UNITED STATES SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
FORM 10-Q/A
[ X ] QUARTERLY REPORT UNDER SECTION 13 OR 15(d) OF THE SECURITIES
EXCHANGE ACT OF 1934
For the quarterly period ended September 30, 1999
------------------
OR
[ ] TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES
EXCHANGE ACT OF 1934
For the transition period from to
COMMISSION FILE NUMBER 0-2610
ZIONS BANCORPORATION
(Exact name of Registrant as specified in its charter)
UTAH 87-0227400
- --------------------------------- -------------------
(State or other jurisdiction (I.R.S. Employer
of incorporation or organization) Identification No.)
ONE SOUTH MAIN, SUITE 1380
SALT LAKE CITY, UTAH 84111
- ---------------------------------------- ----------
(Address of principal executive offices) (Zip Code)
Registrant's telephone number, including area code: (801) 524-4787
Indicate by check mark whether the registrant (1) has filed all reports required
to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during
the preceding 12 months and (2) has been subject to such filing requirement for
the past 90 days. Yes [ X ] No [ ]
Indicate the number of shares outstanding of each of the issuer's classes of
common stock, as of the latest practicable date.
Common Stock, without par value,
outstanding at November 8, 1999 85,502,626 shares
1
<PAGE>
ZIONS BANCORPORATION AND SUBSIDIARIES
INDEX
Page
PART I. FINANCIAL INFORMATION ----
---------------------
ITEM 1. Financial Statements (unaudited)
Consolidated Balance Sheets 3
Consolidated Statements of Income 4
Consolidated Statements of Cash Flows 5
Consolidated Statements of Changes in Shareholders' 7
Equity and Comprehensive Income
Notes to Consolidated Financial Statements 8
ITEM 2. Management's Discussion and Analysis 14
PART II. OTHER INFORMATION
-----------------
ITEM 6. Exhibits and Reports on Form 8-K 31
SIGNATURES 31
- ----------
2
<PAGE>
ZIONS BANCORPORATION AND SUBSIDIARIES
CONSOLIDATED BALANCE SHEETS
(Unaudited)
<TABLE>
<CAPTION>
September 30, December 31, September 30,
(In thousands, except share amounts) 1999 1998 1998
------------ ------------ ------------
<S> <C> <C> <C>
ASSETS
Cash and due from banks ............................................ $ 742,714 $ 864,446 $ 618,651
Money market investments:
Interest-bearing deposits ..................................... 16,562 30,484 25,572
Federal funds sold ............................................ 127,024 199,446 360,038
Security resell agreements .................................... 519,546 382,275 880,499
Investment securities:
Held to maturity, at cost (approximate market value
$3,298,873, $2,821,535, and $2,228,210) ....................... 3,324,387 2,804,654 2,209,223
Available for sale, at market ................................. 614,579 684,581 554,039
Trading account, at market..................................... 531,710 191,855 203,871
------------ ------------ ------------
4,470,676 3,681,090 2,967,133
Loans:
Loans held for sale ........................................... 154,115 232,253 192,042
Loans, leases, and other receivables .......................... 11,314,971 10,452,246 6,618,519
------------ ------------ ------------
11,469,086 10,684,499 6,810,561
Less:
Unearned income and fees, net of related costs ................ 52,414 48,123 43,554
Allowance for loan losses ..................................... 198,559 205,553 100,440
------------ ------------ ------------
Net Loans ............................................... 11,218,113 10,430,823 6,666,567
Premises and equipment, net ........................................ 263,814 231,847 179,686
Goodwill and core deposit intangibles .............................. 634,093 663,606 566,520
Other real estate owned ............................................ 9,699 5,270 4,047
Other assets ....................................................... 948,750 530,944 493,432
------------ ------------ ------------
$ 18,950,991 $ 17,020,231 $ 12,762,145
============ ============ ============
LIABILITIES AND SHAREHOLDERS' EQUITY
Deposits:
Noninterest-bearing ............................................ $ 3,020,163 $ 3,170,436 $ 2,306,876
Interest-bearing:
Savings and money market .................................. 7,025,446 6,077,556 4,470,996
Time:
Under $100,000 ........................................ 1,823,855 2,340,598 1,273,949
Over $100,000 ......................................... 990,863 1,528,329 684,719
Foreign ................................................... 148,446 204,244 195,482
------------ ------------ ------------
13,008,773 13,321,163 8,932,022
Securities sold, not yet purchased ................................. 183,954 29,702 200,730
Federal funds purchased ............................................ 790,614 337,283 400,221
Security repurchase agreements ..................................... 1,165,703 932,560 1,045,462
Accrued liabilities ................................................ 583,600 319,278 230,942
Commercial paper ................................................... 284,014 49,217 74,630
Federal Home Loan Bank advances and other borrowings:
Less than one year ............................................ 856,943 100,750 26,154
Over one year ................................................. 117,317 56,796 113,199
Long-term debt ..................................................... 453,152 453,735 384,806
------------ ------------ ------------
Total liabilities ......................................... 17,444,070 15,600,484 11,408,166
------------ ------------ ------------
Minority interest .................................................. 38,094 34,670 --
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 78,992,418,
78,636,083 and 77,594,651 shares ....................... 755,282 752,845 747,538
Accumulated other comprehensive loss .......................... (7,917) (4,432) (2,593)
Retained earnings ............................................. 721,462 636,664 609,034
------------ ------------ ------------
Total shareholders' equity ............................... 1,468,827 1,385,077 1,353,979
------------ ------------ ------------
$ 18,950,991 $ 17,020,231 $ 12,762,145
============ ============ ============
</TABLE>
3
<PAGE>
ZIONS BANCORPORATION AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF INCOME
(Unaudited)
<TABLE>
<CAPTION>
Three Months Ended Nine Months Ended
September 30, September 30,
---------------------- ----------------------
(In thousands, except per share amounts) 1999 1998 1999 1998
--------- --------- --------- ---------
<S> <C> <C> <C> <C>
Interest income:
Interest and fees on loans ............................... $ 238,311 $ 152,836 $ 688,368 $ 421,375
Interest on loans held for sale .......................... 2,780 3,436 9,273 10,652
Lease financing .......................................... 3,094 2,990 9,771 9,201
Interest on money market investments ..................... 16,488 21,303 47,016 68,921
Interest on securities:
Held to maturity:
Taxable ........................................ 44,482 36,646 128,462 94,583
Nontaxable ..................................... 4,398 3,334 12,815 9,959
Available for sale:
Taxable ........................................ 6,501 6,739 18,886 23,386
Nontaxable ..................................... 103 184 349 689
Trading account ..................................... 7,333 5,880 22,108 18,126
--------- --------- --------- ---------
Total interest income ............................... 323,490 233,348 937,048 656,892
--------- --------- --------- ---------
Interest expense:
Interest on savings and money market deposits ............ 60,016 38,616 166,076 110,316
Interest on time and foreign deposits .................... 35,896 29,138 119,643 80,916
Interest on borrowed funds ............................... 52,326 36,014 136,878 105,406
--------- --------- --------- ---------
Total interest expense .............................. 148,238 103,768 422,597 296,638
--------- --------- --------- ---------
Net interest income ................................. 175,252 129,580 514,451 360,254
Provision for loan losses ..................................... 3,977 2,485 11,841 9,034
--------- --------- --------- ---------
Net interest income after provision for loan losses . 171,275 127,095 502,610 351,220
--------- --------- --------- ---------
Noninterest income:
Service charges on deposit accounts ...................... 18,544 14,343 54,072 40,313
Other service charges, commissions and fees .............. 14,992 13,727 47,613 37,847
Trust income ............................................. 3,794 2,222 10,609 5,863
Investment securities gain (loss), net ................... (252) (845) (1,365) 2,078
Underwriting and trading income .......................... 1,549 1,450 8,793 5,582
Loan sales and servicing income .......................... 10,623 14,635 38,205 38,040
Other income ............................................. 11,920 4,075 27,331 11,675
--------- --------- --------- ---------
Total noninterest income ............................ 61,170 49,607 185,258 141,398
--------- --------- --------- ---------
Noninterest expense:
Salaries and employee benefits ........................... 82,962 60,320 247,845 165,623
Occupancy, net ........................................... 10,661 6,960 33,424 18,594
Furniture and equipment .................................. 10,563 9,281 30,631 25,421
Other real estate expense (income) ....................... 36 218 (406) 151
Legal and professional services .......................... 3,542 2,890 11,682 9,821
Supplies ................................................. 2,673 2,580 8,239 7,713
Postage .................................................. 3,184 2,441 8,879 6,625
Advertising .............................................. 4,468 2,810 13,259 7,888
Merger related expense ................................... 1,601 3,059 3,765 12,201
FDIC premiums ............................................ 487 297 1,633 966
Amortization of goodwill and core deposit intangibles .... 8,887 8,014 26,521 22,491
Amortization of mortgage servicing assets ................ 105 1,287 871 3,708
Other .................................................... 25,127 18,316 78,744 56,813
--------- --------- --------- ---------
Total noninterest expense ........................... 154,296 118,473 465,087 338,015
--------- --------- --------- ---------
Income before income taxes and minority interest .............. 78,149 58,229 222,781 154,603
Income taxes .................................................. 27,706 20,918 79,181 51,362
--------- --------- --------- ---------
Net income before minority interest ................. 50,443 37,311 143,600 103,241
Minority interest ............................................. 802 -- 2,662 --
--------- --------- --------- ---------
Net income .......................................... $ 49,641 $ 37,311 $ 140,938 $ 103,241
========= ========= ========= =========
Basic shares .................................................. 79,001 77,758 78,920 74,373
Diluted shares ................................................ 79,949 79,007 79,964 75,621
Net income per common share:
Basic .................................................... $ 0.63 $ 0.48 $ 1.79 $ 1.39
Diluted .................................................. $ 0.62 $ 0.47 $ 1.76 $ 1.36
</TABLE>
4
<PAGE>
ZIONS BANCORPORATION AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF CASH FLOWS
(Unaudited)
<TABLE>
<CAPTION>
Three Months Ended Nine Months Ended
September 30, September 30,
----------------------------- -----------------------------
(In thousands) 1999 1998 1999 1998
------------- ------------- ------------- -------------
<S> <C> <C> <C> <C>
Cash flows from operating activities:
Net income .................................................... $ 49,641 $ 37,311 $ 140,938 $ 103,241
Adjustments to reconcile net income to net cash
provided by (used in) operating activities:
Provision for loan losses ................................ 3,977 2,485 11,841 9,034
Depreciation of premises and equipment ................... 9,679 6,944 27,549 19,019
Amortization ............................................. 16,451 12,105 43,001 34,462
Accretion of unearned income and fees, net of
related costs ....................................... 2,721 1,256 11,310 (782)
Income to minority interest .............................. 802 -- 2,662 --
Proceeds from sales of trading account securities ........ 48,729,908 48,315,077 142,927,358 125,841,328
Increase in trading account securities ................... (48,845,488) (48,117,034) (143,267,213) (125,961,518)
Investment securities (gain) loss, net ................... 252 845 1,365 (2,078)
Proceeds from loans held for sale ........................ 227,714 316,702 732,185 929,768
Increase in loans held for sale .......................... (186,692) (305,837) (655,057) (933,270)
Net gain on sales of loans, leases and other assets ...... (6,588) (14,173) (29,171) (33,129)
Change in accrued income taxes ........................... 13,886 5,940 42,624 13,353
Change in accrued interest receivable .................... (16,348) (20,755) (22,503) (14,642)
Change in accrued interest payable ....................... 35 1,936 (2,058) 2,979
Other, net ............................................... 144,425 (288,522) 35,079 (152,962)
------------- ------------- ------------- -------------
Net cash provided by (used in) operating activities . 144,375 (45,720) (90) (145,197)
------------- ------------- ------------- -------------
Cash flows from investing activities:
Net decrease (increase) in money market investments ........... (263,002) 32,872 (50,752) (354,545)
Proceeds from maturities of investment securities
held to maturity ......................................... 157,861 519,474 732,459 1,915,488
