UNITED STATES SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
FORM 10-Q
[ X ] QUARTERLY REPORT UNDER SECTION 13 OR 15(d) OF THE SECURITIES
EXCHANGE ACT OF 1934
For the quarterly period ended March 31, 2000
--------------
OR
[ ] TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES
EXCHANGE ACT OF 1934
For the transition period from to
COMMISSION FILE NUMBER 0-2610
ZIONS BANCORPORATION
(Exact name of Registrant as specified in its charter)
UTAH 87-0227400
- --------------------------------- -------------------
(State or other jurisdiction (I.R.S. Employer
of incorporation or organization) Identification No.)
ONE SOUTH MAIN, SUITE 1380
SALT LAKE CITY, UTAH 84111
- ---------------------------------------- ----------
(Address of principal executive offices) (Zip Code)
Registrant's telephone number, including area code: (801) 524-4787
Indicate by check mark whether the registrant (1) has filed all reports required
to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during
the preceding 12 months and (2) has been subject to such filing requirement for
the past 90 days. Yes [ X ] No [ ]
Indicate the number of shares outstanding of each of the issuer's classes of
common stock, as of the latest practicable date.
Common Stock, without par value,
outstanding at May 1, 2000 85,700,478 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 Operations 4
Consolidated Statements of Cash Flows 5
Consolidated Statements of Changes in Shareholders'
Equity and Comprehensive Income (Loss) 7
Notes to Consolidated Financial Statements 8
ITEM 2. Management's Discussion and Analysis 9
PART II. OTHER INFORMATION
-----------------
ITEM 6. Exhibits and Reports on Form 8-K 25
SIGNATURES 25
2
<PAGE>
ZIONS BANCORPORATION AND SUBSIDIARIES
CONSOLIDATED BALANCE SHEETS
(Unaudited)
<TABLE>
<CAPTION>
March 31, December 31, March 31,
(In thousands, except share amounts) 2000 1999 1999
------------ ------------ ------------
<S> <C> <C> <C>
ASSETS
Cash and due from banks ............................................. $ 929,763 $ 898,300 $ 851,118
Money market investments:
Interest-bearing deposits ...................................... 18,019 17,371 25,200
Federal funds sold ............................................. 185,937 85,898 200,092
Security resell agreements ..................................... 582,730 421,900 248,286
Investment securities:
Held to maturity, at cost (approximate market value
$3,251,145, $3,290,508, and $3,120,439) ........................ 3,294,839 3,330,444 3,105,885
Available for sale, at market .................................. 641,846 778,930 702,051
Trading account, at market...................................... 396,767 327,845 221,127
------------ ------------ ------------
4,333,452 4,437,219 4,029,063
Loans:
Loans held for sale ............................................ 179,332 204,800 179,672
Loans, leases, and other receivables ........................... 13,003,980 12,648,325 11,392,201
------------ ------------ ------------
13,183,312 12,853,125 11,571,873
Less:
Unearned income and fees, net of related costs ................. 58,947 62,480 45,890
Allowance for loan losses ...................................... 200,065 204,114 206,058
------------ ------------ ------------
Net loans ................................................ 12,924,300 12,586,531 11,319,925
Premises and equipment, net ......................................... 290,752 287,448 253,394
Goodwill and core deposit intangibles ............................... 656,930 666,219 651,276
Other real estate owned ............................................. 7,508 8,939 7,064
Other assets ........................................................ 1,067,166 871,075 940,999
------------ ------------ ------------
$ 20,996,557 $ 20,280,900 $ 18,526,417
============ ============ ============
LIABILITIES AND SHAREHOLDERS' EQUITY
Deposits:
Noninterest-bearing ............................................. $ 3,426,885 $ 3,276,097 $ 3,286,910
Interest-bearing:
Savings and money market ................................... 7,982,643 7,660,786 7,103,855
Time:
Under $100,000 ......................................... 1,748,093 1,836,645 2,159,569
Over $100,000 .......................................... 1,283,157 1,078,631 1,441,284
Foreign .................................................... 143,998 209,780 154,059
------------ ------------ ------------
14,584,776 14,061,939 14,145,677
Securities sold, not yet purchased .................................. 257,605 237,020 247,249
Federal funds purchased ............................................. 952,471 825,997 373,857
Security repurchase agreements ...................................... 1,481,892 1,366,653 876,640
Accrued liabilities ................................................. 399,027 247,406 446,116
Commercial paper .................................................... 305,618 238,660 145,416
Federal Home Loan Bank advances and other borrowings:
Less than one year ............................................. 801,574 1,038,045 254,130
Over one year .................................................. 150,201 112,622 50,798
Long-term debt ...................................................... 437,647 453,471 453,554
------------ ------------ ------------
Total liabilities .......................................... 19,370,811 18,581,813 16,993,437
------------ ------------ ------------
Minority interest ................................................... 40,079 39,249 37,599
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 85,694,426,
85,592,643 and 84,315,145 shares ........................ 888,725 888,231 822,400
Accumulated other comprehensive loss ........................... (25,500) (4,158) (1,475)
Retained earnings .............................................. 722,442 775,765 674,456
------------ ------------ ------------
Total shareholders' equity ................................ 1,585,667 1,659,838 1,495,381
------------ ------------ ------------
$ 20,996,557 $ 20,280,900 $ 18,526,417
============ ============ ============
</TABLE>
3
<PAGE>
ZIONS BANCORPORATION AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF OPERATIONS
(Unaudited)
<TABLE>
<CAPTION>
Three Months Ended
March 31,
----------------------
(In thousands, except per share amounts) 2000 1999
--------- ---------
<S> <C> <C>
Interest income:
Interest and fees on loans ................................. $ 280,384 $ 233,057
Interest on loans held for sale ............................ 3,319 3,405
Lease financing ............................................ 4,212 3,424
Interest on money market investments ....................... 20,089 14,816
Interest on securities:
Held to maturity:
Taxable .......................................... 48,742 41,216
Nontaxable ....................................... 4,013 4,480
Available for sale:
Taxable .......................................... 8,562 10,271
Nontaxable ....................................... 1,278 709
Trading account ....................................... 8,956 6,792
--------- ---------
Total interest income ................................. 379,555 318,170
--------- ---------
Interest expense:
Interest on savings and money market deposits .............. 74,896 54,650
Interest on time and foreign deposits ...................... 39,096 47,583
Interest on borrowed funds ................................. 74,571 39,082
--------- ---------
Total interest expense ................................ 188,563 141,315
--------- ---------
Net interest income ................................... 190,992 176,855
Provision for loan losses ....................................... 5,248 4,741
--------- ---------
Net interest income after provision for loan losses ... 185,744 172,114
--------- ---------
Noninterest income:
Service charges on deposit accounts ........................ 19,049 18,668
Other service charges, commissions and fees ................ 15,839 16,117
Trust income ............................................... 4,487 3,377
Investment securities gain (loss), net ..................... 1,135 (1,304)
Impairment loss on First Security Corporation common stock . (96,911) --
Underwriting and trading income ............................ 3,347 4,021
Loan sales and servicing income ............................ 9,824 15,172
Other income ............................................... 6,919 9,429
--------- ---------
Total noninterest income .............................. (36,311) 65,480
--------- ---------
Noninterest expense:
Salaries and employee benefits ............................. 81,137 86,282
Occupancy, net ............................................. 12,219 12,665
Furniture and equipment .................................... 12,768 10,655
Other real estate expense .................................. 299 44
Legal and professional services ............................ 4,990 3,616
Supplies ................................................... 2,506 2,704
Postage .................................................... 3,042 2,911
Advertising ................................................ 4,564 3,152
Merger related expense ..................................... 41,543 1,045
FDIC premiums .............................................. 867 382
Amortization of goodwill and core deposit intangibles ...... 9,290 8,728
Amortization of mortgage servicing assets .................. 80 651
Other ...................................................... 27,007 29,770
--------- ---------
Total noninterest expense ............................. 200,312 162,605
--------- ---------
Income (loss) before income taxes and minority interest ......... (50,879) 74,989
Income taxes (benefit) .......................................... (21,955) 26,729
