments ... 1,589,899 22,557 5.75% 1,574,842 21,087 5.43%
---------- ---------- ---------- ----------
Securities:
Held to maturity:
Taxable .......................... 1,872,632 32,341 7.00% 1,239,635 21,079 6.90%
Nontaxable ....................... 226,728 4,383 7.84% 199,806 4,048 8.22%
Available for sale:
Taxable .......................... 467,696 7,369 6.39% 599,979 9,872 6.67%
Nontaxable ....................... 21,412 421 7.97% 41,416 819 8.02%
Trading account ....................... 359,815 5,011 5.65% 232,576 3,345 5.83%
---------- ---------- ---------- ----------
Total securities ................. 2,948,283 49,525 6.81% 2,313,412 39,163 6.87%
---------- ---------- ---------- ----------
Loans:
Loans held for sale ................... 204,943 3,556 7.04% 154,483 2,845 7.47%
Net loans and leases 2 ................ 5,228,984 128,892 10.00% 4,094,189 98,787 9.79%
---------- ---------- ---------- ----------
Total loans ...................... 5,433,927 132,448 9.89% 4,248,672 101,632 9.70%
---------- ---------- ---------- ----------
Total interest-earning assets .............. $ 9,972,109 $ 204,530 8.32% $8,136,926 $ 161,882 8.07%
---------- ----------
Cash and due from banks .................... 521,130 404,483
Allowance for loan losses .................. (91,144) (81,364)
Goodwill and core deposit intangibles ...... 170,367 54,384
Other assets ............................... 372,149 297,092
---------- ----------
Total assets ............................... $10,944,611 $8,811,521
========== ==========
LIABILITIES
Interest-bearing deposits:
Savings and NOW deposits .............. $ 1,054,487 $ 7,745 2.98% $ 803,614 $ 6,235 3.15%
Money market super NOW deposits ....... 2,811,529 26,230 3.78% 2,165,586 19,978 3.74%
Time deposits under $100,000 .......... 1,171,236 15,468 5.36% 794,372 9,874 5.04%
Time deposits $100,000 or more ........ 484,268 6,858 5.74% 268,875 3,726 5.62%
Foreign deposits ...................... 165,431 1,905 4.67% 141,366 1,581 4.54%
---------- ---------- ---------- ----------
Total interest-bearing deposits .. 5,686,951 58,206 4.15% 4,173,813 41,394 4.02%
---------- ---------- ---------- ----------
Borrowed funds:
Securities sold, not yet purchased .... 126,887 1,714 5.48% 87,336 1,244 5.78%
Federal funds purchased and security
repurchase agreements ............ 1,882,498 23,698 5.11% 2,154,571 27,049 5.09%
FHLB advances and other borrowings:
Less than one year ............... 103,733 1,650 6.45% 60,833 867 5.78%
Over one year .................... 155,287 2,223 5.81% 71,520 1,072 6.08%
Long-term debt ........................ 277,934 6,227 9.09% 255,024 5,613 8.93%
---------- ---------- ---------- ----------
Total borrowed funds ............. 2,546,339 35,512 5.66% 2,629,284 35,845 5.53%
---------- ---------- ---------- ----------
Total interest-bearing liabilities ......... $ 8,233,290 $ 93,718 4.62% $6,803,097 $ 77,239 4.60%
---------- ----------
Noninterest-bearing deposits ............... 1,838,098 1,296,841
Other liabilities .......................... 164,126 113,894
---------- ----------
Total liabilities .......................... 10,235,514 8,213,832
Total shareholders' equity ................. 709,097 597,689
---------- ----------
Total liabilities and shareholders' equity . $10,944,611 $8,811,521
========== ==========
Spread on average interest-bearing funds 3.70% 3.47%
==== ====
Net interest income and net yield on
interest-earning assets $ 110,812 4.51% $ 84,643 4.22%
========== ==== ========== ====
</TABLE>
1 Taxable-equivalent rates used where applicable.
2 Net of unearned income and fees, net of related costs. Loans include
nonaccrual and restructured loans.
