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 June 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 August 9, 1999 79,000,686 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 12
PART II. OTHER INFORMATION
-----------------
ITEM 4. Submission of Matters to a Vote of Shareholders 31
ITEM 6. Exhibits and Reports on Form 8-K 32
SIGNATURES 32
- ----------
2
<PAGE>
ZIONS BANCORPORATION AND SUBSIDIARIES
CONSOLIDATED BALANCE SHEETS
(Unaudited)
<TABLE>
<CAPTION>
June 30, December 31, June 30,
(In thousands, except share amounts) 1999 1998 1998
------------ ------------ ------------
<S> <C> <C> <C>
ASSETS
Cash and due from banks ....................................... $ 882,772 $ 864,446 $ 697,265
Money market investments:
Interest-bearing deposits ................................ 17,757 30,484 56,643
Federal funds sold ....................................... 101,022 199,446 103,203
Security resell agreements ............................... 281,351 382,275 1,133,869
Investment securities:
Held to maturity, at cost (approximate market value
$3,218,343, $2,821,535, and $2,264,846) .................. 3,225,109 2,804,654 2,250,825
Available for sale, at market ............................ 465,838 684,581 589,448
Trading account, at market ............................... 416,130 191,855 401,914
------------ ------------ ------------
4,107,077 3,681,090 3,242,187
Loans:
Loans held for sale ...................................... 195,217 232,253 198,180
Loans, leases, and other receivables ..................... 10,902,189 10,452,246 6,128,183
------------ ------------ ------------
11,097,406 10,684,499 6,326,363
Less:
Unearned income and fees, net of related costs ........... 49,693 48,123 42,288
Allowance for loan losses ................................ 204,825 205,553 98,488
------------ ------------ ------------
Net Loans .......................................... 10,842,888 10,430,823 6,185,587
Premises and equipment, net ................................... 250,362 231,847 171,361
Goodwill and core deposit intangibles ......................... 642,952 663,606 574,268
Other real estate owned ....................................... 7,322 5,270 3,593
Other assets .................................................. 833,001 530,944 334,567
------------ ------------ ------------
$ 17,966,504 $ 17,020,231 $ 12,502,543
============ ============ ============
LIABILITIES AND SHAREHOLDERS' EQUITY
Deposits:
Noninterest-bearing ....................................... $ 3,076,922 $ 3,170,436 $ 2,238,182
Interest-bearing:
Savings and money market ............................. 6,812,278 6,077,556 4,262,240
Time:
Under $100,000 ................................... 1,938,753 2,340,598 1,226,587
Over $100,000 .................................... 1,079,042 1,528,329 649,889
Foreign .............................................. 163,729 204,244 175,002
------------ ------------ ------------
13,070,724 13,321,163 8,551,900
Securities sold, not yet purchased ............................ 377,056 29,702 225,833
Federal funds purchased ....................................... 669,115 337,283 373,623
Security repurchase agreements ................................ 851,138 932,560 1,110,161
Accrued liabilities ........................................... 329,344 319,278 378,342
Commercial paper .............................................. 133,969 49,217 1,996
Federal Home Loan Bank advances and other borrowings:
Less than one year ....................................... 532,166 100,750 27,388
Over one year ............................................ 60,216 56,796 118,011
Long-term debt ................................................ 453,249 453,735 386,243
------------ ------------ ------------
Total liabilities .................................... 16,476,977 15,600,484 11,173,497
------------ ------------ ------------
Minority interest ............................................. 37,162 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
79,010,705, 78,636,083 and 76,971,917 shares ...... 758,116 752,845 754,825
Accumulated other comprehensive loss ..................... (519) (4,432) (291)
Retained earnings ........................................ 694,768 636,664 574,512
------------ ------------ ------------
Total shareholders' equity .......................... 1,452,365 1,385,077 1,329,046
------------ ------------ ------------
$ 17,966,504 $ 17,020,231 $ 12,502,543
============ ============ ============
</TABLE>
3
<PAGE>
ZIONS BANCORPORATION AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF INCOME
(Unaudited)
<TABLE>
<CAPTION>
Three Months Ended Six Months Ended
June 30, June 30,
---------------------- ----------------------
(In thousands, except per share amounts) 1999 1998 1999 1998
--------- --------- --------- ---------
<S> <C> <C> <C> <C>
Interest income:
Interest and fees on loans ................................ $ 230,544 $ 141,774 $ 450,057 $ 268,540
Interest on loans held for sale ........................... 3,088 3,660 6,493 7,216
Lease financing ........................................... 3,253 2,879 6,677 6,211
Interest on money market investments ...................... 16,399 24,683 30,528 47,618
Interest on securities:
Held to maturity:
Taxable ......................................... 42,764 25,529 83,980 57,936
Nontaxable ...................................... 4,441 3,433 8,417 6,625
Available for sale:
Taxable ......................................... 5,410 8,257 12,385 16,647
Nontaxable ...................................... 118 201 246 505
Trading account ...................................... 7,983 7,235 14,775 12,246
--------- --------- --------- ---------
Total interest income ................................ 314,000 217,651 613,558 423,544
--------- --------- --------- ---------
Interest expense:
Interest on savings and money market deposits ............. 55,366 36,836 106,060 71,700
Interest on time and foreign deposits ..................... 39,086 27,029 83,747 51,778
Interest on borrowed funds ................................ 46,082 33,291 84,552 69,392
--------- --------- --------- ---------
Total interest expense ............................... 140,534 97,156 274,359 192,870
--------- --------- --------- ---------
Net interest income .................................. 173,466 120,495 339,199 230,674
Provision for loan losses ...................................... 3,633 3,264 7,864 6,549
--------- --------- --------- ---------
Net interest income after provision for loan losses .. 169,833 117,231 331,335 224,125
--------- --------- --------- ---------
Noninterest income:
Service charges on deposit accounts ....................... 17,720 12,903 35,528 25,970
Other service charges, commissions and fees ............... 17,280 13,091 32,621 24,120
Trust income .............................................. 3,846 2,034 6,815 3,641
Investment securities gain (loss), net .................... 215 2,227 (1,113) 2,923
Underwriting and trading income ........................... 3,223 2,189 7,244 4,132
Loan sales and servicing income ........................... 12,410 11,934 27,582 23,405
Other ..................................................... 6,051 3,374 15,411 7,600
--------- --------- --------- ---------
Total noninterest income ............................. 60,745 47,752 124,088 91,791
--------- --------- --------- ---------
Noninterest expense:
Salaries and employee benefits ............................ 82,560 54,305 164,883 105,303
Occupancy, net ............................................ 11,269 6,161 22,763 11,634
Furniture and equipment ................................... 10,089 8,605 20,068 16,140
Other real estate expense (income) ........................ (486) 206 (442) (67)
Legal and professional services ........................... 4,900 4,138 8,140 6,931
Supplies .................................................. 2,990 2,651 5,566 5,133
Postage ................................................... 2,889 2,081 5,695 4,184
Advertising ............................................... 5,865 2,490 8,791 5,078
Merger related expenses ................................... 1,119 8,682 2,164 9,142
FDIC premiums ............................................. 789 356 1,146 669
Amortization of goodwill and core deposit intangibles ..... 8,906 8,021 17,634 14,477
Amortization of mortgage servicing assets ................. 115 1,289 766 2,421
Other ..................................................... 25,597 20,711 53,617 38,497
--------- --------- --------- ---------
Total noninterest expense ............................ 156,602 119,696 310,791 219,542
--------- --------- --------- ---------
Income before income taxes and minority interest ............... 73,976 45,287 144,632 96,374
Income taxes ................................................... 25,834 14,387 51,475 30,444
--------- --------- --------- ---------
Net income before minority interest ................. 48,142 30,900 93,157 65,930
Minority interest .............................................. 504 -- 1,860 --
--------- --------- --------- ---------
Net income .......................................... $ 47,638 $ 30,900 $ 91,297 $ 65,930
========= ========= ========= =========
Basic shares ................................................... 78,985 74,521 78,879 72,653
Diluted shares ................................................. 80,134 75,889 80,017 73,936
Net income per common share:
Basic ........................................................ $ 0.60 $ 0.41 $ 1.16 $ 0.91
Diluted ...................................................... $ 0.59 $ 0.41 $ 1.14 $ 0.89
</TABLE>
4
<PAGE>
ZIONS BANCORPORATION AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF CASH FLOWS
(Unaudited)
<TABLE>
<CAPTION>
Three Months Ended Six Months Ended
June 30, June 30,
---------------------------- ----------------------------
(In thousands) 1999 1998 1999 1998
------------ ------------ ------------ ------------
<S> <C> <C> <C> <C>
Cash flows from operating activities:
Net income .................................................... $ 47,638 $ 30,900 $ 91,297 $ 65,930
Adjustments to reconcile net income to net cash
provided by (used in) operating activities:
Provision for loan losses ................................ 3,633 3,264 7,864 6,549
Depreciation of premises and equipment ................... 9,326 6,330 17,871 12,076
Amortization ............................................. 12,986 11,947 26,548 22,349
Accretion of unearned income and fees, net of
related costs ....................................... 6,406 (586) 8,589 (2,020)
Income to minority interest .............................. 504 -- 1,860 --
Proceeds from sales of trading account securities ........ 48,341,852 42,399,035 94,197,450 77,526,251
Increase in trading account securities ................... (48,536,855) (42,524,672) (94,421,725) (77,844,484)
Investment securities (gain) loss, net ................... (215) (2,227) 1,113 (2,923)
Proceeds from loans held for sale ........................ 196,362 369,861 504,471 613,066
Increase in loans held for sale .......................... (211,989) (315,540) (468,365) (627,433)
