UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20459
FORM 10-K
[X] ANNUAL REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT
OF 1934 For the fiscal year ended December 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
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(State or other jurisdiction (I.R.S. Employer
of incorporation or organization) Identification No.)
ONE SOUTH MAIN, SUITE 1380
SALT LAKE CITY, UTAH 84111
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(Address of principal executive offices) (Zip Code)
Registrant's telephone number, including area code: (801) 524-4787
Securities registered pursuant to Section 12(b) of the act: None
Securities registered pursuant to Section 12(g) of the act:
Common Stock - without par value
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(Title of Class)
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 (or for such shorter period that the registrant was
required to file such reports), and (2) has been subject to such filing
requirements for the past 90 days. Yes[ X ] No [ ]
Indicate by check mark if disclosure of delinquent filers pursuant to Item 405
of Regulation S-K is not contained herein, and will not be contained, to the
best of registrant's knowledge, in definitive proxy or information statements
incorporated by reference in Part III of this Form 10-K or any amendment to this
Form 10-K. _____
Aggregate Market Value of Common Stock Held by Nonaffiliates at
February 26, 1999 ................................................$4,362,248,000
Number of Common Shares Outstanding at February 26, 1999 ......78,752,711 Shares
Documents Incorporated by Reference:
Portions of 1998 Annual Report to Shareholders - Incorporated into Parts I, II
and IV
Portions of Proxy Statement for the 1999 Annual Meeting of Shareholders -
Incorporated into Part III
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FORM 10-K CROSS-REFERENCE INDEX
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Page
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Form Annual Proxy
10-K Report (1) Statement (2)
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PART I
Item 1. Business
Description of Business ........................... 2-6 2-73 --
Statistical Disclosure:
Distribution of Assets, Liabilities and
Stockholder's Equity; Interest Rates
and Interest Differential ....... -- 23, 26-28 --
Investment Portfolio ..................... -- 31-32, 51, 57-58 --
Loan Portfolio ........................... -- 33-37, 51-52, 58-59 --
Summary of Loan Loss Experience .......... -- 37-39, 52, 58 --
Deposits ................................. -- 26-27, 34, 59 --
Return on Equity and Assets .............. -- *, 20 --
Short-Term Borrowings .................... -- 60 --
Item 2. Properties ................................................. 6 -- --
Item 3. Legal Proceedings .......................................... -- 62-63 --
Item 4. Submission of Matters to a Vote of Security-
Holders (in fourth quarter 1998) (3) .............. -- -- --
Executive Officers of the Registrant ....................... 6-7 -- --
PART II
Item 5. Market for Registrant's Common Equity and
Related Stockholder Matters ....................... 7 * --
Item 6. Selected Financial Data .................................... -- *, 44 --
Item 7. Management's Discussion and Analysis of Finan-
cial Condition and Results of Operations .......... -- 20-44 --
Item 7A. Quantitative and Qualitative Disclosures About
Market Risk ....................................... -- 40-42 --
Item 8. Financial Statements and Supplementary Data ................ -- 45-73 --
Item 9. Changes in and Disagreements with Accountants
on Accounting and Financial Disclosure (3) ........ -- -- --
PART III
Item 10. Directors and Executive Officers of the
Registrant ........................................ -- -- 2-3, 5-6
Item 11. Executive Compensation ..................................... -- -- 4, 8-11
Item 12. Security Ownership of Certain Beneficial
Owners and Management ............................. -- -- 6-7
Item 13. Certain Relationships and Related Transactions ............. -- -- 18
PART IV
Item 14. Exhibits, Financial Statement Schedules and
Reports on Form 8-K ............................... 8-11 45-73 --
Signatures .......................................................... 12 -- --
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(1) The 1998 Annual Report to Shareholders, portions of which are
incorporated by reference into this Form 10-K.
(2) The Proxy Statement dated March 24, 1999 for the Annual Meeting of
Shareholders, portions of which are incorporated by reference into this
Form 10-K.
(3) None.
* Financial Highlights - inside front cover of 1998 Annual Report to
Shareholders
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BUSINESS
Description of Business
Zions Bancorporation is a multibank holding company organized under the laws of
Utah in 1955, and registered under the Bank Holding Company Act of 1956, as
amended. Zions Bancorporation and Subsidiaries (the Company) owns and operates
six commercial banks with a total of 333 offices. The Company provides a full
range of banking and related services through its banking and other
subsidiaries, primarily in Utah, Idaho, California, Colorado, Arizona, Nevada
and Washington. On December 31, 1998 the Company had total assets of
approximately $16.6 billion, loans of $10.6 billion, deposits of $13.3 billion
and shareholders' equity of $1.0 billion. Active full-time equivalent employees
totaled 6,793 at year-end 1998. For further information about the Company's
industry segments see the Business Segment Results section of the 1998 Annual
Report to Shareholders.
Growth
In 1998, the Company experienced unprecedented merger activity with the
completion of 12 bank acquisitions in 3 states. The most significant acquisition
during the year was the purchase of The Sumitomo Bank of California with total
assets of approximately $4.5 billion. The Sumitomo Bank of California and First
Pacific National Bank, also acquired during 1998, were merged with the Company's
Grossmont Bank subsidiary which was renamed California Bank & Trust. The
resulting bank is the sixth largest commercial banking organization in
California with approximately $6 billion in total assets and 71 offices
throughout the state.
The Company also significantly expanded its operations in Colorado building on
the acquisition of Aspen Bancshares in 1997. Acquisitions in Colorado during
1998 included Vectra Banking Corporation located in Denver and eight small banks
which expanded the Company's operations into the Colorado Springs area,
Steamboat Springs and the San Luis Valley in Southern Colorado.
Another acquisition completed during 1998 was The Commerce Bank of Washington
with total assets of approximately $300 million. The Commerce Bank of Washington
is based in Seattle and focuses on serving the needs of small and medium-sized
businesses in the Puget Sound area.
For further information about merger activities during the year see the 1998
Annual Report to Shareholders.
Products and Services
The Company focuses on maintaining community-minded banking by strengthening its
core business lines of retail banking, small and medium-sized business lending,
residential mortgage and investment activities. The banks provide a variety
of commercial and retail banking and mortgage-lending financial services.
Commercial loans, lease financing, cash management, lockbox, customized draft
processing, and other special financial services are provided for business and
other commercial banking customers. A wide range of personal banking services
are provided to individuals, including bankcard, student and other installment
loans and home equity lines of credit, checking accounts, savings accounts, time
certificates of various types and
2
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maturities, trust services, safe deposit facilities, direct deposit and 24
hour ATM access. Zions First National Bank also provides services to key
segments through its Women's Financial, Private Banking and Executive Banking
Groups.
In addition to these core businesses, the Company has built specialized lines of
business in capital markets and public finance. The Company is the only primary
dealer in U.S. Treasury securities headquartered west of the Mississippi River.
It has pioneered the online trading of government securities through its
websites, which display live, executable quotes to financial institutions and
money managers nationwide. The Company's combined public finance operations
constitute one of the largest municipal finance advisory firms in the country
and ranked ninth in the Securities Data Corporation's listing of the nation's
top 100 municipal advisors.
The Company is also a leader in U.S. Small Business Administration ("SBA")
lending. Through Zions Small Business Finance division, the Company provides SBA
7(a) loans to small businesses throughout the United States. The Company's SBA
504 group works with Certified Development Companies and correspondent banks to
provide the nation's largest source of secondary market financing for this loan
program. The Company also owns nearly a 20 percent equity interest in the
Federal Agricultural Mortgage Corporation ("Farmer Mac") and originates and
sells qualified loans to Farmer Mac through its cash window program.
The Company is developing a reputation as one of the industry's real innovators
in providing customer solutions in the new world of electronic commerce. Digital
Signature Trust Company ("DST"), a subsidiary of Zions First National Bank,
became the first banking organization in the nation to be authorized by federal
regulators to serve as a "certification authority," issuing digital certificates
used to establish with certainty the identity and credentials of parties to
transactions over networks such as the Internet. The Company has also developed
an Internet presence for conducting retail banking business, including a
Web-based bill payment system. The Company's banking subsidiaries will also
introduce additional on-line capabilities over the next year.
Other Nonbanking Subsidiaries
The Company conducts various other bank-related business activities through
subsidiaries of Zions First National Bank and the Parent. Zions Credit
Corporation, a subsidiary of Zions First National Bank, engages in lease
origination and servicing operations primarily in Utah, Nevada, and Arizona.
Zions Investment Securities, Inc., also a subsidiary of the Bank, provides
discount investment brokerage services on a nonadvisory basis to both commercial
and consumer customers. Personal investment officers employed by this discount
brokerage subsidiary provide customers with a wide range of investment products,
including municipal bond, mutual funds and tax-deferred annuities. Zions First
National Bank's Wasatch Venture Corporation provides early-stage capital,
primarily for technology companies located in the West. Zions Life Insurance
Company underwrites, as reinsurer, credit-related life and disability insurance.
Zions Insurance Agency, Inc. operates an insurance brokerage business, which
administers various credit-related insurance programs in the Company's
subsidiaries and sells general lines of insurance. Zions Management Services
Company provides administrative, data processing, and other services to other
subsidiaries of the Company.
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Competition
Zions Bancorporation and its subsidiaries operate in a highly competitive
environment due to the diverse financial services and products they offer.
Competitors include not only other banks, thrift institutions, credit unions,
and mutual funds, but also, insurance companies, finance companies, brokerage
firms, investment banking companies, and a variety of other financial services
and advisory companies. Many of these competitors are not subject to the same
regulatory restrictions as the Company. Most of these unregulated competitors
compete across geographic boundaries and provide customers increasing access to
meaningful alternatives to banking services in many significant products. These
competitive trends are likely to continue.
Supervision and Regulation
Zion Bancorporation is a bank holding company within the meaning of the Bank
Holding Company Act (the "Act") and is registered as such with the Federal
Reserve Board. The Company is required to file reports of its operations with
the Board of Governors of the Federal Reserve System and is subject to
examination by it. Under the Act, the Company is restricted as to the activities
in which it may engage and the nature of any company which it controls or holds
more than 5% of the voting stock. Generally, allowable activities are those
which are determined by the Federal Reserve Board to be closely related to
banking and a proper incident thereto. Additionally under the Act, prior
approval by the Board of Governors is required for a bank holding company to
acquire substantially all the assets of any domestic bank or savings association
or the ownership or control of more than 5% of its voting shares.
Under the Riegle-Neal Interstate Branching and Efficiency Act of 1994, bank
holding companies which are adequately capitalized and managed are permitted to
acquire control of a bank located outside the bank holding company's home state
subject to certain limitations. The merger of commonly owned banks in different
states is also permitted except in states that have passed legislation to
prohibit such mergers. The statute also permits banks to establish branches
outside their home state in states that pass legislation to permit branch
banking.
The Federal Reserve Board has established risk-based capital guidelines for bank
holding companies. The Comptroller of the Currency (OCC), the Federal Deposit
Insurance Corporation (FDIC) and the Federal Reserve Board have also issued
regulations establishing capital requirements for banks under federal law.
Failure to meet capital requirements could subject the Company and its
subsidiary banks to a variety of restrictions and enforcement remedies. See Note
17 of Notes to Consolidated Financial Statements in the 1998 Annual Report to
Shareholders for information regarding risk-based capital requirements.
The Company's banking subsidiaries are also subject to various requirements and
restrictions in the laws of the U.S. and the states in which the banks operate.
These include restrictions on the amount of loans to a borrower and its
affiliates, the nature and amount of their investments, their ability to act as
an underwriter of securities, the opening of branches and the acquisition of
other banks or savings associations. The subsidiary banks are under the
supervision of, and are subject to periodic examination by, the OCC or the
respective state banking departments, and are subject to the rules and
regulations of the OCC, the Board of Governors of the Federal Reserve System and
the FDIC. They are also subject to certain laws of each state in which such
banks are located.
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Dividends payable by the subsidiary banks to Zions Bancorporation are subject to
various legal and regulatory restrictions. These restrictions and the amount
available for the payment of dividends at year-end are summarized in Note 17 of
Notes to Consolidated Financial Statements in the 1998 Annual Report to
Shareholders.
The Financial Institutions Reform, Recovery and Enforcement Act of 1989
("FIRREA") provides that a holding company's controlled insured depository
institutions are liable for any loss incurred by the FDIC in connection with the
default of any FDIC-assisted transaction involving an affiliated insured bank or
savings association.
The Federal Deposit Insurance Corporation Improvement Act of 1991 ("FDICIA")
prescribes standards for safety and soundness of insured banks. These standards
relate to internal controls, information systems, internal audit systems, loan
documentation, credit underwriting, interest rate exposure, asset growth,
compensation, as well as other operational and management standards deemed
appropriate by the agencies.
The Community Reinvestment Act ("CRA") requires banks to help serve the credit
needs in their communities, including credit to low and moderate income
individuals and geographies. Should the Company or its subsidiaries fail to
adequately serve the community, there are penalties which might be imposed
including denials of applications to expand branches, relocate, add subsidiaries
and affiliates and merge with or purchase other financial institutions.
Regulators and Congress continue to enact rules, laws, and policies to regulate
the industry and protect consumers. The nature of these regulations and the
effect of such policies on future business and earnings of the Company cannot be
predicted.
Government Monetary Policies
The earnings and business of the Company are affected not only by general
economic conditions, but also by fiscal and other policies adopted by various
governmental authorities. The Company is particularly affected by the policies
of the Federal Reserve Board which affects the national supply of bank credit.
The instruments of monetary policy available to the Federal Reserve Board
include open-market operations in United States government securities;
manipulation of the discount rates of member bank borrowings; imposing or
changing reserve requirements against member bank deposits; and imposing or
changing reserve requirements against certain borrowings by banks and their
affiliates. These methods are used in varying combinations to influence the
overall growth of bank loans, investments and deposits, and the interest rates
charged on loans or paid for deposits.
In view of the changing conditions in the economy and the effect of the credit
policies of monetary authorities, it is difficult to predict future changes in
loan demand, deposit levels and interest rates, or their effect on the business
and earnings of the Company. Federal Reserve monetary policies have had a
significant effect on the operating results of commercial banks in the past and
are expected to continue to do so in the future.
5
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PROPERTIES
Zions First National Bank operates 132 branches, of which 67 are owned by the
Company and 65 are on leased premises. For Vectra Bank Colorado, 32 of 53
branches are owned and the remaining 21 branches are on leased premises.
California Bank & Trust owns 22 of their 71 branches and leases the remaining 49
branch premises. Nevada State Bank operates 43 branches, of which 13 are owned
and 30 are on leased premises. In Arizona, 13 of 33 branches are owned and the
remaining 20 branches are on leased premises. In Washington, The Commerce Bank
of Washington operates 1 branch on leased premises. The annual rentals under
long-term leases for such banking premises are determined under various formulas
and include as various factors, operating costs, maintenance and taxes. The
Company's subsidiaries conducting lease financing, insurance, and discount
brokerage activities operate from leased premises.
For information regarding rental payments, see Note 12 of Notes to
Consolidated Financial Statements in the 1998 Annual Report to Shareholders.
EXECUTIVE OFFICERS OF THE REGISTRANT
The names, ages, positions, and backgrounds of the Company's executive officers
as of February 26, 1999 are set forth as follows:
<TABLE>
<CAPTION>
Positions and Offices Held With
Individual Zions Bancorporation and Principal Subsidiaries Officer Since Age
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<S> <C> <C> <C>
Roy W. Simmons Chairman of the Company; Member of the Board of Directors of 1961 83
Zions First National Bank; prior to January 1998, Chairman of
Zions First National Bank.
Harris H. Simmons President and Chief Executive Officer of the Company; 1981 44
Chairman of Zions First National Bank; prior to January 1998,
President and Chief Executive Officer of Zions First National
Bank.
A. Scott Anderson Executive Vice President of the Company; President and Chief 1997(1) 52
Executive Officer of Zions First National Bank; prior to
January 1998, Executive Vice President of Zions First
National Bank.
Danne L. Buchanan Executive Vice President of the Company; prior to March 1995, 1995 41
Senior Vice President and General Manager of Zions Data
Services Company.
Gerald J. Dent Executive Vice President of the Company; Executive Vice 1987 57
President of Zions First National Bank.
Dale M. Gibbons Executive Vice President, Chief Financial Officer and 1996 38
Secretary of the Company; Executive Vice President and
Secretary of Zions First National Bank; prior to August 1996,
Senior Vice President of First Interstate Bancorp.
John J. Gisi Senior Vice President of the Company; Chairman and 1994 53
Chief Executive Officer of National Bank of Arizona.
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James C. Hawkanson Senior Vice President of the Company; Managing Director and 1998 55
Chief Executive Officer of The Commerce Bank of Washington.
W. David Hemingway Executive Vice President of the Company; Executive Vice 1997(2) 51
President of Zions First National Bank.
Clark B. Hinckley Senior Vice President of the Company; prior to March 1994, 1994 51
President of Zions First National Bank of Arizona.
George Hofmann III Senior Vice President of the Company; President and Chief 1995 49
Executive Officer of Nevada State Bank; prior to April 1995,
Senior Vice President of Zions First National Bank.
Gary S. Judd Senior Vice President of the Company; President and Chief 1998 58
Executive Officer of Vectra Bank Colorado.
Robert G. Sarver Executive Vice President of the Company; Chairman and Chief 19983 37
Executive Officer of California Bank & Trust; prior to 1995,
President of National Bank of Arizona.
Nolan X. Bellon Controller of the Company; prior to June 1998, Controller of 1987 50
Zions First National Bank.
</TABLE>
1 Officer of Zions First National Bank since 1990.
2 Officer of Zions First National Bank since 1977.
3 Member of the Board of Directors since 1994.
MARKET FOR REGISTRANT'S COMMON EQUITY
AND STOCKHOLDER MATTERS
Nasdaq: ZION
High and low quarterly stock prices:
1998 1997
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HIGH LOW HIGH LOW
---- --- ---- ---
1st Quarter $55.69 $39.56 $33.25 $25.69
2nd Quarter 54.00 48.06 37.63 28.38
3rd Quarter 57.25 38.38 41.13 34.69
4th Quarter 62.38 39.13 46.00 37.63
As of February 26, 1999, there were 6,191 common shareholders of the Company's
stock.
7
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EXHIBITS, FINANCIAL STATEMENT SCHEDULES AND REPORTS ON FORM 8-K
(a) Financial Statements, Schedules, and Exhibits:
(1) The consolidated financial statements and related notes and the
Independent Auditor's Report that appear on pages 45 through 73 of the
1998 Annual Report to Shareholders are incorporated herein by
reference.
(2) The Financial Statement Schedules are omitted because conditions
requiring their filing do not exist.
(3) Exhibits Index:
<TABLE>
<CAPTION>
Exhibit
Number Description
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3.1 Restated Articles of Incorporation of Zions Bancorporation dated *
November 8, 1993, incorporated by reference to Exhibit 3.1 of
Form S-4 filed on November 22, 1993.
3.2 Restated Bylaws of Zions Bancorporation, dated November 8, 1993, *
incorporated by Reference to Exhibit 3.2 of Form S-4 filed
November 22, 1993.
3.3 Articles of Amendment to the Restated Articles of Incorporation *
of Zions Bancorporation dated April 30, 1997, incorporated by
reference to Exhibit 3.1 of Form 10-Q for the quarter ended June
30, 1997.
3.4 Articles of Amendment to the Restated Articles of Incorporation *
of Zions Bancorporation dated April 24, 1998, incorporated by
reference to Exhibit 3 of Form 10-Q for the quarter ended June
30, 1998.
3.5 Amendment to the Restated Bylaws of Zions Bancorporation, dated *
September 18, 1998, incorporated by reference to Exhibit 3 of
Form 10-Q for the quarter ended September 30, 1998.
4 Shareholder Protection Rights Agreement, dated September 27, *
1996, incorporated by reference to Exhibit 1 of Form 8-K filed
October 12, 1996.
10.1 Amended and Restated Zions Bancorporation Pension Plan, *
incorporated by reference to Exhibit 10.1 of Form 10-K for the
year ended December 31, 1994.
10.2 Amendment to Zions Bancorporation Pension Plan effective December *
1, 1994, incorporated by reference to Exhibit 10.2 of Form 10-K
for the year ended December 31, 1994.
10.3 Zions Bancorporation Supplemental Retirement Plan Form, *
incorporated by reference to Exhibit 19.4 of Form 10-Q for the
quarter ended September 30, 1985.
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10.4 Zions Bancorporation Key Employee Incentive Stock Option Plan *
dated April 28, 1982, incorporated by reference to Exhibit 10.1
of Form 10-Q for the quarter ended June 30, 1995.
10.5 Amendment No. 1 to Zions Bancorporation Key Employee Incentive *
Stock Option plan dated April 27, 1990, incorporated by
reference to Exhibit 10.2 of Form 10-Q for the quarter ended June
30, 1995.
10.6 Amendment No. 2 to Zions Bancorporation Key Employee Incentive *
Stock Option plan dated April 28, 1995, incorporated by
reference to Exhibit 10.3 of From 10-Q for the quarter ended June
30, 1995.
10.7 Amendment No. 3 to Zions Bancorporation Key Employee Incentive *
Stock Option plan dated April 24, 1998, incorporated by
reference to Exhibit 10 of Form 10-Q for the quarter ended June
30, 1998.
10.8 Zions Bancorporation Deferred Compensation Plan for Directors, as *
amended May 1, 1991, incorporated by reference to Exhibit 19 of
Form 10-K for the year ended December 31, 1991.
10.9 Zions Bancorporation Senior Management Value Sharing Plan, Award *
Period 1994-1997, incorporated by reference to Exhibit 10.9 of
Form 10-K for the year ended December 31, 1994.
10.10 Zions Bancorporation Senior Management Value Sharing Plan, Award *
Period 1995-1998, incorporated by reference to Exhibit 10.14 of
Form 10-K for the year ended December 31, 1995.
10.11 Zions Bancorporation Senior Management Value Sharing Plan, Award *
Period 1996-1999, incorporated by reference to Exhibit 10.16 of
Form 10-K for the year ended December 31, 1996
10.12 Zions Bancorporation Senior Management Value Sharing Plan, Award *
Period 1997-2000, incorporated by reference to Exhibit 10.16 of
Form 10-K for the year ended December 31, 1997.
10.13 Zions Bancorporation Executive Management Pension Plan, *
incorporated by reference to Exhibit 10.10 of Form 10-K for the
year ended December 31, 1994.
10.14 Employment Agreement between Zions Bancorporation and Mr. John *
Gisi, incorporated by reference to Exhibit 10.13 of Form 10-K
for the year ended December 31, 1995.
10.15 Zions Bancorporation Non-Employee Directors Stock Option Plan *
dated April 26, 1996, incorporated by reference to Exhibit 10
of Form 10-Q for the quarter ended June 30, 1996.
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10.16 Zions Bancorporation Pension Plan amended and restated effective *
April 1, 1997, Incorporated by reference to Exhibit 10 of Form
10-Q for the quarter ended March 31, 1997.
10.17 Stock Option Agreement between Zions Bancorporation and W. David *
Hemingway dated April 13, 1983, incorporated by reference to
Exhibit 4.8 of Form S-8 filed March 10, 1999.
10.18 Amended Stock Option Agreement between Zions Bancorporation and *
W. David Hemingway dated January 31, 1991, incorporated by
reference to Exhibit 4.9 of Form S-8 Filed March 10, 1999.
10.19 Shareholder Agreement, dated October 1, 1998, among Zions *
Bancorporation, The Robert G. Sarver Separate Property Trust
dated September 29, 1997 and CBT Holdings, incorporated by
reference to Exhibit 10.1 of Form 8-K filed October 14, 1998.
10.20 Loan Agreement, dated October 1, 1998, between Zions *
Bancorporation and The Robert G. Sarver Separate Property Trust
dated September 29, 1997, incorporated by reference to Exhibit
10.2 of Form 8-K filed October 14, 1998.
10.21 Employment Agreement, dated October 1, 1998, between Grossmont *
Bank and Robert Sarver, incorporated by reference to Exhibit
10.3 of Form 8-K filed October 14, 1998.
10.22 Promissory Note, dated October 1, 1998, by The Robert G. Sarver *
Separate Property Trust dated * September 29, 1997 in favor of
Zions Bancorporation, incorporated by reference to Exhibit 10.4
of Form 8-K filed October 14, 1998.
10.23 Zions Bancorporation Senior Management Value Sharing Plan, Award
Period 1998- 2001 (filed)
13 1998 Annual Report to Shareholders, pages 1 through 73 (filed)
21 List of subsidiaries of Zions Bancorporation (filed)
23 Consent of KPMG LLP, independent certified public accountants
(filed)
27.1 Article 9 Financial Data Schedule for the year ended December 31,
1998 (filed)
27.2 Article 9 Restated Financial Data Schedule for the six months
ended June 30, 1998 (filed)
27.3 Article 9 Restated Financial Data Schedule for the three months
ended March 31, 1998 (filed)
27.4 Article 9 Restated Financial Data Schedule for the year ended
December 31, 1997 (filed)
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27.5 Article 9 Restated Financial Data Schedule for the six months
ended June 30, 1997 (filed)
27.6 Article 9 Restated Financial Data Schedule for the three months
ended March 31, 1997 (filed)
27.7 Article 9 Restated Financial Data Schedule for the year ended
December 31, 1996 (filed)
99.1 Form 11-K Annual Report of Zions Bancorporation Employee Stock
Savings Plan (filed)
99.2 Form 11-K Annual Report of Zions Bancorporation Employee
Investment Savings Plan (filed)
</TABLE>
* incorporated by reference
(b) Zions Bancorporation filed the following reports on Form 8-K during the
quarter ended December 31, 1998;
1) Filed December 10, 1998 (Item 7), amending the 8-K filed on October
14, 1998 which announced the consummation of the acquisition of The
Sumitomo Bank of California ("Sumitomo"). This amendment contained
Sumitomo's financial statements for the period ending June 30, 1998 as
well as a pro forma Balance Sheet as of June 30, 1998 and pro forma
Income Statement for the year ended December 31, 1997 and the six
months ended June 30, 1998.
2) Filed October 14, 1998 (Item 2), announcing the consummation of the
acquisition of The Sumitomo Bank of California by Zions
Bancorporation.
Zions Bancorporation's Annual Report on Form 10-K for the year ended December
31, 1998, at the time of filing with the Securities and Exchange Commission,
shall modify and supersede all documents filed prior to January 1, 1999 pursuant
to Sections 13, 14 and 15(d) of the Securities Exchange Act of 1934 for purposes
of an offers or sales of any securities after the date of such filing pursuant
to any Registration Statement or Prospectus filed pursuant to the Securities Act
of 1933 which incorporates by reference such Annual Report on Form 10-K.
Insofar as indemnification for liabilities arising under the Securities Act of
1933 may be permitted to directors, officers, and controlling persons of the
Registrant pursuant to the foregoing provisions, or otherwise, the Registrant
has been advised that in the opinion of the Securities and Exchange Commission
such indemnification is against public policy as expressed in the Securities Act
of 1933 and is, therefore, unenforceable. In the event that a claim for
indemnification against such liabilities (other than the payment by the
Registrant of expenses incurred or paid by a director, officer, or controlling
person of the Registrant in the successful defense of any action, suit, or
proceeding) is asserted by such director, officer, or controlling person in
connection with the securities being registered, the Registrant will, unless in
the opinion of its counsel the matter has been settled by controlling precedent,
submit to a court of appropriate jurisdiction the question whether such
indemnification by it is against public policy as expressed in the Act and will
governed by the final adjudication of such issue.
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SIGNATURES
Pursuant to the requirements of Section 13 or 15(d) 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.
March 23, 1999 ZIONS BANCORPORATION
By /s/ Harris H. Simmons
----------------------------
HARRIS H. SIMMONS, President
and Chief Executive Officer
Pursuant to the requirements of the Securities Exchange Act of 1934, this report
has been signed below by the following persons on behalf of the Registrant and
in the capacities and on the date indicated.
March 23, 1999
/s/ Harris H. Simmons /s/ Dale M. Gibbons
- ------------------------------------ --------------------------------------
HARRIS H. SIMMONS, President, Chief Dale M. Gibbons, Executive Vice
Executive Officer and Director President, Chief Financial Officer and
Secretary
/s/ Roy W. Simmons /s/ Nolan Bellon
- ------------------------------------ --------------------------------------
ROY W. SIMMONS, Chairman and Director NOLAN BELLON, Controller
/s/ Jerry C. Atkin /s/ Robert G. Sarver
- ------------------------------------- --------------------------------------
JERRY C. ATKIN, Director ROBERT G. SARVER, Director
/s/ Grant R. Caldwell /s/ L.E. Simmons
- ------------------------------------ --------------------------------------
GRANT R. CALDWELL, Director L.E. SIMMONS, Director
/s/ R.D. Cash /s/ Shelley Thomas
- ------------------------------------ --------------------------------------
R. D. CASH, Director SHELLEY THOMAS, Director
/s/ Richard H. Madsen /s/ I.J. Wagner
- ------------------------------------ --------------------------------------
RICHARD H. MADSEN, Director I.J. WAGNER, Director
/s/ Roger B. Porter
- ------------------------------------
ROGER B. PORTER, Director
12
EXHIBIT 10.23
Zions Bancorporation
Senior Management Value Sharing Plan
Award Period: 1998 - 2001
Objective:
To provide an ongoing multi-year incentive for the senior managers of
Zions Bancorporation and its subsidiaries which:
A. Focuses managers' attention on the creation of long-term shareholder
B. Creates an incentive that promotes teamwork across departments and
subsidiaries, and which encourages managers to balance profit center
accountability with Company-wide goals; and,
C. Complements the short-range annual bonuses which reflect the
achievement of annual objectives and the Company's short-term profitability.
Eligibility:
Participants in the Plan shall consist of designated members of the
senior management group (and certain other key managers) of the Company and its
major subsidiaries. Participants for each Award Period shall be specifically
identified by the Company's Board of Directors (the "Board") or its Executive
Compensation Committee (the "Committee").
Allocation of Awards:
It is anticipated that during the first quarter of each year in which
the Plan operates, the Board of Directors shall approve the establishment of a
pool of Award Funds to be generated during the Award Period, according to the
general formula outlined below. Participants shall be designated by the Board or
the Committee. Claims against the pool of Award Funds for each Award Period
shall be represented by Participation Units ("PU's), and each participant shall
be allocated a specific number of PU's by the Committee. The PU's shall
represent a pro-rata claim, in proportion to the total PU's designated for that
Award Period, on any Award Funds generated by the Plan during the Award Period.
Term:
Each Award Period shall consist of a continuous four-calendar-year
period. The Plan is intended to constitute a "moving four-year-average"
incentive plan, with the anticipation that a new Award Period would be
designated each year, with multiple Award Periods overlapping one another.
Nevertheless, the establishment of a new Award Period each year is subject to
the Board's discretion.
1
<PAGE>
Determination of Award Funds:
The amount of Award Funds in the pool for each Award Period shall be a
function of the Aggregate Cash Earnings Per Share ("ACEPS") during the Award
Period, together with the mathematical Average Modified Cash Return On
Shareholders' Equity ("AMCROE") for each of the four years in the Award Period,
Aggregate Cash Earnings Per Share (ACEPS) shall be defined as the
aggregate, over the four year Award Period, of each year's diluted earnings per
share before the cumulative effect of changes in accounting principles, plus the
after-tax cost per share of amortization of goodwill and core deposit intangible
assets, plus the after-tax cost per share of charges recognized to standardize
accounting practices of acquired entities, less the after-tax cost per share of
capitalized transaction costs which would have been expensed if
pooling-of-interests accounting treatment had been employed.
Average Modified Cash Return on Equity ("AMCROE") shall be defined as
the average, for each of the four years in the Award Period, of the Company's
Net Cash Income divided by the average Modified Tangible Equity. Net Cash Income
shall mean the net income available to common shareholders, plus the after-tax
cost of amortization of goodwill and core deposit intangible assets, plus the
after-tax cost of charges recognized to standardize accounting practices of
acquired entities, less the after-tax cost of capitalized transaction costs
which would have been expensed if pooling-of-interests accounting had been
employed. Modified Tangible Equity shall mean total common shareholders' equity,
less goodwill and core deposit intangible assets, except if such intangible
assets arise as a result of acquisitions of businesses, stock or deposits for
cash. (If such acquisitions are made with a combination of cash and stock,
goodwill and core deposit intangible assets shall be deducted from common
shareholders' equity only to the extent that such items exceed the total value
of Zions' shares issued in the transaction.)
Each year, the Committee shall establish minimum targets for AMCROE and
ACEPS for the Award Period. These minimum targets would both be required to be
reached in order for any Award Funds to be earned. Additionally, the Committee
may designate Award Fund allocation amounts based upon the achievement of higher
levels of AMCROE, with upward adjustments possible if higher levels of ACEPS are
achieved. The Committee may also designate other conditions and adjustment
factors to ensure the Plan's integrity and consistency with shareholder and
depositor interests.
The 1998-2001 Award Period formula for the determination of the value
of PU's is as indicated in the Appendix.
For the 1998-2001 Award Period, the following parameters shall be
established, and adjustments made to the Company's earnings calculations, for
purposes of determining Award Funds available under the Plan:
1). The Plan is intended to create an incentive for increasing
shareholder value. However, this is not to be accomplished by reducing capital
levels or assuming extraordinary or unwarranted risks. Accordingly, it is
expected that total risk-based capital levels shall be maintained at a level at
least 125% of "well-capitalized" regulatory requirements.
2
<PAGE>
2). The Company's reserve levels are to be conservatively maintained.
To the extent that the consolidated Allowance for Loan and Lease Losses is less
than 110% of the peer group level, as expressed in terms of reserves/non-current
loans as reported in the most current Uniform Bank Performance Report available
at December 31, 2001, an appropriate adjustment shall be made to after-tax
earnings (for purposes of calculating Award Funds only) to compensate for any
deficit relative to the 110% minimum target level. Actual reserve levels are, of
course, subject to Board and/or regulatory decisions. No upward adjustments
shall be made in "pro forma" earnings in the event actual reserve levels exceed
110% of the peer group target.
3). Unless determined otherwise by the Board, in the event of any
merger involving an acquisition by Zions for the exchange of Zions' shares in a
pooling-of-interests transaction, earnings per share prior to the acquisition
date shall, for the purpose of calculating ACEPS during the Award Period, be
determined using Zions' un-restated numbers.
Other Terms and Conditions:
The Plan is to be governed and interpreted by the Committee, whose
decisions shall be final. The terms of the Plan are subject to change or
termination at their sole discretion.
The Company shall retain the right to withhold payment of Award Funds
to participants in the event of a significant deterioration in the Company's
financial condition, or if so required by regulatory authorities, or for any
other reason considered valid by the Board in its sole discretion.
Participants shall not vest in any benefits available under the Plan
until the conclusion of each Award Period. Nevertheless, upon death, permanent
disability, or normal or early retirement (unless upon early retirement the
participant becomes employed by an entity which competes with Zions
Bancorporation), participants (or their estates) shall be eligible to receive a
proportionate share of Award Funds based upon the number of PU's granted, and
the number of full calendar quarters the participant was engaged as an officer
of the Company or its subsidiaries prior to death, disability, or retirement.
The PU's shall not be transferable without the express approval of the
Committee.
In the event of the merger or acquisition of the Company, the Plan may
be terminated as of the end of the fiscal quarter preceding the first full
quarter before the transaction is consummated. The Board may make any reasonable
estimates or adjustments necessary in calculating Award Funds for any Award
Period. The Board may also, at its sole discretion, alter the terms of the Plan
at any time during an Award Period.
This document is intended to provide a guideline for the creation and
distribution of incentive compensation. Nothing herein creates a contractual
obligation binding on the Board, and no Participant shall have any legal rights
with respect to an Award until such Award is distributed.
Earnings per share calculations shall be adjusted to reflect any stock
splits, stock dividends, or other such changes in capitalization, at the
discretion of the Committee.
3
<PAGE>
The award of PU's to any participant shall not confer any right with
respect to continuance of employment by the Company or its subsidiaries, nor
limit in any way the right of the Company to terminate his or her employment at
any time, with or without cause.
APPENDIX
ZIONS BANCORPORATION VALUE-SHARING PLAN: 1998-2001
Calculation of Participation Unit Value
Aggregate Cash Earnings Per Share (ACEPS)
- -----------------------------------------
<TABLE>
<CAPTION>
If the ACEPS is:
The basic value of a
Over - But not over- Participation Unit is-
- -------------------------------------------------------------------------------------
<S> <C> <C> <C>
$8.57 $8.78 $.00 plus $.015 per each cent of the amount over
$8.57.
$8.78 $9.00 $.322 plus $.030 per each cent of the amount over
$8.78.
$9.00 $9.22 $.979 plus $.046 per each cent of the amount over
$9.00.
$9.22 $9.44 $1.983 plus $.062 per each cent of the amount over
$9.22.
$9.44 $9.67 $3.349 plus $.076 per each cent of the amount over
$9.44.
$9.67 $9.90 $5.089 plus $.093 per each cent of the amount over
$9.67.
$9.90 $10.14 $7.217 plus $.105 per each cent of the amount over
$9.90.
$10.14 $10.38 $9.748 plus $.123 per each cent of the amount over
$10.14.
$10.38 $10.63 $12.695 plus $.135 per each cent of the amount over
$10.38.
$10.63 $10.88 $16.074 plus $.153 per each cent of the amount over
10.63.
$10.88 $11.14 $19.90 plus $.165 per each cent of the amount over
$10.88.
$11.14 $11.40 $24.187 plus $.183 per each cent of the amount over
$11.14.
4
<PAGE>
$11.40 $11.67 $28.952 plus $.195 per each cent of the amount over
$11.40.
$11.67 $11.94 $34.209 plus $.179 per each cent of the amount over
$11.67.
$11.94 $12.22 $39.030 plus $.159 per each cent of the amount over
$11.94.
$12.22 $12.50 $43.493 plus $.146 per each cent of the amount over
$12.22.
$12.50 $12.78 $47.584 plus $.132 per each cent of the amount over
$12.50.
$12.78 $13.07 $51.286 plus $.114 per each cent of the amount over
$12.78.
$13.07 $13.37 $54.585 plus $.096 per each cent of the amount over
$13.07.
$13.37 $13.67 $57.463 plus $.081 per each cent of the amount over
$13.37.
$13.67 $13.98 $59.905 plus $.064 per each cent of the amount over
$13.67.
$13.98 $61.893
</TABLE>
Average Modified Cash Return on Equity ("AMCROE") Modifier:
- -----------------------------------------------------------
The basic Participation Unit value determined above shall be adjusted
as follows:
o If AMCROE for 1998-2001 is less than 16.00%, the Participation Units shall
have no value.
o If AMCROE is equal to or greater than 16.00% but less than 19.00%, the
basic value of a Participation Unit shall be multiplied by a
factor of 1.00.
o If AMCROE is equal to or greater than 19.00% but less than 24.00%, the
basic value of a Participation Unit shall be multiplied by the following
factor:
1+(AMCROE - .19)6.60.
o If AMCROE is 24.00% or more, the basic value of a Participation Unit shall
be multiplied by 1.33.
******************************
Example: If ACEPS is $10.19 and AMCROE is 22.60%, each Participation Unit would
be worth $36.71.
[$9.748+100($10.19-$10.14)$.123] X [1+(.2260 - .19)6.6] = $12.825
5
Financial Highlights
<TABLE>
<CAPTION>
98/97
Change 1998 1997 1996 1995 1994
------ --------- --------- --------- --------- ---------
<S> <C> <C> <C> <C> <C> <C>
For The Year (IN MILLIONS)
Net income ............................. + 9% $ 146.8 $ 134.3 $ 120.4 $ 90.1 $ 68.8
Operating cash earnings(1) ............. + 29% 184.5 142.5 123.7 92.5 71.0
Per Share
Net income (diluted) ................... + 4% $ 1.91 $ 1.84 $ 1.66 $ 1.36 $ 1.08
Net income (basic) ..................... + 3% 1.93 1.88 1.69 1.38 1.10
Operating cash earnings (diluted)(1) ... + 23% 2.40 1.95 1.71 1.40 1.13
Dividends declared ..................... + 15% .54 .47 .425 .3525 .29
Book value(2)........................... + 24% 12.89 10.40 9.04 7.71 6.44
Market price - end ..................... + 37% 62.38 45.38 26.00 20.06 8.97
Market price - high .................... 62.38 46.00 26.00 20.28 10.50
Market price - low ..................... 38.38 25.69 16.69 8.88 8.38
At Year End (IN MILLIONS)
Assets ................................. + 53% $ 16,649 $ 10,869 $ 8,224 $ 6,904 $ 5,714
Loans and leases ....................... + 88% 10,633 5,669 4,503 3,533 2,791
Loans sold being serviced(3)............ + 1% 1,057 1,050 868 831 787
Deposits ............................... + 67% 13,321 7,956 6,009 5,149 4,251
Shareholders' equity ................... + 37% 1,014 742 641 535 413
Performance Ratios
Return on average assets ............... 1.11% 1.29% 1.53% 1.37% 1.12%
Return on average common equity ........ 16.38% 19.08% 20.47% 19.36% 17.90%
Efficiency ratio ....................... 68.23% 60.85% 58.47% 61.44% 64.97%
Net interest margin .................... 4.60% 4.42% 4.80% 4.63% 4.21%
Operating Cash Performance Ratios(1)
Return on average assets ............... 1.42% 1.38% 1.58% 1.41% 1.16%
Return on average common equity ........ 26.46% 24.23% 22.84% 20.99% 19.43%
Efficiency ratio ....................... 61.10% 59.20% 57.75% 60.72% 64.15%
Capital Ratios(2)
Equity to assets ....................... 6.09% 6.83% 7.80% 7.75% 7.23%
Tier 1 leverage ........................ 5.98% 6.83% 9.05% 6.50% 6.33%
Tier 1 risk-based capital .............. 8.46% 11.55% 14.43% 11.41% 11.69%
Total risk-based capital ............... 11.48% 13.42% 16.65% 13.93% 14.57%
Selected Information
Average common-equivalent shares (in thousands) 76,988 72,813 72,158 65,960 63,109
Common dividend payout ratio ........... 27.69% 21.14% 20.76% 22.82% 25.11%
Full-time equivalent employees ......... 6,793 4,895 3,874 3,498 3,018
Commercial Banking Offices ............. 333 254 175 160 135
ATMs ................................... 463 509 362 284 230
</TABLE>
1 Before amortization of goodwill and core deposit intangible assets and merger
expense.
