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, 1999
--------------
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 6, 1999 79,009,123 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
and Comprehensive Income 7
Notes to Consolidated Financial Statements 8
ITEM 2. Management's Discussion and Analysis 10
PART II. OTHER INFORMATION
-----------------
ITEM 6. Exhibits and Reports on Form 8-K 26
SIGNATURES 26
- ---------- --
2
<PAGE>
ZIONS BANCORPORATION AND SUBSIDIARIES
CONSOLIDATED BALANCE SHEETS
(Unaudited)
<TABLE>
<CAPTION>
March 31, December 31, March 31,
(In thousands, except share amounts) 1999 1998 1998
------------ ------------ ------------
<S> <C> <C> <C>
ASSETS
Cash and due from banks .................................... $ 801,646 $ 864,446 $ 631,444
Money market investments:
Interest-bearing deposits ............................. 25,200 30,484 64,911
Federal funds sold .................................... 120,842 199,446 308,336
Security resell agreements ............................ 248,286 382,275 831,107
Investment securities:
Held to maturity, at cost (approximate market value
$3,074,219, $2,821,535, and $1,949,777) ............... 3,060,195 2,803,903 1,931,266
Available for sale, at market ......................... 443,433 684,581 607,935
Trading account, at market ............................ 221,127 191,855 276,277
Loans:
Loans held for sale ................................... 179,672 232,253 249,398
Loans, leases, and other receivables .................. 10,769,888 10,449,362 5,828,113
------------ ------------ ------------
10,949,560 10,681,615 6,077,511
Less:
Unearned income and fees, net of related costs ........ 43,287 48,123 42,673
Allowance for loan losses ............................. 198,913 205,553 97,194
------------ ------------ ------------
Net Loans ....................................... 10,707,360 10,427,939 5,937,644
Premises and equipment, net ................................ 236,343 231,066 165,459
Goodwill and core deposit intangibles ...................... 264,680 271,578 173,797
Other real estate owned .................................... 7,064 5,270 3,723
Other assets ............................................... 948,775 556,078 372,087
------------ ------------ ------------
$ 17,084,951 $ 16,648,921 $ 11,303,986
============ ============ ============
LIABILITIES AND SHAREHOLDERS' EQUITY
Deposits:
Noninterest-bearing .................................... $ 3,070,803 $ 3,170,436 $ 2,183,443
Interest-bearing:
Savings and money market .......................... 6,618,846 6,077,556 4,214,146
Time:
Under $100,000 ................................ 2,049,304 2,340,598 1,212,796
Over $100,000 ................................. 1,311,764 1,528,329 605,076
Foreign ........................................... 154,059 204,244 158,862
------------ ------------ ------------
13,204,776 13,321,163 8,374,323
Securities sold, not yet purchased ......................... 247,249 29,702 155,434
Federal funds purchased .................................... 373,857 337,283 390,262
Security repurchase agreements ............................. 814,747 932,560 926,398
Accrued liabilities ........................................ 442,920 319,278 191,294
Commercial paper ........................................... 145,416 49,217 --
Federal Home Loan Bank advances and other borrowings:
Less than one year .................................... 254,130 100,750 87,944
Over one year ......................................... 50,798 56,796 121,421
Long-term debt ............................................. 453,554 453,735 278,643
------------ ------------ ------------
Total liabilities ................................. 15,987,447 15,600,484 10,525,719
------------ ------------ ------------
Minority interest .......................................... 37,818 34,781 --
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 shares; issued and outstanding
78,903,072, 78,636,083 and 72,656,291 shares ... 328,209 324,099 188,551
Accumulated other comprehensive loss .................. (948) (4,280) (416)
Retained earnings ..................................... 732,425 693,837 590,132
------------ ------------ ------------
Total shareholders' equity ....................... 1,059,686 1,013,656 778,267
------------ ------------ ------------
$ 17,084,951 $ 16,648,921 $ 11,303,986
============ ============ ============
</TABLE>
3
<PAGE>
ZIONS BANCORPORATION AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF INCOME
(Unaudited)
<TABLE>
<CAPTION>
Three Months Ended
March 31,
----------------------
(In thousands, except per share amounts) 1999 1998
--------- ---------
<S> <C> <C>
Interest income:
Interest and fees on loans ............................. $ 220,429 $ 133,585
Interest on loans held for sale ........................ 3,405 3,556
Lease financing ........................................ 3,424 3,332
Interest on money market investments ................... 14,129 22,997
Interest on securities:
Held to maturity:
Taxable ...................................... 41,378 32,824
Nontaxable ................................... 3,976 3,374
Available for sale:
Taxable ...................................... 7,042 9,473
Nontaxable ................................... 128 304
Trading account ................................... 6,792 5,011
--------- ---------
Total interest income ............................. 300,703 214,456
--------- ---------
Interest expense:
Interest on savings and money market deposits .......... 50,694 35,613
Interest on time and foreign deposits .................. 44,661 26,098
Interest on borrowed funds ............................. 38,470 36,122
--------- ---------
Total interest expense ............................ 133,825 97,833
--------- ---------
Net interest income ............................... 166,878 116,623
Provision for loan losses ................................... 4,231 3,555
--------- ---------
Net interest income after provision for loan losses 162,647 113,068
--------- ---------
Noninterest income:
Service charges on deposit accounts .................... 17,808 13,463
Other service charges, commissions and fees ............ 15,341 11,255
Trust income ........................................... 2,969 1,607
Investment securities gain (loss), net ................. (1,328) 799
Underwriting and trading income ........................ 4,021 1,943
Loan sales and servicing income ........................ 15,172 11,471
Other .................................................. 9,360 4,268
--------- ---------
Total noninterest income .......................... 63,343 44,806
--------- ---------
Noninterest expense:
Salaries and employee benefits ......................... 82,323 52,991
Occupancy, net ......................................... 11,484 5,857
Furniture and equipment ................................ 9,979 7,806
Other real estate expense (income) ..................... 44 (254)
Legal and professional services ........................ 3,240 2,854
Supplies ............................................... 2,576 2,547
Postage ................................................ 2,806 2,168
Advertising ............................................ 2,926 2,628
FDIC premiums .......................................... 357 322
Merger expense ......................................... 1,045 1,973
Amortization of goodwill and core deposit intangibles .. 3,297 2,380
Amortization of mortgage servicing assets .............. 651 1,132
Other .................................................. 28,020 18,353
--------- ---------
Total noninterest expense ......................... 148,748 100,757
--------- ---------
Income before income taxes and minority interest ............ 77,242 57,117
Income taxes ................................................ 26,927 18,121
--------- ---------
Net income before minority interest .............. 50,315 38,996
Minority interest ........................................... 1,464 --
--------- ---------
Net income ....................................... $ 48,851 $ 38,996
========= =========
Weighted-average common and common-equivalent
shares outstanding during the period .................... 80,010 74,308
Net income per common share:
Basic ..................................................... $ 0.62 $ 0.54
Diluted ................................................... $ 0.61 $ 0.52
</TABLE>
4
<PAGE>
ZIONS BANCORPORATION AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF CASH FLOWS
(Unaudited)