12
<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 quarter of 1998 was $1.0 million
compared to $.4 million for the first quarter of 1997.
PROVISION FOR LOAN LOSSES
The provision for loan losses increased 77.4% to $3.3 million for the first
quarter of 1998, as compared with $1.8 million for the first quarter of 1997.
Although the provision has increased for the first quarter of 1998 compared to
the first quarter of 1997, annualized it is only .24% of average loans.
NONINTEREST INCOME
Noninterest income for the first quarter of 1998 was $43.8 million, an increase
of 28.3% from the $34.1 million for the first quarter of 1997. Primary
contributors to the increase in noninterest income were service charges on
deposit accounts; other service charges, commissions and fees; trading account
income; loan sales and servicing income; and other income. Comparing the
segments of noninterest income for the first quarter of 1998 and the first
quarter of 1997 service charges on deposit accounts; other service charges,
commissions and fees; trust income; trading account income; loan sale and
servicing income; and other income increased 24.8%, 11.9%, 2.9%, 145.6%, 22.9%
and 85.3%, respectively. Net gains of $668 thousand on the sale of investment
securities were realized during the first quarter of 1998 compared to $29
thousand during the first quarter of 1997.
NONINTEREST EXPENSE
Noninterest expense for the first quarter of 1998 was $95.4 million, an increase
of 40.0% over $68.2 million for the first quarter of 1997. Comparing significant
noninterest expense segments for the first quarter of 1998 and the first quarter
of 1997, salaries and employee benefits increased 31.8%, occupancy increased
37.4%, furniture and equipment expense increased 43.5% and the total of all
other expenses increased 54.2% which included significant increases in legal and
professional services, supplies, postage, advertising, merger expense,
amortization of intangible assets and other expenses.
The increase in noninterest expense for the first quarter of 1998 compared to
the first quarter of 1997 resulted primarily from acquisitions and expansion,
expansion of business lines and investment of resources in selected areas to
enhance future revenue opportunities. At March 31, 1998, the Company had 4,935
full-time equivalent employees, 254 offices and 529 ATMs compared to 3,749
full-time equivalent employees, 173 offices and 424 ATMs at March 31, 1997.
INCOME TAXES
The Company's income taxes were $16.6 million for the first quarter of 1998
compared to $16.4 million for the first quarter of 1997. The Company's effective
income tax rate was 31.33% for the first quarter of 1998, down from 34.96% for
the first quarter of 1997. The primary reason for the decreased effective rate
results from the Company's efforts to restructure its balance sheet and revenue
sources to increase tax advantaged revenue.
13
<PAGE>
ZIONS BANCORPORATION AND SUBSIDIARIES
ANALYSIS OF FINANCIAL CONDITION
EARNING ASSETS
Average earning assets increased 22.6% to $9,972.1 million for the three months
ended March 31, 1998, compared to $8,136.9 million for the three months ended
March 31, 1997. Earning assets comprised 91.1% of total average assets for the
first three months of 1998, compared with 92.3% for the first three months of
1997.
Average money market investments, consisting of interest-bearing deposits,
federal funds sold and security resell agreements increased .96% to $1,589.9
million in the first three months of 1998 as compared to $1,574.8 million in the
first three months of 1997.
During the first three months of 1998, average securities increased 27.4% to
$2,948.3 million compared to $2,313.4 million in the first three months of 1997.
Average held to maturity securities increased 45.8%, available for sale
securities decreased 23.7%, and trading account securities increased 54.7%
compared with the first three months of 1997.
Average net loans and leases increased 27.9% to $5,433.9 million for the first
three months of 1998 compared to $4,248.7 million in the first three months of
1997, representing 54.5% of earning assets in the first three months of 1998
compared to 52.2% in the first three months of 1997. Average net loans and
leases were 72.2% of average total deposits for the three months ended March 31,
1998, as compared to 77.7% for the three months ended March 31, 1997.
