<PAGE> 1
UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20459
FORM 10-K
[X] ANNUAL REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE
ACT OF 1934
FOR THE FISCAL YEAR ENDED DECEMBER 31, 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)
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<S> <C>
UTAH 87-0227400
(State of other jurisdiction of (Internal Revenue Service Employer
incorporation or organization) Identification Number)
ONE SOUTH MAIN, SUITE 1380
SALT LAKE CITY, UTAH 84111
(Address of principal executive offices) (Zip Code)
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REGISTRANT'S TELEPHONE NUMBER, INCLUDING AREA CODE: (801) 524-4787
SECURITIES REGISTERED PURSUANT TO SECTION 12(b) OF THE ACT: NONE
SECURITIES REGISTERED PURSUANT TO SECTION 12(g) OF THE ACT:
COMMON STOCK - WITHOUT PAR VALUE
- --------------------------------------------------------------------------------
(Title of Class)
Indicate by check mark whether the registrant (1) has filed all reports required
to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during
the preceding 12 months (or for such shorter period that the registrant was
required to file such reports), and (2) has been subject to such filing
requirements for the past 90 days.
Yes [X] No [ ]
Indicate by check mark if disclosure of delinquent filers pursuant to Item 405
of Regulation S-K is not contained herein, and will not be contained, to the
best of registrant's knowledge, in definitive proxy or information statements
incorporated by reference in Part III of this Form 10-K or any amendment to this
Form 10-K. ________
Aggregate Market Value of Common Stock Held by Nonaffiliates at
February 11, 2000 ..............................................$4,167,689,000
Number of Common Shares Outstanding at
February 11, 2000............................................85,619,013 Shares
DOCUMENTS INCORPORATED BY REFERENCE:
PROXY STATEMENT FOR THE ANNUAL MEETING OF STOCKHOLDERS (SEE PART III, ITEMS 10,
11, 12 AND 13).
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ZIONS BANCORPORATION
ANNUAL REPORT FOR 1999 ON FORM 10-K
TABLE OF CONTENTS
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PAGE
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PART I
Item 1. Business 1
Item 2. Properties 6
Item 3. Legal Proceedings 6
Item 4. Submission of Matters to a Vote of Security Holders (in fourth quarter 1999) 6
Executive Officers of the Registrant 7
PART II
Item 5. Market for Registrant's Common Equity and Related Stockholder Matters 8
Item 6. Selected Consolidated Financial Data 9
Item 7. Management's Discussion and Analysis of Financial Condition and Results of Operations 10
Item 8. Financial Statements and Supplementary Data 35
Item 9. Changes in and Disagreements with Accountants on Accounting and Financial Disclosure 79
PART III
Item 10. Directors and Executive Officers of the Registrant 79
Item 11. Executive Compensation 79
Item 12. Security Ownership of Certain Beneficial Owners and Management 79
Item 13. Certain Relationships and Related Transactions 79
PART IV
Item 14. Exhibits, Financial Statement Schedules, and Reports on Form 8-K 79
Signatures 83
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PART I
ITEM 1. BUSINESS
MERGER WITH FIRST SECURITY CORPORATION
On June 6, 1999 the Company entered into a definitive Agreement and Plan of
Merger (the "Agreement") with First Security Corporation (FSCO). Under the terms
of the Agreement, subject to approval by the shareholders of both companies and
certain other conditions, the Company and FSCO will combine, with the combined
company retaining the FSCO name. If the merger occurs, the combined company will
be the second largest bank holding company headquartered in the western United
States, with assets of approximately $40 billion. Under the terms of the
Agreement, each outstanding share of the Company's common stock will be
converted into one share of common stock of the combined company, and each share
of FSCO common stock will be reclassified and converted into 0.442 of a share of
common stock of the combined company.
The shareholder meetings to vote on the merger originally scheduled for December
28, 1999, but delayed in order for the Company to restate certain aspects of its
historical financial statements as described under "Restatements", were
rescheduled for March 22, 2000 for FSCO shareholders and March 31, 2000 for the
Company. The Company rescheduled its meeting from March 22, 2000 to March 31,
2000 to allow for the dissemination of certain pertinent information to its
shareholders. This information included notification that the Company's
independent financial advisor in the transaction, Goldman, Sachs & Co., had
reevaluated its fairness opinion on the merger. As a result of its review of
changes in relevant information it had evaluated in forming its earlier opinion,
Goldman, Sachs issued an updated letter to the Company's board of directors
advising them that Goldman, Sachs could no longer conclude that, from a
financial point of view, the exchange ratio is fair to Zions shareholders.
If the merger is not consummated, the Company will incur material expenses
related to disengagement of the merger and related systems integration work
completed in contemplation of the combination. The Company also owns 9,457,605
shares of First Security common stock which are classified by the Company as
available for sale. Due to recent declines in trading values of FSCO common
stock, the Company would expect to record material unrealized losses on the FSCO
common stock as of March 31, 2000. At March 27, 2000 the unrealized pre-tax loss
on FSCO common stock owned by the Company was approximately $119 million.
RESTATEMENTS
As a result of an interpretation by the Securities and Exchange Commission Staff
regarding the treatment of share repurchases under Staff Accounting Bulletin 96,
the Company restated the presentation of 8 of 13 business combinations,
consummated during 1998 and 1997, as purchases rather than as poolings of
interests.
As a result of the foregoing, the Company's 1996, 1997, and 1998 consolidated
financial statements were restated from amounts previously reported and a Form
10-K/A for 1998 was filed in February 2000 reflecting the restated amounts.
Financial data has also been restated as a result of the Company's acquisition
of Pioneer Bancorporation in a transaction accounted for as a pooling of
interests and considered significant.
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DESCRIPTION OF BUSINESS
Zions Bancorporation is a multibank holding company organized under the laws of
Utah in 1955, and registered under the Bank Holding Company Act of 1956, as
amended. Zions Bancorporation and Subsidiaries (the Company) owns and operates
six commercial banks with a total of 362 offices. The Company provides a full
range of banking and related services through its banking and other
subsidiaries, primarily in Utah, Idaho, California, Colorado, Arizona, Nevada
and Washington. On December 31, 1999 the Company had total assets of
approximately $20.3 billion, loans of $12.8 billion, deposits of $14.1 billion
and shareholders' equity of $1.7 billion. Active full-time equivalent employees
totaled 6,833 at year-end 1999. For further information about the Company's
industry segments see Business Segment Results and Note 20 of Notes to
Consolidated Financial Statement.
GROWTH
During October 1999, the Company acquired Pioneer Bancorporation headquartered
in Reno, Nevada, and its wholly-owned subsidiary Pioneer Citizens Bank of
Nevada, in a transaction accounted for as a pooling of interests. Pioneer
Citizens Bank of Nevada, with total assets of approximately $1.1 billion on
September 30, 1999, was merged into Nevada State Bank. Also in October 1999, the
Company completed the acquisition of Regency Bancorp headquartered in Fresno,
California and its banking subsidiary Regency Bank, in a purchase transaction.
On September 30, 1999 Regency Bank had total assets of approximately $230
million. Regency Bank was merged with the Company's California banking
subsidiary, California Bank & Trust.
In 1998, the Company experienced unprecedented merger activity with the
completion of 12 bank acquisitions in 3 states. The most significant acquisition
during the year was the purchase of The Sumitomo Bank of California with total
assets of approximately $4.5 billion. The Sumitomo Bank of California and First
Pacific National Bank, also acquired during 1998, were merged with the Company's
Grossmont Bank subsidiary which was renamed California Bank & Trust. California
Bank & Trust is the sixth largest commercial banking organization in California
with approximately $6 billion in total assets and 74 offices throughout the
state.
The Company also significantly expanded its operations in Colorado during 1998
building on the acquisition of Aspen Bancshares in 1997. Acquisitions in
Colorado during 1998 included Vectra Banking Corporation located in Denver and
eight small banks which expanded the Company's operations into the Colorado
Springs area, Steamboat Springs and the San Luis Valley in Southern Colorado.
Another acquisition completed during 1998 was The Commerce Bank of Washington
with total assets of approximately $300 million. The Commerce Bank of Washington
is based in Seattle and focuses on serving the needs of small and medium-sized
businesses in the Puget Sound area.
In January 2000 the Company signed an agreement to purchase County Bank
headquartered in Prescott, Arizona. County Bank has approximately $242 million
in assets and approximately 150 employees in seven offices. The transaction is
expected to be accounted for as a pooling of interests and is anticipated to
close during the second quarter of 2000.
For further information about merger activities see Note 2 of Notes to
Consolidated Financial Statements.
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PRODUCTS AND SERVICES
The Company focuses on maintaining community-minded banking by strengthening its
core business lines of retail banking, small and medium-sized business lending,
residential mortgage and investment activities. The banks provide a wide variety
of commercial and retail banking and mortgage-lending financial services.
Commercial loans, lease financing, cash management, lockbox, customized draft
processing, and other special financial services are provided for business and
other commercial banking customers. A wide range of personal banking services
are provided to individuals, including bankcard, student and other installment
loans and home equity lines of credit, checking accounts, savings accounts, time
certificates of various types and maturities, trust services, safe deposit
facilities, direct deposit and 24 hour ATM access. Zions First National Bank
also provides services to key segments through its Women's Financial, Private
Banking and Executive Banking Groups.
In addition to these core businesses, the Company has built specialized lines of
business in capital markets and public finance. The Company is the only primary
dealer in U.S. Treasury securities headquartered west of the Mississippi River.
It has pioneered the online trading of government securities through its
websites, which display live, executable quotes to financial institutions and
money managers nationwide. During the fourth quarter of 1999, Zions announced
its acquisition of approximately 5% of the common stock of Garban-Intercapital
plc. Garban is one of the world's largest interdealer brokers. Zions believes
that this relationship with Garban will enhance its product offerings and
electronic trading capabilities. The Company's combined public finance
operations constitute one of the largest municipal finance advisory firms in the
country and ranked ninth in the Securities Data Corporation's listing of the
nation's top 100 municipal advisors.
The Company is also a leader in U.S. Small Business Administration ("SBA")
lending. Through Zions Small Business Finance division, the Company provides SBA
7(a) loans to small businesses throughout the United States. The Company's SBA
504 group works with Certified Development Companies and correspondent banks to
provide the nation's largest source of secondary market financing for this loan
program. The Company also owns nearly a 20 percent equity interest in the
Federal Agricultural Mortgage Corporation ("Farmer Mac") and originates and
sells qualified loans to Farmer Mac.
The Company is developing a reputation as one of the industry's real innovators
in providing customer solutions in the new world of electronic commerce. 1999
was a pivotal year for Zions' electronic commerce subsidiary, Digital Signature
Trust Co. (DST). DST completed critical infrastructure development to meet the
needs of commercial enterprise and government clients that trust their
e-business security initiatives to DST. Among its accomplishments, the U.S.
General Services Administration awarded DST the first contract to issue digital
certificates to the American public on behalf of federal agencies under the
Access Certificates for Electronic Services (ACES) program; the Department of
Defense selected DST to provide certificates for its vendor e-commerce program;
and, the state of California approved DST to provide digital certificate
services to state and local government in California. The Company has also
developed an Internet presence for conducting retail banking business, including
a Web-based bill payment system.
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OTHER NONBANKING SUBSIDIARIES
The Company conducts various other bank-related business activities through
subsidiaries of Zions First National Bank and the Parent. Zions Credit
Corporation, a subsidiary of Zions First National Bank, engages in lease
origination and servicing operations primarily in Utah, Nevada, and Arizona.
Zions Investment Securities, Inc., also a subsidiary of the Bank, provides
discount investment brokerage services on a nonadvisory basis to both commercial
and consumer customers. Personal investment officers employed by this discount
brokerage subsidiary provide customers with a wide range of investment products,
including municipal bond, mutual funds and tax-deferred annuities. Wasatch
Venture Corporation and Wasatch Venture Fund II, LLC provide early-stage
capital, primarily for technology companies located in the West. Zions Life
Insurance Company underwrites, as reinsurer, credit-related life and disability
insurance. Zions Insurance Agency, Inc. operates an insurance brokerage
business, which administers various credit-related insurance programs in the
Company's subsidiaries and sells general lines of insurance. Zions Management
Services Company provides administrative, data processing, and other services to
other subsidiaries of the Company.
COMPETITION
Zions Bancorporation and its subsidiaries operate in a highly competitive
environment due to the diverse financial services and products they offer.
Competitors include not only other banks, thrift institutions, credit unions,
and mutual funds, but also, insurance companies, finance companies, brokerage
firms, investment banking companies, and a variety of other financial services
and advisory companies. Many of these competitors are not subject to the same
regulatory restrictions as the Company. Most of these unregulated competitors
compete across geographic boundaries and provide customers increasing access to
meaningful alternatives to banking services in many significant products. These
competitive trends are likely to continue.
SUPERVISION AND REGULATION
Zion Bancorporation is a bank holding company within the meaning of the Bank
Holding Company Act (the "Act") and is registered as such with the Federal
Reserve Board. The Company is required to file reports of its operations with
the Board of Governors of the Federal Reserve System and is subject to
examination by it. Under the Act, the Company is restricted as to the activities
in which it may engage and the nature of any company which it controls or holds
more than 5% of the voting stock. Generally, allowable activities are those
which are determined by the Federal Reserve Board to be closely related to
banking and a proper incident thereto. Additionally under the Act, prior
approval by the Board of Governors is required for a bank holding company to
acquire substantially all the assets of any domestic bank or savings association
or the ownership or control of more than 5% of its voting shares.
Under the Riegle-Neal Interstate Branching and Efficiency Act of 1994, bank
holding companies which are adequately capitalized and managed are permitted to
acquire control of a bank located outside the bank holding company's home state
subject to certain limitations. The merger of commonly owned banks in different
states is also permitted except in states that have passed legislation to
prohibit such mergers. The statute also permits banks to establish branches
outside their home state in states that pass legislation to permit branch
banking.
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The Federal Reserve Board has established risk-based capital guidelines for bank
holding companies. The Comptroller of the Currency (OCC), the Federal Deposit
Insurance Corporation (FDIC) and the Federal Reserve Board have also issued
regulations establishing capital requirements for banks under federal law.
Failure to meet capital requirements could subject the Company and its
subsidiary banks to a variety of restrictions and enforcement remedies. See Note
17 of Notes to Consolidated Financial Statements for information regarding
risk-based capital requirements.
The Company's banking subsidiaries are also subject to various requirements and
restrictions in the laws of the U.S. and the states in which the banks operate.
These include restrictions on the amount of loans to a borrower and its
affiliates, the nature and amount of their investments, their ability to act as
an underwriter of securities, the opening of branches and the acquisition of
other banks or savings associations. The subsidiary banks are under the
supervision of, and are subject to periodic examination by, the OCC or the
respective state banking departments, and are subject to the rules and
regulations of the OCC, the Board of Governors of the Federal Reserve System and
the FDIC. They are also subject to certain laws of each state in which such
banks are located.
Dividends payable by the subsidiary banks to Zions Bancorporation are subject to
various legal and regulatory restrictions. These restrictions and the amount
available for the payment of dividends at year-end are summarized in Note 17 of
Notes to Consolidated Financial Statements.
The Financial Institutions Reform, Recovery and Enforcement Act of 1989
("FIRREA") provides that a holding company's controlled insured depository
institutions are liable for any loss incurred by the FDIC in connection with the
default of any FDIC-assisted transaction involving an affiliated insured bank or
savings association.
The Federal Deposit Insurance Corporation Improvement Act of 1991 ("FDICIA")
prescribes standards for safety and soundness of insured banks. These standards
relate to internal controls, information systems, internal audit systems, loan
documentation, credit underwriting, interest rate exposure, asset growth,
compensation, as well as other operational and management standards deemed
appropriate by the agencies.
The Community Reinvestment Act ("CRA") requires banks to help serve the credit
needs in their communities, including credit to low and moderate income
individuals and geographies. Should the Company or its subsidiaries fail to
adequately serve the community, there are penalties which might be imposed
including denials of applications to expand branches, relocate, add subsidiaries
and affiliates and merge with or purchase other financial institutions.
Regulators and Congress continue to enact rules, laws, and policies to regulate
the industry and protect consumers. The nature of these regulations and the
effect of such policies on future business and earnings of the Company cannot be
predicted.
GOVERNMENT MONETARY POLICIES
The earnings and business of the Company are affected not only by general
economic conditions, but also by fiscal and other policies adopted by various
governmental authorities. The Company is particularly affected by the policies
of the Federal Reserve Board which affects the national supply of bank credit.
The instruments of monetary policy available to the Federal Reserve
5
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Board include open-market operations in United States government securities;
manipulation of the discount rates of member bank borrowings; imposing or
changing reserve requirements against member bank deposits; and imposing or
changing reserve requirements against certain borrowings by banks and their
affiliates. These methods are used in varying combinations to influence the
overall growth of bank loans, investments and deposits, and the interest rates
charged on loans or paid for deposits.
In view of the changing conditions in the economy and the effect of the credit
policies of monetary authorities, it is difficult to predict future changes in
loan demand, deposit levels and interest rates, or their effect on the business
and earnings of the Company. Federal Reserve monetary policies have had a
significant effect on the operating results of commercial banks in the past and
are expected to continue to do so in the future.
EMPLOYEES
At December 31, 1999, the Company employed approximately 6,833 full- and
part-time people with approximately 5,850 being employed by the banking
subsidiaries. The Company had 7,099 full-time equivalent employees at December
31, 1998, compared to 4,652 at December 31, 1997. The Company believes that it
enjoys good employee relations. In addition to competitive salaries and wages,
Zions Bancorporation and its subsidiaries contribute to group medical plans,
group insurance plans, pension, and stock ownership plans.