<TABLE>
<CAPTION>
Three Months Ended
March 31,
----------------------------
(In thousands) 1999 1998
------------ ------------
<S> <C> <C>
Cash flows from operating activities:
Net income .................................................. $ 48,851 $ 38,996
Adjustments to reconcile net income to net cash
provided by (used in) operating activities:
Provision for loan losses .............................. 4,231 3,555
Depreciation of premises and equipment ................. 8,535 5,981
Amortization ........................................... 6,987 5,137
Accretion of unearned income and fees, net of
related costs ..................................... 2,183 (1,429)
Net change in minority interest ........................ 3,037 --
Proceeds from sales of trading account securities ...... 45,855,598 35,127,216
Increase in trading account securities ................. (45,884,870) (35,319,812)
Investment securities (gain) loss, net ................. 1,328 (799)
Proceeds from loans held for sale ...................... 308,109 243,205
Increase in loans held for sale ........................ (256,376) (311,893)
Net gain on sales of loans, leases and other assets .... (12,611) (9,000)
Change in accrued income taxes ......................... 20,158 16,752
Change in accrued interest receivable .................. (12,043) (190)
Change in accrued interest payable ..................... (1,257) 6,377
Other, net ............................................. (78,666) (67,783)
------------ ------------
Net cash provided by (used in) operating activities 13,194 (263,687)
------------ ------------
Cash flows from investing activities:
Net decrease (increase) in money market investments ......... 218,052 (330,556)
Proceeds from maturities of investment securities
held to maturity ....................................... 294,722 591,685
Purchases of investment securities held to maturity ......... (554,985) (54,796)
Proceeds from sales of investment securities
available for sale ..................................... 138,201 191,610
Proceeds from maturities of investment securities
available for sale ..................................... 81,440 15,017
Purchases of investment securities available for sale ....... (183,439) (218,952)
Proceeds from sales of loans and leases ..................... 196,037 206,276
Net increase in loans and leases ............................ (517,200) (348,292)
Payments on leveraged leases ................................ (4,168) (1,067)
Principal collections on leveraged leases ................... 4,168 1,067
Proceeds from sales of premises and equipment ............... 490 244
Purchases of premises and equipment ......................... (14,294) (11,490)
Proceeds from sales of mortgage-servicing rights ............ 14,918 338
Purchases of mortgage-servicing rights ...................... (792) (703)
Proceeds from sales of other assets ......................... 2,129 3,277
Cash paid for acquisitions, net of cash received ............ 592 10,125
------------ ------------
Net cash provided by (used in) investing activities (324,129) 53,783
------------ ------------
</TABLE>
5
<PAGE>
ZIONS BANCORPORATION AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF CASH FLOWS (Continued)
(Unaudited)
<TABLE>
<CAPTION>
Three Months Ended
March 31,
----------------------
(In thousands) 1999 1998
--------- ---------
<S> <C> <C>
Cash flows from financing activities:
Net increase (decrease) in deposits ............... (121,848) 193,782
Net change in short-term funds borrowed ........... 385,887 55,091
Payments on FHLB advances over one year ........... (5,998) (94,210)
Payments on long-term debt ........................ (181) (2,392)
Proceeds from issuance of common stock ............ 1,529 729
Payments to redeem common stock ................... (194) (12,783)
Dividends paid .................................... (11,060) (9,040)
--------- ---------
Net cash provided by financing activities 248,135 131,177
--------- ---------
Net decrease in cash and due from banks ................ (62,800) (78,727)
Cash and due from banks at beginning of period ......... 864,446 710,171
--------- ---------
Cash and due from banks at end of period ............... $ 801,646 $ 631,444
========= =========
SUPPLEMENTAL DISCLOSURES OF CASH FLOW INFORMATION
(Unaudited)
Three Months Ended
March 31,
----------------------
(In thousands) 1999 1998
--------- ---------
Cash paid for:
Interest .......................................... $ 135,080 $ 90,381
Income taxes ...................................... 55 1,888
Loans transferred to other real estate owned ........... 2,450 810
</TABLE>
6
<PAGE>
ZIONS BANCORPORATION AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF CHANGES IN SHAREHOLDERS' EQUITY AND
COMPREHENSIVE INCOME
(Unaudited)
<TABLE>
<CAPTION>
Three Months Ended
March 31, 1999
---------------------------------------------------------------------
Accumulated
(In thousands) other Total
Common Comprehensive comprehensive Retained Shareholders'
Stock Income income (loss) Earnings Equity
----------- ----------- ----------- ----------- -----------
<S> <C> <C> <C> <C> <C>
Balance, January 1, 1999 ........................... $ 324,099 $ (4,280) $ 693,837 $ 1,013,656
Net income for the period .......................... $ 48,851 48,851 48,851
-----------
Other comprehensive income, net of tax:
Realized and unrealized holding loss arising
during the period, net of tax benefit of $313 (645)
Reclassification for net realized
securities loss recorded in the income
statement, net of tax benefit of $2,464 ..... 3,977
-----------
Other comprehensive income ..................... 3,332 3,332 3,332
-----------
Total comprehensive income ..................... $ 52,183
===========
Cash dividends:
Preferred, paid by subsidiaries to
minority shareholders ....................... (8) (8)
Common, $.14 per share ......................... (11,052) (11,052)
Issuance of common shares for acquisitions ......... 83 797 880
Stock redeemed and retired ......................... (194) (194)
Stock options exercised, net of shares tendered
and retired .................................... 4,221 4,221
----------- ----------- ----------- -----------
Balance, March 31, 1999 ............................ $ 328,209 $ (948) $ 732,425 $ 1,059,686
=========== =========== =========== ===========
</TABLE>
<TABLE>
<CAPTION>
Three Months Ended
March 31, 1999
---------------------------------------------------------------------
Accumulated
(In thousands) other Total
Common Comprehensive comprehensive Retained Shareholders'
Stock Income income (loss) Earnings Equity
----------- ----------- ----------- ----------- -----------
<S> <C> <C> <C> <C> <C>
Balance, January 1, 1998 ........................... $ 190,039 $ 1,902 $ 550,111 $ 742,052
Net income for the period .......................... $ 38,996 38,996 38,996
-----------
Other comprehensive income, net of tax:
Realized and unrealized holding loss arising
during the period, net of tax benefit of $1,106 (1,786)
Reclassification for realized investment
securities gain recorded in the income
statement, net of tax expense of $306 ....... (493)
-----------
Other comprehensive income ..................... (2,279) (2,279) (2,279)
-----------
Total comprehensive income ..................... $ 36,717
===========
Cash dividends:
Preferred, paid by subsidiaries to
minority shareholders ....................... (21) (21)
Common, $.12 per share ......................... (8,290) (8,290)
Dividends of acquired companies prior to merger (729) (729)
Issuance of common shares for acquisitions ......... 5,964 (39) 10,065 15,990
Conversion of aquired company convertible
debt prior to acquisition ...................... 4,546 4,546
Stock redeemed and retired ......................... (12,783) (12,783)
Stock options exercised, net of shares tendered
and retired .................................... 785 785
----------- ----------- ----------- -----------
Balance, March 31, 1998 ............................ $ 188,551 $ (416) $ 590,132 $ 778,267
=========== =========== =========== ===========
</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. On May 22, 1998, the Company acquired FP
Bancorp, Inc. and its banking subsidiary First Pacific National Bank. On
September 8, 1998, the Company acquired The Commerce Bancorporation and its
banking subsidiary The Commerce Bank of Washington, N.A. All three acquisitions
were accounted for as poolings of interests and were considered significant.