14
<PAGE>
ZIONS BANCORPORATION AND SUBSIDIARIES
SECURITIES
The following table presents the Company's securities on March 31, 1998,
December 31, 1997 and March 31, 1997.
<TABLE>
<CAPTION>
March 31, December 31, March 31,
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 ........ $ -- $ -- $ -- $ -- $ 24,086 $ 24,124
U.S. government agencies and
corporations:
Small Business
Administration loan-
backed securities ....... 423,197 429,556 440,615 448,867 485,730 491,143
Other agency securities ...... 1,132,472 1,138,392 1,409,835 1,415,600 701,778 694,111
States and political subdivisions 236,243 240,684 216,998 221,588 219,855 222,450
Mortgage-backed securities ...... 87,779 88,888 81,992 83,260 66,852 67,580
---------- ------------ ------------ ------------ ------------ ------------
1,879,691 1,897,520 2,149,440 2,169,315 1,498,301 1,499,408
---------- ------------ ------------ ------------ ------------ ------------
Available for sale
U.S. Treasury securities ........ 21,781 22,132 31,387 31,706 16,572 16,511
U.S. government agencies ........ 166,364 161,430 357,442 354,438 145,842 139,903
States and political subdivisions 14,591 14,695 30,490 31,645 41,113 42,258
Mortgage and other
asset-backed securities ...... 28,980 29,428 39,450 40,092 222,007 216,906
---------- ------------ ------------ ------------ ------------ ------------
231,716 227,685 458,769 457,881 425,534 415,578
---------- ------------ ------------ ------------ ------------ ------------
Equity securities:
Mutual funds:
Accessor Funds, Inc. .... 109,530 109,514 109,530 110,958 109,518 107,926
Other ................... 423 410 -- -- -- --
Stock:
Federal Home Loan Bank .. 98,571 98,571 95,738 95,738 85,224 85,224
Other ................... 27,478 30,317 23,518 24,926 10,532 11,484
---------- ------------ ------------ ------------ ------------ ------------
236,002 238,812 228,786 231,622 205,274 204,634
---------- ------------ ------------ ------------ ------------ ------------
467,718 466,497 687,555 689,503 630,808 620,212
---------- ------------ ------------ ------------ ------------ ------------
Trading
U.S. Treasury Securities ........ 249,985 249,985 346 346 13,899 13,899
U.S. government agencies and
corporations:
Small Business
Administration loan-
backed securities ....... -- -- 14 14 2,695 2,695
Other agency securities ...... -- -- 44,493 44,493 116,139 116,139
States and political subdivisions 10,078 10,078 8,498 8,498 3,124 3,124
Mortgage-backed securities ...... 1,225 1,225 630 630 99 99
Certificates of Deposit ......... 14,989 14,989 29,700 29,700 22,001 22,001
---------- ------------ ------------ ------------ ------------ ------------
276,277 276,277 83,681 83,681 157,957 157,957
---------- ------------ ------------ ------------ ------------ ------------
Total ............................... $2,623,686 $ 2,640,294 $ 2,920,676 $ 2,942,499 $ 2,287,066 $ 2,277,577
========== ============ ============ ============ ============ ============
</TABLE>
15
<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 a 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 March 31,
1998, December 31, 1997 and March 31, 1997.