2 At year end.
3 Amount represents the outstanding balance of loans sold and being serviced by
the Company, excluding long-term first mortgage residential real-estate loans.
(inside front cover)
<PAGE>
Winning Strategies
- ------------------
Just as in the game of chess, strategy is the foundation of a successful
business. Chess moves are comparable to business moves from both a strategic and
a tactical perspective. Former word chess champion Emmanuel Lasker said,
regarding chess, "When you see a good move, wait - look for a better one."
Valuable advise for the chess player. Valuable, too, for a competitive business.
Zions Bancorporation followed this adage when forming business moves in 1998:
Consider options, consider smarter options, then move decisively.
Timing, in business as in chess, is the key. Businesses need to think two
or three moves ahead. It's crucial to consider how one move will affect the
next. The result: priorities must be established and tasks executed to maximize
effectiveness and efficiency.
Successful business strategies are also dependent upon an understanding of
competitors' strenghts, weaknesses, and customary tactics. Ultimately,
competitive victories in the marketplace are measured in increased shareholder
value.
Contents
- --------
To Our Shareholders .................................................... 2
Community Banking ...................................................... 8
Significant Acquisitions ............................................... 10
Internal Growth ........................................................ 12
Complementary Businesses ............................................... 14
Technology ............................................................. 16
Year 2000 .............................................................. 17
Operational Integration ................................................ 18
Management's Comments .................................................. 20
Business Segment Results ............................................... 21
Income Statement Analysis .............................................. 23
Balance Sheet Analysis ................................................. 31
Risk Elements .......................................................... 35
Independent Auditors' Report ........................................... 45
Consolidated Financial Statements ...................................... 46
Notes to Consolidated Financial Statements ............................. 51
Officers and Directors ................................................. 74
1
<PAGE>
To Our Shareholders
The year 1998 was extraordinary for Zions Bancorporation. We dramatically
increased the reach of our franchise through solid internal expansion and a
series of disciplined strategic acquisitions, setting the stage for continued
growth in the future. We also produced record financial results, with strong
gains in operating cash income and operating cash earnings per share.
Financial Results
The Company's net cash operating earnings, before merger charges and
amortization of goodwill and core deposit intangible assets, increased 29.4% to
$184.5 million from the restated $142.5 million recorded in 1997. Net cash
operating earnings per share increased 23.1% to $2.40 from the restated $1.95
per share in 1997. Net income in 1998, including after-tax merger-related
charges of $28.2 million, totaled $146.8 million, up 9.3% from $134.3 million
achieved in 1997. Fully diluted net income per share increased 3.8% (including
the effect of after-tax merger-related charges of $.37 per share) to $1.91 from
$1.84 in 1997.
Operating cash return on average tangible equity was 26.5%, an increase
from the 24.2% achieved in the previous year.
Average net loans and leases outstanding increased to $7.2 billion in 1998,
up 41.3% from the $5.1 billion outstanding in 1997, while average deposits
increased 41.0% to $9.5 billion from $6.7 billion in 1997. The 1997 figures have
been restated to reflect the effect of certain acquisitions in 1998 accounted
for under the "pooling of interests" accounting method. Before restatements,
average earning assets increased 78% in 1998, while average shares outstanding
increased only 23% during the same period. Excluding loans and deposits gained
through acquisitions which are not reflected in the year-ago financial
statements, year-end 1998 on-balance sheet and securitized loans increased 18.6%
and deposits increased 8.8% over the previous year's levels.
The net interest margin improved to 4.60% in 1998, up from 4.42% in 1997.
The improvement in the margin resulted from an improved mix of assets during the
year. A relatively flat yield curve during 1998 presented the twin challenges of
a higher rate of mortgage prepayments and lower investment yields. It
nevertheless resulted in continued strong lending activity.
The Company's cash efficiency ratio (the ratio of operating costs excluding
merger charges and amortization of goodwill and certain other intangibles - as a
percentage of revenues) was 61.1% in 1998, up from 59.2% in 1997. The increase
was primarily the result of higher expense ratios at the Company's newly
acquired operation in California.
The acquisition of The Sumitomo Bank of California for cash reduced the
Company's capital ratios during 1998. The three measures of capital subject to
regulatory review nevertheless remained within the "well capitalized"
classification, and a strong level of cash generation, combined with a
relatively moderate dividend payout promises to strengthen our capital position
in 1999. The Sumitomo transaction also had the effect of measurably increasing
our loan loss reserves. Total loss
2
<PAGE>
reserves rose 124% during 1998, while loans outstanding at year-end rose
88%. Credit quality remained very healthy in 1998. Non-performing loans
increased to .60% of net loans, leases and other real estate owned at year-end
1998 from .42% at the end of 1997, primarily as a result of the acquisition of
The Sumitomo Bank of California.
1998 Merger Activity
This past year was a period of unprecedented merger activity for Zions
Bancorporation, with the completion of 12 bank acquisitions in three states.
A summary of these transactions is as follows:
Principal Total Assets Date
Location ($ millions) Acquired
-------- ------------ --------
Vectra Banking Corporation Denver, Co. 703 January 6
Sky Valley Bank Corp. Alamosa, Co 122 January 23
Tri-State Finance Corporation Denver, Co. 28 February 27
FP Bancorp, Inc. Escondido, Ca. 363 May 22
Routt County National Bank Corp. Steamboat Springs, Co. 102 May 29
SBT Bankshares, Inc. Colorado Springs, Co. 97 May 29
Kersey Bancorp, Inc. Kersey, Co. 150 August 28
Eagle Holding Company Broomfield, Co. 42 August 31
The Commerce Bancorporation Seattle, Wa. 300 September 8
The Sumitomo Bank of California San Francisco, Ca. 4,545 October 1
Mountain Financial Holding Company Woodland Park, Co. 92 October 30
Citizens Banco, Inc. Westminster, Co. 52 November 30
We've worked hard in recent years to diversify the Company's geographic
exposure, and the acquisitions we completed in 1998 measurably decreased our
credit concentration in any one market. At the same time, we've improved our
prospects for growth by expanding our franchise in some of the nation's most
attractive markets.
The most significant transaction we completed in 1998 was the acquisition
of The Sumitomo Bank of California, a $4.5 billion institution which has been
combined with our Grossmont Bank subsidiary in San Diego and our newly acquired
First Pacific National Bank in Escondido. The resulting organization has been
renamed California Bank & Trust, and is the sixth largest commercial banking
organization in California with approximately $6 billion in assets and 71
offices throughout the state. Many observers hailed this as one of the
industry's best deals of the year, as it provided Zions with a significant
presence in the nation's largest economy at a very affordable price. A measure
of the potential impact of the transaction on our future results may be gauged
by the fact that the purchase price, which was paid in cash, resulted in the
issuance of only 2.8 million new Zions shares as part of the financing package,
or a net increase of only about 4% in our outstanding common stock. At the same
time, the transaction increased the Company's earning assets by 52% relative to
unrestated year-end 1997 levels.
3
<PAGE>
The California Bank & Trust franchise presents a variety of challenges and
opportunities. The challenges include enhancing the bank's loan origination
capabilities and broadening its product lines, strengthening the sales skills of
its employees and increasing the bank's efficiency. However, we believe our
prospects for success are very high in this market. We acquired the bank for a
very attractive price, giving us the ability to recruit some talented, veteran
California bankers to supplement and strengthen the Sumitomo staff. The Sumitomo
Bank of California's employees have been extremely service-oriented and have a
loyal customer following. As a result, customer retention has thus far exceeded
our expectations. Our experience with Grossmont Bank has been extremely
favorable, and the employees and officers of Grossmont have worked hard to
ensure that the combined operation is a success. We will be introducing a
variety of new products to California Bank & Trust's customers, and we have
developed incentives for virtually all of the bank's employees based on building
shareholder value. Finally, California Bank & Trust's management group has been
provided with significant incentives to create value over the next few years,
including a 5% direct equity stake sold to a group of the bank's senior
officers, which will be subject to repurchase by Zions Bancorporation in four
years based on the value of the investment at that time. We expect our
California operations to provide a significant contribution to our results over
the next several years.
We were also very active in 1998 expanding our franchise in Colorado,
building on our acquisition of Aspen Bancshares in 1997. We completed the
acquisition of Vectra Bank, with over $700 million in assets, creating a solid
base in the Denver metropolitan market and providing us with additional
management strength. We then embarked on an expansion program which gave us
additional locations in the greater Denver market, as well as extending our
reach into the Colorado Springs area, Steamboat Springs, and the San Luis Valley
in southern Colorado. Vectra Bank Colorado, the name of the resulting entity,
has approximately $2 billion in assets and is the fifth largest commercial
banking organization in Colorado, with 52 branches throughout the state. During
1998 we also completed the acquisition of The Commerce Bank of Washington, a
boutique, business-oriented bank which has had an impressive track record since
its founding 10 years ago. Based in Seattle, the bank is staffed with a group of
professionals who are very focused on serving the needs of small and
medium-sized businesses in the Puget Sound area.
Organizational Changes
In light of the tremendous expansion we've experienced over the past few years,
we organized a new subsidiary, Zions Management Services Company, to place under
a single umbrella many of the "utility" support functions for Zions
Bancorporations' various operating units. These functions include finance,
information systems and item processing, telephone call centers, credit policy
and administration and the Company's treasury and investment functions. Over
time, we expect to achieve significant efficiencies by reducing overhead
redundancies in these support departments.
4
<PAGE>
During 1998, A. Scott Anderson, formerly head of Retail Banking at Zions
First National Bank, was named president and chief executive officer of that
flagship subsidiary. Scott Anderson has done an extraordinary job of
strengthening our retail banking business in recent years, and he brings
tremendous leadership skills to his new role as CEO of Zions Bank. During the
year, we also welcomed Shelley Thomas, senior vice president of communications
and public affairs of the Salt Lake Organizing Committee for the Winter Olympic
Games of 2002, to the Zions Bancorporation board of directors.
Electronic Commerce
As we prepare to enter the new millennium, it is clear that providers of
information-based products and services, including financial services, will need
to be adept at distributing those products on-line to customers' homes and
businesses. Zions Bancorporation is developing a reputation as one of the
industry's real innovators in providing customer solutions in the new world of
electronic commerce.
Through Digital Signature Trust Company ("DST"), a subsidiary of Zions
Bank, we became the first banking organization in the nation to be authorized by
federal regulators to serve as a "certification authority," issuing digital
certificates used to establish with certainty the identity and credentials of
parties to transactions over networks such as the Internet. DST's 1998
accomplishments included developing a partnership with the American Bankers
Association to provide support services for ABAecom(SM), which will in turn
support electronic commerce initiatives throughout the banking industry. The
Automotive Industry Action Group, a trade association of North America's vehicle
manufacturers and their suppliers, also selected DST to provide services to
Automotive Network eXchange(R), a private network which will be used by
automobile manufacturers and suppliers to exchange information such as secure
e-mail, computer-aided design files, and purchase order, invoice and payment
information.
DST will also play an important role within our own organization as we
develop new on-line services for our own customers. A good example of this is
the development of an on-line electronic trading capability through which we buy
and sell odd-lot government and government agency securities from institutional
clients. Zions was a leading market-maker in this segment of the securities
market in 1998, executing over 78,000 trades on-line, with a "paperless" back
office.
Zions Bank and Nevada State Bank have also developed a strong Internet
presence for conducting retail banking business, including a Web-based bill
payment system which has been well-received by customers. Zions Investment
Securities, Inc. also provides a full range of retail investment products over
the Internet. Our bank subsidiaries will roll out additional on-line
capabilities over the course of the coming year. To learn more about these
initiatives, and to keep current on news about the Company, we invite you to
visit us on the World Wide Web at zionsbank.com, calbanktrust.com, nsbank.com,
digsigtrust.com and govrate.com.
5
<PAGE>
Year 2000 Preparations
The media has begun to devote a great deal of attention to the "Year 2000"
or "Y2K" phenomenon in recent times. Zions Bancorporation has been devoting a
great deal of attention to the matter for the past several years. At issue is
the fact that many older computer programs and hardware components use two-digit
date fields in date-based calculations. The concern is that, with the advent of
the new century, a computer program might understand a date such as 3/31/00 to
mean March 31, 1900 instead of March 31, 2000, resulting in calculation errors
and computer failures.
Because banking calculations are so heavily date-dependent, the issue has
been the subject of intense focus by both bankers and regulators. Within Zions
Bancorporation, we have a Year 2000 team in each of our operating units,
overseen by a corporate-level Year 2000 Program Office. We have developed and
have been executing detailed work plans with five major tasks: (1) inventorying
all of the Corporation's software systems and hardware; (2) assessing the Year
2000 compliance of each hardware and software component; (3) remediating or
replacing systems which are not Year 2000 compliant; (4) testing all critical
systems and hardware with sample data and post-2000 dates to ensure that each
system functions properly, as well as testing links between systems; and (5)
creating back-up and contingency plans in the event of system breakdowns.
Additionally, credit administration personnel and loan officers have, over the
past two years, been assessing the Year 2000 efforts and readiness of our larger
borrowers in order to reduce the risk of borrower defaults caused by system
failures in their own businesses.
In preparation for the Year 2000, we have, over the past three years,
replaced several of our backbone software systems, including our consumer loan
system, our deposit accounting system and our general ledger system with Year
2000-compliant products. We have also installed many updated versions of other
systems, and we are replacing numerous desktop computers to ensure their
functionality. Our computer operations in California and Arizona are out-sourced
to a major national vendor, and we have been working closely with this provider,
in concert with other clients, to ensure their readiness to accurately process
transactions in the new year. We expect to have completed our systems testing by
the end of the first quarter of 1999. As of the writing of this letter, we have
experienced no material problems that cause us concern.
This has been a major project to which we have devoted substantial
resources. Many of the expenditures we've incurred, however, were to replace
aging systems and hardware nearing the end of its life cycle, and the result has
been a general upgrade in the capabilities of many of these hardware and
software systems. A number of outside observers have noted that the American
banking industry is, as a whole, well ahead of other industries in preparing for
the turn of the century. While the only absolute guarantee of success will come
through the live production of data, we feel confident that we will be well
prepared with respect to Year 2000 issues as we enter the new year.
6
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The Credit Union Issue
A growing issue for banks in recent years has been the increasing competitive
threat from large tax-exempt credit unions. This has been particularly the case
for us in the state of Utah, where credit unions' share of the total
insured-deposit market has grown to about 19% (and a much larger portion of the
consumer market, since credit union penetration of the commercial market has
heretofore been limited). Many of the larger credit unions have, in recent
years, exceeded the boundaries of the law at both the state and federal levels
by expanding their fields of membership virtually without limitation. Litigation
initiated by bank trade associations was concluded favorably during the year at
both the federal level and in the state of Utah. In both cases, subsequent
legislation has been enacted modifying credit union membership rules. While
these new statutes contain both negative and favorable provisions, some progress
was made which should improve the situation. We appreciate the efforts of many
of our shareholders who expressed their feelings about these issues to
legislators in recent months.
Looking Back and Looking Forward
Zions Bancorporation has experienced an incredible decade of growth and
value creation. Our total annually-compounded return to shareholders has been
40.1% for the past ten years, 48.9% for the past five years, 47.4% for the past
three years, and 38.7% through the turbulent market of 1998. We've accomplished
this with revenue growth that has compounded at 21% since 1990, effective
capital management, good credit quality and a strong value orientation. Our
performance in revenue growth, profitability and shareholder return has placed
us in the top ranks of the industry. We have some extremely talented and
innovative bankers, and we've further strengthened our "bench" during 1998.
We are operating in many of the nation's most vibrant markets. Our
franchise covers a "footprint" as attractive as any in the nation, and we are
optimistic about the future. While there continue to be risks in the world
economy that could produce slower growth at home, the U.S. economy continues to
display exceptional strength. We believe 1999 will be another strong year for
Zions Bancorporation. We thank you for your continued loyal support and
enthusiasm for the course we're pursuing.
Respectfully,
/s/ Harris H. Simmons /s/ Roy W. Simmons
Harris H. Simmons Roy W. Simmons
President and Chief Executive Officer Chairman
February 26, 1999
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Community Banking
Moves that Make Sense
[graphic omitted]
8
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Central to the Company's success is its core banking business. In 1998,
Zions moved aggressively to expand its banking franchise, especially in the
profitable and high-growth markets of California, Colorado, and Washington. The
Company now provides banking services in eight western states.
The Company's banking business continues to enjoy a generally favorable
business climate and strong local economies. These eight states have enjoyed
exceptional employment growth in recent years, and population growth over the
next 30 years is projected to be among the highest in the nation.
The approach has been to achieve profitable growth through the acquisition
of strong banks, strategic deployment of new branches, and the introduction of a
broader and more innovative array of products and services. The company's
enhanced capital resources enable the acquired banks to take advantage of
further growth opportunities in these markets.
Unlike most other regional or super-regional banking operations, Zions
Bancorporation's strategy is to maintain a strong, local presence for affiliate
banks in each state. These banks have the authority and ability to respond to
the financial needs of their local clients. Therefore, essential to the success
of this philosophy is strong, local management that understands and can respond
to unique business opportunities in the markets they serve.
While Zions affiliates give their customers the attention and
responsiveness of a community bank, the Company provides back-office and
administrative support to yield greater efficiencies and cost savings in a
manner transparent to the customer.
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Significant Acquisitions
California
The year 1998 is highlighted by the company's most significant acquisition
to date. Starting from the base of the former Grossmont Bank in San Diego, Zions
completed its acquisition of FP Bancorp and its subsidiary, First Pacific
National Bank, with offices in San Diego and Riverside counties. In the first
quarter, Zions surprised many observers when it announced an agreement to
acquire The Sumitomo Bank of California ("Sumitomo"), with approximately $4.5
billion in assets.
These moves give the Company a foothold in the important Los Angeles and
San Francisco markets. The Sumitomo acquisition was completed during the fourth
quarter. The three banks were merged into a single, statewide franchise, and the
name was changed to California Bank & Trust ("CB&T")
Referring to itself as a super-community bank, CB&T is headquartered in the
San Francisco Bay area. However, consistent with the company's community banking
philosophy, each region has local management and decision-making authority.
California Bank & Trust has an initial statewide network of 71 offices and
assets of approximately $6 billion, making it the sixth largest commercial bank
in California. The state of California is projected to be the fastest growing in
the United States over the next 30 years.
California Bank & Trust will focus on delivering what Californians need and
deserve: a bank with a statewide reach, centered around relationship banking and
delivered through a regional approach.
Largely as a result of initiatives by new local management and an expanded
array of services and products, former Sumitomo customers are rewarding the new
bank with their loyalty and additional business.
Colorado
Aggressive acquisitions were undertaken to establish a significant and
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solid franchise within thegrowing state of Colorado during 1998. In order
to develop a network of branches throughout the state, the Company acquired
multiple banking organizations. This was necessary because, until recently,
Colorado banking laws did not permit the development of statewide branch banking
franchises.
During the year, Zions completed mergers with Vectra Banking Corp., Routt
County National Bank Corp., Sky Valley Bank Corp., Tri-State Finance Corp.,
Kersey Bancorp Inc., Mountain Financial Holding Company, SBT Bankshares, Eagle
Holding Company and Citizens Banco Inc. All of these banking operations were
merged into Vectra Bank Colorado, N.A. ("Vectra").
The Colorado economy is expected to remain very healthy into the next
decade, with technology, tourism and service-related businesses serving as the
engines of stability and prosperity. The state is a magnet to people looking for
a combination of lifestyle and economic opportunity.
With assets of nearly $2 billion, Vectra's statewide network of 52 offices
makes it the state's fifth largest bank. Vectra also operates one office in
Farmington, New Mexico.
Washington
Continuing the company's geographic expansion, 1998 marks Zions'
entry into the fast-growing Seattle market with the acquisition of The Commerce
Bancorporation, the holding company of The Commerce Bank of Washington, N.A.
("The Commerce Bank").
The Commerce bank's approach is unique. From a single office in downtown
Seattle, The Commerce Bank operates very successfully within a narrowly-defined
niche of business and private banking customers. As with other Zions affiliates,
The Commerce Bank has achieved success based on providing superior service.
Joining with Zions allows The Commerce Bank to rise to the next level in
its ability to meet the needs of its clients. Expanded products and services,
combined with its attentiveness and responsiveness to client needs, is sure to
result in a win-win-win situation for the Company, The Commerce Bank of
Washington, and its clients.
The Seattle area is one of the nation's leading centers for advanced
technology in computer software, bio-technology, electronics, medical equipment
and environmental engineering. Seattle is also ranked as one of the top cities
in the U. S. in which to live and locate a business.
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Internal Growth
In addition to acquiring other banking franchises, Zions Bancorporation's
strategy is to leverage its existing branch network and selectively expand
within the states it serves. Excluding the loans and deposits from the company's
acquisitions, which are not reflected in the previous-year balances,
on-balance-sheet and securitized loans in 1998 increased 18.6% and deposits were
up 8.8% from a year ago.
The company's Utah/Idaho banking affiliate, Zions First National Bank,
continued to achieve growth through its well-developed branch and ATM
distribution network, as well as the increasingly important online and telephone
banking channels. A new branch was opened in Idaho Falls, Idaho, and the Bank
moved into new offices in Park City, Utah and Rigby, Idaho. Also, three
convenient new grocery store branches were opened, bringing the total to 44. In
addition, the Bank targets key segments through its Private Banking, Executive
Banking and women's Financial Groups. In 1998, Zions Bank celebrated its 125th
anniversary with a retail loan campaign that generated record loan originations
approaching $500 million.
Nevada State Bank ("NSB") is the oldest state-chartered bank in Nevada
(1959). In 1998, NSB added seven branches and grew to more than $1.1 billion in
assets and a total of 44 locations. Because NSB competes with large, national
banking operations, its strategy is to emphasize its community bank leadership
position, providing personalized, client first service.
As in previous years, National Bank of Arizona ("NBA") continues to focus
on the business and executive banking segments, while expanding its retail
branch operations. Three new offices were opened during the year: one in the
southeast corner of Arizona, at Sierra Vista, and two in the popular Sedona
area, at Cottonwood and the Village of Oak Creek. This brings the total to 33
branch offices statewide.
12
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...on balance sheet and securitized loans in 1998 increased 18.6% and
deposits were up 8.8% from a year ago.
[graphic omitted]
13
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Complementary Businesses
While banking is the company's core business, an ever-increasing component
of revenue comes from complementary niche businesses. Each of these represents
high growth prospects and potential for revenue enhancements, leveraging the
company's competencies and resources.
Some of these businesses represent pioneering technologies while others
merely represent underserved markets or undiscovered opportunities. The common
thread is that these businesses result from creative, "outside the box"
thinking.
Because these businesses are providing complementary products to a growing
client base, they help to deepen relationships with current clients and
diversify earnings from the core banking franchise.
Digital Signature Trust Company
With the rapid growth in electronic commerce, Digital Signature Trust
Company offers an intriguing opportunity for Zions Bancorporation's future.
Early in the year, Zions Bank received approval from the Office of the
Comptroller of the Currency ("OCC") to establish an operating subsidiary to act
as a certification authority and repository for certificates used to verify
digital signatures. DST was the first bank subsidiary in the nation to receive
such approval.
As a certification authority, DST issues, stores and verifies digital
certificates that are used in the digital "signing" of electronic documents and
transactions. Digital signatures are a form of electronic authentication,
permitting a recipient to compare decoded signatures with the message and
confirm that the message has not been altered.
In September, DST announced it had become American Bankers association's
exclusive partner in providing secure e-commerce technology services for a new
ABA subsidiary. ABAecom(SM) will serve as the "trusted third party" in providing
an assortment of electronic authentication and encryption services for financial
institutions. These services will include a Web site authentication seal and
digital certificates to allow financial institutions and their customers to
engage in private, secure communications.
Electronic Bond Trading
As the only primary dealer in U.S. Treasury securities headquartered west
of the Mississippi River, Zions Bank acts as underwriter and distributor of U.S.
Treasury and Federal Agency securities. It has pioneered the online trading of
such government securities through its Web sites, www.oddlot.com and
14
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www.govrate.com. The Web sites display live, executable quotes, available
to financial institutions and money managers nationwide. In addition, prices and
electronic trading are offered on Bloomberg and several other vendor systems.
Accessor Capital Management
During the year, Accessor Funds, a family of eight mutual funds totaling
$1.1 billion in assets, placed two funds on U.S. Banker magazine's list of the
top 20 bank-managed equity funds, and one fund on the magazine's list of top 10
international funds. Accessor Funds are advised by Seattle-based Accessor
Capital Management, which is approximately 25 percent owned by Zions First
National Bank.
Municipal Finance
Zions is one of the largest municipal financial advisory firms in the
country. Combined, the company's public finance offices operating under the
names of Zions Bank Public Finance, Kelling, Northcross & Nobriga (California),
Howarth & Associates (Nevada) and National Bank of Arizona Public Finance ranked
ninth in the Securities Data corporation's listing of the nation's top 100
municipal financial advisors.
U.S. Small Business Administration Lending
Zions Bank continues to be a leader in U.S. Small Business Administration
("SBA") lending, originating loans in 31 of 65 markets identified by the SBA.
Through its Zions Small Business Finance division, headquartered in St. Louis,
the bank provides fast and efficient SBA 7(a) financing through offices
strategically located across the country.
In addition, Zions provides real estate financing for businesses through
the SBA 504 loan program. Zions bank's Real Estate Securitization department
works with certified development companies and correspondent banks throughout
the country to provide the nation's largest source of secondary market financing
for SBA 504 loans.
Farmer Mac
Federal Agricultural Mortgage Corporation ("Farmer Mac") continues to
provide needed funding to the nation's farmers. Zions Bank maintains nearly a 20
percent equity interest in Farmer Mac and originates and sells qualified loans
directly to Farmer Mac through its cash window program. Zions is the largest
seller of agricultural mortgages to the Farmer Mac cash window. These
agricultural mortgages are originated throughout the United States and
underwritten and serviced by Zions Agricultural Finance, located in Ames, Iowa.
Zions Agricultural Finance is a division of Zions First National Bank.
15
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Technology for the next millennium
Technological advances already have changed the face of the financial
services industry. This trend is expected to continue at a faster pace in future
years. New technologies continue to revolutionize the industry, paving the way
to a brighter, more customer-oriented financial services future. Zions
Bancorporation is a leader in utilizing new technologies to provide
state-of-the-art, creative solutions to satisfy financial needs.
Rapidly expanding use of the Internet presents several new opportunities
almost daily for many financial service providers. Internet banking is
increasingly being used by individuals and businesses. In the state of Utah, the
number of Zions Internet banking customers grew by over 200 percent in 1998. New
electronic services include brokerage, bill payment and loan applications, each
of which helps add to Zions bank's image as a regional area leader in Internet
banking. Nevada State Bank introduced its Web site and Internet banking in 1998.
Internet banking applications are being developed for the company's other
banking affiliates.
Zions Bancorporation will continue to explore new, innovative applications
of emerging technologies that have the potential of deepening client
relationships, diversifying earnings, serving under-served markets or creating
new, profitable business opportunities.
16
<PAGE>
Year 2000
In a few short months, the world will experience the much-anticipated
transition to the new millennium. Opinions vary about the potential impact of
computers that fail to read the Year 2000 (Y2K) correctly. Because of society's
heavy reliance upon computer technology, the outcome is still somewhat
uncertain. Since financial institutions rely heavily on date-based calculations,
the industry has a particular challenge. Fortunately, Zions Bancorporation has
been aggressively preparing.
For several years, the Company has been identifying all of the computer
hardware and software systems it uses, evaluating Y2K risks, and renovating or
replacing these systems, as necessary. The task was simplified somewhat because
in recent years, many of the company's operating systems already had been
upgraded with Year 2000-compliant systems. During 1998, the Y2K team replaced or
renovated most of its mission-critical systems. In December, the Company
successfully completed its first of several planned off-site tests of
mission-critical operating systems.
Through the balance of 1999, each system is being subjected to rigorous
testing and further remediation, if needed. Contingency plans have been prepared
so Zions' affiliate banks can provide uninterrupted service during any
difficulties. Affiliate banks continue to inform their clients about the Y2K
issue and about the company's preparations, using a variety of marketing
communications, including well-attended seminars that are being held throughout
the market area.
While Zions Bancorporation remains very optimistic, it considers
preparations for Y2K as the company's highest priority for 1999. The Company is
proud of the fact that Zions Bank President and CEO A. Scott Anderson recently
was selected to represent the nation's banking industry as a member of the
Senior Advisors Group to the president's Council on Year 2000 Conversion.
17
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Operational Integration
Zions Bancorporation remains committed to the strategy of allowing local
bank affiliates to run their own businesses with local managers who know their
markets, understand unique community needs and deliver the highest quality
customer service. Recognizing the need to also deliver these services in the
most efficient and cost-effective manner, the Company centralized and
consolidated certain back-office, support functions.
Zions Management Services Company ("ZMSC") was created in 1998 to provide
this support. ZMSC serves as an umbrella organization, delivering a variety of
support services to affiliates. It provides a higher level of quality,
consistency, and cost-effective delivery of services than could be achieved by
any of the affiliates on a stand-alone basis. At the same time, ZMSC provides a
set of operating controls to assure that these support functions are being
performed in a safe and sound manner. ZMSC provides assistance to affiliates in
the areas of operations/information systems, human resources, finance and
accounting, credit policy, credit administration, and investments. In addition,
ZMSC operates centralized call centers for taking loan applications and
providing telephone customer service. Call centers are equipped to respond to
calls from customers of any affiliate, using a multiple que environment, which
enables the bank to optimize staffing efficiency and allows a customer service
representative to use the local bank's name and database to assist the caller.
18
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Winning Formula
A business - like a chess player - utilizes various pieces to accomplish a
goal. Each unit must work in harmony to be effective. Each piece is unique in
shape, function and purpose. All are powerful if used effectively. (Even the
pawn can capture the queen.) All pieces must act in unison complementary to a
master strategy - in order to find a winning formula. Measured in shareholder
value, 1998 was a year of winning strategies for Zions Bancorporation.
19
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Management's Comments
PERFORMANCE SUMMARY
Zions Bancorporation reported record earnings of $146.8 million or $1.91 per
share in 1998. Net income and diluted net income per share increased 9.3% and
3.8%, respectively, over the restated $134.3 million or $1.84 per share for 1997
which were up 11.5% and 10.8%, respectively, over the restated $120.4 million or
$1.66 per share earned in 1996. Dividends per share were $.54 per share in 1998,
an increase of 14.9% over $.47 in 1997, which were up 10.6% from $.425 in 1996.
Financial results have been restated for prior periods to reflect the
acquisitions of Vectra Banking Corporation, FP Bancorp, Inc. and The Commerce
Bancorporation during 1998, which were accounted for as poolings of interests
and considered significant. The acquisition of The Sumitomo Bank of California
was accounted for as a purchase and results of operations are included
subsequent to the acquisition date of October 1, 1998. Therefore, results of
operations for 1998 can not be compared directly with prior periods.
Included in reported net income were after-tax merger expenses of $28.2 million
or $.37 per share in 1998 and $2.2 million or $.03 per share in 1997. Excluding
merger expenses, earnings for 1998 would have been $175.0 million or $2.28 per
share , an increase of 28.2% and 21.9%, respectively over $136.5 or $1.87 for
1997. Merger expenses in 1998 relate to the company's acquisitions of twelve
banking organizations during the year and are further discussed in Note 2 of
Notes to Consolidated Financial Statements.
The return on average shareholders' equity was 16.38% and the return on average
assets was 1.11% for 1998, compared with 19.08% and 1.29%, respectively, in
1997, and 20.47% and 1.53%, respectively, in 1996.
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 and return capital to shareholders 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 were $184.5 million or $2.40 per share for 1998, an
increase of 29.4% and 23.1%, respectively, over the $142.5 or $1.95 per share
for 1997, which was up 15.2% and 14.0% over the $123.7 million or $1.71 per
share in 1996. The return on average shareholders' equity and the return on
average assets on an operating cash basis were 26.46% and 1.42%, respectively,
for 1998 compared to 24.23% and 1.38% for 1997 and 22.84% and 1.58% for 1996.
The strong performance of the Company was driven by a 41.4% growth in average
loans and leases and a 26.6% growth in average total earning assets that led to
a 31.6% increase in taxable-equivalent net interest income to $552.7 million in
1998. Noninterest income increased 37.1% to $200.7 million in 1998, with strong
growth in service charges, trust income, underwriting and trading income, and
loan sales and servicing income. Noninterest expense, including merger expenses
increased 49.2% to $514.1 million in 1998. Excluding merger expenses,
noninterest expense increased 37.8% over 1997. The increase in revenue and
noninterest expense is mainly attributable to the record growth of the Company
during 1998 through acquisitions and expansion. The number of full-time
equivalent employees increased to 6,793 at year-end 1998 from 4,895 at the end
of 1997 and banking offices increased to 333 from 254. Increased expenses,
related primarily to acquisitions and related conversion and functional
integration, resulted in an increase in the Company's efficiency ratio, or
noninterest expenses as a percentage of total taxable-equivalent net revenues to
68.23% for 1998 compared to 60.85% for 1997 and 58.47% for 1996. The operating
cash performance efficiency ratio was 61.10% for 1998 compared to 59.20% for
1997 and 57.75% for 1996.
The Company's provision for loan losses totaled $12.2 million for 1998 compared
to $7.8 million for 1997. Net charge-offs were $14.9 million, or .21% of average
loans and leases in 1998 compared to $9.5 million or .19% in 1997. Nonperforming
assets increased to $64 million or .60% of loans and other real estate owned on
December 31, 1998 from $24 million or .41% on December 31, 1997. Nonperforming
assets on December 31, 1998 include $29 million related to the acquired loans of
The Sumitomo Bank of California.
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Business Segment Results
The Company manages its operations and prepares management reports with a
primary focus on geographical area. Operating segments information, including
earnings performance on an operating cash basis, is presented in Schedule 1. The
company allocates centrally provided services to the business segments based
upon estimated usage of those services. The operating segment identified as
other includes the Parent, several smaller business units and inter-segment
eliminations.
ZIONS FIRST NATIONAL BANK AND SUBSIDIARIES
Zions First National Bank and Subsidiaries include the Company's operations in
Utah and Idaho. The Bank experienced strong internal growth in 1998 with loans
increasing 26.2% over 1997 and deposits increasing 7.3%. Operating cash earnings
for 1998 decreased 1.0% to $88.6 million as compared to $89.4 million in 1997,
which were up 6.9% from $83.6 million for 1997. Net income decreased 1.4% to
$87.4 million compared to $88.6 million in 1997 which was up 6.6% from the $83.1
million earned in 1997. The decrease for 1998 was mainly the result of a $23.0
million provision for loan losses in 1998. The Bank did not make a provision for
loans losses in 1997 or 1996. Net interest income for 1998 increased 7.8% to
$222.0 million, noninterest income increased 25.4% to $142.7 million and
noninterest expense on an operating cash basis increased 17.5% to $217.1
million. Zions First National Bank and Subsidiaries operating cash performance
efficiency ratio was 58.75% in 1998 as compared to 56.85% in 1997 and 54.50% in
1996.
Zions First National Bank opened two new grocery store banking centers during
1998, bringing the total number of banking centers in Utah to 40 and total
offices in Utah to 116. Zions First National Bank also operates two grocery
store banking centers and 13 traditional branches in Idaho.
CALIFORNIA BANK & TRUST
During 1998 the Company acquired FP Bancorp, Inc. and The Sumitomo Bank of
California and merged them into Grossmont Bank, which was renamed California
Bank & Trust. The merged banks operate 71 branches in Northern and Southern
California. The acquisition of FP Bancorp, Inc. was accounted for as a pooling
of interests. The acquisition was considered significant and financial
information was restated for all prior years. The acquisition of The Sumitomo
Bank of California was accounted for as a purchase and results of operations
prior to the acquisition date of October 1, 1998 are not included in the segment
information. Therefore, the year 1998 is not comparable to prior years. On the
acquisition date The Sumitomo Bank of California had total assets of $4,545
million, loans of $3,417 million and deposits of $3,955 million. See Note 2 of
Notes to Consolidated Financial Statements for further information about the
acquisitions.
Operating cash earnings for 1998 were $41.8 million and net income was $23.2
million for California Bank & Trust. The Bank incurred pre-tax merger expenses
of $27.7 million during 1998 related to the FP and Sumitomo acquisitions. Return
on average equity was 12.91% and operating cash return on average equity was
30.06%. The operating cash efficiency ratio for 1998 was 61.56%. At year-end
total assets were $6,013, total loans were $4,183 and total deposits were
$5,349. For 1997 compared to 1996 operating cash earnings increased 44.3% to
$16.6 million and net income increased 46.3% to $15.8 million. The increase was
driven by a 33.6% increase in net interest income mainly attributable to a 36.0%
increase in average loans from 1996 to1997.
VECTRA BANK COLORADO
In January 1998 the Company acquired Vectra Banking Corporation in a transaction
accounted for as a pooling of interests. Vectra had total assets of $703
million, loans of $413 million and deposits of $556 million. The transaction was
considered material and financial information was restated for all prior years.
During 1998 the Company also acquired eight smaller banks in Colorado. The
acquired banks, along with previously owned Colorado banking organizations, were
merged during 1998 under the name of Vectra Bank Colorado, National Association.
See Note 2 of Notes to Consolidated Financial Statements for further information
about the acquisitions.
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Net income for Vectra Bank Colorado increased 179.2% to $14.8 million from $5.3
million in 1997 which was down from $5.4 million for 1996. Operating cash
earnings were up 183.6% to $20.7 million for 1998 compared to $7.3 million for
1997 and $5.6 million for 1996. Pre-tax merger expenses of $4.6 million were
incurred during 1998 in connection with the acquisitions. The increased earnings
for 1998 resulted from strong loan growth which resulted in a 90.0% increase in
net interest income. Net income for 1997 was down from 1996 mainly due to a $5.9
million loss on securities recognized during 1997. The operating cash efficiency
ratio decreased to 60.54% for 1998 compared to 71.36% for 1997 which was up from
64.80% for 1996. Vectra Bank Colorado operates 52 branches in Colorado and one
branch in New Mexico.
NATIONAL BANK OF ARIZONA
Operating cash earnings at National Bank of Arizona increased 23.4% to $23.7
million in 1998 as compared to $19.2 million in 1997 and $15.8 million for 1996.
Net income was up 24.7% to $22.2 million in 1998 as compared to $17.8 million in
1997 and $14.7 million for 1996. The increases for both 1998 and 1997 were
driven by strong loan growth with average loans increasing 17.7% for 1998
compared to 1997 and 21.3% for 1997 compared to 1996. Noninterest income for
1998 increased to $9.3 million from $6.3 for 1997, an increase of 47.6%. The
increase in noninterest income for 1998 included a $1.4 million increase in
service charges on deposit accounts and $.8 million from a new trust operation
started in Arizona during 1998. National Bank of Arizona's operating cash
performance efficiency ratio was 49.73% in 1998 as compared to 49.86% in 1997
and 47.97% in 1996. National Bank of Arizona opened three new branches during
1998 bringing the total offices in Arizona to 33.
NEVADA STATE BANK
Nevada State Bank achieved operating cash earnings of $15.0 million in 1998, an
increase of 36.4% over $11.0 million in 1997 which were up 48.6% from $7.4
million in 1996. Net income increased 28.0% to $13.7 million as compared to
$10.7 million in 1997 and $7.3 million for 1996. Earnings growth for 1998 and
1997 was driven by increases in net interest income, which increased 35.8% for
1998 compared to 1997 and 44.4% for 1997 compared to 1996. Noninterest income
increased 26.1% to $15.0 million for 1998 compared to $11.9 million for 1997
mainly due to an increase of $2.0 million in service charges and other fee
income. Nevada State Bank's operating cash performance efficiency ratio improved
to 62.93% in 1998 as compared to 63.10% in 1997 and 64.67% for 1996. During
1998, Nevada State Bank opened three new grocery store banking centers bringing
the total offices in Nevada to 43.
THE COMMERCE BANK OF WASHINGTON
The Commerce Bank of Washington was acquired in September 1998 and accounted for
as a pooling of interests. The bank operates one branch located in Seattle,
Washington. Operating cash earnings for 1998 were $5.5 million, an increase of
22.2% from $4.5 million earned in 1997 which were up 36.4% from $3.3 million for
1996. Net income for 1998 was $.1 million including $5.4 million of after-tax
merger expense compared to net income of $4.5 million for 1997 and $3.3 million
for 1996. The operating cash efficiency ratio was 46.92% for 1998 compared to
50.10% for 1997 and 53.82% for 1996.