Accordingly, prior year amounts have been restated. Certain amounts in the 1998
consolidated financial statements have also been reclassified to conform to the
1999 presentation. On October 1, 1998, the Company acquired The Sumitomo Bank of
California in a transaction accounted for as a purchase. In a purchase
transaction results of operations for the acquired entity are only included
subsequent to the acquisition date. Therefore, financial information for the
first quarter of 1999 can not be compared directly with the first quarter of
1998.
Operating results for the three months ended March 31, 1999 are not necessarily
indicative of the results that may be expected for the year ended December 31,
1999. 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, 1998.
Accounting Standards Not Adopted
In June 1998, the FASB issued Statement No. 133, Accounting for Derivative
Instruments and Hedging Activities. Statement No. 133 establishes accounting and
reporting standards for derivative instruments, including certain derivative
instruments embedded in other contracts, and for hedging activities. It requires
that an entity recognize all derivatives as either assets or liabilities in the
statement of financial position and measure those instruments at fair value. The
accounting for gains and losses of a derivative depends on the intended use of
the derivative and the resulting designation.
Under this statement, an entity that elects to apply hedge accounting is
required to establish at the inception of the hedge the method it will use for
assessing the effectiveness of the hedging derivative and the measurement
approach for determining the ineffective aspect of the hedge. Those methods must
be consistent with the entity's approach to managing risk. This statement is
effective for all fiscal quarters of fiscal years beginning after June 15, 1999,
and should not be applied retroactively to financial statements of prior
periods. The Company is currently studying the statement to determine its future
effects.
In October 1998, the FASB issued Statement No. 134, Accounting for
Mortgage-Backed Securities Retained after the Securitization of Mortgage Loans
Held for Sale by a Mortgage Banking Enterprise. This statement amends FASB
Statement No. 65, Accounting for Certain Mortgage Banking Activities, to require
that after the securitization of mortgage loans held for sale, an entity engaged
in mortgage banking activities
8
<PAGE>
classify the resulting mortgage-backed securities or other retained interests
based on its ability and intent to sell or hold those investments. This
statement conforms the subsequent accounting for securities retained after the
securitization of mortgage loans by a mortgage banking enterprise with the
subsequent accounting for securities retained after the securitization of other
types of assets by a nonmortgage banking enterprise. This statement is effective
for the first fiscal quarter beginning after December 15, 1998. The adoption of
Statement No. 134 did not have a significant impact on the Company's financial
position or results of operations.
SUBSEQUENT EVENTS
On April 27, 1999, the Company announced a definitive agreement to merge with
Regency Bancorp of Fresno, California in exchange for common shares of Zions.
Regency Bancorp's banking subsidiary, Regency Bank, will then merge into Zions'
subsidiary, California Bank & Trust. As of March 31, 1999, Regency Bancorp had
total assets of approximately $228 million. The merger is intended to be
accounted for as a pooling of interests and is expected to close in the third
quarter, subject to the approval of banking regulators and the shareholders of
Regency Bancorp.
On May 7, 1999, the Company announced a definitive agreement to merge with
Pioneer Bancorporation of Reno, Nevada in a stock transaction valued at
approximately $340.8 million. Pioneer Bancorporation's subsidiary, Pioneer
Citizens Bank of Nevada, will merge into Zions' subsidiary, Nevada State Bank,
creating the third largest bank in the state. As of December 31, 1998, Pioneer
Bancorp had total assets of approximately $1,031 million. The transaction is
expected to close in the third quarter and is intended to be accounted for as a
pooling of interests.
9
<PAGE>
ZIONS BANCORPORATION AND SUBSIDIARIES
ITEM 2.
MANAGEMENT'S DISCUSSION AND ANALYSIS
FINANCIAL HIGHLIGHTS
(Unaudited)
Three Months Ended
March 31,
(In thousands, except per --------------------------------
share and ratio data) 1999 1998 % Change
-------- -------- --------
EARNINGS
Taxable-equivalent net interest income $169,866 $118,641 43.18%
Net interest income .................. 166,878 116,623 43.09%
Noninterest income ................... 63,343 44,806 41.37%
Provision for loan losses ............ 4,231 3,555 19.02%
Noninterest expense .................. 148,748 100,757 47.63%
Income before income taxes ........... 77,242 57,117 35.23%
Income taxes ......................... 26,927 18,121 48.60%
Minority interest .................... 1,464 --
Net income ........................... 48,851 38,996 25.27%
PER COMMON SHARE
Net income (diluted) ................. 0.61 0.52 17.31%
Dividends ............................ 0.14 0.12 16.67%
Book value ........................... 13.43 10.71 25.40%
SELECTED RATIOS
Return on average assets ............. 1.13% 1.36%
Return on average common equity ...... 19.03% 20.73%
Efficiency ratio ..................... 63.78% 61.65%
Net interest margin .................. 4.39% 4.55%
OPERATING CASH EARNINGS*
Taxable-equivalent net interest income $169,866 $118,641 43.18%
Net interest income .................. 166,878 116,623 43.09%
Noninterest income ................... 63,343 44,806 41.37%
Provision for loan losses ............ 4,231 3,555 19.02%
Noninterest expense .................. 144,406 96,404 49.79%
Income before income taxes ........... 81,584 61,470 32.72%
Income taxes ......................... 27,657 18,626 48.49%
Minority interest .................... 1,464 --
Net income ........................... 52,463 42,844 22.45%
PER COMMON SHARE
Net income (diluted) ................. 0.66 0.58 13.79%
Dividends ............................ 0.14 0.12 16.67%
Book value ........................... 10.08 8.32 21.15%
SELECTED RATIOS
Return on average assets ............. 1.24% 1.52%
Return on average common equity ...... 27.50% 29.52%
Efficiency ratio ..................... 61.92% 58.98%
Net interest margin .................. 4.39% 4.55%
* Before amortization of goodwill and core deposit intangible assets and merger
related expenses.