Net gain on sales of loans, leases and other assets ...... (9,972) (10,241) (22,583) (18,956)
Change in accrued income taxes ........................... 8,580 (9,021) 28,738 7,413
Change in accrued interest receivable .................... 5,888 6,664 (6,155) 6,487
Change in accrued interest payable ....................... (836) (5,293) (2,093) 1,051
Other, net ............................................... (30,993) 204,834 (109,371) 135,171
------------ ------------ ------------ ------------
Net cash provided by (used in) operating activities . (157,685) 165,255 (144,491) (99,473)
------------ ------------ ------------ ------------
Cash flows from investing activities:
Net decrease (increase) in money market investments ........... (5,802) (59,061) 212,250 (387,417)
Proceeds from maturities of investment securities
held to maturity ......................................... 279,876 805,889 574,598 1,396,048
Purchases of investment securities held to maturity ........... (447,563) (1,111,268) (1,002,548) (1,164,074)
Proceeds from sales of investment securities
available for sale ....................................... 12,533 58,888 150,734 241,366
Proceeds from maturities of investment securities
available for sale ....................................... 50,092 105,366 131,532 117,194
Purchases of investment securities available for sale ......... (90,486) (121,054) (273,925) (323,540)
Proceeds from sales of loans and leases ....................... 427,133 213,254 623,170 419,530
Net increase in loans and leases .............................. (552,403) (395,593) (1,069,603) (739,727)
Payments on leveraged leases .................................. -- -- (4,168) (1,067)
Principal collections on leveraged leases ..................... -- -- 4,168 1,067
Proceeds from sales of premises and equipment ................. 382 2,147 872 2,391
Purchases of premises and equipment ........................... (22,959) (11,079) (37,253) (22,543)
Proceeds from sales of mortgage-servicing rights .............. 6,085 271 21,003 609
Purchases of mortgage-servicing rights ........................ (136) (760) (928) (1,463)
Proceeds from sales of other assets ........................... 1,413 818 3,542 3,763
Cash paid for acquisitions, net of cash received .............. -- 37,437 592 89,049
------------ ------------ ------------ ------------
Net cash used in investing activities ............... (341,835) (474,745) (665,964) (368,814)
------------ ------------ ------------ ------------
</TABLE>
5
<PAGE>
ZIONS BANCORPORATION AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF CASH FLOWS (Continued)
(Unaudited)
<TABLE>
<CAPTION>
Three Months Ended Six Months Ended
June 30, June 30,
-------------------------- --------------------------
(In thousands) 1999 1998 1999 1998
----------- ----------- ----------- -----------
<S> <C> <C> <C> <C>
Cash flows from financing activities:
Net increase (decrease) in deposits ................... (134,052) (2,886) (255,900) 170,412
Net change in short-term funds borrowed ............... 728,045 165,208 1,113,932 231,399
Proceeds from FHLB advances over one year ............. 15,000 9,000 15,000 9,000
Payments on FHLB advances over one year ............... (5,582) (3,410) (11,580) (97,620)
Proceeds from issuance of long-term debt .............. -- 110,000 -- 110,000
Payments on long-term debt ............................ (305) (644) (486) (3,007)
Proceeds from issuance of common stock ................ 1,242 133,254 2,771 133,983
Payments to redeem common stock ....................... (772) (620) (966) (12,393)
Dividends paid ........................................ (22,930) (10,675) (33,990) (19,715)
----------- ----------- ----------- -----------
Net cash provided by financing activities ... 580,646 399,227 828,781 522,059
----------- ----------- ----------- -----------
Net increase (decrease) in cash and due from banks ......... 81,126 89,737 18,326 53,772
Cash and due from banks at beginning of period ............. 801,646 607,528 864,446 643,493
----------- ----------- ----------- -----------
Cash and due from banks at end of period ................... $ 882,772 $ 697,265 $ 882,772 $ 697,265
=========== =========== =========== ===========
</TABLE>
SUPPLEMENTAL DISCLOSURES OF CASH FLOW INFORMATION
(Unaudited)
<TABLE>
<CAPTION>
Three Months Ended Six Months Ended
June 30, June 30,
------------------- -------------------
(In thousands) 1999 1998 1999 1998
-------- -------- -------- --------
<S> <C> <C> <C> <C>
Cash paid for:
Interest ................................. $141,355 $102,584 $276,435 $192,385
Income taxes ............................. 15,365 23,110 15,420 24,998
Loans transferred to other real estate owned .. 3,247 784 5,697 1,188
</TABLE>
6
<PAGE>
ZIONS BANCORPORATION AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF CHANGES IN SHAREHOLDERS' EQUITY
AND COMPREHENSIVE INCOME
(Unaudited)
<TABLE>
<CAPTION>
Six Months Ended
June 30, 1999
--------------------------------------------------------------------
Accumulated other Total
Common Comprehensive comprehensive Retained Shareholders'
(In thousands) Stock Income income (loss) Earnings Equity
----------- ----------- ----------- ----------- -----------
<S> <C> <C> <C> <C> <C> <C>
Balance, January 1, 1999 ..................................... $ 752,845 $ (4,432) $ 636,664 $ 1,385,077
Net income for the period .................................... $ 91,297 91,297 91,297
-----------
Other comprehensive income, net of tax:
Realized and unrealized holding gain arising
during the period, net of tax expense of $42 .......... 68
Reclassification for net realized securities loss recorded
in the income statement, net of tax benefit of $2,381 . 3,845
-----------
Other comprehensive income ............................... 3,913 3,913 3,913
-----------
Total comprehensive income ............................... $ 95,210
===========
Cash dividends:
Common, $.43 per share ................................... (33,990) (33,990)
Issuance of common shares for acquisitions ................... 83 797 880
Stock redeemed and retired ................................... (966) (966)
Stock options exercised, net of shares tendered and retired .. 6,154 6,154
----------- ----------- ----------- -----------
Balance, June 30, 1999 ....................................... $ 758,116 $ (519) $ 694,768 $ 1,452,365
=========== =========== =========== ===========
Six Months Ended
June 30, 1998
--------------------------------------------------------------------
Accumulated other Total
Common Comprehensive comprehensive Retained Shareholders'
(In thousands) Stock Income income (loss) Earnings Equity
----------- ----------- ----------- ----------- -----------
Balance, January 1, 1998 ..................................... $ 270,359 $ 3,077 $ 529,113 $ 802,549
Net income for the period .................................... $ 65,930 65,930 65,930
-----------
Other comprehensive income, net of tax:
Realized and unrealized holding loss arising
during the period, net of tax benefit of $968 ......... (1,563)
Reclassification for realized investment
securities gain recorded in the income
statement, net of tax expense of $1,118 ............... (1,805)
-----------
Other comprehensive income ............................... (3,368) (3,368) (3,368)
-----------
Total comprehensive income ............................... $ 62,562
===========
Cash dividends:
Common, $.26 per share ................................... (19,644) (19,644)
Dividends of acquired companies prior to merger .......... (887) (887)
Net proceeds from stock offering ............................. 129,871 129,871
Issuance of common shares for acquisitions ................... 361,783 361,783
Exercise of acquired company warrants prior to acquisition ... 1,852 1,852
Stock redeemed and retired ................................... (12,363) (12,363)
Stock options exercised, net of shares tendered and retired .. 3,323 3,323
----------- ----------- ----------- -----------
Balance, June 30, 1998 ....................................... $ 754,825 $ (291) $ 574,512 $ 1,329,046
=========== =========== =========== ===========
</TABLE>
Comprehensive income for the three months ended June 30, 1999 and 1998 was
$48,202 and $30,065 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
(Unaudited)
<TABLE>
<CAPTION>
June 30, 1999 December 31, 1998 June 30, 1998
-------------------------- -------------------------- --------------------------
Previously Previously Previously
(In thousands, except share amounts) Restated Reported Restated Reported Restated Reported
------------ ------------ ------------ ------------ ------------ ------------
<S> <C> <C> <C> <C> <C> <C>
ASSETS
Cash and due from banks ....................... $ 882,772 $ 882,772 $ 864,446 $ 864,446 $ 697,265 $ 697,265
Money market investments ...................... 400,130 400,130 612,205 612,205 1,293,715 1,293,715
Investment securities ......................... 4,107,077 4,106,684 3,681,090 3,680,339 3,242,187 3,241,006
Net Loans ..................................... 10,842,888 10,841,837 10,430,823 10,427,939 6,185,587 6,180,871
Premises and equipment, net ................... 250,362 249,599 231,847 231,066 171,361 170,560
Goodwill and core deposit intangibles ......... 642,952 261,787 663,606 271,578 574,268 170,993
Other assets .................................. 840,323 862,927 536,214 561,348 338,160 366,011
------------ ------------ ------------ ------------ ------------ ------------
Total assets .............................. $ 17,966,504 $ 17,605,736 $ 17,020,231 $ 16,648,921 $ 12,502,543 $ 12,120,421
============ ============ ============ ============ ============ ============
LIABILITIES AND SHAREHOLDERS' EQUITY
Deposits ...................................... $ 13,070,724 $ 13,070,724 $ 13,321,163 $ 13,321,163 $ 8,551,900 $ 8,551,900
Other liabilities ............................. 3,406,253 3,406,253 2,279,321 2,279,321 2,621,597 2,621,597
Minority interest ............................. 37,162 37,487 34,670 34,781 -- --
Common stock .................................. 758,116 329,370 752,845 324,099 754,825 326,079
Accumulated other comprehensive loss .......... (519) (401) (4,432) (4,280) (291) (106)
Retained earnings ............................. 694,768 762,303 636,664 693,837 574,512 620,951
------------ ------------ ------------ ------------ ------------ ------------
Total shareholders' equity ............... 1,452,365 1,091,272 1,385,077 1,013,656 1,329,046 946,924
------------ ------------ ------------ ------------ ------------ ------------
Total liabilities and shareholders' equity $ 17,966,504 $ 17,605,736 $ 17,020,231 $ 16,648,921 $ 12,502,543 $ 12,120,421
============ ============ ============ ============ ============ ============
</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
June 30, 1999 June 30, 1998
------------------- -------------------
Previously Previously
(In thousands, except per share amounts) Restated Reported Restated Reported
-------- -------- -------- --------
<S> <C> <C> <C> <C>
Net interest income .......................................... $173,466 $174,569 $120,495 $121,673