(In thousands)
March 31, December 31, March 31,
Types 1998 1997 1997
- ----- ---------- ---------- ----------
Loans held for sale .................... $ 249,398 $ 178,642 $ 170,521
Commercial, financial, and agricultural 1,443,351 1,326,293 1,069,424
Real estate:
Construction .................... 522,436 510,351 400,581
Other:
Home equity credit line . 140,814 169,758 202,286
1-4 family residential .. 947,186 789,397 659,322
Other real estate-secured 1,745,013 1,604,255 1,390,073
---------- ---------- ----------
2,833,013 2,563,410 2,251,681
---------- ---------- ----------
3,355,449 3,073,761 2,652,262
Consumer:
Bankcard ........................ 47,787 63,837 36,038
Other ........................... 367,089 439,789 324,648
---------- ---------- ----------
414,876 503,626 360,686
Lease financing ........................ 170,697 176,514 158,297
Other receivables ...................... 57,361 68,575 79,406
---------- ---------- ----------
Total loans ..................... $5,691,132 $5,327,411 $4,490,596
========== ========== ==========
Loans held for sale on March 31, 1998 increased 39.6% from year-end 1997. All
other loans, net of unearned income and fees increased 5.69% to $5,441.7 million
on March 31, 1997, including $150 million from acquisitions, compared to
$5,148.8 million on December 31, 1997. Commercial loans, construction loans, and
other real estate-secured loans increased from year end 8.8%, 2.4%, and 10.5%,
respectively. Consumer loans, lease financing, and other receivables decreased
17.6%, 3.3% and 16.4%, respectively from year end. Within the other real
estate-secured loan portfolio, home equity credit line loans decreased 17.1%,
1-4 family residential loans increased 20.0% and all other real estate loans
increased 8.8% from year end.
16
<PAGE>
ZIONS BANCORPORATION AND SUBSIDIARIES
On March 31, 1998, long-term first mortgage real estate serviced for others
totaled $1,724.9 million and consumer and other loan securitizations, which
relate primarily to loans sold under revolving securitization structures,
totaled $1,039.2 million. During the first three months of 1998, the Company
sold $239.6 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 $201.6 million. During the first three months of 1998,
total loans sold were $441.2 million.
RISK ELEMENTS
The Company's nonperforming assets, which include nonaccruing loans,
restructured loans, other real estate owned and other nonperforming assets, were
$20.4 million on March 31, 1998, down from $21.7 million on December 31, 1997,
and up from $18.0 million on March 31, 1997. Such nonperforming assets as a
percentage of net loans and leases and other real estate owned were .36%, .41%
and .40% on March 31, 1998, December 31, 1997, and March 31, 1997, respectively.
Accruing loans past due 90 days or more totaled $11.7 million on March 31, 1998,
up from $10.6 million on December 31, 1997, and up from $5.6 million on March
31, 1997. These loans equaled .21% of net loans and leases on March 31, 1998, as
compared to .20% on December 31, 1997 and .13% on March 31, 1997.
No loans were considered potential problem loans at March 31, 1998, December 31,
1997 or March 31, 1997. 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 $5.2 million on March 31, 1998, as compared to $7.1
million on December 31, 1997, and $5.4 million on March 31, 1997. The Company
considers a loan to be impaired when the accrual of interest has been
discontinued and 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 March
31, 1998, December 31, 1997, and March 31, 1997, is a required allowance of $153
thousand, $46 thousand and $526 thousand, respectively, on $.7 million, $.3
million and $2.2 million, respectively, of the recorded investment in impaired
loans.
17
<PAGE>
ZIONS BANCORPORATION AND SUBSIDIARIES
The following table sets forth the nonperforming assets on March 31, 1998,
December 31, 1997, and March 31, 1997.
March 31, December 31, March 31,
(In thousands) 1998 1997 1997
------- ------- -------
Nonaccrual loans ............................ $16,807 $15,685 $13,851
Restructured loans .......................... 1,222 1,510 1,608
Other real estate owned and other
nonperforming assets ................... 2,377 4,478 2,524
------- ------- -------
Total .................................. $20,406 $21,673 $17,983
======= ======= =======
% of net loans and leases*, other real estate
owned and other nonperforming assets ... .36% .41% .40%
Accruing loans past due 90 days or more ..... $11,714 $10,575 $ 5,638
======= ======= =======
% of net loans and leases* .................. .21% .20% .13%
*Includes loans held for sale
ALLOWANCE FOR LOAN LOSSES
The Company's allowance for loan losses was 1.63% of net loans and leases on
March 31, 1998, compared to 1.64% on December 31, 1997, and 1.82% on March 31,
1997. Net charge-offs during the first quarter of 1998 were $.7 million, or .05%
of average net loans and leases, compared to $1.8 million, or .17% of average
net loans and leases for the first quarter of 1997.