ITEM 2. PROPERTIES
Zions First National Bank operates 137 branches, of which 66 are owned by the
Company and 71 are on leased premises. For Vectra Bank Colorado, 32 of 55
branches are owned and the remaining 23 branches are on leased premises.
California Bank & Trust owns 17 of their 74 branches and leases the remaining 57
branch premises. Nevada State Bank operates 58 branches, of which 12 are owned
and 46 are on leased premises. In Arizona, 17 of 37 branches are owned and the
remaining 20 branches are on leased premises. In Washington, The Commerce Bank
of Washington operates 1 branch on leased premises. The annual rentals under
long-term leases for such banking premises are determined under various formulas
and include as various factors, operating costs, maintenance and taxes. The
Company's subsidiaries conducting lease financing, insurance, and discount
brokerage activities operate from leased premises.
For information regarding rental payments, see Note 12 of Notes to Consolidated
Financial Statements.
ITEM 3. LEGAL PROCEEDINGS
The Company is the defendant in various legal proceedings arising in the normal
course of business. The Company does not believe the outcome of any such
proceedings will have a material adverse effect on its consolidated financial
position, operations, or liquidity.
ITEM 4. SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS
No matters were submitted to a vote of the security holders during the fourth
quarter of 1999.
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EXECUTIVE OFFICERS OF THE REGISTRANT
The names, ages, positions, and backgrounds of the Company's executive officers
as of February 11, 2000 are set forth as follows:
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Positions and Offices Held With Officer
Individual Zions Bancorporation and Principal Subsidiaries Since Age
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Roy W. Simmons Chairman of the Company; Member of the Board of 1961 84
Directors of Zions First National Bank; prior to
January 1998, Chairman of Zions First National
Bank.
Harris H. Simmons President and Chief Executive Officer of the 1981 45
Company; Chairman of Zions First National Bank; prior
to January 1998, President and Chief Executive
Officer of Zions First National Bank.
A. Scott Anderson Executive Vice President of the Company; President 1971(1) 53
and Chief Executive Officer of Zions First
National Bank; prior to January 1998, Executive
Vice President of Zions First National Bank.
Danne L. Buchanan Executive Vice President of the Company; prior to 1995 42
March 1995, Senior Vice President and General
Manager of Zions Data Services Company.
Gerald J. Dent Executive Vice President of the Company; Executive 1987 58
Vice President of Zions First National Bank.
Dale M. Gibbons Executive Vice President, Chief Financial Officer 1996 39
and Secretary of the Company; Executive Vice
President and Secretary of Zions First National
Bank; prior to August 1996, Senior Vice President
of First Interstate Bancorp.
John J. Gisi Senior Vice President of the Company; Chairman and 1994 54
Chief Executive Officer of National Bank of
Arizona.
James C. Hawkanson Senior Vice President of the Company; Managing 1998 56
Director and Chief Executive Officer of The
Commerce Bank of Washington.
W. David Hemingway Executive Vice President of the Company; Executive 1997(2) 52
Vice President of Zions First National Bank.
Clark B. Hinckley Senior Vice President of the Company; prior to 1994 52
March 1994, President of Zions First National Bank
of Arizona.
George Hofmann III Senior Vice President of the Company; President 1995 50
and Chief Executive Officer of Nevada State Bank;
prior to April 1995, Senior Vice President of
Zions First National Bank.
Gary S. Judd Senior Vice President of the Company; President 1998 59
and Chief Executive Officer of Vectra Bank
Colorado.
Robert G. Sarver Executive Vice President of the Company; Chairman 1998(3) 38
and Chief Executive Officer of California Bank &
Trust; prior to 1995, President of National Bank
of Arizona.
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Nolan X. Bellon Controller of the Company; prior to June 1998, 1987 51
Controller of Zions First National Bank.
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(1) Officer of Zions First National Bank since 1990.
(2) Officer of Zions First National Bank since 1977.
(3) Member of the Board of Directors since 1994.
PART II
ITEM 5. MARKET FOR REGISTRANT'S COMMON EQUITY AND STOCKHOLDER MATTERS
Principal market where the Company's common stock is traded:
Nasdaq: ZION
High and low quarterly stock prices:
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1999 1998
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HIGH LOW HIGH LOW
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1st Quarter $68.31 $57.00 $55.69 $39.56
2nd Quarter 75.88 54.09 54.00 48.06
3rd Quarter 64.41 49.00 57.25 38.38
4th Quarter 67.56 53.19 62.38 39.13
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As of February 11, 2000, there were 6,480 common shareholders of the Company's
stock.
Frequency and amount of dividends paid during the last three years:
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1st 2nd 3rd 4th
QTR QTR QTR QTR
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1999 $.14 $.29 $.29 None
1998 .12 .14 .14 .14
1997 .11 .12 .12 .12
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ITEM 6. SELECTED CONSOLIDATED FINANCIAL DATA
The following selected consolidated financial data is derived from the audited
consolidated financial statements of the Company. It should be read in
conjunction with the Company's consolidated financial statements and the related
notes and with management's discussion and analysis of financial condition and
results of operations and other detailed information included elsewhere herein.
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99/98
FOR THE YEAR (in millions) CHANGE 1999 1998 1997 1996 1995
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Net income + 35% $194.1 $143.4 $131.4 $112.8 $90.8
Operating cash earnings(1) + 25% 243.8 194.4 138.3 115.0 93.0
PER SHARE
Net income (diluted) + 29% $ 2.26 $ 1.75 $ 1.92 $ 1.69 $ 1.42
Net income (basic) + 29% 2.29 1.77 1.95 1.71 1.44
Operating cash earnings
(diluted)(1) + 20% 2.84 2.37 2.03 1.73 1.46
Dividends declared + 33% .72 .54 .47 .43 .35
Book value(2) + 12% 19.39 17.39 12.50 9.00 7.83
Market price - end 59.19 62.38 45.38 26.00 20.06
Market price - high 75.88 62.38 46.00 26.00 20.28
Market price - low 49.00 38.38 25.69 16.69 8.88
AT YEAR END
Assets + 12% $20,281 $18,050 $10,794 $7,353 $6,302
Loans and leases + 14% 12,791 11,219 5,463 3,942 3,213
Loans sold being serviced(3) + 18% 1,252 1,057 1,050 868 831
Deposits - 1% 14,062 14,221 7,830 5,301 4,675
Shareholders' equity + 14% 1,660 1,453 857 569 480
PERFORMANCE RATIOS
Return on average assets .97% 1.00% 1.35% 1.58% 1.45%
Return on average common
equity 12.42% 10.98% 19.40% 21.54% 20.52%
Efficiency ratio 66.55% 70.10% 59.33% 56.50% 59.08%
Net interest margin 4.31% 4.56% 4.29% 4.69% 4.67%
OPERATING CASH PERFORMANCE
RATIOS(1)
Return on average assets 1.27% 1.41% 1.45% 1.62% 1.49%
Return on average common
equity 26.87% 26.56% 25.40% 23.36% 22.06%
Efficiency ratio 60.33% 61.32% 57.99% 55.96% 58.40%
CAPITAL RATIOS(2)
Equity to assets 8.18% 8.05% 7.94% 7.73% 7.61%
Tier 1 leverage 6.16% 5.91% 6.92% 8.91% 6.43%
Tier 1 risk-based capital 8.64% 8.40% 11.96% 14.36% 11.30%
Total risk-based capital 11. 29% 11.34% 13.85% 16.71% 13.94%
SELECTED INFORMATION
Average common-equivalent shares
(in thousands) 85,695 81,918 68,258 66,547 63,871
Common dividend payout ratio 29.33% 28.40% 22.10% 22.20% 22.68%
Full-time equivalent
employees 6,833 7,099 4,652 3,327 3,085
Commercial Banking Offices 362 345 241 153 141
ATM's 484 476 495 337 264
</TABLE>
(1) Before amortization of goodwill and core deposit intangible assets and
merger expense.
(2) At year end
(3) Amount represents the outstanding balance of loans and receivables sold
and being serviced by the Company, excluding long- term first mortgage
residential real estate loans.
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ITEM 7. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS
OF OPERATIONS
The following analysis of the Company's financial condition and results of
operations as of and for the years ended December 31, 1999, 1998, and 1997
should be read in conjunction with the consolidated financial statements of the
Company and detailed information presented elsewhere herein.
PERFORMANCE SUMMARY
Zions Bancorporation reported record earnings of $194.1 million or $2.26 per
share in 1999. Net income increased 35.4% over the $143.4 million earned in 1998
which was up 9.1% over the $131.4 million earned in 1997. On a diluted net
income per share basis, per share earned increased 29.1% to $2.26 in 1999
compared to $1.75 in 1998. Per share earnings decreased from $1.92 to $1.75, an
8.9% decrease, from 1997 to 1998. Dividends per share were $.72 per share in
1999, an increase of 33.3% over $.54 in 1998, which were up 14.9% from $.47 in
1997. Financial results have been restated for prior periods to reflect the
acquisition of Pioneer Bancorporation during 1999, which was accounted for as a
pooling of interests and considered significant. During 1999 the Company also
acquired Regency Bancorp in a transaction accounted for as a purchase. Results
of operations for Regency are included from October 1, 1999. The acquisitions of
Vectra Banking Corporation, FP Bancorp, Inc., and The Sumitomo Bank of
California during 1998 were accounted for as purchases. The results of
operations for Vectra Banking Corporation and FP Bancorp, Inc., were for
accounting convenience, included from effective dates of acquisition, January 1,
1998 and April 1, 1998, respectively, resulting in immaterial differences to
results of operations. Results of operations for Sumitomo Bank of California are
included from October 1, 1998, actual date of acquisition. Therefore, results of
operations can not be compared directly between periods.
Included in reported net income were after-tax merger expenses of $18.5 million
or $.22 per share in 1999 and $24.1 million or $.29 per share in 1998. Excluding
merger expenses, earnings for 1999 would have been $212.6 million or $2.48 per
share, an increase of 26.9% and 21.6%, respectively, over $167.5 or $2.04 for
1998. Merger expenses relate to the company's acquisitions as described in Note
2 of Notes to Consolidated Financial Statements.
The return on average shareholders' equity was 12.42% and the return on average
assets was 0.97% for 1999, compared with 10.98% and 1.00%, respectively, in
1998, and 19.40% and 1.35%, respectively, in 1997.
The Company is also providing its earnings performance on an operating cash
basis since it believes that its cash operating performance is a better
reflection of its financial position and shareholder value creation as well as
its ability to support growth and return capital to shareholders than reported
net income. Operating cash earnings are earnings before the amortization of
goodwill and core deposit intangible assets and merger expense.
Operating cash earnings were $243.8 million or $2.84 per share for 1999, an
increase of 25.4% and 19.8%, respectively, over the $194.4 or $2.37 per share
for 1998, which was up 40.5% and 16.7% over the $138.3 million or $2.03 per
share in 1997. The return on average shareholders' equity and the return on
average assets on an operating cash basis were 26.87% and 1.27%, respectively,
for 1999 compared to 26.56% and 1.41% for 1998 and 25.40% and 1.45% for 1997.
10
<PAGE> 13
The strong performance of the Company was driven by a 54.9% growth in average
loans and leases and a 37.1% growth in average total earning assets that led to
a 29.8% increase in taxable-equivalent net interest income to $757.7 million in
1999. Noninterest income increased 26.8% to $266.5 million in 1998, with strong
growth in service charges, trust income, underwriting and trading income.
Noninterest expense, including merger expenses increased 22.4% to $681.6 million
in 1999. Excluding merger expenses, noninterest expense increased 26.1% over
1998. The increase in revenue and noninterest expense is mainly attributable to
the record growth of the Company during 1999 and 1998 through acquisitions and
expansion. The Company's efficiency ratio, or noninterest expenses as a
percentage of total taxable-equivalent net revenues, was 66.55% for 1999
compared to 70.10% for 1998 and 59.33% for 1997. The operating cash performance
efficiency ratio was 60.33% for 1999 compared to 61.32% for 1998 and 57.99% for
1997.
The Company's provision for loan losses totaled $18.0 million for 1999 compared
to $14.0 million for 1998. Net charge-offs were $29.0 million, or .25% of
average loans and leases in 1999 compared to $15.8 million or .21% in 1998.
Nonperforming assets increased to $75 million or .58% of loans and other real
estate owned on December 31, 1999 from $65 million or .58% on December 31, 1998.
BUSINESS SEGMENT RESULTS
The Company manages its operations and prepares management reports with a
primary focus on geographical area. Operating segments information is presented
in Note 20 of Notes to Consolidated Financial Statements. The Company allocates
centrally provided services to the business segments based upon estimated usage
of those services. The operating segment identified as other includes the
Parent, several smaller business units and inter-segment eliminations.
ZIONS FIRST NATIONAL BANK AND SUBSIDIARIES
Zions First National Bank and Subsidiaries include the Company's operations in
Utah and Idaho. The Bank experienced strong internal loan growth in 1999 with
loans increasing 16.4% over 1998. Net income increased 31.2% to $114.2 million
compared to $87.1 million for 1998 which was down 1.5% from the $88.5 million
earned in 1997. The increase in net income for 1999 compared to 1998 results
mainly from a $27.2 million increase in noninterest income and a $8.0 million
decrease in other noninterest expense. The increase in noninterest income for
1999 is mainly attributable to gains experienced by the Bank's venture capital
subsidiary, Wasatch Venture Corporation, and increased income from investments
in bank owned life insurance. The decrease in noninterest expense includes a
$4.6 million decrease in amortization of mortgage servicing rights resulting
from the Bank's sale of mortgage servicing rights during the first quarter of
1999. The decrease in net income for 1998 was due to a $23.0 million loan loss
provision in 1998. No provision for loan losses was required in 1997.
CALIFORNIA BANK & TRUST
Results of operations for California Bank & Trust for the years presented are
not directly comparable because of acquisitions accounted for as purchases
during 1999 and 1998. See Note 2 of Notes to Consolidated Financial Statements
for further information about the acquisitions.
11
<PAGE> 14
California Bank & Trust reported net income of $49.4 million for 1999 compared
to $16.4 million for 1998 and $3.3 million for 1997. The increases in earnings
for 1999 and 1998 resulted mainly from the acquisitions consummated during those
years and increased efficiencies attained during 1999. Net income for 1998
included income only for the last three months of 1998 from the acquisition of
The Sumitomo Bank of California. The Bank incurred pre-tax merger charges of
$9.5 million during 1999 related mainly to the acquisition of Regency Bancorp
and $27.5 million during 1998 related to the Sumitomo and FP Bancorp, Inc.
acquisitions.
VECTRA BANK COLORADO
In January 1998 the Company acquired Vectra Banking Corporation in a transaction
accounted for as a purchase. Vectra had total assets of $703 million, loans of
$413 million and deposits of $556 million. During 1998 the Company also acquired
eight smaller banks in Colorado. The acquired banks, along with previously owned
Colorado banking organizations, were merged during 1998 under the name of Vectra
Bank Colorado, National Association. See Note 2 of Notes to Consolidated
Financial Statements for further information about the acquisitions.
Net income for Vectra Bank Colorado decreased 44.0% to $2.0 million from $3.6
million in 1998 which was up 63.3% from the $2.2 million earned in 1997. Pre-tax
merger expenses of $4.3 million were incurred during 1998 in connection with the
acquisitions. The decreased earnings for 1999 were in part attributable to the
expenses related to the conversion of acquired banks to Zions' systems. The
increased earnings for 1998 resulted from the acquisition of Vectra and other
banks in 1998 and strong loan growth.
NATIONAL BANK OF ARIZONA
Net income at National Bank of Arizona was up 18.1% to $26.2 million in 1999 as
compared to $22.2 million in 1998 and $17.8 million for 1997. The increases for
both 1999 and 1998 were driven by strong loan growth. Noninterest income for
1999 increased to $13.0 million from $9.3 for 1998, an increase of 39.8%. The
increase in noninterest income for 1999 included a $2.0 million increase in
service charges and other fee income, $1.0 million from a new trust operation
started in Arizona during 1998, and $.7 million from increased investments in
bank owned life insurance.
NEVADA STATE BANK
Net income at Nevada State Bank decreased 31.4% to $18.5 million as compared to
$27.0 million in 1998 and $22.2 million for 1997. The decrease for 1999 resulted
mainly from the Bank's incurring $12.6 million of pre-tax merger expense related
to the acquisition of Pioneer Bancorporation. Net interest income increased
10.3% for 1999 compared to 1998 and 27.5% for 1998 compared to 1997.
THE COMMERCE BANK OF WASHINGTON
The Commerce Bank of Washington was acquired in September 1998 and accounted for
as a pooling of interests. The bank operates one branch located in Seattle,
Washington. Net income for 1999 was $5.7 million compared to net income of $.1
million for 1998 and $4.5 million for 1997. The increase in earnings for 1999
compared to 1998 is mainly due to $7.7 million of pre-tax merger expense
incurred by the Bank in 1998.
12
<PAGE> 15
OTHER
Other includes the parent only and other various nonbank subsidiaries. The
increased net loss for 1999 compared to 1998 of $9.1 million is mainly due to
increased net interest (loss) incurred by the holding company of $10.4 million
related to increased borrowings for the purchase of First Security Corporation
common stock and other matters.
INCOME STATEMENT ANALYSIS
NET INTEREST INCOME, MARGIN AND INTEREST RATE SPREADS
Net interest income on a tax-equivalent basis is the difference between interest
earned on assets and interest paid on liabilities, with adjustments made to
present income on assets exempt from income taxes comparable to other taxable
income. Changes in the mix and volume of earning assets and interest-bearing
liabilities, their related yields and overall interest rates have a major impact
on earnings. In 1999, taxable-equivalent net interest income provided 74.0% of
the Company's net revenues, compared with 73.5% in 1998 and 71.9% in 1997.