Provision for loan losses .................................... 3,633 3,633 3,264 3,264
Noninterest income ........................................... 60,745 60,745 47,752 47,752
Noninterest expense:
Amortization of goodwill and core deposit intangibles ... 8,906 3,474 8,021 2,397
Other noninterest expense ............................... 147,696 147,687 111,675 115,015
-------- -------- -------- --------
Income before income taxes and minority interest ............. 73,976 80,520 45,287 48,749
Income taxes ................................................. 25,834 27,102 14,387 15,765
Minority interest ............................................ 504 610 -- --
-------- -------- -------- --------
Net income ........................................ $ 47,638 $ 52,808 $ 30,900 $ 32,984
======== ======== ======== ========
Weighted-average common and common-equivalent
shares outstanding during the period ..................... 80,134 80,135 75,889 75,706
Net income per common share:
Basic ...................................................... $ 0.60 $ 0.67 $ 0.41 $ 0.44
Diluted .................................................... $ 0.59 $ 0.66 $ 0.41 $ 0.44
CONSOLIDATED STATEMENTS OF INCOME
Six Months Ended Six Months Ended
June 30, 1999 June 30, 1998
------------------- -------------------
Previously Previously
(In thousands, except per share amounts) Restated Reported Restated Reported
-------- -------- -------- --------
Net interest income .......................................... $339,199 $341,447 $230,674 $238,296
Provision for loan losses .................................... 7,864 7,864 6,549 6,819
Noninterest income ........................................... 124,088 124,088 91,791 92,558
Noninterest expense:
Amortization of goodwill and core deposit intangibles ... 17,634 6,771 14,477 4,777
Other noninterest expense ............................... 293,157 293,138 205,065 213,392
-------- -------- -------- --------
Income before income taxes and minority interest ............. 144,632 157,762 96,374 105,866
Income taxes ................................................. 51,475 54,029 30,444 33,886
Minority interest ............................................ 1,860 2,074 -- --
-------- -------- -------- --------
Net income ........................................ $ 91,297 $101,659 $ 65,930 $ 71,980
======== ======== ======== ========
Weighted-average common and common-equivalent
shares outstanding during the period ..................... 80,017 80,017 73,936 74,688
Net income per common share:
Basic ...................................................... $ 1.16 $ 1.29 $ 0.91 $ 0.98
Diluted .................................................... $ 1.14 $ 1.27 $ 0.89 $ 0.96
</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 June 30, 1999 and for the three months and six
months ended June 30, 1999, can not be compared directly with the correspondent
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 six months ended June 30, 1999 are not necessarily
indicative of the results that may be expected for the year ended December 31,
1999. For further information, refer to the consolidated financial statements
and footnotes thereto included in Zions Bancorporation's Annual Report to
Shareholders on Form 10-K/A for the year ended December 31, 1998.
Accounting Standards Not Adopted
In June 1998, the FASB issued Statement No. 133, Accounting for Derivative
Instruments and Hedging Activities. Statement No. 133 establishes accounting and
reporting standards for derivative instruments, including certain derivative
instruments embedded in other contracts, and for hedging activities. It requires
that an entity recognize all derivatives as either assets or liabilities in the
statement of financial position and measure those instruments at fair value. The
accounting for gains and losses of a derivative depends on the intended use of
the derivative and the resulting designation.
Under this statement, an entity that elects to apply hedge accounting is
required to establish at the inception of the hedge the method it will use for
assessing the effectiveness of the hedging derivative and the measurement
approach for determining the ineffective aspect of the hedge. Those methods must
be consistent with the entity's approach to managing risk. 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 June 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. Under the terms of the
agreement, First Security shareholders will receive 0.442 of a share of new
First Security common stock in exchange for each share of First Security common
stock. 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.
11
<PAGE>
ZIONS BANCORPORATION AND SUBSIDIARIES
ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS
------------------------------------
FINANCIAL HIGHLIGHTS
(Unaudited)
<TABLE>
<CAPTION>
Three Months Ended Six Months Ended
June 30, June 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 ....... $ 176,133 $ 123,182 42.99 % $ 344,244 $ 235,788 46.00 %
Net interest income .......................... 173,466 120,495 43.96 % 339,199 230,674 47.05 %
Noninterest income ........................... 60,745 47,752 27.21 % 124,088 91,791 35.19 %
Provision for loan losses .................... 3,633 3,264 11.31 % 7,864 6,549 20.08 %
Noninterest expense .......................... 156,602 119,696 30.83 % 310,791 219,542 41.56 %
Income before income taxes ................... 73,976 45,287 63.35 % 144,632 96,374 50.07 %
Income taxes ................................. 25,834 14,387 79.56 % 51,475 30,444 69.08 %
Minority interest ............................ 504 -- 1,860 --
Net income ................................... 47,638 30,900 54.17 % 91,297 65,930 38.48 %
PER COMMON SHARE
Net income (diluted) ......................... 0.59 0.41 43.90 % 1.14 0.89 28.09 %
Dividends .................................... 0.29 0.14 107.14 % 0.43 0.26 65.38 %
Book value ................................... 18.38 17.27 6.43 %
SELECTED RATIOS
Return on average assets ..................... 1.03% 1.01% 1.01% 1.12%
Return on average common equity .............. 13.18% 10.20% 12.88% 11.91%
Efficiency ratio ............................. 66.11% 70.02% 66.36% 67.02%
Net interest margin .......................... 4.34% 4.55% 4.34% 4.50%
OPERATING CASH EARNINGS*
Taxable-equivalent net interest income ....... $ 176,133 $ 123,182 42.99 % $ 344,244 $ 235,788 46.00 %
Net interest income .......................... 173,466 120,495 43.96 % 339,199 230,674 47.05 %
Noninterest income ........................... 60,745 47,752 27.21 % 124,088 91,791 35.19 %
Provision for loan losses .................... 3,633 3,264 11.31 % 7,864 6,549 20.08 %
Noninterest expense .......................... 146,578 102,993 42.32 % 290,993 195,923 48.52 %
Income before income taxes ................... 84,000 61,990 35.51 % 164,430 119,993 37.03 %
Income taxes ................................. 27,410 18,362 49.27 % 54,654 35,417 54.31 %
Minority interest ............................ 504 -- 1,860 --
Net income ................................... 56,086 43,628 28.56 % 107,916 84,576 27.60 %
PER COMMON SHARE
Net income (diluted) ......................... 0.70 0.57 22.81 % 1.35 1.14 18.42 %
Dividends .................................... 0.29 0.14 107.14 % 0.43 0.26 65.38 %
Book value ................................... 10.24 9.81 4.38 %
SELECTED RATIOS
Return on average assets ..................... 1.26% 1.50% 1.24% 1.50%
Return on average common equity .............. 28.14% 27.38% 28.04% 28.72%
Efficiency ratio ............................. 61.88% 60.25% 62.13% 59.81%
Net interest margin .......................... 4.34% 4.55% 4.34% 4.50%
* Before amortization of goodwill and core deposit intangible assets and merger
charges.
12
<PAGE>
ZIONS BANCORPORATION AND SUBSIDIARIES
FINANCIAL HIGHLIGHTS (Continued)
(Unaudited)
Three Months Ended Six Months Ended
June 30, June 30,
--------------------------------------- -----------------------------------------
(In thousands, except per share and ratio data) 1999 1998 % Change 1999 1998 % Change
----------- ----------- ----------- ----------- ----------- -----------
AVERAGE BALANCES
Total assets ................................. $18,574,162 $12,254,926 51.56% $18,215,301 $11,890,176 53.20%
Securities ................................... 4,166,877 2,883,139 44.53% 4,101,014 2,965,684 38.28%
Net loans and leases ......................... 10,982,521 6,157,346 78.36% 10,850,862 5,874,540 84.71%
Goodwill and core deposit intangibles ........ 650,697 576,160 12.94% 653,687 522,839 25.03%
Total deposits ............................... 13,094,197 8,333,560 57.13% 13,070,435 8,036,625 62.64%
Minority interest ............................ 36,224 -- 36,588 --
Shareholders' equity ......................... 1,450,097 1,215,339 19.32% 1,429,900 1,116,656 28.05%
Weighted average common and common-
equivalent shares outstanding ........... 80,134,372 75,888,999 5.59% 80,016,510 73,935,919 8.22%
AT PERIOD END
Total assets ................................. $17,966,504 $12,502,543 43.70%
Securities ................................... 4,107,077 3,242,187 26.68%
Net loans and leases ......................... 11,047,713 6,284,075 75.80%
Allowance for loan losses .................... 204,825 98,488 107.97%
Goodwill and core deposit intangibles ........ 642,952 574,268 11.96%
Total deposits ............................... 13,070,724 8,551,900 52.84%
Minority interest ............................ 37,162 --
Shareholders' equity ......................... 1,452,365 1,329,046 9.28%
Common shares outstanding .................... 79,010,705 76,971,917 2.65%
Average equity to average assets ............. 7.81% 9.92% 7.85% 9.39%
Common dividend payout ....................... 48.13% 33.85% 37.23% 29.80%
Nonperforming assets ......................... 58,128 29,370 97.92%
Loans past due 90 days or more ............... 27,379 18,003 52.08%
Nonperforming assets to net loans and
leases, other real estate owned and other
nonperforming assets at June 30 ......... 0.53% 0.47%
</TABLE>
13
<PAGE>
ZIONS BANCORPORATION AND SUBSIDIARIES
OPERATING RESULTS
Zions Bancorporation achieved record earnings for the quarter and six months
ended June 30, 1999. Consolidated net income for the second quarter of 1999 was
$47.6 million or $0.59 per diluted share, an increase of 54.2% and 43.9%,
respectively, over the restated $30.9 million or $0.41 earned in the second
quarter of 1998. Consolidated net income for the second quarter of 1999
increased 9.1% and 7.3%, respectively, from $43.7 million or $0.55 per diluted
share for the first quarter of 1999. The quarterly dividend per share increased
107.1% to $0.29 from $0.14 in the second quarter of 1998 and the first quarter
of 1999. As discussed in Notes to Consolidated Financial Statements, due to the
acquisition transactions accounted for as purchases, financial information for
1999 is not directly comparable to 1998. Also, the restated 1998 results of
operations include pre-tax merger charges of approximately $8.4 million incurred
by The Commerce Bancorporation.