--------- ---------
Net income (loss) before minority interest ............ (28,924) 48,260
Minority interest ............................................... (432) 1,356
--------- ---------
Net income (loss) ..................................... $ (28,492) $ 46,904
========= ===========
Weighted average common and common-equivalent shares
outstanding during the period ......................... 86,459 85,493
Net income (loss) per common share:
Basic ...................................................... $ (0.33) $ 0.56
Diluted .................................................... $ (0.33) $ 0.55
</TABLE>
4
<PAGE>
ZIONS BANCORPORATION AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF CASH FLOWS
(Unaudited)
<TABLE>
<CAPTION>
Three Months Ended
March 31,
----------------------------
(In thousands) 2000 1999
------------ ------------
<S> <C> <C>
Cash flows from operating activities:
Net income (loss) .................................................. $ (28,492) $ 46,904
Adjustments to reconcile net income (loss) to net cash provided by
operating activities:
Provision for loan losses ..................................... 5,248 4,741
Depreciation of premises and equipment ........................ 11,368 9,087
Amortization .................................................. 12,084 13,895
Accretion of unearned income and fees, net of
related costs ............................................ (3,533) 2,850
Income (loss) to minority interest ............................ (432) 1,356
Proceeds from sales of trading account securities ............. 52,382,348 45,855,598
Increase in trading account securities ........................ (52,451,270) (45,884,870)
Investment securities (gain) loss, net ........................ (1,135) 1,304
Impairment loss on First Security Corporation common stock .... 96,911 --
Proceeds from loans held for sale ............................. 192,732 308,109
Increase in loans held for sale ............................... (167,326) (256,376)
Net gain on sales of loans, leases and other assets ........... (7,964) (12,630)
Change in accrued income taxes ................................ 21,933 21,956
Change in accrued interest receivable ......................... (17,332) (11,962)
Change in accrued interest payable ............................ 3,018 (1,135)
Other, net .................................................... (30,758) (82,113)
------------ ------------
Net cash provided by operating activities ................ 17,400 16,714
------------ ------------
Cash flows from investing activities:
Net decrease (increase) in money market investments ................ (261,517) 186,302
Proceeds from maturities of investment securities
held to maturity .............................................. 94,334 296,070
Purchases of investment securities held to maturity ................ (60,585) (555,370)
Proceeds from sales of investment securities
available for sale ............................................ 84,344 138,651
Proceeds from maturities of investment securities
available for sale ............................................ 27,504 94,151
Purchases of investment securities available for sale .............. (111,957) (186,468)
Proceeds from sales of loans and leases ............................ 137,702 196,037
Net increase in loans and leases ................................... (497,752) (552,869)
Payments on leveraged leases ....................................... (4,943) (4,168)
Principal collections on leveraged leases .......................... 4,943 4,168
Proceeds from sales of premises and equipment ...................... 1,892 1,627
Purchases of premises and equipment ................................ (16,539) (14,366)
Proceeds from sales of mortgage-servicing rights ................... 945 14,918
Purchases of mortgage-servicing rights ............................. (62) (792)
Proceeds from sales of other assets ................................ 3,333 2,129
Cash paid for acquisitions, net of cash received ................... -- 592
------------ ------------
Net cash used in investing activities .................... (598,358) (379,388)
------------ ------------
</TABLE>
5
<PAGE>
ZIONS BANCORPORATION AND SUBSIDIARIESCONSOLIDATED STATEMENTS OF CASH FLOWS
(Continued)
(Unaudited)
<TABLE>
<CAPTION>
Three Months Ended
March 31,
----------------------------
(In thousands) 2000 1999
------------ ------------
<S> <C> <C>
Cash flows from financing activities:
Net increase (decrease) in deposits ................................ 522,837 (80,694)
Net change in short-term funds borrowed ............................ 92,785 387,669
Proceeds from FHLB advances over one year .......................... 100,000 --
Payments on FHLB advances over one year ............................ (62,421) (5,998)
Payments on long-term debt ......................................... (15,824) (181)
Proceeds from issuance of common stock ............................. 3,687 1,596
Payments to redeem common stock .................................... (3,812) (194)
Dividends paid ..................................................... (24,831) (11,060)
------------ ------------
Net cash provided by financing activities ................ 612,421 291,138
------------ ------------
Net increase (decrease) in cash and due from banks ...................... 31,463 (71,536)
Cash and due from banks at beginning of period .......................... 898,300 922,654
------------ ------------
Cash and due from banks at end of period ................................ $ 929,763 $ 851,118
============ ============
</TABLE>
SUPPLEMENTAL DISCLOSURES OF CASH FLOW INFORMATION
(Unaudited)
<TABLE>
<CAPTION>
Three Months Ended
March 31,
----------------------------
(In thousands) 2000 1999
------------ ------------
<S> <C> <C>
Cash paid for:
Interest ........................................................... $ 185,685 $ 142,438
Income taxes ....................................................... 4 55
Loans transferred to other real estate owned ............................ 1,803 2,450
</TABLE>
6
<PAGE>
ZIONS BANCORPORATION AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF CHANGES IN SHAREHOLDERS' EQUITY
AND COMPREHENSIVE INCOME (LOSS)
(Unaudited)
<TABLE>
<CAPTION>
Three Months Ended
March 31, 2000
---------------------------------------------------------------------
Accumulated
Other Total
Common Comprehensive Comprehensive Retained Shareholders'
(In thousands) Stock Loss Loss Earnings Equity
----------- ----------- ----------- ----------- -----------
<S> <C> <C> <C> <C> <C>
Balance, January 1, 2000 ................................ $ 888,231 $ (4,158) $ 775,765 $ 1,659,838
Net loss for the period ................................. $ (28,492) (28,492) (28,492)
-----------
Other comprehensive loss, net of tax:
Realized and unrealized holding loss arising
during the period, net of tax benefit of $49,854 .. (80,484)
Reclassification for net realized securities loss
recorded in the income statement, net of
tax benefit of $36,634 ......................... 59,142
-----------
Other comprehensive loss ............................ (21,342) (21,342) (21,342)
-----------
Total comprehensive loss .......................... $ (49,834)
===========
Cash dividends:
Common, $.29 per share .............................. (24,831) (24,831)
Stock redeemed and retired .............................. (3,812) (3,812)
Stock options exercised, net of shares tendered and
retired .............................................. 4,306 4,306
----------- ----------- ----------- -----------
Balance, March 31, 2000 ................................. $ 888,725 $ (25,500) $ 722,442 $ 1,585,667
=========== =========== =========== ===========
</TABLE>
<TABLE>
<CAPTION>
Three Months Ended
March 31, 1999
---------------------------------------------------------------------
Accumulated
Other Total
Common Comprehensive Comprehensive Retained Shareholders'
(In thousands) Stock Loss Loss Earnings Equity
----------- ----------- ----------- ----------- -----------
<S> <C> <C> <C> <C> <C>
Balance, January 1, 1999 ................................ $ 796,519 $ (3,407) $ 659,519 $ 1,452,631
Net income for the period ............................... $ 46,904 46,904 46,904
-----------
Other comprehensive income, net of tax:
Realized and unrealized holding loss arising
during the period, net of tax benefit of $1,258 ... (2,030)
Reclassification for net realized investment
securities loss recorded in the income
statement, net of tax benefit of $2,455 ........... 3,962
-----------
Other comprehensive loss ............................ 1,932 1,932 1,932
-----------
Total comprehensive income ........................ $ 48,836
===========
Cash dividends:
Common, $.14 per share .............................. (11,060) (11,060)
Stock dividend of acquired company ...................... 21,704 (21,704) --
Issuance of common shares for acquisitions .............. 83 797 880
Stock redeemed and retired .............................. (194) (194)
Stock options exercised, net of shares tendered and
retired .............................................. 4,288 4,288
----------- ----------- ----------- -----------
Balance, March 31, 1999 ................................. $ 822,400 $ (1,475) $ 674,456 $ 1,495,381
=========== =========== =========== ===========
</TABLE>
7
<PAGE>
ZIONS BANCORPORATION AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(Unaudited)
Basis of Presentation
The unaudited consolidated financial statements have been prepared in accordance
with generally accepted accounting principles for interim financial information
and with the instructions to Form 10-Q and Rule 10-01 of Regulation S-X.