10
<PAGE>
ZIONS BANCORPORATION AND SUBSIDIARIES
FINANCIAL HIGHLIGHTS (Continued)
(Unaudited)
<TABLE>
<CAPTION>
Three Months Ended
(In thousands, except per share and ratio data) March 31
---------------------------------------
1999 1998 % Change
----------- ----------- -----------
<S> <C> <C> <C>
AVERAGE BALANCES
Total assets ................................ $17,487,770 $11,597,549 50.79%
Securities .................................. 4,034,499 3,133,446 28.76%
Net loans and leases ........................ 10,716,776 5,814,976 84.30%
Goodwill and core deposit intangibles ....... 267,365 174,249 53.44%
Total deposits .............................. 13,046,673 8,062,287 61.82%
Minority interest ........................... 37,060 --
Shareholders' equity ........................ 1,040,925 762,861 36.45%
Weighted average common and common-
equivalent shares outstanding .......... 80,010,112 74,307,885 7.67%
AT PERIOD END
Total assets ................................ $17,084,951 $11,303,986 51.14%
Securities .................................. 3,724,755 2,815,478 32.30%
Net loans and leases ........................ 10,906,273 6,034,838 80.72%
Allowance for loan losses ................... 198,913 97,194 104.66%
Goodwill and core deposit intangibles ....... 264,680 173,797 52.29%
Total deposits .............................. 13,204,776 8,374,323 57.68%
Minority interest ........................... 37,818 --
Shareholders' equity ........................ 1,059,686 778,267 36.16%
Common shares outstanding ................... 78,903,072 72,656,291 8.60%
Average equity to average assets ............ 5.95% 6.58%
Common dividend payout ...................... 22.62% 21.26%
Nonperforming assets ........................ 81,512 22,028 270.04%
Loans past due 90 days or more .............. 26,205 14,054 86.46%
Nonperforming assets to net loans and leases,
other real estate owned and other
nonperforming assets at March 31 ....... .75% .36%
</TABLE>
11
<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, 1999 was $48.9 million
or $0.61 per diluted share, an increase of 25.3% and 17.3%, respectively, over
the restated $39.0 million or $0.52 earned in the first quarter of 1998. The
quarterly dividend per share increased 16.7% to $0.14 from $0.12 in the first
quarter of 1998.
The annualized return on average assets for the first quarter of 1999 was 1.13%
compared to 1.36% for the first quarter of 1998. The annualized return on
average common shareholders' equity was 19.03%, compared to 20.73% for the first
quarter of 1998. The Company's "efficiency ratio," or noninterest expenses as a
percentage of total taxable-equivalent net revenues for the first quarter of
1999 was 63.78% compared to 61.65% for the first quarter of 1998. As discussed
in notes to consolidated financial statements, due to the purchase of The
Sumitomo Bank of California, financial information for the first quarter of 1999
is not directly comparable to the first quarter of 1998.
The Company's first-quarter $9.9 million (25.3%) increase in earnings relative
to the same restated period a year ago reflects a $50.3 million (43.1%) increase
in net interest income, an $18.5 million (41.4%) increase in noninterest income,
partially offset by a $0.7 million (19.0%) increase in the provision for loan
losses, a $48.0 million (47.6%) increase in noninterest expenses, an $8.8
million (48.6%) increase in income tax expense, and a $1.5 million increase in
minority interest which did not exist for the period ended March 31, 1998.
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.
Operating cash earnings are earnings before the amortization of goodwill and
core deposit intangible assets and merger expense.
Operating cash earnings for the quarter were $52.5 million or $0.66 per diluted
share, an increase of 22.5% and 13.8%, respectively, over the restated $42.8
million or $0.58 per diluted share earned in the first quarter of 1998.
The operating cash annualized return on average assets for the first quarter of
1999 was 1.24% compared to 1.52% for the first quarter of 1998, resulting in an
operating cash annualized return on average common shareholders' equity of
27.50% compared to 29.52% for the first quarter of 1998. The Company's operating
cash efficiency ratio for the first quarter of 1999 was 61.92% compared to
58.98% for the first quarter of 1998.
NET INTEREST INCOME AND INTEREST RATE SPREADS
Net interest income for the first quarter of 1999, adjusted to a fully
taxable-equivalent basis, increased 43.2% to $169.9 million compared to $118.6
million for the first quarter of 1998. Net interest margin decreased to 4.39%
compared to 4.55% for the first quarter of 1998 primarily as a result of the
reclassification of certain assets. The yield on average earning assets
decreased 46 basis points during the first quarter of 1999 as compared to the
first quarter of 1998, and the average rate paid this quarter on
interest-bearing funds decreased 44 basis points from the first quarter of 1998.
The spread on average interest-bearing funds for the first quarter of 1999 was
3.73%, compared to 3.75% for the first quarter of 1998.
12
<PAGE>
ZIONS BANCORPORATION AND SUBSIDIARIES
CONSOLIDATED AVERAGE BALANCE SHEETS, YIELDS AND RATES
(Unaudited)
<TABLE>
<CAPTION>
Three Months Ended Three Months Ended
March 31, 1999 March 31, 1998
---------------------------------- ----------------------------------
Average Amount of Average Average Amount of Average
(In millions) Balance Interest(1) Rate Balance Interest(1) Rate
-------- -------- -------- -------- -------- --------
ASSETS
<S> <C> <C> <C> <C> <C> <C>
Money market investments .................. $ 940 $ 14.2 6.10% $ 1,622 $ 23.0 5.75%
Securities:
Held to maturity ..................... 3,023 47.5 6.37% 2,151 37.7 7.10%
Available for sale ................... 484 7.2 6.07% 622 9.9 6.46%
Trading account ...................... 527 6.8 5.22% 360 5.0 5.65%
-------- -------- -------- --------
Total securities ................ 4,034 61.5 6.18% 3,133 52.6 6.80%
-------- -------- -------- --------
Loans:
Loans held for sale .................. 212 3.4 6.51% 205 3.5 7.04%
Net loans and leases(2)............... 10,505 224.6 8.67% 5,610 137.4 9.93%
-------- -------- -------- --------
Total loans ..................... 10,717 228.0 8.63% 5,815 140.9 9.83%
-------- -------- -------- --------
Total interest-earning assets ............. $ 15,691 $ 303.7 7.85% $ 10,570 $ 216.5 8.31%
-------- --------
Cash and due from banks ................... 758 558
Allowance for loan losses ................. (207) (96)
Goodwill and core deposit intangibles ..... 267 174
Other assets .............................. 979 392
-------- --------
Total assets .............................. $ 17,488 $ 11,598
======== ========
LIABILITIES
Interest-bearing deposits:
Savings and NOW deposits ............. $ 1,609 $ 8.6 2.17% $ 1,102 $ 8.0 2.93%
Money market super NOW deposits ...... 4,734 42.1 3.60% 3,028 27.6 3.70%
Time deposits under $100,000 ......... 2,216 26.1 4.77% 1,234 16.3 5.35%
Time deposits $100,000 or more ....... 1,338 16.7 5.08% 561 7.9 5.71%
Foreign deposits ..................... 175 1.8 4.23% 166 1.9 4.67%
-------- -------- -------- --------
Total interest-bearing deposits 10,072 95.3 3.84% 6,091 61.7 4.11%
-------- -------- -------- --------
Borrowed funds:
Securities sold, not yet purchased ... 299 3.8 5.17% 127 1.7 5.48%
Federal funds purchased and security
repurchase agreements ........... 2,025 21.8 4.36% 1,937 24.3 5.09%
Commercial paper ..................... 70 0.9 5.25% -- --
FHLB advances and other borrowings:
Less than one year .............. 191 2.3 4.81% 105 1.7 6.41%
Over one year ................... 54 0.8 6.23% 155 2.2 5.81%
Long-term debt ....................... 454 8.9 7.95% 279 6,3 9.05%
-------- -------- -------- --------
Total borrowed funds ............ 3,093 38.5 5.04% 2,603 36.2 5.63%
-------- -------- -------- --------
Total interest-bearing liabilities ........ $ 13,165 $ 133.8 4.12% $ 8,694 $ 97.9 4.56%
-------- --------
Noninterest-bearing deposits .............. 2,975 1,972
Other liabilities ......................... 270 169
-------- --------
Total liabilities ......................... 16,410 10,835
Minority interest ......................... 37 --
Total shareholders' equity ................ 1,041 763
-------- --------
Total liabilities and shareholders' equity $ 17,488 $ 11,598
======== ========
Spread on average interest-bearing funds .. 3.73% 3.75%
======== ========
Net interest income and net yield on
interest-earning assets .............. $ 169.9 4.39% $ 118.6 4.55%
======== ======== ======== ========
</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.