The Company's taxable-equivalent net interest income increased by 29.8% to
$757.7 million in 1999 as compared to $583.9 million in 1998 and $379.1 million
in 1997. The increased level of taxable-equivalent net interest income was
driven by a 37.1% and 44.9% growth in average earning assets for 1999 and 1998,
respectively. The Company manages its earnings sensitivity to interest rate
movements, in part, by matching the repricing characteristics of its assets and
liabilities and, to a lesser extent, through the use of off-balance sheet
arrangements such as caps, floors and interest rate exchange contracts. Net
interest income from the use of such off-balance sheet arrangements for 1999 was
$8.3 million compared to $6.9 million in 1998 and $2.5 million in 1997.
The increase in net interest income was partially offset by the continued
securitization and sale of loans. Securitized loan sales convert net interest
income from loans to gains on loan sales and servicing revenue reported in
noninterest income. Loan sales improve the Company's liquidity, limit its
exposure to credit losses, and may reduce its capital requirements.
The net interest margin, the ratio of taxable-equivalent net interest income to
average earning assets, was 4.31% in 1999, 4.56% in 1998 and 4.29% in 1997. The
decrease in the margin for 1999 was primarily due to continued robust loan
growth financed by short-term funding sources instead of traditional core
deposit growth normally experienced by the Company.
Schedule 1 analyzes the average balances, the amount of interest earned or paid,
and the applicable rates for the various categories of earning assets and
interest-bearing funds which represent the components of net interest income.
Schedule 2 analyzes the year-to-year changes in net interest income on a fully
taxable-equivalent basis for the years shown. In the schedules, the principal
amounts of nonaccrual and renegotiated loans have been included in the average
loan balances used to determine the rate earned on loans. Interest income on
nonaccrual loans is included in income only to the extent that cash payments
have been received and not applied to principal reductions. Interest on
restructured loans is generally accrued at reduced rates.
The incremental tax rate used for calculating the taxable-equivalent adjustment
was 35% for all years presented.
13
<PAGE> 16
SCHEDULE 1
DISTRIBUTION OF ASSETS, LIABILITIES, AND SHAREHOLDERS' EQUITY
AVERAGE BALANCE SHEETS, YIELDS AND RATES
<TABLE>
<CAPTION>
1999 1998
-------------------------------- --------------------------------
(Amounts in millions) AMOUNT Amount
AVERAGE OF AVERAGE Average of Average
BALANCE INTEREST(1) RATE Balance Interest(1) Rate
-------- ----------- ---- -------- ----------- ----
<S> <C> <C> <C> <C> <C> <C>
ASSETS:
Money market investments $ 1,185 $ 67.2 5.67% $ 1,629 $ 92.3 5.67%
Securities:
Held to maturity 3,277 204.6 6.24% 2,271 154.8 6.82%
Available for sale 741 42.4 5.72% 849 48.6 5.72%
Trading account 538 30.1 5.59% 430 24.0 5.58%
-------- ---------- -------- ----------
Total securities 4,556 277.1 6.08% 3,550 227.4 6.41%
-------- ---------- -------- ----------
Loans:
Loans held for sale 178 12.2 6.85% 202 14.3 7.08%
Net loans and leases(2) 11,641 1,019.0 8.75% 7,430 708.8 9.54%
-------- ---------- -------- ----------
Total loans 11,819 1,031.2 8.72% 7,632 723.1 9.47%
-------- ---------- -------- ----------
Total interest-earning assets $ 17,560 $ 1,375.5 7.83% $ 12,811 $ 1,042.8 8.14%
---------- ----------
Cash and due from banks 856 657
Allowance for loan losses (211) (132)
Goodwill and core deposit intangibles 655 573
Other assets 1,052 488
-------- --------
Total assets $ 19,912 $ 14,397
======== ========
LIABILITIES:
Interest-bearing deposits:
Savings and NOW deposits $ 1,812 $ 44.1 2.43% $ 1,338 $ 39.4 2.94%
Money market and super NOW deposits 5,521 203.6 3.69% 3,712 134.5 3.62%
Time deposits under $100,000 2,085 98.5 4.72% 1,651 85.7 5.19%
Time deposits $100,000 or more 1,257 61.1 4.86% 894 49.3 5.51%
Foreign deposits 165 7.2 4.36% 182 8.2 4.51%
-------- ---------- -------- ----------
Total interest-bearing deposits 10,840 414.5 3.82% 7,777 317.1 4.08%
-------- ---------- -------- ----------
Borrowed funds:
Securities sold, not yet purchased 271 15.6 5.76% 202 10.0 4.95%
Federal funds purchased and security
repurchase agreements 2,369 108.5 4.58% 1,908 90.5 4.74%
Commercial paper 194 10.8 5.57% 28 1.6 5.71%
FHLB advances and other borrowings:
Less than one year 545 28.5 5.23% 63 4.0 6.35%
Over one year 76 4.8 6.32% 114 6.6 5.79%
Long-term debt 453 35.1 7.75% 347 29.1 8.39%
-------- ---------- -------- ----------
Total borrowed funds 3,908 203.3 5.20% 2,662 141.8 5.33%
-------- ---------- -------- ----------
Total interest-bearing liabilities $ 14,748 $ 617.8 4.19% $ 10,439 $ 458.9 4.40%
---------- ----------
Noninterest-bearing deposits 3,249 2,448
Other liabilities 316 196
-------- --------
Total liabilities 18,313 13,083
Minority interest 37 9
Total shareholders' equity 1,562 1,305
-------- --------
Total liabilities and shareholders' equity $ 19,912 $ 14,397
======== ========
Spread on average interest-bearing funds 3.64% 3.74%
==== ====
Net interest income and net yield
on interest-earning assets $ 757.7 4.31% $ 583.9 4.56%
========== ==== ========== ====
</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.
14
<PAGE> 17
<TABLE>
<CAPTION>
1997 1996 1995
--------------------------------- ------------------------------ ------------------------------
Amount Amount Amount
Average of Average Average of Average Average of Average
Balance Interest(1) Rate Balance Interest(1) Rate Balance Interest(1) Rate
------- ----------- ------- ------- ----------- ------- ------- ----------- -------
<S> <C> <C> <C> <C> <C> <C> <C> <C>
$ 1,558 $ 88.3 5.67% $ 946 $ 52.9 5.59% $ 964 $ 57.2 5.93%
1,790 126.5 7.07% 1,314 93.9 7.15% 1,195 85.6 7.16%
671 46.0 6.86% 566 38.7 6.84% 450 32.3 7.18%
276 16.2 5.87% 156 9.2 5.90% 147 9.2 6.26%
------- ------- ------- ------- ------- -------
2,737 188.7 6.89% 2,036 141.8 6.96% 1,792 127.1 7.09%
------- ------- ------- ------- ------- -------
163 11.9 7.30% 151 11.5 7.62% 116 9.3 8.02%
4,384 437.6 9.98% 3,409 340.5 9.99% 2,850 294.4 10.33%
------- ------- ------- ------- ------- -------
4,547 449.5 9.89% 3,560 352.0 9.89% 2,966 303.7 10.24%
------- ------- ------- ------- ------- -------
$ 8,842 $ 726.5 8.22% $ 6,542 $ 546.7 8.36% $ 5,722 $ 488.0 8.53%
------- ------- ------- -------
471 368 361
(81) (75) (73)
132 31 21
341 257 235
------- ------- -------
$9,705 $7,123 $6,266
======= ======= =======
$ 860 $ 24.6 2.86% $ 730 $ 21.7 2.97% $ 825 $ 24.6 2.98%
2,532 100.5 3.97% 2,017 78.9 3.91% 1,587 66.3 4.18%
866 44.9 5.18% 713 37.2 5.22% 671 34.9 5.20%
310 18.0 5.81% 223 12.8 5.74% 204 11.8 5.78%
142 6.4 4.51% 121 5.4 4.46% 139 7.2 5.18%
------- ------- ------- ------- ------- -------
4,710 194.4 4.13% 3,804 156.0 4.10% 3,426 144.8 4.23%
------- ------- ------- ------- ------- -------
92 5.3 5.76% 77 4.5 5.84% 90 5.6 6.22%
2,206 114.7 5.20% 1,358 67.9 5.00% 1,061 57.8 5.45%
-- -- -- -- -- --
34 2.4 7.06% 18 1.3 7.22% 20 1.6 8.00%
136 8.2 6.03% 79 4.8 6.08% 94 6.1 6.49%
253 22.4 8.85% 58 5.2 8.97% 58 5.1 8.79%
------- ------- ------- ------- ------- -------
2,721 153.0 5.62% 1,590 83.7 5.26% 1,323 76.2 5.76%
------- ------- ------- ------- ------- -------
$ 7,431 $ 347.4 4.68% $ 5,394 $ 239.7 4.44% $ 4,749 $ 221.0 4.65%
------- ------- -------
1,439 1,098 967
158 107 108
------- ------- -------
9,028 6,599 5,824
-- -- --
677 524 442
------- ------- -------
$9,705 $ 7,123 $ 6,266
======= ======= =======
3.54% 3.92% 3.88%
==== ==== ====
$ 379.1 4.29% $ 307.0 4.69% $ 267.0 4.67%
======= ==== ======= ==== ======= ====
</TABLE>
15
<PAGE> 18
SCHEDULE 2
ANALYSIS OF INTEREST CHANGES DUE TO VOLUME AND RATE
<TABLE>
<CAPTION>
1999 OVER 1998 1998 over 1997
CHANGES DUE TO Changes due to
------------------- TOTAL ------------------- Total
(Amounts in Millions) VOLUME RATE(1) CHANGES Volume Rate(1) Changes
------- ------- ------- -------- ------- --------
<S> <C> <C> <C> <C> <C> <C>
INTEREST-EARNING ASSETS:
Money market investments $ (25.3) $ 0.2 $ (25.1) $ 4.1 $ (0.1) $ 4.0
Securities:
Held to maturity 62.9 (13.1) 49.8 32.7 (4.4) 28.3
Available for sale (6.1) (0.1) (6.2) 10.1 (7.5) 2.6
Trading account 6.1 - 6.1 8.6 (0.8) 7.8
------- ------- ------- -------- ------- --------
Total securities 62.9 (13.2) 49.7 51.4 (12.7) 38.7
------- ------- ------- -------- ------- --------
Loans:
Loans held for sale (1.6) (0.5) (2.1) 2.7 (0.3) 2.4
Net loans and leases(2) 368.9 (58.7) 310.2 290.6 (19.4) 271.2
------- ------- ------- -------- ------- --------
Total loans 367.3 (59.2) 308.1 293.3 (19.7) 273.6
------- ------- ------- -------- ------- --------
Total interest-earning assets $ 404.9 $ (72.2) $ 332.7 $ 348.8 $ (32.5) $ 316.3
======= ======= ======= ======== ======= ========
INTEREST-BEARING LIABILITIES:
Interest-bearing deposits:
Savings and NOW deposits $ 11.5 $ (6.8) $ 4.7 $ 14.1 $ 0.7 $ 14.8
Money market and super NOW deposits 66.6 2.5 69.1 42.8 (8.8) 34.0
Time deposits under $100,000 20.6 (7.8) 12.8 40.8 - 40.8
Time deposits $100,000 or more 17.7 (5.9) 11.8 32.1 (0.8) 31.3
Foreign deposits (0.7) (0.3) (1.0) 1.7 0.1 1.8
------- ------- ------- -------- ------- --------
Total interest-bearing deposits 115.7 (18.3) 97.4 131.5 (8.8) 122.7
------- ------- ------- -------- ------- --------
Borrowed funds:
Securities sold, not yet purchased 3.8 1.8 5.6 5.5 (0.8) 4.7
Federal funds purchased and
security repurchase agreements 21.1 (3.1) 18.0 (14.1) (10.1) (24.2)
Commercial paper 9.3 (0.1) 9.2 1.6 - 1.6
FHLB advances and other borrowings:
Less than one year 25.2 (0.7) 24.5 1.8 (0.2) 1.6
Over one year (2.2) 0.4 (1.8) (1.3) (0.3) (1.6)
Long-term debt 8.1 (2.1) 6.0 7.9 (1.2) 6.7
------- ------- ------- -------- ------- --------
Total borrowed funds 65.3 (3.8) 61.5 1.4 (12.6) (11.2)
------- ------- ------- -------- ------- --------
Total interest-bearing liabilities $ 181.0 $ (22.1) $ 158.9 $ 132.9 $ (21.4) $ 111.5
------- ------- ------- -------- ------- --------
Change in net interest income $223.9 $(50.1) $173.8 $215.9 $(11.1) $204.8
======= ======= ======= ======== ======= ========
</TABLE>
PROVISION FOR LOAN LOSSES
The provision for loan losses reflects management's judgment of the expense to
be recognized in order to maintain an adequate allowance for loan losses. See
the discussion on allowance for loan losses under Risk Elements. The provision
for loan losses was $18.0 million in 1999 compared to $14.0 million in 1998 and
$5.9 million in 1997. The provision was .15% of average loans for 1999, .18% in
1998 and .13% for 1997.
16
<PAGE> 19
NONINTEREST INCOME
Noninterest income comprised 26.0% of net revenue in 1999 compared to 26.5% in
1998 and 28.1% in 1997. Noninterest income was $266.5 million in 1999, an
increase of 26.8% over $210.2 million in 1998, which was up 41.7% over $148.3
million in 1997. Noninterest income for 1998 included $5.3 million from Sumitomo
since the acquisition date. Without Sumitomo, noninterest income increased 38.2%
from 1997. Schedule 3 shows the major components of noninterest income.
SCHEDULE 3
NONINTEREST INCOME
<TABLE>
<CAPTION>
PERCENT Percent Percent Percent
(Amounts in millions) 1999 CHANGE 1998 Change 1997 Change 1996 Change 1995
------ ------- ------ ------- ------ ------- ------ ------- -----
<S> <C> <C> <C> <C> <C> <C> <C> <C> <C>
Service charges on deposit
accounts $ 76.8 25.7% $ 61.1 36.7% $ 44.7 25.6% $ 35.6 16.7% $30.5
Other service charges,
commissions and fees 66.1 16.0 57.0 39.4 40.9 32.8 30.8 14.5 26.9
Trust income 15.8 43.6 11.0 35.8 8.1 37.3 5.9 20.4 4.9
Investment securities gains
(losses), net (3.0) (173.2) 4.1 355.6 0.9 800.0 0.1 - 0.1
Underwriting and trading
income (loss) 11.5 25.0 9.2 61.4 5.7 111.1 2.7 325.0 (1.2)
Loan sales and servicing
income 40.5 (19.6) 50.4 30.2 38.7 10.3 35.1 44.4 24.3
Other income 58.8 237.9 17.4 87.1 9.3 27.4 7.3 (14.1) 8.5
------ ------ ------ ------ -----
Total $266.5 26.8% $210. 2 41.7% $148.3 26.2% $117.5 25.0% $94.0
====== ====== ====== ====== =====
</TABLE>
The 25.7% and 36.7% increases in deposit service charges for 1999 and 1998
reflect the continued increase of the Company's average deposit base through
acquisitions and internal growth, as well as price adjustments. Other service
charges, commissions and fees, which include investment brokerage and fiscal
agent fees, electronic delivery system fees, insurance commissions, merchant fee
income and other miscellaneous fees were $66.1 million in 1999, an increase of
16.0% over 1998 which was 39.4% above 1997. Loan sales and servicing income
decreased 19.6% in 1999 to $40.5 million over $50.4 million in 1998 which was
30.2% above 1997. The decrease in loan sales and servicing income for 1999 was
mainly the result of a Company decision to decrease its mortgage origination and
servicing activities resulting in decreased loan servicing income and gains on
sales as well as decreased expense. Underwriting and trading income increased
25.0% to $11.5 million in 1999 from $9.2 million in 1998, and $5.7 million in
1997. During 1998, the Company commenced the providing of online executable
government bond sales over Bloomberg and the Internet and the underwriting of
municipal revenue bonds which resulted in increased revenues for 1999 and 1998.
Trust income increased to $15.8 million in 1999, up 43.6% from 1998, which was
up 35.8% from 1997. Other income, which includes certain fees, income from
investments in bank-owned life insurance, income from Wasatch Venture
Corporation's venture funding operations, income from unconsolidated
subsidiaries and associated companies, net gains on sales of fixed assets and
other assets, and other items was $58.8 million in 1999 an increase of 237.9%
from 1998. The increase for 1999 was mainly due to increased income from
operations of Wasatch Venture Corporation and income from bank-owned life
insurance policies.
17
<PAGE> 20
Included in other noninterest income for 1999 is $42.6 million of net gains from
securities held by the Company's venture capital subsidiary, Wasatch Venture
Corporation. Consolidated net income for 1999 includes approximately $22.9 from
Wasatch Venture Corporation's operations for the year. During 1999 the Company
also recognized impairment and other losses related to SBA interest only strips
of $8.3 million, which decreased other noninterest income.
NONINTEREST EXPENSE
The Company's noninterest expense was $681.6 million in 1999, an increase of
22.4% over $556.7 million in 1998, which was up 77.9% over the $312.9 million in
1997. Included in 1999 and 1998 expense was $27.7 million and $38.1 million,
respectively, in merger expenses related to the Company's acquisitions. Schedule
4 shows the major components of noninterest expense.