Accordingly, they do not include all of the information and footnotes required
by generally accepted accounting principles for complete financial statements.
In the opinion of management, all adjustments (consisting of normal recurring
accruals) considered necessary for a fair presentation have been included.
On October 15, 1999 the Company completed its acquisition of Pioneer
Bancorporation in a transaction accounted for as a pooling of interests. The
acquisition was considered significant and prior year amounts have accordingly
been restated.
Operating results for the three months ended March 31, 2000 are not necessarily
indicative of the results that may be expected for the year ended December 31,
2000. For further information, refer to the consolidated financial statements
and footnotes thereto included in Zions Bancorporation's Annual Report to
Shareholders on Form 10-K for the year ended December 31, 1999.
First Security Corporation Merger Termination
On June 6, 1999 the Company entered into a definitive Agreement and Plan of
Merger (the "Agreement") with First Security Corporation. First Security
Corporation's stockholders approved the transaction at a meeting held on March
22, 2000. In a special meeting of shareholders held on March 31, 2000, the
Company's shareholders declined to adopt the Agreement and the Company was
notified the next day by First Security Corporation that it was terminating the
Agreement.
Included in results of operations for the three months ended March 31, 2000 are
approximately $41.5 million of pre-tax merger expenses related to the
termination of the merger and the related disengagement. Also included in
results of operations is a pre-tax impairment loss on First Security Corporation
common stock owned by the Company of $96.9 million. It is possible that the
Company could incur additional unidentified expenses related to the merger
termination and related disengagement process.
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.
8
<PAGE>
ZIONS BANCORPORATION AND SUBSIDIARIES
ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS
FINANCIAL HIGHLIGHTS
(Unaudited)
<TABLE>
<CAPTION>
Three Months Ended
March 31,
--------------------------------------
(In thousands, except per share and ratio data) 2000 1999 % Change
----------- ----------- ---------
<S> <C> <C> <C>
EARNINGS
Taxable-equivalent net interest income .................. $ 194,840 $ 180,490 7.95 %
Net interest income ..................................... 190,992 176,855 7.99 %
Noninterest income ...................................... 60,600 65,480 (7.45)%
Impairment loss First Security Corporation
common stock(1) .................................... (96,911) --
Provision for loan losses ............................... 5,248 4,741 10.69 %
Noninterest expense ..................................... 200,312 162,605 23.19 %
Income (loss) before income taxes ....................... (50,879) 74,989 (167.85)%
Income taxes (benefit) .................................. (21,955) 26,729 (182.14)%
Minority interest ....................................... (432) 1,356 (131.86)%
Net income (loss) ....................................... (28,492) 46,904 (160.75)%
PER COMMON SHARE
Net income (loss) (diluted) ............................. (0.33) 0.55 (160.00)%
Dividends ............................................... 0.29 0.14 107.14 %
Book value .............................................. 18.50 17.74 4.28 %
SELECTED RATIOS
Return on average assets ................................ (0.54)% 1.01%
Return on average common equity ......................... (6.91)% 12.87%
Efficiency ratio(3) ..................................... 78.42 % 66.11%
Net interest margin ..................................... 4.14 % 4.39%
OPERATING CASH EARNINGS(2)(3)
Taxable-equivalent net interest income .................. $ 194,840 $ 180,490 7.95 %
Net interest income ..................................... 190,992 176,855 7.99 %
Noninterest income ...................................... 60,600 65,480 (7.45)%
Provision for loan losses ............................... 5,248 4,741 10.69 %
Noninterest expense ..................................... 149,479 152,832 (2.19)%
Income before income taxes .............................. 96,865 84,762 14.28 %
Income taxes ............................................ 32,219 28,332 13.72 %
Minority interest ....................................... (432) 1,356 (131.86)%
Net income .............................................. 65,078 55,074 18.16 %
PER COMMON SHARE
Net income (diluted) .................................... 0.75 0.64 17.19 %
Dividends ............................................... 0.29 0.14 107.14 %
Book value .............................................. 10.84 10.01 8.29 %
SELECTED RATIOS
Return on average assets ................................ 1.26% 1.22%
Return on average common equity ......................... 26.27% 27.21%
Efficiency ratio ........................................ 58.52% 62.13%
Net interest margin ..................................... 4.14% 4.39%
(1) This investment has been written down to $14.11 per common share.
(2) Before amortization of goodwill and core deposit intangible assets and merger charges.
(3) Excludes impairment loss on First Security Corporation common stock.
</TABLE>
9
<PAGE>
ZIONS BANCORPORATION AND SUBSIDIARIES
FINANCIAL HIGHLIGHTS (Continued)
(Unaudited)
<TABLE>
<CAPTION>
Three Months Ended
March 31,
--------------------------------------
(In thousands, except per share and ratio data) 2000 1999 % Change
----------- ----------- ---------
<S> <C> <C> <C>
AVERAGE BALANCES
Total assets ............................................ $21,409,208 $18,894,035 13.31 %
Securities .............................................. 4,646,358 4,340,925 7.04 %
Net loans and leases .................................... 12,896,311 11,316,651 13.96 %
Goodwill and core deposit intangibles ................... 662,858 656,677 0.94 %
Total deposits .......................................... 14,253,368 13,957,269 2.12 %
Minority interest ....................................... 39,664 36,952 7.34 %
Shareholders' equity .................................... 1,659,335 1,477,613 12.30 %
Weighted average common and common-
equivalent shares outstanding ...................... 86,459,054 85,492,502 1.13 %
AT PERIOD END
Total assets ............................................ $20,996,557 $18,526,417 13.33 %
Securities .............................................. 4,333,452 4,029,063 7.55 %
Net loans and leases .................................... 13,124,365 11,525,983 13.87 %
Allowance for loan losses ............................... 200,065 206,058 (2.91)%
Goodwill and core deposit intangibles ................... 656,930 651,276 0.87 %
Total deposits .......................................... 14,584,776 14,145,677 3.10 %
Minority interest ....................................... 40,079 37,599 6.60 %
Shareholders' equity .................................... 1,585,667 1,495,381 6.04 %
Common shares outstanding ............................... 85,694,426 84,315,145 1.64 %
Average equity to average assets ........................ 7.75% 7.82%
Common dividend payout (before merger related charges) .. 43.60% 23.29%
Nonperforming assets .................................... 77,012 81,885 (5.95)%
Loans past due 90 days or more .......................... 29,294 26,205 11.79 %
Nonperforming assets to net loans and leases,
other real estate owned and other
nonperforming assets at March 31 ................... 0.59% 0.71%
</TABLE>
10
<PAGE>
ZIONS BANCORPORATION AND SUBSIDIARIES
OPERATING RESULTS
Zions Bancorporation achieved net income before merger-related charges of $57.0
million or $0.66 per diluted share for the first quarter of 2000, an increase of
20.0% and 17.9%, respectively, over the $47.5 million or $0.56 earned in the
first quarter of 1999. After $85.5 million in after-tax charges ($0.99 per
share) related to the Company's terminated merger with First Security
Corporation, including a write down to market value of its investment in First
Security Corporation common stock, the Company incurred a net loss of $28.5
million or $0.33 per diluted share for the first quarter compared to net income
of $46.9 million or $0.55 per diluted share for the first quarter of 1999.