13
<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 1999 was $3.1 million
compared to $1.0 million for the first quarter of 1998.
PROVISION FOR LOAN LOSSES
The provision for loan losses increased 19.0% to $4.2 million for the first
quarter of 1999, as compared with $3.6 million for the first quarter of 1998.
Annualized, it is .16% of average loans for the first quarter of 1999 compared
to .24% for the first quarter of 1998.
NONINTEREST INCOME
Noninterest income for the first quarter of 1999 was $63.3 million, an increase
of 41.4% from the $44.8 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;
underwriting and trading income; loan sales and servicing income; and other
income. Comparing the segments of noninterest income for the first quarter of
1999 and the first quarter of 1998, service charges on deposit accounts
increased 32.3%, other service charges, commissions and fees increased 36.3%,
trust income increased 84.8%, underwriting and trading income increased 106.9%,
loan sales and servicing income increased 32.3%, and other income increased
119.3%. Net losses of $1.3 million on the sale of investment securities were
realized during the first quarter of 1999 compared to net gains of $0.8 million
during the first quarter of 1998. The increase in underwriting and trading
income reflects the Company's commencement of providing online executable
government bond sales over Bloomberg and the Internet and the underwriting of
municipal revenue bonds. The increase in other income includes approximately
$1.6 million of income from investments in bank-owned life insurance policies,
and income from nonmarketable securities previously classified as securities
income.
NONINTEREST EXPENSE
Noninterest expense for the first quarter of 1999 was $148.7 million, an
increase of 47.6% over $100.8 million for the first quarter of 1998. Comparing
significant noninterest expense segments for the first quarter of 1999 and the
first quarter of 1998, salaries and employee benefits increased 55.4%, occupancy
increased 96.1%, furniture and equipment expense increased 27.8% and the total
of all other expenses increased 31.8% which included significant increases in
legal and professional services, postage, amortization of intangible assets and
other expenses.
The increase in noninterest expense for the first quarter of 1999 compared to
the first quarter of 1998 resulted primarily from acquisitions, expansion of
business lines and investment in personnel in selected areas to enhance future
revenue opportunities. As previously discussed, expenses for the first quarter
of 1999 include the operations of the Sumitomo Bank of California acquired
October 1, 1998 in a purchase transaction. At March 31, 1999, the Company had
6,844 full-time equivalent employees, 340 offices and 475 ATMs compared to 5,148
full-time equivalent employees, 263 offices and 540 ATMs at March 31, 1998.
INCOME TAXES
The Company's income taxes were $26.9 million for the first quarter of 1999
compared to $18.1 million for the first quarter of 1998. The Company's effective
income tax rate was 34.86% for the first quarter of 1999, up from 31.73% for the
first quarter of 1998.
14
<PAGE>
ZIONS BANCORPORATION AND SUBSIDIARIES
ANALYSIS OF FINANCIAL CONDITION
EARNING ASSETS
Average earning assets increased 48.4% to $15,691 million for the three months
ended March 31, 1999, compared to $10,570 million for the three months ended
March 31, 1998. Earning assets comprised 89.7% of total average assets for the
first three months of 1999, compared with 91.1% for the first three months of
1998.
Average money market investments, consisting of interest-bearing deposits,
federal funds sold and security resell agreements decreased 42.1% to $940
million in the first three months of 1999 as compared to $1,622 million in the
first three months of 1998.
During the first three months of 1999, average securities increased 28.8% to
$4,034 million compared to $3,133 million in the first three months of 1998.
Average held to maturity securities increased 40.5%, available for sale
securities decreased 22.3%, and trading account securities increased 46.6%
compared with the first three months of 1998.
Average net loans and leases increased 84.3% to $10,717 million for the first
three months of 1999 compared to $5,815 million in the first three months of
1998, representing 68.3% of earning assets in the first three months of 1999
compared to 55.0% in the first three months of 1998. Average net loans and
leases were 82.1% of average total deposits for the three months ended March 31,
1999, as compared to 72.1% for the three months ended March 31, 1998.
15
<PAGE>
ZIONS BANCORPORATION AND SUBSIDIARIES
INVESTMENT SECURITIES
The following table presents the Company's investment securities on March 31,
1999, December 31, 1998 and March 31, 1998. As of March 31, 1999, the Company
had approximately $71 million of Small Business Administration originator fee
certificates that have been classified in other assets and are measured as
available for sale securities.