Purchases of investment securities held to maturity ........... (260,926) (478,167) (1,263,474) (1,642,239)
Proceeds from sales of investment securities
available for sale ....................................... 77,919 100,100 228,653 230,938
Proceeds from maturities of investment securities
available for sale ....................................... 20,560 63,571 152,092 279,081
Purchases of investment securities available for sale ......... (261,380) (114,702) (535,305) (425,975)
Proceeds from sales of loans and leases ....................... 190,459 218,275 813,629 637,805
Net increase in loans and leases .............................. (611,840) (550,223) (1,681,443) (1,289,949)
Payments on leveraged leases .................................. (3,950) (2,773) (8,118) (3,840)
Principal collections on leveraged leases ..................... 3,950 2,773 8,118 3,840
Proceeds from sales of premises and equipment ................. 4,300 1,969 5,172 4,354
Purchases of premises and equipment ........................... (28,248) (14,024) (65,501) (36,579)
Proceeds from sales of mortgage-servicing rights .............. 773 1,527 21,776 2,136
Purchases of mortgage-servicing rights ........................ (86) (874) (1,014) (2,337)
Proceeds from sales of other assets ........................... 2,251 1,942 5,793 5,705
Cash paid for acquisitions, net of cash received .............. -- 6,565 592 95,614
------------- ------------- ------------- -------------
Net cash used in investing activities ............... (971,359) (211,695) (1,637,323) (580,503)
------------- ------------- ------------- -------------
</TABLE>
5
<PAGE>
ZIONS BANCORPORATION AND SUBSIDIARIESCONSOLIDATED STATEMENTS OF CASH FLOWS
(Continued)
(Unaudited)
<TABLE>
<CAPTION>
Three Months Ended Nine Months Ended
September 30, September 30,
------------------------- -------------------------
(In thousands) 1999 1998 1999 1998
----------- ----------- ----------- -----------
<S> <C> <C> <C> <C>
Cash flows from financing activities:
Net increase (decrease) in deposits ............. (61,951) 202,539 (317,851) 372,951
Net change in short-term funds borrowed ......... 717,784 6,485 1,831,716 246,884
Proceeds from FHLB advances over one year ....... 350,000 -- 365,000 --
Payments on FHLB advances over one year ......... (292,899) (6,718) (304,479) (104,338)
Proceeds from issuance of long-term debt ........ -- -- -- 110,000
Payments on long-term debt ...................... (97) (1,437) (583) (4,444)
Proceeds from issuance of common stock .......... 813 680 3,584 134,661
Payments to redeem common stock ................. (3,803) (11,879) (4,769) (24,272)
Dividends paid .................................. (22,921) (10,869) (56,937) (30,584)
----------- ----------- ----------- -----------
Net cash provided by financing activities .. 686,926 178,801 1,515,681 700,858
----------- ----------- ----------- -----------
Net decrease in cash and due from banks .............. (140,058) (78,614) (121,732) (24,842)
Cash and due from banks at beginning of period ....... 882,772 697,265 864,446 643,493
----------- ----------- ----------- -----------
Cash and due from banks at end of period ............. $ 742,714 $ 618,651 $ 742,714 $ 618,651
=========== =========== =========== ===========
</TABLE>
SUPPLEMENTAL DISCLOSURES OF CASH FLOW INFORMATION
(Unaudited)
<TABLE>
<CAPTION>
Three Months Ended Nine Months Ended
September 30, September 30,
------------------- -------------------
(In thousands) 1999 1998 1999 1998
-------- -------- -------- --------
<S> <C> <C> <C> <C>
Cash paid for:
Interest ................................. $148,227 $101,605 $424,662 $293,990
Income taxes ............................. 9,683 10,218 25,103 35,216
Loans transferred to other real estate owned .. 4,655 2,285 10,352 3,473
</TABLE>
6
<PAGE>
ZIONS BANCORPORATION AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF CHANGES IN SHAREHOLDERS' EQUITY
AND COMPREHENSIVE INCOME
(Unaudited)
<TABLE>
<CAPTION>
Nine Months Ended
September 30, 1999
----------------------------------------------------------------
Accumulated
Other
Common Comprehensive Comprehensive Retained Shareholders'
Stock Income Income (Loss) Earnings Equity
----------- ----------- ----------- ----------- -----------
<S> <C> <C> <C> <C>
Balance, January 1, 1999 .................................... $ 752,845 $ (4,432) $ 636,664 $ 1,385,077
Net income for the period ................................... $ 140,938 140,938 140,938
-----------
Other comprehensive income, net of tax:
Realized and unrealized holding loss arising
during the period, net of tax benefit of $4,637 ...... (7,485)
Reclassification for net realized securities loss recorded
in the income statement, net of tax benefit of $2,478. 4,000
-----------
Other comprehensive loss ................................ (3,485) (3,485) (3,485)
-----------
Total comprehensive income .............................. $ 137,453
===========
Cash dividends:
Common, $.72 per share .................................. (56,937) (56,937)
Issuance of common shares for acquisitions .................. 83 797 880
Stock redeemed and retired .................................. (4,769) (4,769)
Stock options exercised, net of shares tendered and retired . 7,123 7,123
----------- ----------- ----------- -----------
Balance, September 30, 1999 ................................. $ 755,282 $ (7,917) $ 721,462 $ 1,468,827
=========== =========== =========== ===========
Nine Months Ended
September 30, 1998
----------------------------------------------------------------
Accumulated
Other
Common Comprehensive Comprehensive Retained Shareholders'
Stock Income Income (Loss) Earnings Equity
----------- ----------- ----------- ----------- -----------
Balance, January 1, 1998 .................................... $ 270,359 $ 3,077 $ 529,113 $ 802,549
Net income for the period ................................... $ 103,241 103,241 103,241
-----------
Other comprehensive income, net of tax:
Realized and unrealized holding loss arising
during the period, net of tax benefit of $2,766 ...... (4,466)
Reclassification for realized investment
securities gain recorded in the income
statement, net of tax expense of $795 ................ (1,283)
-----------
Other comprehensive loss ................................ (5,749) (5,749) (5,749)
-----------
Total comprehensive income .............................. $ 97,492
===========
Cash dividends:
Common, $.40 per share .................................. (29,698) (29,698)
Dividends of acquired companies prior to merger ......... (886) (886)
Net proceeds from stock offering ............................ 129,832 129,832
Issuance of common shares for acquisitions .................. 365,688 79 7,264 373,031
Exercise of acquired company warrants prior to .............. 1,852 1,852
acquisition
Stock redeemed and retired .................................. (24,236) (24,236)
Stock options exercised, net of shares tendered and retired . 4,043 4,043
----------- ----------- ----------- -----------
Balance, September 30, 1998 ................................. $ 747,538 $ (2,593) $ 609,034 $ 1,353,979
=========== =========== =========== ===========
</TABLE>
Comprehensive income for the three months ended September 30, 1999 and 1998 was
$42,343 and $34,930 respectively.
7
<PAGE>
ZIONS BANCORPORATION AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(Unaudited)
Restatement
As a result of a recent interpretation by Securities and Exchange Commission
Staff regarding the treatment of share repurchases under Staff Accounting
Bulletin 96, the Company has restated the presentation of 8 of 13 business
combinations consummated during 1997 and 1998 using the purchase method of
accounting rather than poolings of interests as previously reported. The
primary effects of the restatement on the consolidated financial statements
included in this report on form 10Q/A are as follows:
CONSOLIDATED BALANCE SHEETS
<TABLE>
<CAPTION>
September 30, 1999 December 31, 1998 September 30, 1998
--------------------------- --------------------------- ---------------------------
Previously Previously Previously
(In thousands, except share amounts) Restated Reported Restated Reported Restated Reported
------------ ------------ ------------ ------------ ------------ ------------
<S> <C> <C> <C> <C> <C> <C>
ASSETS
Investment securities held to maturity .... 3,324,387 3,324,120 2,804,654 2,803,903 2,209,223 2,208,265
Net Loans ................................. 11,218,113 11,217,978 10,430,823 10,427,939 6,666,567 6,662,767
Premises and equipment, net ............... 263,814 263,062 231,847 231,066 179,686 178,894
Goodwill and core deposit intangibles ..... 634,093 258,359 663,606 271,578 566,520 168,869
Other assets .............................. 948,750 970,111 530,944 556,078 493,432 519,922
Other categories not affected ............. 2,561,834 2,561,834 2,358,357 2,358,357 2,646,717 2,646,717
------------ ------------ ------------ ------------ ------------ ------------
Total assets ............................. $ 18,950,991 $ 18,595,464 $ 17,020,231 $ 16,648,921 $ 12,762,145 $ 12,385,434
============ ============ ============ ============ ============ ============
LIABILITIES AND SHAREHOLDERS' EQUITY
Total liabilities not affected ............ $ 17,444,070 $ 17,444,070 $ 15,600,484 $ 15,600,484 $ 11,408,166 $ 11,408,166
Minority interest ......................... 38,094 38,523 34,670 34,781 -- --
Common stock .............................. 755,282 326,536 752,845 324,099 747,538 318,792
Accumulated other comprehensive loss ...... (7,917) (7,816) (4,432) (4,280) (2,593) (2,424)
Retained earnings ......................... 721,462 794,151 636,664 693,837 609,034 660,900
------------ ------------ ------------ ------------ ------------ ------------
Total shareholders' equity ............... 1,468,827 1,112,871 1,385,077 1,013,656 1,353,979 977,268
------------ ------------ ------------ ------------ ------------ ------------
Total liabilities and shareholders' equity $ 18,950,991 $ 18,595,464 $ 17,020,231 $ 16,648,921 $ 12,762,145 $ 12,385,434
============ ============ ============ ============ ============ ============
</TABLE>
8
<PAGE>
ZIONS BANCORPORATION AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(Unaudited)
CONSOLIDATED STATEMENTS OF INCOME
<TABLE>
<CAPTION>
Three Months Ended Three Months Ended
September 30, 1999 September 30, 1998
------------------ ------------------
Previously Previously
(In thousands, except per share amounts) Restated Reported Restated Reported
-------- -------- -------- --------
<S> <C> <C> <C> <C>
Net interest income .......................................... $175,252 $176,323 $129,580 $130,749
Provision for loan losses .................................... 3,977 3,977 2,485 2,485
Total noninterest income ..................................... 61,170 61,170 49,607 49,607
Noninterest expense:
Amortization of goodwill and core deposit intangibles ... 8,887 3,456 8,014 2,391
Other noninterest expense ............................... 145,409 145,399 110,459 110,449
-------- -------- -------- --------
Income before income taxes and minority interest ............. 78,149 84,661 58,229 65,031
Income taxes ................................................. 27,706 28,961 20,918 22,292
Minority interest ............................................ 802 906 -- --
-------- -------- -------- --------
Net income ......................................... $ 49,641 $ 54,794 $ 37,311 $ 42,739
======== ======== ======== ========
Weighted average common and common-equivalent shares
outstanding during the period ...................... 79,949 79,949 79,007 79,007
Net income per common share:
Basic ................................................... $ 0.63 $ 0.69 $ 0.48 $ 0.55
Diluted ................................................. $ 0.62 $ 0.69 $ 0.47 $ 0.54
Nine Months Ended Nine Months Ended
September 30, 1999 September 30, 1998
------------------ ------------------
Previously Previously
(In thousands, except per share amounts) Restated Reported Restated Reported
-------- -------- -------- --------
Net interest income .......................................... $514,451 $517,770 $360,254 $369,045
Provision for loan losses .................................... 11,841 11,841 9,034 9,304
Total noninterest income ..................................... 185,258 185,258 141,398 142,165
Noninterest expense:
Amortization of goodwill and core deposit intangibles ... 26,521 10,227 22,491 7,168
Other noninterest expense ............................... 438,566 438,537 315,524 323,841
-------- -------- -------- --------
Income before income taxes and minority interest ............. 222,781 242,423 154,603 170,897
Income taxes ................................................. 79,181 82,990 51,362 56,178
Minority interest ............................................ 2,662 2,980 -- --
-------- -------- -------- --------
Net income ......................................... $140,938 $156,453 $103,241 $114,719
======== ======== ======== ========
Weighted average common and common-equivalent shares
outstanding during the period ...................... 79,964 79,964 75,621 76,238
Net income per common share:
Basic ................................................... $ 1.79 $ 1.98 $ 1.39 $ 1.53
Diluted ................................................. $ 1.76 $ 1.96 $ 1.36 $ 1.50
</TABLE>
9
<PAGE>
ZIONS BANCORPORATION AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(Unaudited)
Basis of Presentation
The unaudited consolidated financial statements have been prepared in accordance
with generally accepted accounting principles for interim financial information
and with the instructions to Form 10-Q and Rule 10-01 of Regulation S-X.