The annualized return on average assets before merger-related charges was 1.07%
for the first quarter of 2000, compared to 1.02% for the first quarter of 1999.
The annualized return on average common shareholders' equity before
merger-related charges was 13.81% compared to 13.04% for the first quarter of
1999. After merger-related charges the annualized return on average assets was a
negative 0.54% and the return on average common equity was a negative 6.91% for
the first quarter of 2000 compared to 1.01% and 12.87% for the first quarter of
1999. Before merger-related charges, the Company's "efficiency ratio" or
noninterest expenses as a percentage of total taxable-equivalent net revenues
for the first quarter of 2000 was 62.16% compared to 65.68% for the first
quarter of 1999. Including merger-related charges the efficiency ratio was
78.42% for the first quarter of 2000 and 66.11% for the first quarter of 1999.
The Company's first-quarter $9.5 million (20.0%) increase in earnings before
merger-related expenses relative to the same period last year reflects a $14.1
million (8.0%) increase in net interest income, a $4.9 million (7.5%) decrease
in noninterest income, a $.5 million (10.7%) increase in the provision for loan
losses, a $2.8 million (1.7%) decrease in noninterest expense before
merger-related charges, a $3.8 million (14.2%) increase in income tax expense
before the effect of merger-related expenses, and a $1.8 million (131.9%)
decrease in minority interest. The first quarter $75.4 million decrease in
earnings after merger-related charges compared to the first quarter of 1999
includes a pre-tax impairment loss on First Security common stock of $96.9
million and an increase in other pre-tax merger-related charges of $40.5
million. The tax benefit resulting from the impairment loss and other
merger-related charges is $52.6 million.
The Company paid a dividend of $0.29 per share for the first quarter of 2000, an
increase of 107.1% over the $0.14 paid during the first quarter of 1999. The
dividend was more than doubled in July of last year to synchronize it with the
rate paid by First Security Corporation. On April 27, 2000, the Company's board
of directors voted to reduce its regular quarterly dividend to $0.20 per common
share. The board elected to reduce the dividend to ensure that it has the
capital to support its historically robust asset growth.
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-related expenses.
Operating cash earnings for the quarter were $65.1 million or $0.75 per diluted
share, an increase of 18.2% and 17.2%, respectively, over the $55.1 million or
$0.64 per diluted share earned in the first quarter of 1999.
11
<PAGE>
ZIONS BANCORPORATION AND SUBSIDIARIES
The operating cash annualized return on average assets for the first quarter of
2000 was 1.26% compared to 1.22% for the first quarter of 1999, resulting in an
operating cash annualized return on average common shareholders' equity of
26.27% compared to 27.21% for the first quarter of 1999. The Company's operating
cash efficiency ratio for the first quarter of 2000 was 58.52% compared to
62.13% for the first quarter of 1999.
NET INTEREST INCOME AND INTEREST RATE SPREADS
Net interest income for the first quarter of 2000, adjusted to a fully
taxable-equivalent basis, increased 8.0% to $194.8 million compared to $180.5
million for the first quarter of 1999. Net interest margin decreased to 4.14%
compared to 4.39% for the first quarter of 1999 primarily as a result of
continued robust loan growth financed by short-term funding sources instead of
traditional core deposit growth normally experienced by the Company. The yield
on average earning assets increased 31 basis points during the first quarter of
2000 as compared to the first quarter of 1999, and the average rate paid this
quarter on interest-bearing funds increased 58 basis points from the first
quarter of 1999. The spread on average interest-bearing funds for the first
quarter of 2000 was 3.46% compared to 3.73% for the first quarter of 1999.
12
<PAGE>
ZIONS BANCORPORATION AND SUBSIDIARIES
CONSOLIDATED AVERAGE BALANCE SHEETS, YIELDS AND RATES
(Unaudited)
<TABLE>
<CAPTION>
Three Months Ended Three Months Ended
March 31, 2000 March 31, 1999
------------------------------- --------------------------------
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 .............................. $ 1,382 $ 20.1 5.85% $ 999 $ 14.8 6.02%
Securities:
Held to maturity ................................. 3,312 54.9 6.67% 3,070 48.1 6.36%
Available for sale ............................... 742 10.5 5.71% 744 11.4 6.19%
Trading account .................................. 592 9.0 6.08% 527 6.8 5.22%
-------- -------- -------- --------
Total securities ............................ 4,646 74.4 6.44% 4,341 66.3 6.19%
-------- -------- -------- --------
Loans:
Loans held for sale .............................. 192 3.3 6.95% 212 3.4 6.51%
Net loans and leases(2) .......................... 12,704 285.6 9.04% 11,104 237.3 8.67%
-------- -------- -------- --------
Total loans ................................. 12,896 288.9 9.01% 11,316 240.7 8.63%
-------- -------- -------- --------
Total interest-earning assets ......................... $ 18,924 $ 383.4 8.15% $ 16,656 $ 321.8 7.84%
-------- --------
Cash and due from banks ............................... 867 807
Allowance for loan losses ............................. (205) (214)
Goodwill and core deposit intangibles ................. 663 657
Other assets .......................................... 1,160 988
-------- --------
Total assets .................................. $ 21,409 $ 18,894
======== ========
LIABILITIES
Interest-bearing deposits:
Savings and NOW deposits ......................... $ 1,777 $ 9.9 2.23% $ 1,824 $ 10.0 2.21%
Money market super NOW deposits .................. 5,995 65.0 4.36% 4,996 44.7 3.63%
Time deposits under $100,000 ..................... 1,807 21.6 4.81% 2,322 27.4 4.79%
Time deposits $100,000 or more ................... 1,259 15.5 4.94% 1,461 18.3 5.09%
Foreign deposits ................................. 152 2.0 5.34% 175 1.8 4.23%
-------- -------- -------- --------
Total interest-bearing deposits ............. 10,990 114.0 4.17% 10,778 102.2 3.85%
-------- -------- -------- --------
Borrowed funds:
Securities sold, not yet purchased ............... 302 4.8 6.35% 300 3.8 5.17%
Federal funds purchased and security
repurchase agreements ....................... 3,127 41.9 5.39% 2,082 22.4 4.36%
Commercial paper ................................. 310 4.8 6.20% 70 .9 5.25%
FHLB advances and other borrowings:
less than one year .......................... 858 12.6 5.92% 191 2.3 4.81%
over one year ............................... 115 1.7 5.74% 53 .8 6.23%
Long-term debt ................................... 453 8.8 7.85% 454 8.9 7.95%
-------- -------- -------- --------
Total borrowed funds ........................ 5,165 74.6 5.81% 3,150 39.1 5.03%
-------- -------- -------- --------
Total interest-bearing liabilities .......... $ 16,155 $ 188.6 4.69% $ 13,928 $ 141.3 4.11%