<TABLE>
<CAPTION>
March 31, December 31, March 31,
1999 1998 1998
---------------------- ---------------------- ----------------------
Amortized Market Amortized Market Amortized Market
(In millions) cost value cost value cost value
--------- --------- --------- --------- --------- ---------
<S> <C> <C> <C> <C> <C> <C>
Held to maturity
- ----------------
U.S. Treasury Securities ........ $ 2 $ 2 $ 62 $ 62 $ 4 $ 4
U.S. government agencies and
corporations:
Small Business
Administration loan-
backed securities ....... 350 349 358 356 423 430
Other agency securities ...... 991 993 940 944 1,147 1,153
States and political subdivisions 334 341 285 293 263 267
Mortgage-backed securities ...... 1,383 1,389 1,159 1,166 94 96
--------- --------- --------- --------- --------- ---------
3,060 3,074 2,804 2,821 1,931 1,950
--------- --------- --------- --------- --------- ---------
Available for sale
- ------------------
U.S. Treasury securities ........ 80 80 46 47 28 28
U.S. government agencies and
corporations:
Small Business Administration
originator fee certificates -- -- 85 69 79 74
Other agency securities ...... 86 87 112 113 161 161
States and political subdivisions 8 9 15 16 15 16
Mortgage and other
asset-backed securities ...... 146 147 179 180 78 79
--------- --------- --------- --------- --------- ---------
320 323 437 425 361 358
--------- --------- --------- --------- --------- ---------
Equity securities:
Mutual funds:
Accessor Funds, Inc. .... 106 107 117 118 110 110
Stock:
Federal Home Loan Bank .. -- -- 101 101 101 100
Other ................... 9 13 36 41 37 40
--------- --------- --------- --------- --------- ---------
115 120 254 260 248 250
--------- --------- --------- --------- --------- ---------
435 443 691 685 609 608
--------- --------- --------- --------- --------- ---------
Total ............................... $ 3,495 $ 3,517 $ 3,495 $ 3,506 $ 2,540 $ 2,558
========= ========= ========= ========= ========= =========
</TABLE>
16
<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.
The table below sets forth the amount of loans outstanding by type on March 31,
1999, December 31, 1998 and March 31, 1998.
<TABLE>
<CAPTION>
(In millions)
March 31, December 31, March 31,
Types 1999 1998 1998
- ----- ------------ ------------ ------------
<S> <C> <C> <C>
Loans held for sale ....................... $ 180 $ 232 $ 249
Commercial, financial, and agricultural ... 2,742 2,692 1,569
Real estate:
Construction ....................... 1,071 867 538
Other:
Home equity credit line . 191 222 166
1-4 family residential .. 2,190 2,187 989
Other real estate-secured 3,706 3,624 1,884
------------ ------------ ------------
6,087 6,033 3,039
------------ ------------ ------------
7,158 6,900 3,577
Consumer:
Bankcard ........................... 81 87 50
Other .............................. 440 452 383
------------ ------------ ------------
521 539 433
Lease financing ........................... 208 213 171
Foreign loans ............................. 92 44 --
Other receivables ......................... 49 62 79
------------ ------------ ------------
Total loans ........................ $ 10,950 $ 10,682 $ 6,078
============ ============ ============
</TABLE>
Loans held for sale on March 31, 1999 decreased 22.6% from year-end 1998. All
other loans, net of unearned income and fees increased 3.1% to $10,770 million
on March 31, 1999, compared to $10,449 million on December 31, 1998. Commercial
loans, construction loans, other real estate-secured loans and foreign loans
increased from year end 1.9%, 23.6%, 0.9% and 107.9%, respectively. Consumer
loans, lease financing, and other receivables decreased 3.5%, 2.5% and 20.5%,
respectively from year end. Within the other real estate-secured loan portfolio,
home equity credit line loans decreased 14.3%, 1-4 family residential loans
increased 0.2% and all other real estate loans increased 2.3% from year end.
17
<PAGE>
ZIONS BANCORPORATION AND SUBSIDIARIES
On March 31, 1999, long-term first mortgage real estate serviced for others
totaled $928 million and consumer and other loan securitizations, which relate
primarily to loans sold under revolving securitization structures, totaled $916
million. During the first three months of 1999, the Company sold $308 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
$187 million. During the first three months of 1999, total loans sold were $495
million.
RISK ELEMENTS
The Company's nonperforming assets, which include nonaccruing loans,
restructured loans, other real estate owned and other nonperforming assets, were
$82 million on March 31, 1999, up from $64 million on December 31, 1998, and up
from $22 million on March 31, 1998. Such nonperforming assets as a percentage of
net loans and leases and other real estate owned were .75%, .60% and .36% on
March 31, 1999, December 31, 1998, and March 31, 1998, respectively.
Accruing loans past due 90 days or more totaled $26 million on March 31, 1999
and December 31, 1998, up from $14 million on March 31, 1998. These loans
equaled .24% of net loans and leases on March 31, 1999 and December 31, 1998 and
.23% on March 31, 1998.
No loans were considered potential problem loans at March 31, 1999, December 31,
1998 or March 31, 1998. 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 $61 million on March 31, 1999, as compared to $41
million on December 31, 1998, and $5 million on March 31, 1998. 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, 1999, December 31, 1998, and March 31, 1998, is a required allowance of $15
million, $5 million and $0.2 million, respectively, on $30 million, $12 million
and $0.7 million, respectively, of the recorded investment in impaired loans.
18
<PAGE>
ZIONS BANCORPORATION AND SUBSIDIARIES
The following table sets forth the nonperforming assets on March 31, 1999,
December 31, 1998, and March 31, 1998.
<TABLE>
<CAPTION>
March 31, December 31, March 31,
(In millions) 1999 1998 1998
------------ ------------ ------------
<S> <C> <C> <C>
Nonaccrual loans ............................ $ 71 $ 54 $ 17
Restructured loans .......................... 4 5 1
Other real estate owned and other
nonperforming assets ................... 7 5 4
------------ ------------ ------------
Total .................................. $ 82 $ 64 $ 22
============ ============ ============
% of net loans and leases*, other real estate
owned and other nonperforming assets ... .75% .60% .36%
Accruing loans past due 90 days or more ..... $ 26 $ 26 $ 14
============ ============ ============
% of net loans and leases* .................. .24% .24% .23%
*Includes loans held for sale.
</TABLE>
ALLOWANCE FOR LOAN LOSSES
The Company's allowance for loan losses was 1.82% of net loans and leases on
March 31, 1999, compared to 1.93% on December 31, 1998, and 1.61% on March 31,
1998. Net charge-offs during the first quarter of 1999 were $11 million, or .41%
of average net loans and leases annualized, compared to $1 million, or .05% of
average net loans and leases annualized for the first quarter of 1998.
The allowance, as a percentage of nonaccrual loans and restructured loans, was
267.18% on March 31, 1999, compared to 347.86% on December 31, 1998, and 530.97%
on March 31, 1998. The allowance, as a percentage of nonaccrual loans and
accruing loans past due 90 days or more was 204.99% on March 31, 1999, compared
to 258.04% on December 31, 1998 and 312.15% on March 31, 1998.
On March 31, 1999, December 31, 1998, and March 31, 1998, the allowance for loan
losses includes an allocation of $21 million, $20 million and $9 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, 1999, December 31, 1998 and March 31, 1998, totaled $5,154
million, $4,758 million and $3,003 million, respectively.
The increase in nonaccrual loans and charge-offs for the first quarter of 1999
is mainly attributable to the completion of a review of loans acquired in the
Sumitomo Bank of California merger. The allowance for loan losses was sufficient
at acquisition and no additional provision for loan losses was required as a
result of the review.