22
<PAGE>
Income Statement Analysis
NET INTEREST INCOME, MARGIN AND INTEREST RATE SPREADS
Net interest income on a tax-equivalent basis is the difference between interest
earned on assets and interest paid on liabilities, with adjustments made to
present income on assets exempt from income taxes comparable to other taxable
income. Changes in the mix and volume of earning assets and interest-bearing
liabilities, their related yields and overall interest rates have a major impact
on earnings. In 1998, taxable-equivalent net interest income provided 73.4% of
the Company's net revenues, compared with 74.2% in 1997 and 73.9% in 1996.
The Company's taxable-equivalent net interest income increased by 31.6% to
$552.7 million in 1998 as compared to $419.9 million in 1997 and $345.1 million
in 1996. The increased level of taxable-equivalent net interest income was
driven by a 26.6% and 32.0% growth in average earning assets for 1998 and 1997,
respectively. The Company manages its earnings sensitivity to interest rate
movements, in part, by matching the repricing characteristics of its assets and
liabilities and, to a lesser extent, 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 1998 was
$6.9 million compared to $2.5 million in 1997 and $2.0 million in 1996.
The increase in net interest income was partially offset by the continued
securitization and sale of loans. Securitized loan sales convert net interest
income from loans to gains on loan sales and servicing revenue reported in
noninterest income. Loan sales improve the Company's liquidity, limit its
exposure to credit losses, and may reduce its capital requirements.
The net interest margin, the ratio of taxable-equivalent net interest income to
average earning assets, was 4.60% in 1998, 4.42% in 1997 and 4.80% in 1996. The
decrease in the margin in 1997 was due primarily to interest expense on the $200
million in trust preferred securities issued in December 1996, and increased
arbitrage activity in money market investments and short-term borrowings to
mitigate the reduction in net interest income from the preferred securities.
Schedule 2 analyzes the average balances, the amount of interest earned or paid,
and the applicable rates for the various categories of earning assets and
interest-bearing funds which represent the components of net interest income.
Schedule 3 analyzes the year-to-year changes in net interest income on a fully
taxable-equivalent basis for the years shown. In the schedules, the principle
amounts of nonaccrual and renegotiated loans have been included in the average
loan balances used to determine the rate earned on loans. Interest income on
nonaccrual loans is included in income only to the extent that cash payments
have been received and not applied to principal reductions. Interest on
restructured loans is generally accrued at reduced rates.
The incremental tax rate used for calculating the taxable-equivalent adjustment
was 32% for all years presented.
23
<PAGE>
<TABLE>
<CAPTION>
Schedule 1
Operating Segments Information
ZIONS FIRST NATIONAL BAN CALIFORNIA VECTRA BANK
AND SUBSIDIARIES BANK & TRUST COLORADO
------------------------------- ------------------------------ ------------------------------
(Amounts in millions) 1998 1997 1996 1998 1997 1996 1998 1997 1996
------- ------- ------- ------- ------- ------- ------- ------- -------
<S> <C> <C> <C> <C> <C> <C> <C> <C> <C>
CONDENSED INCOME STATEMENT
Net interest income ............ $ 222.0 $ 206.0 $ 187.9 $ 117.8 $ 60.4 $ 45.2 $ 78.3 $ 41.2 $ 22.7
Noninterest income ............. 142.7 113.8 93.7 15.1 8.0 5.4 14.8 1.0 4.5
------- ------- ------- ------- ------- ------- ------- ------- -------
Total revenue .................. 364.7 319.8 281.6 132.9 68.4 50.6 93.1 42.2 27.2
Provision for loan losses ...... 23.0 -- -- (18.4) 2.9 1.8 4.6 0.8 0.9
Noninterest expense(1).......... 217.1 184.8 156.5 82.1 38.4 33.9 57.2 30.3 17.7
------- ------- ------- ------- ------- ------- ------- ------- -------
Pretax cash earnings ........... 124.6 135.0 125.1 69.2 27.1 14.9 31.3 11.1 8.6
Income tax expense (benefit) ... 36.0 45.6 41.5 27.4 10.5 3.4 10.6 3.8 3.0
Minority interest .............. -- -- -- -- -- -- -- -- --
------- ------- ------- ------- ------- ------- ------- ------- -------
Cash earnings1 ................. 88.6 89.4 83.6 41.8 16.6 11.5 20.7 7.3 5.6
Amortization of goodwill and CDI 1.7 1.1 0.5 1.9 0.8 0.7 3.1 2.0 0.2
Merger expense ................. -- -- -- 27.7 -- -- 4.6 -- --
Income tax (benefit) ........... (0.5) (0.3) -- (11.0) -- -- (1.8) -- --
------- ------- ------- ------- ------- ------- ------- ------- -------
Net income ................ $ 87.4 $ 88.6 $ 83.1 $ 23.2 $ 15.8 $ 10.8 $ 14.8 $ 5.3 $ 5.4
======= ======= ======= ======= ======= ======= ======= ======= =======
AVERAGE BALANCE SHEET DATA
Total assets ................... $ 6,512 $ 6,341 $ 4,945 $ 2,453 $ 1,058 $ 800 $ 1,632 $ 925 $ 483
Net loans and leases ........... 2,982 2,604 2,276 1,626 665 489 1,011 560 256
Sold loans being serviced(2).... 1,038 958 856 -- -- -- -- -- --
Allowance for loan losses ...... 46 49 54 40 11 9 13 7 3
Total deposits ................. 3,795 3,281 3,011 2,198 952 715 1,365 710 368
Common equity .................. 395 418 355 179 83 68 193 104 38
END OF YEAR BALANCE SHEET DATA
Total assets ................... $ 6,042 $ 5,894 $ 4,863 $ 6,013 $ 1,211 $ 940 $ 1,955 $ 1,204 $ 562
Net loans and leases ........... 3,509 2,781 2,476 4,183 727 599 1,212 717 320
Total deposits ................. 3,934 3,666 3,168 5,349 1,086 832 1,689 952 439
PERFORMANCE RATIOS
Return on average assets ....... 1.34% 1.40% 1.68% 0.94% 1.50% 1.34% 0.91% 0.57% 1.13%
Return on average common equity 22.09% 21.18% 23.39% 12.91% 19.02% 15.79% 7.65% 5.09% 14.41%
Efficiency ratio ............... 59.21% 57.20% 54.67% 83.79% 57.13% 68.44% 68.66% 76.05% 65.65%
OPERATING CASH
PERFORMANCE RATIOS(1)
Return on average assets ....... 1.36% 1.41% 1.69% 1.73% 1.59% 1.45% 1.32% 0.83% 1.19%
Return on average common equity 23.51% 22.03% 23.78% 30.06% 23.10% 20.07% 16.90% 13.04% 17.00%
Efficiency ratio ............... 58.75% 56.85% 54.50% 61.56% 55.95% 67.04% 60.54% 71.36% 64.80%
REGULATORY CAPITAL RATIOS
Tier I leverage ratio .......... 5.56% 5.66% 6.61% 5.40% 7.00% 5.77% 6.09% 7.57% 7.27%
Tier I risk-based capital ratio 9.04% 10.94% 11.36% 7.06% 9.89% 8.38% 9.17% 10.54% 10.49%
Total risk-based capital ratio . 15.15% 18.22% 19.47% 10.78% 11.14% 9.63% 10.58% 11.66% 11.57%
OTHER INFORMATION
Full-time equivalent employees . 1,992 2,538 2,091 1,870 493 446 860 518 310
Domestic offices:
Traditional branches ........ 89 89 73 71 23 20 51 28 12
Banking centers in grocery
stores .................... 42 40 26 -- -- -- 2 2 --
Foreign office ................. 1 1 1 -- -- -- -- -- --
------- ------- ------- ------- ------- ------- ------- ------- -------
Total offices ............... 132 130 100 71 23 20 53 30 12
ATMs ........................... 202 224 203 91 25 22 76 25 13
</TABLE>
1Before amortization of goodwill and core deposit intangible assets and merger
expense.
2Amount represents outstanding balance of loans sold and being serviced by the
Company, excluding long-term first mortgage residential real estate loans.
<PAGE>
<TABLE>
<CAPTION>
NATIONAL BANK NEVADA STATE BANK THE COMMERCE BANK
OF ARIZONA AND SUBSIDIARY OF WASHINGTON
--------------------------- --------------------------- ---------------------------
(Amounts in millions) 1998 1997 1996 1998 1997 1996 1998 1997 1996
------- ------- ------- ------- ------- ------- ------- ------- -------
<S> <C> <C> <C> <C> <C> <C> <C> <C> <C>
CONDENSED INCOME STATEMENT
Net interest income ............ $ 70.7 $ 61.6 $ 50.5 $ 50.4 $ 37.1 $ 25.7 $ 13.9 $ 12.6 $ 10.1
Noninterest income ............. 9.3 6.3 3.6 15.0 11.9 8.8 1.7 1.3 1.2
------- ------- ------- ------- ------- ------- ------- ------- -------
Total revenue .................. 80.0 67.9 54.1 65.4 49.0 34.5 15.6 13.9 11.3
Provision for loan losses ...... 1.8 2.4 2.3 1.6 1.6 1.2 0.1 0.3 0.3
Noninterest expense1 ........... 40.1 34.2 26.3 41.7 31.4 22.8 7.4 7.0 6.2
------- ------- ------- ------- ------- ------- ------- ------- -------
Pretax cash earnings ........... 38.1 31.3 25.5 22.1 16.0 10.5 8.1 6.6 4.8
Income tax expense (benefit) ... 14.4 12.1 9.7 7.1 5.0 3.1 2.6 2.1 1.5
Minority interest .............. -- -- -- -- -- -- -- -- --
------- ------- ------- ------- ------- ------- ------- ------- -------
Cash earnings1 ................. 23.7 19.2 15.8 15.0 11.0 7.4 5.5 4.5 3.3
Amortization of goodwill and CDI 1.9 1.6 1.1 1.5 0.4 0.1 -- -- --
Merger expense ................. -- -- -- -- -- -- 7.7 -- --
Income tax (benefit) ........... (0.4) (0.2) -- (0.2) (0.1) -- (2.3) -- --
------- ------- ------- ------- ------- ------- ------- ------- -------
Net income ................ $ 22.2 $ 17.8 $ 14.7 $ 13.7 $ 10.7 $ 7.3 $ 0.1 $ 4.5 $ 3.3
======= ======= ======= ======= ======= ======= ======= ======= =======
AVERAGE BALANCE SHEET DATA
Total assets ................... $ 1,371 $ 1,122 $ 908 $ 1,038 $ 716 $ 526 $ 306 $ 254 $ 198
Net loans and leases ........... 879 747 616 513 352 230 155 140 122
Sold loans being serviced(2).... -- -- -- -- -- -- -- -- --
Allowance for loan losses ...... 16 14 11 8 5 3 2 2 2
Total deposits ................. 1,168 989 800 863 629 466 214 191 157
Common equity .................. 112 99 93 88 46 44 23 21 19
END OF YEAR BALANCE SHEET DATA
Total assets ................... $ 1,452 $ 1,352 $ 1,024 $ 1,121 $ 988 $ 571 $ 337 $ 298 $ 238
Net loans and leases ........... 1,012 798 704 551 489 268 155 154 132
Total deposits ................. 1,226 1,192 900 929 834 500 221 236 186
PERFORMANCE RATIOS
Return on average assets ....... 1.62% 1.59% 1.62% 1.32% 1.49% 1.38% 0.02% 1.76% 1.69%
Return on average common equity 19.84% 17.98% 15.75% 15.56% 23.07% 16.41% 0.27% 20.91% 17.75%
Efficiency ratio ............... 52.05% 52.15% 49.97% 65.17% 64.01% 64.96% 95.40% 50.10% 53.82%
OPERATING CASH
PERFORMANCE RATIOS(1)
Return on average assets ....... 1.76% 1.75% 1.76% 1.48% 1.56% 1.39% 1.80% 1.76% 1.69%
Return on average common equity 28.35% 25.84% 20.05% 25.44% 28.29% 16.60% 23.67% 20.91% 17.75%
Efficiency ratio ............... 49.73% 49.86% 47.97% 62.93% 63.10% 64.67% 46.92% 50.10% 53.82%
REGULATORY CAPITAL RATIOS
Tier I leverage ratio .......... 6.44% 6.07% 8.85% 5.44% 6.39% 7.86% 6.82% 8.71% 9.20%
Tier I risk-based capital ratio 8.79% 9.04% 12.39% 8.99% 9.15% 12.58% 11.22% 12.59% 13.08%
Total risk-based capital ratio . 10.04% 10.30% 13.65% 10.22% 10.19% 13.62% 12.41% 13.84% 14.33%
OTHER INFORMATION
Full-time equivalent employees . 544 519 414 532 570 359 43 46 41
Domestic offices:
Traditional branches ........ 33 30 17 18 18 7 1 1 1
Banking centers in grocery
stores .................. -- -- -- 25 22 18 -- -- --
Foreign office ................. -- -- -- -- -- -- -- -- --
------- ------- ------- ------- ------- ------- ------- ------- -------
Total offices ............... 33 30 17 43 40 25 1 1 1
ATMs ........................... 26 21 14 56 69 70 -- -- --
</TABLE>
1Before amortization of goodwill and core deposit intangible assets and merger
expense.
2Amount represents outstanding balance of loans sold and being serviced by the
Company, excluding long-term first mortgage residential real estate loans.
25
<PAGE>
<TABLE>
<CAPTION>
CONSOLIDATED
OTHER COMPANY
------------------------- -------------------------
(Amounts in millions) 1998 1997 1996 1998 1997 1996
------- ------- ------- ------- ------- -------
<S> <C> <C> <C> <C> <C> <C>
CONDENSED INCOME STATEMENT
Net interest income ............ $ (9.3) $ (6.4) $ (4.4) $ 543.8 $ 412.5 $ 337.7
Noninterest income ............. 2.1 4.1 4.8 200.7 146.4 122.0
------- ------- ------- ------- ------- -------
Total revenue .................. (7.2) (2.3) 0.4 744.5 558.9 459.7
Provision for loan losses ...... (0.5) (0.2) -- 12.2 7.8 6.5
Noninterest expense(1).......... 14.8 9.1 6.4 460.4 335.2 269.8
------- ------- ------- ------- ------- -------
Pretax cash earnings ........... (21.5) (11.2) (6.0) 271.9 215.9 183.4
Income tax expense (benefit) ... (11.2) (5.7) (2.4) 86.9 73.4 59.8
Minority interest .............. 0.5 -- -- 0.5 -- --
------- ------- ------- ------- ------- -------
Cash earnings1 ................. (10.8) (5.5) (3.6) 184.5 142.5 123.6
Amortization of goodwill and CDI 0.6 0.8 0.7 10.7 6.7 3.3
Merger expense ................. 3.0 2.7 -- 43.0 2.7 --
Income tax (benefit) ........... 0.2 (0.6) (0.1) (16.0) (1.2) (0.1)
------- ------- ------- ------- ------- -------
Net income ................ $ (14.6) $ (8.4) $ (4.2) $ 146.8 $ 134.3 $ 120.4
======= ======= ======= ======= ======= =======
AVERAGE BALANCE SHEET DATA
Total assets ................... $ (109) $ 4 $ 2 $13,203 $10,420 $ 7,862
Net loans and leases ........... 8 4 4 7,174 5,072 3,993
Sold loans being serviced(2) ... -- -- -- 1,038 958 856
Allowance for loan losses ...... 1 1 1 126 89 83
Total deposits ................. (96) (11) (19) 9,507 6,741 5,498
Common equity .................. (94) (67) (29) 896 704 588
END OF YEAR BALANCE SHEET DATA
Total assets ................... $ (271) $ (78) $ 26 $16,649 $10,869 $ 8,224
Net loans and leases ........... 11 3 4 10,633 5,669 4,503
Total deposits ................. (27) (10) (16) 13,321 7,956 6,009
PERFORMANCE RATIOS
Return on average assets ....... 1.11% 1.29% 1.53%
Return on average common equity 16.38% 19.08% 20.47%
Efficiency ratio ............... 68.23% 60.85% 58.47%
OPERATING CASH
PERFORMANCE RATIOS(1)
Return on average assets ....... 1.42% 1.38% 1.58%
Return on average common equity 26.46% 24.23% 22.84%
Efficiency ratio ............... 61.10% 59.20% 57.75%
REGULATORY CAPITAL RATIOS
Tier I leverage ratio .......... 5.98% 6.83% 9.05%
Tier I risk-based capital ratio 8.46% 11.55% 14.43%
Total risk-based capital ratio . 11.48% 13.42% 16.65%
OTHER INFORMATION
Full-time equivalent employees . 952 211 213 6,793 4,895 3,874
Domestic offices:
Traditional branches ........ -- -- -- 263 189 130
Banking centers in
grocery stores ........... -- -- -- 69 64 44
Foreign office ................. -- -- -- 1 1 1
------- ------- ------- ------- ------- -------
Total offices ............... -- -- -- 333 254 175
ATMs ........................... 12 145 40 463 509 362
</TABLE>
1Before amortization of goodwill and core deposit intangible assets and merger
expense.
2Amount represents outstanding balance of loans sold and being serviced by the
Company, excluding long-term first mortgage residential real estate loans.
25 - continued
<PAGE>
Schedule 2
Distribution Of Assets, Liabilities, And Shareholders' Equity
Average Balance Sheets, Yields And Rates
<TABLE>
<CAPTION>
1998 1997
---------------------------------- ----------------------------------
Amount Amount
Average of Average Average of Average
(Amounts in millions) Balance Interest(1) Rate Balance Interest(1) Rate
---------- ---------- ---------- ---------- ---------- ----------
<S> <C> <C> <C> <C> <C> <C>
ASSETS:
Money market investments ........................ $ 1,556 $ 88.5 5.69% $ 1,506 $ 85.4 5.67%
Securities:
Held to maturity ....................... 2,232 153.6 6.88% 1,885 132.3 7.02%
Available for sale ..................... 634 35.3 5.57% 762 51.1 6.71%
Trading account ........................ 429 24.0 5.59% 276 16.2 5.88%
---------- ---------- ---------- ----------
Total securities .............. 3,295 212.9 6.46% 2,923 199.6 6.83%
---------- ---------- ---------- ----------
Loans:
Loans held for sale .................... 202 14.3 7.07% 163 11.9 7.27%
Net loans and leases(2)................. 6,972 669.3 9.60% 4,909 490.0 9.98%
---------- ---------- ---------- ----------
Total loans ................... 7,174 683.6 9.53% 5,072 501.9 9.89%
---------- ---------- ---------- ----------
Total interest-earning assets ................... $ 12,025 $ 985.0 8.19% $ 9,501 $ 786.9 8.28%
---------- ----------
Cash and due from banks ......................... 615 517
Allowance for loan losses ....................... (126) (89)
Goodwill and core deposit intangibles ........... 199 116
Other assets .................................... 490 375
---------- ----------
Total assets .................. $ 13,203 $ 10,420
========== ==========
LIABILITIES:
Interest-bearing deposits:
Savings and NOW deposits ............... $ 1,160 $ 33.2 2.86% $ 940 $ 28.2 3.00%
Money market and super NOW deposits .... 3,475 123.9 3.57% 2,609 96.4 3.70%
Time deposits under $100,000 ........... 1,587 82.3 5.19% 1,017 53.1 5.22%
Time deposits $100,000 or more ......... 833 46.1 5.53% 418 23.9 5.70%
Foreign deposits ....................... 182 8.2 4.52% 142 6.4 4.49%
---------- ---------- ---------- ----------
Total interest-bearing deposits 7,237 293.7 4.06% 5,126 208.0 4.06%
---------- ---------- ---------- ----------
Borrowed funds:
Securities sold, not yet purchased ..... 202 10.0 4.97% 92 5.4 5.82%
Federal funds purchased and security
repurchase agreements ......... 1,844 87.3 4.74% 2,223 115.1 5.18%
Commercial paper ....................... 28 1.6 5.77% -- --
FHLB advances and other borrowings:
Less than one year ............ 63 4.0 6.28% 84 5.7 6.72%
Over one year ................. 114 6.6 5.79% 136 8.2 6.02%
Long-term debt ......................... 347 29.1 8.37% 274 24.6 8.98%
---------- ---------- ---------- ----------
Total borrowed funds .......... 2,598 138.6 5.33% 2,809 159.0 5.66%
---------- ---------- ---------- ----------
Total interest-bearing liabilities .............. $ 9,835 $ 432.3 4.40% $ 7,935 $ 367.0 4.63%
---------- ----------
Noninterest-bearing deposits .................... 2,269 1,616
Other liabilities ............................... 194 165
---------- ----------
Total liabilities ............................... 12,298 9,716
Minority interest ............................... 9 --
Total shareholders' equity ...................... 896 704
---------- ----------
Total liabilities and shareholders' equity ...... $ 13,203 $ 10,420
========== ==========
Spread on average interest-bearing funds ........ 3.80% 3.66%
==== ====
Net interest income and net yield on
Interest-earning assets ................ $ 552.7 4.60% $ 419.9 4.42%
========== ==== ========== ====
</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.
26
<PAGE>
<TABLE>
<CAPTION>
1996 1995
-------------------------------------- --------------------------------------
Amount Amount
Average of Average Average of Average
(Amounts in millions) Balance Interest(1) Rate Balance Interest(1) Rate
---------- ---------- ---------- ---------- ---------- ----------
<S> <C> <C> <C> <C> <C> <C>
Money market investments ........................ $ 943 $ 52.7 5.59% $ 961 $ 57.0 5.93%
Securities:
Held to maturity ....................... 1,396 99.1 7.10% 1,183 85.8 7.25%
Available for sale ..................... 707 45.7 6.47% 624 41.3 6.62%
Trading account ........................ 157 9.2 5.87% 147 9.3 6.30%
---------- ---------- ---------- ----------
Total securities .............. 2,260 154.0 6.82% 1,954 136.4 6.98%
---------- ---------- ---------- ----------
Loans:
Loans held for sale .................... 151 11.6 7.62% 116 9.3 7.99%
Net loans and leases(2)................. 3,842 383.8 9.99% 2,975 307.2 10.33%
---------- ---------- ---------- ----------
Total loans ................... 3,993 395.4 9.90% 3,091 316.5 10.24%
---------- ---------- ---------- ----------
Total interest-earning assets ................... $ 7,196 $ 602.1 8.37% $ 6,006 $ 509.9 8.49%
---------- ----------
Cash and due from banks ......................... 409 368
Allowance for loan losses ....................... (83) (76)
Goodwill and core deposit intangibles ........... 47 25
Other assets .................................... 293 257
---------- ----------
Total assets .................. $ 7,862 $ 6,580
========== ==========
LIABILITIES:
Interest-bearing deposits:
Savings and NOW deposits ............... $ 828 $ 26.0 3.14% $ 873 $ 26.6 3.04%
Money market and super NOW deposits .... 2,168 78.2 3.61% 1,640 66.4 4.05%
Time deposits under $100,000 ........... 828 43.3 5.23% 705 36.8 5.22%
Time deposits $100,000 or more ......... 284 16.0 5.60% 187 10.9 5.82%
Foreign deposits ....................... 121 5.4 4.46% 139 7.2 5.16%
---------- ---------- ---------- ----------
Total interest-bearing deposits 4,229 168.9 3.99% 3,544 147.9 4.17%
---------- ---------- ---------- ----------
Borrowed funds:
Securities sold, not yet purchased ..... 77 4.5 5.85% 90 5.6 6.23%
Federal funds purchased and security
repurchase agreements ......... 1,365 68.4 5.02% 1,067 58.3 5.47%
Commercial paper ....................... -- -- -- --
FHLB advances and other borrowings:
Less than one year ............ 66 4.3 6.47% 131 8.8 6.70%
Over one year ................. 88 5.3 6.04% 97 5.8 5.96%
Long-term debt ......................... 63 5.6 8.78% 62 5.5 8.86%
---------- ---------- ---------- ----------
Total borrowed funds .......... 1,659 88.1 5.31% 1,447 84.0 5.80%
---------- ---------- ---------- ----------
Total interest-bearing liabilities .............. $ 5,888 $ 257.0 4.37% $ 4,991 $ 231.9 4.65%
---------- ----------
Noninterest-bearing deposits .................... 1,269 1,013
Other liabilities ............................... 117 111
---------- ----------
Total liabilities ............................... 7,274 6,115
Minority interest ............................... -- --
Total shareholders' equity ...................... 588 465
---------- ----------
Total liabilities and shareholders' equity ...... $ 7,862 $ 6,580
========== ==========
Spread on average interest-bearing funds ........ 4.00% 3.84%
==== ====
Net interest income and net yield on
Interest-earning assets ................ $ 345.1 4.80% $ 278.0 4.63%
========== ==== ========== ====
</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.
27
<PAGE>
<TABLE>
<CAPTION>
1994
--------------------------------------
Amount
Average of Average
(Amounts in millions) Balance Interest(1) Rate
---------- ---------- ----------
<S> <C> <C> <C>
Money market investments ........................ $ 883 $ 35.6 4.03%
Securities:
Held to maturity ....................... 963 60.4 6.27%
Available for sale ..................... 560 32.1 5.74%
Trading account ........................ 291 16.5 5.68%
---------- ----------
Total securities .............. 1,814 109.0 6.01%
---------- ----------
Loans:
Loans held for sale .................... 188 12.3 6.56%
Net loans and leases(2)................. 2,751 253.1 9.20%
---------- ----------
Total loans ................... 2,939 265.4 9.03%
---------- ----------
Total interest-earning assets ................... $ 5,636 $ 410.0 7.28%
----------
Cash and due from banks ......................... 370
Allowance for loan losses ....................... (75)
Goodwill and core deposit intangibles ........... 19
Other assets .................................... 216
----------
Total assets .................. $ 6,166
==========
LIABILITIES:
Interest-bearing deposits:
Savings and NOW deposits ............... $ 875 $ 25.4 2.90%
Money market and super NOW deposits .... 1,460 44.6 3.05%
Time deposits under $100,000 ........... 566 22.1 3.91%
Time deposits $100,000 or more ......... 133 5.3 3.95%
Foreign deposits ....................... 108 4.4 4.10%
---------- ----------
Total interest-bearing deposits 3,142 101.8 3.24%
---------- ----------
Borrowed funds:
Securities sold, not yet purchased ..... 184 11.0 5.95%
Federal funds purchased and security
repurchase agreements ......... 1,081 42.2 3.91%
Commercial paper ....................... -- --
FHLB advances and other borrowings:
Less than one year ............ 134 6.9 5.20%
Over one year ................. 119 5.5 4.60%
Long-term debt ......................... 64 5.1 8.00%
---------- ----------
Total borrowed funds .......... 1,582 70.7 4.47%
---------- ----------
Total interest-bearing liabilities .............. $ 4,724 $ 172.5 3.65%
----------
Noninterest-bearing deposits .................... 972
Other liabilities ............................... 86
----------
Total liabilities ............................... 5,782
Minority interest ............................... --
Total shareholders' equity ...................... 384
----------
Total liabilities and shareholders' equity ...... $ 6,166
==========
Spread on average interest-bearing funds ........ 3.62%
====
Net interest income and net yield on
Interest-earning assets ................ $ 237.5 4.21%
========== ====
</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.
27 - continued
<PAGE>
Schedule 3
Analysis Of Interest Changes Due To Volume And Rate
<TABLE>
<CAPTION>
1998 over 1997 1997 over 1996
Changes due to Changes due to
---------------- Total ---------------- Total
(Amounts in Millions) Volume Rate(1) changes Volume Rate(1) Changes
------- ------- ------- ------- ------- -------
<S> <C> <C> <C> <C> <C> <C>
Interest-earning assets:
Money market investments .................. $ 2.8 $ 0.3 $ 3.1 $ 31.9 $ 0.8 $ 32.7
Securities:
Held to maturity ...................... 23.9 (2.6) 21.3 34.5 (1.3) 33.2
Available for sale .................... (7.1) (8.7) (15.8) 3.6 1.8 5.4
Trading account ....................... 8.6 (0.8) 7.8 7.0 -- 7.0
------- ------- ------- ------- ------- -------
Total securities .................... 25.4 (12.1) 13.3 45.1 0.5 45.6
------- ------- ------- ------- ------- -------
Loans:
Loans held for sale ................... 2.7 (0.3) 2.4 0.9 (0.6) 0.3
Net loans and leases(2)................ 198.0 (18.7) 179.3 106.5 (0.3) 106.2
------- ------- ------- ------- ------- -------
Total loans ......................... 200.7 (19.0) 181.7 107.4 (0.9) 106.5
------- ------- ------- ------- ------- -------
Total interest-earning assets ............. $ 228.9 $ (30.8) $ 198.1 $ 184.4 $ 0.4 $ 184.8
------- ------- ------- ------- ------- -------
Interest-bearing liabilities:
Interest-bearing deposits:
Savings and NOW deposits .............. $ 6.3 $ (1.3) $ 5.0 $ 3.4 $ (1.2) $ 2.2
Money market and super NOW deposits ... 30.9 (3.4) 27.5 16.3 1.9 18.2
Time deposits under $100,000 .......... 29.5 (0.3) 29.2 9.9 (0.1) 9.8
Time deposits $100,000 or more ........ 22.9 (0.7) 22.2 7.6 0.3 7.9
Foreign deposits ...................... 1.8 -- 1.8 1.0 -- 1.0
------- ------- ------- ------- ------- -------
Total interest-bearing deposits ..... 91.4 (5.7) 85.7 38.2 0.9 39.1
------- ------- ------- ------- ------- -------
Borrowed funds:
Securities sold, not yet purchased .... 5.4 (0.8) 4.6 0.9 -- 0.9
Federal funds purchased and
security repurchase agreements ...... (18.0) (9.8) (27.8) 44.4 2.3 46.7
Commercial paper ...................... 0.8 0.8 1.6 -- -- --
FHLB advances and other borrowings:
Less than one year .................. (1.3) (0.4) (1.7) 1.2 0.2 1.4
Over one year ....................... (1.3) (0.3) (1.6) 2.9 -- 2.9
Long-term debt ........................ 6.1 (1.6) 4.5 18.9 0.1 19.0
------- ------- ------- ------- ------- -------
Total borrowed funds ................ (8.3) (12.1) (20.4) 68.3 2.6 70.9
------- ------- ------- ------- ------- -------
Total interest-bearing liabilities ........ $ 83.1 $ (17.8) $ 65.3 $ 106.5 $ 3.5 $ 110.0
------- ------- ------- ------- ------- -------
Change in net interest income ............. $ 145.8 $ (13.0) $ 132.8 $ 77.9 $ (3.1) $ 74.8
======= ======= ======= ======= ======= =======
</TABLE>
1 Taxable-equivalent income used where applicable.
2 Net of unearned income and fees. Loans include nonaccrual and restructured
loans.
In the analysis of interest changes due to volume and rate, the changes due to
the volume/rate variance have been allocated to volume with the following
exceptions: when volume and rate have both increased, the variance has been
allocated proportionately to both volume and rate; when the rate has increased
and volume has decreased, the variance has been allocated to rate.
<PAGE>
PROVISION FOR LOAN LOSSES
The provision for loan losses reflects management's judgment of the expense to
be recognized in order to maintain an adequate allowance for loan losses. See
the discussion on allowance for loan losses under Risk Elements. The provision
for loan losses was $12.2 million in 1998 compared to $7.8 million in 1997 and
$6.5 million in 1996. The provision was .17% of average loans for 1998, .15% in
1997 and .16% for 1996.
NONINTEREST INCOME
Noninterest income comprised 26.6% of net revenue in 1998 compared to 25.8% in
1997 and 26.1% in 1996. Noninterest income was $200.7 million in 1998, an
increase of 37.1% over $146.4 million in 1997, which was up 20.0% over $122.0
million in 1996. Noninterest income for 1998 includes $5.3 million from Sumitomo
since the acquisition date. Without Sumitomo, noninterest income increased 33.5%
from 1997. Schedule 4 shows the major components of noninterest income.
Schedule 4
Noninterest Income
<TABLE>
<CAPTION>
Percent Percent Percent Percent
(Amounts in millions) 1998 Change 1997 Change 1996 Change 1995 Change 1994
-------- ---- -------- ---- -------- ---- ------- ---- -------
<S> <C> <C> <C> <C> <C> <C> <C> <C> <C>
Service charges on deposit accounts $ 58.2 20.0% $ 48.5 22.8% $ 39.5 20.4% $ 32.8 18.4% $ 27.7
Other service charges,
Commissions and fees ......... 54.7 35.1 40.5 32.4 30.6 18.6 25.8 12.2 23.0
Trust income ...................... 9.4 38.2 6.8 30.8 5.2 20.9 4.3 -- 4.3
Investment securities
Gains (losses), net .......... 2.1 141.2 (5.1) (1,175.0) (0.4) (300.0) (0.1) 75.0 (0.4)
Underwriting and trading
Income (loss) ................ 9.2 61.4 5.7 111.1 2.7 325.0 (1.2) (233.3) 0.9
Loan sales and servicing income ... 50.4 24.8 40.4 10.4 36.6 44.7 25.3 66.4 15.2
Other income ...................... 16.7 74.0 9.6 23.1 7.8 (12.4) 8.9 7.2 8.3
-------- -------- -------- ------- -------
Total ............................. $ 200.7 37.1% $ 146.4 20.0% $ 122.0 27.3% $ 95.8 21.3% $ 79.0
======== ======== ======== ======= =======
</TABLE>
The 20.0% and 22.8% increases in deposit service charges for 1998 and 1997
reflect the continued increase of the Company's deposit base through
acquisitions and internal growth, as well as price adjustments. Other service
charges, commissions and fees, which include investment brokerage and fiscal
agent fees, electronic delivery system fees, insurance commissions, merchant fee
income and other miscellaneous fees were $54.7 million in 1998, an increase of
35.1% over 1997 which was 32.4% above 1996. Loan sales and servicing income rose
24.8% in 1998 to $50.4 million over $40.4 million in 1997 which was 10.4% above
1996. Underwriting and trading income increased 61.4% to $9.2 million in 1998
from $5.7 million in 1997. During 1998, the Company commenced the providing of
online executable government bond sales over Bloomberg and the Internet and the
underwriting of municipal revenue bonds.
Trust income increased to $9.4 million in 1998, up 38.2% from 1997, which was up
30.8% from 1996. Managed trust funds, including $649 million managed by
California Bank & Trust, increased 58.2% to $2,876 million at year-end 1998
compared to $1,818 million at year-end 1997. Other income, which includes
certain fees, income from unconsolidated subsidiaries and associated companies;
net gains on sales of fixed assets, mortgage servicing and other assets, and
other items was $16.7 million in 1998 an increase of 74.0% from 1997. The
increase for 1998 was mainly due to increased income from the Company's
investments in MACC Private Equities, Inc. and Federal Agricultural Mortgage
Corporation accounted for under the equity method, income from bank-owned life
insurance policies and increased gains from the sale of mortgage servicing.
29
<PAGE>
NONINTEREST EXPENSE
The Company's noninterest expense was $514.1 million in 1998, an increase of
49.2% over $344.6 million in 1997, which was up 26.2% over the $273.1 million in
1996. Included in 1998 expense was $43.0 million in merger expenses related to
the Company's acquisitions during 1998. Also included for 1998 was an additional
$35.9 million of other Sumitomo expense since the acquisition date. Without the
merger and Sumitomo expense, noninterest expense for 1998 increased 26.3% over
1997. Schedule 5 shows the major components of noninterest expense.
Schedule 5
Noninterest Expense
<TABLE>
<CAPTION>
Percent Percent Percent Percent
(Amounts in millions) 1998 Change 1997 Change 1996 Change 1995 Change 1994
------- ------- ------- ------- ------- ------- ------- ------- -------
<S> <C> <C> <C> <C> <C> <C> <C> <C> <C>
Salaries and benefits ............ $ 249.6 35.1% $ 184.7 22.7% $ 150.5 21.8% $ 123.6 13.6% $ 108.8
Occupancy, net ................... 30.1 59.3 18.9 21.9 15.5 5.4 14.7 9.7 13.4
Furniture and equipment .......... 36.2 28.8 28.1 34.4 20.9 44.1 14.5 19.8 12.1
Other real estate expense ........ 0.7 75.0 0.4 100.0 0.2 (75.0) 0.8 14.3 0.7
Legal and professional services .. 15.3 71.9 8.9 39.1 6.4 6.7 6.0 (4.8) 6.3
Supplies ......................... 11.3 22.8 9.2 22.7 7.5 31.6 5.7 11.8 5.1
Postage .......................... 10.3 37.3 7.5 19.0 6.3 3.3 6.1 10.9 5.5
Advertising ...................... 11.9 56.6 7.6 26.7 6.0 11.1 5.4 50.0 3.6
FDIC premiums .................... 1.4 75.0 0.8 700.0 0.1 (98.0) 4.9 (43.7) 8.7
Merger expense ................... 43.0 1,492.6 2.7 -- -- -- -- -- --
Amortization of goodwill/
and core deposit intangibles .. 10.7 59.7 6.7 103.0 3.3 22.2 2.7 3.8 2.6
Amortization of mortgage
servicing assets ............ 5.5 161.9 2.1 61.5 1.3 8.3 1.2 (29.4) 1.7
Other expenses ................... 88.1 31.5 67.0 21.6 55.1 24.9 44.1 18.5 37.2
------- ------- ------- ------- -------
Total ............................ $ 514.1 49.2% $ 344.6 26.2% $ 273.1 18.9% $ 229.7 11.7% $205.70
======= ======= ======= ======= =======
</TABLE>
In 1998 and 1997, salaries and employee benefits increased primarily as a result
of increased staffing from acquisitions and the opening of new offices, as well
as general salary increases and bonuses which are based on increased
profitability. The occupancy, furniture and equipment expense increase resulted
primarily from the addition of office facilities, installation of personal
computers and local area networks and expenses related to technology
initiatives. The increase in all other expenses resulted primarily from
increases related to acquisitions and expansion and increased expenditures in
selected areas to enhance revenue growth.
On December 31, 1998, the Company had 6,793 full-time equivalent employees and
333 offices for increases of 38.8% and 31.1%, respectively, compared to year-end
1997. On December 31, 1997, the Company had 4,895 full-time equivalent employees
and 254 offices for increases of 26.4% and 45.1%, respectively, compared to
year-end 1996.
The Company's operating cash "efficiency ratio," or noninterest expenses,
excluding amortization of goodwill and core deposit intangibles and merger
expenses, as a percentage of total taxable-equivalent net revenues, increased to
61.10% in 1998 compared to 59.20% in 1997 and 57.75% in 1996.
INCOME TAXES
The Company's income tax expense for 1998 was $70.9 million compared to $72.2
million in 1997 and $59.7 million in 1996. The Company's effective income tax
rate was 32.5% in 1998, 35.0% in 1997 and 33.1% in 1996. The decrease in the
effective tax rate for 1998 results primarily from decisions regarding a
corporate reorganization over the past year.
30
<PAGE>
Balance Sheet Analysis
EARNING ASSETS
Earning assets consist of money market investments, securities and loans. A
comparative average balance sheet report, including earning assets, is presented
in Schedule 2.
Average earning assets increased 26.6% to $12,025 million in 1998 compared to
$9,501 million in 1997. Earning assets comprised 91.1% of total average assets
in 1998 compared with 91.2% in 1997.
Average money market investments, consisting of interest-bearing deposits,
federal funds sold and security resell agreements increased 3.3% to $1,556
million in 1998 compared to $1,506 million in 1997.
Average securities increased 12.8% to $3,295 million in 1998, compared to $2,923
million in 1997. Average held to maturity securities increased 18.4% to $2,232
million, available for sale securities decreased 16.7% to $634 million and
trading account securities increased 55.9% to $429 million.
Average net loans and leases increased 41.4% to $7,174 million in 1998 compared
to $5,072 million in 1997, representing 59.7% of earning assets in 1998 compared
to 53.4% in 1997. Average net loans and leases were 75.5% of average total
deposits in 1998, as compared to 75.2% in 1997.
Schedule 6
Investment Securities Portfolio
<TABLE>
<CAPTION>
December 31,
----------------------------------------------------------------
1998 1997 1996
-------------------- -------------------- --------------------
Amortized Market Amortized Market Amortized Market
(Amounts in millions) Cost Value Cost Value Cost Value
--------- --------- --------- --------- --------- ---------
<S> <C> <C> <C> <C> <C> <C>
HELD TO MATURITY:
U.S. Treasury securities ............ $ 62 $ 62 $ 4 $ 4 $ 33 $ 33
U.S. government agencies
and corporations:
Small Business
Administration loan-
backed securities ...... 358 356 441 449 488 492
Other agency securities .... 940 944 1,426 1,432 643 642
States and political subdivisions ... 285 293 240 245 269 274
Mortgage-backed securities .......... 1,159 1,166 89 90 76 77
--------- --------- --------- --------- --------- ---------
2,804 2,821 2,200 2,220 1,509 1,518
--------- --------- --------- --------- --------- ---------
AVAILABLE FOR SALE:
U.S. Treasury securities ............ 46 47 37 38 30 30
U.S. government agencies
and corporations:
Small Business
Administration originator
fees certificates ...... 85 69 75 72 50 46
Other agency securities .... 112 113 347 347 173 172
States and political subdivisions ... 15 16 31 32 42 44
Mortgage- and other asset-backed
securities ................. 179 180 83 84 262 256
--------- --------- --------- --------- --------- ---------
437 425 573 573 557 548
--------- --------- --------- --------- --------- ---------
Equity securities:
Mutual funds:
Accessor Funds, Inc. ............ 117 118 109 111 109 109
Stock:
Federal Home Loan Bank .......... 101 101 98 98 85 85
Other ........................... 36 41 24 25 18 18
--------- --------- --------- --------- --------- ---------
254 260 231 234 212 212
--------- --------- --------- --------- --------- ---------
691 685 804 807 769 760
--------- --------- --------- --------- --------- ---------
Total ............................ $ 3,495 $ 3,506 $ 3,004 $ 3,027 $ 2,278 $ 2,278
========= ========= ========= ========= ========= =========
</TABLE>
31
<PAGE>
INVESTMENT SECURITIES PORTFOLIO
Schedule 6 presents the Company's year-end investment securities on December 31,
1998, 1997 and 1996. Schedules 7 presents the Company's maturities and average
yields on securities on December 31, 1998. See Note 3 of Notes to Consolidated
Financial Statements for additional information about securities.