-------- --------
Noninterest-bearing deposits .......................... 3,263 3,179
Other liabilities ..................................... 292 272
-------- --------
Total liabilities ........................... 19,710 17,379
Minority interest ..................................... 40 37
Total shareholders' equity .................. 1,659 1,478
-------- --------
Total liabilities and shareholders' equity .. $ 21,409 $ 18,894
======== ========
Spread on average interest-bearing funds .............. 3.46% 3.73%
==== ====
Net interest income and net yield on
interest-earning assets .......................... $ 194.8 4.14% $ 180.5 4.39%
======== ==== ======== ====
</TABLE>
1 Taxable-equivalent rates used where applicable.
2 Net of unearned income and fees, net of related costs. Loans include
nonaccrual and restructured loans.
13
<PAGE>
ZIONS BANCORPORATION AND SUBSIDIARIES
NONINTEREST INCOME
Noninterest income, excluding the $96.9 impairment loss on the First Security
Corporation common stock, for the first quarter of 2000 was $60.6 million, a
decrease of 7.5% from the $65.5 million for the first quarter of 1999.
Noninterest income for the first quarter of 2000 includes $5.1 million in
venture capital investment losses and the first quarter of 1999 included gains
from the sale of mortgage servicing rights and venture capital investment gains
aggregating $9.8 million. Excluding these items noninterest income increased
18.1%.
Comparing the segments of noninterest income for the first quarter of 2000 to
the first quarter of 1999, service charges on deposit accounts increased 2.0%,
other service charges, commissions and fees decreased 1.7%, trust income
increased 32.9%, underwriting and trading income decreased 16.8%, loan sales and
servicing income decreased 35.2% and other income decreased 26.6%. The decrease
in loan sales and servicing income reflects the decrease in gains from sale of
mortgage servicing rights and the decrease in other income reflects the changes
in income from venture capital investments previously discussed.
As of March 31, 2000 the Company owned 9,457,605 shares of First Security
Corporation common stock. Due to the termination of the merger with First
Security Corporation and the subsequently announced merger of First Security
Corporation with Wells Fargo & Company, it was determined that the Company's
unrecognized loss in the First Security Corporation was other than temporary.
Accordingly, the Company recognized a pre-tax impairment loss on the stock
during the first quarter of $96.9 million. The loss was determined based upon a
calculated value of the First Security Corporation common stock of $14.11 using
the Wells Fargo & Company closing price on the merger announcement date and the
merger exchange ratio.
NONINTEREST EXPENSE
Noninterest expense for the first quarter of 2000 was $200.3 million, an
increase of 23.2% over $162.6 million for the first quarter of 1999. Excluding
merger-related expenses noninterest expense was $158.8 million for the quarter
compared to $161.6 million for the first quarter of 1999, a decrease of 1.7%.
Comparing significant noninterest expense segments for the first quarter of 2000
and the first quarter of 1999, salaries and employee benefits decreased 6.0%.
Included in employee benefits for the first quarter of 2000 was an adjustment to
reflect a reduced obligation related to changes adopted in the Company's Post
Retirement Medical Benefits Plan. Occupancy expense decreased 3.5%, furniture
and equipment expense increased 19.8% and legal and professional services
increased 38.0%. Amortization of goodwill and core deposit intangibles increased
6.4% due to increased amortization resulting from the Company's acquisition of
Regency Bancorp in October 1999 in a transaction accounted for as a purchase.
The total of all other expenses excluding merger-related expenses decreased
3.2%. Noninterest expense for the first quarter of 2000 includes merger-related
expenses of $41.5 million mainly related to the terminated merger agreement with
First Security Corporation and the related disengagement process.
At March 31, 2000, the Company had 6,654 full-time equivalent employees, 361
offices and 496 ATMs compared to 7,154 full-time equivalent employees, 352
offices and 488 ATMs at March 31, 1999.
14
<PAGE>
ZIONS BANCORPORATION AND SUBSIDIARIES
INCOME TAXES
The Company's income taxes were a benefit of $22.0 million for the first quarter
of 2000 compared to an expense of $26.7 million for the first quarter of 1999.
Excluding the tax benefits from merger-related charges including the impairment
loss on the First Security Corporation common stock, the Company's effective
income tax rate for the first quarter of 2000 was 35.5% compared to 35.8% for
the first quarter of 1999.
ANALYSIS OF FINANCIAL CONDITION
EARNING ASSETS
Average earning assets increased 13.6% to $18,924 million for the three months
ended March 31, 2000 compared to $16,656 million for the three months ended
March 31, 1999. Earning assets comprised 88.4% of total average assets for the
first three months of 2000, compared with 88.2% for the first three months of
1999.
Average money market investments, consisting of interest-bearing deposits,
federal funds sold and security resell agreements increased 38.3% to $1,382
million in the first three months of 2000 as compared to $999 million in the
first three months of 1999.
During the first three months of 2000, average securities increased 7.0% to
$4,646 million compared to $4,341 million in the first three months of 1999.
Average held to maturity securities increased 7.9%, available for sale
securities decreased .3%, and trading account securities increased 12.3%
compared with the first three months of 1999.
Average net loans and leases increased 14.0% to $12,896 million for the first
three months of 2000 compared to $11,316 million in the first three months of
1999, representing 68.1% of earning assets in the first three months of 2000
compared to 67.9% in the first three months of 1999. Average net loans and
leases were 90.5% of average total deposits for the three months ended March 31,
2000, as compared to 81.1% for the three months ended March 31, 1999.
15
<PAGE>
ZIONS BANCORPORATION AND SUBSIDIARIES
INVESTMENT SECURITIES
The following table presents the Company's investment securities on March 31,
2000, December 31, 1999 and March 31, 1999. As of March 31, 2000, the Company
had approximately $46 million of Small Business Administration originator fee
certificates that have been classified in other assets and are measured as
available for sale securities.
<TABLE>
<CAPTION>
March 31, December 31, March 31,
2000 1999 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 $ 1 $ 1 $ 2 $ 2
U.S. government agencies and
corporations:
Small Business
Administration loan-
backed securities ......... 436 444 440 445 350 349
Other agency securities ........ 1,294 1,256 1,270 1,233 992 993
States and political subdivisions . 318 312 314 309 379 387
Mortgage-backed securities ........ 1,246 1,238 1,305 1,303 1,383 1,389
--------- --------- --------- --------- --------- ---------
3,295 3,251 3,330 3,291 3,106 3,120
--------- --------- --------- --------- --------- ---------
Available for sale
U.S. Treasury securities .......... 83 83 93 93 123 124
U.S. government agencies and
corporations ................... 88 87 51 50 154 155
States and political subdivisions . 113 109 102 97 60 61
Mortgage and other asset-backed
securities ....................... 100 95 147 143 239 239
--------- --------- --------- --------- --------- ---------
384 374 393 383 576 579
--------- --------- --------- --------- --------- ---------
Equity securities:
Mutual funds:
Accessor Funds, Inc. .... 149 146 141 139 106 107
Other Stock .................... 139 122 242 257 12 16
--------- --------- --------- --------- --------- ---------
288 268 383 396 118 123
--------- --------- --------- --------- --------- ---------
672 642 776 779 694 702
--------- --------- --------- --------- --------- ---------
Total ............................. $ 3,967 $ 3,893 $ 4,106 $ 4,070 $ 3,800 $ 3,822
========= ========= ========= ========= ========= =========
</TABLE>
16
<PAGE>
ZIONS BANCORPORATION AND SUBSIDIARIES
LOANS
The Company has structured its organization to separate the lending function
from the credit administration function to strengthen the control and
independent evaluation of credit activities. Loan policies and procedures
provide the Company with a framework for consistent underwriting and a basis for
sound credit decisions. In addition, the Company has well-defined standards for
grading its loan portfolio, and management utilizes 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 March 31,
2000, December 31, 1999 and March 31, 1999.