19
<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 millions) March 31, December 31, March 31,
1999 1998 1998
------------ ------------ ------------
<S> <C> <C> <C>
Average loans* and leases outstanding
(net of unearned income) ............. $ 10,717 $ 7,174 $ 5,815
============ ============ ============
Allowance for possible losses:
Balance at beginning of the period ........ $ 206 $ 92 $ 92
Allowance of companies acquired ........... -- 117 3
Provision charged against earnings ........ 4 12 3
Loans and leases charged-off:
Loans held for sale .................. -- -- --
Commercial, financial and agricultural (9) (8) (1)
Real estate .......................... (--) (6) (--)
Consumer ............................. (2) (9) (2)
Lease financing ...................... (2) (1) (--)
------------ ------------ ------------
Total ........................... (13) (24) (3)
------------ ------------ ------------
Recoveries:
Loans held for sale .................. -- -- 1
Commercial, financial and agricultural 1 3 --
Real estate .......................... -- 3 1
Consumer ............................. 1 3 --
Lease financing ...................... -- -- --
------------ ------------ ------------
Total ........................... 2 9 2
------------ ------------ ------------
Net loan and lease charge-offs ............ (11) (15) (1)
------------ ------------ ------------
Balance at end of the period .............. $ 199 $ 206 $ 97
============ ============ ============
*Includes loans held for sale
Ratio of net charge-offs to
average loans and leases ............. .41% .21% .05%
</TABLE>
20
<PAGE>
ZIONS BANCORPORATION AND SUBSIDIARIES
DEPOSITS
Average total deposits of $13,047 million for the first three months of 1999
increased 61.8% over the restated $8,062 million for the first three months of
1998, with average demand deposits increasing 50.9%. Average savings and NOW
deposits, money market and super NOW deposits, and time deposits under $100,000
for the first three months of 1999 increased 46.1%, 56.3% and 79.5%
respectively, from the restated first three months of 1998. Average time
deposits over $100,000 increased 138.5% and foreign deposits increased 5.9%
during the first three months of 1999, compared with the same period one year
earlier.
Total deposits decreased .9% to $13,205 million on March 31, 1999, as compared
to $13,321 million on December 31, 1998. Comparing March 31, 1999 to December
31, 1998, demand deposits, time deposits under $100,000, time deposits over
$100,000, and foreign deposits decreased 3.1%, 12.4%, 14.2% and 24.6%,
respectively, and savings and money market deposits increased 8.9%.
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 $1,177 million or 10.0%
of core deposits on March 31, 1999.
The Company's core deposits, consisting of demand, savings and money market
deposits and time deposits under $100,000, constituted 88.9% of total deposits
on March 31, 1999 as compared to 87.0% on December 31, 1998 and 90.9% on March
31, 1998.
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, and principal
and interest payments on subsidiary borrowings from the parent company.
Interest rate risk is the most significant market risk regularly undertaken by
the 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, 1998.
21
<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 and simulation 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.
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 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
Total shareholders' equity on March 31, 1999 was $1,060 million, an increase of
4.5% over the $1,014 million on December 31, 1998, and an increase of 36.2% over
the restated $778 million on March 31, 1998. The ratio of average equity to
average assets for the first three months of 1999 was 5.95% as compared to 6.58%
for the same period in 1998. On March 31, 1999, the Company's Tier I risk-based
capital ratio was 8.65%, as compared to 8.46% on December 31, 1998 and 11.74% on
March 31, 1998. On March 31, 1999 the Company's total risk-based capital ratio
was 11.62%, as compared to 11.48% on December 31, 1998 and 13.59% on March 31,
1998. The Company's leverage ratio on March 31, 1999 was 6.12%, as compared to
5.98% on December 31, 1998 and 6.95% on March 31, 1998.
Dividends declared per common share for the first quarter of 1999 of $.14
increased 16.7%, as compared to $.12 for the first quarter of 1998. The common
cash dividend payout of net income for the first three months of 1999 was
22.62%, as compared to 21.26% for the first three months of 1998.
During the first quarter of 1999, the Company repurchased and retired 2,900
shares of its common stock at a cost of $194 thousand.
22
<PAGE>
ZIONS BANCORPORATION AND SUBSIDIARIES
OPERATING SEGMENT INFORMATION
The following is a summary of selected operating segment information for the
three months ended March 31, 1999 and March 31, 1998. The Company manages its
operations and prepares management reports with a primary focus on geographical
area. All segments presented, except for the segment defined as "other" are
based on commercial banking operations. Zions First National Bank and
subsidiaries operates 118 branches in Utah and 15 in Idaho. California Bank &
Trust operates 72 branches in Northern and Southern California. Vectra Bank
Colorado operates 53 branches in Colorado and one branch in New Mexico. National
Bank of Arizona operates a total of 36 branches in Arizona. Nevada State Bank
operates 43 offices in Nevada. The operating segment defined as "other" includes
the Parent company, smaller nonbank operating units, and eliminations of
transactions between segments.
The accounting policies of the individual segments are the same as those of the
Company. The Company allocates centrally provided services to the business
segments based upon estimated usage of those services.
The following table presents Operating Segment Information for the three months
ended March 31, 1999 and for the three months ended March 31, 1998.