The allowance, as a percentage of nonaccrual loans and restructured loans, was
509.50% on March 31, 1998, compared to 503.38% on December 31, 1997, and 524.70%
on March 31, 1997. The allowance, as a percentage of nonaccrual loans and
accruing loans past due 90 days or more was 322.07% on March 31, 1998, compared
to 329.62% on December 31, 1997 and 416.20% on March 31, 1997.
On March 31, 1998, December 31, 1997, and March 31, 1997, the allowance for loan
losses includes an allocation of $9.2 million, $8.9 million and $8.1 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 March 31, 1998, December 31, 1997 and March 31, 1997, totaled $2,859.8
million, $2,651.4 million and $2,124.0 million, respectively.
18
<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>
Three Months Twelve Months Three Months
Ended Ended Ended
(In thousands) March 31, December 31, March 31,
1998 1997 1997
----------- ----------- -----------
<S> <C> <C> <C>
Average loans* and leases outstanding
(net of unearned income) ............. $ 5,433,927 $ 4,749,261 $ 4,248,672
=========== =========== ===========
Allowance for possible losses:
Balance at beginning of the period ........ $ 86,557 $ 81,042 $ 81,042
Allowance of companies acquired ........... 2,729 6,779 --
Provision charged against earnings ........ 3,256 7,026 1,835
Loans and leases charged-off:
Loans held for sale .................. -- -- --
Commercial, financial and agricultural (730) (5,624) (1,179)
Real estate .......................... (94) (381) (154)
Consumer ............................. (2,410) (8,801) (1,673)
Lease financing ...................... (3) (279) (32)
Other receivables .................... -- -- --
----------- ----------- -----------
Total ........................... (3,237) (15,085) (3,038)
----------- ----------- -----------
Recoveries:
Loans held for sale .................. -- -- --
Commercial, financial and agricultural 1,336 2,346 313
Real estate .......................... 542 1,870 314
Consumer ............................. 619 2,433 646
Lease financing ...................... 53 146 1
Other receivables .................... 2 -- --
----------- ----------- -----------
Total ........................... 2,552 6,795 1,274
----------- ----------- -----------
Net loan and lease charge-offs ............ (685) (8,290) (1,764)
----------- ----------- -----------
Balance at end of the period .............. $ 91,857 $ 86,557 $ 81,113
=========== =========== ===========
*Includes loans held for sale
Ratio of net charge-offs to
average loans and leases ............. .05% .17% .17%
</TABLE>
19
<PAGE>
ZIONS BANCORPORATION AND SUBSIDIARIES
DEPOSITS
Average total deposits of $7,525.0 million for the first three months of 1998
increased 37.6% over the $5,470.7 million for the first three months of 1997,
with average demand deposits increasing 41.7%. Average savings and NOW deposits,
money market and super NOW deposits, and time deposits under $100,000 for the
first three months of 1998 increased 31.2%, 29.8% and 47.4% respectively, from
the first three months of 1997. Average time deposits over $100,000 increased
80.1% and foreign deposits increased 17.0% during the first three months of
1998, compared with the same period one year earlier.
Total deposits increased 5.2% to $7,799.0 million on March 31, 1998, including
$224 million from acquisitions, as compared to $7,411.0 million on December 31,
1997. Comparing March 31, 1998 to December 31, 1997, demand deposits, savings
and money market deposits, time deposits under $100,000, and time deposits over
$100,000 increased 5.5%, 5.8%, 4.3% and 9.4%, respectively, and foreign deposits
decreased 13.2%.
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 $1,996.6 million or
28.0% of core deposits on March 31, 1998.