Accordingly, they do not include all of the information and footnotes required
by generally accepted accounting principles for complete financial statements.
In the opinion of management, all adjustments (consisting of normal recurring
accruals) considered necessary for a fair presentation have been included.
On January 6, 1998 the Company acquired Vectra Banking Corporation and its
banking subsidiary Vectra Bank. On May 22, 1998, the Company acquired FP
Bancorp, Inc. and its banking subsidiary First Pacific National Bank. Both
acquisitions were accounted for as purchase transactions. On October 1, 1998,
the Company acquired The Sumitomo Bank of California in a transaction accounted
for as a purchase. In a purchase transaction results of operations for the
acquired entity are only included subsequent to the acquisition date. Therefore,
financial information as of September 30, 1999 and for the three months and nine
months ended September 30, 1999, can not be compared directly with the
corresponding information for 1998. On September 8, 1998, the Company acquired
The Commerce Bancorporation and its banking subsidiary The Commerce Bank of
Washington, N.A. The Commerce Bancorporation acquisition was accounted for as a
pooling of interest and was considered significant. Accordingly, prior year
amounts have been restated. Certain amounts in the 1998 consolidated financial
statements have also been reclassified to conform to the 1999 presentation.
Operating results for the nine months ended September 30, 1999 are not
necessarily indicative of the results that may be expected for the year to end
December 31, 1999. For further information, refer to the consolidated financial
statements and footnotes thereto included in Zions Bancorporation's Annual
Report to Shareholders on Form 10-K/A for the year ended December 31, 1998.
Accounting Standards Not Adopted
In September 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. The original
effective date of this statement, as amended by Statement No. 137, has been
delayed and it is now effective for all fiscal quarters of fiscal years
beginning after September 15, 2000, and should not be applied retroactively to
financial statements of prior periods. The Company is currently studying the
statement to determine its future effects.
10
<PAGE>
ZIONS BANCORPORATION AND SUBSIDIARIES
Significant Transaction
On June 6, 1999 the Company announced a definitive agreement to merge with First
Security Corporation in a stock-for-stock transaction valued at approximately
$5.9 billion. The new organization will be known as First Security Corporation
and will be headquartered in Salt Lake City, Utah. Immediately prior to the
merger First Security will change its common stock in a reclassification,
whereby First Security stockholders will receive 0.442 of a share of First
Security common stock for each share of First Security held before the
reclassification. As a result of the merger, Zions Bancorporation shareholders
will receive one share of new First Security common stock in exchange for each
share of Zions common stock. The transaction will be accounted for as a
pooling-of-interests and is expected to close during the first quarter of 2000.
The combined companies will have total assets of approximately $40 billion.
Operating Segment Information
The following is a summary of selected operating segment information for the
three months and nine months ended September 30, 1999 and September 30, 1998.
The Company manages its operations and prepares management reports with a
primary focus on geographical area. All segments presented, except for the
segment defined as "other" are based on commercial banking operations. Zions
First National Bank and subsidiaries operates 118 branches in Utah and 17 in
Idaho. California Bank & Trust operates 71 branches in Northern and Southern
California. Vectra Bank Colorado operates 54 branches in Colorado and one branch
in New Mexico. National Bank of Arizona operates a total of 36 branches in
Arizona. Nevada State Bank operates 44 offices in Nevada, and The Commerce Bank
of Washington operates 1 office in Washington. The operating segment defined as
"other" includes the Parent company, smaller nonbank operating units, and
eliminations of transactions between segments.
The accounting policies of the individual segments are the same as those of the
Company. The Company allocates centrally provided services to the business
segments based upon estimated usage of those services.
11
<PAGE>
ZIONS BANCORPORATION AND SUBSIDIARIES
The following table presents Operating Segment Information for the three months
ended September 30, 1999 and for the three months ended September 30, 1998.
<TABLE>
<CAPTION>
ZIONS FIRST NATIONAL
BANK CALIFORNIA VECTRA BANK NATIONAL BANK OF
AND SUBSIDIARIES BANK & TRUST COLORADO ARIZONA
-------------------- -------------------- --------------------- --------------------
(Amounts in millions) 1999 1998 1999 1998 1999 1998 1999 1998
--------- --------- --------- --------- --------- --------- --------- ---------
<S> <C> <C> <C> <C> <C> <C> <C> <C>
CONDENSED INCOME STATEMENT
Net interest income .......... $ 55.7 $ 57.3 $ 66.6 $ 19.5 $ 20.7 $ 19.8 $ 19.8 $ 17.7
Provision for loan losses .... 2.3 1.5 -- -- 0.6 0.6 0.6 --
Noninterest income ........... 38.7 34.8 8.5 2.3 4.0 4.5 3.6 2.6
Noninterest expense .......... 52.3 54.6 47.7 17.7 22.2 19.1 11.2 10.5
Income tax expense (benefit) . 12.2 8.2 12.3 2.3 1.7 2.5 4.2 3.7
Minority interest ............ 0.2 -- -- -- -- -- -- --
--------- --------- --------- --------- --------- --------- --------- ---------
Net income .............. $ 27.4 $ 27.8 $ 15.1 $ 1.8 $ 0.2 $ 2.1 $ 7.4 $ 6.1
========= ========= ========= ========= ========= ========= ========= =========
AVERAGE BALANCE SHEET DATA
Total assets ................. $ 7,233 $ 6,704 $ 6,213 $ 1,535 $ 2,227 $ 1,791 $ 1,515 $ 1,385
Net loans and leases ......... 3,701 3,012 4,174 801 1,380 974 1,123 889
Total deposits ............... 3,742 4,029 5,317 1,212 1,565 1,339 1,258 1,168
NEVADA STATE BANK THE COMMERCE BANK OF
AND SUBSIDIARIES WASHINGTON OTHER CONSOLIDATED COMPANY
-------------------- -------------------- --------------------- --------------------
(Amounts in millions) 1999 1998 1999 1998 1999 1998 1999 1998
--------- --------- --------- --------- --------- --------- --------- ---------
CONDENSED INCOME STATEMENT
Net interest income .......... $ 13.0 $ 12.5 $ 4.1 $ 3.4 $ (4.7) $ (0.6) $ 175.2 $ 129.6
Provision for loan losses .... 0.4 0.4 0.1 -- -- -- 4.0 2.5
Noninterest income ........... 4.3 4.3 0.2 0.3 1.9 0.8 61.2 49.6
Noninterest expense .......... 11.1 11.0 2.0 1.7 7.8 3.9 154.3 118.5
Income tax expense (benefit) . 2.0 2.0 0.7 0.6 (5.4) 1.6 27.7 20.9
Minority interest ............ -- -- -- -- 0.6 -- 0.8 --
--------- --------- --------- --------- --------- --------- --------- ---------
Net income .............. $ 3.8 $ 3.4 $ 1.5 $ 1.4 $ (5.8) $ (5.3) $ 49.6 $ 37.3
========= ========= ========= ========= ========= ========= ========= =========
AVERAGE BALANCE SHEET DATA
Total assets ................. $ 1,194 $ 1,066 $ 391 $ 308 $ 97 $ (57) $ 18,870 $ 12,732
Net loans and leases ......... 592 522 173 158 24 16 11,167 6,372
Total deposits ............... 960 867 267 214 (19) (288) 13,090 8,541
</TABLE>
12
<PAGE>
ZIONS BANCORPORATION AND SUBSIDIARIES
The following table presents Operating Segment Information for the nine months
ended September 30, 1999 and for the nine months ended September 30, 1998.