<TABLE>
<CAPTION>
ZIONS FIRST
NATIONAL BANK
AND CALIFORNIA VECTRA BANK NATIONAL BANK
SUBSIDIARIES BANK & TRUST COLORADO OF ARIZONA
---------------------- ---------------------- ---------------------- ----------------------
(Amounts in millions) 1999 1998 1999 1998 1999 1998 1999 1998
---------- ---------- ---------- ---------- ---------- ---------- ---------- ----------
<S> <C> <C> <C> <C> <C> <C> <C> <C>
CONDENSED INCOME STATEMENT
Net interest income ........ $ 54.9 $ 52.7 $ 60.0 $ 17.3 $ 21.3 $ 16.3 $ 18.0 $ 17.3
Provision for loan losses .. 2.2 1.5 -- 0.8 0.6 0.3 0.6 0.6
Noninterest income ......... 41.6 32.6 8.5 2.2 5.0 2.2 2.7 2.2
Noninterest expense ........ 53.3 50.4 47.4 10.6 18.8 11.6 10.9 10.4
Income tax expense (benefit) 12.7 11.3 9.2 3.2 2.7 2.5 3.6 3.3
Minority interest .......... 0.9 -- -- -- -- -- -- --
---------- ---------- ---------- ---------- ---------- ---------- ---------- ----------
Net income ............ $ 27.4 $ 22.1 $ 11.9 $ 4.9 $ 4.2 $ 4.1 $ 5.6 $ 5.2
========== ========== ========== ========== ========== ========== ========== ==========
AVERAGE BALANCE SHEET DATA
Total assets ............... $ 6,827 $ 6,358 $ 5,998 $ 1,215 $ 1,888 $ 1,425 $ 1,451 $ 1,339
Net loans and leases ....... 3,564 2,755 4,208 729 1,198 871 1,039 816
Total deposits ............. 3,789 3,624 5,315 1,095 1,618 1,144 1,213 1,165
NEVADA STATE THE COMMERCE
BANK AND BANK OF CONSOLIDATED
SUBSIDIARIES WASHINGTON OTHER COMPANY
---------------------- ---------------------- ---------------------- ----------------------
(Amounts in millions) 1999 1998 1999 1998 1999 1998 1999 1998
---------- ---------- ---------- ---------- ---------- ---------- ---------- ----------
CONDENSED INCOME STATEMENT
Net interest income ........ $ 12.5 $ 12.5 $ 3.5 $ 3.4 $ (3.3) $ (2.9) $ 166.9 $ 116.6
Provision for loan losses .. 0.4 0.4 0.4 -- -- -- 4.2 3.6
Noninterest income ......... 4.0 3.3 0.2 0.3 1.3 2.0 63.3 44.8
Noninterest expense ........ 10.8 10.6 1.7 1.8 5.7 5.3 148.6 100.7
Income tax expense (benefit) 1.8 1.5 0.5 0.6 (3.5) (4.3) 27.0 18.1
Minority interest .......... -- -- -- -- 0.6 -- 1.5 --
---------- ---------- ---------- ---------- ---------- ---------- ---------- ----------
Net income ............ $ 3.5 $ 3.3 $ 1.1 $ 1.3 $ (4.8) $ (1.9) $ 48.9 $ 39.0
========== ========== ========== ========== ========== ========== ========== ==========
AVERAGE BALANCE SHEET DATA
Total assets ............... $ 1,099 $ 990 $ 335 $ 296 $ (110) $ (25) $ 17,488 $ 11,598
Net loans and leases ....... 535 489 153 152 20 3 10,717 5,815
Total deposits ............. 915 834 223 215 (26) (15) 13,047 8,062
</TABLE>
23
<PAGE>
ZIONS BANCORPORATION AND SUBSIDIARIES
MERGERS AND ACQUISITIONS
On January 28, 1999, the Company acquired Barlow Insurance Inc. headquartered in
Layton, Utah in a transaction accounted for as a pooling of interests. The
acquisition was not considered significant. The definitive merger agreement was
signed on January 1, 1999. Barlow Insurance, Inc. is one of the oldest insurance
agencies in Northern Utah. It will consolidate its two offices into its current
Layton location and will continue to operate under its present name.
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 99 years ago rather than one year 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 Program
efforts and has segmented the remediation process into phases. The
organizational awareness phase was substantially completed in the second quarter
of 1998, but is considered ongoing throughout 1999. The assessment and detailed
planning phase was completed by the end of third quarter 1998. The renovation
phase for mission critical components was substantially completed by December
31, 1998, except for the conversion of recently acquired small Colorado banks,
the last of which is scheduled to be converted to Zions' systems by July 31,
1999. Renovation of non-mission critical components is expected to be complete
during the second quarter of 1999. The validation phase for mission critical
components was completed in the first quarter 1999 and should be completed for
non-critical components by the end of second quarter 1999. The Company uses
third party servicers for some of its information and data processing needs and
is monitoring the progress of these entities in addressing the Year 2000 issue.
Validation of these third-party provided systems is expected to be completed
during the second quarter of 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. Although the Company does
not believe that the failure of these systems would have a material adverse
effect on the financial condition of the enterprise, it is addressing
deficiencies in these systems and expects compliance to be achieved by September
30, 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 replaced the large majority of
its core banking systems during the past five years with Year 2000 compliant
software in the ordinary course of business. 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 have had or
will have a significant effect on its revenue or expense growth. The aggregate
increase in operating expense to achieve Year 2000 readiness is estimated to be
$3 million of which $2.5 million has been incurred through March 31, 1999. In
addition, a significant portion of the Company's ATMs and personal computers are
expected to be replaced to achieve Year 2000 compliance. The capital outlay to
replace these assets is estimated to be between $2 to $4 million, a portion of
which would have been incurred in the ordinary course of business without regard
to Year 2000 issues.
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
24
<PAGE>
claims against the Company for improper handling of its assets and 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 has surveyed and reviewed the Year 2000 plans of a number of
its credit customers to ascertain the sufficiency of their remediation efforts
and the implications of their actions on their credit worthiness. From this
review, the Company believes that the increased credit risk that the Company may
experience as a result of the Year 2000 issue will not have a material adverse
effect its financial condition. 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 has developed business resumption plans for each
significant business unit in the event that unforeseen events beyond the bank's
control adversely impact our ability to provide financial services to our
customers. In the event of such a failure, these plans outline the steps that
will be taken to minimize the effect on customers and losses to the Company.
Although the Company believes that its Year 2000 remediation plan sufficiently
addresses this issue, there can be no assurance that Year 2000 events will not
materially adversely effect the Company's financial condition. Failure of other
companies and vendors to be compliant could result in disruption of important
services by the Company to its customers. Such failures could include, but are
not limited to, telecommunication services, electrical power, and information
processing.
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 Company's operations or business;
the cost and effort required to correct Year 2000 processing deficiencies being
greater 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 results of any revisions to any of the
forward-looking statements included herein to reflect future events or
developments.
25
<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
There were no form 8-K reports filed during the quarter ended
March 31, 1999.
SIGNATURES
----------
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 May 15, 1999
26
<TABLE> <S> <C>
<ARTICLE> 9
<LEGEND>
This schedule contains summary financial information extracted from the
unaudited consolidated balance sheet as of March 31, 1999 and the related
unaudited consolidated statement of income for the three months ended March 31,
1999 included in the company's form 10-Q for the period ended March 31, 1999 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-31-1999
<PERIOD-START> Jan-01-1999
<PERIOD-END> Mar-31-1999
<EXCHANGE-RATE> 1
<CASH> 801,646
<INT-BEARING-DEPOSITS> 25,200
<FED-FUNDS-SOLD> 369,128
<TRADING-ASSETS> 221,127
<INVESTMENTS-HELD-FOR-SALE> 443,433
<INVESTMENTS-CARRYING> 3,060,195
<INVESTMENTS-MARKET> 3,074,219
<LOANS> 10,906,273
<ALLOWANCE> 198,913
<TOTAL-ASSETS> 17,084,951
<DEPOSITS> 13,204,776
<SHORT-TERM> 1,835,399
<LIABILITIES-OTHER> 442,920
<LONG-TERM> 504,352
0
0
<COMMON> 328,209
<OTHER-SE> 731,477
<TOTAL-LIABILITIES-AND-EQUITY> 17,084,951
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<INTEREST-TOTAL> 300,703
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<LOAN-LOSSES> 4,231
<SECURITIES-GAINS> (1,328)
<EXPENSE-OTHER> 150,212
<INCOME-PRETAX> 75,778
<INCOME-PRE-EXTRAORDINARY> 48,851
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<CHANGES> 0
<NET-INCOME> 48,851
<EPS-PRIMARY> .62
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<YIELD-ACTUAL> 4.31
<LOANS-NON> 70,832
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<ALLOWANCE-UNALLOCATED> 26,262
</TABLE>