<TABLE>
<CAPTION>
(In millions)
March 31, December 31, March 31,
2000 1999 1999
------------ ------------ ------------
<S> <C> <C> <C>
Types
Loans held for sale ...................... $ 179 $ 205 $ 180
Commercial, financial, and agricultural .. 3,045 3,036 2,900
Real estate:
Construction ......................... 1,877 1,722 1,176
Other:
Home equity credit line ...... 227 232 200
1-4 family residential ....... 2,798 2,503 2,209
Other real estate-secured .... 4,100 4,168 4,002
------------ ------------ ------------
7,125 6,903 6,411
------------ ------------ ------------
9,002 8,625 7,587
Consumer:
Bankcard ............................. 114 107 92
Other ................................ 476 490 461
------------ ------------ ------------
590 597 553
Lease financing .......................... 273 275 211
Foreign loans ............................ 42 53 92
Other receivables ........................ 52 62 49
------------ ------------ ------------
Total loans .......................... $ 13,183 $ 12,853 $ 11,572
============ ============ ============
</TABLE>
Loans held for sale on March 31, 2000 decreased 12.4% from year-end 1999. All
other loans, net of unearned income and fees increased 2.9% to $12,945 million
on March 31, 2000, compared to $12,586 million on December 31, 1999. Commercial
loans, construction loans, and other real estate-secured loans increased from
year end .3%, 9.0% and 3.2%, respectively. Consumer loans, lease financing,
foreign loans, and other receivables decreased 1.2%, .6%, 20.6% and 16.3% ,
respectively from year end. Within the other real estate-secured loan portfolio,
home equity credit line loans decreased 2.1%, 1-4 family residential loans
increased 11.8% and all other real estate loans decreased 1.7% from year end.
17
<PAGE>
ZIONS BANCORPORATION AND SUBSIDIARIES
On March 31, 2000, long-term first mortgage real estate serviced for others
totaled $232 million and consumer and other loan securitizations, which relate
primarily to loans sold under revolving securitization structures, totaled
$1,217 million. During the first three months of 2000, the Company sold $193
million of loans classified in held for sale, and securitized and sold SBA
loans, home equity credit line loans, credit card receivables and automobile
loans totaling $131 million. During the first three months of 2000, total loans
sold were $324 million.
RISK ELEMENTS
The Company's nonperforming assets, which include nonaccruing loans,
restructured loans, other real estate owned and other nonperforming assets, were
$77 million on March 31, 2000, up from $75 million on December 31, 1999, and
down from $82 million on March 31, 1999. Such nonperforming assets as a
percentage of net loans and leases and other real estate owned were .59%, .58%
and .71% on March 31, 2000, December 31, 1999, and March 31, 1999, respectively.
Accruing loans past due 90 days or more totaled $29 million on March 31, 2000,
up from $21 million on December 31, 1999, and up from $26 million on March 31,
1999. These loans equaled .22%, .16%, and .23% respectively, of net loans and
leases on March 31, 2000, December 31, 1999 and March 31, 1999.
No loans were considered potential problem loans at March 31, 2000, December 31,
1999 or March 31, 1999. 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 $59 million on March 31, 2000, as compared to $57
million on December 31, 1999, and $61 million on March 31, 1999. The Company
considers a loan to be impaired when the accrual of interest has been
discontinued and meets other criteria under the statements. The amount of the
impairment is measured based on the present value of expected cash flows, the
observable market price of the loan, or the fair value of the collateral.
Impairment losses are included in the allowance for loan losses through a
provision for loan losses. Included in the allowance for loan losses on March
31, 2000, December 31, 1999, and March 31, 1999, is a required allowance of $20
million, $16 million and $15 million, respectively, on $26 million, $22 million
and $30 million, respectively, of the recorded investment in impaired loans.
18
<PAGE>
ZIONS BANCORPORATION AND SUBSIDIARIES
The following table sets forth the nonperforming assets on March 31, 2000,
December 31, 1999, and March 31, 1999.
<TABLE>
<CAPTION>
March 31, December 31, March 31,
(In millions) 2000 1999 1999
------------ ------------ ------------
<S> <C> <C> <C>
Nonaccrual loans ............................... $ 69 $ 65 $ 71
Restructured loans ............................. 1 1 4
Other real estate owned and other
nonperforming assets ...................... 7 9 7
------------ ------------ ------------
Total .......................................... $ 77 $ 75 $ 82
============ ============ ============
% of net loans and leases*, other real estate
owned and other nonperforming assets ...... .59% .58% .71%
Accruing loans past due 90 days or more ........ $ 29 $ 21 $ 26
============ ============ ============
% of net loans and leases* ..................... .22% .16% .23%
*Includes loans held for sale
</TABLE>
ALLOWANCE FOR LOAN LOSSES
The Company's allowance for loan losses was 1.52% of net loans and leases on
March 31, 2000, compared to 1.60% on December 31, 1999, and 1.79% on March 31,
1999. Net charge-offs during the first quarter of 2000 were $9.3 million,
including $6.1 million in losses from two former credits of The Sumitomo Bank of
California which were charged against acquired Sumitomo reserves, or .29% of
average net loans and leases annualized, compared to $11.2 million, or .40% of
average net loans and leases annualized for the first quarter of 1999.
The allowance, as a percentage of nonaccrual loans and restructured loans,
was 287.8% on March 31, 2000, compared to 310.9% on December 31, 1999, and
275.4% on March 31, 1999. The allowance, as a percentage of nonaccrual loans and
accruing loans past due 90 days or more was 204.2% on March 31, 2000, compared
to 238.1% on December 31, 1999 and 211.5% on March 31, 1999.
On March 31, 2000, December 31, 1999, and March 31, 1999, the allowance for loan
losses includes an allocation of $24 million, $23 million and $21 million,
respectively, related to commitments to extend credit on loans and standby
letters of credit. Commitments to extend credit on loans and standby letters of
credit on March 31, 2000, December 31, 1999 and March 31, 1999, totaled $6,749
million, $6,001 million and $5,403 million, respectively.
19
<PAGE>
ZIONS BANCORPORATION AND SUBSIDIARIES
In analyzing the adequacy of the allowance for loan and lease losses, management
utilizes a comprehensive loan grading system to determine risk potential in the
portfolio, and considers the results of independent internal and external credit
review, historical charge-off experience, and changes in the composition and
volume of the portfolio. Other factors, such as general economic conditions and
collateral values, are also considered. Larger problem credits are individually
evaluated to determine appropriate reserve allocations. Additions to the
allowance are based upon the resulting risk profile of the portfolio developed
through the evaluation of the above factors.
The following table shows the changes in the allowance for loan losses and
a summary of loan loss experience.