<TABLE>
<CAPTION>
ZIONS FIRST NATIONAL
BANK CALIFORNIA VECTRA BANK NATIONAL BANK OF
AND SUBSIDIARIES BANK & TRUST COLORADO ARIZONA
-------------------- -------------------- --------------------- --------------------
(Amounts in millions) 1999 1998 1999 1998 1999 1998 1999 1998
--------- --------- --------- --------- --------- --------- --------- ---------
<S> <C> <C> <C> <C> <C> <C> <C> <C>
CONDENSED INCOME STATEMENT
Net interest income .......... $ 165.6 $ 164.0 $ 192.2 $ 49.5 $ 62.2 $ 52.0 $ 56.6 $ 52.5
Provision for loan losses .... 6.8 4.5 -- 1.3 1.9 1.2 1.8 1.2
Noninterest income ........... 117.7 103.7 26.3 5.8 13.0 9.9 9.8 6.8
Noninterest expense .......... 158.6 160.1 147.9 40.4 65.7 48.4 33.1 31.0
Income tax expense (benefit) . 36.0 31.2 32.3 5.7 4.9 6.4 12.1 10.6
Minority interest ............ 0.9 -- -- -- -- -- -- --
--------- --------- --------- --------- --------- --------- --------- ---------
Net income .............. $ 80.8 $ 71.9 $ 38.3 $ 7.9 $ 2.7 $ 5.9 $ 19.4 $ 16.5
========= ========= ========= ========= ========= ========= ========= =========
AVERAGE BALANCE SHEET DATA
Total assets ................. $ 7,115 $ 6,446 $ 6,207 $ 1,351 $ 2,155 $ 1,747 $ 1,493 $ 1,357
Net loans and leases ......... 3,639 2,894 4,198 681 1,294 944 1,083 851
Total deposits ............... 3,754 3,777 5,327 1,048 1,595 1,267 1,244 1,162
NEVADA STATE BANK THE COMMERCE BANK OF
AND SUBSIDIARIES WASHINGTON OTHER CONSOLIDATED COMPANY
-------------------- -------------------- --------------------- --------------------
(Amounts in millions) 1999 1998 1999 1998 1999 1998 1999 1998
--------- --------- --------- --------- --------- --------- --------- ---------
CONDENSED INCOME STATEMENT
Net interest income .......... $ 38.2 $ 37.6 $ 11.3 $ 10.4 $ (11.6) $ (5.8) $ 514.5 $ 360.2
Provision for loan losses .... 1.2 1.2 0.5 0.1 (0.4) (0.5) 11.8 9.0
Noninterest income ........... 12.6 11.2 0.6 1.2 5.2 2.8 185.2 141.4
Noninterest expense .......... 33.4 32.3 5.5 13.9 20.7 11.9 465.1 338.0
Income tax expense (benefit) . 5.5 5.1 1.9 (0.6) (13.5) (7.0) 79.2 51.4
Minority interest ............ -- -- -- -- 1.8 -- 2.7 --
--------- --------- --------- --------- --------- --------- --------- ---------
Net income .............. $ 10.7 $ 10.2 $ 4.0 $ (1.8) $ (15.0) $ (7.4) $ 140.9 $ 103.2
========= ========= ========= ========= ========= ========= ========= =========
AVERAGE BALANCE SHEET DATA
Total assets ................. $ 1,148 $ 1,026 $ 359 $ 300 $ (44) $ (56) $ 18,433 $ 12,171
Net loans and leases ......... 558 508 163 154 21 8 10,956 6,040
Total deposits ............... 940 851 241 212 (24) (112) 13,077 8,205
</TABLE>
13
<PAGE>
ZIONS BANCORPORATION AND SUBSIDIARIES
ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS
------------------------------------
FINANCIAL HIGHLIGHTS
(Unaudited)
<TABLE>
<CAPTION>
Three Months Ended Nine Months Ended
September 30, September 30,
--------------------------------------- -----------------------------------------
(In thousands, except per share and ratio data) 1999 1998 % Change 1999 1998 % Change
----------- ----------- ----------- ----------- ----------- -----------
<S> <C> <C> <C> <C> <C> <C>
EARNINGS
Taxable-equivalent net interest income ...... $ 177,954 $ 132,368 34.44 % $ 522,198 $ 368,157 41.84 %
Net interest income ......................... 175,252 129,580 35.25 % 514,451 360,254 42.80 %
Noninterest income .......................... 61,170 49,607 23.31 % 185,258 141,398 31.02 %
Provision for loan losses ................... 3,977 2,485 60.04 % 11,841 9,034 31.07 %
Noninterest expense ......................... 154,296 118,473 30.24 % 465,087 338,015 37.59 %
Income before income taxes .................. 78,149 58,229 34.21 % 222,781 154,603 44.10 %
Income taxes ................................ 27,706 20,918 32.45 % 79,181 51,362 54.16 %
Minority interest ........................... 802 -- 2,662 --
Net income .................................. 49,641 37,311 33.05 % 140,938 103,241 36.51 %
PER COMMON SHARE
Net income (diluted) ........................ 0.62 0.47 31.91 % 1.76 1.36 29.41 %
Dividends ................................... 0.29 0.14 107.14 % 0.72 0.40 80.00 %
Book value .................................. 18.59 17.45 6.53 %
SELECTED RATIOS
Return on average assets .................... 1.04% 1.16% 1.02% 1.13%
Return on average common equity ............. 13.40% 10.92% 13.06% 11.54%
Efficiency ratio ............................ 64.53% 65.10% 65.74% 66.34%
Net interest margin ......................... 4.24% 4.71% 4.31% 4.58%
OPERATING CASH EARNINGS*
Taxable-equivalent net interest income ...... $ 177,954 $ 132,368 34.44 % $ 522,198 $ 368,157 41.84 %
Net interest income ......................... 175,252 129,580 35.25 % 514,451 360,254 42.80 %
Noninterest income .......................... 61,170 49,607 23.31 % 185,258 141,398 31.02 %
Provision for loan losses ................... 3,977 2,485 60.04 % 11,841 9,034 31.07 %
Noninterest expense ......................... 143,808 107,399 33.90 % 434,801 303,323 43.35 %
Income before income taxes .................. 88,637 69,303 27.90 % 253,067 189,295 33.69 %
Income taxes ................................ 29,468 22,899 28.69 % 84,122 58,316 44.25 %
Minority interest ........................... 802 -- 2,662 --
Net income .................................. 58,367 46,404 25.78 % 166,283 130,979 26.95 %
PER COMMON SHARE
Net income (diluted) ........................ 0.73 0.59 23.73 % 2.08 1.73 20.23 %
Dividends ................................... 0.29 0.14 107.14 % 0.72 0.40 80.00 %
Book value .................................. 10.57 10.15 4.14 %
SELECTED RATIOS
Return on average assets .................... 1.27% 1.51% 1.25% 1.51%
Return on average common equity ............. 27.72% 23.43% 27.93% 26.62%
Efficiency ratio ............................ 60.14% 59.02% 61.46% 59.53%
Net interest margin ......................... 4.24% 4.71% 4.31% 4.58%
* Before amortization of goodwill and core deposit intangible assets and merger
charges.
14
<PAGE>
ZIONS BANCORPORATION AND SUBSIDIARIES
FINANCIAL HIGHLIGHTS (Continued)
(Unaudited)
Three Months Ended Nine Months Ended
September 30, September 30,
--------------------------------------- -----------------------------------------
(In thousands, except per share and ratio data) 1999 1998 % Change 1999 1998 % Change
----------- ----------- ----------- ----------- ----------- -----------
AVERAGE BALANCES
Total assets ................................ $18,869,505 $12,732,048 48.20% $18,433,369 $12,170,800 51.46%
Securities .................................. 4,325,785 3,321,946 30.22% 4,175,937 3,084,438 35.39%
Net loans and leases ........................ 11,167,112 6,372,120 75.25% 10,956,278 6,040,400 81.38%
Goodwill and core deposit intangibles ....... 634,869 569,360 11.51% 647,414 538,346 20.26%
Total deposits .............................. 13,090,340 8,541,182 53.26% 13,077,070 8,204,810 59.38%
Minority interest ........................... 37,962 -- 37,046 --
Shareholders' equity ........................ 1,470,241 1,355,212 8.49% 1,443,347 1,196,175 20.66%
Weighted average common and common-
equivalent shares outstanding .......... 79,949,442 79,006,517 1.19% 79,963,702 75,621,288 5.74%
AT PERIOD END
Total assets ................................ $18,950,991 $12,762,145 48.49%
Securities .................................. 4,470,676 2,967,133 50.67%
Net loans and leases ........................ 11,416,672 6,767,007 68.71%
Allowance for loan losses ................... 198,559 100,440 97.69%
Goodwill and core deposit intangibles ....... 634,093 566,520 11.93%
Total deposits .............................. 13,008,773 8,932,022 45.64%
Minority interest ........................... 38,094 --
Shareholders' equity ........................ 1,468,827 1,353,979 8.48%
Common shares outstanding ................... 78,992,418 77,594,651 1.80%
Average equity to average assets ............ 7.79% 10.64% 7.83% 9.83%
Common dividend payout ...................... 46.21% 26.92% 40.38% 28.73%
Nonperforming assets ........................ 58,334 35,793 62.98%
Loans past due 90 days or more .............. 32,515 12,432 161.54%
Nonperforming assets to net loans and leases,
other real estate owned and other
nonperforming assets at September 30 ... 0.51% 0.53%
</TABLE>
15
<PAGE>
ZIONS BANCORPORATION AND SUBSIDIARIES
OPERATING RESULTS
Zions Bancorporation achieved record earnings for the quarter and nine months
ended September 30, 1999. Consolidated net income for the third quarter of 1999
was $49.6 million or $0.62 per diluted share, an increase of 33.0% and 31.9%,
respectively, over the $37.3 million or $0.47 earned in the third quarter of
1998. Consolidated net income for the third quarter of 1999 increased 4.2% and
5.1%, respectively, from $47.6 million or $0.59 per diluted share for the second
quarter of 1999. The quarterly dividend per share remained the same as the
second quarter of 1999 at $.29 per share. The dividend was up 107.1% from the
$.14 per share dividend for the third quarter of 1998. As discussed in Notes to
Consolidated Financial Statements, due to the 1998 acquisitions accounted for as
purchases, financial information for 1999 is not directly comparable to 1998.
Consolidated net income was $140.9 million or $1.76 per diluted share for the
first nine months of 1999, compared to the $103.2 million or $1.36 per diluted
share for the first nine months of 1998, which constituted increases of 36.5%
and 29.4% respectively.
The annualized return on average assets for the third quarter and for the first
nine months of 1999 was 1.04% and 1.02% compared to 1.16% and 1.13%,
respectively, in 1998, resulting in an annualized return on average common
shareholders' equity of 13.40% and 13.06% for the third quarter and for the
first nine months of 1999, compared to 10.92% and 11.54% for the same periods of
1998. The Company's "efficiency ratio," or noninterest expenses as a percentage
of total taxable-equivalent net revenues for the third quarter and for the first
nine months of 1999 was 64.53% and 65.74%, respectively, compared to 65.10% and
66.34% for the same periods of 1998.
The Company's third-quarter $12.3 million (33.0%) increase in earnings relative
to the same period a year ago reflects a $45.7 million (35.2%) increase in net
interest income, a $11.6 million (23.3%) increase in noninterest income,
partially offset by a $1.5 million (60.0%) increase in the provision for loan
losses, a $35.8 million (30.2%) increase in noninterest expenses and a $6.8
million (32.5%) increase in income tax expense.
The Company's $37.7 million (36.5%) increase in net income for the nine-month
period ended September 30, 1999 compared to the similar period in 1998, reflects
a $154.2 million (42.8%) increase in net interest income, a $43.9 million
(31.0%) increase in noninterest income, partially offset by a $2.8 million
(31.1%) increase in the provision for loan losses, a $127.1 million (37.6%)
increase in noninterest expenses and a $27.8 million (54.2%) increase in income
tax expense.
OPERATING CASH EARNINGS RESULTS
The Company is also providing its earnings performance on an operating cash
basis since it believes that its cash performance is a better reflection of its
financial position and shareholder value creation as well as its ability to
support growth, pay dividends, and repurchase stock than reported net income.