SCHEDULE 4
NONINTEREST EXPENSE
<TABLE>
<CAPTION>
PERCENT Percent Percent Percent
(Amounts in millions) 1999 CHANGE 1998 Change 1997 Change 1996 Change 1995
------ ------- ------ ------- ------ ------- ------ ------- ------
<S> <C> <C> <C> <C> <C> <C> <C> <C> <C>
Salaries and benefits $346.7 32.6% $261.5 58.6% $164.9 25.9% $131.0 13.7% $115.2
Occupancy, net 49.4 47.9 33.4 85.6 18.0 33.3 13.5 9.8 12.3
Furniture and equipment 45.4 18.5 38.3 56.3 24.5 41.6 17.3 20.1 14.4
Other real estate expense (0.1) (114.3) 0.7 133.3 0.3 250.0 (0.2) (300.0) 0.1
Legal and professional
services 16.2 (0.6) 16.3 101.2 8.1 50.0 5.4 10.2 4.9
Supplies 11.2 (5.9) 11.9 41.7 8.4 23.5 6.8 19.3 5.7
Postage 11.7 6.4 11.0 50.7 7.3 23.7 5.9 5.4 5.6
Advertising 18.5 46.8 12.6 70.3 7.4 27.6 5.8 1.8 5.7
FDIC premiums 2.2 46.7 1.5 114.3 0.7 - - - 4.7
Merger expense 27.7 (27.3) 38.1 4,662.5 0.8 - - - -
Amortization of goodwill &
core deposit
intangibles 36.0 13.6 31.7 346.5 7.1 208.7 2.3 (8.0) 2.5
Amortization of
mortgage servicing
assets 0.9 (83.6) 5.5 161.9 2.1 61.5 1.3 8.3 1.2
Other expenses 115.8 22.9 94.2 48.8 63.3 24.9 50.7 23.7 41.0
------ ------ ------ ------ ------
Total $681.6 22.4% $556.7 77.9% $312.9 30.5% $239.8 12.4% $213.3
====== ====== ====== ====== ======
</TABLE>
In 1999 and 1998, salaries and employee benefits increased primarily as a result
of increased staffing from acquisitions and the opening of new offices, as well
as general salary increases and bonuses which are based on increased
profitability. The occupancy, furniture and equipment expense increase resulted
primarily from the addition of office facilities, installation of personal
computers and local area networks and expenses related to technology
initiatives. The increase in all other expenses resulted primarily from
increases related to acquisitions and expansion and increased expenditures in
selected areas to enhance revenue growth. Also expenses for 1998 only include
operations of The Sumitomo Bank of California for the last quarter of the year
since the bank was acquired in a purchase transaction on October 1, 1998.
On December 31, 1999, the Company had 6,833 full-time equivalent employees and
362 offices compared to 7,099 employees and 345 offices at year-end 1998. On
December 31, 1997, the Company had 4,652 full-time equivalent employees and 241
offices. The reduction in FTE was mainly the result of a hiring freeze put in
place related to the pending merger with First Security Corporation and a
reduced FTE related to a reduction in mortgage servicing and origination
activities.
18
<PAGE> 21
The Company's operating cash "efficiency ratio," or noninterest expenses,
excluding amortization of goodwill and core deposit intangibles and merger
expenses, as a percentage of total taxable-equivalent net revenues, decreased to
60.3% in 1999 compared to 61.3% in 1998 and 58.0% in 1997.
INCOME TAXES
The Company's income tax expense for 1999 was $109.5 million compared to $69.6
million in 1998 and $67.7 million in 1997. The Company's effective income tax
rate was 35.5% in 1999, 32.6% in 1998 and 34.0% in 1997. The lower effective tax
rate for 1998 resulted primarily from decisions regarding a corporate
reorganization in 1998. The increased rate for 1999 is mainly due to a higher
percentage of the Company's income being generated in states with higher tax
rates and increased nondeductible goodwill amortization.
BALANCE SHEET ANALYSIS
EARNING ASSETS
Earning assets consist of money market investments, securities and loans. A
comparative average balance sheet report, including earning assets, is presented
in Schedule 1.
Average earning assets increased 37.1% to $17,560 million in 1999 compared to
$12,811 million in 1998. Earning assets comprised 88.2% of total average assets
in 1999 compared with 89.0% in 1998.
Average money market investments, consisting of interest-bearing deposits,
federal funds sold and security resell agreements decreased 27.3% to $1,185
million in 1999 compared to $1,629 million in 1998.
Average securities increased 28.4% to $4,556 million in 1999, compared to $3,549
million in 1998. Average held to maturity securities increased 44.3% to $3,277
million, available for sale securities decreased 12.8% to $741 million and
trading account securities increased 25.2% to $538 million.
Average net loans and leases increased 54.9% to $11,819 million in 1999 compared
to $7,632 million in 1998, representing 67.3% of earning assets in 1999 compared
to 59.6% in 1998. Average net loans and leases were 83.9% of average total
deposits in 1998, as compared to 74.6% in 1998.
INVESTMENT SECURITIES PORTFOLIO
Schedule 5 presents the Company's year-end investment securities on December 31,
1999, 1998, and 1997. Schedule 6 presents the Company's maturities and average
yields on securities on December 31, 1999. See Note 3 of Notes to Consolidated
Financial Statements for additional information about securities.
19
<PAGE> 22
SCHEDULE 5
INVESTMENT SECURITIES PORTFOLIO
<TABLE>
<CAPTION>
December 31,
---------------------------------------------------------
1999 1998 1997
----------------- ------------------ ------------------
AMORTIZED MARKET AMORTIZED MARKET AMORTIZED MARKET
(Amounts in millions) COST VALUE COST VALUE COST VALUE
--------- ------ --------- ------ --------- ------
<S> <C> <C> <C> <C> <C> <C>
HELD TO MATURITY:
U.S. Treasury securities $ 1 $ 1 $ 63 $ 63 $ 8 $ 8
U.S. government agencies
and corporations:
Small Business Administration
loan-backed securities 440 445 358 356 441 449
Other agency securities 1,270 1,233 940 944 1,422 1,427
States and political subdivisions 314 309 331 340 258 264
Mortgage-backed securities 1,305 1,303 1,159 1,166 82 84
------ ------ ------ ------ ------ ------
3,330 3,291 2,851 2,869 2,211 2,232
------ ------ ------ ------ ------ ------
AVAILABLE FOR SALE:
U.S. Treasury securities 93 93 98 100 154 156
U.S. government agencies
and corporations:
Small Business Administration
originator fees
certificates -- -- 85 68 75 72
Other agency securities 51 50 277 278 214 215
States and political subdivisions 102 97 67 68 48 50
Mortgage- and other asset-backed
securities 147 143 179 180 28 28
------ ------ ------ ------ ------ ------
393 383 706 694 519 521
------ ------ ------ ------ ------ ------
Equity securities:
Mutual funds:
Accessor Funds, Inc. 141 139 117 118 110 111
Stock:
Federal Home Loan Bank -- -- 100 101 91 91
Other 242 257 37 41 29 33
------ ------ ------ ------ ------ ------
383 396 254 260 230 235
------ ------ ------ ------ ------ ------
776 779 960 954 749 756
------ ------ ------ ------ ------ ------
Total $4,106 $4,070 $3,811 $3,823 $2,960 $2,988
====== ====== ====== ====== ====== ======
</TABLE>
20
<PAGE> 23
SCHEDULE 6
MATURITIES AND AVERAGE YIELDS ON SECURITIES
ON DECEMBER 31, 1999
<TABLE>
<CAPTION>
After one After five
Total Within but within but within After
Securities one year five years ten years ten years
------------------- --------------- ------------------ ---------------- --------------
(Amounts in Millions) Amount Yield* Amount Yield* Amount Yield* Amount Yield* Amount Yield*
------ ------ ------ ------ ------ ------ ------- ------ ------ ------
<S> <C> <C> <C> <C> <C> <C> <C> <C> <C> <C>
HELD TO MATURITY:
U.S. Treasury securities $ 1 6.3% -- $ 1 6.2% $ -- $ --
U.S. government agencies
and corporations:
Small Business
Administration loan-
backed securities 440 6.7% 54 6.0% 155 6.2% 78 7.0% 153 7.3%
Other agency securities 1,270 6.3% 100 6.3% 1,107 6.2% 32 6.8% 31 6.6%
States and political
Subdivisions 314 8.4% 56 8.7% 125 8.3% 73 8.5% 60 8.3%
Mortgage-backed securities 1,305 6.3% 348 6.9% 602 6.0% 239 6.3% 116 6.2%
------ ---- ------ ---- ----
3,330 6.5% 558 6.9% 1,990 6.3% 422 6.9% 360 7.1%
------ ---- ------ ---- ----
AVAILABLE FOR SALE:
U.S. Treasury securities 93 5.4% 66 5.3% 26 5.5% -- 1 8.4%
U.S. government agencies
And corporations:
Small Business
Administration
originator fees
certificates -- -- -- -- --
Other agency securities 51 6.3% 7 6.1% 44 6.3% -- --
States and political
subdivisions 102 7.9% 9 7.9% 27 7.8% 27 7.6% 39 8.3%
Mortgage- and other asset-
backed securities 147 6.0% 35 5.5% 49 6.2% 48 6.1% 15 6.7%
------ ---- ------ ---- ----
393 6.4% 117 5.6% 146 6.4% 75 6.6% 55 7.9%
------ ---- ------ ---- ----
Equity securities:
Mutual funds:
Accessor Funds, Inc. 141 4.1% -- -- -- 141 4.1%
Stock:
Other 242 2.3% -- -- -- 242 2.3%
------ ---- ------ ---- ----
383 3.0% -- -- -- 383 3.0%
------ ---- ------ ---- ----
776 4.7% 117 5.6% 146 6.4% 75 6.6% 438 3.6%
------ ---- ------ ---- ----
Total $4,106 6.2% $675 6.6% $2,136 6.3% $497 6.8% $798 5.1%
====== ==== ====== ==== ====
</TABLE>
*Taxable-equivalent rates used where applicable.
LOAN PORTFOLIO
During 1999, the Company consummated securitized loan sales of automobile loans,
credit card receivables, home equity credit lines, Small Business Administration
and Federal Agricultural Mortgage Corporation ("Farmer Mac") loans totaling $982
million. The Company also sold $879 million of long-term residential mortgage
loans, SBA loans, Farmer Mac loans and student loans classified as held for
sale. After these sales, loans and leases on December 31, 1999 totaled $12,853
million, an increase of 14.0% compared to $11,270. million on December 31, 1998.
Schedule 7 sets forth the amount of loans outstanding by type on December 31 for
the years indicated and the maturity distribution and sensitivity to changes in
interest rates of the portfolio on December 31, 1999.
21
<PAGE> 24
SCHEDULE 7
LOAN PORTFOLIO BY TYPE
<TABLE>
<CAPTION>
December 31, 1999
-------------------------------------
One Year
One Through Over December 31,
Year Five Five -------------------------------------
(Amounts in millions) or Less Years Years TOTAL 1998 1997 1996 1995
------ ------ ------ ------- ------- ------ ------ ------
<S> <C> <C> <C> <C> <C> <C> <C> <C>
Loans held for sale $ 149 $ -- $ 56 $ 205 $ 232 $ 179 $ 150 $ 126
Commercial, financial and 1,786 804 446 3,036 2,844 1,406 949 837
agricultural
Real estate:
Construction 1,252 450 20 1,722 960 576 387 324
Other:
Home equity credit line 79 53 100 232 232 165 188 105
1-4 family residential 224 197 2,082 2,503 2,207 742 560 442
Other real estate-secured 734 1,041 2,393 4,168 3,894 1,678 1,213 878
------ ------ ------ ------- ------- ------ ------ ------
2,289 1,741 4,595 8,625 7,293 3,161 2,348 1,749
------ ------ ------ ------- ------- ------ ------ ------
Consumer:
Bankcard 32 75 -- 107 99 73 47 62
Other 125 259 106 490 472 417 286 307
------ ------ ------ ------- ------- ------ ------ ------
157 334 106 597 571 490 333 369
------ ------ ------ ------- ------- ------ ------ ------
Lease financing 28 176 71 275 214 176 160 133
Foreign loans 25 9 19 53 44 -- -- --
Other receivables 53 2 7 62 72 95 41 31
------ ------ ------ ------- ------- ------ ------ ------
Total loans $4,487 $3,066 $5,300 $12,853 $11,270 $5,507 $3,981 $3,245
====== ====== ====== ======= ======= ====== ====== ======
Loans maturing in more than one year:
With fixed interest rates $1,416 $3,089 $ 4,505
With variable interest rates 1,650 2,211 3,861
------ ------ -------
Total $3,066 $5,300 $ 8,366
====== ====== =======
</TABLE>
SOLD LOANS BEING SERVICED
On December 31, 1999, long-term first mortgage real estate loans serviced for
others amounted to $237 million compared to $1,995 million on December 31, 1998,
and $1,897 million on December 31, 1997. During 1999 the Company merged Zions
Mortgage Company, its wholly-owned mortgage company into Zions First National
Bank, sold most of its mortgage servicing and outsourced servicing retained on
long-term first mortgage real estate loans.
Consumer and other loan securitizations serviced, which relate primarily to
loans sold under revolving securitization structures, totaled $1,252 million on
December 31, 1999, $1,040 million on December 31, 1998, and $1,050 million on
December 31, 1997.
The Company's activity in its sold loans being serviced portfolio (excluding
long-term first mortgage real estate loans) is summarized as follows:
22
<PAGE> 25
SCHEDULE 8
SOLD LOANS BEING SERVICED
<TABLE>
<CAPTION>
1999 1998 1997
------------------- ------------------- -------------------
OUTSTANDING Outstanding Outstanding
(Amounts in millions) SALES AT YEAR END Sales at year end Sales at year end
----- ----------- ----- ----------- ----- -----------
<S> <C> <C> <C> <C> <C> <C>
Auto loans $195 $ 326 $198 $ 345 $201 $ 389
Home equity credit lines 255 274 261 261 342 327
Bankcard receivables 194 67 282 134 232 79
Home refinance loans -- 10 -- 23 -- 45
SBA 504 loans 212 275 -- 100 115 131
SBA 7(a) loans 15 67 33 73 38 56
Farmer Mac 111 233 110 104 23 23
---- ------ ---- ------ ---- ------
Total $982 $1,252 $884 $1,040 $951 $1,050
==== ====== ==== ====== ==== ======
</TABLE>
DEPOSITS AND BORROWED FUNDS
As derived from Schedule 1, total average deposits increased 37.8% to $14,088
million in 1999 from $10,225 million in 1998. Average noninterest-bearing
deposits increased 32.7%, average savings and NOW deposits increased 35.4%,
average money market and super NOW deposits increased 48.7%, and average time
deposits under $100,000 increased 26.3%. Average time deposits over $100,000
increased 40.5% over 1998 average balances and average foreign deposits
decreased 9.4% for 1999, as compared with 1998.
Total deposits decreased 1.1% to $14,062 million on December 31, 1999 as
compared to $14,221 million on December 31, 1998. Comparing December 31, 1999 to
December 31, 1998, demand deposits decreased 3.5%, savings and money market
deposits increased 17.1%, time deposits under $100,000 decreased 24.7%, while
time deposits over $100,000 decreased 34.1% and foreign deposits increased 2.7%.
See Notes 9, 10 and 11 of Notes to Consolidated Financial Statements and the
discussion under Liquidity Risk Management for information on borrowed funds.
CAPITAL
The Company's basic financial objective is to consistently produce superior
risk-adjusted returns on its shareholders' capital. The Company believes that a
strong capital position is vital to continued profitability and to promote
depositor and investor confidence. The Company's goal is to steadily achieve a
high return on shareholders' equity, while at the same time maintaining
"risk-based capital" of not less than the "well-capitalized" threshold, as
defined by federal banking regulators.
Total shareholders' equity on December 31, 1999 was $1,660 million, an increase
of 14.3% over the $1,453 million on December 31, 1998. The ratio of average
equity to average assets for the year 1999 was 7.85%, compared to 9.06% for
1998.
During 1999, 1998 and 1997, the Company repurchased and retired 115,769, 591,009
and 3,649,018 shares of its common stock at a cost of $6.7 million, $25.7
million and $121.4 million, respectively.
23
<PAGE> 26
On December 31, 1999, the Company's Tier 1 leverage ratio was 6.16%, as compared
to 5.91% on December 31, 1998. On December 31, 1999, the Company's Tier 1
risk-based capital ratio was 8.64%, as compared to 8.40% on December 31, 1998.
On December 31, 1999 the Company's total risk-based capital ratio was 11.29%, as
compared to 11.34% on December 31, 1998. Regulatory minimum capital adequacy
ratios for Tier 1 leverage, Tier 1 risk-based capital and total risk-based
capital are 3%, 4% and 8%, respectively. Ratios to be considered well
capitalized are 5%, 6% and 10%, respectively. See Note 17 of Notes to
Consolidated Financial Statements for additional information on risk-based
capital.
DIVIDENDS
Dividends per share were $.72 in 1999, an increase of 33.3% over $.54 in 1998,
which were up 14.9% over $.47 in 1997. The Company's quarterly dividend rate was
$.11 for the first quarter of 1997, increasing to $.12 per share for the second,
third and fourth quarters of 1997 and the first quarter of 1998, increasing to
$.14 per share for the second, third and fourth quarters of 1998 and the first
quarter of 1999. The dividend rate for the second and third quarters of 1999 was
$.29 and no dividend was declared during the fourth quarter of 1999.
FOREIGN OPERATIONS
Zions First National Bank opened a foreign office located in Grand Cayman, Grand
Cayman Islands, B.W.I. in 1980. The office accepts Eurodollar deposits from
qualified customers of the Bank and places deposits with foreign banks and
foreign branches of other U.S. banks. Foreign deposits at December 31, totaled
$210 million in 1999, 204 million in 1998 and 183 million in 1997; and averaged
165 million for 1999, $182 million for 1998 and $142 million for 1997. See
Schedule 7 Loan Portfolio by Type for foreign loans outstanding.
RISK ELEMENTS
CREDIT RISK MANAGEMENT
Management of credit risk is essential in maintaining a safe and sound
institution. The Company has structured its organization to separate the lending
function from the credit administration function to strengthen the control and
independent evaluation of credit activities. Loan policies and procedures
provide the Company with a framework for consistent underwriting and a basis for
sound credit decisions. In addition, the Company has well-defined standards for
grading its loan portfolio, and management utilizes a comprehensive loan grading
system to determine risk potential in the portfolio. A separate internal credit
examination department periodically conducts examinations of the quality,
documentation and administration of the Company's lending departments, and
submits reports thereon to a committee of the board of directors. Emphasis is
placed on early detection of potential problem credits so that action plans can
be developed on a timely basis to mitigate losses.