Schedule 7
Maturities And Average Yields On Securities
On December 31, 1998
<TABLE>
<CAPTION>
After one After five
but within but within
Total Securities Within one year five years ten years After ten years
--------------- --------------- --------------- --------------- ---------------
(Amounts in Millions) Amount Yield* Amount Yield* Amount Yield* Amount Yield* Amount Yield*
------ ------ ------ ------ ------ ------ ------ ------ ------ ------
<S> <C> <C> <C> <C> <C> <C> <C> <C> <C> <C>
HELD TO MATURITY:
U.S. Treasury securities ..... $ 62 6.0% $ 61 6.0% $ 1 6.3% $ -- $ --
U. S. government agencies
And corporations:
Small Business
Administration
loan-backed
securities .......... 358 6.5% 75 6.5% 157 6.4% 83 6.5% 43 6.6%
Other agency securities... 940 6.3% 41 5.8% 337 6.5% 530 6.2% 32 7.7%
States and political
Subdivisions ............... 285 7.8% 41 7.4% 129 7.8% 64 7.9% 51 7.6%
Mortgage-backed securities.... 1,159 6.4% 393 6.4% 606 6.4% 135 6.4% 25 6.4%
------ ------ ------ ------ ------
2,804 6.5% 611 6.4% 1,230 6.6% 812 6.4% 151 7.1%
------ ------ ------ ------ ------
AVAILABLE FOR SALE:
U.S. Treasury securities ..... 46 6.1% 29 6.0% 17 6.2% -- --
U. S. government agencies
And corporations:
Small Business
Administration
originator fees
certificates** ..... 85 3.6% 13 3.6% 37 3.6% 22 3.6% 13 3.6%
Other agency ............. 112 6.1% 11 5.8% 92 6.1% 8 6.3% 1 5.3%
securities
States and political
Subdivisions ............... 15 7.2% 2 5.8% 7 7.6% 6 7.1% --
Mortgage- and other asset-
backed securities .......... 179 6.0% 39 5.7% 79 6.0% 28 6.0% 33 6.3%
------ ------ ------ ------ ------
437 6.7% 94 6.3% 232 6.6% 64 7.3% 47 7.1%
------ ------ ------ ------ ------
Equity securities:
Mutual funds:
Accessor Funds, Inc. ..... 117 4.7% -- -- -- 117 4.7%
Stock:
Federal Home Loan Bank ..... 101 7.5% -- -- -- 101 7.5%
Other ...................... 36 9.5% -- -- -- 36 9.5%
------ ------ ------ ------ ------
254 6.5% -- -- -- 254 6.5%
------ ------ ------ ------ ------
691 6.6% 94 6.3% 232 6.6% 64 7.3% 301 6.6%
------ ------ ------ ------ ------
Total ........................ $3,495 6.5% $ 705 6.4% $1,462 6.6% $ 876 6.4% $ 452 6.8%
====== ====== ====== ====== ======
</TABLE>
* Taxable-equivalent rates used where applicable.
** Rates determined using a 16% constant prepayment rate.
32
<PAGE>
LOAN PORTFOLIO
During 1998, the Company consummated securitized loan sales of automobile loans,
credit card receivables, home equity credit lines, Small Business Administration
and Federal Agricultural Mortgage Corporation ("Farmer Mac") loans totaling $895
million. The Company also sold $1,238 million of long-term residential mortgage
loans, SBA loans, Farmer Mac loans and student loans classified as held for
sale. After these sales, loans and leases on December 31, 1998 totaled $10,682
million, an increase of 87.0% compared to $5,713 million on December 31, 1997.
Included in this increase are loans from acquisitions totaling $3,917 million.
Excluding the acquired loans the increase for 1998 compared to 1997 was 18.4%.
Schedule 8 sets forth the amount of loans outstanding by type on December 31 for
the years indicated and the maturity distribution and sensitivity to changes in
interest rates of the portfolio on December 31, 1998.
Schedule 8
Loan Portfolio By Type
<TABLE>
<CAPTION>
December 31, 1998
----------------------------------
One Year
Through Over December 31,
One year five Five ----------------------------------
(Amounts in millions) or Less Years Years Total 1997 1996 1995 1994
------- ------- ------- ------- ------- ------- ------- -------
<S> <C> <C> <C> <C> <C> <C> <C> <C>
Loans held for sale ..................... $ 232 $ -- $ - $ 232 $ 179 $ 151 $ 126 $ 109
Commercial, financial and agricultural .. 1,609 756 327 2,692 1,445 1,087 923 614
Real estate:
Construction ....................... 667 191 9 867 567 385 315 247
Other:
Home equity credit line ......... 78 42 102 222 179 231 152 56
1-4 family residential .......... 233 306 1,648 2,187 818 689 520 573
Other real estate-secured ....... 550 1,061 2,013 3,624 1,726 1,410 973 631
------- ------- ------- ------- ------- ------- ------- -------
1,528 1,600 3,772 6,900 3,290 2,715 1,960 1,507
------- ------- ------- ------- ------- ------- ------- -------
Consumer:
Bankcard ........................... 34 52 1 87 67 48 65 44
Other .............................. 144 252 56 452 458 341 326 381
------- ------- ------- ------- ------- ------- ------- -------
178 304 57 539 525 389 391 425
------- ------- ------- ------- ------- ------- ------- -------
Lease financing ......................... 9 153 51 213 176 160 133 129
Foreign loans ........................... 21 7 16 44 -- -- -- --
Other receivables ....................... 36 21 5 62 98 45 35 33
------- ------- ------- ------- ------- ------- ------- -------
Total loans ..................... $ 3,613 $ 2,841 $ 4,228 $10,682 $ 5,713 $ 4,547 $ 3,568 $ 2,817
======= ======= ======= ======= ======= ======= ======= =======
Loans maturing in more than one year:
With fixed interest rates .......... $ 1,490 $ 2,467 $ 3,957
With variable interest rates ....... 1,351 1,761 3,112
------- ------- -------
Total ........................... $ 2,841 $ 4,228 $ 7,069
======= ======= =======
</TABLE>
33
<PAGE>
SOLD LOANS BEING SERVICED
On December 31, 1998, long-term first mortgage real estate loans serviced for
others amounted to $1,995 million compared to $1,897 million on December 31,
1997, and $1,542 million on December 31, 1996.
Consumer and other loan securitizations serviced, which relate primarily to
loans sold under revolving securitization structures, totaled $1,057 million on
December 31, 1998, $1,050 million on December 31, 1997, and $868 million on
December 31, 1996.
The Company's activity in its sold loans being serviced portfolio (excluding
long-term first mortgage real estate loans) is summarized as follows:
Schedule 9
Sold Loans Being Serviced
<TABLE>
<CAPTION>
1998 1997 1996
------------------------ ------------------------ ------------------------
Outstanding Outstanding Outstanding
(Amounts in millions) Sales at year end Sales at year end Sales at year end
----------- ----------- ----------- ----------- ----------- -----------
<S> <C> <C> <C> <C> <C> <C>
Auto loans ................ $ 198 $ 345 $ 201 $ 389 $ 284 $ 434
Home equity credit lines .. 261 261 342 327 180 220
Bankcard receivables ...... 283 134 232 79 238 85
Home refinance loans ...... -- 23 -- 45 -- 68
SBA 504 loans ............. 4 100 115 131 -- 31
SBA 7(a) loans ............ 39 90 38 56 41 30
Farmer Mac ................ 110 104 23 23 -- --
----------- ----------- ----------- ----------- ----------- -----------
Total ................ $ 895 $ 1,057 $ 951 $ 1,050 $ 743 $ 868
=========== =========== =========== =========== =========== ===========
</TABLE>
DEPOSITS AND BORROWED FUNDS
As derived from Schedule 2, total average deposits increased 41.0% to $9,506
million in 1998 from $6,742 million in 1997. Average noninterest-bearing
deposits increased 40.5%, average savings and NOW deposits increased 23.5%,
average money market and super NOW deposits increased 33.2%, and average time
deposits under $100,000 increased 56.1%. Average time deposits over $100,000
increased 99.3% over 1997 average balances and average foreign deposits
increased 28.5% for 1998, as compared with 1997.
Total deposits increased 67.4% to $13,321 million on December 31, 1998 as
compared to $7,956 million on December 31, 1997. Included in this increase are
deposits from acquisitions totaling $4,666 million. Without the acquired
deposits the increase was 8.8%. Comparing December 31, 1998 to December 31,
1997, demand deposits increased 52.1%, savings and money market deposits
increased 52.8%, time deposits under $100,000 increased 101.0%, while time
deposits over $100,000 increased 179.6% and foreign deposits increased 11.6%.
See Notes 9, 10 and 11 of Notes to Consolidated Financial Statements and the
discussion under Liquidity Risk Management for information on borrowed funds.
CAPITAL
The Company's basic financial objective is to consistently produce superior
risk-adjusted returns on its shareholders' capital. The Company believes that a
strong capital position is vital to continued profitability and to promote
depositor and investor confidence. The Company's goal is to steadily achieve a
high return on shareholders' equity, while at the same time maintaining
"risk-based capital" of not less than the "well-capitalized" threshold, as
defined by federal banking regulators.
Total shareholders' equity on December 31, 1998 was $1,014 million, an increase
of 36.6% over the $742 million on December 31, 1997. The ratio of average equity
to average assets for the year 1998 was 6.79%, compared to 6.76% for 1997.
34
<PAGE>
During 1998, 1997 and 1996, the Company repurchased and retired 625,288,
3,809,724 and 1,306,042 shares of its common stock at a cost of $26.7 million,
$134.6 million and $25.1 million, respectively.
On December 31, 1998, the Company's Tier 1 leverage ratio was 5.98%, as compared
to 6.83% on December 31, 1997. On December 31, 1998, the Company's Tier 1
risk-based capital ratio was 8.46%, as compared to 11.55% on December 31, 1997.
On December 31, 1998 the Company's total risk-based capital ratio was 11.48%, as
compared to 13.42% on December 31, 1997. Regulatory minimum capital adequacy
ratios for Tier 1 leverage, Tier 1 risk-based capital and total risk-based
capital are 3%, 4% and 8%, respectively. Ratios to be considered well
capitalized are 5%, 6% and 10%, respectively. The decreases in regulatory
capital ratios from 1997 are primarily related to the acquisition of The
Sumitomo Bank of California. See Note 17 of Notes to Consolidated Financial
Statements for additional information on risk-based capital.
DIVIDENDS
Dividends per share were $.54 in 1998, an increase of 14.9% over $.47 in 1997,
which were up 10.6% over $.425 in 1996. The Company's quarterly dividend rate
was $.1025 for the first and second quarters of 1996, increasing to $.11 per
share for the third and fourth quarters of 1996 and the first quarter of 1997,
increasing to $.12 per share for the second, third and fourth quarters of 1997
and the first quarter of 1998, increasing to $.14 per share for the second,
third and fourth quarters of 1998.
RISK ELEMENTS
CREDIT RISK MANAGEMENT
Management of credit risk is essential in maintaining a safe and sound
institution. 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. A separate internal credit
examination department periodically conducts examinations of the quality,
documentation and administration of the Company's lending departments, and
submits reports thereon to a committee of the board of directors. Emphasis is
placed on early detection of potential problem credits so that action plans can
be developed on a timely basis to mitigate losses.
Another aspect of the Company's credit risk management strategy is the
diversification of the loan portfolio. At year end, the Company had 2% of its
portfolio in loans held for sale, 25% in commercial loans, 65% in real estate
loans, 5% in consumer loans, 2% in lease financing and 1% in other loans. The
Company's real estate portfolio is also diversified. Of the total portfolio, 12%
is in real estate construction loans, 3% is in home equity credit lines, 32% is
in 1-4 family residential loans and 53% is in commercial loans secured by real
estate. The Company's commercial real estate concentration is in part mitigated
by its emphasis of lending programs sponsored by the Small Business
Administration, which carries the preponderance of credit risk on these types of
loans. The Company also focuses on the provision of commercial real estate
credit to borrowers that occupy the facility. In addition, the Company attempts
to avoid the risk of an undue concentration of credits in a particular industry
or trade group. See Note 5 of Notes to Consolidated Financial Statements for
further information on concentrations of credit risk. The Company has no
significant exposure to highly leveraged transactions. Most of the Company's
business activity is with customers located within the states of Utah, Idaho,
California, Colorado, Arizona, Nevada and Washington. Also, the Company does not
have significant exposure to any individual customer or counterparty.
35
<PAGE>
NONPERFORMING ASSETS
Nonperforming assets include nonaccrual loans, restructured loans and other real
estate owned. Loans are generally placed on nonaccrual status when the loan is
90 days or more past due as to principal or interest, unless the loan is in the
process of collection and well-secured. Consumer loans are not placed on a
nonaccrual status, inasmuch as they are generally charged off when they become
120 days past due. Loans are restructured to provide a reduction or deferral of
interest or principal payments when the financial condition of the borrower
deteriorates and requires that the borrower be given temporary or permanent
relief from the original contractual terms of the credit. Other real estate
owned is primarily acquired through or in lieu of foreclosure on credits secured
by real estate.
The Company's nonperforming assets were $64 million on December 31, 1998, up
from $24 million on December 31, 1997. Such nonperforming assets as a percentage
of net loans and leases, other real estate owned and other nonperforming assets
were .60% on December 31, 1998, as compared to .41% on December 31, 1997.
Included in nonperforming assets on December 31, 1998 are $23 million in
nonaccrual loans and $4 million in restructured loans acquired in The Sumitomo
Bank of California acquisition.
Accruing loans past due 90 days or more totaled $26 million on December 31,
1998, up from $11 million on December 31, 1997. These loans equaled .24% of net
loans and leases on December 31, 1998, as compared to .19% on December 31, 1997.
No loans were considered potential problem loans on December 31, 1998 or 1997.
Potential problem loans are defined as loans presently on accrual and 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 in the future.
The Company's total recorded investment in impaired loans included in nonaccrual
loans and leases amounted to $41 million and $10 million on December 31, 1998
and 1997, respectively. 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 December 31, 1998 and 1997, is an allowance of $5 million and
$0.3 million, respectively, on $11.6 million and $1.9 million, respectively, of
the recorded investment in impaired loans. Included in the 1998 totals are $23
million investment in impaired loans and a reserve of $4 million for these loans
acquired in the Sumitomo acquisition.
36
<PAGE>
Schedule 10
Nonperforming Assets
<TABLE>
<CAPTION>
December 31,
------------------------------------
(Amounts in millions) 1998 1997 1996 1995 1994
---- ---- ---- ---- ----
<S> <C> <C> <C> <C> <C>
Nonaccrual loans:
Commercial, financial and agricultural ..... $ 11 $ 5 $ 7 $ 4 $ 3
Real estate ................................ 39 10 7 7 8
Consumer ................................... 1 -- 1 1 1
Lease financing ............................ 3 1 1 2 2
Other ...................................... -- -- -- -- 4
---- ---- ---- ---- ----
Total .................................... 54 16 16 14 18
---- ---- ---- ---- ----
Restructured loans:
Real estate ................................ 5 2 2 1 1
Other real estate owned:
Commercial, financial and agricultural:
Improved ................................. -- 2 -- -- 4
Unimproved ............................... -- 1 -- -- 1
Residential:
1-4 Family ............................... 2 1 1 2 --
Multi-family ............................. -- -- -- 1 --
Other ...................................... 3 2 2 2 3
---- ---- ---- ---- ----
Total .................................... 5 6 3 5 8
Other nonperforming assets ..................... -- -- -- -- 3
---- ---- ---- ---- ----
Total .................................... 5 6 3 5 11
---- ---- ---- ---- ----
Total .................................... $ 64 $ 24 $ 21 $ 20 $ 30
==== ==== ==== ==== ====
% of Net loans* and leases, other real estate
owned and other nonperforming assets ....... .60% .41% .45% .56% 1.08%
Accruing loans past due 90 days or more:
Commercial, financial and agricultural ..... $ 5 $ 2 $ 2 $ 1 $ 1
Real estate ................................ 20 7 3 4 2
Consumer
1 2 1 1 1
---- ---- ---- ---- ----
Total .................................... $ 26 $ 11 $ 6 $ 6 $ 4
==== ==== ==== ==== ====
% of Net loans* and leases ..................... .24% .19% .13% .16% .12%
*Includes loans held for sale.
</TABLE>
ALLOWANCE FOR LOAN LOSSES
The Company's allowance for loan losses was 1.93% of net loans and leases on
December 31, 1998 compared to 1.62% on December 31, 1997. Net charge-offs in
1998 were $15 million, or .21% of average loans and leases, compared to net
charge-offs of $9 million, or .19% of average net loans and leases in 1997 and
net charge-offs of $5 million, or .13% of average net loans and leases in 1996.
The allowance, as a percentage of nonaccrual loans and restructured loans, was
347.86% on December 31, 1998, compared to 514.18% on December 31, 1997 and
490.77% on December 31, 1996. The allowance, as a percentage of nonaccrual loans
and accruing loans past due 90 days or more was 258.04% on December 31, 1998,
compared to 340.22% on December 31, 1997, and 393.92% on December 31, 1996.
37
<PAGE>
On December 31, 1998, 1997 and 1996, the allowance for loan losses includes an
allocation of $20 million, $9 million and $6 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 December 31, 1998,
1997 and 1996, totaled $4,758 million, $2,787 million, and $2,301 million,
respectively. The Company's actual future credit exposure is much lower than the
contractual amounts of the commitments because a significant portion of the
commitments is expected to expire without being drawn upon.
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. To determine the adequacy of the allowance, the Company's loan and lease
portfolio is broken into segments based on loan type. Historical loss experience
factors by segment, adjusted for changes in trends and conditions, are used in
determining the required allowance for each segment. Historical loss factors are
evaluated and updated using migration analysis techniques and other
considerations based on the makeup of the specific portfolio segment. Other
considerations such as volumes and trends of delinquencies, nonaccruals,
repossessions and bankruptcies, criticized and classified loan trends, current
and anticipated foreclosure losses, new products and policies, economic
conditions, concentrations of credit risk, and experience and abilities of
lending personnel are also considered in establishing the loss factors.
All loans graded substandard in the amount of $1 million or more and all credits
graded doubtful in the amount of $100 thousand or more are individually
evaluated based on facts and circumstances of the loan and a specific allowance
amount designated. Specific allowances may also be established for loans in
amounts below the specified thresholds when it is determined that the risk
differs significantly from factor amounts established for the category. Although
management has allocated a portion of the allowance to specific loan categories
using the methods described, the adequacy of the allowance must be considered in
its entirety. To mitigate the imprecision in most estimates of expected credit
losses, the allocated component of the allowance is supplemented by an
unallocated component. The unallocated portion of the allowance includes
management's judgmental determination of the amounts necessary for subjective
factors such as economic uncertainties and concentration risks. Accordingly, the
relationship of the unallocated component to the total allowance for loan losses
may fluctuate from period to period. Schedule 11 provides a breakdown of the
allowance for loan losses by loan category and Schedule 12 summarizes loan loss
experience. The increases in the allocated allowance at year-end 1998 compared
to year-end 1997 for commercial, financial and agricultural and real estate
loans are a result of the acquisition of The Sumitomo Bank of California.
Schedule 11
Allocation of the Allowance for Loan Losses
<TABLE>
<CAPTION>
1998 1997 1996 1995 1994
---------------- ---------------- ---------------- ---------------- ----------------
(Amounts in millions) % of Allocation % of Allocation % of Allocation % of Allocation % of Allocation
total of total of total of total of total of
loans Allowance loans Allowance loans Allowance loans Allowance loans Allowance
------ --------- ----- --------- ----- --------- ----- --------- ----- ---------
<S> <C> <C> <C> <C> <C> <C> <C> <C> <C> <C>
Type of loan
Loans held for sale .................... 2.2% $ -- 3.1% $ -- 3.3% $ -- 3.5% $ -- 3.8% $ --
Commercial, financial and agricultural . 25.3% 81 25.3% 20 23.9% 18 25.9% 13 21.8% 11
Real estate ............................ 64.8% 47 57.6% 27 59.7% 28 54.9% 17 53.5% 14
Consumer ............................... 5.1% 12 9.2% 11 8.6% 9 11.0% 12 15.1% 11
Lease financing ........................ 2.0% 6 3.1% 2 3.5% 2 3.7% 2 4.6% 2
Other receivables ...................... 0.6% -- 1.7% -- 1.0% -- 1.0% -- 1.2% --
----- ----- ----- ----- -----
Total loans ................... 100.0% 100.0% 100.0% 100.0% 100.0%
----- ----- ----- ----- -----
Off-balance sheet unused commitments
and standby letters of credit ....... 20 9 6 8 5
--------- --------- --------- --------- ---------
Total allocated ........................ 166 69 63 52 43
Unallocated ............................ 40 23 23 28 30
--------- --------- --------- --------- ---------
Total allowance for loan losses $ 206 $ 92 $ 86 $ 80 $ 73
========= ========= ========= ========= =========
</TABLE>
38
<PAGE>
Schedule 12
Summary Of Loan Loss Experience
<TABLE>
<CAPTION>
(Amounts in millions) 1998 1997 1996 1995 1994
-------- -------- -------- -------- --------
<S> <C> <C> <C> <C> <C>
Loans* and leases outstanding on December 31
(net of unearned income) ................. $ 10,633 $ 5,669 $ 4,503 $ 3,533 $ 2,791
======== ======== ======== ======== ========
Average loans* and leases outstanding
(net of unearned income) ................. $ 7,174 $ 5,072 $ 3,993 $ 3,091 $ 2,939
======== ======== ======== ======== ========
Allowance for loan losses:
Balance at beginning of year ................. $ 92 $ 86 $ 80 $ 73 $ 76
Allowance of companies acquired .............. 117 7 4 7 1
Provision charged against earnings ........... 12 8 7 5 3
Loans and leases charged off:
Commercial, financial and agricultural .... (8) (6) (3) (2) (7)
Real estate ............................... (6) (1) (1) (3) (1)
Consumer .................................. (9) (9) (8) (7) (5)
Lease financing .......................... (1) -- -- -- (1)
-------- -------- -------- -------- --------
Total ................................... (24) (16) (12) (12) (14)
-------- -------- -------- -------- --------
Recoveries:
Commercial, financial and agricultural .... 3 3 3 3 2
Real estate ............................... 3 2 1 1 1
Consumer .................................. 3 2 2 3 4
Lease financing ........................... -- -- 1 -- --
-------- -------- -------- -------- --------
Total ................................... 9 7 7 7 7
-------- -------- -------- -------- --------
Net loan and lease charge-offs ............... (15) (9) (5) (5) (7)
-------- -------- -------- -------- --------
Balance at end of year ....................... $ 206 $ 92 $ 86 $ 80 $ 73
======== ======== ======== ======== ========
Ratio of net charge-offs to
average loans and leases ................. .21% .19% .13% .17% .25%
Ratio of allowance for loan losses to loans
and leases outstanding on December 31 ..... 1.93% 1.62% 1.92% 2.26% 2.62%
Ratio of allowance for loan losses to
nonperforming loans on December 31 ........ 347.86% 514.18% 490.77% 562.38% 382.10%
Ratio of allowance for loan losses to
nonaccrual loans and accruing loans past
due 90 days or more on December 31 ........ 258.04% 340.22% 393.92% 415.29% 345.45%
</TABLE>
*Includes loans held for sale.
39
<PAGE>
MARKET RISK MANAGEMENT
Market risk is the possibility that changes in interest rates or equity
securities prices will impair the fair value of the Company's financial
instruments. The Asset/Liability Committee (ALCOM) measures and reviews the
market risk of the Company and establishes policies and procedures to limit its
exposure to changes in interest rates. These policies are reviewed and approved
by the Boards of Directors of the Company's subsidiary banks. ALCOM objectives
are summarized as follows: ensure the safety and soundness of bank deposits,
while providing an appropriate return to shareholders; provide the basis for
integrated balance sheet, net interest income and liquidity management;
calculate the duration, dollar duration, and convexity of each class of assets,
liabilities, and net equity given defined interest rate scenarios; manage the
Company's exposure to changes in net interest income and market value of equity
due to interest rate fluctuations; quantify the effect of hedging instruments on
the market value of equity and net interest income under defined interest rate
scenarios; and identify and report any risk exposures that exceed limitations
approved by the Board of Directors.
Interest rate risk is the most significant market risk regularly undertaken by
the Company. This risk is monitored through the use of two complementary
measurement methods: equity duration and income simulation.
Equity duration is derived by first calculating the dollar duration of all
assets, liabilities and off-balance sheet investments. Dollar duration is
determined by calculating the market value of each instrument assuming interest
rates sustain immediate and parallel movements up 1% and down 1%. The average of
these two changes in market value is the dollar duration, which incorporates the
value of embedded and explicit options within each instrument. Subtracting the
dollar duration of liabilities from the dollar duration of assets and adding the
net dollar duration of off-balance sheet items results in the dollar duration of
equity. Duration of equity is computed by dividing the dollar duration of equity
by the market value of equity.
Income simulation is an estimate of the net interest income which would be
recognized under different rate environments. Net interest income is measured
under several parallel and non-parallel interest rate environments and considers
the possible exercise of options within the portfolio.
At year-end, the Company's duration of equity was estimated to be approximately
2.1 years. A 200 basis point immediate increase in rates was estimated to
increase the duration of equity to 4.5 years. Conversely, an immediate decrease
in rates of similar magnitude was estimated to decrease the duration of equity
to .5 years. Company policy requires that all three of these measures be between
0 and 7 years.
For income simulation, Company policy requires that net interest income not be
expected to decline by more than 10% during one year if rates were to
immediately rise or fall by 200 basis points. At year-end, net interest income
was expected to decline 4.3% if interest rates were to sustain an immediate
increase of 200 basis points. If interest rates were to similarly decline 200
basis points, net interest income would be expected to increase 2.4%. These
estimates include management's assumptions regarding loan and deposit pricing,
security and loan prepayments, and changing relationships to market rates.
Management exercises its best judgment in making assumptions regarding loan and
security prepayments, early deposit withdrawals, and other non-controllable
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 position in any subsequent period.
At year-end the one-year gap for the Company was negative $337 million: i.e.,
the $9,476 million of assets that mature or reprice during 1999 was less than
the sum of $9,019 million of liabilities and the $794 million net effect of
off-balance sheet swaps that mature or reprice during the same period. This gap
represented 2.0% of total assets. Detail of the repricing characteristics of the
balance sheet as of year-end are presented in Schedule 13. The Company does not
have policy limits regarding its gap position.
40
<PAGE>
Schedule 13
Maturities and Interest Rate Sensitivity
On December 31, 1998
<TABLE>
<CAPTION>
Rate Sensitive
----------------------------------------------------------------
After
Three After one
Within Months year but
three But within within After five Not rate
(Amounts in millions) months One year five years Years Sensitive Total
--------- --------- --------- --------- --------- ---------
<S> <C> <C> <C> <C> <C> <C>
USES OF FUNDS
Earning Assets:
Interest-bearing deposits .............. $ 12 $ 6 $ 12 $ 30
Federal funds sold ..................... 199 199
Security resell agreements ............. 382 382
Securities:
Held to maturity ..................... 960 906 433 $ 505 2,804
Available for sale ................... 307 49 237 92 685
Trading account ...................... 192 192
Loans and leases ....................... 5,316 1,147 2,341 1,830 10,634
Nonearning assets .......................... $ 1,723 1,723
--------- --------- --------- --------- --------- ---------
Total uses of funds ................ $ 7,368 $ 2,108 $ 3,023 $ 2,427 $ 1,723 $ 16,649
--------- --------- --------- --------- --------- ---------
SOURCES OF FUNDS
Interest-bearing deposits and
liabilities:
Savings and money market deposits ...... $ 2,028 $ 1,215 $ 2,025 $ 810 $ 6,078
Time deposits under $100,000 ........... 1,221 741 378 1 2,341
Time deposits $100,000 or more ........ 802 599 127 1,528
Foreign ................................ 204 204
Securities sold, not yet
purchased ........................... 30 30
Federal funds purchased ................ 337 337
Security repurchase agreements ......... 933 933
Commercial paper ...................... 43 6 49
FHLB advances and other borrowings:
Less than one year ................... 75 26 101
Over one year ....................... 2 29 26 57
Long-term debt ......................... 142 2 71 239 454
Noninterest-bearing deposits ............... 613 $ 2,557 3,170
Other liabilities .......................... 318 318
Minority interest .......................... 35 35
Shareholders' equity ....................... 1,014 1,014
--------- --------- --------- --------- --------- ---------
Total sources of funds ............ $ 6,428 $ 2,591 $ 2,630 $ 1,076 $ 3,924 $ 16,649
--------- --------- --------- --------- --------- ---------
Off-balance sheet items affecting
interest rate sensitivity .............. $ (1,029) $ 235 $ 751 $ 43
Interest rate sensitivity gap .............. $ (89) $ (248) $ 1,144 $ 1,394 $ (2,201)
Percent of total assets .................... (.5)% (1.5)% 6.9% 8.4% (13.3)%
Cumulative interest rate sensitivity gap .. $ (89) $ (337) $ 807 $ 2,201
Cumulative as a % of total assets .......... (.5)% (2.0)% 4.9% 13.3%
</TABLE>
The Company, through the management of maturities and repricing of its assets
and liabilities and the use of off-balance sheet arrangements, including
interest rate caps, floors, futures, options and exchange agreements, attempts
to manage the effect on net interest income of changes in interest rates. The
prime lending rate is the primary basis used for pricing the Company's loans and
the 91-day Treasury bill rate is the index used for pricing many of the
Company's deposits. The Company, however, is unable to economically hedge the
prime/T-bill spread risk through the use of derivative financial instruments.
Interest rate swap maturities and average rates are presented in Schedule 14.
For additional information regarding off-balance sheet financial contracts,
refer to Notes 1, 12 and 19 of Notes to Consolidated Financial Statements.
41
<PAGE>
Schedule 14
Interest Rate Swap Maturities and Average Rates
<TABLE>
<CAPTION>
(Amounts in millions) 1999 2000 2001 2002 Thereafter Total
------- ------- ------- ------- ------- -------
<S> <C> <C> <C> <C> <C> <C>
Receive fixed rate:
Notional amount .................. $ 300 $ 221 $ 206 $ 236 $ 244 $ 1,207
Weighted average rate received ... 6.19% 6.28% 6.23% 6.39% 6.20% 6.25%
Weighted average rate paid ....... 5.48% 5.50% 5.28% 5.34% 5.45% 5.42%
Receive floating rate:
Notional amount .................. $ 45 $ 67 $ -- $ 40 $ 6 $ 158
Weighted average rate received ... 5.64% 5.25% -- 5.24% 5.25% 5.36%
Weighted average rate paid ....... 5.90% 4.75% -- 7.00% 7.98% 5.77%
</TABLE>
LIQUIDITY RISK MANAGEMENT
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. Management of the maturities of these portfolios
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 take advantage of market opportunities to meet funding needs at a
reasonable cost.
To meet the Company's short-term liquidity needs, on December 31, 1998 the
Company had cash, money market investments, and liquid securities net of
short-term or "purchased" liabilities and foreign deposits, of $1.7 billion or
14.5% of core deposits. The Company's core deposits, consisting of demand,
savings, money market, and time deposits under $100,000, constituted 87.0% of
total deposits at year-end.
The Parent Company's cash requirements consist primarily of debt service,
dividends to shareholders, operating expenses, income taxes and share
repurchases. The Parent'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.
At December 31, 1998, $53.5 million of dividend capacity was available from
subsidiaries to pay to the Parent without having to obtain regulatory approval.
During 1998, dividends from subsidiaries were $212.3 million. During 1998 the
Company started a program to issue short-term commercial paper. At December 31,
1998 outstanding commercial paper was $49 million. At December 31, 1998 the
Parent had revolving credit facilities with two banks totaling $65 million. On
that date, the balance outstanding on these bank lines was $37 million.
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 June 30, 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 will be
completed in the first quarter 1999 and for non-critical
42
<PAGE>
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. It
expects that all of these companies will be compliant by March 31, 1999.
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 $2.1 million has been incurred through December 31, 1998. 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 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 materially adversely 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
43
<PAGE>
involve significant risks and uncertainties. Factors that might cause such
differences include, but are not limited to: 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 more difficult than expected due
to the difficulty of attracting and retaining qualified systems personnel or
vendor-supplied software releases being delayed or not functioning properly.
Zions disclaims any obligation to update any factors or to publicly announce the
result of revisions to any of the forward-looking statements included herein to
reflect future events or developments.
CONSOLIDATED CONDENSED STATEMENTS OF INCOME
The following consolidated condensed statements of income present earnings and
operating cash earnings information as originally reported and restated. The
Company has restated prior year financial information for significant
acquisitions accounted for as poolings of interests. See Note 2 of Notes to
Consolidated Financial Statements for further information on the acquisitions.
<TABLE>
<CAPTION>
Originally Reported Earnings(1)
(Amounts in millions) --------------------------------------------------
1998 1997 1996 1995 1994
------- ------- ------- ------- -------
<S> <C> <C> <C> <C> <C>
Net interest income ..................................... $ 543.8 $ 351.8 $ 260.4 $ 227.1 $ 198.6
Noninterest income ...................................... 200.7 143.2 110.9 86.7 73.2
------- ------- ------- ------- -------
Total revenue ........................................... 744.5 495.0 371.3 313.8 271.8
Provision for loan losses ............................... 12.2 6.2 3.5 2.8 2.2
Noninterest expense(2) .................................. 460.4 292.7 212.0 186.2 172.9
------- ------- ------- ------- -------
Pretax cash earnings .................................... 271.9 196.1 155.8 124.8 96.7
Income tax expense ...................................... 86.9 66.1 52.2 41.3 31.2
Minority interest ....................................... 0.5 -- -- -- --
------- ------- ------- ------- -------
Cash earnings(2) ........................................ 184.5 130.0 103.6 83.5 65.5
Amortization of goodwill and core deposit ............... 10.7 5.9 2.3 2.5 2.0
intangibles
Merger expense .......................................... 43.0 2.7 -- -- --
Income tax (benefit) .................................... (16.0) (1.0) (0.1) (0.3) (0.3)
------- ------- ------- ------- -------
Net income .......................................... $ 146.8 $ 122.4 $ 101.4 $ 81.3 $ 63.8
======= ======= ======= ======= =======
Operating cash earnings per share (diluted)(2) .......... $ 2.40 $ 2.01 $ 1.75 $ 1.42 $ 1.12
Net income per share (diluted) .......................... $ 1.91 $ 1.89 $ 1.71 $ 1.38 $ 1.09
</TABLE>
<TABLE>
<CAPTION>
Restated Earnings
----------------------------------------
1997 1996 1995 1994
------- ------- ------- -------
<S> <C> <C> <C> <C>
Net interest income ..................................... $ 412.5 $ 337.7 $ 272.5 $ 232.7
Noninterest income ...................................... 146.4 122.0 95.7 79.0
------- ------- ------- -------
Total revenue ........................................... 558.9 459.7 368.2 311.7
Provision for loan losses ............................... 7.8 6.5 4.7 3.1
Noninterest expense(2) .................................. 335.2 269.8 226.9 203.1
------- ------- ------- -------
Pretax cash earnings .................................... 215.9 183.4 136.6 105.5
Income tax expense ...................................... 73.4 59.8 44.1 32.9
Minority interest ....................................... -- -- -- --
------- ------- ------- -------
Cash earnings(2) ........................................ 142.5 123.6 92.5 72.6
Amortization of goodwill and core deposit intangibles ... 6.7 3.3 2.7 2.6
Merger expense .......................................... 2.7 -- -- --
Income tax (benefit) .................................... (1.2) (0.1) (0.3) (0.3)
Cumulative effect of changes in accounting principles ... -- -- -- 1.5
------- ------- ------- -------
Net income .......................................... $ 134.3 $ 120.4 $ 90.1 $ 68.8
======= ======= ======= =======
Operating cash earnings per share (diluted)(2) .......... $ 1.95 $ 1.71 $ 1.40 $ 1.13
Net income per share (diluted) .......................... $ 1.84 $ 1.66 $ 1.36 $ 1.08
</TABLE>
1 Before restatements for acquisitions accounted for as poolings of interests.
2 Before amortization of goodwill and core deposit intangible assets and merger
expense.
44
<PAGE>
Independent Auditors' Report
The Board of Directors and Shareholders
Zions Bancorporation:
We have audited the accompanying consolidated balance sheets of Zions
Bancorporation and subsidiaries as of December 31, 1998 and 1997, and the
related consolidated statements of income, cash flows, and changes in
shareholders' equity and comprehensive income for each of the years in the
three-year period ended December 31, 1998. These consolidated financial
statements are the responsibility of the Company's management. Our
responsibility is to express an opinion on these consolidated financial
statements based on our audits.
We conducted our audits in accordance with generally accepted auditing
standards. Those standards require that we plan and perform the audit to obtain
reasonable assurance about whether the financial statements are free of material
misstatement. An audit includes examining, on a test basis, evidence supporting
the amounts and disclosures in the financial statements. An audit also includes
assessing the accounting principles used and significant estimates made by
management, as well as evaluating the overall financial statement presentation.
We believe that our audits provide a reasonable basis for our opinion.
In our opinion, the consolidated financial statements referred to above present
fairly, in all material respects, the financial position of Zions Bancorporation
and subsidiaries as of December 31, 1998 and 1997, and the results of their
operations and their cash flows for each of the years in the three-year period
ended December 31, 1998, in conformity with generally accepted accounting
principles.