Operating cash earnings are earnings before amortization of goodwill and core
deposit intangible assets and merger expenses.
16
<PAGE>
ZIONS BANCORPORATION AND SUBSIDIARIES
Operating cash earnings for the quarter were $58.4 million or $0.73 per diluted
share, an increase of 25.8% and 23.7%, respectively, over the $46.4 million or
$0.59 per diluted share earned in the third quarter of 1998. Operating cash
earnings for the third quarter of 1999 increased 4.1% over the $56.1 million
earned during the second quarter of 1999. Operating cash earnings per diluted
share for the third quarter of 1999 increased 4.3% over the $.70 for the second
quarter of 1999. Year-to-date operating cash earnings were $166.3 million or
$2.08 per diluted share, an increase of 27.0% and 20.2%, respectively, over the
$131.0 million or $1.73 per diluted share earned in the first nine months of
1998.
The operating cash annualized return on average assets for the third quarter and
for the first nine months of 1999 was 1.27% and 1.25% compared to 1.51% and
1.51%, respectively, in 1998. Operating cash annualized return on average common
shareholders' equity was 27.72% and 27.93% for the third quarter and for the
first nine months of 1999, compared to 23.43% and 26.62% for the same periods of
1998. The Company's cash efficiency ratio for the third quarter and for the
first nine months of 1999 was 60.14% and 61.46%, respectively, compared to
59.02% and 59.53% for the same periods of 1998.
NET INTEREST INCOME AND INTEREST RATE SPREADS
Net interest income for the third quarter of 1999, adjusted to a fully
taxable-equivalent basis, increased 34.4% to $178.0 million compared to $132.4
million for the third quarter of 1998 and increased 1.0% from $176.1 million for
the second quarter of 1999. Net interest margin was 4.24% for the third quarter
of 1999, compared to 4.71% for the third quarter of 1998 and 4.34% for the
second quarter of 1999. Nine-month net interest income, on a fully
taxable-equivalent basis, was $522.2 million in 1999, an increase of 41.8%
compared to $368.2 million for the first nine months of 1998. Net interest
margin for the first nine months of 1999 was 4.31%, compared to 4.58% for the
first nine months of 1998.
The yield on average earning assets decreased 63 basis points during the third
quarter of 1999 as compared to the third quarter of 1998, and decreased 3 basis
points from the second quarter of 1999. The average rate paid this quarter on
interest-bearing funds decreased 35 basis points from the third quarter of 1998
and increased 9 basis points from the second quarter of 1999. Comparing the
first nine months of 1999 with 1998, the yield on average earning assets
decreased 47 basis points, while the cost of interest-bearing funds decreased by
38 basis points.
The spread on average interest-bearing funds for the third quarter of 1999 was
3.58%, down from the 3.86% for the third quarter of 1998 and down from the 3.70%
for the second quarter of 1999. The spread on average interest-bearing funds for
the first nine months of 1999 was 3.65% compared with 3.74% for the same period
in 1998.
17
<PAGE>
<TABLE>
<CAPTION>
Three Months Ended Three Months Ended
September 30, 1999 September 30, 1998
------------------------------- -------------------------------
Average Amount of Average Average Amount of Average
(In millions) Balance Interest(1) Rate Balance Interest(1) Rate
-------- -------- -------- -------- -------- --------
<S> <C> <C> <C> <C> <C> <C>
ASSETS
Money market investments .............................. $ 1,162 $ 16.5 5.63% $ 1,460 $ 21.3 5.79%
Securities:
Held to maturity ................................. 3,301 50.8 6.10% 2,387 41.8 6.94%
Available for sale ............................... 549 6.6 4.81% 579 7.0 4.81%
Trading account .................................. 476 7.3 6.11% 356 5.9 6.55%
-------- -------- -------- --------
Total securities ............................ 4,326 64.7 5.94% 3,322 54.7 6.53%
-------- -------- -------- --------
Loans:
Loans held for sale .............................. 168 2.8 6.56% 180 3.4 7.58%
Net loans and leases(2)........................... 10,999 242.2 8.74% 6,192 156.7 10.04%
-------- -------- -------- --------
Total loans ................................. 11,167 245.0 8.70% 6,372 160.1 9.97%
-------- -------- -------- --------
Total interest-earning assets ......................... $ 16,655 $ 326.2 7.77% $ 11,154 $ 236.1 8.40%
-------- --------
Cash and due from banks ............................... 803 672
Allowance for loan losses ............................. (205) (98)
Goodwill and core deposit intangibles ................. 635 569
Other assets .......................................... 982 435
-------- --------
Total assets .................................. $ 18,870 $ 12,732
======== ========
LIABILITIES
Interest-bearing deposits:
Savings and NOW deposits ......................... $ 1,543 $ 8.9 2.29% $ 1,371 $ 11.1 3.21%
Money market super NOW deposits .................. 5,473 51.1 3.71% 2,959 27.5 3.69%
Time deposits under $100,000 ..................... 1,908 22.3 4.63% 1,327 18.2 5.44%
Time deposits $100,000 or more ................... 985 11.9 4.79% 595 8.8 5.83%
Foreign deposits ................................. 158 1.7 4.38% 201 2.2 4.34%
-------- -------- -------- --------
Total interest-bearing deposits ............. 10,067 95.9 3.78% 6,453 67.8 4.17%
-------- -------- -------- --------
Borrowed funds:
Securities sold, not yet purchased ............... 246 4.2 6.80% 219 2.8 5.16%
Federal funds purchased and security
repurchase agreements ....................... 2,314 26.6 4.56% 1,839 22.7 4.90%
Commercial paper ................................. 270 3.7 5.41% 37 0.5 5.41%
FHLB advances and other borrowings:
less than one year .......................... 596 7.8 5.18% 18 0.3 6.41%
over one year ............................... 79 1.4 7.04% 102 1.7 6.58%
Long-term debt ................................... 453 8.6 7.57% 404 7.9 7.80%
-------- -------- -------- --------
Total borrowed funds ........................ 3,958 52.3 5.24% 2,619 35.9 5.45%
-------- -------- -------- --------
Total interest-bearing liabilities .......... $ 14,025 $ 148.2 4.19% $ 9,072 $ 103.7 4.54%
-------- --------
Noninterest-bearing deposits .......................... 3,023 2,088
Other liabilities ..................................... 314 217
-------- --------
Total liabilities ........................... 17,362 11,377
Minority interest ..................................... 38 --
Total shareholders' equity .................. 1,470 1,355
-------- --------
Total liabilities and shareholders' equity... $ 18,870 $ 12,732
======== ========
Spread on average interest-bearing funds .............. 3.58% 3.86%
======== ========
Net interest income and net yield on
interest-earning assets .......................... $ 178.0 4.24% $ 132.4 4.71%
======== ======== ======== ========
</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.
18
<PAGE>
ZIONS BANCORPORATION AND SUBSIDIARIES
CONSOLIDATED AVERAGE BALANCE SHEETS, YIELDS AND RATES
(Unaudited)
<TABLE>
<CAPTION>
Nine Months Ended Nine Months Ended
September 30, 1999 September 30, 1998
------------------------------- -------------------------------
Average Amount of Average Average Amount of Average
(In millions) Balance Interest(1) Rate Balance Interest(1) Rate
-------- -------- -------- -------- -------- --------
<S> <C> <C> <C> <C> <C> <C>
ASSETS
Money market investments .............................. $ 1,081 $ 47.0 5.82% $ 1,633 $ 68.9 5.64%
Securities:
Held to maturity ................................. 3,157 146.8 6.22% 2,098 109.9 7.00%
Available for sale ............................... 483 19.4 5.37% 575 24.5 5.68%
Trading account .................................. 536 22.1 5.51% 412 18.1 5.89%
-------- -------- -------- --------
Total securities ............................ 4,176 188.3 6.03% 3,085 152.5 6.61%
-------- -------- -------- --------
Loans:
Loans held for sale .............................. 185 9.3 6.69% 196 10.7 7.26%
Net loans and leases(2) .......................... 10,771 700.2 8.69% 5,844 432.7 9.90%
-------- -------- -------- --------
Total loans ................................. 10,956 709.5 8.66% 6,040 443.4 9.81%
-------- -------- -------- --------
Total interest-earning assets ......................... $ 16,213 $ 944.8 7.79% $ 10,758 $ 664.8 8.26%
-------- --------
Cash and due from banks ............................... 785 584
Allowance for loan losses ............................. (204) (97)
Goodwill and core deposit intangibles ................. 647 538
Other assets .......................................... 992 388
-------- --------
Total assets .................................. $ 18,433 $ 12,171
======== ========
LIABILITIES
Interest-bearing deposits:
Savings and NOW deposits ......................... $ 1,562 $ 27.4 2.35% $ 1,144 $ 26.5 3.10%
Money market super NOW deposits .................. 5,135 138.7 3.61% 3,040 83.8 3.69%
Time deposits under $100,000 ..................... 2,041 72.1 4.72% 1,250 50.3 5.38%
Time deposits $100,000 or more ................... 1,163 42.2 4.85% 576 24.6 5.73%
Foreign deposits ................................. 166 5.3 4.25% 176 6.0 4.53%
-------- -------- -------- --------
Total interest-bearing deposits ............. 10,067 285.7 3.79% 6,186 191.2 4.13%
-------- -------- -------- --------
Borrowed funds:
Securities sold, not yet purchased ............... 285 12.2 5.71% 195 7.4 5.11%
Federal funds purchased and security
repurchase agreements ....................... 2,151 71.8 4.46% 1,879 68.3 4.86%
Commercial paper ................................. 159 6.3 5.31% 13 0.5 5.48%
FHLB advances and other borrowings:
less than one year .......................... 469 17.3 4.93% 61 2.9 6.32%
over one year ............................... 63 3.1 6.61% 131 5.6 5.70%
Long-term debt ................................... 453 26.2 7.73% 319 20.7 8.66%
-------- -------- -------- --------
Total borrowed funds ........................ 3,580 136.9 5.11% 2,598 105.4 5.43%
-------- -------- -------- --------
Total interest-bearing liabilities .......... $ 13,647 $ 422.6 4.14% $ 8,784 $ 296.6 4.52%
-------- --------
Noninterest-bearing deposits .......................... 3,010 2,019
Other liabilities ..................................... 296 172
-------- --------
Total liabilities ........................... 16,953 10,975
Minority interest ..................................... 37 --
Total shareholders' equity .................. 1,443 1,196
-------- --------
Total liabilities and shareholders' equity .. $ 18,433 $ 12,171
======== ========
Spread on average interest-bearing funds .............. 3.65% 3.74%
======== ========
Net interest income and net yield on
interest-earning assets .......................... $ 522.2 4.31% $ 368.2 4.58%
======== ======== ======== ========
</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.
19
<PAGE>
ZIONS BANCORPORATION AND SUBSIDIARIES
The Company manages its earnings sensitivity to interest rate movements, in
part, by matching the repricing characteristics of its assets and liabilities
and through the use of off-balance sheet arrangements such as caps, floors and
interest rate exchange contracts. Net interest income from the use of such
off-balance sheet arrangements for the first nine months of 1999 was $7.0
million compared to $4.5 million for the first nine months of 1998.