Another aspect of the Company's credit risk management strategy is the
diversification of the loan portfolio. At year end, the Company had 2% of its
portfolio in loans held for sale, 24% in commercial loans, 67% in real estate
loans, 5% in consumer loans, and 2% in lease financing. The Company's real
estate portfolio is also diversified. Of the total portfolio, 20% is in real
estate construction loans, 3% is in home equity credit lines, 29% is in 1-4
family residential loans and 48% is in commercial loans secured by real estate.
The Company's commercial real estate concentration is in part mitigated by its
emphasis of lending programs sponsored by the Small
24
<PAGE> 27
Business Administration, which carries the preponderance of credit risk on these
types of loans. The Company also focuses on the provision of commercial real
estate credit to borrowers that occupy the facility. In addition, the Company
attempts to avoid the risk of an undue concentration of credits in a particular
industry or trade group. See Note 5 of Notes to Consolidated Financial
Statements for further information on concentrations of credit risk. The Company
has no significant exposure to highly leveraged transactions. Most of the
Company's business activity is with customers located within the states of Utah,
Idaho, California, Colorado, Arizona, Nevada and Washington. Also, the Company
does not have significant exposure to any individual customer or counterparty.
NONPERFORMING ASSETS
Nonperforming assets include nonaccrual loans, restructured loans and other real
estate owned. Loans are generally placed on nonaccrual status when the loan is
90 days or more past due as to principal or interest, unless the loan is in the
process of collection and well-secured. Consumer loans are not placed on a
nonaccrual status, inasmuch as they are generally charged off when they become
120 days past due. Loans are restructured to provide a reduction or deferral of
interest or principal payments when the financial condition of the borrower
deteriorates and requires that the borrower be given temporary or permanent
relief from the original contractual terms of the credit. Other real estate
owned is primarily acquired through or in lieu of foreclosure on credits secured
by real estate.
The Company's nonperforming assets were $75 million on December 31, 1999, up
from $65 million on December 31, 1998. Such nonperforming assets as a percentage
of net loans and leases, other real estate owned and other nonperforming assets
were .58% on December 31, 1999, the same as on December 31, 1998.
Accruing loans past due 90 days or more totaled $21 million on December 31,
1999, down from $26 million on December 31, 1998. These loans equaled .16% of
net loans and leases on December 31, 1999, as compared to .23% on December 31,
1998.
No loans were considered potential problem loans on December 31, 1999 or 1998.
Potential problem loans are defined as loans presently on accrual and not
contractually past due 90 days or more and not restructured, but about which
management has serious doubt as to the future ability of the borrower to comply
with present repayment terms and which may result in the reporting of the loans
as nonperforming assets in the future.
The Company's total recorded investment in impaired loans included in nonaccrual
loans and leases amounted to $57.1 million and $41.8 million on December 31,
1999 and 1998, respectively. The Company considers a loan to be impaired when
the accrual of interest has been discontinued and meets other criteria under the
statements. The amount of the impairment is measured based on the present value
of expected cash flows, the observable market price of the loan, or the fair
value of the collateral. Impairment losses are included in the allowance for
loan losses through a provision for loan losses. Included in the allowance for
loan losses on December 31, 1999 and 1998, is an allowance of $16 million and $5
million, respectively, on $22.5 million and $11.6 million, respectively, of the
recorded investment in impaired loans. See Note 4 of Notes to Consolidated
Financial Statements for additional information on impaired loans.
25
<PAGE> 28
SCHEDULE 9
NONPERFORMING ASSETS
<TABLE>
<CAPTION>
December 31,
--------------------------------------------
(Amounts in millions) 1999 1998 1997 1996 1995
---- ---- ---- ---- ----
<S> <C> <C> <C> <C> <C>
Nonaccrual loans:
Commercial, financial and agricultural $29 $12 $ 4 $ 5 $ 2
Real estate 34 39 7 6 5
Consumer 1 1 1 1 1
Lease financing 1 3 1 1 1
Other -- -- -- -- --
--- --- --- --- ---
Total 65 55 13 13 9
--- --- --- --- ---
Restructured loans:
Real estate 1 5 1 1 --
--- --- --- --- ---
Other real estate owned:
Commercial, financial and agricultural:
Improved 5 -- 2 -- --
Unimproved 3 -- -- -- --
Residential:
1-4 Family 1 2 1 -- 1
Multi-family -- -- -- -- --
Other -- 3 -- -- --
--- --- --- --- ---
Total 9 5 3 -- 1
Other nonperforming assets -- -- -- -- 1
--- --- --- --- ---
Total $75 $65 $17 $14 $11
=== === === === ===
% of Net loans* and leases, other real estate
owned and other nonperforming assets .58% .58% .31% .36% .35%
Accruing loans past due 90 days or more:
Commercial, financial and agricultural $ 4 $ 5 $ 2 $ 1 $ 1
Real estate 15 20 7 2 3
Consumer 2 1 1 1 1
--- --- --- --- ---
Total $21 $26 $10 $ 4 $ 5
=== === === === ===
% of Net loans* and leases .16% .23% .18% .09% .17%
</TABLE>
26
<PAGE> 29
ALLOWANCE FOR LOAN LOSSES
The Company's allowance for loan losses was 1.60% of net loans and leases on
December 31, 1999 compared to 1.89% on December 31, 1998. Net charge-offs in
1999 were $30 million, or .25% of average loans and leases, compared to net
charge-offs of $16 million, or .21% of average net loans and leases in 1998 and
net charge-offs of $8 million, or .19% of average net loans and leases in 1997.
The allowance, as a percentage of nonaccrual loans and restructured loans, was
310.87% on December 31, 1999, compared to 354.94% on December 31, 1998 and
655.59% on December 31, 1997. The allowance, as a percentage of nonaccrual loans
and accruing loans past due 90 days or more was 238.07% on December 31, 1999,
compared to 264.20% on December 31, 1998, and 389.19% on December 31, 1997.
On December 31, 1999, 1998 and 1997, the allowance for loan losses includes an
allocation of $23 million, $20 million and $9 million, respectively, related to
commitments to extend credit on loans and standby letters of credit. Commitments
to extend credit on loans and standby letters of credit on December 31, 1999,
1998 and 1997, totaled $6,001 million, $5,090 million, and $2,706 million,
respectively. The Company's actual future credit exposure is much lower than the
contractual amounts of the commitments because a significant portion of the
commitments is expected to expire without being drawn upon.
In analyzing the adequacy of the allowance for loan and lease losses, management
utilizes a comprehensive loan grading system to determine risk potential in the
portfolio, and considers the results of independent internal and external credit
review. To determine the adequacy of the allowance, the Company's loan and lease
portfolio is broken into segments based on loan type. Historical loss experience
factors by segment, adjusted for changes in trends and conditions, are used in
determining the required allowance for each segment. Historical loss factors are
evaluated and updated using migration analysis techniques and other
considerations based on the makeup of the specific portfolio segment. Other
considerations such as volumes and trends of delinquencies, nonaccruals,
repossessions and bankruptcies, criticized and classified loan trends, current
and anticipated foreclosure losses, new products and policies, economic
conditions, concentrations of credit risk, and experience and abilities of
lending personnel are also considered in establishing the loss factors.
All loans graded substandard in the amount of $1 million or more and all credits
graded doubtful in the amount of $100 thousand or more are individually
evaluated based on facts and circumstances of the loan and a specific allowance
amount designated. Specific allowances may also be established for loans in
amounts below the specified thresholds when it is determined that the risk
differs significantly from factor amounts established for the category. Although
management has allocated a portion of the allowance to specific loan categories
using the methods described, the adequacy of the allowance must be considered in
its entirety. To mitigate the imprecision in most estimates of expected credit
losses, the allocated component of the allowance is supplemented by an
unallocated component. The unallocated portion of the allowance includes
management's judgmental determination of the amounts necessary for subjective
factors such as economic uncertainties and concentration risks. Accordingly, the
relationship of the unallocated component to the total allowance for loan losses
may fluctuate from period to period. Schedule 10 provides a breakdown of the
allowance for loan losses by
27
<PAGE> 30
loan category and Schedule 11 summarizes loan loss experience. The increases in
the allocated allowance at year-end 1999 and 1998 compared to year-end 1997 for
commercial, financial and agricultural and real estate loans are a result of the
acquisition of The Sumitomo Bank of California.
SCHEDULE 10
ALLOCATION OF THE ALLOWANCE FOR LOAN LOSSES
<TABLE>
<CAPTION>
1999 1998 1997 1996 1995
---------------- ---------------- ---------------- ---------------- ----------------
(Amounts in millions) % of Allocation % of Allocation % of Allocation % of Allocation % of Allocation
total of total Of total of total of total of
loans Allowance loans Allowance loans Allowance loans Allowance loans Allowance
----- ---------- ----- ---------- ----- ---------- ----- ---------- ----- ----------
<S> <C> <C> <C> <C> <C> <C> <C> <C> <C> <C>
Type of loan
Loans held for sale 1.6 $-- 2.1 $-- 3.3 $-- 3.8 $-- 3.9 $--
Commercial, financial and
agricultural 23.8 83 25.4 83 25.5 17 23.8 16 25.8 11
Real estate 67.4 63 64.9 52 57.4 28 59.0 28 53.9 19
Consumer 4.6 12 5.1 12 8.9 10 8.4 8 11.4 11
Lease financing 2.1 6 1.9 6 3.2 2 4.0 2 4.0 2
Other receivables 0.5 -- 0.6 -- 1.7 -- 1.0 -- 1.0 --
Total loans 100.0 100.0 100.0 100.0 100.0
Off-balance sheet unused
commitments and standby letters
of credit 23 20 9 6 8
---- ---- --- --- ---
Total allocated 187 173 66 60 51
Unallocated 17 40 23 17 22
---- ---- --- --- ---
Total allowance for loan losses $204 $213 $89 $77 $73
==== ==== === === ===
</TABLE>
28
<PAGE> 31
SCHEDULE 11
SUMMARY OF LOAN LOSS EXPERIENCE
<TABLE>
<CAPTION>
(Amounts in millions) 1999 1998 1997 1996 1995
-------- -------- ------- ------- -------
<S> <C> <C> <C> <C> <C>
Loans* and leases outstanding on December 31
(net of unearned income) $ 12,791 $ 11,219 $ 5,463 $ 3,941 $ 3,212
======== ======== ======= ======= =======
Average loans* and leases outstanding
(net of unearned income) $ 11,819 $ 7,632 $ 4,547 $ 3,560 $ 2,966
======== ======== ======= ======= =======
Allowance for loan losses:
Balance at beginning of year $ 213 $ 89 $ 77 $ 73 $ 72
Allowance of companies acquired 3 126 14 3 --
Provision charged against earnings 18 14 6 5 4
Loans and leases charged off:
Commercial, financial and agricultural (32) (9) (6) (1) (1)
Real estate (3) (6) -- -- (1)
Consumer (9) (9) (8) (8) (7)
Lease financing (2) (1) -- -- --
-------- -------- ------- ------- -------
Total (46) (25) (14) (9) (9)
-------- -------- ------- ------- -------
Recoveries:
Commercial, financial and agricultural 6 3 2 2 3
Real estate 7 3 2 -- --
Consumer 3 3 2 2 3
Lease financing -- -- -- 1 --
-------- -------- ------- ------- -------
Total 16 9 6 5 6
-------- -------- ------- ------- -------
Net loan and lease charge-offs (30) (16) (8) (4) (3)
-------- -------- ------- ------- -------
Balance at end of year $ 204 $ 213 $ 89 $ 77 $ 73
======== ======== ======= ======= =======
Ratio of net charge-offs to
average loans and leases .25% .21% .19% .11% .09%
Ratio of allowance for loan losses to loans
and leases outstanding on December 31 1.60% 1.89% 1.62% 1.95% 2.28%
Ratio of allowance for loan losses to
nonperforming loans on December 31 310.87% 354.94% 655.59% 546.81% 757.58%
Ratio of allowance for loan losses to
nonaccrual loans and accruing loans past
due 90 days or more on December 31 238.07% 264.20% 389.19% 458.91% 494.90%
</TABLE>
MARKET RISK MANAGEMENT
Market risk is the possibility that changes in interest rates or equity
securities prices will impair the fair value of the Company's financial
instruments. The Asset/Liability Committee (ALCOM) measures and reviews the
market risk of the Company and establishes policies and procedures to limit its
exposure to changes in interest rates. These policies are reviewed and approved
by the Boards of Directors of the Company's subsidiary banks. ALCOM objectives
are summarized as follows: ensure the safety and soundness of bank deposits,
while providing an appropriate return
29
<PAGE> 32
to shareholders; provide the basis for integrated balance sheet, net interest
income and liquidity management; calculate the duration, dollar duration, and
convexity of each class of assets, liabilities, and net equity given defined
interest rate scenarios; manage the Company's exposure to changes in net
interest income and market value of equity due to interest rate fluctuations;
quantify the effect of hedging instruments on the market value of equity and net
interest income under defined interest rate scenarios; and identify and report
any risk exposures that exceed limitations approved by the Board of Directors.
Interest rate risk is the most significant market risk regularly undertaken by
the Company. This risk is monitored through the use of two complementary
measurement methods: equity duration and income simulation.
Equity duration is derived by first calculating the dollar duration of all
assets, liabilities and off-balance sheet investments. Dollar duration is
determined by calculating the market value of each instrument assuming interest
rates sustain immediate and parallel movements up 1% and down 1%. The average of
these two changes in market value is the dollar duration, which incorporates the
value of embedded and explicit options within each instrument. Subtracting the
dollar duration of liabilities from the dollar duration of assets and adding the
net dollar duration of off-balance sheet items results in the dollar duration of
equity. Duration of equity is computed by dividing the dollar duration of equity
by the market value of equity.
Income simulation is an estimate of the net interest income which would be
recognized under different rate environments. Net interest income is measured
under several parallel and non-parallel interest rate environments and considers
the possible exercise of options within the portfolio.
At year-end, the Company's duration of equity was estimated to be approximately
3.4 years. A 200 basis point immediate increase in rates was estimated to
increase the duration of equity to 4.4 years. Conversely, an immediate decrease
in rates of similar magnitude was estimated to decrease the duration of equity
to 2.5 years. Company policy requires that all three of these measures be
between 0 and 7 years.
For income simulation, Company policy requires that net interest income not be
expected to decline by more than 10% during one year if rates were to
immediately rise or fall by 200 basis points. At year-end, net interest income
was expected to decline 0.6% if interest rates were to sustain an immediate
increase of 200 basis points. If interest rates were to similarly decline 200
basis points, net interest income would be expected to decrease 2.3%. These
estimates include management's assumptions regarding loan and deposit pricing,
security and loan prepayments, and changing relationships to market rates.
Management exercises its best judgment in making assumptions regarding loan and
security prepayments, early deposit withdrawals, and other non-controllable
events in managing the Company's exposure to changes in interest rates. The
interest rate risk position is actively managed and changes daily as the
interest rate environment changes; therefore, positions at the end of any period
may not be reflective of the Company's position in any subsequent period.
At year-end the one-year gap for the Company was negative $313 million: i.e.,
the $11,130 million of assets that mature or reprice during 2000 was less than
the sum of $10,631 million of liabilities and the $812 million net effect of
off-balance sheet swaps that mature or reprice during
30
<PAGE> 33
the same period. This gap represented 1.5% of total assets. Detail of the
repricing characteristics of the balance sheet as of year-end are presented in
Schedule 12. The Company does not have policy limits regarding its gap position.
SCHEDULE 12
MATURITIES AND INTEREST RATE SENSITIVITY
ON DECEMBER 31, 1999
<TABLE>
<CAPTION>
Rate Sensitive
---------------------
After
Three After one
Within Months year but
three But within within After five Not rate
(Amounts in millions) months One year five years Years Sensitive Total
------- ---------- ---------- ---------- --------- -------
<S> <C> <C> <C> <C> <C> <C>
USES OF FUNDS
Earning Assets:
Interest-bearing deposits $ 12 $ 2 $ 3 $ 17
Federal funds sold 86 86
Security resell agreements 422 422
Securities:
Held to maturity 796 1,070 1,264 $ 200 3,330
Available for sale 98 125 203 353 779
Trading account 328 328
Loans and leases 7,067 1,124 2,983 1,413 12,587
Nonearning assets -- -- -- -- $ 2,732 2,732
------- ------- ------ ------ ------- -------
Total uses of funds $ 8,809 $ 2,321 $4,453 $1,966 $ 2,732 $20,281
======= ======= ====== ====== ======= =======
SOURCES OF FUNDS
Interest-bearing deposits and liabilities:
Savings and money market deposits $ 1,978 $ 897 $4,187 $ 598 $ 7,660
Time deposits under $100,000 525 908 326 78 1,837
Time deposits $100,000 or more 402 498 113 66 1,079
Foreign 210 210
Securities sold, not yet 237 237
purchased
Federal funds purchased 826 826
Security repurchase agreements 1,367 1,367
Commercial paper 239 239
FHLB advances and other
borrowings:
Less than one year 1,038 1,038
Over one year 11 34 68 113
Long-term debt 112 48 1 292 453
Noninterest-bearing deposits 1,335 $ 1,941 3,276
Other liabilities 247 247
Minority interest 39 39
Shareholders' equity -- -- -- -- 1,660 1,660
------- ------- ------ ------ ------- -------
Total sources of funds $ 8,269 $ 2,362 $4,661 $1,102 $ 3,887 $20,281
======= ======= ====== ====== ======= =======
Off-balance sheet items affecting
interest rate sensitivity $ (972) $ 160 $ 785 $ 27
Interest rate sensitivity gap $ (432) $ 119 $ 577 $ 891 $(1,155)
Percent of total assets (2.13)% 0.59% 2.85% 4.39% (5.69)%
Cumulative interest rate sensitivity gap $ (432) $ (313) $ 264 $1,155
Cumulative as a % of total assets (2.13)% (1.54)% 1.30% 5.69%
</TABLE>
31
<PAGE> 34
The Company, through the management of maturities and repricing of its assets
and liabilities and the use of off-balance sheet arrangements, including
interest rate caps, floors, futures, options and exchange agreements, attempts
to manage the effect on net interest income of changes in interest rates. The
prime lending rate is the primary basis used for pricing the Company's loans and
the 91-day Treasury bill rate is the index used for pricing many of the
Company's deposits. The Company, however, is unable to economically hedge the
prime/T-bill spread risk through the use of derivative financial instruments.