The Company's core deposits, consisting of demand, savings and money market
deposits and time deposits under $100,000, constituted 91.3% of total deposits
on March 31, 1998 as compared to 91.2% on December 31, 1997 and 91.4% on March
31, 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 allows it 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 met through dividends
from subsidiaries, proportionate shares of current income taxes, management and
other fees, unaffiliated bank lines, and debt issuance.
20
<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. Interest rate sensitivity measures the
Company's financial exposure to changes in interest rates. 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 manage the effect on net income from 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
During the first quarter of 1998, the Company repurchased and retired 264,539
shares of its common stock at a cost of $11.8 million.
Total shareholders' equity on March 31, 1998 was $723.8 million, an increase of
4.5% over the $692.7 million on December 31, 1997, and an increase of 22.4% over
the $591.6 million on March 31, 1997. The ratio of average equity to average
assets for the first three months of 1998 was 6.48% as compared to 6.78% for the
same period in 1997. On March 31, 1998, the Company's Tier I risk-based capital
ratio was 11.73%, as compared to 11.50% on December 31, 1997 and 13.95% on March
31, 1997. On March 31, 1998 the Company's total risk-based capital ratio was
13.62%, as compared to 13.44% on December 31, 1997 and 16.52% on March 31, 1997.
The Company's leverage ratio on March 31, 1998 was 6.89%, as compared to 6.74%
on December 31, 1997 and 8.09% on March 31, 1997.
Dividends declared per common share for the first quarter of 1998 of $.12
increased 9.1%, as compared to $.11 for the first quarter of 1997. The common
cash dividend payout of net income for the first three months of 1998 was
22.75%, as compared to 20.89% for the first three months of 1997.
On April 27, 1998, the authorized number of shares of common stock was increased
to 200,000,000.
21
<PAGE>
ZIONS BANCORPORATION AND SUBSIDIARIES
MERGERS AND ACQUISITIONS
On January 6, 1998, the Company acquired Vectra Banking Corporation and its
banking subsidiary Vectra Bank located in Denver, Colorado for 4,021,303 shares
of common stock. Vectra Banking Corporation had total assets of approximately
$728 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 January 23, 1998, the Company acquired Sky Valley Bank Corp. in Alamosa,
Colorado, and its banking subsidiary, The First National Bank in Alamosa, for
572,817 shares of common stock. Sky Valley had total assets of approximately
$122 million at the date of acquisition. The acquisition was not significant to
the consolidated financial statements and was accounted for as a pooling of
interests.
On February 27, 1998, the Company acquired Tri-State Finance Corporation and its
banking subsidiary, Tri-State Bank, located in Denver, Colorado for 709,963
shares of common stock. Tri-State Finance Corporation had total assets of
approximately $128 million on the acquisition date. The acquisition was not
significant to the consolidated financial statements and was accounted for as a
pooling of interests.
On December 22, 1997, the Company announced that a definitive agreement had been
reached to acquire SBT Bankshares, Inc. in Colorado Springs, Colorado, and its
banking subsidiary State Bank and Trust of Colorado Springs in exchange for
Zions Bancorporation common stock. At March 31, 1998, SBT Bankshares, Inc. had
total assets of approximately $97 million. The transaction is intended to be
accounted for as a pooling of interests and is expected to close in the second
quarter of 1998.
On December 29, 1997, the Company announced a definitive agreement had been
reached to acquire FP Bancorp, Inc, in Escondido, California, and its banking
subsidiary First Pacific National Bank in exchange for Zions Bancorporation
common stock. Total assets of FP Bancorp, Inc were approximately $364 million at
March 31, 1998. The transaction is intended to be accounted for as a pooling of
interests and is expected to close in the second quarter of 1998.
On January 22, 1998, the Company announced a definitive agreement to acquire
Routt County National Bank Corporation in Steamboat Springs, Colorado, and its
banking subsidiary First National Bank of Colorado in exchange for Zions
Bancorporation common stock. At March 31, 1998, Routt County National Bank
Corporation had total assets of approximately $102 million. The transaction is
intended to be accounted for as a pooling of interests and is expected to close
in the second quarter of 1998.