PROVISION FOR LOAN LOSSES
The provision for loan losses increased 60.0% to $4.0 million for the third
quarter of 1999, as compared with $2.5 million for the third quarter of 1998,
and increased 9.5% from the $3.6 million for the second quarter of 1999. The
provision for loan losses for the first nine months of 1999 totaled $11.8
million, 31.1% more than the $9.0 million provision for the first nine months of
1998. Annualized, the nine month provision is .14% of average loans for 1999
compared to .20% for 1998.
NONINTEREST INCOME
Noninterest income for the third quarter of 1999 was $61.2 million, an increase
of 23.3% from the $49.6 million for the third quarter of 1998 and an increase of
0.7% over the $60.7 million for the second quarter of 1999. Primary contributors
to the increase in noninterest income were service charges on deposit accounts;
other service charges, commissions and fees; trust income; underwriting and
trading income; and other income. Comparing the segments of noninterest income
for the third quarter of 1999 and the third quarter of 1998 service charges on
deposit accounts increased 29.3%; other service charges, commissions and fees
increased 9.2%; trust income increased 70.7%; underwriting and trading income
increased 6.8%; loan sales and servicing income decreased 27.4%; and other
income increased 192.5%. Net losses of $0.3 million on the sale of investment
securities were realized during the third quarter of 1999 compared to net losses
of $0.8 million during the third quarter of 1998. The increase in other income
includes approximately $1.9 million of income from investments in bank owned
life insurance policies, and income from nonmarketable securities previously
classified as securities income.
Noninterest income for the nine months ending September 30, 1999 was $185.3
million, an increase of 31.0% over $141.4 million for the first nine months of
1998. Comparing the segments of noninterest income for the first nine months of
1999 and the first nine months of 1998, service charges on deposit accounts
increased 34.1%; other service charges, commissions and fees increased 25.8%;
trust income increased 80.9%; underwriting and trading income increased 57.5%;
loan sales and servicing income increased 0.4%; and other income increased
134.1%. Net losses of $1.4 million on the sale of investment securities were
realized during the first nine months of 1999 compared to net gains of $2.1
million during the first nine months of 1998. The main reasons for the increase
in other income are $5.2 million of income from investments in bank owned life
insurance policies in 1999 and income from nonmarketable equity securities
previously classified as securities income. The increase in underwriting and
trading income reflects the Company's commencement of providing online
executable bond sales over Bloomberg and the Internet and the underwriting of
municipal revenue bonds.
20
<PAGE>
ZIONS BANCORPORATION AND SUBSIDIARIES
NONINTEREST EXPENSE
Noninterest expense for the third quarter of 1999 was $154.3 million, an
increase of 30.2% over $118.5 million for the third quarter of 1998, and a
decrease of 1.5% from the $156.6 million for the second quarter of 1999.
Comparing significant noninterest expense segments for the third quarter of 1999
and the third quarter of 1998, salaries and employee benefits increased 37.5%,
occupancy increased 53.2%, furniture and equipment expense increased 13.8% and
the total of all other expenses, excluding merger related expenses, increased
24.9% which included significant increases in legal and professional services,
postage, advertising, amortization of goodwill and core deposit intangible
assets and other expenses.
Noninterest expense for the nine months ending September 30, 1999 was $465.1
million, an increase of 37.6% over $338.0 million for the first nine months of
1998. Comparing significant noninterest expense segments for the first nine
months of 1999 and the first nine months of 1998, salaries and employee benefits
increased 49.6%, occupancy increased 79.8%, furniture and equipment expenses
increased 20.5%, and the total of all other expenses, excluding merger related
expenses, increased 28.6% which included significant increases for legal and
professional services, postage, advertising, amortization of goodwill and core
deposit intangible assets and other expenses.
The increase in noninterest expense in 1999 resulted primarily from
acquisitions, including the acquisition of The Sumitomo Bank of California in a
purchase transaction, expansion of business lines and investment in personnel in
selected areas to enhance future revenue growth. At September 30, 1999, the
Company had 6,554 full time equivalent employees, 343 offices and 483 ATMs
compared to 5,278 full time equivalent employees, 280 offices and 395 ATMs at
September 30, 1998.
INCOME TAXES
The Company's income taxes increased 32.5% to $27.7 million for the third
quarter of 1999 compared to $20.9 million for the third quarter of 1998 and
increased 7.3% from the $25.8 million for the second quarter of 1999. The
Company's income taxes were $79.2 million for the first nine months of 1999 as
compared to $51.4 million for the first nine months of 1998. The Company's
effective income tax rate was 35.5% for the first nine months of 1999, up from
33.2% for the first nine months of 1998. The increased effective tax rate for
1999 compared to 1998 results primarily from changes in estimates of tax
benefits from NOL and refund claims recorded in 1998.
ANALYSIS OF FINANCIAL CONDITION
EARNING ASSETS
Average earning assets increased 50.7% to $16,213 million for the nine months
ended September 30, 1999, compared to $10,758 million for the nine months ended
September 30, 1998. Earning assets comprised 88.0% of total average assets for
the first nine months of 1999, compared with 88.4% for the first nine months of
1998.
Average money market investments, consisting of interest-bearing deposits,
federal funds sold and security resell agreements decreased 33.8% to $1,081
million in the first nine months of 1999 as compared to $1,633 million in the
first nine months of 1998.
21
<PAGE>
ZIONS BANCORPORATION AND SUBSIDIARIES
During the first nine months of 1999, average securities increased 35.4% to
$4,176 million compared to $3,085 million in the first nine months of 1998.
Average held to maturity securities increased 50.5%, available for sale
securities decreased 16.0%, and trading account securities increased 30.1%
compared with the first nine months of 1998.
Average net loans and leases increased 81.4% to $10,956 million for the first
nine months of 1999 compared to $6,040 million in the first nine months of 1998,
representing 67.6% of earning assets in the first nine months of 1999 compared
to 56.1% in the first nine months of 1998. Average net loans and leases were
83.8% of average total deposits for the nine months ended September 30, 1999, as
compared to 73.6% for the nine months ended September 30, 1998.
INVESTMENT SECURITIES
The following table presents the Company's investment securities on September
30, 1999, December 31, 1998 and September 30, 1998. As of September 30, 1999,
the Company had approximately $55 million of Small Business Administration
originator fee certificates that have been classified in other assets and are
measured as available for sale securities.
<TABLE>
<CAPTION>
September 30, 1999 December 31, 1999 September 30, 1999
--------------------- --------------------- ---------------------
Amortized Market Amortized Market Amortized Market
(In millions) cost value cost value cost value
--------- --------- --------- --------- --------- ---------
<S> <C> <C> <C> <C> <C> <C>
Held to maturity
U.S. Treasury Securities ........... $ 1 $ 1 $ 62 $ 62 $ 3 $ 3
U.S. government agencies and
corporations:
Small Business
Administration loan-
backed securities .......... 434 429 358 356 392 392
Other agency securities ......... 1,194 1,176 941 945 1,424 1,434
States and political subdivisions .. 359 356 285 293 281 289
Mortgage-backed securities ......... 1,336 1,337 1,159 1,166 109 110
--------- --------- --------- --------- --------- ---------
3,324 3,299 2,805 2,822 2,209 2,228
--------- --------- --------- --------- --------- ---------
Available for sale
U.S. Treasury securities ........... 77 77 46 47 32 33
U.S. government agencies and
corporations:
Small Business
Administration originator
fee certificates ........ -- -- 85 69 86 73
Other agency securities ......... 54 54 112 113 120 122
States and political subdivisions .. 8 8 15 16 11 12
Mortgage and other asset-backed
securities ........................ 102 102 179 180 38 38
--------- --------- --------- --------- --------- ---------
241 241 437 425 287 278
--------- --------- --------- --------- --------- ---------
Equity securities:
Mutual funds:
Accessor Funds, Inc. ....... 373 371 117 118 134 137
Stock:
Federal Home Loan Bank ..... -- -- 101 101 104 104
Other ...................... 3 3 36 41 33 35
--------- --------- --------- --------- --------- ---------
376 374 254 260 271 276
--------- --------- --------- --------- --------- ---------
617 615 691 685 558 554
--------- --------- --------- --------- --------- ---------
Total .............................. $ 3,941 $ 3,914 $ 3,496 $ 3,507 $ 2,767 $ 2,782
========= ========= ========= ========= ========= =========
</TABLE>
22
<PAGE>
ZIONS BANCORPORATION AND SUBSIDIARIES
LOANS
The Company has structured its organization to separate the lending function
from the credit administration function to strengthen the control and
independent evaluation of credit activities. Loan policies and procedures
provide the Company with a framework for consistent underwriting and a basis for
sound credit decisions. In addition, the Company has well-defined standards for
grading its loan portfolio, and management utilizes the comprehensive loan
grading system to determine risk potential in the portfolio. Another aspect of
the Company's credit risk management strategy is the diversification of the loan
portfolio. The Company has a well-diversified loan portfolio with no significant
exposure to highly leveraged transactions.
The table below sets forth the amount of loans outstanding by type on September
30, 1999, December 31, 1998 and September 30, 1998.
(In millions)
September 30, December 31, September 30,
Types 1999 1998 1998
- ----- ----------- ----------- -----------
Loans held for sale ....................$ 154 $ 232 $ 192
Commercial, financial, and agricultural 2,747 2,692 1,765
Real estate:
Construction ....................... 1,385 867 709
Other:
Home equity credit line .... 199 222 175
1-4 family residential ..... 2,449 2,186 1,115
Other real estate-secured .. 3,608 3,626 2,134
----------- ----------- -----------
6,256 6,034 3,424
----------- ----------- -----------
7,641 6,901 4,133
Consumer:
Bankcard ........................... 84 87 59
Other .............................. 485 452 410
----------- ----------- -----------
569 539 469
Lease financing ........................ 234 214 184
Foreign loans .......................... 48 44 --
Other receivables ...................... 76 62 68
----------- ----------- -----------
Total loans ........................$ 11,469 $ 10,684 $ 6,811
=========== =========== ===========
Loans held for sale on September 30, 1999 decreased 33.6% from year-end 1998.
All other loans, net of unearned income and fees increased 8.3% to $11,263
million on September 30, 1999 compared to $10,404 million on December 31, 1998.
Commercial loans, construction loans, other real estate-secured loans, consumer
loans, lease financing, foreign loans, and other receivables increased from year
end 2.1%, 59.8%, 3.8%, 5.5%, 9.8%, 6.9%, and 22.6%, respectively. Within the
other real estate-secured loan portfolio, home equity credit line loans
decreased 10.3%, 1-4 family residential loans increased 12.0% and all other real
estate loans decreased .5% from year end.
23
<PAGE>
ZIONS BANCORPORATION AND SUBSIDIARIES
On September 30, 1999, long-term first mortgage real estate loans serviced for
others totaled $228 million and consumer and other loan securitizations, which
relate primarily to loans sold under revolving securitization structures,
totaled $1,224 million. During the first nine months of 1999, the Company sold
$732 million of loans classified in held for sale, and securitized and sold SBA
504 loans, home equity credit line loans, credit card receivables and automobile
loans totaling $852 million. During the first nine months of 1999, total loans
sold were $1,584 million.