<TABLE>
<CAPTION>
Three Months Twelve Months Three Months
Ended Ended Ended
(In thousands) March 31, December 31, March 31,
2000 1999 1999
------------ ------------ ------------
<S> <C> <C> <C>
Average loans* and leases outstanding
(net of unearned income) ................ $ 12,896,311 $ 11,819,094 $ 11,316,651
============ ============ ============
Allowance for possible losses:
Balance at beginning of the period ........... $ 204,114 $ 212,557 $ 212,557
Allowance of companies acquired .............. -- 2,623 --
Provision charged against earnings ........... 5,248 17,956 4,741
Loans and leases charged-off:
Loans held for sale ..................... -- -- --
Commercial, financial and agricultural .. (7,902) (31,742) (9,702)
Real estate ............................. (355) (2,513) (110)
Consumer ................................ (2,323) (9,053) (1,988)
Lease financing ......................... (709) (2,163) (1,674)
Other receivables ....................... -- (95) (3)
------------ ------------ ------------
Total .............................. (11,289) (45,566) (13,477)
------------ ------------ ------------
Recoveries:
Loans held for sale ..................... -- -- --
Commercial, financial and agricultural .. 1,166 6,376 1,353
Real estate ............................. 147 7,202 61
Consumer ................................ 607 2,750 686
Lease financing ......................... 72 159 130
Other receivables ....................... -- 57 7
------------ ------------ ------------
Total .............................. 1,992 16,544 2,237
------------ ------------ ------------
Net loan and lease charge-offs ............... (9,297) (29,022) (11,240)
------------ ------------ ------------
Balance at end of the period ................. $ 200,065 $ 204,114 $ 206,058
============ ============ ============
*Includes loans held for sale
Ratio of annualized net charge-offs to
average loans and leases ................ .29% .25% .40%
</TABLE>
20
<PAGE>
ZIONS BANCORPORATION AND SUBSIDIARIES
DEPOSITS
Average total deposits of $14,253 million for the first three months of 2000
increased 2.1% over the $13,957 million for the first three months of 1999, with
average demand deposits increasing 2.6%. Average savings and NOW deposits, time
deposits under $100,000, and average time deposits over $100,000 for the first
three months of 2000 decreased 2.6%, 22.2% and 13.8%, respectively, from the
first three months of 1999. Average money market and super NOW deposits
increased 20.0% and foreign deposits decreased 12.9% during the first three
months of 2000, compared with the same period one year earlier.
Total deposits increased 3.7% to $14,585 million on March 31, 2000 as compared
to $14,062 million on December 31, 1999. Comparing March 31, 2000 to December
31, 1999, demand deposits, time deposits over $100,000, and savings and money
market deposits increased 4.6%, 19.0%, and 4.2%, respectively, while time
deposits under $100,000 and foreign deposits decreased 4.8% and 31.4%
respectively.
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. To meet the Company's short-term liquidity
needs, on March 31, 2000, the Company had cash, money market securities and
liquid investments, net of short-term or "purchased" liabilities and wholesale
deposits, of $425 million or 3.2% of core deposits.
The Company's core deposits, consisting of demand, savings and money market
deposits and time deposits under $100,000, constituted 90.2% of total deposits
on March 31, 2000 as compared to 90.8% on December 31, 1999 and 88.7% on March
31, 1999.
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 a reasonable
cost.
The parent company's cash requirements consist primarily of debt service,
dividends to shareholders, operating expenses, income taxes, and share
repurchases. The parent company's cash needs are routinely met through dividends
from subsidiaries, proportionate shares of current income taxes, management and
other fees, unaffiliated bank lines and debt issuance.
Interest rate risk is the most significant market risk regularly undertaken by
Company. The Company believes there have been no significant changes in market
risk compared to the disclosures in Zions Bancorporation's Annual Report to
Shareholders on Form 10-K for the year ended December 31, 1999.
21
<PAGE>
ZIONS BANCORPORATION AND SUBSIDIARIES
Interest rate sensitivity measures the Company's financial exposure to changes
in interest rates. Interest rate sensitivity is, like liquidity, affected by
maturities of assets and liabilities. The Company assesses its interest rate
sensitivity using duration and simulation analysis. Duration is a measure of the
weighted average expected lives of the discounted cash flows from assets and
liabilities. Simulation is used to estimate net interest income over time using
alternative interest rate scenarios.
The Company, through the management of maturities and repricing of its assets
and liabilities and the use of off-balance sheet arrangements such as interest
rate caps, floors, futures, options, and interest rate exchange agreements,
attempts to minimize the effect on net income 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 March 31, 2000 was $1,586 million, a decrease of
4.5% from the $1,660 million on December 31, 1999, and an increase of 6.0% over
$1,495 million on March 31, 1999. The ratio of average equity to average assets
for the first three months of 2000 was 7.75% as compared to 7.82% for the same
period in 1999. On March 31, 2000, the Company's Tier I risk-based capital ratio
was 8.04%, as compared to 8.64% on December 31, 1999 and 8.59% on March 31,
1999. On March 31, 2000 the Company's total risk-based capital ratio was 10.63%,
as compared to 11.29% on December 31, 1999 and 11.48% on March 31, 1999. The
Company's leverage ratio on March 31, 2000 was 5.73%, as compared to 6.16% on
December 31, 1999 and 6.05% on March 31, 1999.
Dividends declared per common share for the first quarter of 2000 of $.29
increased 107.1%, as compared to $.14 for the first quarter of 1999. The common
cash dividend payout of net income for the first three months of 2000 before
merger-related charges was 43.60%, as compared to 23.29% for the first three
months of 1999.
During the first quarter of 2000, the Company repurchased and retired 77,848
shares of its common stock at a cost of $3.8 million.
OPERATING SEGMENT INFORMATION
The following is a summary of selected operating segment information for the
three months ended March 31, 2000 and March 31, 1999. 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 119 branches in Utah and 17 in Idaho. California Bank &
Trust operates 73 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 37 branches in Arizona. Nevada State Bank
operates 59 offices in Nevada. The Commerce Bank of Washington operates one
branch in the state of Washington. The operating segment defined as "other"
includes the Parent company, smaller nonbank operating units, and eliminations
of transactions between segments.
22
<PAGE>
ZIONS BANCORPORATION AND SUBSIDIARIES
The accounting policies of the individual segments are the same as those of the
Company. The Company allocates centrally provided services to the business
segments based upon estimated usage of those services.
The following table presents Operating Segment Information for the three months
ended March 31, 2000 and for the three months ended March 31, 1999.