Consolidated net income was $91.3 million or $1.14 per diluted share for the
first six months of 1999, compared to the restated $65.9 million or $0.89 per
diluted share for the first six months of 1998, which constituted increases of
38.5% and 28.1% respectively.
The annualized return on average assets for the second quarter and for the first
six months of 1999 was 1.03% and 1.01% compared to the restated 1.01% and 1.12%,
respectively, in 1998, resulting in an annualized return on average common
shareholders' equity of 13.18% and 12.88% for the second quarter and for the
first six months of 1999, compared to the restated 10.20% and 11.91% 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 second quarter
and for the first six months of 1999 was 66.11% and 66.36%, respectively,
compared to the restated 70.02% and 67.02% for the same periods of 1998.
The Company's second-quarter $16.7 million (54.2%) increase in earnings relative
to the restated same period a year ago reflects a $53.0 million (44.0%) increase
in net interest income, a $13.0 million (27.2%) increase in noninterest income,
partially offset by a $0.4 million (11.3%) increase in the provision for loan
losses, a $36.9 million (30.8%) increase in noninterest expenses and a $11.4
million (79.6%) increase in income tax expense.
The Company's $25.4 million (38.5%) increase in net income for the six-month
period ended June 30, 1999 compared to the restated similar period in 1998,
reflects a $108.5 million (47.1%) increase in net interest income, a $32.3
million (35.2%) increase in noninterest income, partially offset by a $1.3
million (20.1%) increase in the provision for loan losses, a $91.2 million
(41.6%) increase in noninterest expenses and a $21.0 million (69.1%) 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.
14
<PAGE>
ZIONS BANCORPORATION AND SUBSIDIARIES
Operating cash earnings for the quarter were $56.1 million or $0.70 per diluted
share, an increase of 28.6% and 22.8%, respectively, over the restated $43.6
million or $0.57 per diluted share earned in the second quarter of 1998.
Operating cash earnings for the second quarter of 1999 increased 8.2% over the
$51.8 million earned during the first quarter of 1999. Operating cash earnings
per diluted share for the second quarter of 1999 increased 7.7% over the $.65
for the first quarter of 1999. Year-to-date operating cash earnings were $107.9
million or $1.35 per diluted share, an increase of 27.6% and 18.4%,
respectively, over the restated $84.6 million or $1.14 per diluted share earned
in the first half of 1998.
The operating cash annualized return on average assets for the second quarter
and for the first six months of 1999 was 1.26% and 1.24% compared to the
restated 1.50% and 1.50%, respectively, in 1998. Operating cash annualized
return on average common shareholders' equity was 28.14% and 28.04% for the
second quarter and for the first six months of 1999, compared to the restated
27.38% and 28.72% for the same periods of 1998. The Company's cash efficiency
ratio for the second quarter and for the first six months of 1999 was 61.88% and
62.13%, respectively, compared to the restated 60.25% and 59.81% for the same
periods of 1998.
NET INTEREST INCOME AND INTEREST RATE SPREADS
Net interest income for the second quarter of 1999, adjusted to a fully
taxable-equivalent basis, increased 43.0% to $176.1 million compared to the
restated $123.2 million for the second quarter of 1998 and increased 4.8% from
$168.1 million for the first quarter of 1999. Net interest margin was 4.34% for
the second quarter of 1999, compared to 4.55% for the second quarter of 1998 and
4.34% for the first quarter of 1999. Six-month net interest income, on a fully
taxable-equivalent basis, was $344.2 million in 1999, an increase of 46.0%
compared to $235.8 million for the first six months of 1998. Net interest margin
for the first six months of 1999 was 4.34%, compared to 4.50% for the first six
months of 1998.
The yield on average earning assets decreased 34 basis points during the second
quarter of 1999 as compared to the second quarter of 1998, and was unchanged
from the first quarter of 1999. The average rate paid this quarter on
interest-bearing funds decreased 31 basis points from the second quarter of 1998
and decreased 2 basis points from the first quarter of 1999. Comparing the first
six months of 1999 with 1998, the yield on average earning assets decreased 39
basis points, while the cost of interest-bearing funds decreased by 39 basis
points.
The spread on average interest-bearing funds for the second quarter of 1999 was
3.70%, down from the 3.73% for the second quarter of 1998 and up from the 3.68%
for the first quarter of 1999. The spread on average interest-bearing funds for
the first six months of 1999 was 3.69%, unchanged from the first six months of
1998.
15
<PAGE>
ZIONS BANCORPORATION AND SUBSIDIARIES
CONSOLIDATED AVERAGE BALANCE SHEETS, YIELDS AND RATES
(Unaudited)
<TABLE>
<CAPTION>
Three Months Ended Three Months Ended
June 30, 1999 June 30, 1998
----------------------------- -----------------------------
Average Amount of Average Average Amount of Average
(In thousands) Balance Interest(1) Rate Balance Interest(1) Rate
-------- -------- -------- -------- -------- --------
<S> <C> <C> <C> <C> <C> <C>
ASSETS
Money market investments ...................................... $ 1,141 $ 16.4 5.76% $ 1,821 $ 24.7 5.44%
Securities:
Held to maturity ......................................... 3,145 49.1 6.26% 1,779 30.8 6.95%
Available for sale ....................................... 416 5.6 5.37% 586 8.6 5.87%
Trading account .......................................... 606 8.0 5.29% 518 7.2 5.59%
-------- -------- -------- --------
Total securities .................................... 4,167 62.7 6.03% 2,883 46.6 6.48%
-------- -------- -------- --------
Loans:
Loans held for sale ...................................... 176 3.1 7.05% 204 3.6 7.20%
Net loans and leases(2)................................... 10,807 234.5 8.70% 5,953 145.4 9.79%
-------- -------- -------- --------
Total loans ......................................... 10,983 237.6 8.68% 6,157 149.0 9.71%
-------- -------- -------- --------
Total interest-earning assets ................................. $ 16,291 $ 316.7 7.80% $ 10,861 $ 220.3 8.14%
-------- --------
Cash and due from banks ....................................... 795 545
Allowance for loan losses ..................................... (201) (99)
Goodwill and core deposit intangibles ......................... 651 576
Other assets .................................................. 1,038 372
-------- --------
Total assets .......................................... $ 18,574 $ 12,255
======== ========
LIABILITIES
Interest-bearing deposits:
Savings and NOW deposits ................................. $ 1,534 $ 9.9 2.58% $ 978 $ 7.5 3.09%
Money market and super NOW deposits ...................... 5,197 45.5 3.51% 3,265 29.3 3.60%
Time deposits under $100,000 ............................. 1,999 23.8 4.77% 1,245 16.5 5.33%
Time deposits $100,000 or more ........................... 1,167 13.6 4.67% 613 8.6 5.64%
Foreign deposits ......................................... 165 1.7 4.13% 163 1.9 4.61%
-------- -------- -------- --------
Total interest-bearing deposits ..................... 10,062 94.5 3.77% 6,264 63.8 4.09%
-------- -------- -------- --------
Borrowed funds:
Securities sold, not yet purchased ....................... 309 4.1 5.36% 239 2.9 4.85%
Federal funds purchased and security
repurchase agreements ............................... 2,114 23.5 4.45% 1,860 21.3 4.58%
Commercial paper ......................................... 136 1.7 5.07% -- -- 6.08%
FHLB advances and other borrowings:
Less than one year .................................. 621 7.3 4.69% 61 0.9 6.25%
Over one year ....................................... 57 0.9 6.30% 137 1.7 4.94%
Long-term debt ........................................... 451 8.6 7.67% 276 6.5 9.47%
-------- -------- -------- --------
Total borrowed funds ................................ 3,688 46.1 5.01% 2,573 33.3 5.19%
-------- -------- -------- --------
Total interest-bearing liabilities .................. $ 13,750 $ 140.6 4.10% $ 8,837 $ 97.1 4.41%
-------- --------
Noninterest-bearing deposits .................................. 3,032 2,069
Other liabilities ............................................. 306 134
-------- --------
Total liabilities ................................... 17,088 11,040
Minority interest ............................................. 36 --
Total shareholders' equity .......................... 1,450 1,215
-------- --------
Total liabilities and shareholders' equity .......... $18,574 $ 12,255
======== ========
Spread on average interest-bearing funds ...................... 3.70% 3.73%
======== ========
Net interest income and net yield on
interest-earning assets .................................. $ 176.1 4.34% $ 123.2 4.55%
======== ======== ======== ========
</TABLE>
1 Taxable-equivalent rates used where applicable.
2 Net of unearned income and fees, net of related costs. Loans include
nonaccrual and restructured loans.