/s/KPMG LLP
Salt Lake City, Utah
January 26, 1999
45
<PAGE>
ZIONS BANCORPORATION AND SUBSIDIARIES
Consolidated Balance Sheets
December 31, 1998 and 1997
(In thousands, except share amounts)
<TABLE>
<CAPTION>
1998 1997
------------ ------------
<S> <C> <C>
Assets
Cash and due from banks ............................................................. $ 864,446 710,171
Money market investments:
Interest-bearing deposits ....................................................... 30,484 62,001
Federal funds sold .............................................................. 199,446 442,179
Security resell agreements ...................................................... 382,275 349,338
Investment securities:
Held to maturity, at cost (approximate market value $2,821,535 and $2,220,179) .. 2,803,903 2,199,555
Available for sale, at market ................................................... 684,581 807,273
Trading account, at market ...................................................... 191,855 83,681
Loans:
Loans held for sale ............................................................. 232,253 178,642
Loans, leases, and other receivables ............................................ 10,449,362 5,534,324
------------ ------------
10,681,615 5,712,966
Less:
Unearned income and fees, net of related costs ............................... 48,123 44,064
Allowance for loan losses .................................................... 205,553 91,571
------------ ------------
Net loans ........................................................... 10,427,939 5,577,331
Premises and equipment, net ......................................................... 231,066 155,648
Goodwill and core deposit intangibles ............................................... 271,578 174,433
Other real estate owned ............................................................. 5,270 5,738
Other assets ........................................................................ 556,078 301,856
------------ ------------
$ 16,648,921 10,869,204
============ ============
Liabilities and Shareholders' Equity
Deposits:
Noninterest-bearing ............................................................. $ 3,170,436 2,084,153
Interest-bearing:
Savings and money market ..................................................... 6,077,556 3,978,009
Time:
Under $100,000 ............................................................. 2,340,598 1,164,342
Over $100,000 .............................................................. 1,528,329 546,686
Foreign ...................................................................... 204,244 183,044
------------ ------------
13,321,163 7,956,234
Securities sold, not yet purchased .................................................. 29,702 45,067
Federal funds purchased ............................................................. 337,283 350,109
Security repurchase agreements ...................................................... 932,560 1,042,156
Accrued liabilities ................................................................. 319,278 173,331
Commercial paper .................................................................... 49,217 --
Federal Home Loan Bank advances and other borrowings:
Less than one year .............................................................. 100,750 68,933
Over one year ................................................................... 56,796 210,681
Long-term debt ...................................................................... 453,735 280,641
------------ ------------
Total liabilities ................................................... 15,600,484 10,127,152
------------ ------------
Minority interest ................................................................... 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, 78,636,083 shares and 71,366,159 shares ................... 324,099 190,039
Accumulated other comprehensive income (loss) ................................... (4,280) 1,902
Retained earnings ............................................................... 693,837 550,111
------------ ------------
Total shareholders' equity .......................................... 1,013,656 742,052
------------ ------------
$ 16,648,921 10,869,204
============ ============
</TABLE>
See accompanying notes to consolidated financial statements
46
<PAGE>
ZIONS BANCORPORATION AND SUBSIDIARIES
Consolidated Statements of Income
Years ended December 31, 1998, 1997, and 1996
(In thousands, except per share amounts)
<TABLE>
<CAPTION>
1998 1997 1996
-------- -------- --------
<S> <C> <C> <C>
Interest income:
Interest and fees on loans ................................................. $654,318 475,477 371,880
Interest on loans held for sale ............................................ 14,256 11,874 11,509
Interest on money market investments ....................................... 88,510 85,456 52,758
Interest on securities:
Held to maturity:
Taxable .............................................................. 132,678 115,054 77,909
Nontaxable ........................................................... 14,654 12,092 14,869
Available for sale:
Taxable .............................................................. 34,119 47,961 42,360
Nontaxable ........................................................... 836 2,209 2,380
Trading account ......................................................... 24,043 16,211 9,179
Lease financing ............................................................ 12,630 13,197 11,896
-------- -------- --------
Total interest income .............................................. 976,044 779,531 594,740
-------- -------- --------
Interest expense:
Interest on savings and money market deposits .............................. 157,119 124,781 104,351
Interest on time and foreign deposits ...................................... 136,588 83,222 64,582
Interest on borrowed funds ................................................. 138,574 158,997 88,082
-------- -------- --------
Total interest expense .............................................. 432,281 367,000 257,015
-------- -------- --------
Net interest income ................................................. 543,763 412,531 337,725
Provision for loan losses ...................................................... 12,179 7,758 6,526
-------- -------- --------
Net interest income after provision for loan losses ................. 531,584 404,773 331,199
-------- -------- --------
Noninterest income:
Service charges on deposit accounts ........................................ 58,249 48,540 39,515
Other service charges, commissions, and fees ............................... 54,663 40,485 30,567
Trust income ............................................................... 9,415 6,757 5,195
Investment securities gain (loss), net ..................................... 2,142 (5,071) (385)
Underwriting and trading income ............................................ 9,239 5,716 2,721
Loan sales and servicing income ............................................ 50,365 40,399 36,569
Other ...................................................................... 16,640 9,548 7,825
-------- -------- --------
Total noninterest income ............................................ 200,713 146,374 122,007
-------- -------- --------
Noninterest expense:
Salaries and employee benefits ............................................. 249,641 184,708 150,448
Occupancy, net ............................................................. 30,080 18,939 15,520
Furniture and equipment .................................................... 36,223 28,084 20,943
Other real estate expense .................................................. 675 356 210
Legal and professional services ............................................ 15,310 8,919 6,443
Supplies ................................................................... 11,332 9,235 7,544
Postage .................................................................... 10,259 7,490 6,253
Advertising ................................................................ 11,859 7,548 6,014
FDIC premiums .............................................................. 1,450 831 50
Merger expense ............................................................. 42,990 2,707 --
Amortization of goodwill and core deposit intangibles ...................... 10,694 6,670 3,337
Amortization of mortgage servicing assets .................................. 5,484 2,152 1,299
Other ...................................................................... 88,060 66,990 55,063
-------- -------- --------
Total noninterest expense ........................................... 514,057 344,629 273,124
-------- -------- --------
Income before income taxes and minority interest ............................... 218,240 206,518 180,082
Income taxes ................................................................... 70,862 72,218 59,664
-------- -------- --------
Net income before minority interest ................................. 147,378 134,300 120,418
Minority interest .............................................................. 531 -- --
-------- -------- --------
Net income .......................................................... $146,847 134,300 120,418
======== ======== ========
Weighted-average common and common-equivalent shares outstanding during the .... 76,988 72,813 72,158
year
======== ======== ========
Net income per common share:
Basic ...................................................................... $ 1.93 1.88 1.69
======== ======== ========
Diluted .................................................................... $ 1.91 1.84 1.66
======== ======== ========
</TABLE>
See accompanying notes to consolidated financial statements
47
<PAGE>
ZIONS BANCORPORATION AND SUBSIDIARIES
Consolidated Statements of Cash Flows
Years ended December 31, 1998, 1997, and 1996
(In thousands)
<TABLE>
<CAPTION>
1998 1997 1996
------------- ------------- -------------
<S> <C> <C> <C>
Cash flows from operating activities:
Net income ............................................................. $ 146,847 134,300 120,418
Adjustments to reconcile net income to net cash provided by (used in)
operating activities:
Provision for loan losses .......................................... 12,179 7,758 6,526
Depreciation of premises and equipment ............................. 27,747 20,539 16,577
Amortization ....................................................... 24,393 14,512 10,317
Accretion of unearned income and fees, net of related costs ........ (5,826) 1,444 (34,387)
Proceeds from sales of trading account securities .................. 175,432,243 119,209,754 80,374,843
Increase in trading account securities ............................. (175,540,070) (119,259,359) (80,345,212)
Investment securities (gain) loss, net ............................. (2,142) 5,071 385
Proceeds from loans held-for-sale .................................. 1,237,514 742,244 664,327
Increase in loans held-for-sale .................................... (1,296,803) (766,739) (670,299)
Net gain on sales of loans, leases and other assets ................ (43,264) (28,142) (26,739)
Change in accrued income taxes ..................................... 23,228 (794) 4,677
Change in accrued interest receivable .............................. 2,293 (20,603) (8,186)
Change in accrued interest payable ................................. (1,196) 5,383 (1,736)
Other, net ......................................................... (80,004) (25,879) 23,285
------------- ------------- -------------
Net cash provided by (used in) operating activities ............. (62,861) 39,489 134,796
------------- ------------- -------------
Cash flows from investing activities:
Net decrease (increase) in money market investments .................... 835,930 (208,096) 115,971
Proceeds from maturities of investment securities held to maturity ..... 3,463,175 984,705 378,745
Purchases of investment securities held to maturity .................... (3,511,333) (1,652,068) (680,836)
Proceeds from sales of investment securities available for sale ........ 521,415 494,481 190,975
Proceeds from maturities of investment securities available for sale ... 252,429 145,922 167,029
Purchases of investment securities available for sale .................. (660,939) (608,274) (423,740)
Proceeds from sales of loans and leases ................................ 918,948 968,717 765,341
Net increase in loans and leases ....................................... (1,893,593) (1,587,939) (1,466,957)
Principal collections on leveraged leases .............................. 3,840 5,748 --
Payments on leveraged leases ........................................... (3,840) (5,748) --
Proceeds from sales of premises and equipment .......................... 5,370 3,290 806
Purchases of premises and equipment .................................... (63,728) (39,691) (32,836)
Proceeds from sales of mortgage-servicing rights ....................... 6,654 1,771 1,339
Purchases of mortgage-servicing rights ................................. (5,149) (3,123) (1,625)
Proceeds from sales of other assets .................................... 7,956 6,075 5,335
Purchases of other assets .............................................. -- -- (18,887)
Cash paid for acquisitions, net of cash received ....................... (308,539) (25,756) 3,682
------------- ------------- -------------
Net cash used in investing activities ........................... (431,404) (1,519,986) (995,658)
------------- ------------- -------------
Cash flows from financing activities:
Net increase in deposits ............................................... 642,840 1,311,562 595,207
Net change in short-term funds borrowed ................................ (108,755) 377,750 160,194
Proceeds from FHLB advances over one year .............................. 4,665 180,000 4,201
Payments on FHLB advances over one year ................................ (167,886) (74,894) (18,143)
Proceeds from issuance of long-term debt ............................... 195,041 24,001 204,050
Payments on long-term debt ............................................. (20,556) (554) (6,020)
Net change in minority interest ........................................ 34,781 -- --
Proceeds from issuance of common stock ................................. 136,751 4,643 3,015
Payments to redeem common stock ........................................ (26,741) (121,389) (25,148)
Payments to redeem preferred stock ..................................... -- (8,050) --
Dividends paid ......................................................... (41,600) (30,352) (26,207)
------------- ------------- -------------
Net cash provided by financing activities ....................... 648,540 1,662,717 891,149
------------- ------------- -------------
Net increase in cash and due from banks .................................... 154,275 182,220 30,287
Cash and due from banks at beginning of year ............................... 710,171 527,951 497,664
------------- ------------- -------------
Cash and due from banks at end of year ..................................... $ 864,446 710,171 527,951
============= ============= =============
</TABLE>
See accompanying notes to consolidated financial statements.
48
<PAGE>
<TABLE>
<CAPTION>
ZIONS BANCORPORATION AND SUBSIDIARIES
Consolidated Statements of Changes in Shareholders' Equity and Comprehensive Income
Years ended December 31, 1998, 1997, and 1996
(In thousands, except share amounts)
Accumulated
Common stock other Total
------------------------ Comprehensive comprehensive Retained shareholders'
Shares Amount income income (loss) earnings equity
----------- ----------- ----------- ----------- ----------- -----------
<S> <C> <C> <C> <C> <C> <C>
BALANCE, DECEMBER 31, 1995 ........................ 69,348,831 $ 184,301 (1,260) 351,952 534,993
Net income ........................................ -- -- 120,418 -- 120,418 120,418
Other comprehensive loss, net of tax:
Realized and unrealized holding loss arising
during the year, net of tax benefit of $2,838 -- -- (4,581) -- -- --
Reclassification for realized loss recorded in
the income statement, net of tax benefit
of $148 ..................................... -- -- 237 -- -- --
-----------
Other comprehensive loss ...................... -- -- (4,344) (4,344) -- (4,344)
-----------
Total comprehensive income ........................ -- -- $ 116,074 -- -- --
===========
Cash dividends:
Preferred, paid by subsidiaries to minority
shareholders ................................ -- -- -- (36) (36)
Common, $.425 per share ....................... -- -- -- (24,997) (24,997)
Preferred dividends of acquired companies
prior to merger ............................. -- -- -- (1,174) (1,174)
Issuance of common shares for acquisitions ........ 2,305,554 37,171 -- -- 37,171
Stock redeemed and retired ........................ (1,306,042) (25,148) -- -- (25,148)
Stock options exercised, net of shares tendered and
retired ........................................ 591,487 4,440 -- -- 4,440
---------- ------- ----- ------- -------
BALANCE, DECEMBER 31, 1996 ........................ 70,939,830 200,764 (5,604) 446,163 641,323
Net income ........................................ -- -- 134,300 -- 134,300 134,300
Other comprehensive income, net of tax:
Realized and unrealized holding gain
arising during the year, net of tax
expense of $4,190 ........................... -- -- 4,375 -- -- --
Reclassification for realized loss recorded in
the income statement, net of tax benefit
of $1,940 ................................... -- -- 3,131 -- -- --
-----------
Other comprehensive income .................... -- -- 7,506 7,506 -- 7,506
-----------
Total comprehensive income ........................ -- -- $ 141,806 -- -- --
===========
Cash dividends:
Preferred, paid by subsidiaries to minority
shareholders ................................ -- -- -- (42) (42)
Common, $.47 per share ........................ -- -- -- (28,387) (28,387)
Dividends of acquired companies
prior to merger ............................. -- -- -- (1,923) (1,923)
Issuance of common shares for acquisitions ........ 3,672,785 117,835 -- -- 117,835
Stock redeemed and retired ........................ (3,809,724) (134,598) -- -- (134,598)
Stock options exercised, net of shares tendered and
retired ........................................ 563,268 6,038 -- -- 6,038
---------- ------- ----- ------- -------
BALANCE, DECEMBER 31, 1997 ........................ 71,366,159 190,039 1,902 550,111 742,052
</TABLE>
49
<PAGE>
<TABLE>
<CAPTION>
ZIONS BANCORPORATION AND SUBSIDIARIES
Consolidated Statements of Changes in Shareholders' Equity and Comprehensive Income (continued)
Years ended December 31, 1998, 1997, and 1996
(In thousands, except share amounts)
Accumulated
Common stock other Total
------------------------ Comprehensive comprehensive Retained shareholders'
Shares Amount income income (loss) earnings equity
----------- ----------- ----------- ----------- ----------- -----------
<S> <C> <C> <C> <C> <C> <C>
Net income ........................................ -- $ -- 146,847 -- 146,847 146,847
Other comprehensive loss, net of tax:
Realized and unrealized holding loss arising
during the year, net of tax benefit of $3,973 -- -- (5,243) -- -- --
Reclassification for realized gain recorded in
the income statement, net of tax expense
of $819 ..................................... -- -- (1,323) -- -- --
-----------
Other comprehensive loss ...................... -- -- (6,566) (6,566) -- (6,566)
===========
Total comprehensive income ........................ -- -- $ 140,281 -- -- --
===========
Cash dividends:
Preferred, paid by subsidiaries to minority
shareholders ................................ -- -- -- (46) (46)
Common, $.54 per share ........................ -- -- -- (40,669) (40,669)
Dividends of acquired companies
prior to merger ............................. -- -- -- (885) (885)
Net proceeds from stock offering .................. 2,760,000 129,832 -- -- 129,832
Issuance of common shares for acquisitions ........ 4,108,353 16,204 384 38,479 55,067
Conversion of acquired company convertible
debt prior to acquisition ...................... 213,741 4,546 -- -- 4,546
Exercise of acquired company warrants prior to
acquisition .................................... 257,056 1,852 -- -- 1,852
Stock redeemed and retired ........................ (625,288) (26,741) -- -- (26,741)
Stock options exercised, net of shares tendered and
retired ........................................ 556,062 8,367 -- -- 8,367
---------- ----------- ------ ------- ---------
BALANCE, DECEMBER 31, 1998 ........................ 78,636,083 $ 324,099 (4,280) 693,837 1,013,656
========== =========== ====== ======= =========
</TABLE>
See accompanying notes to consolidated financial statements.
50
<PAGE>
ZIONS BANCORPORATION AND SUBSIDIARIES
Notes to Consolidated Financial Statements
1. Summary of Significant Accounting Policies
BUSINESS
Zions Bancorporation (the Parent) is a multibank holding company
organized under the laws of Utah in 1955, which provides a full range of banking
and related services through its subsidiaries operating primarily in Utah,
Idaho, California, Colorado, Arizona, Nevada, and Washington.
BASIS OF FINANCIAL STATEMENT PRESENTATION
The consolidated financial statements include the accounts of Zions
Bancorporation and its subsidiaries (the Company). All significant intercompany
accounts and transactions have been eliminated in consolidation. Certain prior
year amounts have been reclassified to conform to the 1998 presentation. Prior
year amounts have also been restated for three significant acquisitions
accounted for under the pooling-of-interest method. (see note 2)
The consolidated financial statements have been prepared in conformity with
generally accepted accounting principles. In preparing the consolidated
financial statements, management is required to make estimates and assumptions
that affect the reported amounts of assets and liabilities as of the date of the
balance sheet and revenues and expenses for the period. Actual results could
differ from those estimates.
SECURITY RESELL AGREEMENTS
Security resell agreements represent overnight and term agreements, the
majority maturing within 30 days. Either the Company or, in some instances,
third parties on behalf of the Company take possession of underlying securities.
The market value of such securities is monitored throughout the contract term to
ensure that asset value remains sufficient to protect against counterparty
default. Security resell agreements averaged approximately $1,260,646,000 during
1998, and the maximum amount outstanding at any month-end during 1998 was
$1,636,078,000.
INVESTMENT SECURITIES
The Company classifies its investment securities in one of three
categories: trading, available for sale, or held to maturity. Trading securities
are bought and held principally for the purpose of selling them in the near
term. Held to maturity securities are those securities which the Company has the
ability and intent to hold until maturity. All other securities not included in
trading or held to maturity are classified as available for sale.
Trading securities (including futures and options used to hedge trading
positions against interest rate risk) and available for sale securities are
recorded at fair value. Held to maturity securities are recorded at cost,
adjusted for the amortization or accretion of premiums or discounts. Unrealized
holding gains and losses on trading securities are included in net income.
Unrealized holding gains and losses, net of related tax effect, on available for
sale securities are excluded from net income and are reported as a separate
component of shareholders' equity until realized.
A decline in the market value of any available for sale or held to maturity
security below cost that is deemed other than temporary is charged to earnings
resulting in the establishment of a new cost basis for the security.
Premiums and discounts are amortized or accreted over the life of the related
held to maturity security as an adjustment to yield using the effective-interest
method. Dividend and interest income are recognized when earned. Realized gains
and losses for securities classified as available for sale and held to maturity
are included in net income and are derived using the specific-identification
method of determining the cost of securities sold.
LOANS
Loans are reported at the principal amount outstanding, net of unearned
income. Unearned income, which includes deferred fees net of deferred direct
incremental loan origination costs, is amortized to interest income generally
over the life of the loan using an interest method or the straight-line method
if it is not materially different.
Loans identified as held for sale are carried at the lower of cost or market
value. Nonrefundable fees, related direct loan origination costs, and related
hedging gains or losses, if any, are deferred and recognized as a component of
the gain or loss on sale recorded in noninterest income.
51
<PAGE>
LOAN FEES
Nonrefundable fees and related direct costs associated with the
origination of loans are deferred. The net deferred fees and costs are
recognized in interest income over the loan term using methods that generally
produce a level yield on the unpaid loan balance. Other nonrefundable fees
related to lending activities other than direct loan origination are recognized
as other operating income over the period the related service is provided.
Bankcard discounts and fees charged to merchants for processing transactions
through the Company are shown net of interchange discounts and fees expense and
are included in other service charges, commissions, and fees.
ALLOWANCE FOR LOAN LOSSES
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 potential in the portfolio, and considers the results of
independent internal and external credit review. To determine the adequacy of
the allowance, the Company's loan and lease portfolio is broken into segments
based on loan type. Historical loss experience factors by segment, adjusted for
changes in trends and conditions, are used in determining the required allowance
for each segment. Historical loss factors are evaluated and updated using
migration analysis techniques and other considerations based on the makeup of
the specific portfolio segment. Other considerations such as volumes and trends
of delinquencies, nonaccruals, repossessions and bankruptcies, criticized and
classified loan trends, current and anticipated foreclosure losses, new products
and policies, economic conditions, concentrations of credit risk, and experience
and abilities of lending personnel are also considered in establishing the loss
factors.
All loans graded substandard in the amount of $1 million or more and all credits
graded doubtful in the amount of $100 thousand or more are individually
evaluated based on facts and circumstances of the loan and a specific allowance
amount designated. Specific allowances may also be established for loans in
amounts below the specific thresholds when it is determined that the risk
differs significantly from factor amounts established for the category. Although
management has allocated a portion of the allowance to specific loan categories
using the methods described, the adequacy of the allowance must be considered in
its entirety. To mitigate the imprecision in most estimates of expected credit
losses, the allocated component of the allowance is supplemented by an
unallocated component. The unallocated portion of the allowance includes
management's judgmental determination of the amounts necessary for subjective
factors such as economic uncertainties and concentration risks. Accordingly, the
relationship of the unallocated component to the total allowance for loan losses
may fluctuate from period to period.
IMPAIRED LOANS
The Company considers a loan to be impaired when the accrual of interest
has been discontinued and the loan meets other criteria established by the
Company. 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. An allowance for impairment losses is included in the
allowance for loan losses through a provision for loan losses. The Company
primarily uses a cost recovery accounting method to recognize interest income on
impaired loans.
PREMISES AND EQUIPMENT
Premises and equipment are stated at cost, net of accumulated depreciation
and amortization. Depreciation, computed on the straight-line method, is charged
to operations over the estimated useful lives of the properties. Leasehold
improvements are amortized over the terms of respective leases or the estimated
useful lives of the improvements, whichever is shorter.
NONPERFORMING ASSETS
Nonperforming assets are comprised of loans for which the accrual of
interest has been discontinued, loans for which the terms have been renegotiated
to less than market rates due to a weakening of the borrower's financial
condition (restructured loans), and other real estate acquired primarily through
foreclosure that is awaiting disposition.
Loans are generally placed on a nonaccrual status when principal or interest is
past due 90 days or more unless the loan is both well-secured and in the process
of collection, or when in the opinion of management, full collection of
principal or interest is unlikely. Generally, consumer loans are not placed on a
nonaccrual status, inasmuch as they are generally charged off when they become
120 days past due. Generally, a loan may be
52
<PAGE>
returned to accrual status when all delinquent interest and principal
become current in accordance with the terms of the loan agreement or when the
loan is both well-secured and in the process of collection.
GOODWILL AND CORE DEPOSIT INTANGIBLES
The Company assesses the recoverability of these intangible assets by
determining whether the amortization of the balance over its remaining life can
be recovered through future operating cash flows of the acquired operation. The
amount of goodwill impairment, if any, is measured based on projected future
operating cash flows using a discount rate reflecting the Company's average cost
of funds. Goodwill and core deposit intangibles are generally amortized using
the straight-line method over 25 and 10 year periods, respectively.
MORTGAGE SERVICING RIGHTS
The Company recognizes as separate assets the rights
to service mortgage loans for others, whether the servicing rights are acquired
through purchases or loan originations. The fair value of capitalized mortgage
servicing rights is based upon the present value of estimated future cash flows.
Based upon current fair values capitalized mortgage servicing rights are
periodically assessed for impairment, which is recognized in the statement of
income during the period in which impairment occurs. For purposes of performing
its impairment evaluation, the Company stratifies its portfolio on the basis of
certain risk characteristics including loan type and note rate. Capitalized
mortgage servicing rights are amortized over the period of estimated net
servicing income and take into account appropriate prepayment assumptions.
Effective January 1, 1997, the Company adopted Statement of Financial Accounting
Standard (Statement) No. 125 Accounting for Transfers and Servicing of Financial
Assets and Extinguishments of Liabilities. This Statement requires that after a
transfer of financial assets, the Company must recognize the financial and
servicing assets controlled and liabilities incurred, and derecognize financial
assets and liabilities in which control is surrendered or debt is extinguished.
In such cases, servicing assets are determined based on estimated future
revenues from contractually specified servicing fees and other ancillary
revenues that are expected to compensate the Company for performing the
servicing. The adoption of Statement No. 125 has not had a material effect on
the Company's consolidated financial statements.
OFF-BALANCE SHEET FINANCIAL INSTRUMENTS
In the ordinary course of business, the Company has entered into
off-balance sheet financial instruments consisting of commitments to extend
credit, commercial letters of credit, and standby letters of credit. Such
financial instruments are recorded in the consolidated financial statements when
they become payable. The credit risk associated with these commitments is
considered in management's determination of the allowance for possible losses.
INTEREST RATE EXCHANGE CONTRACTS AND CAP AND FLOOR AGREEMENTS
The Company enters into interest rate exchange contracts (swaps) and cap
and floor agreements as part of its overall asset and liability duration and
interest rate risk management strategy. The objective of these financial
instruments is to match estimated repricing periods of interest-sensitive assets
and liabilities in order to reduce interest rate exposure and or manage desired
asset and liability duration. With the exception of interest rate caps and
floors, these instruments are used to hedge asset and liability portfolios and,
therefore, are not marked to market. Fees associated with these financial
instruments are accreted into interest income or amortized to interest expense
on a straight-line basis over the lives of the contracts and agreements. Gains
or losses on early termination of a swap are amortized on the remaining term of
the contract when the underlying assets or liabilities still exist. Otherwise,
such gains or losses are fully recorded as income or expense at the termination
of the contract. The net interest received or paid on these contracts is
reflected on a current basis in the interest income or expense related to the
hedged obligation or asset.
STATEMENTS OF CASH FLOWS
The Company paid interest of $433.2 million, $368.0 million, and $257.3
million, respectively, and income taxes of $49.4 million, $67.4 million, and
$50.3 million, respectively, for the years ended December 31, 1998, 1997, and
1996. Loans transferred to other real estate owned totaled $5.1 million, $8.8
million, and $1.5 million, respectively, for the years ended December 31, 1998,
1997, and 1996.
INCOME TAXES
Deferred tax assets and liabilities are recognized for the future
tax consequences attributable to differences between the financial statement
carrying amounts of existing assets and liabilities and their respective tax
bases and operating loss and tax credit carryforwards. Deferred
53
<PAGE>
tax assets and liabilities are measured using enacted tax rates expected to
apply to taxable income in the years in which those temporary differences are
expected to be recovered or settled. The effect on deferred tax assets and
liabilities of a change in tax rates is recognized in income in the period that
includes the enactment date.
The exercise of stock options under the Company's nonqualified stock option
plan, resulted in tax benefits reducing the Company's current income tax payable
and increasing common stock in the amounts of $3.4 million, $1.2 million, and
$0.6 million in 1998, 1997, and 1996, respectively.
NET INCOME PER COMMON SHARE
Diluted net income per common share is based on the weighted-average
outstanding common shares during each year, including common stock equivalents.
Basic net income per common share is based on the weighted-average outstanding
common shares during each year.
STOCK SPLIT
On April 25, 1997, the Company's Board of Directors approved a four-for-one
split of the common stock. This action was effective on May 14, 1997 for
shareholders of record as of May 9, 1997. A total of 43,347,903 shares of common
stock were issued. All references to the number of common shares and per common
share amounts have been restated to reflect the split.
COMPREHENSIVE INCOME
On January 1, 1998, the Company adopted Financial Accounting Standards
Board (FASB) Statement No. 130, Reporting Comprehensive Income. Statement No.
130 establishes standards for reporting and presentation of comprehensive income
and its components in a full set of financial statements. Comprehensive income
consists of net income and net unrealized gains (losses) on securities and is
presented in the consolidated statement of changes in shareholders' equity and
comprehensive income. The statement requires only additional disclosures in the
consolidated financial statements; it does not affect the Company's financial
position or results of operations. Prior year financial statements have been
reclassified to conform to the requirements of Statement No. 130.
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 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 shall be effective for the first fiscal quarter beginning after
December 15, 1998. It is anticipated that the adoption of Statement No. 134 will
not have a significant impact on the Company's financial position or results of
operations.
54
<PAGE>
2. 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 $703 million at the date of acquisition.
On May 22, 1998, the Company acquired FP Bancorp, Inc. of Escondido, California,
and its banking subsidiary, First Pacific National Bank, for 1,914,731 shares of
common stock. FP Bancorp, Inc. had total assets of approximately $363 million on
the date of acquisition. FP Bancorp, Inc.'s total interest and noninterest
income and net income for the period January 1 through March 31, 1998, were $8.1
million and $1.3 million, respectively.
On September 8, 1998, the Company acquired The Commerce Bancorporation, and its
banking subsidiary The Commerce Bank of Washington, N.A. for 1,938,590 shares of
common stock. The Commerce Bancorporation had total assets of approximately $300
million on the date of acquisition. The Commerce Bancorporation's total interest
and noninterest income and net loss for the period January 1 through
June 30, 1998, were $11.8 million and $3.2 million, respectively.
The acquisitions of Vectra Banking Corporation, FP Bancorp, Inc., and The
Commerce Bancorporation were accounted for as poolings of interests and
considered significant business combinations. Prior year amounts have been
restated.
A reconciliation between revenue and net income previously reported by the
Company for the year ended December 31, 1997, with the restated amounts
presented in the accompanying financial statements follows:
<TABLE>
<CAPTION>
Company Vectra FP
previously Banking Bancorp, The Commerce Company
reported Corporation Inc. Bancorporation restated
----------- ------------ ----------- ----------- -----------
<S> <C> <C> <C> <C> <C>
Total revenue .. $ 825,463 48,722 30,943 20,777 925,905
Net income ..... 122,362 3,097 4,383 4,458 134,300
</TABLE>
During 1998, the Company issued a total of 4,108,353 shares of common stock to
acquire eight additional banking organizations in Colorado, namely Sky Valley
Bank Corp., Tri-State Finance Corporation, Routt County National Bank
Corporation, SBT Bankshares, Inc., Kersey Bancorp., N.A., Eagle Holding Company,
Citizens Banco, Inc., and Mountain Financial Holding Company. Each of these
acquisitions was accounted for as a pooling of interests and was not significant
to the consolidated financial statements.
On October 1, 1998, the Company acquired The Sumitomo Bank of California
(Sumitomo), located in San Francisco, California. Cash consideration of
approximately $546 million was paid for the acquisition. Sumitomo had total
assets of approximately $4.5 billion at the date of acquisition. Sumitomo, as
well as FP Bancorp, Inc., was merged with Grossmont Bank and the name changed to
California Bank & Trust. The Company sold a minority interest in California Bank
& Trust to a limited partnership and a Director of the Company for its cost
basis of approximately $33 million.
The acquisition was accounted for as a purchase transaction. Accordingly, the
results of operations of Sumitomo are included with those of the Company for the
period October 1, 1998 through December 31, 1998. The following unaudited
amounts represent the Company and Sumitomo combined as if the acquisition had
occurred at January 1, 1998 and 1997, respectively (in thousands):
1998 1997
---------- ---------
Total revenue ........................ $1,452,000 1,315,000
Net income ........................... 141,800 154,600
Diluted net income per common share .. 1.89 1.86
55
<PAGE>
The major components of management's plan for the combined company include the
restructuring of operational functions and the consolidation of administrative
facilities. Total goodwill arising from the transaction was $106,684,000, which
will be amortized over a period of 25 years using the straight-line method. The
Company recorded an $18 million liability in the purchase business combination
and included such costs in the allocation of the purchase price. This liability
included $5,962,000 of salaries and benefits for Sumitomo executives and staff
who were terminated in relation to the acquisition. All of these individuals
were identified prior to the consummation of the merger, and the majority were
notified of the termination in early October 1998. In addition, a liability for
$1,385,000 was recorded in the combination for data service employees terminated
in relation to a system conversion. These employees were identified and notified
that the termination is anticipated as of February 1999.
Merger expenses in the accompanying consolidated statements of income are
summarized as follows:
1998 1997
------- -------
Sumitomo acquisition:
Severance and related employee benefits ..... $ 5,290 --
Real property lease terminations ............ 7,773 --
Integration of business operations .......... 5,834 --
Integration of information systems .......... 1,668 --
Other acquisition:
Incremental personnel-related costs ......... 11,314 --
Professional fees ........................... 5,957 940
Conversion and other miscellaneous charges .. 5,154 1,767
======= =======
$42,990 2,707
======= =======
The amounts set forth above for severance and related employee benefits and real
property lease terminations are included in accrued liabilities in the
accompanying consolidated balance sheets as of December 31, 1998. The severance
and related employee benefits costs of $5,290,000 are associated with the
termination of 250 branch employees of the acquired operation. In December 1998,
the decision to terminate these employees was made by management, and a formal
severance plan was adopted which outlined the amount of severance and type of
benefits to be received upon termination. This plan was communicated to all
Sumitomo employees at that time. Additionally, the real property lease
terminations costs of $7,773,000 represent the remaining noncancellable
obligation with respect to operating leases for several former Sumitomo branches
and production facilities. It is anticipated that the remaining liability
balance will be paid by the end of 1999, except for amounts related to long-term
real property leases.
The $7,502,000 costs for integration of business operations and information
systems primarily represent charges associated with the conversion of Sumitomo's
computer and networking systems, bonus payments, and relocation and recruiting
fees paid to hire new management.
56
<PAGE>
3. Investment Securities
Investment securities as of December 31, 1998, are summarized as follows (in
thousands):
<TABLE>
<CAPTION>
Held to maturity
-----------------------------------------------
Gross Gross Estimated
Amortized unrealized unrealized market
cost gains losses value
----------- ----------- ----------- -----------
<S> <C> <C> <C> <C>
U.S. Treasury securities ......................... $ 62,412 155 -- 62,567
U.S. government agencies and corporations:
Small Business Administration loan-backed
securities ................................ 358,161 1,065 3,110 356,116
Other agency securities ..................... 939,308 6,504 1,984 943,828
States and political subdivisions ................ 285,212 7,552 71 292,693
Mortgage-backed securities ....................... 1,158,810 7,787 266 1,166,331
----------- ----------- ----------- -----------
$ 2,803,903 23,063 5,431 2,821,535
=========== =========== =========== ===========
Available for sale
-----------------------------------------------
Gross Gross Estimated
Amortized unrealized unrealized market
cost gains losses value
----------- ----------- ----------- -----------
U.S. Treasury securities ......................... $ 45,738 1,002 4 46,736
U.S. government agencies and corporations:
Small Business Administration originator fees
certificates .............................. 84,933 -- 16,283 68,650
Other agency securities ..................... 112,291 1,401 46 113,646
States and political subdivisions ................ 15,198 497 3 15,692
Mortgage- and other asset-backed securities ...... 179,389 1,248 401 180,236
----------- ----------- ----------- -----------
437,549 4,148 16,737 424,960
Equity securities:
Mutual funds:
Accessor Funds, Inc. ...................... 116,566 1,865 10 118,421
Federal Home Loan Bank stock ................. 100,579 -- -- 100,579
Other stock .................................. 36,804 3,817 -- 40,621
----------- ----------- ----------- -----------
$ 691,498 9,830 16,747 684,581
=========== =========== =========== ===========
Investment securities as of December 31, 1997, are summarized as follows (in
thousands):
Held to maturity
-----------------------------------------------
Gross Gross Estimated
Amortized unrealized unrealized market
cost gains losses value
----------- ----------- ----------- -----------
U.S. Treasury securities ......................... $ 4,004 45 1 4,048
U.S. government agencies and corporations:
Small Business Administration loan-backed
securities ................................ 440,615 8,728 476 448,867
Other agency securities ..................... 1,425,656 7,036 1,099 1,431,593
States and political subdivisions ................ 240,217 5,999 834 245,382
Mortgage-backed securities ....................... 89,063 1,329 103 90,289
----------- ----------- ----------- -----------
$ 2,199,555 23,137 2,513 2,220,179
=========== =========== =========== ===========
Available for sale
-----------------------------------------------
Gross Gross Estimated
Amortized unrealized unrealized market
cost gains losses value
----------- ----------- ----------- -----------
U.S. Treasury securities ......................... $ 37,332 414 -- 37,746
U.S. government agencies and corporations:
Small Business Administration originator fees
certificates .............................. 75,371 -- 3,154 72,217
Other agency securities...................... 346,140 1,034 229 346,945
States and political subdivisions ................ 31,029 1,166 8 32,187
Mortgage- and other asset-backed securities ...... 82,764 1,060 80 83,744
----------- ----------- ----------- -----------
572,636 3,674 3,471 572,839
Equity securities:
Mutual funds:
Accessor Funds, Inc. ...................... 109,530 1,456 28 110,958
Federal Home Loan Bank stock ................. 97,711 -- -- 97,711
Other stock .................................. 24,338 1,463 36 25,765
----------- ----------- ----------- -----------
$ 804,215 6,593 3,535 807,273
=========== =========== =========== ===========
</TABLE>
57
<PAGE>
The amortized cost and estimated market value of investment securities as of
December 31, 1998, by contractual maturity, excluding equity securities, are
shown below. Expected maturities will differ from contractual maturities because
borrowers may have the right to call or prepay obligations with or without call
or prepayment penalties (in thousands):
<TABLE>
<CAPTION>
Held to maturity Available for sale
------------------------- ------------------------
Estimated Estimated
Amortized market Amortized market
cost value cost value
----------- ----------- ----------- ----------
<S> <C> <C> <C> <C>
Due in one year or less .................. $ 610,613 613,383 94,351 92,423
Due after one year through five years .... 1,230,153 1,242,212 232,083 227,727
Due after five years through ten years ... 811,749 814,078 63,843 60,013
Due after ten years ...................... 151,388 151,862 47,272 44,797
---------- ---------- ---------- ----------
$2,803,903 2,821,535 437,549 424,960
========== ========== ========== ==========
</TABLE>
Gross gains of $7,510,000, $9,179,000, and $490,000 and gross losses of
$5,368,000, $14,250,000, and $875,000 were recognized on sales and write downs
of investment securities for the years ended December 31, 1998, 1997, and 1996,
respectively.
As of December 31, 1998 and 1997, securities with an amortized cost of
$1,107,743,000 and $1,030,633,000, respectively, were pledged to secure public
and trust deposits, advances, and for other purposes as required by law.
4. Loans and Allowance for Loan Losses
Loans are summarized as follows (in thousands):
1998 1997
----------- -----------
Loans held for sale ...................... $ 232,253 178,642
Commercial, financial, and agricultural .. 2,691,915 1,445,417
Real estate:
Construction ......................... 866,548 566,844
Other ................................ 6,032,095 2,723,172
Consumer ................................. 539,349 524,894
Lease financing .......................... 213,410 176,514
Foreign .................................. 44,368 --
Other receivables ........................ 61,677 97,483
----------- -----------
$10,681,615 5,712,966
=========== ===========
As of December 31, 1998 and 1997, loans with a carrying value of
$63,125,000 and $188,417,000, respectively, were pledged as security for Federal
Home Loan Bank advances.
During 1998, 1997, and 1996, sales of loans held for sale totaled $1,238
million, $733 million, and $654 million, respectively. Consumer and other loan
securitizations totaled $895 million in 1998, $951 million in 1997, and $746
million in 1996, and relate primarily to loans sold under revolving
securitization structures. Gain on the sales, excluding servicing, of both loans
held for sale and loan securitizations amounted to $36.4 million in 1998, $28.3
million in 1997, and $25.8 million in 1996.
The allowance for loan losses is summarized as follows (in thousands):
1998 1997 1996
--------- --------- ---------
Balance at beginning of year ............ $ 91,571 86,249 79,757
Allowance for loan losses of companies
acquired ............................. 116,676 7,063 5,203
Additions:
Provision for loan losses ........... 12,179 7,758 6,526
Recoveries .......................... 9,355 7,042 6,763
Deductions:
Loan charge-offs .................... (24,228) (16,541) (12,000)
--------- --------- ---------
Balance at end of year .................. $ 205,553 91,571 86,249
========= ========= =========
At December 31, 1998, 1997, and 1996, the allowance for loan losses
includes an allocation of $20 million, $9 million, and $6 million, respectively,
related to commitments to extend credit and standby letters of credit.
The Company's total recorded investment in impaired loans amounted to
$41,000,000 and $10,000,000 as of December 31, 1998 and 1997, respectively.
Included in the allowance for loan losses as of December 31, 1998 and 1997, is a
required allowance of $5,000,000 and $300,000, respectively, on $11,600,000 and
$1,900,000, respectively, of the recorded investment in impaired loans.
Contractual interest due and interest foregone on impaired loans totaled
$3,797,000 and $2,051,000, respectively, for 1998, $1,670,000 and $751,000,
respectively, for 1997, and $1,626,000 and $731,000, respectively, for 1996. The
average recorded investment in impaired loans amounted to $17,551,000 in 1998,
$11,005,000 in 1997, and $9,534,000 in 1996.
58
<PAGE>
5. Concentrations of Credit Risk
Credit risk represents the loss that would be recognized subsequent to the
reporting date if counterparties failed to perform as contracted. Concentrations
of credit risk (whether on- or off-balance sheet) that arise from financial
instruments exist for groups of customers or counterparties when they have
similar economic characteristics that would cause their ability to meet
contractual obligations to be similarly affected by changes in economic or other
conditions. The Company does not have significant exposure to any individual
customer or counterparty.
Most of the Company's business activity is with customers located within the
states of Utah, Idaho, California, Colorado, Arizona, Nevada, and Washington.
The commercial loan portfolio is well diversified, consisting of 11 major
industry classification groupings. As of December 31, 1998, the larger
concentrations of risk in the commercial loan and leasing portfolio are
represented by the real estate, construction, business services and
transportation industry groupings. The Company has minimal credit exposure from
lending transactions with highly leveraged entities. The majority of foreign
loans are supported by domestic real estate or letters of credit.
6. PREMISES AND EQUIPMENT
The following table presents comparative data for premises and equipment (in
thousands):
1998 1997
-------- --------
Land .......................................... $ 46,456 32,767
Buildings ..................................... 137,353 85,467
Furniture and equipment ....................... 226,951 141,110
Leasehold improvements ........................ 48,385 18,353
-------- --------
Total ...................................... 459,145 277,697
Less accumulated depreciation and amortization 228,079 122,049
-------- --------
Net book value ............................. $231,066 155,648
======== ========
7. MORTGAGE SERVICING RIGHTS
Mortgage servicing rights, included in other assets in the accompanying balance
sheets, are summarized as follows (in thousands):
1998 1997
-------- --------
Balance at beginning of year .. $ 10,595 5,447
Additions ..................... 9,231 7,300
Obtained through acquisition .. 1,595 --
Amortization .................. (5,484) (2,152)
Sales ......................... (623) --
-------- --------
Balance at end of year ........ $ 15,314 10,595
======== ========
At December 31, 1998 and 1997, the aggregate fair value of mortgage servicing
rights was $20.4 million and $14.2 million, respectively. Fair values are
determined by discounted anticipated future net cash flows from mortgage
servicing activities considering market consensus loan prepayment predictions,
interest rates, servicing costs, and other economic factors.
8. Deposits
At December 31, 1998, the scheduled maturities of all time deposits are as
follows (in thousands):
1999 $3,300,783
2000 345,551
2001 93,665
2002 56,258
2003 and thereafter 72,670
---------
$3,868,927
=========
The aggregate amount of time deposits with a denomination of $100,000 or more
was $1,528,329,000 and $546,686,000 at December 31, 1998 and 1997, respectively.
At December 31, 1998, the contractual maturities of these deposits were as
follows: $780,318,000 in 3 months or less, $330,816,000 over 3 months through 6
months, $288,441,000 over 6 months through 12 months and $128,754,000 over 12
months.
Deposit overdrafts that have been reclassified as loan balances were $23.2
million and $40.2 million at December 31, 1998 and 1997, respectively.