<TABLE>
<CAPTION>
ZIONS FIRST NATIONAL
BANK CALIFORNIA VECTRA BANK NATIONAL BANK OF
AND SUBSIDIARIES BANK & TRUST COLORADO ARIZONA
-------------------- ------------------- ------------------- -------------------
(Amounts in millions) 2000 1999 2000 1999 2000 1999 2000 1999
-------- -------- -------- -------- -------- -------- -------- --------
<S> <C> <C> <C> <C> <C> <C> <C> <C>
CONDENSED INCOME STATEMENT
Net interest income ....................... $ 53.7 $ 54.9 $ 70.8 $ 60.1 $ 21.9 $ 20.1 $ 20.4 $ 18.0
Provision for loan losses ................. 0.2 2.2 -- -- 1.1 0.6 0.7 0.6
Noninterest income ........................ 33.0 41.6 9.9 8.5 4.1 5.0 3.3 2.7
Merger expense and amortization of
goodwill and core deposit intangibles .. 3.7 0.5 9.4 3.8 3.7 3.5 0.4 0.5
Other noninterest expense ................. 51.9 52.9 47.0 46.3 17.6 17.9 11.2 10.4
Income tax expense (benefit) .............. 9.1 12.7 11.2 8.7 2.1 2.0 4.5 3.6
Minority interest ......................... (1.1) 0.9 -- -- -- -- -- --
-------- -------- -------- -------- -------- -------- -------- --------
Net income (loss) .................... $ 22.9 $ 27.3 $ 13.1 $ 9.8 $ 1.5 $ 1.1 $ 6.9 $ 5.6
======== ======== ======== ======== ======== ======== ======== ========
AVERAGE BALANCE SHEET DATA
Total assets .............................. $ 8,272 $ 6,832 $ 6,561 $ 6,180 $ 2,154 $ 2,091 $ 1,609 $ 1,451
Net loans and leases ...................... 4,132 3,564 4,580 4,206 1,373 1,202 1,229 1,039
Total deposits ............................ 4,016 3,789 5,396 5,315 1,463 1,618 1,232 1,213
NEVADA STATE BANK THE COMMERCE BANK OF CONSOLIDATED
AND SUBSIDIARIES WASHINGTON OTHER COMPANY
-------------------- ------------------- ------------------- -------------------
(Amounts in millions) 2000 1999 2000 1999 2000 1999 2000 1999
-------- -------- -------- -------- -------- -------- -------- --------
CONDENSED INCOME STATEMENT
Net interest income ....................... $ 25.3 $ 23.6 $ 4.7 $ 3.5 $ (5.8) $ (3.4) $ 191.0 $ 176.8
Provision for loan losses ................. 3.0 0.9 0.2 0.4 -- -- 5.2 4.7
Noninterest income ........................ 6.4 6.1 0.3 0.2 (93.3) 1.4 (36.3) 65.5
Merger expense and amortization of
goodwill and core deposit intangibles .. 4.5 0.4 -- -- 29.1 1.1 50.8 9.8
Other noninterest expense ................. 17.5 18.8 2.2 1.7 2.1 4.8 149.5 152.8
Income tax expense (benefit) .............. 2.2 2.9 0.9 0.5 (51.9) (3.7) (21.9) 26.7
Minority interest ......................... -- -- -- -- 0.7 0.5 (0.4) 1.4
-------- -------- -------- -------- -------- -------- -------- --------
Net income (loss) .................... $ 4.5 $ 6.7 $ 1.7 $ 1.1 $ (79.1) $ (4.7) $ (28.5) $ 46.9
======== ======== ======== ======== ======== ======== ======== ========
AVERAGE BALANCE SHEET DATA
Total assets .............................. $ 2,319 $ 2,137 $ 419 $ 335 $ 75 $ (132) $ 21,409 $ 18,894
Net loans and leases ...................... 1,357 1,132 202 153 23 21 12,896 11,317
Total deposits ............................ 1,931 1,826 297 223 (82) (27) 14,253 13,957
</TABLE>
For the three months ended March 31, 2000, the "other" operating segment
includes the impairment loss on the First Security Corporation common stock in
noninterest income and part of the merger-related expense in non-interest
expense.
23
<PAGE>
ZIONS BANCORPORATION AND SUBSIDIARIES
MERGERS AND ACQUISITIONS
On January 7, 2000, the Company announced a definitive agreement to acquire
County Bank in Prescott, Arizona, in exchange for Zions Bancorporation common
stock. As of December 31, 1999, County Bank had total assets of approximately
$242 million. The transaction is expected to be accounted for as a pooling of
interests and is expected to close at approximately mid-year.
YEAR 2000
The Company successfully completed its Year 2000 program efforts and experienced
no significant problems with its systems as a result of the Year 2000 date
change. The Company also received no reports of significant customer problems
related to the Year 2000 change that could put the Company at risk. The Company
will continue to monitor systems activities related to identified additional
critical dates during and beyond 2000.
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; and legislation or
regulatory changes which adversely affect the Company's operations or business.
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.
24
<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 March 31, 2000:
Form 8-K filed January 19, 2000 (Item 5.) A copy of a
press release issued January 18, 2000 by Zions
Bancorporation and First Security Corporation with
respect to (1) the agreement for the sale of certain
branches in Utah and Idaho and (2) the consolidation of
the combined company's retail delivery system.
Form 8-K filed February 17, 2000 (Item 5.) A copy of a
press release issued on February 7, 2000 announcing
fourth quarter earnings.
Form 8-K filed March 13, 2000 (Item 5.) A copy of a
press release issued March 13, 2000 concerning the
proposed merger with First Security Corporation.
Form 8-K filed March 22, 2000 (Item 5.) A copy of a
press release issued March 22, 2000 regarding the
meeting of First Security Corporation's stockholders
held on March 22, 2000.
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 May 11, 2000
25
<TABLE> <S> <C>
<ARTICLE> 9
<LEGEND>
This schedule contains summary financial information extracted from the
unaudited consolidated balance sheet as of March 31, 2000 and the related
unaudited consolidated statement of operations for the three months ended March
31, 2000 included in the company's form 10-Q for the period ended March 31, 2000
and is qualified in its entirety by reference to such financial statements.
</LEGEND>
<CIK> 0000109380
<NAME> Zions Bancorporation /UT/
<MULTIPLIER> 1,000
<CURRENCY> U.S.
<S> <C>
<PERIOD-TYPE> 3-MOS
<FISCAL-YEAR-END> Dec-31-2000
<PERIOD-START> Jan-01-2000
<PERIOD-END> Mar-31-2000
<EXCHANGE-RATE> 1
<CASH> 929,763
<INT-BEARING-DEPOSITS> 18,019
<FED-FUNDS-SOLD> 768,667
<TRADING-ASSETS> 396,767
<INVESTMENTS-HELD-FOR-SALE> 641,846
<INVESTMENTS-CARRYING> 3,294,839
<INVESTMENTS-MARKET> 3,251,145
<LOANS> 13,124,365
<ALLOWANCE> 200,065
<TOTAL-ASSETS> 20,996,557
<DEPOSITS> 14,584,776
<SHORT-TERM> 3,799,160
<LIABILITIES-OTHER> 399,027
<LONG-TERM> 587,848
0
0
<COMMON> 888,725
<OTHER-SE> 696,942
<TOTAL-LIABILITIES-AND-EQUITY> 20,996,557
<INTEREST-LOAN> 287,915
<INTEREST-INVEST> 91,640
<INTEREST-OTHER> 0
<INTEREST-TOTAL> 379,555
<INTEREST-DEPOSIT> 113,992
<INTEREST-EXPENSE> 188,563
<INTEREST-INCOME-NET> 190,992
<LOAN-LOSSES> 5,248
<SECURITIES-GAINS> (95,776)
<EXPENSE-OTHER> 200,312
<INCOME-PRETAX> 50,447
<INCOME-PRE-EXTRAORDINARY> (28,492)
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> (28,492)
<EPS-BASIC> (.33)
<EPS-DILUTED> (.33)
<YIELD-ACTUAL> 4.06
<LOANS-NON> 68,684
<LOANS-PAST> 29,294
<LOANS-TROUBLED> 820
<LOANS-PROBLEM> 0
<ALLOWANCE-OPEN> 204,114
<CHARGE-OFFS> 11,289
<RECOVERIES> 1,992
<ALLOWANCE-CLOSE> 200,065
<ALLOWANCE-DOMESTIC> 195,835
<ALLOWANCE-FOREIGN> 0
<ALLOWANCE-UNALLOCATED> 4,230
</TABLE>