16
<PAGE>
ZIONS BANCORPORATION AND SUBSIDIARIES
CONSOLIDATED AVERAGE BALANCE SHEETS, YIELDS AND RATES
(Unaudited)
<TABLE>
<CAPTION>
Six Months Ended Six Months Ended
June 30, 1999 June 30, 1998
----------------------------- -----------------------------
Average Amount of Average Average Amount of Average
(In thousands) Balance Interest(1) Rate Balance Interest(1) Rate
-------- -------- -------- -------- -------- --------
<S> <C> <C> <C> <C> <C> <C>
ASSETS
Money market investments ...................................... $ 1,041 $ 30.5 5.92% $ 1,719 $ 47.6 5.59%
Securities:
Held to maturity ......................................... 3,085 96.0 6.28% 1,953 68.1 7.03%
Available for sale ....................................... 450 12.7 5.71% 573 17.4 6.13%
Trading account .......................................... 566 14.8 5.26% 440 12.3 5.62%
-------- -------- -------- --------
Total securities .................................... 4,101 123.5 6.07% 2,966 97.8 6.65%
-------- -------- -------- --------
Loans:
Loans held for sale ...................................... 194 6.5 6.75% 204 7.3 7.12%
Net loans and leases(2)................................... 10,657 458.1 8.67% 5,670 276.0 9.82%
-------- -------- -------- --------
Total loans ......................................... 10,851 464.6 8.63% 5,874 283.3 9.72%
-------- -------- -------- --------
Total interest-earning assets ................................. $ 15,993 $ 618.6 7.80% $ 10,559 $ 428.7 8.19%
-------- --------
Cash and due from banks ....................................... 776 541
Allowance for loan losses ..................................... (204) (96)
Goodwill and core deposit intangibles ......................... 654 523
Other assets .................................................. 996 363
-------- --------
Total assets .......................................... $ 18,215 $ 11,890
======== ========
LIABILITIES
Interest-bearing deposits:
Savings and NOW deposits ................................. $ 1,572 $ 18.5 2.37% $ 1,030 $ 15.4 3.01%
Money market and super NOW deposits ...................... 4,965 87.6 3.56% 3,081 56.3 3.68%
Time deposits under $100,000 ............................. 2,108 49.9 4.77% 1,211 32.1 5.35%
Time deposits $100,000 or more ........................... 1,252 30.3 4.89% 566 15.9 5.67%
Foreign deposits ......................................... 170 3.5 4.18% 164 3.8 4.64%
-------- -------- -------- --------
Total interest-bearing deposits ..................... 10,067 189.8 3.80% 6,052 123.5 4.11%
-------- -------- -------- --------
Borrowed funds:
Securities sold, not yet purchased ....................... 304 7.9 5.27% 183 4.6 5.07%
Federal funds purchased and security
repurchase agreements ............................... 2,070 45.3 4.41% 1,898 45.5 4.84%
Commercial paper ......................................... 103 2.6 5.14% -- -- 6.11%
FHLB advances and other borrowings:
Less than one year .................................. 406 9.6 4.74% 83 2.6 6.34%
Over one year ....................................... 55 1.7 6.27% 146 3.9 5.39%
Long-term debt ........................................... 452 17.5 7.81% 277 12.8 9.28%
-------- -------- -------- --------
Total borrowed funds ................................ 3,390 84.6 5.03% 2,587 69.4 5.41%
-------- -------- -------- --------
Total interest-bearing liabilities .................. $ 13,457 $ 274.4 4.11% $ 8,639 $ 192.9 4.50%
-------- --------
Noninterest-bearing deposits .................................. 3,003 1,984
Other liabilities ............................................. 288 150
-------- --------
Total liabilities ................................... 16,748 10,773
Minority interest ............................................. 37 --
Total shareholders' equity .......................... 1,430 1,117
-------- --------
Total liabilities and shareholders' equity .......... $18,215 $ 11,890
======== ========
Spread on average interest-bearing funds ...................... 3.69% 3.69%
======== ========
Net interest income and net yield on ..........................
interest-earning assets .................................. $ 344.2 4.34% $ 235.8 4.50%
======== ======== ======== ========
</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.
17
<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 six months of 1999 was $5.4 million
compared to $2.7 million for the first six months of 1998.
PROVISION FOR LOAN LOSSES
The provision for loan losses increased 11.3% to $3.6 million for the second
quarter of 1999, as compared with $3.3 million for the second quarter of 1998,
and decreased 14.1% from the $4.2 million for the first quarter of 1999. The
provision for loan losses for the first six months of 1999 totaled $7.9 million,
20.1% more than the $6.5 million provision for the first six months of 1998.
Annualized it is .15% of average loans for 1999 compared to .22% for 1998.
NONINTEREST INCOME
Noninterest income for the second quarter of 1999 was $60.7 million, an increase
of 27.2% from the $47.8 million for the second quarter of 1998 and a decrease of
4.1% from the $63.3 million for the first 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 second quarter of 1999 and the second quarter of 1998 service charges on
deposit accounts increased 37.3%; other service charges, commissions and fees
increased 32.0%; trust income increased 89.1%; underwriting and trading income
increased 47.2%; loan sales and servicing income increased 4.0%; and other
income increased 79.3%. Net gains of $0.2 million on the sale of investment
securities was realized during the second quarter of 1999 compared to net gains
of $2.2 million during the second quarter of 1998. 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. The increase in other income includes approximately
$1.7 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 six months ending June 30, 1999 was $124.1 million,
an increase of 35.2% over $91.8 million for the first six months of 1998.
Comparing the segments of noninterest income for the first six months of 1999
and the first six months of 1998, service charges on deposit accounts increased
36.8%; other service charges, commissions and fees increased 35.2%; trust income
increased 87.2%; underwriting and trading income increased 75.3%; loan sales and
servicing income increased 17.8%; and other income increased 102.8%. Net losses
of $1.1 million on the sale of investment securities was realized during the
first six months of 1999 compared to net gains of $2.9 million during the first
six months of 1998. The main reasons for the increase in other income are $3.3
million of income from investments in bank owned life insurance policies in 1999
and income from nonmarketable equity securities previously classified as
securities income.
18
<PAGE>
ZIONS BANCORPORATION AND SUBSIDIARIES
NONINTEREST EXPENSE
Noninterest expense for the second quarter of 1999 was $156.6 million, an
increase of 30.8% over $119.7 million for the second quarter of 1998, and an
increase of 1.6% from the $154.2 million for the first quarter of 1999.
Comparing significant noninterest expense segments for the second quarter of
1999 and the second quarter of 1998, salaries and employee benefits increased
52.0%, occupancy increased 82.9%, furniture and equipment expense increased
17.2% and the total of all other expenses, excluding merger related expenses,
increased 22.9% which included significant increases in legal and professional
services, postage, advertising, amortization of goodwill and core deposit
intangible assets and other expenses. Restated merger related expenses decreased
$7.6 million mainly due to approximately $8.4 million of expenses incurred by
The Commerce Bancorporation during the second quarter of 1998.
Noninterest expense for the six months ending June 30, 1999 was $310.8 million,
an increase of 41.6% over $219.5 million for the first six months of 1998.
Comparing significant noninterest expense segments for the first six months of
1999 and the first six months of 1998, salaries and employee benefits increased
56.6%, occupancy increased 95.7%, furniture and equipment expenses increased
24.3%, and the total of all other expenses, excluding merger related expenses,
increased 30.5% 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 June 30, 1999, the Company
had 6,601 full time equivalent employees, 341 offices and 472 ATMs compared to
5,336 full time equivalent employees, 267 offices and 531 ATMs at June 30, 1998.
INCOME TAXES
The Company's income taxes increased 79.6% to $25.8 million for the second
quarter of 1999 compared to $14.4 million for the second quarter of 1998 and
increased 0.8% from the $25.6 million for the first quarter of 1999. The
Company's income taxes were $51.5 million for the first six months of 1999 as
compared to $30.4 million for the first six months of 1998. The Company's
effective income tax rate was 35.59% for the first six months of 1999, up from
31.59% for the first six 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 51.5% to $15,993 million for the six months
ended June 30, 1999, compared to $10,559 million for the six months ended June
30, 1998. Earning assets comprised 87.8% of total average assets for the first
six months of 1999, compared with 88.8% for the first six months of 1998.
Average money market investments, consisting of interest-bearing deposits,
federal funds sold and security resell agreements decreased 39.5% to $1,041
million in the first six months of 1999 as compared to $1,719 million in the
first six months of 1998.
19
<PAGE>
ZIONS BANCORPORATION AND SUBSIDIARIES
During the first six months of 1999, average securities increased 38.3% to
$4,101 million compared to $2,966 million in the first six months of 1998.
Average held to maturity securities increased 57.9%, available for sale
securities decreased 21.5%, and trading account securities increased 29.0%
compared with the first six months of 1998.
Average net loans and leases increased 84.7% to $10,851 million for the first
six months of 1999 compared to $5,875 million in the first six months of 1998,
representing 67.8% of earning assets in the first six months of 1999 compared to
55.6% in the first six months of 1998. Average net loans and leases were 83.0%
of average total deposits for the six months ended June 30, 1999, as compared to
73.1% for the six months ended June 30, 1998.