Interest rate swap maturities and average rates are presented in Schedule 13.
For additional information regarding off-balance sheet financial contracts,
refer to Notes 1, 12 and 19 of Notes to Consolidated Financial Statements.
SCHEDULE 13
INTEREST RATE SWAP MATURITIES AND AVERAGE RATES
<TABLE>
<CAPTION>
(Amounts in millions) 2000 2001 2002 2003 Thereafter Total
---- ---- ---- ---- ---------- -----
<S> <C> <C> <C> <C> <C> <C>
Receive fixed rate:
Notional amount $221 $51 $93 $182 $164 $711
Weighted average rate received 6.28% 6.34% 6.39% 6.25% 6.15% 6.26%
Weighted average rate paid 6.37% 6.21% 6.24% 6.29% 6.38% 6.33%
</TABLE>
LIQUIDITY RISK MANAGEMENT
The Company manages its liquidity to provide adequate funds to meet its
financial obligations, including withdrawals by depositors and debt service
requirements as well as to fund customers' demand for credit. Liquidity is
primarily provided by the regularly scheduled maturities of the Company's
investment and loan portfolios. Management of the maturities of these portfolios
is an important source of medium- to long-term liquidity. The Company's ability
to raise funds in the capital markets through the securitization process allows
it to take advantage of market opportunities to meet funding needs at a
reasonable cost.
To meet the Company's short-term liquidity needs, on December 31, 1999 the
Company had cash, money market investments, and liquid securities net of
short-term or "purchased" liabilities and foreign deposits, of $618 million or
4.8% of core deposits. The Company's core deposits, consisting of demand,
savings, money market, and time deposits under $100,000, constituted 90.8% of
total deposits at year-end.
The Parent Company's cash requirements consist primarily of debt service,
dividends to shareholders, operating expenses, income taxes and share
repurchases. The Parent's cash needs are routinely met through dividends from
subsidiaries, proportionate shares of current income taxes, management and other
fees, unaffiliated bank lines and debt issuance.
At December 31, 1999, $55.5 million of dividend capacity was available from
subsidiaries to pay to the Parent without having to obtain regulatory approval.
During 1999, dividends from subsidiaries were $109.9 million. During 1998 the
Company started a program to issue short-term commercial paper. At December 31,
1999 outstanding commercial paper was $239 million. At December 31, 1999 the
Parent had revolving credit facilities with two banks totaling $50 million. On
that date, the balance outstanding on these bank lines was $25 million.
32
<PAGE> 35
YEAR 2000
The Company has successfully completed its Year 2000 program efforts and as of
the date of this report has experienced no significant problems with its systems
as a result of the Year 2000 date change. The Company also received no reports
of significant customer problems related to the Year 2000 change that could put
the Company at risk. The Company will continue to monitor systems activities
related to identified additional critical dates during and beyond 2000.
The aggregate estimated increase in operating expense for the Company to achieve
Year 2000 readiness was approximately $3 million which was incurred in 1999 and
prior. In addition, a significant portion of the Company's personal computers
were replaced during 1999 to achieve Year 2000 compliance. The capital outlay to
replace these assets was approximately $3 million, a portion of which would also
have been incurred in the ordinary course of business without regard to Year
2000 issues.
FORWARD-LOOKING INFORMATION
Statements in Management's Discussion and Analysis that are not based on
historical data are forward-looking, including, for example, the projected
performance of Zions and its operations. These statements constitute
forward-looking information within the meaning of the Private Securities
Litigation Reform Act of 1995. Actual results may differ materially from the
projections discussed in Management's Discussion and Analysis since such
projections involve significant risks and uncertainties. Factors that might
cause such differences include, but are not limited to: the timing of closing
proposed acquisitions being delayed or such acquisitions being prohibited,
competitive pressures among financial institutions increasing significantly;
economic conditions, either nationally or locally in areas in which Zions
conducts its operations, being less favorable than expected; and legislation or
regulatory changes which adversely affect the Company's operations or business.
Zions disclaims any obligation to update any factors or to publicly announce the
result of revisions to any of the forward-looking statements included herein to
reflect future events or developments.
33
<PAGE> 36
CONSOLIDATED CONDENSED STATEMENTS OF INCOME
The following consolidated condensed statements of income present earnings and
operating cash earnings information as restated. The Company has restated prior
year financial information for a significant acquisition accounted for as a
pooling of interests. See Note 2 of Notes to Consolidated Financial Statements
for further information on the acquisition.
<TABLE>
<CAPTION>
CONSOLIDATED CONDENSED STATEMENTS OF INCOME
--------------------------------------------------------
(Amounts in millions) Restated Restated Restated Restated
1999 1998 1997 1996 1995
--------- -------- -------- -------- -------
<S> <C> <C> <C> <C> <C>
Net interest income $ 741.5 $ 573.9 $ 369.6 $ 297.1 $ 259.7
Noninterest income 266.5 210.1 148.3 117.5 94.0
--------- -------- -------- -------- -------
Total revenue 1,008.0 784.0 517.9 414.6 353.7
Provision for loan losses 17.9 14.0 5.9 4.8 4.3
Noninterest expense(1) 617.9 486.8 305.1 237.5 210.8
--------- -------- -------- -------- -------
Pretax cash earnings 372.2 283.2 206.9 172.3 138.6
Income tax expense 123.5 88.4 68.6 57.3 45.6
Minority interest 4.9 0.4 -- -- --
--------- -------- -------- -------- -------
Cash earnings(1) 243.8 194.4 138.3 115.0 93.0
Amortization of goodwill and core deposit
intangibles 36.0 31.7 7.1 2.3 2.5
Merger expense 27.7 38.1 0.7 -- --
Income tax benefit (14.0) (18.8) (0.9) (0.1) (0.3)
--------- -------- -------- -------- -------
Net income $ 194.1 $ 143.4 $ 131.4 $ 112.8 $ 90.8
========= ======== ======== ======== =======
Operating cash earnings per share (diluted)(1) $ 2.84 $ 2.37 $ 2.03 $ 1.73 $ 1.46
========= ======== ======== ======== =======
Net income per share (diluted) $ 2.26 $ 1.75 $ 1.92 $ 1.69 $ 1.42
========= ======== ======== ======== =======
</TABLE>
- ------------------
(1) Before amortization of goodwill and core deposit intangible assets and
merger expense.
34
<PAGE> 37
ITEM 8. FINANCIAL STATEMENTS AND SUPPLEMENTAL DATA
INDEPENDENT AUDITORS' REPORT
The Board of Directors and Shareholders
Zions Bancorporation:
We have audited the accompanying consolidated balance sheets of Zions
Bancorporation and subsidiaries as of December 31, 1999 and 1998, and the
related consolidated statements of income, cash flows, and changes in
shareholders' equity and comprehensive income for each of the years in the
three-year period ended December 31, 1999. These consolidated financial
statements are the responsibility of the Company's management. Our
responsibility is to express an opinion on these consolidated financial
statements based on our audits.
We conducted our audits in accordance with generally accepted auditing
standards. Those standards require that we plan and perform the audit to obtain
reasonable assurance about whether the financial statements are free of material
misstatement. An audit includes examining, on a test basis, evidence supporting
the amounts and disclosures in the financial statements. An audit also includes
assessing the accounting principles used and significant estimates made by
management, as well as evaluating the overall financial statement presentation.
We believe that our audits provide a reasonable basis for our opinion.
In our opinion, the consolidated financial statements referred to above present
fairly, in all material respects, the financial position of Zions Bancorporation
and subsidiaries as of December 31, 1999 and 1998, and the results of their
operations and their cash flows for each of the years in the three-year period
ended December 31, 1999, in conformity with generally accepted accounting
principles.
/s/ KPMG LLP
Salt Lake City, Utah
February 7, 2000
35
<PAGE> 38
ZIONS BANCORPORATION AND SUBSIDIARIES
Consolidated Balance Sheets
December 31, 1999 and 1998
(In thousands, except share amounts)
<TABLE>
<CAPTION>
ASSETS 1999 1998
------------ ------------
<S> <C> <C>
Cash and due from banks $ 898,300 922,654
Money market investments:
Interest-bearing deposits 17,371 30,484
Federal funds sold 85,898 246,946
Security resell agreements 421,900 382,275
Investment securities:
Held to maturity, at cost (approximate market value
$3,290,508 and $2,869,162) 3,330,444 2,850,756
Available for sale, at market 778,930 954,057
Trading account, at market 327,845 191,855
Loans:
Loans held for sale 204,800 232,253
Loans, leases, and other receivables 12,648,325 11,037,292
------------ ------------
12,853,125 11,269,545
Less:
Unearned income and fees, net of related costs 62,480 50,059
Allowance for loan losses 204,114 212,557
------------ ------------
Net loans 12,586,531 11,006,929
Premises and equipment, net 287,448 249,896
Goodwill and core deposit intangibles 666,219 663,606
Other real estate owned 8,939 5,270
Other assets 871,075 544,895
------------ ------------
$ 20,280,900 18,049,623
============ ============
LIABILITIES AND SHAREHOLDER'S EQUITY
Deposits:
Noninterest-bearing $ 3,276,097 3,394,884
Interest-bearing:
Savings and money market 7,660,786 6,544,607
Time:
Under $100,000 1,836,645 2,439,696
Over $100,000 1,078,631 1,637,479
Foreign 209,780 204,244
------------ ------------
14,061,939 14,220,910
Securities sold, not yet purchased 237,020 29,702
Federal funds purchased 825,997 337,283
Security repurchase agreements 1,366,653 992,671
Accrued liabilities 247,406 321,258
Commercial paper 238,660 49,217
Federal Home Loan Bank advances and other borrowings:
Less than one year 1,038,045 100,750
Over one year 112,622 56,796
Long-term debt 453,471 453,735
------------ ------------
Total liabilities 18,581,813 16,562,322
------------ ------------
Minority interest 39,249 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, 85,592,643 shares and 83,554,630 shares 888,231 796,519
Accumulated other comprehensive loss (4,158) (3,407)
Retained earnings 775,765 659,519
------------ ------------
Total shareholders' equity 1,659,838 1,452,631
------------ ------------
$ 20,280,900 18,049,623
============ ============
</TABLE>
See accompanying notes to consolidated financial statements.
36
<PAGE> 39
ZIONS BANCORPORATION AND SUBSIDIARIES
Consolidated Statements of Income
Years ended December 31, 1999, 1998, and 1997
(In thousands, except share amounts)
<TABLE>
<CAPTION>
1999 1998 1997
----------- ----------- -----------
<S> <C> <C> <C>
Interest income:
Interest and fees on loans $ 1,001,741 694,338 423,456
Interest on loans held for sale 12,194 14,256 11,874
Lease financing 13,293 12,630 13,190
Interest on money market investments 67,234 92,248 88,267
Interest on securities:
Held to maturity:
Taxable 175,701 131,712 106,691
Nontaxable 18,784 16,154 12,851
Available for sale:
Taxable 36,480 44,735 41,581
Nontaxable 3,844 2,733 2,872
Trading account 30,067 24,043 16,211
----------- ----------- -----------
Total interest income 1,359,338 1,032,849 716,993
----------- ----------- -----------
Interest expense:
Interest on savings and money market deposits 247,729 173,833 125,124
Interest on time and foreign deposits 166,749 143,313 69,260
Interest on borrowed funds 203,371 141,761 153,005
----------- ----------- -----------
Total interest expense 617,849 458,907 347,389
----------- ----------- -----------
Net interest income 741,489 573,942 369,604
Provision for loan losses 17,956 14,034 5,930
----------- ----------- -----------
Net interest income after provision for loan losses 723,533 559,908 363,674
Noninterest income:
Service charges on deposit accounts 76,756 61,131 44,682
Other service charges, commissions, and fees 66,098 57,027 40,861
Trust income 15,762 10,969 8,075
Investment securities gain (loss), net (2,970) 4,055 888
Underwriting and trading income 11,551 9,239 5,716
Loan sales and servicing income 40,516 50,365 38,734
Other 58,832 17,411 9,354
----------- ----------- -----------
Total noninterest income 266,545 210,197 148,310
----------- ----------- -----------
Noninterest expense:
Salaries and employee benefits 346,710 261,531 164,938
Occupancy, net 49,393 33,387 17,970
Furniture and equipment 45,477 38,256 24,500
Other real estate expense (income) (66) 656 301
Legal and professional services 16,156 16,345 8,052
Supplies 11,168 11,904 8,444
Postage 11,656 11,030 7,284
Advertising 18,502 12,613 7,360
FDIC premiums 2,152 1,528 708
Merger expense 27,691 38,128 815
Amortization of goodwill and core deposit intangibles 36,008 31,641 7,069
Amortization of mortgage servicing assets 911 5,484 2,152
Other 115,809 94,197 63,321
----------- ----------- -----------
Total noninterest expense 681,567 556,700 312,914
----------- ----------- -----------
Income before income taxes and minority interest 308,511 213,405 199,070
Income taxes 109,498 69,632 67,667
----------- ----------- -----------
Net income before minority interest 199,013 143,773 131,403
Minority interest 4,949 420 --
----------- ----------- -----------
$ 194,064 143,353 131,403
=========== =========== ===========
Weighted-average common and common-equivalent shares
outstanding during the year 85,695 81,918 68,258
=========== =========== ===========
Net income per common share:
Basic $ 2.29 1.77 1.95
=========== =========== ===========
Diluted $ 2.26 1.75 1.92
=========== =========== ===========
</TABLE>
See accompanying notes to consolidated financial statements.
37
<PAGE> 40
ZIONS BANCORPORATION AND SUBSIDIARIES
Consolidated Statements of Cash Flows
Years ended December 31, 1999, 1998, and 1997
(In thousands)
<TABLE>
<CAPTION>
1999 1998 1997
------------- ------------- -------------
<S> <C> <C> <C>
Cash flows from operating activities:
Net income $ 194,064 143,353 131,403
Adjustments to reconcile net income to net cash provided by (used in)
operating activities:
Provision for loan losses 17,956 14,034 5,930
Depreciation of premises and equipment 39,155 29,861 18,689
Amortization 51,367 50,506 15,581
Accretion of unearned income and fees, net of related costs 18,437 (5,695) 1,545
Income to minority interest 4,949 420 --
Proceeds from sales of trading account securities 188,710,001 175,432,243 119,209,754
Increase in trading account securities (188,845,991) (175,540,070) (119,259,359)
Investment securities (gain) loss, net 2,970 (4,055) (888)
Proceeds from loans held-for-sale 878,638 1,237,514 742,244
Increase in loans held-for-sale (852,309) (1,296,803) (764,066)
Net gain on sales of loans, leases and other assets (31,674) (43,644) (28,402)
Change in accrued income taxes 4,792 22,916 677
Change in accrued interest receivable (15,457) 1,420 (20,895)
Change in accrued interest payable 201 1,183 4,299
Other, net (175,671) (54,790) (26,422)
------------- ------------- -------------
Net cash provided by (used in) operating activities 1,428 (11,607) 30,090
------------- ------------- -------------
Cash flows from investing activities:
Net decrease (increase) in money market investments 135,386 874,130 (234,135)
Proceeds from maturities of investment securities held to maturity 804,139 3,466,594 1,002,836
Purchases of investment securities held to maturity (1,360,049) (3,519,660) (1,653,038)
Proceeds from sales of investment securities available for sale 367,345 573,197 301,316
Proceeds from maturities of investment securities available for sale 353,714 275,785 123,369
Purchases of investment securities available for sale (652,017) (789,738) (443,427)
Proceeds from sales of loans and leases 1,005,530 918,948 968,717
Net increase in loans and leases (2,469,077) (2,033,560) (1,534,767)
Principal collections on leveraged leases 8,118 3,840 5,748
Payments on leveraged leases (8,118) (3,840) (5,748)
Proceeds from sales of premises and equipment 17,441 5,370 7,677
Purchases of premises and equipment (93,769) (75,461) (41,994)
Proceeds from sales of mortgage-servicing rights 21,307 6,654 1,771
Purchases of mortgage-servicing rights (1,098) (5,149) (3,123)
Proceeds from sales of other assets 7,892 10,299 3,578
Cash paid for acquisitions, net of cash received 8,847 (246,485) 37,304
------------- ------------- -------------
Net cash used in investing activities (1,854,409) (539,076) (1,463,916)
------------- ------------- -------------
Cash flows from financing activities:
Net decrease (increase) in deposits (365,695) 782,325 1,286,816
Net change in short-term funds borrowed 2,193,152 (91,272) 387,272
Proceeds from FHLB advances over one year 365,000 4,665 180,000
Payments on FHLB advances over one year (309,755) (167,886) (47,980)
Proceeds from issuance of long-term debt -- 195,041 --
Payments on long-term debt (264) (20,556) (554)
Proceeds from issuance of common stock 9,753 137,404 3,761
Payments to redeem common stock (6,650) (25,744) (121,394)
Dividends paid (56,914) (41,600) (29,040)
------------- ------------- -------------
Net cash provided by financing activities 1,828,627 772,377 1,658,881
------------- ------------- -------------
Net (decrease) increase in cash and due from banks (24,354) 221,694 225,055
Cash and due from banks at beginning of year 922,654 700,960 475,905
------------- ------------- -------------
Cash and due from banks at end of year $ 898,300 922,654 700,960
============= ============= =============
</TABLE>
See accompanying notes to consolidated financial statements.