59
<PAGE>
9. SHORT-TERM BORROWINGS
Short-term borrowings generally mature in less than 30 days. The following table
shows selected information for these borrowings (in thousands):
<TABLE>
<CAPTION>
1998 1997 1996
---------- --------- ---------
<S> <C> <C> <C>
Federal funds purchased:
Average amount outstanding .................. $ 401,412 329,502 225,964
Weighted average rate ....................... 4.61% 5.44% 5.45%
Highest month-end balance ................... 594,503 526,098 483,656
Year-end balance ............................ 337,283 350,109 191,909
Weighted average rate on outstandings at
year-end .................................. 4.58% 5.83% 6.26%
Security repurchase agreements:
Average amount outstanding .................. $1,442,260 1,892,962 1,139,394
Weighted average rate ....................... 4.77% 5.17% 4.93%
Highest month-end balance ................... 1,710,676 2,262,818 1,353,298
Year-end balance ............................ 932,560 1,042,156 811,833
Weighted average rate on outstandings at
year-end ................................. 4.40% 5.74% 4.76%
</TABLE>
The Company participates in overnight and term security repurchase agreements.
Most of the overnight agreements are performed with sweep accounts in
conjunction with a master repurchase agreement. In this case, securities under
the Company's control are pledged for and interest is paid on the collected
balance of the customers' accounts. For term repurchase agreements, securities
are transferred to the applicable counterparty.
10. Federal Home Loan Bank Advances and Other Borrowings
The following table presents comparative data for FHLB advances and other
borrowings over one year (in thousands):
1998 1997
-------- --------
Medium-term note payable by parent, 6.03% ... $ -- 50,000
FHLB advances payable by subsidiaries,
5.46%-7.30% ........................... 44,696 153,681
Notes payable, 5.60%-8.32% .................. 12,100 7,000
-------- --------
$ 56,796 210,681
======== ========
Federal Home Loan Bank advances as of December 31, 1998 are borrowed by Zions
First National Bank (ZFNB), a wholly-owned subsidiary, under its line of credit
with the Federal Home Loan Bank of Seattle. The line of credit provides for
borrowing of amounts up to ten percent of total assets. The line of credit is
secured under a blanket pledge whereby ZFNB maintains unencumbered collateral
with carrying amount, which has been adjusted using a pledge requirement
percentage based upon the types of collateral pledged, equal to at least 100
percent of outstanding advances and Federal Home Loan Bank stock.
Interest expense on FHLB advances and other borrowings over one year was
$6,602,000, $8,206,000, and $740,000 for the years ended December 31, 1998,
1997, and 1996, respectively.
10. Federal Home Loan Bank Advances and Other Borrowings (continued)
Maturities of Federal Home Loan Bank advances and other borrowings over one year
are as follows (in thousands):
1999 $ 15,393
2000 9,833
2001 3,320
2002 2,515
2003 2,862
Thereafter 22,873
---------
$ 56,796
=========
11. Long-term Debt
Long-term debt is summarized as follows (in thousands):
1998 1997
-------- --------
Guaranteed preferred beneficial interests in junior
subordinated deferrable interest debentures ........... $223,000 225,000
Subordinated notes:
Floating rate subordinated notes, maturity 2005-2008 .. 177,000 --
8.625%-9.00% subordinated notes, maturity in 1998-2002. 50,150 54,575
Capital leases and other notes payable ................... 3,585 1,066
-------- --------
$453,735 280,641
======== ========
The guaranteed preferred beneficial interests in junior subordinated deferrable
interest debentures include $200 million of 8.536 percent debentures issued by
Zions Institutional Capital Trust A (ZICTA), $5.5 million of 10.25 percent
debentures issued by GB Capital Trust
60
<PAGE>
(GBCT), and $17.5 million of 9.50 percent debentures issued by VBC Capital
I Trust (VBCCIT).
The ZICTA debentures are direct and unsecured obligations of ZFNB and are
subordinate to the claims of depositors and general creditors. The Company has
irrevocably and unconditionally guaranteed all of ZFNB's obligations under the
debentures. The GBCT and VBCCIT debentures are direct and unsecured obligations
of the Company through the acquisition of GB Bancorporation and Vectra Banking
Corporation, and are subordinate to other indebtedness and general creditors of
the Company. ZICTA, GBCT, and VBCCIT debentures have the right, with the
approval of banking regulators, to early redemption in 2006, 2007, and 2002,
respectively. ZICTA and GBCT debentures require semiannual interest payments and
mature on December 15, 2026 and January 15, 2027, respectively. VBCCIT
debentures require quarterly interest payments and mature on April 30, 2027.
Floating-rate subordinated notes consist of $67 million callable in 2000 and
$110 million callable in 2003. These notes require quarterly interest payments.
Subordinated notes also include $50 million of 8.625 percent notes which are not
redeemable prior to maturity and require semiannual interest payments. All
subordinated notes are unsecured.
Interest expense on long-term debt was $29,051,000, $24,600,000, and
$10,539,000 for the years ended December 31, 1998, 1997, and 1996, respectively.
Maturities and sinking fund requirements on long-term debt at December 31, 1998
for each of the succeeding five years are as follows (in thousands):
Consoli- Parent
dated only
-------- --------
1999 $ 609 -
2000 485 -
2001 424 -
2002 50,427 50,000
2003 437 -
Thereafter 401,353 177,000
--------- ---------
$ 453,735 227,000
========= =========
12. Commitments and Contingent Liabilities
The Company is a party to financial instruments with off-balance sheet risk in
the normal course of business to meet the financing needs of its customers, to
reduce its own exposure to fluctuations in interest rates, and to make a market
in U.S. government, agency, and municipal securities. These financial
instruments involve, to varying degrees, elements of credit, liquidity, and
interest rate risk in excess of the amount recognized in the balance sheets.
Contractual amounts of the off-balance sheet financial instruments used to meet
the financing needs of the Company's customers are as follows (in thousands):
1998 1997
---------- ----------
Commitments to extend credit .. $4,583,488 2,658,369
Standby letters of credit:
Performance ............... 69,648 88,133
Financial ................. 104,530 40,279
Commercial letters of credit .. 25,294 10,043
Commitments to extend credit are agreements to lend to a customer as long as
there is no violation of any condition established in the contract. Commitments
generally have fixed expiration dates or other termination clauses and may
require the payment of a fee. The amount of collateral obtained, if deemed
necessary by the Company upon extension of credit, is based on management's
credit evaluation of the counterparty. Collateral varies but may include
accounts receivable, inventory, property, plant and equipment, and
income-producing properties.
Establishing commitments to extend credit gives rise to credit risk. As of
December 31, 1998, a significant portion of the Company's commitments is
expected to expire without being drawn upon; commitments totaling $3,192,208,000
expire in 1999. As a result, the Company's actual future credit exposure or
liquidity requirements will be lower than the contractual amounts of the
commitments. The Company uses the same credit policies and procedures in making
commitments to extend credit and conditional obligations as it does for
on-balance sheet instruments. These policies and procedures include credit
approvals, limits, and monitoring.
Standby and commercial letters of credit are conditional commitments issued by
the Company generally to guarantee the performance of a customer to a third
party. The guarantees are primarily issued to support public and private
borrowing arrangements, including commercial paper, bond financing, and similar
transactions. Standby letters of credit include commitments in the amount of
$145,395,000 expiring in 1999 and $28,783,000 expiring thereafter through 2012.
The credit
61
<PAGE>
risk involved in issuing letters of credit is essentially the same as
that involved in extending loan facilities to customers. The Company generally
holds marketable securities and cash equivalents as collateral supporting those
commitments for which collateral is deemed necessary.
Notional values of interest rate contracts are summarized as follows (in
thousands):
1998 1997
---------- ----------
Caps and floors - written .. $ 707,137 1,052,000
Swaps ...................... 1,364,584 701,331
Forwards ................... 133,204 87,565
Options .................... -- 3,000
The Company enters into interest rate cap, floor, exchange contract (swap),
forward, and option agreements as part of its overall asset and liability
duration and interest rate risk management strategy. These transactions enable
the Company to manage asset and liability durations, and transfer, modify, or
reduce its interest rate risk. With the exception of interest rate caps and
floors, these instruments are used to hedge asset and liability portfolios and,
therefore, are not marked to market. The notional amounts of the contracts are
used to express volume, but the amounts potentially subject to credit risk are
much smaller. Exposure to credit risk arises from the possibility of
nonperformance by counterparties to the interest rate contracts. The Company
controls this credit risk (except futures contracts and interest rate cap and
floor contracts written, for which credit risk is de minimus) through credit
approvals, limits, and monitoring procedures. As the Company generally enters
into transactions only with high-quality counterparties, no losses associated
with counterparty nonperformance on interest rate contracts have occurred.
Nevertheless, the related credit risk is considered and provided for in the
allowance for loan losses.
Interest rate caps and floors obligate one of the parties to the contract to
make payments to the other if an interest rate index exceeds a specified upper
"capped" level or if the index falls below a specified "floor" level. The
interest rate caps and floors to which the Company is a party at December 31,
1998, have remaining terms of three to twenty-three years.
Interest rate swaps generally involve the exchange of fixed and variable rate
interest payment obligations based on an underlying notional value, without the
exchange of the notional value. Entering into interest rate swap agreements
involves not only the risk of dealing with counterparties and their ability to
meet the terms of the contract but also the interest rate risk associated with
unmatched positions. Swaps to which the Company is a party at December 31, 1998,
have remaining terms ranging from one to six years.
Forwards are contracts for the delayed delivery of financial instruments in
which the seller agrees to deliver on a specified future date, a specified
instrument, at a specified price or yield. As of December 31, 1998, the
Company's forward contracts have remaining terms ranging from one to four
months. An option contract is an agreement that conveys to the purchaser the
right, but not the obligation, to buy or sell a quantity of a financial
instrument or commodity at a predetermined rate or price on a specified future
date.
As a market maker in U.S. government, agency, and municipal securities, the
Company enters into agreements to purchase and sell such securities. As of
December 31, 1998 and 1997, the Company had outstanding commitments to purchase
securities of $532,749,000 and $76,870,000, respectively, and outstanding
commitments to sell securities of $528,711,000 and $75,717,000, respectively.
These agreements at December 31, 1998, have remaining terms of one month or
less.
The contract or notional amount of financial instruments indicates a level of
activity associated with a particular class of financial instrument and is not a
reflection of the actual level of risk. As of December 31, 1998 and 1997, the
regulatory risk-weighted values assigned to all off-balance sheet financial
instruments described herein totaled $895,337,000 and $340,611,000,
respectively.
The Company has a total of $65.0 million available in lines of credit from
two separate institutions. At December 31, 1998, the Company had drawn $37.0
million on these lines, with interest rates ranging from 5.52 percent to 5.93
percent. There were no compensating balance arrangements on either of these
lines of credit.
At December 31, 1998, the Company was required to maintain a cash balance of
$69.5 million with the Federal Reserve Banks to meet minimum balance
requirements in accordance with Federal Reserve Board regulations.
The Company is a defendant in various legal proceedings arising in the normal
course of business. The Company
62
<PAGE>
does not believe that the outcome of any such proceedings will have a
material adverse effect on its consolidated financial position, operations, or
liquidity.
The Company has commitments for leasing premises and equipment under the terms
of noncancelable operating leases expiring from 1999 to 2031. Future aggregate
minimum rental payments under existing noncancelable leases at December 31, 1998
are as follows (in thousands):
Capital Operating
leases leases
-------- ---------
1999 $ 606 20,587
2000 521 17,973
2001 477 15,040
2002 479 13,574
2003 479 12,001
Thereafter 1,734 38,212
--------- ---------
$ 4,296 117,387
========= =========
Future aggregate minimum rental payments have been reduced by noncancelable
subleases as follows: 1999, $532,646; 2000, $491,742; 2001, $387,747; 2002,
$301,368; 2003, $196,706; and thereafter $5,973,921. Aggregate rental expense on
operating leases amounted to $31,417,000, $19,281,000, and $15,370,000 for the
years ended December 31, 1998, 1997, and 1996, respectively.
13. Stock Options
The Company adopted a qualified stock option plan in 1981, under which stock
options may be granted to key employees; and a nonqualified plan under which
options may be granted to nonemployee directors. Under the qualified plan and
nonqualified plan, respectively, 3,244,000 and 400,000 shares of common stock
were reserved.
No compensation expense was recorded for the qualified and nonqualified option
plans, as the exercise price was equal to the quoted market price of the stock
at the time of grant. Options granted are generally exercisable in increments
from one to four years after the date of grant and expire six years after the
date of grant. Under the nonqualified plan, options expire five to ten years
from the date of grant. At December 31, 1998, there were 83,962 and 295,000
additional shares available for grant under the qualified and nonqualified plan,
respectively.
During 1998, the Company adopted a broad-based employee stock option plan in
substitution of an employee profit-sharing plan, which assets were comprised of
Company common stock. Substantially all participants of the employee
profit-sharing plan are eligible to participate in the employee stock option
plan. The Company bases participation in the employee stock option plan upon
employment for a full year prior to the option grant date with service of 20
hours a week or more. Stock options will be granted to eligible employees based
on an internal job grade structure. All options vest at a rate of one third each
year with expiration at four years after grant date. At December 31, 1998, there
were 300,000 options authorized with 163,908 options outstanding. The plan is
noncompensatory and results in no expense to the Company, as the exercise price
of the options is equal to the quoted market price of the stock at the option
grant date.
The per share weighted-average fair value of stock options granted during 1998,
1997, and 1996 was $7.42, $10.33, and $5.19, respectively, on the date of grant
using the Black-Scholes option-pricing model with the following weighted-average
assumptions:
1998 1997 1996
--------- --------- ---------
Expected dividend yield ... 1.39% 1.55% 2.26%
Risk-free interest rate ... 5.34% 6.51% 6.30%
Expected volatility ....... 33.94% 22.17% 23.19%
Expected life ............. 5.5 years 5.5 years 5.5 years
Had the Company determined compensation cost based on the fair value at the
grant date for its stock options under Statement No. 123, the Company's net
income and earnings per share would have been reduced to the pro forma amounts
indicated below:
1998 1997 1996
-------- ------- -------
Net income (in thousands):
As reported .............. $146,847 134,300 120,418
Pro forma ................ 144,730 131,254 119,647
Earnings per share:
As reported:
Basic .................. $ 1.93 1.88 1.69
Diluted ................ 1.91 1.84 1.66
Pro forma:
Basic .................. 1.91 1.84 1.68
Diluted ................ 1.88 1.80 1.65
Pro forma amounts reflect only stock-based compensation grants made after 1994.
The full impact of calculating compensation cost for stock options under
Statement No. 123 is not reflected in the pro forma amounts presented above
because compensation cost is reflected over the options' vesting period and
compensation cost of options granted prior to January 1, 1995 is not considered.
63
<PAGE>
The following table is a summary of the Company's stock option activity and
related information for the three years ended December 31, 1998:
Weighted
Number average
of exercise
shares price
--------- -------------
Balance at December 31, 1995 ................ 2,116,325 $ 8.33
Granted ................................. 842,309 13.89
Exercised ............................... (648,332) 6.42
Forfeited ............................... (78,112) 3.92
Expired ................................. (10,000) 6.03
---------
Balance at December 31, 1996 ................ 2,222,190 11.16
Acquired ................................ 184,991 12.54
Granted ................................. 703,258 27.48
Exercised ............................... (835,358) 8.94
Forfeited ............................... (47,767) 13.25
---------
Balance at December 31, 1997 ................ 2,227,314 17.21
Acquired ................................ 95,174 4.99
Granted ................................. 1,005,383 47.21
Exercised ............................... (588,138) 12.31
Forfeited ............................... (25,963) 32.82
---------
Balance at December 31, 1998 ................ 2,713,770 28.81
=========
Outstanding options exercisable as of:
December 31, 1998 ....................... 1,116,087 14.90
December 31, 1997 ....................... 717,824 10.54
December 31, 1996 ....................... 804,092 7.17
Selected information on stock options as of December 31, 1998 follows:
<TABLE>
<CAPTION>
Outstanding options Exercisable options
-------------------------------------- --------------------------
Weighted-
Weighted- average Weighted-
average remaining average
Number of exercise contractual Number of exercise
Exercise price range shares price life shares price
- ------------------------- ---------- ----------- ---------- ---------- -----------
<S> <C> <C> <C> <C> <C> <C>
$2.38 to $18.98 ......... 1,122,179 $ 12.18 5.9 years 867,619 $ 11.29
$21.89 to $31.00 ........ 593,108 14.46 5.4 237,468 26.50
$39.13 to $43.50 ........ 231,408 42.42 4.3 -- --
$46.38 to $56.00 ........ 767,075 48.76 5.5 11,000 49.20
--------- ---------
2,713,770 $ 28.81 5.6 years 1,116,087 $ 14.90
========= =========
</TABLE>
14. Net Income Per Common Share
Basic and diluted net income per common share, based on the weighted-average
outstanding shares, are summarized as follows (in thousands, except per share
amounts):
1998 1997 1996
-------- -------- --------
Basic:
Net income .................................... $146,847 134,300 120,418
Less preferred dividends ...................... 46 1,353 1,211
-------- -------- --------
Net income applicable to common stock ......... $146,801 132,947 119,207
-------- -------- --------
Average common shares outstanding ............. 75,868 70,535 70,389
-------- -------- --------
Net income per common share - basic ........... $ 1.93 1.88 1.69
======== ======== ========
Diluted:
Net income applicable to common stock ......... $146,801 132,947 119,207
-------- -------- --------
Average common shares outstanding ............. 75,868 70,535 70,389
Stock option adjustment ....................... 1,120 2,278 1,769
-------- -------- --------
Average common shares outstanding - diluted ... 76,988 72,813 72,158
-------- -------- --------
Net income per common share - diluted ......... $ 1.91 1.84 1.66
======== ======== ========
15. Shareholder Rights Protection Plan
The Company has in place a Shareholder Rights Protection Plan. The Shareholder
Rights Protection Plan contains provisions intended to protect shareholders in
the event of unsolicited offers or attempts to acquire the Company, including
offers that do not treat all shareholders equally, acquisitions in the open
market of shares constituting control without offering fair value to
64
<PAGE>
all shareholders, and other coercive or unfair takeover tactics that could
impair the Board of Directors' ability to represent shareholders' interests
fully. The Shareholder Rights Protection Plan provides that attached to each
share of common stock is one right (a "Right") to purchase one one-hundredth of
a share of participating preferred stock for an exercise price of $90, subject
to adjustment.
The Rights have certain anti-takeover effects. The Rights may cause substantial
dilution to a person that attempts to acquire the Company without the approval
of the Board of Directors. The Rights, however, should not affect offers for all
outstanding shares of common stock at a fair price and, otherwise, in the best
interests of the Company and its shareholders as determined by the Board of
Directors. The Board of Directors may, at its option, redeem all, but not fewer
than all, of the then outstanding Rights at any time until the 10th business day
following a public announcement that a person or a group had acquired beneficial
ownership of 10 percent or more of the Company's outstanding common stock or
total voting power.
16. Income Taxes
Income taxes are summarized as follows (in thousands):
1998 1997 1996
------- ------ ------
Federal:
Current .... $59,119 59,007 48,015
Deferred ... 874 4,381 2,779
State .......... 10,869 8,830 8,870
------- ------ ------
$70,862 72,218 59,664
======= ====== ======
A reconciliation between income tax expense computed using the statutory federal
income tax rate of 35 percent and actual income tax expense is as follows (in
thousands):
<TABLE>
<CAPTION>
1998 1997 1996
-------- -------- --------
<S> <C> <C> <C>
Income tax expense at statutory federal rate .... $ 76,384 72,281 63,029
State income taxes, net ......................... 7,065 5,740 5,766
Nondeductible expenses .......................... 6,027 3,125 1,762
Nontaxable interest ............................. (7,926) (6,140) (6,086)
Tax credits and other taxes ..................... (1,877) (1,826) (1,597)
Deferred tax assets realized .................... -- -- 246
Corporate reorganization ........................ (6,117) -- --
Decrease in valuation allowance ................. (1,992) (843) (2,454)
Other items ..................................... (702) (119) (1,002)
-------- -------- --------
Income tax expense ....................... $ 70,862 72,218 59,664
======== ======== ========
</TABLE>
The tax effects of temporary differences that give rise to significant portions
of the deferred tax assets and deferred tax liabilities as of December 31, 1998
and 1997, are presented below (in thousands):
1998 1997
--------- ---------
Gross deferred tax assets:
Book loan loss deduction in excess of tax ......... $ 75,913 32,087
Postretirement benefits ........................... 9,258 2,517
Deferred compensation ............................. 7,993 6,289
Deferred loan fees ................................ 5,059 1,233
Deferred agreements ............................... 3,046 3,427
Capital leases .................................... 3,268 --
Acquired net operating losses ..................... 3,536 4,730
Other real estate owned ........................... 4,890 463
Accrued severance costs ........................... 3,361 --
Other ............................................. 15,133 9,623
--------- ---------
Total deferred tax assets ....................... 131,457 60,369
Less valuation allowance .......................... -- 1,992
--------- ---------
Total deferred tax assets net of valuation
allowance ..................................... 131,457 58,377
--------- ---------
Gross deferred tax liabilities:
Premises and equipment, due to differences in
depreciation .................................... $ (7,568) (5,185)
FHLB stock dividends .............................. (18,100) (15,536)
Leasing operations ................................ (28,267) (21,396)
Prepaid pension reserves .......................... (1,405) (818)
Mortgage servicing ................................ (2,176) (1,513)
Other ............................................. (5,275) (1,992)
--------- ---------
Total deferred tax liabilities ................... (62,791) (46,440)
--------- ---------
Statement No. 115 market equity adjustment ............ 3,154 (2,250)
--------- ---------
Net deferred tax assets ........................ $ 71,820 9,687
========= =========
The Company has determined that it is not required to establish a valuation
reserve for the net deferred tax assets since it is "more likely than not" that
such net assets will be principally realized through future taxable income and
tax planning strategies. The Company's conclusion that it is "more likely than
not" that the net deferred tax assets will be realized is based on history of
growth in earnings and the prospects for continued growth and profitability.
The Company has net operating loss carryforwards totaling $15,726,000 that
expire yearly through the year 2010.
65
<PAGE>
17. Regulatory Matters
The Company is subject to various regulatory capital requirements administered
by the federal banking agencies. Failure to meet minimum capital requirements
can initiate certain mandatory--and possibly additional discretionary--actions
by regulators that, if undertaken, could have a direct material effect on the
Company's consolidated financial statements. Under capital adequacy guidelines
and the regulatory framework for prompt corrective action, the Company must meet
specific capital guidelines that involve quantitative measures of the Company's
assets, liabilities, and certain off-balance sheet items as calculated under
regulatory accounting practices. The Company's capital amounts and
classification are also subject to qualitative judgments by the regulators about
components, risk weightings, and other factors.
Quantitative measures established by regulation to ensure capital adequacy
require the Company to maintain minimum amounts and ratios (set forth in the
table below) of total and Tier I capital (as defined in the regulations) to
risk-weighted assets (as defined), and of Tier I capital (as defined) to average
assets (as defined). Management believes, as of December 31, 1998, that the
Company meets all capital adequacy requirements to which it is subject.
As of December 31, 1998, the Company's capital ratios significantly exceeded the
minimum capital levels and is considered well capitalized under the regulatory
framework for prompt corrective action. To be categorized as well capitalized,
the Company must maintain minimum total risk-based, Tier I risk-based, and Tier
I leverage ratios as set forth in the table. There are no conditions or events
that management believes have changed the Company's category.
The actual capital amounts and ratios of the Company and significant banking
subsidiaries are as follows (in thousands):
<TABLE>
<CAPTION>
For capital adequacy To be
Actual purposes well capitalized
----------------- ------------------ -----------------
Amount Ratio Amount Ratio Amount Ratio
---------- ----- ---------- ----- ---------- -----
<S> <C> <C> <C> <C> <C> <C>
As of December 31, 1998:
Total capital (to
risk-weighted assets)
The Company ................. $1,358,821 11.48% $ 946,588 8.00% $1,183,235 10.00%
Zions First National Bank ... 619,720 15.15 327,189 8.00 408,986 10.00
California Bank & Trust ..... 477,685 10.78 354,567 8.00 443,209 10.00
Tier I capital (to
risk-weighted assets)
The Company ................. 1,000,653 8.46 473,294 4.00 709,941 6.00
Zions First National Bank ... 369,840 9.04 163,594 4.00 245,391 6.00
California Bank & Trust ..... 312,976 7.06 177,284 4.00 265,925 6.00
Tier I capital (to average
assets)
The Company ................. 1,000,653 5.98 501,933 3.00 836,555 5.00
Zions First National Bank ... 369,840 5.56 199,718 3.00 332,864 5.00
California Bank & Trust ..... 312,976 5.40 173,948 3.00 289,913 5.00
As of December 31, 1997:
Total capital (to
risk-weighted assets)
The Company ............... $ 879,292 13.42% $ 524,339 8.00% $ 655,424 10.00%
Zions First National Bank ... 604,475 18.22 265,430 8.00 331,788 10.00
Tier I capital (to
risk-weighted assets)
The Company ................. 757,245 11.55 262,170 4.00 393,254 6.00
Zions First National Bank ... 362,951 10.94 132,715 4.00 199,073 6.00
Tier I capital (to average
assets)
The Company ................. 757,245 6.83 332,829 3.00 554,715 5.00
Zions First National Bank ... 362,951 5.66 192,417 3.00 320,695 5.00
</TABLE>
Dividends declared by the Company's national banking subsidiaries in any
calendar year may not, without the approval of the appropriate federal
regulator, exceed their net earnings for that year combined with their net
earnings less dividends paid for the preceding two years. At December 31, 1998,
the Company's subsidiaries had approximately $53.5 million available for the
payment of dividends under the foregoing restrictions.
66
<PAGE>
18. Retirement Plans
The Company has a noncontributory defined benefit pension plan for eligible
employees. Plan benefits are based on years of service and employees'
compensation levels. Benefits vest under the plan upon completion of five years
of service. Plan assets consist principally of corporate equity and debt
securities and cash investments.
Effective January 1, 1997, the plan was amended such that plan benefits are now
defined as a lump-sum cash value or an annuity at age 65. The 1997 income from
curtailment resulted from the merger of Grossmont Bank plan participants into
the Company's plan at December 31, 1997.
On January 1, 1998, the Company adopted the provisions of Statement of
Financial Accounting Standards (Statement) No. 132. Statement No. 132 revises
employer's disclosures about pension and other postretirement benefit plans.
Statement No. 132 does not change the method of accounting for such plans.
The following table presents the change in the plan's benefit obligation
for the years ended December 31, 1998 and 1997, as follows (in thousands):
1998 1997
--------- ---------
Benefit obligation at beginning of year ... $ 66,267 55,709
Service cost .............................. 5,587 3,455
Interest cost ............................. 5,192 4,313
Acquisitions .............................. 41,626 5,720
Curtailments .............................. -- (1,551)
Actuarial (gain) loss ..................... (5,536) 1,585
Benefits paid ............................. (4,163) (2,964)
--------- ---------
Benefit obligation at end of year ... $ 108,973 66,267
========= =========
Plan assets included 86,760 shares of Company common stock as of December 31,
1998 and 1997. The following table presents the change in plan assets for the
years ended December 31, 1998 and 1997, as follows (in thousands):
1998 1997
--------- ---------
Fair value of plan assets at beginning of year .. $ 72,966 54,173
Actual return on plan assets .................... 10,534 15,103
Acquisitions .................................... 27,831 5,679
Employer contributions .......................... 77 975
Benefits paid ................................... (4,163) (2,964)
--------- ---------
Fair value of plan assets at end of year .. $ 107,245 72,966
========= =========
The following table presents the plan's funded status reconciled with amounts
recognized in the Company's consolidated balance sheets at December 31, 1998 and
1997, as follows (in thousands):
1998 1997
------- -------
Funded status ................................ $(1,728) 6,699
Unrecognized net actuarial loss .............. 685 1,582
Unrecognized net transition asset ............ (663) (1,147)
Unrecognized prior service cost .............. (3,296) (3,659)
------- -------
Net prepaid cost (accrued liability) ... $(4,942) 3,475
======= =======
The ending net accrued liability and net prepaid benefit cost at December 31,
1998 and 1997, respectively, is fully recognized in the Company's respective
consolidated balance sheets.
Net periodic benefit cost recognized for the years ended December 31, 1998,
1997, and 1996, includes the following components (in thousands):
1998 1997 1996
------- ------- -------
Service cost ................................. $ 5,587 3,456 3,702
Interest cost ................................ 5,192 4,312 4,094
Expected return on plan assets ............... (6,581) (5,235) (4,724)
Amortization of prior service cost ........... (424) (423) (122)
Amortization of transitional asset ........... (484) (634) (634)
Recognized actuarial loss .................... -- 347 826
------- ------- -------
Net periodic benefit cost recognized ... $ 3,020 1,823 3,142
======= ======= =======
The weighted average discount rate used in determining the pension benefit
obligation was 6.75% and 7.00% in 1998 and 1997, respectively. The rate of
compensation increase and the expected long-term rate of return were 5.00% and
9.00%, respectively, for both 1998 and 1997. Any net transition asset or
obligation and any unrecognized prior service cost are being amortized on a
straight-line basis. Unrecognized gains and losses are amortized using the
minimum recognition method described in paragraph 32 of Statement of Financial
Accounting Standards No. 87.
67
<PAGE>
The Company also sponsors three unfunded, nonqualified supplemental executive
retirement plans, which restore pension benefits limited by federal tax law. At
December 31, 1998 and 1997, the Company's liability included in accrued expenses
totaled $5.4 million and $2.6 million, respectively.
In addition to the Company's defined benefit pension plan, the Company sponsors
a defined benefit health care plan that provides postretirement medical benefits
to full-time employees hired before January 1, 1993, who meet minimum age and
service requirements. The plan is contributory, with retiree contributions
adjusted annually, and contains other cost-sharing features such as deductibles
and coinsurance. Plan coverage is provided by self-funding or health maintenance
organizations (HMOs) options. Reductions in the Company's obligations to provide
benefits resulting from cost sharing changes have been applied to reduce the
plan's unrecognized transition obligation. The Company's retiree premium
contribution rate is frozen at 50 percent of 1996 dollar amounts. The Company's
policy is to fund the cost of medical benefits in amounts determined at the
discretion of management.
The following table presents the change in the plan's benefit obligation
for the years ended December 31, 1998 and 1997, as follows (in thousands):
1998 1997
------- -------
Benefit obligation at beginning of year .... $ 3,817 3,747
Service cost ............................... 114 111
Interest cost .............................. 230 270
Actuarial gain ............................. (434) --
Benefits paid .............................. 254 311
------- -------
Benefit obligation at end of year .... $ 3,473 3,817
======= =======
The following table presents the plan's funded status reconciled with amounts
recognized in the Company's consolidated balance sheets at December 31, 1998 and
1997, as follows (in thousands):
1998 1997
------- -------
Benefit obligation at end of year ... $ 3,473 3,817
Unrecognized net actuarial gain ..... (1,821) (1,947)
======= =======
Accrued benefit cost .......... $ 5,294 5,764
======= =======
Net periodic benefit cost recognized for the years ended December 31, 1998,
1997, and 1996, includes the following components (in thousands):
1998 1997 1996
----- ----- -----
Service cost ........................ $ 114 111 195
Interest cost ....................... 230 270 414
Recognized net gain ................. (515) (487) --
===== ===== =====
Net periodic benefit cost ... $(171) (106) 609
===== ===== =====
The weighted-average discount rate used in determining the accumulated
postretirement benefit obligation was 7.0 percent at December 31, 1998 and 7.5
percent at December 31, 1997.
The actuarial assumed health care cost trend rate is 7.0 percent for 1999,
decreasing to an ultimate level of 5 percent for the years 2003 and thereafter.
The effect of a one-percentage point increase and decrease in the assumed health
care cost trend rate at December 31, 1998 would be a $352,000 increase and a
$341,000 decrease, respectively, to the aggregate service and interest cost
components of the net periodic postretirement health care benefit cost and a
$3,503,000 increase and a $3,444,000 decrease, respectively, to the accumulated
postretirement benefit obligation for health care benefits.
The Company has an Employee Stock Savings Plan and an Employee Investment
Savings Plan (PAYSHELTER). Under PAYSHELTER, employees select from a
nontax-deferred or tax-deferred plan and several investment alternatives.
Employees can contribute from 1 to 15 percent of compensation, which is matched
up to 50 percent by the Company for contributions up to 5 percent and 25 percent
for contributions greater than 5 percent up to 10 percent. The Company's
contributions to the plans amounted to $3,577,000, $2,672,000, and $2,198,000
for the years ended December 31, 1998, 1997, and 1996, respectively.
The Company terminated its broad-based employee profit-sharing plan and replaced
it with a broad-based Employee Stock Option Plan, as discussed in note 13.
68
<PAGE>
19. FAIR VALUE OF FINANCIAL INSTRUMENTS
Financial assets and financial liabilities other than investment securities of
the Company are not traded in active markets. The above estimates of fair value
require subjective judgments and are approximate. Changes in the following
methodologies and assumptions could significantly affect the estimates.
FINANCIAL ASSETS
The estimated fair value approximates the carrying value of
cash and due from banks and money market investments. For securities, the fair
value is based on quoted market prices where available. If quoted market prices
are not available, fair values are based on quoted market prices of comparable
instruments or a discounted cash flow model based on established market rates.
The fair value of fixed-rate loans is estimated by discounting future cash flows
using the London Interbank Offered Rate (LIBOR) yield curve adjusted by a factor
which reflects the credit and interest rate risk inherent in the loan.
Variable-rate loans reprice with changes in market rates. As such their carrying
amounts are deemed to approximate fair value. The fair value of the allowance
for loan losses of $205,553,000 and $91,571,000 at December 31, 1998 and 1997,
respectively, is the present value of estimated net charge-offs.
FINANCIAL LIABILITIES
The estimated fair value of demand and savings deposits, securities sold
not yet purchased, and federal funds purchased and security repurchase
agreements approximates the carrying value. The fair value of time and foreign
deposits is estimated by discounting future cash flows using generally the LIBOR
yield curve. Substantially all FHLB advances reprice with changes in market
interest rates or have short terms to maturity. The carrying value of such
indebtedness is deemed to approximate market value. Other borrowings are not
significant. The estimated fair value of the subordinated notes is based on a
quoted market price. The remaining long-term debt is not significant.
OFF-BALANCE SHEET FINANCIAL INSTRUMENTS
The fair value of the caps, floors, and swaps reflects the estimated
amounts that the Company would receive or pay to terminate the contracts at the
reporting date based upon pricing or valuation models applied to current market
information, thereby taking into account the current unrealized gains or losses
of open contracts. The carrying amounts include unamortized fees paid or
received and deferred gains or losses.The fair value of commitments to extend
credit and letters of credit, based on fees currently charged for similar
commitments, is not significant.
Carrying value and estimated fair value of principal financial instruments
are summarized as follows (in thousands):
<TABLE>
<CAPTION>
December 31, 1998 December 31, 1997
--------------------------- ---------------------------
Carrying Estimated Carrying Estimated
value fair value value fair value
------------ ------------ ------------ ------------
<S> <C> <C> <C> <C>
Financial assets:
Cash and due from banks ...................... $ 864,446 864,446 710,171 710,171
Money market investments ..................... 612,205 612,205 853,518 853,518
Investment securities ........................ 3,680,339 3,697,971 3,090,509 3,111,133
Loans, net ................................... 10,427,939 10,662,279 5,577,331 5,626,531
------------ ------------ ------------ ------------
Total financial assets ................... $ 15,584,929 15,836,901 10,231,529 10,301,353
============ ============ ============ ============
Financial liabilities:
Demand, savings, and money market deposits ... $ 9,247,992 9,247,992 6,062,162 6,062,162
Time deposits ................................ 3,868,927 3,898,832 1,711,028 1,708,086
Foreign deposits ............................. 204,244 205,812 183,044 183,156
Securities sold, not yet purchased ........... 29,702 29,702 45,067 45,067
Federal funds purchased and security
repurchase agreements ...................... 1,269,843 1,269,843 1,392,265 1,392,265
FHLB advances and other borrowings ........... 206,763 209,797 279,614 287,425
Long-term debt ............................... 453,735 460,104 280,641 295,374
------------ ------------ ------------ ------------
Total financial liabilities ................ $ 15,281,206 15,322,082 9,953,821 9,973,535
============ ============ ============ ============
Off-balance sheet instruments:
Caps and floors:
Written ................................... $ (3,123) (3,123) (1,099) (1,099)
Purchased ................................. -- -- -- --
Swaps ........................................ -- 7,103 -- 4,642
Forwards ..................................... -- (331) -- (442)
------------ ------------ ------------ ------------
Total off-balance sheet instruments ...... $ (3,123) 3,649 (1,099) 3,101
============ ============ ============ ============
</TABLE>
69
<PAGE>
The following is a summary of selected operating segment information for the
years ended December 31, 1998, 1997, and 1996 (in thousands):
<TABLE>
<CAPTION>
First Nevada The
National California Vectra National State Commerce
Bank and Bank & Bank Bank of Bank and Bank of Consolidated
Subsidiaries Trust Colorado Arizona Subsidiary Washington Other Company
----------- ----------- ----------- ----------- ----------- ----------- ----------- -----------
<S> <C> <C> <C> <C> <C> <C> <C> <C>
1998:
Net interest income ...... $ 222,044 117,808 78,308 70,687 50,397 13,939 (9,420) 543,763
Provision for loan losses 23,000 (18,447) 4,588 1,800 1,560 78 (400) 12,179
----------- ----------- ----------- ----------- ----------- ----------- ----------- -----------
Net interest income after
provision for loan losses 199,044 136,255 73,720 68,887 48,837 13,861 (9,020) 531,584
Noninterest income ....... 142,654 15,051 14,844 9,312 15,047 1,702 2,103 200,713
Merger expense and
amortization of
goodwill and core
deposit intangibles ..... 2,445 29,635 7,681 1,867 1,490 7,702 2,864 53,684
Other noninterest expense 216,377 82,080 57,299 40,131 41,854 7,453 15,179 460,373
----------- ----------- ----------- ----------- ----------- ----------- ----------- -----------
Income before income
taxes and minority
interest ................ 122,876 39,591 23,584 36,201 20,540 408 (24,960) 218,240
Income taxes ............. 35,519 16,439 8,807 14,013 6,881 346 (11,143) 70,862
Minority interest ........ -- -- -- -- -- -- (531) (531)
----------- ----------- ----------- ----------- ----------- ----------- ----------- -----------
Net income ................. $ 87,357 23,152 14,777 22,188 13,659 62 (14,348) 146,847
----------- ----------- ----------- ----------- ----------- ----------- ----------- -----------
Assets .................... $ 6,042,170 6,012,572 1,955,087 1,451,866 1,120,703 337,351 (270,828) 16,648,921
Net loans and leases ...... 3,509,319 4,182,821 1,211,653 1,012,038 550,570 154,892 12,199 10,633,492
Deposits .................. 3,933,823 5,348,694 1,688,719 1,225,796 929,370 221,403 (26,642) 13,321,163
Shareholders' equity ...... 378,449 435,723 192,564 116,262 84,976 23,159 (217,477) 1,013,656
=========== =========== =========== =========== =========== =========== =========== ===========
1997:
Net interest income ...... $ 206,009 60,388 41,175 61,577 37,076 12,596 (6,290) 412,531
Provision for loan losses -- 2,892 781 2,400 1,560 300 (175) 7,758
----------- ----------- ----------- ----------- ----------- ----------- ----------- -----------
Net interest income after
provision for loan losses 206,009 57,496 40,394 59,177 35,516 12,296 (6,115) 404,773
Noninterest income ....... 113,756 8,062 1,032 6,272 11,884 1,303 4,065 146,374
Merger expense and
amortization of
goodwill and core
deposit intangibles ..... 1,132 814 1,992 1,568 450 -- 3,421 9,377
Other noninterest expense 184,758 38,424 30,352 34,168 31,400 7,059 9,091 335,252
----------- ----------- ----------- ----------- ----------- ----------- ----------- -----------
Income before income taxes 133,875 26,320 9,082 29,713 15,550 6,540 (14,562) 206,518
Income taxes ............. 45,295 10,490 3,797 11,896 4,863 2,082 (6,205) ,272,218
----------- ----------- ----------- ----------- ----------- ----------- ----------- -----------
Net income ................. $ 88,580 15,830 5,285 17,817 10,687 4,458 (8,357) 134,300
----------- ----------- ----------- ----------- ----------- ----------- ----------- -----------
Assets .................... $ 5,894,174 1,211,371 1,203,866 1,351,876 988,010 298,478 (78,571) 10,869,204
Net loans and leases ...... 2,780,986 727,302 717,255 797,620 488,659 153,765 3,315 5,668,902
Deposits .................. 3,665,705 1,085,679 951,840 1,191,774 833,644 235,771 (8,179) 7,956,234
Shareholders' equity ...... 421,501 91,951 140,500 105,099 86,170 23,890 (127,059) 742,052
=========== =========== =========== =========== =========== =========== =========== ===========
1996:
Net interest income ...... $ 187,900 45,154 22,727 50,485 25,694 10,106 (4,341) 337,725
Provision for loan losses -- 1,800 916 2,300 1,240 270 -- 6,526
----------- ----------- ----------- ----------- ----------- ----------- ----------- -----------
Net interest income after
provision for loan losses 187,900 43,354 21,811 48,185 24,454 9,836 (4,341) 331,199
Noninterest income ....... 93,737 5,371 4,492 3,575 8,807 1,233 4,792 122,007
Merger expense and
amortization of
goodwill and core
deposit intangibles ..... 502 713 231 1,096 103 -- 692 3,337
Other noninterest expense 156,535 33,865 17,687 26,284 22,813 6,182 6,421 269,787
----------- ----------- ----------- ----------- ----------- ----------- ----------- -----------
Income before income taxes 124,600 14,147 8,385 24,380 10,345 4,887 (6,662) 180,082
Income taxes ............. 41,460 3,385 2,940 9,715 3,094 1,545 (2,475) 59,664
----------- ----------- ----------- ----------- ----------- ----------- ----------- -----------
Net income ................. $ 83,140 10,762 5,445 14,665 7,251 3,342 (4,187) 120,418
----------- ----------- ----------- ----------- ----------- ----------- ----------- -----------
Assets .................... $ 4,862,570 940,034 561,811 1,023,915 570,927 237,517 27,552 8,224,326
Net loans and leases ...... 2,476,218 598,603 319,905 704,432 268,333 132,102 3,560 4,503,153
Deposits .................. 3,167,894 832,196 439,351 900,432 500,498 185,740 (16,807) 6,009,304
Shareholders' equity ...... 374,432 68,136 45,435 109,304 46,703 20,300 (22,987) 641,323
=========== =========== =========== =========== =========== =========== =========== ===========
</TABLE>
70
<PAGE>
20. Operating Segment Information
As of December 31, 1998, the Company adopted FASB Statement No. 131, Financial
Reporting for Segments of a Business Enterprise. This statement requires that a
public business enterprise report financial and descriptive information about
its reportable operating segments. According to the statement, operating
segments are defined as components of an enterprise about which separate
financial information is available that is evaluated regularly by the chief
operating decision maker in deciding how to allocate resources and in assessing
performance.