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 March 31,
1998, the Sumitomo Bank of California had total assets of approximately $4.9
billion. The transaction will be accounted for as a purchase and is intended to
close in the third quarter of 1998.
22
<PAGE>
ZIONS BANCORPORATION AND SUBSIDIARIES
Year 2000
A number of electronic systems utilize a two-digit field for year references,
e.g., 98 instead of 1998. Such systems may determine the year 2000, if
represented as 00, to be 98 years ago rather than two years hence. The Company
is in the process of modifying or replacing certain computer software and
hardware and other systems to ensure proper processing of transactions after
1999. The Company is also in contact with external service providers to
ascertain that their systems, upon which the Company depends, will also be
upgraded, if necessary.
The Company anticipates that all of its major systems for which it conducts its
own processing will be compliant with Year 2000 processing by the end of 1998.
It expects to test each of its systems to confirm compliance late this year. The
Company believes that all of its third-party service providers will also be
compliant by the end of this year, except for its trust and mortgage processing
systems, which it believes will be able to appropriately handle transactions
after 1999 by the end of the first quarter of next year.
A review is also being undertaken of the Company's other systems to confirm
proper functionality after 1999; including security cameras, alarm systems,
voice mail, and elevators, among others. Finally, the Company inquires about
year 2000 preparedness being undertaken by its customers to which it has
significant credit exposure. The Company estimates that the cumulative
incremental cost it will incur to address the Year 2000 issue to be
approximately $3 million. The cost estimate excludes the expense outlays the
Company is making to replace its processing systems in the ordinary course of
business to improve its products and services. Many of these new systems also
correct deficiencies that the Company's present software has in processing
transactions after 1999. The preponderance of this expense will be recognized in
1998.
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: (1) timing of closing
proposed acquisitions being delayed or such acquisitions being prohibited; (2)
competitive pressures among financial institutions increasing significantly; (3)
economic conditions, either nationally or locally in areas in which Zions
conducts its operations, being less favorable than expected; (4) legislation or
regulatory changes which adversely affect the ability of the Company to conduct,
or the accounting for, business combinations.
23
<PAGE>
ZIONS BANCORPORATION AND SUBSIDIARIES
PART II. OTHER INFORMATION
ITEM 6. EXHIBITS AND REPORTS ON FORM 8-K
a) Exhibits
b) Report on Form 8-K
Zions Bancorporation filed the following report on Form 8-K
during the quarter ended March 31, 1998;
Form 8-K filed February 6, 1998 (Item 5) On January 26, 1998,
Zions Bancorporation issued its earnings release for the quarter
and year ended December 31, 1997.
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, Senior Vice President