38
<PAGE> 41
ZIONS BANCORPORATION AND SUBSIDIARIES
Consolidated Statements of Changes in Shareholders' Equity
and Comprehensive Income
Years ended December 31, 1999, 1998, and 1997
(In thousands, except share amounts)
<TABLE>
<CAPTION>
ACCUM-
ULATED
OTHER
COMPRE- TOTAL
COMMON STOCK COMPRE- HENSIVE SHARE-
----------------------- HENSIVE INCOME RETAINED HOLDERS'
SHARES AMOUNT INCOME (LOSS) EARNINGS EQUITY
---------- ----------- ------------- ------ ------- -------
<S> <C> <C> <C> <C> <C> <C>
BALANCES, DECEMBER 31, 1996 64,480,158 $ 101,605 -- (1,631) 468,775 568,749
Net income -- -- 131,403 -- 131,403 131,403
Other comprehensive income, net of tax:
Realized and unrealized holding gain arising during
the year, net of tax expense of $3,868 -- -- 6,245 -- -- --
Reclassification for realized gain recorded in the
income statement, net of tax expense of $48 -- -- (77) -- -- --
-------------
Other comprehensive income -- -- 6,168 6,168 -- 6,168
-------------
Total comprehensive income -- -- $ 137,571 -- -- --
=============
Cash dividends:
Common, $.47 per share -- -- -- (28,428) (28,428)
Preferred dividends of acquired companies
prior to merger -- -- -- (612) (612)
Stock dividend of acquired company 389,380 11,447 -- (11,452) (5)
Issuance of common shares for acquisitions 8,374,833 295,564 -- -- 295,564
Stock redeemed and retired (3,649,018) (121,389) -- -- (121,389)
Stock options exercised, net of shares
tendered and retired 369,165 5,156 -- -- 5,156
---------- ----------- ------ ------- ---------
BALANCE, DECEMBER 31, 1997 69,964,518 292,383 4,537 559,686 856,606
Net income -- -- 143,353 -- 143,353 143,353
Other comprehensive loss, net of tax:
Realized and unrealized holding loss arising during
the year, net of tax benefit of $3,595 -- -- (5,803) -- -- --
Reclassification for realized gain recorded in the
income statement, net of tax expense of $1,551 -- -- (2,504) -- -- --
-------------
Other comprehensive loss -- -- (8,307) (8,307) -- (8,307)
-------------
Total comprehensive income -- -- $ 135,046 -- -- --
=============
Cash dividends:
Common, $.54 per share -- -- -- (40,715) (40,715)
Preferred dividends of acquired companies
prior to merger -- -- -- (887) (887)
Stock dividend of acquired company 446,452 21,000 (21,009) (9)
Net proceeds from stock offering 2,760,000 130,131 -- -- 130,131
Issuance of common shares for acquisitions 10,041,306 368,259 363 19,091 387,713
Exercise of acquired company warrants
prior to acquisition 257,056 1,852 -- -- 1,852
Stock redeemed and retired (591,009) (25,696) -- -- (25,696)
Stock options exercised, net of shares tendered
and retired 676,307 8,590 -- -- 8,590
---------- ----------- ------ ------- ---------
BALANCE, DECEMBER 31, 1998 83,554,630 796,519 (3,407) 659,519 1,452,631
</TABLE>
39
<PAGE> 42
ZIONS BANCORPORATION AND SUBSIDIARIES
Consolidated Statements of Changes in Shareholders'
Equity and Comprehensive Income
Years ended December 31, 1999, 1998, and 1997
(In thousands, except share amounts)
<TABLE>
<CAPTION>
ACCUM-
ULATED
OTHER
COMPRE- TOTAL
COMMON STOCK COMPRE- HENSIVE SHARE-
---------------------- HENSIVE INCOME RETAINED HOLDERS'
SHARES AMOUNT INCOME (LOSS) EARNINGS EQUITY
---------- ------- --------- ------ ------- ---------
<S> <C> <C> <C> <C> <C> <C>
Net income -- $ -- 194,064 -- 194,064 194,064
Other comprehensive loss, net of tax:
Realized and unrealized holding loss arising during
the year, net of tax benefit of $5,405 -- -- (8,726) -- -- --
Reclassification for realized loss recorded in the
income statement, net of tax benefit of $4,940 -- -- 7,975 -- -- --
---------
Other comprehensive loss -- -- (751) (751) -- (751)
---------
Total comprehensive income -- -- $ 193,313 -- -- --
=========
Cash dividends:
Common, $.72 per share -- -- -- (56,914) (56,914)
Stock dividend of acquired company 107 21,694 -- (21,701) (7)
Issuance of common shares for acquisitions 1,571,143 58,358 -- 797 59,155
Stock redeemed and retired (115,769) (6,650) -- -- (6,650)
Stock options exercised, net of shares tendered
and retired 582,532 18,310 -- -- 18,310
---------- -------- ------ ------- ---------
BALANCE, DECEMBER 31, 1999 85,592,643 $888,231 (4,158) 775,765 1,659,838
========== ======== ====== ======= =========
</TABLE>
See accompanying notes to consolidated financial statements.
40
<PAGE> 43
ZIONS BANCORPORATION AND SUBSIDIARIES
Notes to Consolidated Financial Statements
December 31, 1999 and 1998
(1) SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
BUSINESS - Zions Bancorporation (the Parent) is a multibank holding
company organized under the laws of Utah in 1955, which provides a full
range of banking and related services through its subsidiaries operating
primarily in Utah, Idaho, California, Colorado, Arizona, Nevada, and
Washington.
BASIS OF FINANCIAL STATEMENT PRESENTATION - The consolidated financial
statements include the accounts of Zions Bancorporation and its
subsidiaries (the Company). All significant intercompany accounts and
transactions have been eliminated in consolidation. Certain prior year
amounts have been reclassified to conform to the current financial
statement presentation. In addition, consolidated financial statements for
all periods presented have been restated to include the results of
operations, financial position and cash flows for the 1999 acquisition of
Pioneer Bancorporation, which was accounted for as a pooling of interests.
The consolidated financial statements have been prepared in conformity
with generally accepted accounting principles and prevailing practices
within the financial services industry. In preparing the consolidated
financial statements, management is required to make estimates and
assumptions that affect the reported amounts of assets and liabilities as
of the date of the balance sheet and revenues and expenses for the period.
Actual results could differ from those estimates.
SECURITY RESELL AGREEMENTS - Security resell agreements represent
overnight and term agreements, the majority maturing within 30 days.
Either the Company or, in some instances, third parties on behalf of the
Company take possession of underlying securities. The market value of such
securities is monitored throughout the contract term to ensure that asset
value remains sufficient to protect against counterparty default. Security
resell agreements averaged approximately $1,038 million during 1999, and
the maximum amount outstanding at any month-end during 1999 was $1,525
million.
SECURITIES - The Company classifies its securities according to their
purpose and holding period. Gains or losses on the sale of securities are
recognized on a specific identification method and recorded in noninterest
income.
Held to maturity securities, primarily debt securities, are stated at
cost, net of unamortized premiums and unaccreted discounts. The Company
has the intent and the ability to hold such securities until maturity.
Debt securities that may not be held until maturity and marketable equity
securities are classified as available for sale and are reported at fair
value, with unrealized gains and losses, after applicable taxes, reported
as a component of cumulative other comprehensive income. Declines in the
value of debt securities and marketable equity securities that are
considered other than temporary are recorded in noninterest income.
Securities acquired for a short-term appreciation or other trading
purposes are classified as trading securities and are recorded at fair
value. Realized and unrealized gains and losses resulting from such fair
value adjustments and from recording the results of sales are recorded in
trading income.
The market values of available for sale and trading securities are
generally based on quoted market prices or dealer quotes. If a quoted
market price is not available, market value is estimated using quoted
market prices for similar securities.
41
<PAGE> 44
ZIONS BANCORPORATION AND SUBSIDIARIES
Notes to Consolidated Financial Statements
December 31, 1999 and 1998
NONMARKETABLE SECURITIES - Nonmarketable securities include venture
capital securities and securities acquired for various debt and regulatory
requirements. Venture capital securities are reported at estimated fair
values, in the absence of readily ascertainable market values. Changes in
fair value and gains and losses from sales are recognized in noninterest
income. The values assigned to the securities where no market quotation
exists are based upon available information and may not necessarily
represent amounts that will ultimately be realized. Such estimated amounts
depend on future circumstances. These estimated amounts will not be
realized until the individual securities are liquidated. The valuation
procedures applied include consideration of economic and market
conditions, current and projected financial performance of the investee
company, and the investee company's management team. Management believes
that the cost of an investment is initially considered the best indication
of estimated fair value unless there have been significant subsequent
positive or negative developments that justify an adjustment in the fair
value estimate. Other nonmarketable securities acquired for various debt
and regulatory requirements are accounted for at cost. These nonmarketable
securities are included in other assets on the Company's balance sheet.
LOANS - Loans are reported at the principal amount outstanding, net of
unearned income. Unearned income, which includes deferred fees net of
deferred direct incremental loan origination costs, is amortized to
interest income generally over the life of the loan using an interest
method or the straight-line method if it is not materially different.
Loans held for sale are carried at the lower of cost or market value
because the Company does not intend to hold these loans until maturity or
sales of loans are pending. Gains and losses are recorded in noninterest
income, based on the difference between sales proceeds and carrying value.
NONACCRUAL LOANS - Loans are generally placed on a nonaccrual status when
principal or interest is past due 90 days or more unless the loan is both
well-secured and in the process of collection, or when in the opinion of
management, full collection of principal or interest is unlikely.
Generally, consumer loans are not placed on a nonaccrual status, inasmuch
as they are generally charged off when they become 120 days past due.
Generally, a loan may be returned to accrual status when all delinquent
interest and principal become current in accordance with the terms of the
loan agreement or when the loan is both well-secured and in the process of
collection.
IMPAIRED LOANS - Loans, other than those included in large groups of
smaller-balance homogeneous loans, are considered impaired when, based on
current information and events, it is probable that the Company will be
unable to collect all amounts due according to the contractual terms of
the loan agreement, including scheduled interest payments. For a loan that
has been restructured, the contractual terms of the loan agreement refer
to the contractual terms specified by the original loan agreement, not the
contractual terms specified by the restructuring agreement.
This assessment for impairment occurs when and while such loans are on
nonaccrual, or the loan has been restructured. When a loan with unique
risk characteristics has been identified as being impaired, the amount of
impairment will be measured by the Company using discounted cash flows,
except when it is determined that the sole (remaining) source of repayment
for the loan is the operation or liquidation of the underlying collateral.
In such cases, the current fair value of the collateral, reduced by costs
to sell, will be used in place of discounted cash flows.
42
<PAGE> 45
ZIONS BANCORPORATION AND SUBSIDIARIES
Notes to Consolidated Financial Statements
December 31, 1999 and 1998
If the measurement of the impaired loan is less than the recorded
investment in the loan (including accrued interest, net deferred loan fees
or costs and unamortized premium or discount), an impairment is recognized
by creating or adjusting an existing allocation of the allowance for loan
losses.
RESTRUCTURED LOANS - In cases where a borrower experiences financial
difficulties and the Company makes certain concessionary modifications to
contractual terms, the loan is classified as a restructured (accruing)
loan. Loans restructured at a rate equal to or greater than that of a new
loan with comparable risk at the time the contract is modified may be
excluded from the impairment assessment and may cease to be considered
impaired loans in the calendar years subsequent to the restructuring if
they are not impaired based on the modified terms.
Generally, a nonaccrual loan that is restructured remains on nonaccrual
for a period of six months to demonstrate that the borrower can meet the
restructured terms. However, performance prior to the restructuring, or
significant events that coincide with the restructuring, are included in
assessing whether the borrower can meet the new terms and may result in
the loan being returned to accrual at the time of restructuring or after a
shorter performance period. If the borrower's ability to meet the revised
payment schedule is uncertain, the loan remains classified as a nonaccrual
loan.
ALLOWANCE FOR LOAN LOSSES - In analyzing the adequacy of the allowance for
loan and lease losses, management utilizes a comprehensive loan grading
system to determine risk potential in the portfolio, and considers the
results of independent internal and external credit review. To determine
the adequacy of the allowance, the Company's loan and lease portfolio is
broken into segments based on loan type. Historical loss experience
factors by segment, adjusted for changes in trends and conditions, are
used in determining the required allowance for each segment. Historical
loss factors are evaluated and updated using migration analysis techniques
and other considerations based on the makeup of the specific portfolio
segment. Other considerations such as volumes and trends of delinquencies,
nonaccruals, repossessions and bankruptcies, criticized and classified
loan trends, current and anticipated foreclosure losses, new products and
policies, economic conditions, concentrations of credit risk, and
experience and abilities of lending personnel are also considered in
establishing the loss factors.
All loans graded substandard in the amount of $1 million or more and all
credits graded doubtful in the amount of $100 thousand or more are
individually evaluated based on facts and circumstances of the loan and a
specific allowance amount designated. Specific allowances may also be
established for loans in amounts below the specific thresholds when it is
determined that the risk differs significantly from factor amounts
established for the category. Although management has allocated a portion
of the allowance to specific loan categories using the methods described,
the adequacy of the allowance must be considered in its entirety. To
mitigate the imprecision in most estimates of expected credit losses, the
allocated component of the allowance is supplemented by an unallocated
component. The unallocated portion of the allowance includes management's
judgmental determination of the amounts necessary for subjective factors
such as economic uncertainties and concentration risks. Accordingly, the
relationship of the unallocated component to the total allowance for loan
losses may fluctuate from period to period.
PREMISES AND EQUIPMENT - Premises and equipment are stated at cost, net of
accumulated depreciation and amortization. Depreciation, computed on the
straight-line method, is charged to operations over the
43
<PAGE> 46
ZIONS BANCORPORATION AND SUBSIDIARIES
Notes to Consolidated Financial Statements
December 31, 1999 and 1998
estimated useful lives of the properties. Leasehold improvements are
amortized over the terms of respective leases or the estimated useful
lives of the improvements, whichever is shorter.
GOODWILL AND IDENTIFIABLE INTANGIBLE ASSETS - Goodwill, representing the
excess of purchase price over the fair value of net assets acquired,
results from acquisitions made by the Company. Substantially all of the
Company's goodwill is being amortized using the straight-line method over
25 years. Core deposit intangibles are amortized on an accelerated basis
based on an estimated useful life of 10 years.
The Company reviews its intangible assets periodically for
other-than-temporary impairment. If such impairment is indicated,
recoverability of the asset is assessed based on expected undiscounted net
cash flows.
MORTGAGE SERVICING RIGHTS - The Company recognizes as separate assets the
rights to service mortgage loans for others, whether the servicing rights
are acquired through purchases or loan originations. The fair value of
capitalized mortgage servicing rights is based upon the present value of
estimated future cash flows. Based upon current fair values capitalized
mortgage servicing rights are periodically assessed for impairment, which
is recognized in the statement of income during the period in which
impairment occurs. For purposes of performing its impairment evaluation,
the Company stratifies its portfolio on the basis of certain risk
characteristics including loan type and note rate. Capitalized mortgage
servicing rights are amortized over the period of estimated net servicing
income and take into account appropriate prepayment assumptions.
OFF-BALANCE SHEET FINANCIAL INSTRUMENTS - In the ordinary course of
business, the Company has entered into off-balance sheet financial
instruments consisting of commitments to extend credit, commercial letters
of credit, and standby letters of credit. Such financial instruments are
recorded in the consolidated financial statements when they become
payable. The credit risk associated with these commitments is considered
in management's determination of the allowance for possible losses.
INTEREST RATE EXCHANGE CONTRACTS AND CAP AND FLOOR AGREEMENTS - The
Company enters into interest rate exchange contracts (swaps) and cap and
floor agreements as part of its overall asset and liability duration and
interest rate risk management strategy. The objective of these financial
instruments is to match estimated repricing periods of interest-sensitive
assets and liabilities in order to reduce interest rate exposure and or
manage desired asset and liability duration. With the exception of
interest rate caps and floors, these instruments are used to hedge asset
and liability portfolios and, therefore, are not marked to market. Fees
associated with these financial instruments are accreted into interest
income or amortized to interest expense on a straight-line basis over the
lives of the contracts and agreements. Gains or losses on early
termination of a swap are amortized on the remaining term of the contract
when the underlying assets or liabilities still exist. Otherwise, such
gains or losses are fully recorded as income or expense at the termination
of the contract. The net interest received or paid on these contracts is
reflected on a current basis in the interest income or expense related to
the hedged obligation or asset.
STATEMENTS OF CASH FLOWS - The Company paid interest of $617.6 million,
$459.7 million, and $378.5 million, respectively, and income taxes of
$28.3 million, $55.4 million, and $68.7 million, respectively, for the
years ended December 31, 1999, 1998, and 1997. Loans transferred to other
real
44
<PAGE> 47
ZIONS BANCORPORATION AND SUBSIDIARIES
Notes to Consolidated Financial Statements
December 31, 1999 and 1998
estate owned totaled $11 million, $5 million, and $9 million,
respectively, for the years ended December 31, 1999, 1998 and 1997.
INCOME TAXES - Deferred tax assets and liabilities are recognized for the
future tax consequences attributable to differences between the financial
statement carrying amounts of existing assets and liabilities and their
respective tax bases and operating loss and tax credit carryforwards.