The Company evaluates segment performance internally based on geography, and
thus the operating segments are so defined. All segments, except for the segment
defined as "other," are based on commercial banking operations. 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 operating segments are the same as
those of the Company described in note 1. Transactions between operating
segments are primarily conducted at fair value, resulting in profits that are
eliminated for reporting consolidated results of operations. Expenses for
centrally provided services are allocated based on the estimated usage of those
services.
21. Quarterly Financial Information (Unaudited)
Financial information by quarter for the three years ended December 31, 1998, is
as follows (in thousands, except per share amounts):
<TABLE>
<CAPTION>
Income
before Diluted
income income
Gross Net Non- Non- Provision taxes and per
interest interest interest interest for loan minority Net common
income income income expense losses interest income share
-------- -------- -------- -------- -------- -------- -------- -------
<S> <C> <C> <C> <C> <C> <C> <C> <C>
1998:
First quarter ........ $214,456 116,623 44,806 100,757 3,555 57,117 38,996 0.52
Second quarter ....... 218,829 121,673 47,752 117,412 3,264 48,749 32,984 0.44
Third quarter ........ 234,517 130,749 49,607 112,840 2,485 65,031 42,739 0.54
Fourth quarter ....... 308,242 174,718 58,548 183,048 2,875 47,343 32,128 0.40
-------- -------- -------- -------- -------- -------- --------
$976,044 543,763 200,713 514,057 12,179 218,240 146,847 1.91
======== ======== ======== ======== ======== ======== ========
1997:
First quarter ........ $171,218 90,418 34,956 73,431 2,018 49,925 32,416 0.45
Second quarter ....... 192,869 100,738 35,404 80,751 1,842 53,549 34,357 0.47
Third quarter ........ 203,315 107,526 40,031 90,593 2,091 54,873 35,704 0.49
Fourth quarter ....... 212,129 113,849 35,983 99,854 1,807 48,171 31,823 0.43
-------- -------- -------- -------- -------- -------- --------
$779,531 412,531 146,374 344,629 7,758 206,518 134,300 1.84
======== ======== ======== ======== ======== ======== ========
1996:
First quarter ........ $138,109 76,140 28,807 62,833 1,203 40,911 27,458 0.39
Second quarter ....... 143,452 81,866 28,826 65,816 1,347 43,529 29,869 0.42
Third quarter ........ 152,955 86,445 31,790 69,656 1,779 46,800 30,744 0.43
Fourth quarter ....... 160,224 93,274 32,584 74,819 2,197 48,842 32,347 0.45
-------- -------- -------- -------- -------- -------- --------
$594,740 337,725 122,007 273,124 6,526 180,082 120,418 1.66
======== ======== ======== ======== ======== ======== ========
</TABLE>
71
<PAGE>
22. Parent Company Financial Information
Condensed financial information of Zions Bancorporation (parent only) follows:
ZIONS BANCORPORATION
Condensed Balance Sheets
December 31, 1998 and 1997
<TABLE>
<CAPTION>
(In thousands)
1998 1997
----------- -----------
<S> <C> <C>
Assets
Cash and due from banks ........................................................ $ 155 4,122
Interest-bearing deposits ...................................................... 19,637 2,241
Investment securities .......................................................... 9,950 2,490
Loans, lease financing, and other receivables, net ............................. 14,797 1,680
Investments in subsidiaries:
Commercial banks and bank holding company .................................. 1,196,520 902,621
Other ...................................................................... 25,711 5,828
Receivables from subsidiaries:
Commercial banks ........................................................... 110,000 --
Other ...................................................................... 2,865 2,945
Other assets ................................................................... 32,742 22,351
----------- -----------
$ 1,412,377 944,278
=========== ===========
Liabilities and Shareholders' Equity
Accrued liabilities ............................................................ $ 36,731 23,828
Borrowings less than one year .................................................. 111,217 48,050
Borrowings over one year ....................................................... -- 50,000
Subordinated debt to subsidiary ................................................ 23,773 25,773
Long-term debt ................................................................. 227,000 54,575
----------- -----------
Total liabilities ........................................................ 398,721 202,226
----------- -----------
Shareholders' equity:
Common stock ............................................................... 324,099 190,039
Net unrealized holding gains and losses on securities available for sale ... (4,280) 1,902
Retained earnings .......................................................... 693,837 550,111
----------- -----------
Total shareholders' equity ............................................... 1,013,656 742,052
----------- -----------
$ 1,412,377 944,278
=========== ===========
</TABLE>
Condensed Statements of Income
Years ended December 31, 1998, 1997, and 1996
<TABLE>
<CAPTION>
(In thousands)
1998 1997 1996
--------- --------- ---------
<S> <C> <C> <C>
Interest income - interest and fees on loans and securities ................ $ 7,023 942 895
Interest expense - interest on borrowed funds .............................. 17,307 9,217 6,154
--------- --------- ---------
Net interest loss ..................................................... (10,284) (8,275) (5,259)
--------- --------- ---------
Other income:
Dividends from consolidated subsidiaries:
Commercial banks ...................................................... 210,890 100,534 49,838
Other ................................................................. 1,430 500 1,000
Other income ............................................................ 7,080 5,511 4,141
--------- --------- ---------
219,400 106,545 54,979
--------- --------- ---------
Expenses:
Salaries and employee benefits .......................................... 5,473 7,768 6,483
Operating expenses ...................................................... 9,714 6,982 2,766
--------- --------- ---------
15,187 14,750 9,249
========= ========= =========
Income before income tax benefit ........................................... 193,929 83,520 40,471
Income tax benefit ......................................................... (8,249) (6,955) (3,306)
--------- --------- ---------
Income before equity in undistributed income of consolidated subsidiaries .. 202,178 90,475 43,777
--------- --------- ---------
Equity in undistributed income of consolidated subsidiaries:
Commercial banks and bank holding company .............................. (50,559) 44,176 76,015
Other .................................................................. (4,772) (351) 626
--------- --------- ---------
(55,331) 43,825 76,641
--------- --------- ---------
Net income ........................................................... $ 146,847 134,300 120,418
========= ========= =========
</TABLE>
72
<PAGE>
ZIONS BANCORPORATION
Condensed Statements of Cash Flows
Years ended December 31, 1998, 1997, and 1996
<TABLE>
<CAPTION>
(In thousands)
1998 1997 1996
--------- --------- ---------
<S> <C> <C> <C>
Cash flows from operating activities:
Net income ............................................... $ 146,847 134,300 120,418
Adjustments to reconcile net income to net cash
provided by operating activities:
Undistributed net income of consolidated subsidiaries .. 55,331 (43,825) (76,641)
Depreciation of premises and equipment ................. 160 161 440
Amortization ........................................... 662 714 692
Other .................................................. 17,486 (6,832) 9,239
--------- --------- ---------
Net cash provided by operating activities ............ 220,486 84,518 54,148
--------- --------- ---------
Cash flows from investing activities:
Net (increase) decrease in interest-bearing deposits ....... (17,396) 1,287 12,975
Collection of advances to subsidiaries ..................... 8,341 2,890 1,176
Advances to subsidiaries ................................... (118,261) (4,226) (1,921)
Increase of investment in subsidiaries ..................... (335,340) (39,609) (15,051)
Purchases of other assets .................................. -- -- (12,000)
Other ...................................................... (18,344) (1,466) (1,686)
--------- --------- ---------
Net cash used in investing activities ................ (481,000) (41,124) (16,507)
--------- --------- ---------
Cash flows from financing activities:
Net change in borrowings under one year .................... 38,167 44,000 4,050
Proceeds from borrowings over one year ..................... -- 50,000 --
Payments on borrowings over one year ....................... (25,000) (8,214) (1,429)
Proceeds from issuance of long-term debt ................... 176,971 25,773 --
Payments on long-term debt ................................. (2,000) (5) (4,715)
Proceeds from issuance of common stock ..................... 136,750 4,643 13,997
Payments to redeem common and preferred stock .............. (26,741) (129,439) (25,148)
Dividends paid ............................................. (41,600) (30,311) (26,171)
--------- --------- ---------
Net cash provided by (used in) financing activities ... 256,547 (43,553) (39,416)
--------- --------- ---------
Net decrease in cash and due from banks .................... (3,967) (159) (1,775)
Cash and due from banks at beginning of year ................ 4,122 4,281 6,056
--------- --------- ---------
Cash and due from banks at end of year ..................... $ 155 4,122 4,281
========= ========= =========
</TABLE>
The parent company paid interest of $16,427,000, $8,287,000, and $5,856,000
for the years ended December 31, 1998, 1997, and 1996, respectively.
73
EXHIBIT 21
ZIONS BANCORPORATION AND SUBSIDIARIES
AT DECEMBER 31, 1998
SUBSIDIARY STATE
---------- -----
Zions First National Bank Federally chartered doing business
in Utah and Idaho
California Bank & Trust California
Vectra Bank Colorado Federally chartered doing business
in Colorado and New Mexico
National Bank of Arizona Federally chartered doing business
in Arizona
Nevada State Bank Nevada
The Commerce Bank of Washington Federally chartered doing business
in Washington
Val Cor Bancorporation, Inc. Colorado
Cash Access, Inc. Utah
GB Capital Trust Delaware
Great Western Financial Corporation Utah
Lockhart Realty Company Utah
VBC Capital I Delaware
Zions Management Services Company Utah
Zions Insurance Agency, Inc. Utah
Zions Life Insurance Company Arizona
EXHIBIT 23
CONSENT OF INDEPENDENT CERTIFIED PUBLIC ACCOUNTANTS
Zions Bancorporation:
We consent to the incorporation by reference in Zions Bancorporation's (i)
Registration Statement (Form S-3 No. 33-58801) and related Prospectus pertaining
to the Zions Bancorporation Dividend Reinvestment and Common Stock Purchase
Plan, (ii) Registration Statement (Form S-8 No. 333-36207) and related
Prospectus pertaining to Zions Bancorporation Employee Stock Savings Plan, (iii)
Registration Statement (Form S-8 No. 333-36205) and related Prospectus
pertaining to Zions Bancorporation Employee Investment Savings Plan, (iv)
Registration Statement (Form S-8 No. 333-68461) and related Prospectus
pertaining to Aspen Bancshares, Inc. 1993 Non-Qualified Stock Option Plan for
Directors, Aspen Bancshares, Inc. 1990 Incentive Stock Option Plan, Vectra
Banking Corporation Employees' Equity Incentive Stock Option Plan, Vectra
Banking Corporation Non-Employee Directors' Stock Option Plan, Vectra Banking
Corporation 1989 Non-Statutory Stock Option Plan, Second Amended and Restated
1988 Stock Option Plan of FP Bancorp, Inc., SBT Bankshares, Inc. 1995
Non-Qualified Stock Option Agreement, The Commerce Bancorporation 1995 Restated
Incentive Compensation Plan, and The Commerce Bancorporation 1987 Stock Option
Plan, and (v) Registration Statement Form S-8 No. 333-74179) and the related
Prospectus pertaining to Zions Bancorporation 1996 Non-Employee Directors Stock
Option Plan, and Hemingway Stock Option Agreement, of our report dated January
26, 1999, relating to the consolidated balance sheets of Zions Bancorporation
and subsidiaries as of December 31, 1998 and 1997, and the related consolidated
statements of income, cash flows, and changes in shareholders' equity and
comprehensive income for each of the years in the three-year period ended
December 31, 1998, which report appears in this annual report on Form 10-K for
the year ended December 31, 1998.
We also consent to the incorporation by reference in Zions Bancorporation's
Registration Statement (Form S-8 No. 333-36207) of Zions Bancorporation Employee
Stock Savings Plan of our report dated March 16, 1999, relating to the
statements of net assets available for benefits of Zions Bancorporation Employee
Stock Savings Plan as of December 31, 1998 and 1997, and the related statements
of changes in net assets available for benefits for each of the years in the
three-year period ended December 31, 1998, which report appears in the annual
report on Form 11-K for the year ended December 31, 1998, which is included as
an exhibit in this annual report on Form 10-K.
We also consent to the incorporation by reference in Zions Bancorporation's
Registration Statement (Form S-8 No. 333-36205) of Zions Bancorporation Employee
Investment Savings Plan of our report dated March 16, 1999, relating to the
statements of net assets available for benefits of Zions Bancorporation Employee
Investment Savings Plan as of December 31, 1998 and 1997, and the related
statements of changes in net assets available for benefits for each of the years
in the three-year period ended December 31, 1998, which report appears in the
annual report on Form 11-K for the year ended December 31, 1998, which is
included as an exhibit in this annual report on Form 10-K.
/s/KPMG LLP
Salt Lake City, Utah
March 22, 1999
<TABLE> <S> <C>
<ARTICLE> 9
<LEGEND>
THIS SCHEDULE CONTAINS SUMMARY FINANCIAL INFORMATION EXTRACTED FROM THE
CONSOLIDATED BALANCE SHEET AS OF DECEMBER 31, 1998 AND THE RELATED CONSOLIDATED
STATEMENT OF INCOME FOR THE YEAR ENDED DECEMBER 31, 1998 INCLUDED IN THE
COMPANY'S FORM 10-K DATED DECEMBER 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> YEAR
<FISCAL-YEAR-END> DEC-31-1998
<PERIOD-END> DEC-31-1998
<EXCHANGE-RATE> 1
<CASH> 864,446
<INT-BEARING-DEPOSITS> 30,484
<FED-FUNDS-SOLD> 581,721
<TRADING-ASSETS> 191,855
<INVESTMENTS-HELD-FOR-SALE> 684,581
<INVESTMENTS-CARRYING> 2,803,903
<INVESTMENTS-MARKET> 2,821,535
<LOANS> 10,633,492
<ALLOWANCE> 205,553
<TOTAL-ASSETS> 16,648,921
<DEPOSITS> 13,321,163
<SHORT-TERM> 1,449,512
<LIABILITIES-OTHER> 319,278
<LONG-TERM> 510,531
0
0
<COMMON> 324,099
<OTHER-SE> 689,557
<TOTAL-LIABILITIES-AND-EQUITY> 16,648,921
<INTEREST-LOAN> 681,204
<INTEREST-INVEST> 294,840
<INTEREST-OTHER> 0
<INTEREST-TOTAL> 976,044
<INTEREST-DEPOSIT> 293,707
<INTEREST-EXPENSE> 432,281
<INTEREST-INCOME-NET> 543,763
<LOAN-LOSSES> 12,179
<SECURITIES-GAINS> 2,142
<EXPENSE-OTHER> 514,588
<INCOME-PRETAX> 217,709
<INCOME-PRE-EXTRAORDINARY> 146,847
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> 146,847
<EPS-PRIMARY> 1.93
<EPS-DILUTED> 1.91
<YIELD-ACTUAL> 4.52
<LOANS-NON> 53,879
<LOANS-PAST> 25,779
<LOANS-TROUBLED> 5,212
<LOANS-PROBLEM> 0
<ALLOWANCE-OPEN> 91,571
<CHARGE-OFFS> 24,228
<RECOVERIES> 9,355
<ALLOWANCE-CLOSE> 205,553
<ALLOWANCE-DOMESTIC> 166,253
<ALLOWANCE-FOREIGN> 0
<ALLOWANCE-UNALLOCATED> 39,300
</TABLE>
<TABLE> <S> <C>
<ARTICLE> 9
<LEGEND>
THIS RESTATED SCHEDULE CONTAINS SUMMARY FINANCIAL INFORMATION EXTRACTED
FROM THE CONSOLIDATED BALANCE SHEET AS OF JUNE 30, 1998 AND THE RELATED
CONSOLIDATED STATEMENT OF INCOME FOR THE SIX MONTHS ENDED JUNE 30, 1998 WHICH
HAVE BEEN RESTATED AS A RESULT OF POOLING OF INTERESTS.
</LEGEND>
<CIK> 0000109380
<NAME> Zions Bancorporation /UT/
<MULTIPLIER> 1,000
<CURRENCY> U.S.
<S> <C>
<PERIOD-TYPE> 6-MOS
<FISCAL-YEAR-END> DEC-31-1998
<PERIOD-START> JAN-01-1998
<PERIOD-END> JUN-30-1998
<EXCHANGE-RATE> 1
<CASH> 697,265
<INT-BEARING-DEPOSITS> 56,643
<FED-FUNDS-SOLD> 1,237,072
<TRADING-ASSETS> 401,914
<INVESTMENTS-HELD-FOR-SALE> 589,448
<INVESTMENTS-CARRYING> 2,249,644
<INVESTMENTS-MARKET> 2,264,846
<LOANS> 6,279,359
<ALLOWANCE> 98,488
<TOTAL-ASSETS> 12,120,421
<DEPOSITS> 8,551,900
<SHORT-TERM> 1,739,001
<LIABILITIES-OTHER> 378,342
<LONG-TERM> 504,254
0
0
<COMMON> 326,079
<OTHER-SE> 620,845
<TOTAL-LIABILITIES-AND-EQUITY> 12,120,421
<INTEREST-LOAN> 289,702
<INTEREST-INVEST> 143,583
<INTEREST-OTHER> 0
<INTEREST-TOTAL> 433,285
<INTEREST-DEPOSIT> 125,576
<INTEREST-EXPENSE> 194,989
<INTEREST-INCOME-NET> 238,296
<LOAN-LOSSES> 6,819
<SECURITIES-GAINS> 3,026
<EXPENSE-OTHER> 218,169
<INCOME-PRETAX> 105,866
<INCOME-PRE-EXTRAORDINARY> 71,980
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> 71,980
<EPS-PRIMARY> .98
<EPS-DILUTED> .96
<YIELD-ACTUAL> 4.49
<LOANS-NON> 25,092
<LOANS-PAST> 18,003
<LOANS-TROUBLED> 685
<LOANS-PROBLEM> 0
<ALLOWANCE-OPEN> 91,571
<CHARGE-OFFS> 7,636
<RECOVERIES> 3,907
<ALLOWANCE-CLOSE> 98,488
<ALLOWANCE-DOMESTIC> 22,335
<ALLOWANCE-FOREIGN> 0
<ALLOWANCE-UNALLOCATED> 76,153
</TABLE>
<TABLE> <S> <C>
<ARTICLE> 9
<LEGEND>
THIS RESTATED SCHEDULE CONTAINS SUMMARY FINANCIAL INFORMATION EXTRACTED
FROM THE CONSOLIDATED BALANCE SHEET AS OF MARCH 31, 1998 AND THE RELATED
CONSOLIDATED STATEMENT OF INCOME FOR THE THREE MONTHS ENDED MARCH 31, 1998 WHICH
HAVE BEEN RESTATED AS A RESULT OF POOLING OF INTERESTS.
</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> 631,444
<INT-BEARING-DEPOSITS> 64,911
<FED-FUNDS-SOLD> 1,139,443
<TRADING-ASSETS> 276,277
<INVESTMENTS-HELD-FOR-SALE> 607,935
<INVESTMENTS-CARRYING> 1,931,266
<INVESTMENTS-MARKET> 1,949,777
<LOANS> 6,034,838
<ALLOWANCE> 97,194
<TOTAL-ASSETS> 11,303,986
<DEPOSITS> 8,374,323
<SHORT-TERM> 1,472,094
<LIABILITIES-OTHER> 191,294
<LONG-TERM> 400,064
0
0
<COMMON> 188,551
<OTHER-SE> 589,716
<TOTAL-LIABILITIES-AND-EQUITY> 11,303,986
<INTEREST-LOAN> 140,473
<INTEREST-INVEST> 73,983
<INTEREST-OTHER> 0
<INTEREST-TOTAL> 214,456
<INTEREST-DEPOSIT> 61,711
<INTEREST-EXPENSE> 97,833
<INTEREST-INCOME-NET> 116,623
<LOAN-LOSSES> 3,555
<SECURITIES-GAINS> 799
<EXPENSE-OTHER> 100,757
<INCOME-PRETAX> 57,117
<INCOME-PRE-EXTRAORDINARY> 38,996
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> 38,996
<EPS-PRIMARY> .54
<EPS-DILUTED> .52
<YIELD-ACTUAL> 4.47
<LOANS-NON> 17,083
<LOANS-PAST> 14,054
<LOANS-TROUBLED> 1,222
<LOANS-PROBLEM> 0
<ALLOWANCE-OPEN> 91,571
<CHARGE-OFFS> 3,244
<RECOVERIES> 2,584
<ALLOWANCE-CLOSE> 97,194
<ALLOWANCE-DOMESTIC> 24,438
<ALLOWANCE-FOREIGN> 0
<ALLOWANCE-UNALLOCATED> 72,756
</TABLE>
<TABLE> <S> <C>
<ARTICLE> 9
<LEGEND>
THIS RESTATED SCHEDULE CONTAINS SUMMARY FINANCIAL INFORMATION EXTRACTED
FROM THE CONSOLIDATED BALANCE SHEET AS OF DECEMBER 31, 1997 AND THE RELATED
CONSOLIDATED STATEMENT OF INCOME FOR THE YEAR ENDED DECEMBER 31, 1997 WHICH HAVE
BEEN RESTATED AS A RESULT OF POOLING OF INTERESTS AND INCLUDED IN THE COMPANY'S
FORM 10-K DATED DECEMBER 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> YEAR
<FISCAL-YEAR-END> DEC-31-1997
<PERIOD-END> DEC-31-1997
<EXCHANGE-RATE> 1
<CASH> 710,171
<INT-BEARING-DEPOSITS> 62,001
<FED-FUNDS-SOLD> 791,517
<TRADING-ASSETS> 83,681
<INVESTMENTS-HELD-FOR-SALE> 807,273
<INVESTMENTS-CARRYING> 2,199,555
<INVESTMENTS-MARKET> 2,220,179
<LOANS> 5,668,902
<ALLOWANCE> 91,571
<TOTAL-ASSETS> 10,869,204
<DEPOSITS> 7,956,234
<SHORT-TERM> 1,506,265
<LIABILITIES-OTHER> 173,331
<LONG-TERM> 491,322
0
0
<COMMON> 190,039
<OTHER-SE> 552,013
<TOTAL-LIABILITIES-AND-EQUITY> 10,869,204
<INTEREST-LOAN> 500,548
<INTEREST-INVEST> 278,983
<INTEREST-OTHER> 0
<INTEREST-TOTAL> 779,531
<INTEREST-DEPOSIT> 208,003
<INTEREST-EXPENSE> 367,000
<INTEREST-INCOME-NET> 412,531
<LOAN-LOSSES> 7,758
<SECURITIES-GAINS> (5,071)
<EXPENSE-OTHER> 344,629
<INCOME-PRETAX> 206,518
<INCOME-PRE-EXTRAORDINARY> 134,300
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> 134,300
<EPS-PRIMARY> 1.88
<EPS-DILUTED> 1.84
<YIELD-ACTUAL> 4.34
<LOANS-NON> 16,299
<LOANS-PAST> 10,616
<LOANS-TROUBLED> 1,510
<LOANS-PROBLEM> 0
<ALLOWANCE-OPEN> 86,249
<CHARGE-OFFS> 16,541
<RECOVERIES> 7,042
<ALLOWANCE-CLOSE> 91,571
<ALLOWANCE-DOMESTIC> 68,588
<ALLOWANCE-FOREIGN> 0
<ALLOWANCE-UNALLOCATED> 22,983
</TABLE>
<TABLE> <S> <C>
<ARTICLE> 9
<LEGEND>
THIS RESTATED SCHEDULE CONTAINS SUMMARY FINANCIAL INFORMATION EXTRACTED
FROM THE CONSOLIDATED BALANCE SHEET AS OF JUNE 30, 1997 AND THE RELATED
CONSOLIDATED STATEMENT OF INCOME FOR THE SIX MONTHS ENDED JUNE 30, 1997 WHICH
HAVE BEEN RESTATED AS A RESULT OF POOLING OF INTERESTS.
</LEGEND>
<CIK> 0000109380
<NAME> Zions Bancorporation /UT/
<MULTIPLIER> 1,000
<CURRENCY> U.S.
<S> <C>
<PERIOD-TYPE> 6-Mos
<FISCAL-YEAR-END> DEC-31-1997
<PERIOD-START> JAN-01-1997
<PERIOD-END> JUN-30-1997
<EXCHANGE-RATE> 1
<CASH> 540,345
<INT-BEARING-DEPOSITS> 51,375
<FED-FUNDS-SOLD> 795,312
<TRADING-ASSETS> 437,994
<INVESTMENTS-HELD-FOR-SALE> 770,382
<INVESTMENTS-CARRYING> 1,858,498
<INVESTMENTS-MARKET> 1,870,760
<LOANS> 5,100,419
<ALLOWANCE> 89,097
<TOTAL-ASSETS> 9,950,681
<DEPOSITS> 6,722,926
<SHORT-TERM> 2,002,971
<LIABILITIES-OTHER> 108,730
<LONG-TERM> 390,878
0
0
<COMMON> 230,166
<OTHER-SE> 495,010
<TOTAL-LIABILITIES-AND-EQUITY> 9,950,681
<INTEREST-LOAN> 232,739
<INTEREST-INVEST> 131,348
<INTEREST-OTHER> 0
<INTEREST-TOTAL> 364,087
<INTEREST-DEPOSIT> 92,850
<INTEREST-EXPENSE> 172,931
<INTEREST-INCOME-NET> 191,156
<LOAN-LOSSES> 3,860
<SECURITIES-GAINS> 443
<EXPENSE-OTHER> 154,182
<INCOME-PRETAX> 103,474
<INCOME-PRE-EXTRAORDINARY> 66,773
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> 66,773
<EPS-PRIMARY> .94
<EPS-DILUTED> .91
<YIELD-ACTUAL> 4.26
<LOANS-NON> 16,060
<LOANS-PAST> 8,280
<LOANS-TROUBLED> 830
<LOANS-PROBLEM> 2,500
<ALLOWANCE-OPEN> 86,249
<CHARGE-OFFS> 6,903
<RECOVERIES> 2,668
<ALLOWANCE-CLOSE> 89,097
<ALLOWANCE-DOMESTIC> 19,724
<ALLOWANCE-FOREIGN> 0
<ALLOWANCE-UNALLOCATED> 69,373
</TABLE>
<TABLE> <S> <C>
<ARTICLE> 9
<LEGEND>
THIS RESTATED SCHEDULE CONTAINS SUMMARY FINANCIAL INFORMATION EXTRACTED
FROM THE CONSOLIDATED BALANCE SHEET AS OF MARCH 31, 1997 AND THE RELATED
CONSOLIDATED STATEMENT OF INCOME FOR THE THREE MONTHS ENDED MARCH 31, 1997 WHICH
HAVE BEEN RESTATED AS A RESULT OF POOLING OF INTERESTS.
</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> 496,976
<INT-BEARING-DEPOSITS> 51,147
<FED-FUNDS-SOLD> 1,004,628
<TRADING-ASSETS> 157,957
<INVESTMENTS-HELD-FOR-SALE> 724,696
<INVESTMENTS-CARRYING> 1,531,982
<INVESTMENTS-MARKET> 1,532,833
<LOANS> 4,812,058
<ALLOWANCE> 86,329
<TOTAL-ASSETS> 9,076,789
<DEPOSITS> 6,211,189
<SHORT-TERM> 1,783,938
<LIABILITIES-OTHER> 107,668
<LONG-TERM> 332,809
0
0
<COMMON> 177,530
<OTHER-SE> 463,655
<TOTAL-LIABILITIES-AND-EQUITY> 9,076,789
<INTEREST-LOAN> 110,093
<INTEREST-INVEST> 61,125
<INTEREST-OTHER> 0
<INTEREST-TOTAL> 171,218
<INTEREST-DEPOSIT> 44,191
<INTEREST-EXPENSE> 80,800
<INTEREST-INCOME-NET> 90,418
<LOAN-LOSSES> 2,018
<SECURITIES-GAINS> 29
<EXPENSE-OTHER> 73,431
<INCOME-PRETAX> 49,925
<INCOME-PRE-EXTRAORDINARY> 32,416
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> 32,416
<EPS-PRIMARY> .46
<EPS-DILUTED> .45
<YIELD-ACTUAL> 4.25
<LOANS-NON> 15,909
<LOANS-PAST> 7,088
<LOANS-TROUBLED> 1,608
<LOANS-PROBLEM> 0
<ALLOWANCE-OPEN> 86,249
<CHARGE-OFFS> 3,287
<RECOVERIES> 1,349
<ALLOWANCE-CLOSE> 86,329
<ALLOWANCE-DOMESTIC> 23,040
<ALLOWANCE-FOREIGN> 0
<ALLOWANCE-UNALLOCATED> 63,289
</TABLE>
<TABLE> <S> <C>
<ARTICLE> 9
<LEGEND>
THIS RESTATED SCHEDULE CONTAINS SUMMARY FINANCIAL INFORMATION EXTRACTED
FROM THE CONSOLIDATED BALANCE SHEET AS OF DECEMBER 31, 1996 AND THE RELATED
CONSOLIDATED STATEMENT OF INCOME FOR THE YEAR ENDED DECEMBER 31, 1996 WHICH HAVE
BEEN RESTATED AS A RESULT OF POOLING OF INTERESTS.
</LEGEND>
<CIK> 0000109380
<NAME> Zions Bancorporation /UT/
<MULTIPLIER> 1,000
<CURRENCY> U.S.
<S> <C>
<PERIOD-TYPE> YEAR
<FISCAL-YEAR-END> DEC-31-1996
<PERIOD-END> DEC-31-1996
<EXCHANGE-RATE> 1
<CASH> 527,951
<INT-BEARING-DEPOSITS> 47,854
<FED-FUNDS-SOLD> 572,883
<TRADING-ASSETS> 34,076
<INVESTMENTS-HELD-FOR-SALE> 760,225
<INVESTMENTS-CARRYING> 1,508,403
<INVESTMENTS-MARKET> 1,517,876
<LOANS> 4,503,153
<ALLOWANCE> 86,248
<TOTAL-ASSETS> 8,224,326
<DEPOSITS> 6,009,304
<SHORT-TERM> 1,138,922
<LIABILITIES-OTHER> 94,165
<LONG-TERM> 340,612
0
0
<COMMON> 200,764
<OTHER-SE> 440,559
<TOTAL-LIABILITIES-AND-EQUITY> 8,224,326
<INTEREST-LOAN> 395,285
<INTEREST-INVEST> 199,455
<INTEREST-OTHER> 0
<INTEREST-TOTAL> 594,740
<INTEREST-DEPOSIT> 168,933
<INTEREST-EXPENSE> 257,015
<INTEREST-INCOME-NET> 337,725
<LOAN-LOSSES> 6,526
<SECURITIES-GAINS> (385)
<EXPENSE-OTHER> 273,124
<INCOME-PRETAX> 180,082
<INCOME-PRE-EXTRAORDINARY> 120,418
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> 120,418
<EPS-PRIMARY> 1.69
<EPS-DILUTED> 1.66
<YIELD-ACTUAL> 4.69
<LOANS-NON> 16,000
<LOANS-PAST> 5,895
<LOANS-TROUBLED> 1,574
<LOANS-PROBLEM> 0
<ALLOWANCE-OPEN> 79,757
<CHARGE-OFFS> 12,000
<RECOVERIES> 6,763
<ALLOWANCE-CLOSE> 86,249
<ALLOWANCE-DOMESTIC> 63,059
<ALLOWANCE-FOREIGN> 0
<ALLOWANCE-UNALLOCATED> 23,190
</TABLE>
EXHIBIT 99.1
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
FORM 11-K
----------------------------------
ANNUAL REPORT
Pursuant to Section 15(d) Of The
Securities Exchange Act of 1934
For the Year Ended December 31, 1998
ZIONS BANCORPORATION
EMPLOYEE STOCK SAVINGS PLAN
ZIONS BANCORPORATION
One South Main, Suite 1380
Salt Lake City, Utah 84111
1
<PAGE>
Item 1. Changes in the Plan
The Plan was completely amended and restated as of October 1, 1992, with certain
provisions retroactively effective as of January 1, 1989. In 1994, the Plan was
amended for the purpose of maintaining its qualification under the Internal
Revenue Code pursuant to the Tax Reform Act of 1986 and, in order to conform the
Plan to the requirements of the Unemployment Compensation Act of 1992 and the
Omnibus Budget Reconciliation Act of 1993. No changes were made in the Plan
during the year 1998.
Item 2. Changes in Investment Policy
No material changes were made during the fiscal year in the policy with respect
to the kind of securities and other investments in which funds held under the
plan may be invested.
Item 3. Contributions under the Plan
The Company's contributions are measured by reference to employee contributions
and are not discretionary.
Item 4. Participating Employees
There were 4,155 participating employees in the Plan on December 31, 1998.
Item 5. Administration of the Plan
(a) Zions Bancorporation is the Plan administrator. The Company's Board of
Directors has appointed an Administrative Committee consisting of six
persons. The Committee has full power and authority to administer the
Plan and to interpret its provisions.
The present members of the Committee and their positions held are:
Member Position - Company
- --------------------------- --------------------------------------------------
Clark B. Hinckley, Chairman Senior Vice President of Zions Bancorporation
Harris H. Simmons President and Chief Executive Officer of Zions
Bancorporation
Dale M. Gibbons Executive Vice President of Zions Bancorporation
W. David Hemingway Executive Vice President of Zions Bancorporation
Richard G. Crandall Vice President of Zions First National Bank
Russell W. Miller President of Zions Insurance Agency, Inc.
The address of each fiduciary listed above is One South Main, Suite 1380,
Salt Lake City, Utah 84111.
(b) No compensation is paid to the Committee members by the Plan. All
expenses of the Plan and its administration are paid by the Company.
2
<PAGE>
Item 6. Custodian of Investments
(a) Zions First National Bank, One South Main, Salt Lake City, Utah 84111 is
the custodian and trustee.
(b) The custodian and trustee receives no compensation from the Plan.
Item 7. Reports to Participating Employees
Participating employees are furnished an annual statement reflecting the status
of their accounts as of the end of the fiscal year.
Item 8. Investment of Funds
Substantially all of the assets of the Plan are invested in securities of the
Company.
Item 9. Financial Statements and Exhibits
(a) Financial Statements Page
-----
Independent Auditors' Report ..................................... 4
Statements of Net Assets Available for Benefits -
December 31, 1998 and 1997 .................................... 5
Statements of Changes in Net Assets Available for Benefits -
Years ended December 31, 1998, 1997, and 1996 ................. 6
Notes to Financial Statements .................................... 7
Schedules - Schedules I, II, and III have been omitted for the reasons
that they are not required or are not applicable, or the required
information is shown in the financial statements or notes thereto.
(b) Exhibits - None
3
<PAGE>
Independent Auditors' Report
The Trust Committee
Zions Bancorporation
Employee Stock Savings Plan:
We have audited the accompanying statements of net assets available for benefits
of Zions Bancorporation Employee Stock Savings Plan as of December 31, 1998 and
1997, and the related statements of changes in net assets available for benefits
for each of the years in the three-year period ended December 31, 1998. These
financial statements are the responsibility of the plan administrator. Our
responsibility is to express an opinion on these financial statements based on
our audits.
We conducted our audits in accordance with generally accepted auditing
standards. Those standards require that we plan and perform the audit to obtain
reasonable assurance about whether the financial statements are free of material
misstatement. An audit includes examining, on a test basis, evidence supporting
the amounts and disclosures in the financial statements. An audit also includes
assessing the accounting principles used and significant estimates made by the
plan administrator, as well as evaluating the overall financial statement
presentation. We believe that our audits provide a reasonable basis for our
opinion.
In our opinion, the financial statements referred to above present fairly, in
all material respects, the net assets available for benefits of Zions
Bancorporation Employee Stock Savings Plan as of December 31, 1998 and 1997, and
the changes in net assets available for benefits for each of the years in the
three-year period ended December 31, 1998, in conformity with generally accepted
accounting principles.
Our audits were made for the purpose of forming an opinion on the basic
financial statements taken as a whole. The supplemental schedules of assets held
for investment purposes and reportable transactions for the year ended December
31, 1998, are presented for purpose of additional analysis and are not a
required part of the basic financial statements, but are supplementary
information required by the Department of Labor's Rules and Regulations for
Reporting and Disclosure under the Employee Retirement Income Security Act of
1974. The supplemental schedules have been subjected to the auditing procedures
applied in the audit of the basic 1998 financial statements and, in our opinion,
are fairly stated in all material respects in relation to the basic financial
statements taken as a whole.
/s/KPMG LLP
March 16, 1999
4
<PAGE>
ZIONS BANCORPORATION
EMPLOYEE STOCK SAVINGS PLAN
Statement of Net Assets Available for Benefits
December 31, 1998 and 1997
<TABLE>
<CAPTION>
1998 1997
----------- ----------
<S> <C> <C>
Assets:
Cash and cash equivalents ............................................. $ 51 173,627
Investments, at fair value:
Zions Bancorporation common stock (approximate cost
of $24,852,480 in 1998 and $18,067,701 in 1997) ........ 90,567,426 63,033,316
Contributions receivable:
Employee ........................................................ 266,162 50,449
Employer ........................................................ 136,643 25,224
Dividends receivable .................................................. 203,273 166,700
Interest receivable ................................................... 579 333
----------- ----------
Total assets .......................................... 91,174,134 63,449,649
----------- ----------
Liabilities:
Accounts payable ...................................................... -- 56,614
Excess contribution refunds ........................................... 33,675 19,730
----------- ----------
Total liabilities ..................................... 33,675 76,344
----------- ----------
Net assets available for benefits ........................................ $91,140,459 63,373,305
=========== ==========
See accompanying notes to financial statements.
</TABLE>
5
<PAGE>
ZIONS BANCORPORATION
EMPLOYEE STOCK SAVINGS PLAN
Statement of Changes in Net Assets Available for Benefits
Years ended December 31, 1998, 1997, and 1996
<TABLE>
<CAPTION>
1998 1997 1996
----------- ---------- ----------
<S> <C> <C> <C>
Additions to net assets attributed to:
Investment income:
Net appreciation in fair value of investments
in Zions Bancorporation common stock $24,594,856 26,586,307 7,966,631
Dividends ................................... 771,268 793,341 389,789
Interest .................................... 7,562 4,113 3,979
----------- ---------- ----------
25,373,686 27,383,761 8,360,399
----------- ---------- ----------
Contributions:
Employee .................................... 5,349,824 3,331,020 2,674,067
Employer .................................... 2,691,189 1,645,785 1,295,816
----------- ---------- ----------
8,041,013 4,976,805 3,969,883
----------- ---------- ----------
Rollover from nonaffiliated plan .................. -- 89,279 --
----------- ---------- ----------
Total additions 33,414,699 32,449,845 12,330,282
----------- ---------- ----------
Deductions from net assets attributed to:
Benefits paid directly to participants ............ 5,647,545 3,590,944 2,109,580
Rollover to affiliated plan ....................... -- -- 183,050
----------- ---------- ----------
Total deductions 5,647,545 3,590,944 2,292,630
----------- ---------- ----------
27,767,154 28,858,901 10,037,652
Net increase
Net assets available for benefits:
Beginning of year ................................. 63,373,305 34,514,404 24,476,752
----------- ---------- ----------
End of year ....................................... $91,140,459 63,373,305 34,514,404
=========== ========== ==========
See accompanying notes to financial statements.
</TABLE>
6
<PAGE>
ZIONS BANCORPORATION
EMPLOYEE STOCK SAVINGS PLAN
Notes to Financial Statements
December 31, 1998 and 1997
(1) Plan Description
The following description of the Zions Bancorporation Employee Stock
Savings Plan (the Plan) provides only general information. Participants
should refer to the Plan agreement for a more complete description of the
Plan's provisions.