INVESTMENT SECURITIES
The following table presents the Company's investment securities on June 30,
1999, December 31, 1998 and June 30, 1998. As of June 30, 1999, the Company had
approximately $59 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>
June 30, December 31, June 30,
1999 1998 1998
------------------- ------------------- -------------------
Amortized Market Amortized Market Amortized Market
(In millions) cost value cost value cost value
-------- -------- -------- -------- -------- --------
<S> <C> <C> <C> <C> <C> <C>
Held to maturity
U.S. Treasury Securities .......... $ 2 $ 2 $ 62 $ 62 $ 5 $ 5
U.S. government agencies and
corporations:
Small Business
Administration loan-
backed securities ......... 367 363 358 356 396 401
Other agency securities ........ 1,088 1,081 941 945 1,452 1,455
States and political subdivisions . 351 351 285 293 267 273
Mortgage-backed securities ........ 1,417 1,421 1,159 1,166 131 131
-------- -------- -------- -------- -------- --------
3,225 3,218 2,805 2,822 2,251 2,265
-------- -------- -------- -------- -------- --------
Available for sale
U.S. Treasury securities .......... 76 76 46 47 26 27
U.S. government agencies and
corporations:
Small Business
Administration originator
fee certificates ....... -- -- 85 69 82 79
Other agency securities ....... 65 65 112 113 171 171
States and political subdivisions . 9 8 15 16 15 15
Mortgage and other
asset-backed securities ........ 112 113 179 180 42 42
-------- -------- -------- -------- -------- --------
262 262 437 425 336 334
-------- -------- -------- -------- -------- --------
Equity securities:
Mutual funds:
Accessor Funds, Inc. ...... 120 120 117 118 110 110
Stock:
Federal Home Loan Bank .... -- -- 101 101 103 103
Other ..................... 73 84 36 41 40 42
-------- -------- -------- -------- -------- --------
193 204 254 260 253 255
-------- -------- -------- -------- -------- --------
455 466 691 685 589 589
-------- -------- -------- -------- -------- --------
Total ............................. $ 3,680 $ 3,684 $ 3,496 $ 3,507 $ 2,840 $ 2,854
======== ======== ======== ======== ======== ========
</TABLE>
20
<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 June 30,
1999, December 31, 1998 and June 30, 1998.
(In millions)
June 30, December 31, June 30,
Types 1999 1998 1998
- ----- ---------- ---------- ----------
Loans held for sale ...................... $ 195 $ 232 $ 198
Commercial, financial, and agricultural .. 2,650 2,692 1,629
Real estate:
Construction ......................... 1,190 867 578
Other:
Home equity credit line ...... 280 222 175
1-4 family residential ....... 2,346 2,186 1,072
Other real estate-secured .... 3,547 3,626 2,007
---------- ---------- ----------
6,173 6,034 3,254
---------- ---------- ----------
7,363 6,901 3,832
Consumer:
Bankcard ............................. 80 87 57
Other ................................ 482 452 384
---------- ---------- ----------
562 539 441
Lease financing .......................... 218 214 175
Foreign loans ............................ 50 44 --
Other receivables ........................ 59 62 51
---------- ---------- ----------
Total loans .......................... $ 11,097 $ 10,684 $ 6,326
========== ========== ==========
Loans held for sale on June 30, 1999 decreased 15.9% from year-end 1998. All
other loans, net of unearned income and fees increased 4.3% to $10,852 million
on June 30, 1999 compared to $10,404 million on December 31, 1998. Construction
loans, other real estate-secured loans, consumer loans, lease financing, and
foreign loans increased from year end 37.3%, 2.3%, 4.2%, 2.2% and 14.2%,
respectively, as commercial loans, and other receivables decreased 1.6%, and
4.7%, respectively. Within the other real estate-secured loan portfolio, home
equity credit line loans increased 26.1%, 1-4 family residential loans increased
7.3% and all other real estate loans decreased 2.2% from year end.
21
<PAGE>
ZIONS BANCORPORATION AND SUBSIDIARIES
On June 30, 1999, long-term first mortgage real estate loans serviced for others
totaled $204 million and consumer and other loan securitizations, which relate
primarily to loans sold under revolving securitization structures, totaled
$1,213 million. During the first six months of 1999, the Company sold $504
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 $669 million. During the first six months of 1999, total loans
sold were $1,173 million.
Commitments to extend credit on loans and standby letters of credit on June 30,
1999, December 31, 1998 and June 30, 1998 totaled $5,282 million, $4,758 million
and $3,130 million, respectively.
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 June 30, 1999, down from $64 million on December 31, 1998, and up
from $29 million on June 30, 1998. Such nonperforming assets as a percentage of
net loans and leases, other real estate owned and other nonperforming assets
were .53%, .60% and .47% on June 30, 1999, December 31, 1998, and June 30, 1998,
respectively.
Accruing loans past due 90 days or more totaled $27 million on June 30, 1999, up
from $26 million on December 31, 1998, and up from $18 million on June 30, 1998.
These loans equaled .25% of net loans and leases on June 30, 1999, as compared
to .24% on December 31, 1998 and .29% on June 30, 1998.
No loans to borrowers were considered potential problems at June 30, 1999,
December 31, 1998 and June 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 $36 million on June 30, 1999, as compared to $41
million on December 31, 1998, and $16 million on June 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 June 30,
1999, December 31, 1998, and June 30, 1998, is a required allowance of $16
million, $5 million and $1 million, respectively, on $21 million, $12 million
and $5 million, respectively, of the recorded investment in impaired loans.
22
<PAGE>
ZIONS BANCORPORATION AND SUBSIDIARIES
The following table sets forth the nonperforming assets on June 30, 1999,
December 31, 1998, and June 30, 1998.
<TABLE>
<CAPTION>
June 30, December 31, June 30,
(In millions) 1999 1998 1998
---------- ---------- ----------
<S> <C> <C> <C>
Nonaccrual loans ............................... $ 48 $ 54 $ 25
Restructured loans ............................. 3 5 1
Other real estate owned and other
nonperforming assets ...................... 7 5 3
---------- ---------- ----------
Total ..................................... $ 58 $ 64 $ 29
========== ========== ==========
% of net loans and leases*, other real estate
owned and other nonperforming assets ...... .53% .60% .47%
Accruing loans past due 90 days or more ........ $ 27 $ 26 $ 18
========== ========== ==========
% of net loans and leases* ..................... .25% .24% .29%
*Includes loans held for sale
</TABLE>
ALLOWANCE FOR LOAN LOSSES
The Company's allowance for loan losses was 1.85% of net loans and leases on
June 30, 1999, compared to 1.93% on December 31, 1998, and 1.57% on June 30,
1998. Net recoveries during the second quarter of 1999 were $2 million, or .08%
of average net loans and leases, compared to net charge-offs of $3 million, or
.20% of average net loans and leases for the second quarter of 1998. Net
charge-offs for the first six months of 1999 were $9 million, or .16% of average
net loans and leases, compared to $4 million or .13% of average net loans and
leases for the first six months of 1998.
The allowance, as a percentage of nonaccrual loans and restructured loans, was
403.15% on June 30, 1999, compared to 347.86% on December 31, 1998, and 382.08%
on June 30, 1998. The allowance, as a percentage of nonaccrual loans and
accruing loans past due 90 days or more was 273.51% on June 30, 1999, compared
to 258.04% on December 31, 1998 and 228.54% on June 30, 1998.
23
<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>
Six Months Twelve Months Six Months
Ended Ended Ended
(In millions) June 30, December 31, June 30,
1999 1998 1998
---------- ---------- ----------
<S> <C> <C> <C>
Average loans* and leases outstanding
(net of unearned income) ................ $ 10,851 $ 7,121 $ 5,875
========== ========== ==========
Allowance for possible losses:
Balance at beginning of the period ........... $ 206 $ 83 $ 83
Allowance of companies acquired .............. -- 126 12
Provision charged against earnings ........... 8 12 7
Loans and leases charged-off:
Loans held for sale ..................... -- -- --
Commercial, financial and agricultural .. (13) (8) (2)
Real estate ............................. (1) (6) (1)
Consumer ................................ (4) (9) (5)
Lease financing ......................... (2) (1) --
---------- ---------- ----------
Total .............................. (20) (24) (8)
---------- ---------- ----------
Recoveries:
Loans held for sale ..................... -- -- --
Commercial, financial and agricultural .. 4 3 2
Real estate ............................. 6 3 1
Consumer ................................ 1 3 1
Lease financing ......................... -- -- --
---------- ---------- ----------
Total .............................. 11 9 4
---------- ---------- ----------
Net loan and lease charge-offs ............... (9) (15) (4)
---------- ---------- ----------
Balance at end of the period ................. $ 205 $ 206 $ 98
========== ========== ==========
*Includes loans held for sale
Ratio of net charge-offs to
average loans and leases ................ .16% .21% .13%
</TABLE>
24
<PAGE>
ZIONS BANCORPORATION AND SUBSIDIARIES
DEPOSITS
Average total deposits of $13,070 million for the first six months of 1999
increased 62.6% over the $8,037 million for the first six months of 1998, with
average demand deposits increasing 51.4%. Average money market and super NOW
deposits, time deposits under $100,000, time deposits over $100,000 and foreign
deposits for the first six months of 1999 increased 61.2%, 74.1%, 121.2% and
3.8% respectively, from the first six months of 1998. Average savings and NOW
deposits increased 52.5% during the first six months of 1999, compared with the
same period one year earlier.