RISK ELEMENTS
The Company's nonperforming assets, which include nonaccruing loans,
restructured loans, other real estate owned and other nonperforming assets, were
$58 million on September 30, 1999, down from $64 million on December 31, 1998,
and up from $36 million on September 30, 1998. Such nonperforming assets as a
percentage of net loans and leases, other real estate owned and other
nonperforming assets were .51%, .60% and .53% on September 30, 1999, December
31, 1998, and September 30, 1998, respectively.
Accruing loans past due 90 days or more totaled $33 million on September 30,
1999, up from $26 million on December 31, 1998, and up from $12 million on
September 30, 1998. These loans equaled .28% of net loans and leases on
September 30, 1999, as compared to .24% on December 31, 1998 and .18% on
September 30, 1998.
No loans to borrowers were considered potential problems at September 30, 1999,
December 31, 1998 and September 30, 1998. Potential problem loans are defined as
loans presently on accrual, not contractually past due 90 days or more and not
restructured, but about which management has serious doubt as to the future
ability of the borrower to comply with present repayment terms and which may
result in the reporting of the loans as nonperforming assets.
The Company's total recorded investment in impaired loans included in nonaccrual
loans and leases, amounted to $39 million on September 30, 1999, as compared to
$41 million on December 31, 1998, and $16 million on September 30, 1998. The
Company considers a loan to be impaired when the accrual of interest has been
discontinued and it meets other criteria under the statements. The amount of the
impairment is measured based on the present value of expected cash flows, the
observable market price of the loan, or the fair value of the collateral.
Impairment losses are included in the allowance for loan losses through a
provision for loan losses. Included in the allowance for loan losses on
September 30, 1999, December 31, 1998, and September 30, 1998, is a required
allowance of $13 million, $5 million and $1 million, respectively, on $16
million, $12 million and $5 million, respectively, of the recorded investment in
impaired loans.
24
<PAGE>
ZIONS BANCORPORATION AND SUBSIDIARIES
The following table sets forth the nonperforming assets on September 30, 1999,
December 31, 1998, and September 30, 1998.
<TABLE>
<CAPTION>
September 30, December 31, September 30,
(In millions) 1999 1998 1998
----------- ----------- -----------
<S> <C> <C> <C>
Nonaccrual loans ............................... $ 47 $ 54 $ 31
Restructured loans ............................. 1 5 1
Other real estate owned and other
nonperforming assets ...................... 10 5 4
----------- ----------- -----------
Total .......................................... $ 58 $ 64 $ 36
=========== =========== ===========
% of net loans and leases*, other real estate
owned and other nonperforming assets ...... .51% .60% .53%
Accruing loans past due 90 days or more ........ $ 33 $ 26 $ 12
=========== =========== ===========
% of net loans and leases* ..................... .28% .24% .18%
</TABLE>
ALLOWANCE FOR LOAN LOSSES
The Company's allowance for loan losses was 1.74% of net loans and leases on
September 30, 1999, compared to 1.93% on December 31, 1998, and 1.48% on
September 30, 1998. Net charge-offs during the third quarter of 1999 were $10
million, or .36% of average net loans and leases, compared to net charge-offs of
$3 million, or .18% of average net loans and leases for the third quarter of
1998. Net charge-offs for the first nine months of 1999 were $19 million, or
.23% of average net loans and leases, compared to $7 million or .15% of average
net loans and leases for the first nine months of 1998.
The allowance, as a percentage of nonaccrual loans and restructured loans, was
408.26% on September 30, 1999, compared to 347.86% on December 31, 1998, and
316.39% on September 30, 1998. The allowance, as a percentage of nonaccrual
loans and accruing loans past due 90 days or more was 247.37% on September 30,
1999, compared to 258.04% on December 31, 1998 and 232.52% on September 30,
1998.
Commitments to extend credit on loans and standby letters of credit on September
30, 1999, December 31, 1998 and September 30, 1998, totaled $5,608 million,
$4,758 million and $3,420 million, respectively.
25
<PAGE>
ZIONS BANCORPORATION AND SUBSIDIARIES
In analyzing the adequacy of the allowance for loan and lease losses, management
utilizes a comprehensive loan grading system to determine risk potential in the
portfolio, and considers the results of independent internal and external credit
review, historical charge-off experience, and changes in the composition and
volume of the portfolio. Other factors, such as general economic conditions and
collateral values, are also considered. Larger problem credits are individually
evaluated to determine appropriate reserve allocations. Additions to the
allowance are based upon the resulting risk profile of the portfolio developed
through the evaluation of the above factors.
The following table shows the changes in the allowance for loan losses and a
summary of loan loss experience.
<TABLE>
<CAPTION>
Nine months Twelve Months Nine months
Ended Ended Ended
(In millions) September 30, December 31, September 30,
1999 1998 1998
------------ ------------ ------------
<S> <C> <C> <C>
Average loans* and leases outstanding
(net of unearned income) ............... $ 10,956 $ 7,121 $ 6,040
============ ============ ============
Allowance for possible losses:
Balance at beginning of the period .......... $ 206 $ 83 $ 83
Allowance of companies acquired ............. -- 126 15
Provision charged against earnings .......... 12 12 9
Loans and leases charged-off:
Loans held for sale .................... -- -- --
Commercial, financial and agricultural . (22) (8) (4)
Real estate ............................ (2) (6) (1)
Consumer ............................... (7) (9) (7)
Lease financing ........................ (2) (1) --
------------ ------------ ------------
Total ............................. (33) (24) (12)
------------ ------------ ------------
Recoveries:
Loans held for sale .................... -- -- --
Commercial, financial and agricultural . 5 3 2
Real estate ............................ 7 3 1
Consumer ............................... 2 3 2
Lease financing ........................ -- -- --
------------ ------------ ------------
Total ............................. 14 9 5
------------ ------------ ------------
Net loan and lease charge-offs .............. (19) (15) (7)
------------ ------------ ------------
Balance at end of the period ................ $ 199 $ 206 $ 100
============ ============ ============
*Includes loans held for sale
Ratio of net charge-offs to
average loans and leases ............... .23% .21% .15%
</TABLE>
26
<PAGE>
ZIONS BANCORPORATION AND SUBSIDIARIES
DEPOSITS
Average total deposits of $13,077 million for the first nine months of 1999
increased 59.4% over the $8,205 million for the first nine months of 1998, with
average demand deposits increasing 49.1%. Average money market and super NOW
deposits, time deposits under $100,000, and time deposits over $100,000 for the
first nine months of 1999 increased 68.9%, 63.4% and 102.0% respectively, from
the first nine months of 1998. Average savings and NOW deposits increased 36.5%
during the first nine months of 1999, compared with the same period one year
earlier.
Total deposits decreased 2.3% to $13,009 million on September 30, 1999 as
compared to $13,321 million on December 31, 1998. Comparing September 30, 1999
to December 31, 1998, demand deposits, time deposits under $100,000, time
deposits over $100,000 and foreign deposits decreased 4.7%, 22.1%, 35.2% and
27.3% respectively, while savings and money market deposits increased 15.6%.
LIQUIDITY AND INTEREST RATE SENSITIVITY
The Company manages its liquidity to provide adequate funds to meet its
financial obligations, including withdrawals by depositors and debt service
requirements, as well as to fund customers' demand for credit. Liquidity is
primarily provided by the regularly scheduled maturities of the Company's
investment and loan portfolios. The Company's liquidity is enhanced by the fact
that cash, money market securities and liquid investments, net of short-term or
"purchased" liabilities and wholesale deposits, totaled $872 million or 7.3% of
core deposits on September 30, 1999.
The Company's core deposits, consisting of demand, savings and money market
deposits and time deposits under $100,000, constituted 91.2% of total deposits
on September 30, 1999 as compared to 87.0% on December 31, 1998 and 90.1% on
September 30, 1998.
Maturing balances in loan portfolios provide flexibility in managing cash flows.
Maturity management of those funds is an important source of medium- to
long-term liquidity. The Company's ability to raise funds in the capital markets
through the securitization process and by debt issuance allows the Company to
take advantage of market opportunities to meet funding needs at reasonable cost.
The parent company's cash requirements consist primarily of debt service,
dividends to shareholders, operating expenses, income taxes, and share
repurchases. The parent company's cash needs are routinely satisfied through
payments by subsidiaries of dividends, management and other fees, principal and
interest payments on subsidiary borrowings from the parent company.
Interest rate risk is the most significant market risk regularly undertaken by
Company. The Company believes there have been no significant changes in market
risk compared to the disclosures in Zions Bancorporation's Annual Report to
Shareholders on Form 10-K/A for the year ended December 31, 1998.
27
<PAGE>
ZIONS BANCORPORATION AND SUBSIDIARIES
Interest rate sensitivity measures the Company's financial exposure to changes
in interest rates. Interest rate sensitivity is, like liquidity, affected by
maturities of assets and liabilities. The Company assesses its interest rate
sensitivity using duration, and simulation analysis. Duration is a measure of
the weighted average expected lives of the discounted cash flows from assets and
liabilities. Simulation is used to estimate net interest income over time using
alternative interest rate scenarios.
The Company, through the management of maturities and repricing of its assets
and liabilities and the use of off-balance sheet arrangements such as interest
rate caps, floors, futures, options, and interest rate exchange agreements,
attempts to minimize the effect on net income of changes in interest rates. The
Company's management exercises its best judgment in making assumptions with
respect to loan and security prepayments, early deposit withdrawals and other
noncontrollable events in managing the Company's exposure to changes in interest
rates. The interest rate risk position is actively managed and changes daily as
the interest rate environment changes; therefore, positions at the end of any
period may not be reflective of the Company's interest rate position in
subsequent periods. The prime lending rate is the primary basis used for pricing
the Company's loans and the short-term Treasury rate is the index used for
pricing many of the Company's deposits. The Company, however, is unable to
economically hedge the prime/91-day T-bill spread risk through the use of
off-balance sheet financial instruments.
CAPITAL RESOURCES AND DIVIDENDS
Total shareholders' equity on September 30, 1999 was $1,469 million, an increase
of 6.0% over the $1,385 million on December 31, 1998, and an increase of 8.5%
over the $1,354 million on September 30, 1998. The ratio of average equity to
average assets for the first nine months of 1999 was 7.83% as compared to 9.83%
for the same period in 1998. On September 30, 1999, the Company's Tier I
risk-based capital ratio was 8.34%, as compared to 8.34% on December 31, 1998
and 12.75% on September 30, 1998. On September 30, 1999 the Company's total
risk-based capital ratio was 11.17%, as compared to 11.38% on December 31, 1998
and 15.88% on September 30, 1998. The Company's leverage ratio on September 30,
1999 was 6.03%, as compared to 5.86% on December 31, 1998 and 8.35% on September
30, 1998.
Dividends declared per common share for the third quarter of 1999 of $.29 were
the same as the second quarter of 1999 and increased 107.1%, as compared to $.14
for the third quarter of 1998. The common cash dividend payout of net income for
the first nine months of 1999 was 40.38%, as compared to 28.73% for the first
nine months of 1998.