(a) General
The Plan is a single employer contributory plan that is designed
to provide retirement benefits for eligible employees under either
a pre-tax or post-tax salary reduction arrangement by offering
employees an opportunity to acquire stock ownership in Zions
Bancorporation (the Company). The Plan is subject to the
provisions of the Employee Retirement Income Security Act (ERISA)
of 1974.
(b) Eligibility
Participation in the Plan is voluntary. An employee is eligible to
participate on January 1, or July 1, whichever coincides with, or
immediately follows, the latter of the date on which the employee
completes at least 1,000 hours of service during 12 continuous
months and attains the age of 21. As of December 31, 1998 and
1997, there were 4,155 and 3,240 participants, respectively, in
the Plan.
(c) Employee and Company Contributions
Each eligible employee who elects to participate makes
contributions ranging from one to five percent of their total
compensation. Company contributions are equal to 50 percent of the
amount contributed by the employee. The maximum amount a
participant may contribute to the Plan in a calendar year, in
conjunction with the Employee Investment Savings Plan, is $10,000
for 1998.
(d) Allocation of Income or Loss
Investment income is allocated to each participant's account in
proportion to the investment shares held in that participant's
account to the total of investment shares held in the Plan.
(e) Vesting and Payment of Benefits
Employee contributions and the employees' share of the Company
contributions are 100 percent vested at all times. Benefits are
paid upon death, disability, retirement, or earlier subject to
certain restrictions. Benefits are paid in shares of stock.
(continued)
7
<PAGE>
ZIONS BANCORPORATION
EMPLOYEE STOCK SAVINGS PLAN
Notes to Financial Statements
(f) Plan Termination
Although the Company has not expressed intent to do so, it has the
right under the Plan to discontinue contributions at any time and
to terminate the Plan subject to provisions of ERISA.
(2) Summary of Significant Accounting Policies
The following is a summary of significant accounting policies followed by
the Plan in the preparation of its financial statements:
(a) Basis of Presentation
The Plan's financial statements are presented on the accrual basis
of accounting.
(b) Costs of Administration
All costs of administration are currently being absorbed by the
Company.
(c) Investments
The investment in common stock of the Company is carried at its
quoted market price in the accompanying financial statements.
Purchases and sales of investments are recorded on a
settlement-date basis which does not materially differ from using
the trade-date basis required by generally accepted accounting
principles.
Net unrealized appreciation represents the difference between the
book value and the market value of investments held at year-end.
Book value is the market value at the end of the previous fiscal
year, or cost if the investment was purchased during the year.
The following investment represents five percent or more of the
net assets available for plan benefits at December 31:
1998 1997
----------- ----------
Zions Bancorporation common stock $90,567,426 63,033,316
(d) Use of Estimates
The preparation the financial statements and supplemental
schedules in conformity with generally accepted accounting
principles requires the Plan administrator to make estimates and
assumptions that affect the reported amounts of assets and
liabilities and disclosure of contingent assets and liabilities at
the date of the statement of net assets available for benefits and
supplemental schedules and the changes in net assets during the
reporting period. Actual results could differ from those
estimates.
(continued)
8
<PAGE>
ZIONS BANCORPORATION
EMPLOYEE STOCK SAVINGS PLAN
Notes to Financial Statements
December 31, 1998 and 1997
(e) Cash and Cash Equivalents
Cash and cash equivalents include cash and short-term investments
with maturity dates of 90 days or less.
(f) Reclassifications
Certain reclassifications have been made in the 1997 financial
statements to conform with the 1998 presentation.
(3) Tax Status
The Plan obtained its latest determination letter on June 5, 1996, in
which the Internal Revenue Service stated that the Plan, as then
designed, was in compliance with the applicable requirements of the
Internal Revenue Code (IRC). The Plan has been amended since receiving
the determination letter. However, the Plan administrator and the Plan's
tax counsel believe that the Plan is designed and is currently being
operated in compliance with the applicable requirements of the IRC.
(4) Zions Bancorporation Common Stock
At December 31, 1998 and 1997, the investment in common stock of the
Company consisted of 1,451,944 and 1,389,164 shares, respectively.
9
<PAGE>
ZIONS BANCORPORATION
EMPLOYEE STOCK SAVINGS PLAN
Line 27a - Schedule of Assets Held for Investment Purposes
December 31, 1998
<TABLE>
<CAPTION>
(a) (e)
Party in (b) (c) (d) Current
interest Issuer Investment description Cost (1) value
- -------- --------------------- ------------------------------------- ----------- ----------
<S> <C> <C> <C> <C>
Investments at fair value determined
by quoted market prices:
* Zions Bancorporation Zions Bancorporation common stock $24,852,480 90,567,426
</TABLE>
Notes:
* Party-in-interest
There were no nonexempt party-in-interest transactions.
There were no assets which were both acquired and disposed of during
the year.
(1) Cost is determined using the average-cost method applied on a participant-
by-participant basis.
10
<PAGE>
ZIONS BANCORPORATION
EMPLOYEE STOCK SAVINGS PLAN
Line 27d - Schedule of Reportable Transactions
Year ended December 31, 1998
<TABLE>
<CAPTION>
(h)
Current
value
(a) (g) of asset
Identity of (b) (c) (d) Cost of on trans (i)
party involved Description of asset Purchase price Selling price asset -action date Net gain
- --------------- -------------------- -------------- ------------- --------- ------------ ---------
<S> <C> <C> <C> <C> <C> <C>
Zions Zions Bancorporation
Bancorporation common stock $ - 5,424,957 1,980,516 5,424,957 3,444,441
Zions Bancorporation
common stock 8,623,415 -- -- 8,623,415 --
</TABLE>
11
EXHIBIT 99.2
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
FORM 11-K
----------------------------------
ANNUAL REPORT
Pursuant to Section 15(d) Of The
Securities Exchange Act of 1934
For the Year Ended December 31, 1998
ZIONS BANCORPORATION
EMPLOYEE INVESTMENT SAVINGS PLAN
ZIONS BANCORPORATION
One South Main, Suite 1380
Salt Lake City, Utah 84111
1
<PAGE>
Item 1. Changes in the Plan
The Plan was completely amended and restated as of
October 1, 1992, with certain provisions retroactively effective as of January
1, 1989. In 1994, the Plan was amended for the purpose of maintaining its
qualification under Internal Revenue Code pursuant to the Tax Reform Act of 1986
and, in order to conform the Plan to the requirements of the Unemployment
Compensation Act of 1992 and the Omnibus Budget Reconciliation Act of 1993 and
to facilitate the merger of the National Bank of Arizona Savings and Retirement
Plan and the Rio Salado Bancorp. Inc. Retirement Plan into the Plan. No changes
were made in the Plan during the year 1998.
Item 2. Changes in Investment Policy
During 1997 the Plan increased the number of investment fund types it maintains
from four to nine. The separate types of investment funds maintained by the Plan
are as follows: (i) company securities, which consists of Company stock and
short-term investments pending the acquisition of Company securities; (ii)
Accessor Growth Portfolio, which seeks capital growth by investing primarily in
companies and industries from the 500 U.S. issuers with the largest market
capitalization and well-established records of growth in profits and earnings;
(iii) Accessor Value and Income Portfolio, which seeks a high level of current
income and capital growth by investing primarily in companies and industries
from the 500 U.S. issuers with the largest market capitalization and attractive
valuation levels; (iv) Accessor Small to Mid Cap Portfolio which seeks capital
growth by investing primarily in equity securities of small-to-medium sized
companies with high growth potential; (v) Accessor International Equity
Portfolio which seeks the growth of capital by investing primarily in equity
securities of companies domiciled in countries other than the United States;
(vi) Accessor Intermediate Fixed-Income Portfolio which seeks the generation of
current income by investing in fixed-income securities; (vii) Accessor
Short-Intermediate Fixed-Income Portfolio which seeks preservation of capital
and generation of current income by investing primarily in fixed-income
securities, including government bonds, corporate bonds and mortgage-backed
securities, (viii) Accessor Mortgage Securities Portfolio which seeks a high
level of current income by investing in mortgage-related securities; and (ix)
U.S. Government Money Portfolio which seeks maximum current income consistent
with the preservation of principal and liquidity, investing primarily in
short-term obligations issued by or guaranteed by the U.S. Government, its
agencies or instrumentalities. No changes in investment policy were made during
the year 1998.
Item 3. Contributions under the Plan
The Company's contributions are measured by reference to employee contributions
and are not discretionary.
Item 4. Participating Employees
There were 3,893 participating employees in the Plan on December 31, 1998.
2
<PAGE>
Item 5. Administration of the Plan
(a) Zions Bancorporation is the Plan administrator. The Company's Board of
Directors has appointed an Administrative Committee consisting of six
persons. The Committee has full power and authority to administer the
Plan and to interpret its provisions.
The present members of the Committee and their positions held are:
Member Position - Company
- --------------------------- --------------------------------------------------
Clark B. Hinckley, Chairman Senior Vice President of Zions Bancorporation
Harris H. Simmons President and Chief Executive Officer of Zions
Bancorporation
Dale M. Gibbons Executive Vice President of Zions Bancorporation
W. David Hemingway Executive Vice President of Zions Bancorporation
Richard G. Crandall Vice President of Zions First National Bank
Russell W. Miller President of Zions Insurance Agency, Inc.
The address of each fiduciary listed above is One South Main, Suite 1380,
Salt Lake City, Utah 84111.
(b) No compensation is paid to the Committee members by the Plan. All
expenses of the Plan and its administration are paid by the Company.
ITEM 6. CUSTODIAN OF INVESTMENTS
(a) Zions First National Bank, One South Main Street, Salt Lake City, Utah 84111
is the custodian and trustee.
(b) The custodian and trustee receives no compensation from the Plan.
Item 7. Reports to Participating Employees
Participating employees are furnished an annual statement reflecting the status
of their accounts as of the end of the fiscal year.
Item 8. Investment of Funds
As elected by participants, approximately seventy seven percent of the assets of
the Plan are invested in securities of the Company, and approximately twenty
percent in Accessor Funds.
3
<PAGE>
Item 9. Financial Statements and Exhibits
(a) Financial Statements Page
----
Independent Auditors' Report .............................................. 31
Statements of Net Assets Available for Benefits -
December 31, 1998 and 1997 ............................................ 32
Statements of Changes in Net Assets Available for Benefits -
Years ended December 31, 1998, 1997, and 1996 ........................ 33
Notes to Financial Statements .............................................. 34
Schedules - Schedules I, II, and III have been omitted for the reasons
that they are not required or are not applicable, or the required
information is shown in the financial statements or notes thereto.
(b) Exhibits - None
4
<PAGE>
Independent Auditors' Report
The Trust Committee
Zions Bancorporation
Employee Investment Savings Plan:
We have audited the accompanying statements of net assets available for benefits
of Zions Bancorporation Employee Investment Savings Plan as of December 31, 1998
and 1997, and the related statements of changes in net assets available for
benefits for each of the years in the three-year period ended December 31, 1998.
These financial statements are the responsibility of the plan administrator. Our
responsibility is to express an opinion on these financial statements based on
our audits.
We conducted our audits in accordance with generally accepted auditing
standards. Those standards require that we plan and perform the audit to obtain
reasonable assurance about whether the financial statements are free of material
misstatement. An audit includes examining, on a test basis, evidence supporting
the amounts and disclosures in the financial statements. An audit also includes
assessing the accounting principles used and significant estimates made by the
plan administrator, as well as evaluating the overall financial statement
presentation. We believe that our audits provide a reasonable basis for our
opinion.
In our opinion, the financial statements referred to above present fairly, in
all material respects, the net assets available for benefits of Zions
Bancorporation Employee Investment Savings Plan as of December 31, 1998 and
1997, and the changes in net assets available for benefits for each of the years
in the three-year period ended December 31, 1998, in conformity with generally
accepted accounting principles.
Our audits were made for the purpose of forming an opinion on the basic
financial statements taken as a whole. The supplemental schedules of assets held
for investment purposes and reportable transactions for the year ended December
31, 1998, are presented for the purpose of additional analysis and are not a
required part of the basic financial statements but are supplementary
information required by the Department of Labor's Rules and Regulations for
Reporting and Disclosure under the Employee Retirement Income Security Act of
1974. The supplemental schedules have been subjected to the auditing procedures
applied in the audit of the basic 1998 financial statements and, in our opinion,
are fairly stated in all material respects in relation to the basic financial
statements taken as a whole.
/s/KPMG LLP
March 16, 1999
5
<PAGE>
ZIONS BANCORPORATION
EMPLOYEE INVESTMENT SAVINGS PLAN
Statements of Net Assets Available for Benefits
December 31, 1998 and 1997
<TABLE>
<CAPTION>
1998 1997
------------ ------------
<S> <C> <C>
Assets:
Cash and cash equivalents ........................................ $ 28,747 136,111
Investments, at fair value:
Zions Bancorporation common stock (approximate cost
of $21,778,604 in 1998 and $17,287,725 in 1997) ... 111,008,195 83,746,551
Accessor funds (approximate cost of $25,648,054 in 1998
and $19,168,929 in 1997) .......................... 28,257,934 19,380,190
Fidelity U.S. government reserves (approximate cost of
$2,802,271 in 1998 and $2,406,968 in 1997) ........ 2,802,271 2,406,968
Employee loans ............................................. 1,469,143 1,581,233
------------ -----------
143,537,543 107,114,942
Contributions receivable:
Employee ................................................... 270,707 35,855
Employer ................................................... 56,060 6,737
Dividends receivable ............................................. 249,399 221,478
Interest receivable .............................................. 1,319 3,227
Wires receivable ................................................. -- 10,679
------------ -----------
Total assets ................................................ 144,143,775 107,529,029
------------ -----------
Liabilities - accounts payable ...................................... -- 40,483
------------ -----------
Net assets available for benefits ................................... $144,143,775 107,488,546
============ ===========
</TABLE>
See accompanying notes to financial statements.
6
<PAGE>
ZIONS BANCORPORATION
EMPLOYEE INVESTMENT SAVINGS PLAN
Statements of Changes in Net Assets Available for Benefits
Years ended December 31, 1998, 1997 and 1996
<TABLE>
<CAPTION>
1998 1997 1996
------------ ------------ ------------
<S> <C> <C> <C>
Additions to net assets attributed to:
Investment income:
Net appreciation in fair value of investments ... $ 34,672,299 36,818,202 12,105,270
Dividends ....................................... 1,402,606 3,053,076 732,045
Interest ........................................ 156,435 279,067 361,768
------------ ----------- ----------
36,231,340 40,150,345 13,199,083
------------ ----------- ----------
Contributions:
Employee ........................................ 4,893,777 2,715,037 2,049,269
Employer ........................................ 991,783 543,577 430,015
Plan rollovers:
Nonaffiliated plans .................... 3,248,154 4,132,145 342,799
Affiliated plan ........................ -- -- 183,050
------------ ----------- ----------
9,133,714 7,390,759 3,005,133
------------ ----------- ----------
45,365,054 47,541,104 16,204,216
------------ ----------- ----------
Total additions
Deductions from net assets -
benefits paid directly to participants ................ 8,709,825 4,550,690 3,337,348
------------ ----------- ----------
36,644,229 42,990,414 12,866,868
Net increase
Net assets available for benefits:
Beginning of year ..................................... 107,488,546 64,498,132 51,631,264
------------ ----------- ----------
End of year ........................................... $144,143,775 107,488,546 64,498,132
============ =========== ==========
</TABLE>
See accompanying notes to financial statements.
7
<PAGE>
ZIONS BANCORPORATION
EMPLOYEE INVESTMENT SAVINGS PLAN
Notes to Financial Statements
December 31, 1998 and 1997
(1) Plan Description
The following description of the Zions Bancorporation Employee Investment
Savings Plan (the Plan) provides only general information. Participants
should refer to the Plan agreement for a more complete description of the
Plan's provisions.
(a) General
The Plan is a single employer contributory plan that is designed
to provide retirement benefits for eligible employees under a
pretax salary reduction (deferral) arrangement and, if employees
so elect, an opportunity to acquire stock ownership in Zions
Bancorporation (the Company). The Plan is subject to the
provisions of the Employee Retirement Income Security Act of 1974.
(b) Eligibility
Participation in the Plan is voluntary. An employee is eligible to
become a participant on January 1 or July 1, whichever coincides
with, or immediately follows, the latter of the date on which the
employee completes at least 1,000 hours of service during 12
continuous months and attains the age of 21. At December 31, 1998
and 1997, there were 3,893 and 3,240 participants, respectively,
in the Plan.
(c) Employee and Company Contributions
Participants may elect to contribute one to fifteen percent of
their compensation to the Employee Investment Savings Plan,
limited by participant contributions made to the Zions
Bancorporation Employee Stock Savings Plan. The Company
contributes an amount equal to 25 percent of the contribution made
by each participant up to ten percent of their compensation with
no match made on contributions in excess thereof. The maximum
amount a participant may contribute to the Plan in a calendar year
is the lesser of fifteen percent of their compensation, or $10,000
for 1998.
(d) Allocation of Income or Loss
Investment income is allocated to each participant's account in
proportion to the investment shares held in that participant's
account to the total investment shares held in the Plan.
(e) Vesting and Payment of Benefits
Employee contributions and the employees' share of the Company
contributions are 100 percent vested at all times. Benefits are
paid upon death, disability, retirement, or earlier, subject to
certain restrictions. Benefits are paid in shares of stock and/or
cash pursuant to the nature of the investment vehicle selected by
the participant.
(continued)
8
<PAGE>
(f) Investment Options
As of December 31, 1998, the Plan maintains three separate types
of investment funds: (i) Company securities, which consist of
Company stock; (ii) Accessor funds, consisting of seven investment
options (Accessor growth fund adv class, Accessor value and income
adv class, Accessor small to mid-cap adv class, Accessor
international equity adv class, Accessor intermediate fixed income
adv class, Accessor mortgage securities adv class, Accessor
short-term intermediate fixed income adv class); and (iii)
Fidelity U.S. government reserves.
(g) Participant Loans
Beginning October 1, 1992, a participant who is an active employee
may apply for and obtain a loan of up to 50 percent of the
eligible amounts in their account. Loans are secured by the
participant's account. Loan repayment is made through payroll
deduction.
(h) Plan Termination
Although the Company has not expressed any intent to do so, it has
the right under the Plan to discontinue contributions at any time
and to terminate the Plan subject to provisions of ERISA.
(2) Summary of Significant Accounting Policies
The following is a summary of significant accounting policies followed by
the Plan in the preparation of its financial statements:
(a) Basis of Presentation
The Plan's financial statements are presented on the accrual basis
of accounting.
(b) Investments
Quoted market prices have been used to determine the fair value of
investments. Purchases and sales of investments are recorded on a
settlement-date basis, which does not materially differ from using
the trade-date basis required by generally accepted accounting
principles.
Net unrealized appreciation represents the difference between the
book value and the market value of investments held at year-end.
Book value is the market value at the end of the previous fiscal
year, or cost if the investment was purchased during the year.
9
<PAGE>
ZIONS BANCORPORATION
EMPLOYEE INVESTMENT SAVINGS PLAN
Notes to Financial Statements
December 31, 1998 and 1997
The following investments represent five percent or more of the
net assets available for plan benefits at December 31:
1998 1997
------------ ------------
Zions Bancorporation common stock $111,008,195 83,746,551
Accessor growth fund adv class 8,495,197 --
(c) Cost of Administration
All costs of administration are currently being absorbed by the
Company.
(d) Cash and Cash Equivalents
Cash and cash equivalents include cash and short-term investments
with maturity dates of 90 days or less.
(e) Reclassifications
Certain reclassifications have been made in the 1997 financial
statements to conform with the 1998 presentation.
(f) Use of Estimates
The preparation of the financial statements and supplemental
schedules in conformity with generally accepted accounting
principles requires the plan administrator to make estimates and
assumptions that affect the reported amounts of assets and
liabilities and disclosure of contingent assets and liabilities at
the date of the financial statements and supplemental schedules
and the reported amounts of changes in net assets during the
reporting period. Actual results could differ from those
estimates.
(3) Tax Status
The Plan obtained its latest determination letter on June 5, 1996, in
which the Internal Revenue Service stated that the Plan, as then
designed, was in compliance with the applicable requirements of the
Internal Revenue Code (IRC). The Plan has been amended since receiving
the determination letter. However, the plan administrator and the Plan's
tax counsel believe that the Plan is designed and is currently being
operated in compliance with the applicable requirements of the IRC.
(4) Zions Bancorporation Common Stock
At December 31, 1998 and 1997, the investment in common stock of the
Company consisted of 1,779,691 and 1,845,654 shares, respectively.
10
<PAGE>
ZIONS BANCORPORATION
EMPLOYEE INVESTMENT SAVINGS PLAN
Notes to Financial Statements
December 31, 1998 and 1997
(5) Financial Information by Fund Type
Financial information by fund type as of December 31, 1998 and 1997, and
for each of the years in the three-year period ended December 31, 1998,
are as follows:
Statement of Net Assets Available for Benefits by Fund Type
Year ended December 31, 1998
<TABLE>
<CAPTION>
Zions Fidelity
Bancorp- U.S.
oration govern-
common Accessor ment Employee
stock funds* reserves loans Other Total
------------ ------------ ------------ ------------ ------------ ------------
<S> <C> <C> <C> <C> <C> <C>
Assets:
Cash and cash equivalents ........ -- -- -- -- 28,747 28,747
Investments, at fair value:
Zions Bancorporation common .... $111,008,195 -- -- -- -- 111,008,195
stock
Accessor funds ................. -- 28,257,934 -- -- -- 28,257,934
Fidelity U.S. government ....... -- -- 2,802,271 -- -- 2,802,271
reserves
Employee loans ................. -- -- -- 1,469,143 -- 1,469,143
------------ ------------ ------------ ------------ ------------ ------------
111,008,195 28,257,934 2,802,271 1,469,143 -- 143,537,543
Contributions receivable:
Employee ......................... -- -- -- -- 270,707 270,707
Employer ......................... -- -- -- -- 56,060 56,060
Dividends receivable ................ -- -- -- -- 249,399 249,399
Interest receivable ................. -- -- -- -- 1,319 1,319
------------ ------------ ------------ ------------ ------------ ------------
Net assets available for benefits ... $111,008,195 28,257,934 2,802,271 1,469,143 606,232 144,143,775
============ ============ ============ ============ ============ ============
</TABLE>
* Accessor funds shown in detail in note 6.
(continued)
11
<PAGE>
ZIONS BANCORPORATION
EMPLOYEE INVESTMENT SAVINGS PLAN
Notes to Financial Statements
December 31, 1998 and 1997
Statement of Net Assets Available for Benefits by Fund Type
Year ended December 31, 1997
<TABLE>
<CAPTION>
Zions Fidelity
Bancorp- U.S.
oration govern-
common Accessor ment Employee
stock funds* reserves loans Total
------------ ------------ ------------ ------------ ------------
<S> <C> <C> <C> <C> <C>
Assets:
Cash and cash equivalents .............. $ 34,561 54,545 -- 47,005 136,111
Investments, at fair value:
Zions Bancorporation common stock ... 83,746,551 -- -- -- 83,746,551
Accessor funds ...................... -- 19,380,190 -- -- 19,380,190
Fidelity U.S. government reserves ... -- -- 2,406,968 -- 2,406,968
Employee loans ...................... -- -- -- 1,581,233 1,581,233
------------ ------------ ------------ ------------ ------------
83,746,551 19,380,190 2,406,968 1,581,233 107,114,942
Contributions receivable:
Employee ............................ 15,626 17,999 2,230 -- 35,855
Employer ............................ 3,050 3,280 407 -- 6,737
Dividends receivable .................. 221,478 -- -- -- 221,478
Interest receivable ................... 818 -- -- 2,409 3,227
Wires receivable ...................... -- 9,502 1,177 -- 10,679
------------ ------------ ------------ ------------ ------------
Total assets ................... 84,022,084 19,465,516 2,410,782 1,630,647 107,529,029
Liabilities - accounts payable ........... 21,847 16,266 560 1,810 40,483
------------ ------------ ------------ ------------ ------------
Net assets available for benefits ......... $ 84,000,237 19,449,250 2,410,222 1,628,837 107,488,546
============ ============ ============ ============ ============
</TABLE>
* Accessor funds shown in detail in note 6.
(continued)
12
<PAGE>
ZIONS BANCORPORATION
EMPLOYEE INVESTMENT SAVINGS PLAN
Notes to Financial Statements
December 31, 1998 and 1997
Statement of Changes in Net Assets Available for Benefits by Fund Type
Year ended December 31, 1998
<TABLE>
<CAPTION>
Zions Fidelity
Bancorporation U.S.
common Accessor government Employee
stock funds* reserves loans Other Total
------------ ------------ ------------ ------------ ------------ ------------
<S> <C> <C> <C> <C> <C> <C>
Additions to net assets
attributed to:
Investment income:
Net appreciation in
fair value of investments...... $ 30,451,745 4,181,224 39,330 -- -- 34,672,299
Dividends ....................... 723,420 313,486 116,269 -- 249,431 1,402,606
Interest ........................ 4,695 2,311 -- 148,110 1,319 156,435
------------ ------------ ------------ ------------ ------------ ------------
31,179,860 4,497,021 155,599 148,110 250,750 36,231,340
------------ ------------ ------------ ------------ ------------ ------------
Contributions:
Employee .......................... 1,935,542 2,488,565 198,963 -- 270,707 4,893,777
Employer .......................... 397,767 511,144 26,812 -- 56,060 991,783
Plan rollovers -
nonaffiliated plan .............. 1,309,368 1,840,568 98,218 -- -- 3,248,154
------------ ------------ ------------ ------------ ------------ ------------
3,642,677 4,840,277 323,993 -- 326,767 9,133,714
------------ ------------ ------------ ------------ ------------ ------------
Principal loan payments ............. 556,538 136,587 231,093 (952,933) 28,715 --
------------ ------------ ------------ ------------ ------------ ------------
Total additions .............. 35,379,075 9,473,885 710,685 (804,823) 606,232 45,365,054
Deductions from net assets attributed to:
Benefits paid to ................... 6,728,228 1,126,134 687,458 168,005 -- 8,709,825
participants
Loans disbursed .................... 476,395 316,966 19,773 (813,134) -- --
------------ ------------ ------------ ------------ ------------ ------------
Total deductions ............. 7,204,623 1,443,100 707,231 (645,129) -- 8,709,825
------------ ------------ ------------ ------------ ------------ ------------
Interfund transfers .................... (1,166,494) 777,899 388,595 -- -- --
------------ ------------ ------------ ------------ ------------ ------------
Net increase (decrease)....... 27,007,958 8,808,684 392,049 (159,694) 606,232 36,655,229
Net assets available for benefits:
Beginning of year ................... 84,000,237 19,449,250 2,410,222 1,628,837 -- 107,488,546
------------ ------------ ------------ ------------ ------------ ------------
End of year ......................... $111,008,195 28,257,934 2,802,271 1,469,143 606,232 144,143,775
============ ============ ============ ============ ============ ============
</TABLE>
* Accessor funds shown in detail in note 6.
(continued)
13
<PAGE>
ZIONS BANCORPORATION
EMPLOYEE INVESTMENT SAVINGS PLAN
Notes to Financial Statements
December 31, 1998 and 1997
Statement of Changes in Net Assets Available for Benefits by Fund Type
Year ended December 31, 1997
<TABLE>
<CAPTION>
Zions Fidelity
Bancorp- U.S.
oration govern-
common Fidelity Money Fixed Accessor ment Employee
stock mutual fund market income funds* reserves loans Total
----------- ----------- ----------- ----------- ----------- ----------- ----------- -----------
<S> <C> <C> <C> <C> <C> <C> <C> <C>
Additions to net assets
attributed to:
Investment income:
Net appreciation
(depreciation)
in fair value
of investments ........... $35,955,118 2,009,330 -- 10,674 (1,190,747) 33,827 -- 36,818,202
Dividends .................. 1,081,318 -- -- 39,451 1,911,698 20,609 -- 3,053,076
Interest ................... 6,377 665 137,608 721 1,380 -- 132,316 279,067
----------- ----------- ----------- ----------- ----------- ----------- ----------- -----------
37,042,813 2,009,995 137,608 50,846 722,331 54,436 132,316 40,150,345
----------- ----------- ----------- ----------- ----------- ----------- ----------- -----------
Contributions:
Employee ................... 1,209,640 597,263 137,829 65,191 627,369 77,745 -- 2,715,037
Employer ................... 256,049 129,112 12,726 11,954 118,990 14,746 -- 543,577
Plan rollovers
-nonaffiliated plan ...... 1,559,859 102,668 38,611 39,018 2,090,624 301,365 -- 4,132,145
----------- ----------- ----------- ----------- ----------- ----------- ----------- -----------
3,025,548 829,043 189,166 116,163 2,836,983 393,856 -- 7,390,759
----------- ----------- ----------- ----------- ----------- ----------- ----------- -----------
Principal loan payments....... 455,302 74,763 42,000 3,000 120,022 21,008 (716,095) --
----------- ----------- ----------- ----------- ----------- ----------- ----------- -----------
Total additions.......... 40,523,663 2,913,801 368,774 170,009 3,679,336 469,300 (583,779) 47,541,104
Deductions from net
assets attributed
to:
Benefits paid to
participants ............. 3,069,345 242,982 199,921 51,330 279,353 608,285 99,474 4,550,690
Loans disbursed ............ 552,521 169,997 69,472 -- 127,725 22,356 (942,071) --
----------- ----------- ----------- ----------- ----------- ----------- ----------- -----------
Total deductions......... 3,621,866 412,979 269,393 51,330 407,078 630,641 (842,597) 4,550,690
----------- ----------- ----------- ----------- ----------- ----------- ----------- -----------
Interfund transfers .............. (1,346,059)(11,439,039) (4,779,540) (1,183,917) 16,176,992 2,571,563 -- --
----------- ----------- ----------- ----------- ----------- ----------- ----------- -----------
Net increase (decrease) . 35,555,738 (8,938,217) (4,680,159) (1,065,238) 19,449,250 2,410,222 258,818 42,990,414
Net assets available for benefits:
Beginning of year .......... 48,444,499 8,938,217 4,680,159 1,065,238 -- -- 1,370,019 64,498,132
----------- ----------- ----------- ----------- ----------- ----------- ----------- -----------
End of year ................ $84,000,237 -- -- -- 19,449,250 2,410,222 1,628,837 107,488,546
=========== =========== =========== =========== =========== =========== =========== ===========
</TABLE>
* Accessor funds shown in detail at note 6.
(continued)
14
<PAGE>
ZIONS BANCORPORATION
EMPLOYEE INVESTMENT SAVINGS PLAN
Notes to Financial Statements
December 31, 1998 and 1997
Statement of Changes in Net Assets Available for Benefits by Fund Type
Year ended December 31, 1996
<TABLE>
<CAPTION>
Zions
Bancorporation Fidelity
common mutual Money Fixed Employee
stock fund market income loans Total
------------ ------------ ------------ ------------ ------------ ------------
<S> <C> <C> <C> <C> <C> <C>
Additions to net assets attributed to:
Investment income:
Net appreciation
(depreciation) in fair
value of investments ............... $ 11,090,943 1,039,045 -- (24,718) -- 12,105,270
Dividends ............................ 581,303 75,331 -- 75,411 -- 732,045
Interest ............................. 1,972 1,695 222,032 456 135,613 361,768
------------ ------------ ------------ ------------ ------------ ------------
11,674,218 1,116,071 222,032 51,149 135,613 13,199,083
------------ ------------ ------------ ------------ ------------ ------------
Contributions:
Employee ............................. 829,922 898,971 220,000 100,376 -- 2,049,269
Employer ............................. 172,015 188,689 51,176 18,135 -- 430,015
Plan rollovers ....................... 250,017 80,839 15,152 179,841 -- 525,849
------------ ------------ ------------ ------------ ------------ ------------
1,251,954 1,168,499 286,328 298,352 -- 3,005,133
------------ ------------ ------------ ------------ ------------ ------------
Principal loan payments .................... 462,897 119,887 131,170 25,426 (739,380) --
------------ ------------ ------------ ------------ ------------ ------------
Total additions .............. 13,389,069 2,404,457 639,530 374,927 (603,767) 16,204,216
Deductions from net assets attributed to:
Benefits paid to participants .......... 2,332,669 453,309 317,861 137,634 95,875 3,337,348
Loans disbursed ........................ 465,087 179,736 81,083 11,244 (737,150) --
------------ ------------ ------------ ------------ ------------ ------------
Total deductions ............ 2,797,756 633,045 398,944 148,878 (641,275) 3,337,348
------------ ------------ ------------ ------------ ------------ ------------
Interfund transfers ........................ (313,598) 499,516 69,855 (255,773) -- --
------------ ------------ ------------ ------------ ------------ ------------
Net increase (decrease) ...... 10,277,715 2,270,928 310,441 (29,724) 37,508 12,866,868
Net assets available for benefits:
Beginning of year ...................... 38,166,784 6,667,289 4,369,718 1,094,962 1,332,511 51,631,264
------------ ------------ ------------ ------------ ------------ ------------
End of year ............................ $ 48,444,499 8,938,217 4,680,159 1,065,238 1,370,019 64,498,132
============ ============ ============ ============ ============ ============
</TABLE>
(continued)
15
<PAGE>
ZIONS BANCORPORATION
EMPLOYEE INVESTMENT SAVINGS PLAN
Notes to Financial Statements
December 31, 1998 and 1997
(6) Financial Information by Accessor Funds Investment Option
Statement of Changes in Accessor Funds Net Assets Available
for Benefits by Investment Option
Year ended December 31, 1998
<TABLE>
<CAPTION>
Short-
term
Inter- inter-
Value Small Inter- mediate mediate
and to mid- national fixed Mortgage fixed
Growth income cap equity income securities income Total
---------- ---------- ---------- ---------- ---------- ---------- ---------- ----------
<S> <C> <C> <C> <C> <C> <C> <C> <C>
Additions to net assets
attributed to:
Investment income:
Net appreciation in fair
value of investments ............ $2,373,297 461,472 777,111 449,622 73,451 5,104 41,167 4,181,224
Dividends ......................... 9,849 52,715 -- -- 194,392 48,551 7,979 313,486
Interest .......................... 406 1,753 152 -- -- -- -- 2,311
---------- ---------- ---------- ---------- ---------- ---------- ---------- ----------
2,383,552 515,940 777,263 449,622 267,843 53,655 49,146 4,497,021
---------- ---------- ---------- ---------- ---------- ---------- ---------- ----------
Contributions:
Employee .............................. 780,655 397,915 545,484 314,782 241,053 123,519 85,157 2,488,565
Employer .............................. 161,407 80,626 113,335 64,343 49,438 24,533 17,462 511,144
Plan rollovers
-nonaffiliated plans ................ 552,296 560,310 341,629 146,239 119,154 78,169 42,771 1,840,568
---------- ---------- ---------- ---------- ---------- ---------- ---------- ----------
1,494,358 1,038,851 1,000,448 525,364 409,645 226,221 145,390 4,840,277
---------- ---------- ---------- ---------- ---------- ---------- ---------- ----------
Principal loan payments ................. 34,309 21,084 27,025 18,054 16,845 11,963 7,307 136,587
---------- ---------- ---------- ---------- ---------- ---------- ---------- ----------
Total additions .................. 3,912,219 1,575,875 1,804,736 993,040 694,333 291,839 201,843 9,473,885
Deductions from net assets attributed to:
Benefits paid
to participants ................... 235,970 225,348 239,349 178,271 167,032 21,651 58,513 1,126,134
Loans disbursed ..................... 81,064 61,133 55,110 26,614 76,988 8,321 7,736 316,966
---------- ---------- ---------- ---------- ---------- ---------- ---------- ----------
Total deductions ................. 317,034 286,481 294,459 204,885 244,020 29,972 66,249 1,443,100
---------- ---------- ---------- ---------- ---------- ---------- ---------- ----------
Interfund transfers ..................... 619,581 190,387 284,625 (82,735) 252,196 136,242 (622,397) 777,899
---------- ---------- ---------- ---------- ---------- ---------- ---------- ----------
Net increase
(decrease) ..................... 4,214,766 1,479,781 1,794,902 705,420 702,509 398,109 (486,803) 8,808,684
Net assets
available for benefits:
Beginning of year ................... 4,280,431 3,386,177 4,113,602 2,729,008 3,070,995 641,784 1,227,253 19,449,250
---------- ---------- ---------- ---------- ---------- ---------- ---------- ----------
End of year ......................... $8,495,197 4,865,958 5,908,504 3,434,428 3,773,504 1,039,893 740,450 28,257,934
========== ========== ========== ========== ========== ========== ========== ==========
</TABLE>
16
<PAGE>
ZIONS BANCORPORATION
EMPLOYEE INVESTMENT SAVINGS PLAN
Notes to Financial Statements
December 31, 1998 and 1997
(6) Financial Information by Accessor Funds Investment Option
Statement of Changes in Accessor Funds Net Assets Available
for Benefits by Investment Option
Year ended December 31, 1997
<TABLE>
<CAPTION>
Short-
term
Inter- inter-
Value Small Inter- mediate mediate
and to mid- national fixed Mortgage fixed
Growth income cap equity income securities income Total
---------- ---------- ---------- ---------- ---------- ---------- ---------- ----------
<S> <C> <C> <C> <C> <C> <C> <C> <C>
Additions to net assets
attributed to:
Investment income (loss)..............$ 118,302 220,511 394,169 (157,230) 110,284 18,387 17,908 722,331
Contributions ......................... 652,443 465,441 575,766 454,634 421,771 91,294 175,634 2,836,983
Principal loan payments ............... 36,217 16,821 26,259 22,879 11,886 2,411 3,549 120,022
---------- ---------- ---------- ---------- ---------- ---------- ---------- ----------
Total additions.................... 806,962 702,773 996,194 320,283 543,941 112,092 197,091 3,679,336
Deductions from net assets attributed to:
Benefits paid
to participants..................... 108,867 31,295 47,247 44,652 33,046 730 13,516 279,353
Loans disbursed ...................... 38,541 17,901 27,944 24,347 12,649 2,566 3,777 127,725
---------- ---------- ---------- ---------- ---------- ---------- ---------- ----------
Total deductions .................. 147,408 49,196 75,191 68,999 45,695 3,296 17,293 407,078
---------- ---------- ---------- ---------- ---------- ---------- ---------- ----------
Interfund transfers....................... 3,620,877 2,732,600 3,192,599 2,477,724 2,572,749 532,988 1,047,455 16,176,992
---------- ---------- ---------- ---------- ---------- ---------- ---------- ----------
Net increase ...................... 4,280,431 3,386,177 4,113,602 2,729,008 3,070,995 641,784 1,227,253 19,449,250
Net assets available for benefits:
Beginning of year....................... -- -- -- -- -- -- -- --
---------- ---------- ---------- ---------- ---------- ---------- ---------- ----------
End of year ..........................$4,280,431 3,386,177 4,113,602 2,729,008 3,070,995 641,784 1,227,253 19,449,250
========== ========== ========== ========== ========== ========== ========== ==========
</TABLE>
17
<PAGE>
ZIONS BANCORPORATION
EMPLOYEE INVESTMENT SAVINGS PLAN
Line 27a - Schedule of Assets Held for Investment Purposes
December 31, 1998
<TABLE>
<CAPTION>
(a) (e)
Party in (b) (c) (d) Current
interest Issuer Investment description Cost (1) value
- ------------ -------------------- ---------------------------------------------- ----------- -----------
<S> <C> <C> <C> <C>
* Investments at fair value determined by quoted
market prices:
Zions Bancorporation Zions Bancorporation common stock $21,778,604 111,008,195
Accessor Accessor growth fund adv class 6,867,230 8,495,197
Accessor value and income adv class 4,797,594 4,865,958
Accessor small to mid-cap adv class 5,416,724 5,908,504
Accessor international equity adv class 3,026,980 3,434,428
Accessor intermediate fixed income adv
class 3,745,727 3,773,504
Accessor mortgage securities adv class 1,048,810 1,039,893
Accessor short-term intermediate fixed
income adv class 744,989 740,450
Fidelity
Investments
Institutional
Brokerage Group Fidelity U.S. government reserves 2,802,271 2,802,271
Investments at fair value which is
approximated by book value -
participant loans (261) with interest
between 7 and 10.5 percent and
maturing by 2026 1,469,143 1,469,143
----------- -----------
$51,698,072 143,537,543
=========== ===========
</TABLE>
Notes:
* Party-in-interest
There were no nonexempt party-in-interest transactions.
There were no assets which were both acquired and disposed of during the
year.
(1) Cost is determined using the average-cost method applied on a participant-
by-participant basis.
18
<PAGE>
ZIONS BANCORPORATION
EMPLOYEE INVESTMENT SAVINGS PLAN
Line 27d - Schedule of Reportable Transactions
Year ended December 31, 1998
<TABLE>
<CAPTION>
(h)
Current
(a) value
Identity of (c) (g) of asset
party (b) Purchase (d) Cost of on trans- (i)
involved Description of asset price Selling price asset action date Net gain
- --------------- -------------------- ---------------- -------------- ------------ -------------- --------------
<S> <C> <C> <C> <C> <C>
Zions
Bancorp- Zions Bancorporation
oration common stock $ - 9,207,511 1,704,972 9,207,511 7,502,539
Zions Bancorporation
common stock 6,219,975 - - 6,219,975 -
</TABLE>
19