and Chief Financial Officer
Dated May 14, 1998
24
<TABLE> <S> <C>
<ARTICLE> 9
<LEGEND>
This schedule contains summary financial information extracted from the
unaudited consolidated balance sheet as of March 31, 1998 and related unaudited
consolidated statement of income for the three months ended March 31, 1998
included in the company's form 10-Q for the period ended March 31, 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> 3-Mos
<FISCAL-YEAR-END> Dec-31-1998
<PERIOD-START> Jan-01-1998
<PERIOD-END> Mar-31-1998
<EXCHANGE-RATE> 1
<CASH> 586,031
<INT-BEARING-DEPOSITS> 64,795
<FED-FUNDS-SOLD> 1,089,243
<TRADING-ASSETS> 276,277
<INVESTMENTS-HELD-FOR-SALE> 466,497
<INVESTMENTS-CARRYING> 1,879,691
<INVESTMENTS-MARKET> 1,897,520
<LOANS> 5,649,602
<ALLOWANCE> 91,857
<TOTAL-ASSETS> 10,611,585
<DEPOSITS> 7,799,027
<SHORT-TERM> 1,501,653
<LIABILITIES-OTHER> 189,283
<LONG-TERM> 397,808
0
0
<COMMON> 149,588
<OTHER-SE> 574,226
<TOTAL-LIABILITIES-AND-EQUITY> 10,611,585
<INTEREST-LOAN> 131,020
<INTEREST-INVEST> 70,641
<INTEREST-OTHER> 0
<INTEREST-TOTAL> 201,661
<INTEREST-DEPOSIT> 58,206
<INTEREST-EXPENSE> 93,718
<INTEREST-INCOME-NET> 107,943
<LOAN-LOSSES> 3,256
<SECURITIES-GAINS> 668
<EXPENSE-OTHER> 95,414
<INCOME-PRETAX> 53,067
<INCOME-PRE-EXTRAORDINARY> 36,411
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> 36,441
<EPS-PRIMARY> .53
<EPS-DILUTED> .52
<YIELD-ACTUAL> 4.39
<LOANS-NON> 16,807
<LOANS-PAST> 11,714
<LOANS-TROUBLED> 1,222
<LOANS-PROBLEM> 0
<ALLOWANCE-OPEN> 86,557
<CHARGE-OFFS> (3,237)
<RECOVERIES> 2,552
<ALLOWANCE-CLOSE> 91,857
<ALLOWANCE-DOMESTIC> 19,101
<ALLOWANCE-FOREIGN> 0
<ALLOWANCE-UNALLOCATED> 72,756
</TABLE>
<TABLE> <S> <C>
<ARTICLE> 9
<LEGEND>
This restated schedule contains summary financial information extracted from the
unaudited consolidated balance sheet as of March 31, 1997 and related unaudited
consolidated statement of income for the three months ended March 31, 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 March 31, 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> 3-Mos
<FISCAL-YEAR-END> Dec-31-1997
<PERIOD-START> Jan-01-1997
<PERIOD-END> Mar-31-1997
<EXCHANGE-RATE> 1
<CASH> 455,266
<INT-BEARING-DEPOSITS> 51,140
<FED-FUNDS-SOLD> 995,428
<TRADING-ASSETS> 157,957
<INVESTMENTS-HELD-FOR-SALE> 584,212
<INVESTMENTS-CARRYING> 1,498,301
<INVESTMENTS-MARKET> 1,499,408
<LOANS> 4,450,448
<ALLOWANCE> 81,113
<TOTAL-ASSETS> 8,508,537
<DEPOSITS> 5,728,585
<SHORT-TERM> 1,746,785
<LIABILITIES-OTHER> 113,352
<LONG-TERM> 328,234
0
0
<COMMON> 133,317
<OTHER-SE> 458,264
<TOTAL-LIABILITIES-AND-EQUITY> 8,508,537
<INTEREST-LOAN> 101,347
<INTEREST-INVEST> 58,790
<INTEREST-OTHER> 0
<INTEREST-TOTAL> 160,137
<INTEREST-DEPOSIT> 41,394
<INTEREST-EXPENSE> 77,239
<INTEREST-INCOME-NET> 82,898
<LOAN-LOSSES> 1,835
<SECURITIES-GAINS> 29
<EXPENSE-OTHER> 68,176
<INCOME-PRETAX> 47,023
<INCOME-PRE-EXTRAORDINARY> 30,585
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> 30,585
<EPS-PRIMARY> .46
<EPS-DILUTED> .45
<YIELD-ACTUAL> 4.13
<LOANS-NON> 13,851
<LOANS-PAST> 5,638
<LOANS-TROUBLED> 1,608
<LOANS-PROBLEM> 0
<ALLOWANCE-OPEN> 81,042
<CHARGE-OFFS> (3,038)
<RECOVERIES> 1,274
<ALLOWANCE-CLOSE> 81,113
<ALLOWANCE-DOMESTIC> 17,824
<ALLOWANCE-FOREIGN> 0
<ALLOWANCE-UNALLOCATED> 63,289
</TABLE>