During the first nine months of 1999, the Company repurchased and retired 83,332
shares of its common stock at a cost of $4.8 million.
28
<PAGE>
ZIONS BANCORPORATION AND SUBSIDIARIES
MERGERS AND ACQUISITIONS
On April 27, 1999, the Company announced a definitive agreement to merge with
Regency Bancorp of Fresno, California in exchange for common shares of Zions.
Regency Bancorp's banking subsidiary, Regency Bank, will then merge into Zions'
subsidiary, California Bank & Trust. As of June 30, 1999, Regency Bancorp had
total assets of approximately $230 million. The merger will be accounted for as
a purchase and closed on October 6, 1999.
On May 7, 1999, the Company announced a definitive agreement to merge with
Pioneer Bancorporation of Reno, Nevada in exchange for common shares of Zions.
Pioneer Bancorporation's subsidiary, Pioneer Citizens Bank of Nevada, will merge
into Zions' subsidiary, Nevada State Bank, creating the third largest bank in
the state. As of June 30, 1999, Pioneer Bancorporation had total assets of
approximately $1,102 million. The transaction closed on October 15, 1999 and
will be accounted for as a pooling of interests.
See Notes to Consolidated Financial Statements for a description of a pending
merger with First Security Corporation announced in June 1999.
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 has completed its mission-critical Year 2000
Program efforts, including an integrated core (mission critical) systems test on
a computer system defined as if it was year 2000. The Company has also assessed
the operability of other devices after 1999, including vaults, fax machines,
stand-alone personal computers, security systems and elevators. The Company
believes that these systems are also Y2K compliant, and in any case the failure
of these systems would not have a material adverse effect upon the financial
condition of the enterprise.
Costs. In order to achieve and confirm Year 2000 readiness, significant costs
have been incurred to test and modify or replace computer software and hardware.
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, has consumed 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 a significant effect on its revenue or
expense growth. The aggregate increase in operating expense to achieve Year 2000
readiness is estimated to be approximately $3 million, which has already been
incurred. In addition, a significant portion of the Company's personal computers
was replaced to achieve Year 2000 compliance. The capital outlay to replace
these assets was approximately $3 million, a portion of which would also have
been incurred in the ordinary course of business without regard to Year 2000
issues.
29
<PAGE>
ZIONS BANCORPORATION AND SUBSIDIARIES
Risks. If the Company's mission-critical applications are not compliant by 2000,
it may not be able to correctly process transactions in a reasonable period of
time. This scenario could result in a wide variety of claims against the Company
for improper handling of its assets and deposits or other borrowings from its
customers. The Company is also at risk if the credit worthiness of a few of its
large borrowers, or a significant number of its small borrowers, were to
deteriorate quickly and severely as a result of their inability to conduct
business operations after December 31, 1999, for whatever reason. The Company
has surveyed and reviewed the Year 2000 plans of a number of its credit
customers to ascertain the sufficiency of their remediation efforts and the
implications of their actions on their credit worthiness. From this review, the
Company believes that the increased credit risk that the Company may experience
as a result of the Year 2000 issue will not have a material adverse effect its
financial condition. The Company explicitly disclaims, however, any obligation
or liability for the completeness, or lack thereof, of its customers' Year 2000
remediation plans or actions.
Contingency Plans. The Company has developed business resumption plans for each
significant business unit in the event that unforeseen events beyond the
Company's control adversely impact its ability to provide financial services to
its customers. In the event of such a failure, these plans outline the steps
that will be taken to minimize the impact to customers and losses to the
Company.
Forward-Looking Information
Statements in Management's Discussion and Analysis that are not based on
historical data are forward- looking, including, for example, the projected
performance of Zions and its operations. These statements constitute
forward-looking information within the meaning of the Private Securities
Litigation Reform Act of 1995. Actual results may differ materially from the
projections discussed in Management's Discussion and Analysis since such
projections involve significant risks and uncertainties. Factors that might
cause such differences include, but are not limited to: the timing of closing
proposed acquisitions being delayed or such acquisitions being prohibited,
competitive pressures among financial institutions increasing significantly;
economic conditions, either nationally or locally in areas in which Zions
conducts its operations, being less favorable than expected; legislation or
regulatory changes which adversely affect the Company's operations or business;
the cost and effort required to correct Year 2000 processing deficiencies being
greater than expected due to the difficulty attracting and retaining qualified
systems personnel or vendor-supplied software releases being delayed or not
functioning properly. Zions disclaims any obligation to update any such factors
or to publicly announce the results of any revisions to any of the
forward-looking statements included herein to reflect future events or
developments.
30
<PAGE>
ZIONS BANCORPORATION AND SUBSIDIARIES
PART II. OTHER INFORMATION
-----------------
ITEM 6. EXHIBITS AND REPORTS ON FORM 8-K
--------------------------------
a) Exhibits
b) Reports on Form 8-K
Zions Bancorporation filed the following reports on Form
8-K during the quarter ended September 30, 1999;
Form 8-K filed August 30, 1999 (Item 5). On August 30,
1999, Zions Bancorporation issued a joint press release
with First Security Corporation describing the
accounting impact of acceleration of First Security
Limited Stock Appreciation Rights.
S I G N A T U R E S
-------------------
Pursuant to the requirements of the Securities Exchange Act of 1934, the
Registrant has duly caused this report to be signed on its behalf by the
undersigned thereunto duly authorized.
ZIONS BANCORPORATION
/s/Harris H. Simmons
--------------------
Harris H. Simmons, President and
Chief Executive Officer
/s/Dale M. Gibbons
------------------
Dale M. Gibbons, Executive Vice
President and Chief Financial Officer
Dated February 16, 2000
<TABLE> <S> <C>
<ARTICLE> 9
<LEGEND>
This schedule contains summary financial information extracted from the restated
unaudited consolidated balance sheet as of September 30, 1999 and the related
restated unaudited consolidated statement of income for the nine months ended
September 30, 1999 included in the companys form 10-Q/A for the period ended
September 30, 1999 and is qualified in its entirety by reference to such
financial statements.
</LEGEND>
<CIK> 0000109380
<NAME> Zions Bancorporation /UT/
<MULTIPLIER> 1,000
<CURRENCY> U.S.
<S> <C>
<PERIOD-TYPE> 9-MOS
<FISCAL-YEAR-END> Dec-31-1999
<PERIOD-START> Jul-01-1999
<PERIOD-END> Sep-30-1999
<EXCHANGE-RATE> 1
<CASH> 742,714
<INT-BEARING-DEPOSITS> 16,562
<FED-FUNDS-SOLD> 646,570
<TRADING-ASSETS> 531,710
<INVESTMENTS-HELD-FOR-SALE> 614,579
<INVESTMENTS-CARRYING> 3,324,387
<INVESTMENTS-MARKET> 3,298,873
<LOANS> 11,416,672
<ALLOWANCE> 198,559
<TOTAL-ASSETS> 18,950,991
<DEPOSITS> 13,008,773
<SHORT-TERM> 3,281,228
<LIABILITIES-OTHER> 583,600
<LONG-TERM> 570,469
0
0
<COMMON> 755,282
<OTHER-SE> 713,545
<TOTAL-LIABILITIES-AND-EQUITY> 18,950,991
<INTEREST-LOAN> 707,412
<INTEREST-INVEST> 229,636
<INTEREST-OTHER> 0
<INTEREST-TOTAL> 937,048
<INTEREST-DEPOSIT> 285,719
<INTEREST-EXPENSE> 422,597
<INTEREST-INCOME-NET> 514,451
<LOAN-LOSSES> 11,841
<SECURITIES-GAINS> (1,365)
<EXPENSE-OTHER> 467,749
<INCOME-PRETAX> 220,119
<INCOME-PRE-EXTRAORDINARY> 140,938
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> 140,938
<EPS-BASIC> 1.79
<EPS-DILUTED> 1.76
<YIELD-ACTUAL> 4.24
<LOANS-NON> 47,752
<LOANS-PAST> 32,515
<LOANS-TROUBLED> 883
<LOANS-PROBLEM> 0
<ALLOWANCE-OPEN> 205,553
<CHARGE-OFFS> 32,546
<RECOVERIES> 13,711
<ALLOWANCE-CLOSE> 198,559
<ALLOWANCE-DOMESTIC> 179,713
<ALLOWANCE-FOREIGN> 0
<ALLOWANCE-UNALLOCATED> 18,846
</TABLE>
<TABLE> <S> <C>
<ARTICLE> 9
<LEGEND>
This schedule contains summary financial information extracted from the restated
unaudited consolidated balance sheet as of September 30, 1998 and the related
restated unaudited consolidated statement of income for the nine months ended
September 30, 1998 included in the companys form 10-Q/A for the period ended
September 30, 1999 and is qualified in its entirety by reference to such
financial statements.
</LEGEND>
<CIK> 0000109380
<NAME> Zions Bancorporation /UT/
<MULTIPLIER> 1,000
<CURRENCY> U.S.
<S> <C>
<PERIOD-TYPE> 9-MOS
<FISCAL-YEAR-END> Dec-31-1998
<PERIOD-START> Jul-01-1998
<PERIOD-END> Sep-30-1998
<EXCHANGE-RATE> 1
<CASH> 618,651
<INT-BEARING-DEPOSITS> 24,566
<FED-FUNDS-SOLD> 1,240,537
<TRADING-ASSETS> 203,871
<INVESTMENTS-HELD-FOR-SALE> 554,039
<INVESTMENTS-CARRYING> 2,209,223
<INVESTMENTS-MARKET> 2,228,210
<LOANS> 6,767,007
<ALLOWANCE> 100,440
<TOTAL-ASSETS> 12,761,139
<DEPOSITS> 8,931,016
<SHORT-TERM> 1,747,197
<LIABILITIES-OTHER> 230,942
<LONG-TERM> 498,005
0
0
<COMMON> 747,538
<OTHER-SE> 606,441
<TOTAL-LIABILITIES-AND-EQUITY> 12,761,139
<INTEREST-LOAN> 441,228
<INTEREST-INVEST> 215,664
<INTEREST-OTHER> 0
<INTEREST-TOTAL> 656,892
<INTEREST-DEPOSIT> 191,232
<INTEREST-EXPENSE> 296,638
<INTEREST-INCOME-NET> 360,254
<LOAN-LOSSES> 9,034
<SECURITIES-GAINS> 2,078
<EXPENSE-OTHER> 338,015
<INCOME-PRETAX> 154,603
<INCOME-PRE-EXTRAORDINARY> 103,241
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> 103,241
<EPS-BASIC> 1.39
<EPS-DILUTED> 1.36
<YIELD-ACTUAL> 4.48
<LOANS-NON> 30,765
<LOANS-PAST> 12,432
<LOANS-TROUBLED> 981
<LOANS-PROBLEM> 0
<ALLOWANCE-OPEN> 82,849
<CHARGE-OFFS> 11,635
<RECOVERIES> 5,015
<ALLOWANCE-CLOSE> 100,440
<ALLOWANCE-DOMESTIC> 19,084
<ALLOWANCE-FOREIGN> 0
<ALLOWANCE-UNALLOCATED> 81,356
</TABLE>