Total deposits decreased 1.9% to $13,071 million on June 30, 1999 as compared to
$13,321 million on December 31, 1998. Comparing June 30, 1999 to December 31,
1998, demand deposits, time deposits under $100,000, time deposits over $100,000
and foreign deposits decreased 3.0%, 17.2%, 29.4% and 19.8%, respectively, while
savings and money market deposits increased 12.1%.
LIQUIDITY AND INTEREST RATE SENSITIVITY
The Company manages its liquidity to provide adequate funds to meet its
financial obligations, including withdrawals by depositors and debt service
requirements, as well as to fund customers' demand for credit. Liquidity is
primarily provided by the regularly scheduled maturities of the Company's
investment and loan portfolios. The Company's liquidity is enhanced by the fact
that cash, money market securities and liquid investments, net of short-term or
"purchased" liabilities and wholesale deposits, totaled $1,254 million or 10.6%
of core deposits on June 30, 1999.
The Company's core deposits, consisting of demand, savings and money market
deposits and time deposits under $100,000, constituted 90.5% of total deposits
on June 30, 1999 as compared to 87.0% on December 31, 1998 and 90.4% on June 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.
25
<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 June 30, 1999 was $1,452 million, an increase of
4.9% over the $1,385 million on December 31, 1998, and an increase of 9.3% over
the $1,329 million on June 30, 1998. The ratio of average equity to average
assets for the first six months of 1999 was 7.85% as compared to 9.39% for the
same period in 1998. On June 30, 1999, the Company's Tier I risk-based capital
ratio was 8.66%, as compared to 8.34% on December 31, 1998 and 12.89% on June
30, 1998. On June 30, 1999 the Company's total risk-based capital ratio was
11.63%, as compared to 11.38% on December 31, 1998 and 16.11% on June 30, 1998.
The Company's leverage ratio on June 30, 1999 was 5.96%, as compared to 5.86% on
December 31, 1998 and 8.41% on June 30, 1998.
Dividends declared per common share for the second quarter of 1999 of $.29
increased 107.1%, as compared to $.14 for the second quarter of 1998 and the
first quarter of 1999. The common cash dividend payout of net income for the
first six months of 1999 was 37.23%, as compared to 29.80% for the first six
months of 1998.
During the first six months of 1999, the Company repurchased and retired 15,382
shares of its common stock at a cost of $966 thousand.
26
<PAGE>
ZIONS BANCORPORATION AND SUBSIDIARIES
OPERATING SEGMENT INFORMATION
The following is a summary of selected operating segment information for the
three months and six months ended June 30, 1999 and June 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 117 branches in Utah and 17 in Idaho. California Bank
& Trust operates 70 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.
The following table presents Operating Segment Information for the three months
ended June 30, 1999 and for the three months ended June 30, 1998.
<TABLE>
<CAPTION>
ZIONS FIRST
NATIONAL BANK
AND CALIFORNIA VECTRA BANK NATIONAL BANK
SUBSIDIARIES BANK & TRUST COLORADO OF ARIZONA
------------------- ------------------ ------------------ ------------------
(Amounts in millions) 1999 1998 1999 1998 1999 1998 1999 1998
-------- -------- -------- -------- -------- -------- -------- --------
<S> <C> <C> <C> <C> <C> <C> <C> <C>
CONDENSED INCOME STATEMENT
Net interest income ........... $ 55.0 $ 54.0 $ 65.5 $ 18.0 $ 21.4 $ 17.1 $ 18.8 $ 17.5
Provision for loan losses ..... 2.3 1.5 -- 0.8 0.7 0.3 0.6 0.6
Noninterest income ............ 37.4 36.3 9.3 2.1 4.0 3.2 3.5 2.0
Noninterest expense ........... 53.1 55.0 50.1 13.8 22.1 16.4 11.0 10.1
Income tax expense (benefit) .. 11.1 11.7 11.3 1.5 1.2 2.1 4.3 3.6
Minority interest ............. (0.2) -- -- -- -- -- -- --
-------- -------- -------- -------- -------- -------- -------- --------
Net income ............... $ 26.1 $ 22.1 $ 13.4 $ 4.0 $ 1.4 $ 1.5 $ 6.4 $ 5.2
======== ======== ======== ======== ======== ======== ======== ========
AVERAGE BALANCE SHEET DATA
Total assets .................. $ 7,280 $ 6,271 $ 6,228 $ 1,533 $ 2,147 $ 1,853 $ 1,513 $ 1,347
Net loans and leases .......... 3,652 2,915 4,214 745 1,300 979 1,087 848
Total deposits ................ 3,731 3,678 5,349 1,160 1,602 1,318 1,261 1,153
NEVADA STATE THE COMMERCE
BANK AND BANK OF CONSOLIDATED
SUBSIDIARIES WASHINGTON OTHER COMPANY
------------------- ------------------ ------------------ ------------------
(Amounts in millions) 1999 1998 1999 1998 1999 1998 1999 1998
-------- -------- -------- -------- -------- -------- -------- --------
CONDENSED INCOME STATEMENT
Net interest income ........... $ 12.7 $ 12.6 $ 3.7 $ 3.6 $ (3.7) $ (2.3) $ 173.4 $ 120.5
Provision for loan losses ..... 0.4 0.4 -- 0.1 (0.4) (0.4) 3.6 3.3
Noninterest income ............ 4.3 3.6 0.2 0.6 2.0 -- 60.7 47.8
Noninterest expense ........... 11.5 10.7 1.8 10.4 7.0 3.3 156.6 119.7
Income tax expense (benefit) .. 1.7 1.6 0.7 (1.8) (4.5) (4.3) 25.8 14.4
Minority interest ............. -- -- -- -- 0.7 -- 0.5 --
-------- -------- -------- -------- -------- -------- -------- --------
Net income ............... $ 3.4 $ 3.5 $ 1.4 $ (4.5) $ (4.5) $ (0.9) $ 47.6 $ 30.9
======== ======== ======== ======== ======== ======== ======== ========
AVERAGE BALANCE SHEET DATA
Total assets .................. $ 1,151 $ 1,022 $ 351 $ 296 $ (96) $ (67) $ 18,574 $ 12,255
Net loans and leases .......... 547 513 163 152 20 5 10,983 6,157
Total deposits ................ 945 852 233 207 (27) (35) 13,094 8,333
</TABLE>
27
<PAGE>
ZIONS BANCORPORATION AND SUBSIDIARIES
The following table presents Operating Segment Information for the six months
ended June 30, 1999 and for the six months ended June 30, 1998.
<TABLE>
<CAPTION>
ZIONS FIRST
NATIONAL BANK
AND CALIFORNIA VECTRA BANK NATIONAL BANK
SUBSIDIARIES BANK & TRUST COLORADO OF ARIZONA
------------------- ------------------ ------------------ ------------------
(Amounts in millions) 1999 1998 1999 1998 1999 1998 1999 1998
-------- -------- -------- -------- -------- -------- -------- --------
<S> <C> <C> <C> <C> <C> <C> <C> <C>
CONDENSED INCOME STATEMENT
Net interest income ........... $ 109.9 $ 106.7 $ 125.6 $ 30.0 $ 41.5 $ 32.2 $ 36.8 $ 34.8
Provision for loan losses ..... 4.5 3.0 -- 1.3 1.3 0.6 1.2 1.2
Noninterest income ............ 79.0 68.9 17.8 3.5 9.0 5.4 6.2 4.2
Noninterest expense ........... 106.5 105.5 100.2 22.7 43.5 29.3 21.9 20.5
Income tax expense (benefit) .. 23.8 23.0 20.0 3.4 3.2 3.9 7.9 6.9
Minority interest ............. 0.7 -- -- -- -- -- -- --
-------- -------- -------- -------- -------- -------- -------- --------
Net income ............... $ 53.4 $ 44.1 $ 23.2 $ 6.1 $ 2.5 $ 3.8 $ 12.0 $ 10.4
======== ======== ======== ======== ======== ======== ======== ========
AVERAGE BALANCE SHEET DATA
Total assets .................. $ 7,056 $ 6,317 $ 6,204 $ 1,259 $ 2,119 $ 1,725 $ 1,482 $ 1,343
Net loans and leases .......... 3,608 2,835 4,210 621 1,251 929 1,063 832
Total deposits ................ 3,760 3,651 5,332 966 1,610 1,231 1,237 1,159
NEVADA STATE THE COMMERCE
BANK AND BANK OF CONSOLIDATED
SUBSIDIARIES WASHINGTON OTHER COMPANY
------------------- ------------------ ------------------ ------------------
(Amounts in millions) 1999 1998 1999 1998 1999 1998 1999 1998
-------- -------- -------- -------- -------- -------- -------- --------
CONDENSED INCOME STATEMENT
Net interest income ........... $ 25.2 $ 25.1 $ 7.2 $ 7.0 $ (7.0) $ (5.1) $ 339.2 $ 230.7
Provision for loan losses ..... 0.8 0.8 0.4 0.1 (0.3) (0.4) 7.9 6.6
Noninterest income ............ 8.3 6.9 0.4 0.9 3.4 2.0 124.1 91.8
Noninterest expense ........... 22.3 21.3 3.5 12.2 12.9 8.1 310.8 219.6
Income tax expense (benefit) .. 3.5 3.1 1.2 (1.2) (8.2) (8.7) 51.4 30.4
Minority interest ............. -- -- -- -- 1.2 -- 1.9 --
-------- -------- -------- -------- -------- -------- -------- --------
Net income ............... $ 6.9 $ 6.8 $ 2.5 $ (3.2) $ (9.2) $ (2.1) $ 91.3 $ 65.9
======== ======== ======== ======== ======== ======== ======== ========
AVERAGE BALANCE SHEET DATA
Total assets .................. $ 1,125 $ 1,006 $ 343 $ 296 $ (114) $ (56) $ 18,215 $ 11,890
Net loans and leases .......... 541 501 158 152 20 4 10,851 5,874
Total deposits ................ 930 843 228 211 (27) (25) 13,070 8,036
</TABLE>
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 March 31, 1999, Regency Bancorp had
total assets of approximately $228 million. The merger is intended to be
accounted for as a purchase and is expected to close in the third quarter,
subject to the approval of banking regulators and the shareholders of Regency
Bancorp.
On May 7, 1999, the Company announced a definitive agreement to merge with
Pioneer Bancorporation of Reno, Nevada in a stock transaction valued at
approximately $340.8 million. Pioneer Bancorporation's subsidiary, Pioneer
Citizens Bank of Nevada, will merge into Zions' subsidiary, Nevada State Bank,
creating the third largest bank in the state. As of March 31, 1999, Pioneer
Bancorporation had total assets of approximately $1,077 million. The transaction
is expected to close in the fourth quarter and is intended to 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 during the second quarter of
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; however, it expects to continue to test its systems until year
end and conduct additional remediation for systems that are modified until that
time. The Company is also assessing the operability of other devices after 1999,
including vaults, fax machines, stand-alone personal computers, security systems
and elevators. Although the Company does not believe that the failure of these
systems would have a material adverse effect on the financial condition of the
enterprise, it is addressing deficiencies in these systems and expects
compliance to be achieved by September 30, 1999.
Costs. In order to achieve and confirm Year 2000 readiness, significant costs
have been incurred to test and modify or replace computer software and hardware,
as well as a variety of other items, e.g., ATMs. The Company believes that its
remediation costs have been mitigated since it replaced the large majority of
its core banking systems during the past five years with Year 2000 compliant
software in the ordinary course of business. However, the considerable effort
required to implement new software and sufficiently test its compliance 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 been incurred through June 30, 1999. In
addition, a significant portion of the Company's ATMs and personal computers are
expected to be replaced during the third quarter to achieve Year 2000
compliance. The capital outlay to replace these assets is estimated to be
between $3 to $4 million, a portion of which would 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 and other borrowings from its
customers. The Company is also at risk if the credit worthiness of a few of its
large borrowers, or a significant number of its small borrowers, were to
deteriorate quickly and severely as a result of their inability to conduct
business operations after December 31, 1999, for whatever reason. The Company
has surveyed and reviewed the Year 2000 plans of a number of its credit
customers to ascertain the sufficiency of their remediation efforts and the
implications of their actions on their credit worthiness. From this review, the
Company believes that the increased credit risk that the Company may experience
as a result of the Year 2000 issue will not have a material adverse effect its
financial condition. The Company explicitly disclaims, however, any obligation
or liability for the completeness, or lack thereof, of its customers' Year 2000
remediation plans or actions.
Contingency Plans. The Company has developed business resumption plans for each
significant business unit in the event that unforeseen events beyond the
Company's control adversely impact our ability to provide financial services to
our customers. In the event of such a failure, these plans outline the steps
that will be taken to minimize the 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 4. SUBMISSION OF MATTERS TO A VOTE OF SHAREHOLDERS
-----------------------------------------------
The following is a summary of matters submitted to vote at the Annual Meeting of
Shareholders of Zions Bancorporation:
a) The Annual Meeting of Shareholders was held on April 23, 1999.
Total number of shares eligible for voting was 78,752,711.
b) Election of Directors
Proxies were solicited by Zions Bancorporation's
management pursuant to Regulation 14A under the
Securities Exchange Act of 1934. There was no
solicitation in opposition to management's nominees
as listed in the proxy statement, and all of such
nominees were elected pursuant to the vote of the
shareholders as indicated in the proxy statement.
c) The matters voted upon and the results were as follows:
(1) Election of Directors
---------------------
Withhold
For Authority
---------- ---------
Jerry C. Atkin 63,234,829 146,781
Grant R. Caldwell 63,177,149 204,461
Roy W. Simmons 63,193,296 188,314
Shelley Thomas 62,688,457 693,153
(2) Approve the Long Term Executive Compensation Plan
-------------------------------------------------
Approval of the Company's Value Sharing Plan for
executive management.
For Against Abstain
61,260,254 1,580,106 541,250
31
<PAGE>
ZIONS BANCORPORATION AND SUBSIDIARIES
PART II. OTHER INFORMATION (CONTINUED)
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 June 30, 1999;
Form 8-K filed June 7, 1999 (Item 5). On June 6, 1999, Zions Bancorporation
issued a press release announcing the Agreement and Plan of Merger whereby Zions
is to merge with and into First Security Corporation with First Security as the
surviving corporation.
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
32
<TABLE> <S> <C>
<ARTICLE> 9
<LEGEND>
This schedule contains summary financial information extracted from the restated
unaudited consolidated balance sheet as of June 30, 1999 and the related
restated unaudited consolidated statement of income for the six months ended
June 30, 1999 included in the company's form 10-Q/A for the period ended June
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> 6-MOS
<FISCAL-YEAR-END> Dec-31-1999
<PERIOD-START> Apr-01-1999
<PERIOD-END> Jun-30-1999
<EXCHANGE-RATE> 1
<CASH> 882,772
<INT-BEARING-DEPOSITS> 17,757
<FED-FUNDS-SOLD> 382,373
<TRADING-ASSETS> 416,130
<INVESTMENTS-HELD-FOR-SALE> 465,838
<INVESTMENTS-CARRYING> 3,225,109
<INVESTMENTS-MARKET> 3,218,343
<LOANS> 11,047,413
<ALLOWANCE> 204,825
<TOTAL-ASSETS> 17,966,504
<DEPOSITS> 13,070,724
<SHORT-TERM> 2,563,444
<LIABILITIES-OTHER> 329,344
<LONG-TERM> 513,465
0
0
<COMMON> 758,116
<OTHER-SE> 694,249
<TOTAL-LIABILITIES-AND-EQUITY> 17,966,504
<INTEREST-LOAN> 463,227
<INTEREST-INVEST> 150,331
<INTEREST-OTHER> 0
<INTEREST-TOTAL> 613,558
<INTEREST-DEPOSIT> 189,807
<INTEREST-EXPENSE> 274,359
<INTEREST-INCOME-NET> 339,199
<LOAN-LOSSES> 7,864
<SECURITIES-GAINS> (1,113)
<EXPENSE-OTHER> 312,651
<INCOME-PRETAX> 142,772
<INCOME-PRE-EXTRAORDINARY> 91,297
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> 91,297
<EPS-BASIC> 1.16
<EPS-DILUTED> 1.14
<YIELD-ACTUAL> 4.28
<LOANS-NON> 47,509
<LOANS-PAST> 27,379
<LOANS-TROUBLED> 3,297
<LOANS-PROBLEM> 0
<ALLOWANCE-OPEN> 205,553
<CHARGE-OFFS> 19,691
<RECOVERIES> 11,099
<ALLOWANCE-CLOSE> 204,825
<ALLOWANCE-DOMESTIC> 171,182
<ALLOWANCE-FOREIGN> 0
<ALLOWANCE-UNALLOCATED> 33,643
</TABLE>
<TABLE> <S> <C>
<ARTICLE> 9
<LEGEND>
This schedule contains summary financial information extracted from the restated
unaudited consolidated balance sheet as of June 30, 1998 and the related
restated unaudited consolidated statement of income for the six months ended
June 30, 1998 included in the company's form 10-Q/A for the period ended June
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> 6-MOS
<FISCAL-YEAR-END> Dec-31-1998
<PERIOD-START> Apr-01-1998
<PERIOD-END> Jun-30-1998
<EXCHANGE-RATE> 1
<CASH> 697,265
<INT-BEARING-DEPOSITS> 56,643
<FED-FUNDS-SOLD> 1,237,072
<TRADING-ASSETS> 401,914
<INVESTMENTS-HELD-FOR-SALE> 589,448
<INVESTMENTS-CARRYING> 2,250,825
<INVESTMENTS-MARKET> 2,264,846
<LOANS> 6,284,075
<ALLOWANCE> 98,488
<TOTAL-ASSETS> 12,502,543
<DEPOSITS> 8,551,900
<SHORT-TERM> 1,739,001
<LIABILITIES-OTHER> 378,342
<LONG-TERM> 504,254
0
0
<COMMON> 754,825
<OTHER-SE> 574,221
<TOTAL-LIABILITIES-AND-EQUITY> 12,502,543
<INTEREST-LOAN> 281,967
<INTEREST-INVEST> 141,577
<INTEREST-OTHER> 0
<INTEREST-TOTAL> 423,544
<INTEREST-DEPOSIT> 123,478
<INTEREST-EXPENSE> 192,870
<INTEREST-INCOME-NET> 230,674
<LOAN-LOSSES> 6,549
<SECURITIES-GAINS> 2,923
<EXPENSE-OTHER> 219,542
<INCOME-PRETAX> 96,374
<INCOME-PRE-EXTRAORDINARY> 65,930
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> 65,930
<EPS-BASIC> 0.91
<EPS-DILUTED> 0.89
<YIELD-ACTUAL> 4.41
<LOANS-NON> 25,092
<LOANS-PAST> 18,003
<LOANS-TROUBLED> 685
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<ALLOWANCE-OPEN> 82,849
<CHARGE-OFFS> 7,636
<RECOVERIES> 3,907
<ALLOWANCE-CLOSE> 98,488
<ALLOWANCE-DOMESTIC> 19,698
<ALLOWANCE-FOREIGN> 0
<ALLOWANCE-UNALLOCATED> 78,790
</TABLE>