Deferred tax assets and liabilities are measured using enacted tax rates
expected to apply to taxable income in the years in which those temporary
differences are expected to be recovered or settled. The effect on
deferred tax assets and liabilities of a change in tax rates is recognized
in income in the period that includes the enactment date.
The exercise of stock options under the Company's nonqualified stock
option plan, resulted in tax benefits reducing the Company's current
income tax payable and increasing common stock in the amounts of $8.6
million, $3.4 million, and $1.2 million in 1999, 1998, and 1997,
respectively.
NET INCOME PER COMMON SHARE - Diluted net income per common share is based
on the weighted-average outstanding common shares during each year,
including common stock equivalents. Basic net income per common share is
based on the weighted-average outstanding common shares during each year.
ACCOUNTING STANDARDS NOT ADOPTED - In September 1998, the FASB issued
Statement No. 133, Accounting for Derivative Instruments and Hedging
Activities. Statement No. 133 establishes accounting and reporting
standards for derivative instruments, including certain derivative
instruments embedded in other contracts, and for hedging activities. It
requires that an entity recognize all derivatives as either assets or
liabilities in the statement of financial position and measure those
instruments at fair value. The accounting for gains and losses of a
derivative depends on the intended use of the derivative and the resulting
designation.
Under this statement, an entity that elects to apply hedge accounting is
required to establish at the inception of the hedge the method it will use
for assessing the effectiveness of the hedging derivative and the
measurement approach for determining the ineffective aspect of the hedge.
Those methods must be consistent with the entity's approach to managing
risk. The original effective date of this statement, as amended by
Statement No. 137, has been delayed and it is now effective for all fiscal
quarters of fiscal years beginning after September 15, 2000, and should
not be applied retroactively to financial statements of prior periods. The
Company is currently studying the statement to determine its future
effects.
(2) MERGERS AND ACQUISITIONS
On June 6, 1999, the Company announced a definitive agreement to merge
with First Security Corporation (FSCO). Under the terms of the agreement,
subject to approval by the shareholders of both companies and certain
other conditions, the combined company will retain FSCO's name. If the
merger occurs, the combined company will be the nation's 20th largest bank
holding company with assets totaling approximately $40 billion. As part of
the merger, each outstanding share of the Company's common stock will be
converted into one share of common stock of the combined company and each
share of FSCO common stock will be converted into 0.442 of a share of
common stock of the combined company. The merger is expected to be
accounted for as a pooling of interests.
45
<PAGE> 48
ZIONS BANCORPORATION AND SUBSIDIARIES
Notes to Consolidated Financial Statements
December 31, 1999 and 1998
On October 5, 1999, the Company acquired all of the outstanding shares of
Regency Bancorp ("Regency"), a bank holding company headquartered in
Fresno, California, in exchange for 985 thousand shares of the Company's
common stock. The acquisition was accounted for as a purchase and
accordingly, the Company's financial statements reflect its operations
from the date of acquisition. Goodwill of approximately $33 million was
recorded in the fourth quarter of 1999 and is being amortized over 25
years using the straight-line method. The pro forma effect on prior period
results of operations is not significant.
On October 15, 1999, the Company completed its acquisition of Pioneer
Bancorporation ("Pioneer"), located in Reno, Nevada, resulting in the
issuance of approximately 5.4 million shares of the Company's common stock
for all the outstanding shares of Pioneer common stock in a tax free
exchange. The acquisition of Pioneer was accounted for as a pooling of
interests and, accordingly, financial information for all periods
presented prior to the date of acquisition has been restated to present
the combined financial condition and results of operations as if the
acquisition had been in effect for all such periods. At September 30,
1999, Pioneer had assets of approximately $1 billion, net loans of $675
million, deposits of $941 million, shareholders' equity of $73 million,
and net income applicable to common shareholders of $10.6 million.
On January 6, 1998, the Company completed its acquisition of Vectra
Banking Corporation and its banking subsidiary,Vectra Bank, located in
Denver, Colorado, in exchange for 4.0 million shares of the Company's
common stock. The acquisition was accounted for using the purchase method
of accounting, the results of the acquisition are included in the periods
subsequent to the acquisition date. Excess cost over net assets purchased
of $129 million was recorded in the first quarter of 1998 in connection
with this purchase.
On May 22, 1998, the Company acquired all the outstanding shares of FP
Bancorp, Inc. ("FP") of Escondido, California, and its banking subsidiary,
First Pacific National Bank. The Company issued 1.9 million shares of the
Company's common stock. The acquisition was accounted for as a purchase,
the results of the acquisition are included in the periods subsequent to
the acquisition date. Excess cost over net assets purchased of $57 million
was recorded in the second quarter of 1998 in connection with this
purchase.
On September 8, 1998, the Company acquired The Commerce Bancorporation
("Commerce"), and its banking subsidiary The Commerce Bank of Washington,
N.A. for 1.9 million shares of the Company's common stock. On the date of
acquisition, Commerce had total assets of $318 million and total
shareholders' equity of $24 million. The acquisition was accounted for as
a pooling of interests and, accordingly, financial information for all
periods presented prior to the date of acquisition has been restated to
present the combined financial condition and results of operations as if
the acquisition had been in effect for all such periods.
46
<PAGE> 49
ZIONS BANCORPORATION AND SUBSIDIARIES
Notes to Consolidated Financial Statements
December 31, 1999 and 1998
On October 1, 1998, the Company acquired The Sumitomo Bank of California
("Sumitomo"), located in San Francisco, California. Cash consideration of
approximately $546.0 million was paid for the acquisition. Sumitomo had
total assets of $4.5 billion and total shareholders' equity of $427
million at the date of acquisition. The acquisition was accounted for
using the purchase method of accounting, the results of the acquisition
are included in the periods subsequent to the acquisition date. The
Company recorded $107 million of goodwill with this transaction. Sumitomo
and FP were merged with Grossmont Bank and the name was changed to
California Bank & Trust ("CB&T"). The Company sold a minority interest in
CB&T to a limited partnership and Director of the Company for its cost
basis of approximately $33 million.
During 1998, the Company completed the acquisition of four additional
banking organizations in Colorado, namely, Sky Valley Bank Corp.,
Tri-State Finance Corporation, Routt County National Bank Corporation, and
SBT Bankshares for an aggregate of 2.4 million shares of common stock.
These acquisitions were accounted for as purchases and, accordingly, the
Company's financial statements reflect them from the date of acquisition.
The Company recorded $69 million in goodwill in connection with these
purchases.
During 1998, the Company issued 1.7 million shares of the Company's common
stock to acquire four additional banking organizations in Colorado, namely
Kersey Bancorp., N.A., Eagle Holding Company, Citizens Banco, Inc. and
Mountain Financial Holding Company. Each of these acquisitions was
accounted for as a pooling of interests and was not considered material to
the historical results of the Company, and accordingly, the Company's
financial statements were not restated.
On January 7, 2000, the Company announced a definitive agreement to
acquire County Bank in Prescott, Arizona in exchange for Zions
Bancorporation common stock. As of December 31, 1999, County Bank had
total assets of approximately $242 million (unaudited). This transaction
is intended to be accounted for as a pooling of interests and is expected
to close in the second quarter of 2000.
Merger expenses for each of the years in the three-year period ended
December 31, 1999, are presented below.
<TABLE>
<CAPTION>
YEARS ENDED DECEMBER 31,
------------------------------
(In thousands) 1999 1998 1997
------- ------ -----
<S> <C> <C> <C>
Severance and other employee benefits $12,363 16,604 --
Equipment and occupancy expense 1,722 7,773 --
Integration of business operations 451 5,834 --
Integration of information systems 3,403 1,668 --
Legal and other professional fees 4,810 5,957 940
Other integration costs 4,942 5,134 1,767
------- ------ -----
$27,691 42,970 2,707
======= ====== =====
</TABLE>
47
<PAGE> 50
ZIONS BANCORPORATION AND SUBSIDIARIES
Notes to Consolidated Financial Statements
December 31, 1999 and 1998
In connection with the Regency and Pioneer mergers, the Company recorded
pre-tax merger expenses of $14.3 million in 1999. These costs were
comprised of; $9.6 million in severance and other employee benefits;
integration of information systems totaling $320 thousand; $3.5 million in
expenses for legal and other professional fees; and other integration
costs of $912 thousand. During 1999, the Company paid $4.5 million in
accrued severance and other employee benefits and $3.9 million in legal
and other professional fees and other integration costs. At December 31,
1999, $5.1 million in severance and other employee benefits, $320 thousand
in integration of information systems and $491 thousand of other
integration costs remained accrued. The Company expects that substantially
all of the unpaid merger expenses at December 31, 1999, will be paid in
2000. During 1999, the Company paid $455 thousand of severance and other
employee benefits, $1.1 million of legal and other professional fees, and
$3.5 million in other integration costs associated with earlier
acquisitions.
The Company recorded pre-tax merger expenses of $38.1 million in 1998 in
connection with the Sumitomo and eleven other mergers. The Sumitomo merger
expenses included; $5.3 million in severance and other employee benefits;
$7.8 million in real property lease terminations; $5.8 million in
integration of business systems and $1.7 million in integration of
information systems. In connection with the other eleven mergers, the
Company incurred $6.3 million in severance and other employee benefits,
$6.0 million in legal and other professional fees, and $5.2 million in
other integration costs. As a result of these twelve mergers, merger costs
of $38.1 million, and a liability of $22.1 million was recorded in 1998
and was paid in total during 1999.
As a result of the consolidation effort associated with Sumitomo, the
Company recorded additional pre-tax merger expenses of $8.4 million during
1999 which amount remained accrued at December 31, 1999. Those costs are
comprised of $2.3 million for severance and other employee benefits; $1.7
million in equipment and occupancy costs; $451 thousand in integration of
business operations; $3.1 million in integration of information systems;
$295 thousand in legal and other professional fees; and $546 thousand in
other integration costs. The Company expects that substantially all of the
unpaid merger expenses at December 31, 1999, will be paid in 2000.
(3) INVESTMENT SECURITIES
Investment securities as of December 31, 1999, are summarized as follows
(in thousands):
<TABLE>
<CAPTION>
HELD TO MATURITY
----------------------------------------------
GROSS GROSS ESTIMATED
AMORTIZED UNREALIZED UNREALIZED MARKET
COST GAINS LOSSES VALUE
---------- ---------- ---------- ---------
<S> <C> <C> <C> <C>
U.S. Treasury securities $ 1,497 -- 2 1,495
U.S. government agencies and corporations:
Small Business Administration
loan-backed securities 439,818 7,077 2,284 444,611
Other agency securities 1,269,677 445 36,903 1,233,219
States and political subdivisions 313,743 1,265 6,146 308,862
Mortgage-backed securities 1,305,709 4,448 7,836 1,302,321
---------- ------ --------- ---------
$3,330,444 13,235 53,171 3,290,508
========== ====== ========= =========
</TABLE>
48
<PAGE> 51
ZIONS BANCORPORATION AND SUBSIDIARIES
Notes to Consolidated Financial Statements
December 31, 1999 and 1998
<TABLE>
<CAPTION>
AVAILABLE FOR SALE
----------------------------------------------
GROSS GROSS ESTIMATED
AMORTIZED UNREALIZED UNREALIZED MARKET
COST GAINS LOSSES VALUE
--------- ---------- ---------- ---------
<S> <C> <C> <C> <C>
U.S. Treasury securities $ 93,106 178 455 92,829
U.S. government agencies and corporations 50,682 28 920 49,790
States and political subdivisions 102,108 165 5,025 97,248
Mortgage - and other asset-backed
securities 146,920 350 4,453 142,817
-------- ------ ------- -------
392,816 721 10,853 382,684
Equity securities:
Mutual funds:
Accessor Funds, Inc. 140,935 186 2,447 138,674
Stock 242,700 14,921 49 257,572
-------- ------ ------- -------
$776,451 15,828 13,349 778,930
======== ====== ======= =======
</TABLE>
Investment securities as of December 31, 1998, are summarized as follows
(in thousands):
<TABLE>
<CAPTION>
HELD TO MATURITY
--------------------------------------------------
GROSS GROSS ESTIMATED
AMORTIZED UNREALIZED UNREALIZED MARKET
COST GAINS LOSSES VALUE
---------- ---------- ---------- ---------
<S> <C> <C> <C> <C>
U.S. Treasury securities $ 62,412 155 -- 62,567
U.S. government agencies and corporations:
Small Business Administration
loan-backed securities 358,161 1,065 3,110 356,116
Other agency securities 940,059 5,753 1,984 943,828
States and political subdivisions 331,314 9,134 128 340,320
Mortgage-backed securities 1,158,810 7,787 266 1,166,331
---------- ------ --------- ---------
$2,850,756 23,894 5,488 2,869,162
========== ====== ========= =========
</TABLE>
49
<PAGE> 52
ZIONS BANCORPORATION AND SUBSIDIARIES
Notes to Consolidated Financial Statements
December 31, 1999 and 1998
<TABLE>
<CAPTION>
AVAILABLE FOR SALE
--------------------------------------------------
GROSS GROSS ESTIMATED
AMORTIZED UNREALIZED UNREALIZED MARKET
COST GAINS LOSSES VALUE
---------- ---------- ---------- ---------
<S> <C> <C> <C> <C>
U.S. Treasury securities $ 97,859 1,843 4 99,698
U.S. government agencies and corporations:
Small Business Administration
originator fees certificates 84,933 -- 16,283 68,650
Other agencies 277,001 1,942 1,078 277,865
States and political subdivisions 66,590 1,444 47 67,987
Mortgage- and other asset-backed securities 179,389 1,248 401 180,236
-------- ------ ------- -------
705,772 6,477 17,813 694,436
Equity securities:
Mutual funds:
Accessor Funds, Inc. 116,566 1,865 10 118,421
Federal Home Loan Bank stock 100,579 -- -- 100,579
Other stock 36,804 3,817 -- 40,621
-------- ------ ------- -------
$959,721 12,159 17,823 954,057
======== ====== ======= =======
</TABLE>
The amortized cost and estimated market value of investment securities as
of December 31, 1999, by contractual maturity, excluding equity
securities, are shown below. Expected maturities will differ from
contractual maturities because borrowers may have the right to call or
prepay obligations with or without call or prepayment penalties (in
thousands):
<TABLE>
<CAPTION>
HELD TO MATURITY AVAILABLE FOR SALE
------------------------- ----------------------
GROSS GROSS ESTIMATED
AMORTIZED UNREALIZED UNREALIZED MARKET
COST GAINS LOSSES VALUE
---------- ---------- ---------- --------
<S> <C> <C> <C> <C>
Due in one year or less $ 557,604 556,200 116,892 116,560
Due after one year through five years 1,989,885 1,957,853 146,134 143,387
Due after five years through ten years 423,039 420,722 75,091 71,331
Due after ten years 359,916 355,733 54,699 51,406
---------- --------- ------- -------
$3,330,444 3,290,508 392,816 382,684
========== ========= ======= =======
</TABLE>
50
<PAGE> 53
ZIONS BANCORPORATION AND SUBSIDIARIES
Notes to Consolidated Financial Statements
December 31, 1999 and 1998
Gross gains of $2.4 million, $9.4 million, and $9.1 million and gross
losses of $5.4 million, $5.3 million, and $8.2 million were recognized on
sales and write downs of investment securities for the years ended
December 31, 1999, 1998, and 1997, respectively.
Included in other noninterest income for 1999 is $42.6 million of net
gains from securities held by the Company's venture capital subsidiary,
Wasatch Venture Corporation. Consolidated net income for 1999 includes
approximately $22.9 from Wasatch Venture Corporation's operations for the
year.
As of December 31, 1999 and 1998, securities with an amortized cost of
$1,730 million and $1,233 million, respectively, were pledged to secure
public and trust deposits, advances, and for other purposes as required by
law.
(4) LOANS AND ALLOWANCE FOR LOAN LOSSES
Loans are summarized as follows (in thousands):
<TABLE>
<CAPTION>
1999 1998
----------- ----------
<S> <C> <C>
Loans held for sale $ 204,800 232,253
Commercial, financial, and agricultural 3,036,229 2,844,046
Real estate
Construction 1,722,295 960,236
Other 6,902,855 6,332,798
Consumer 597,375 571,097
Lease financing 274,732 214,124
Foreign 52,697 44,368
Other receivables 62,142 70,623
----------- ----------
$12,853,125 11,269,545
=========== ==========
</TABLE>
As of December 31, 1999 and 1998, loans with a carrying value of $1,140
million and $63 million, respectively, were pledged as security for
Federal Home Loan Bank advances.
During 1999, 1998, and 1997, sales of loans held for sale totaled $879
million, $1,238 million, and $733 million, respectively. Consumer and
other loan securitizations totaled $982 million in 1999, $884 million in
1998, and $951 million in 1997, and relate primarily to loans sold under
revolving securitization structures. Gain on the sales, excluding
servicing, of both loans held for sale and loan securitizations amounted
to $24.2 million in 1999, $36.2 million in 1998, and $28.3 million in
1997.
51
<PAGE> 54
ZIONS BANCORPORATION AND SUBSIDIARIES
Notes to Consolidated Financial Statements
December 31, 1999 and 1998
The allowance for loan losses is summarized as follows (in thousands):
<TABLE>
<CAPTION>
1999 1998 1997
--------- -------- -------
<S> <C> <C> <C>
Balance at beginning of year $212,557 88,622 76,963
Allowance for loan losses of companies acquired 2,623 125,691 14,316
Additions:
Provision for loan losses 17,956 14,034 5,930
Recoveries 16,544 9,416 5,971
Deductions:
Loan charge-offs (45,566) (25,206) (14,558)
-------- -------- -------
Balance at end of year $204,114 212,557 88,622
======== ======== =======
</TABLE>
At December 31, 1999, 1998, and 1997, the allowance for loan losses
includes an allocation of $23 million, $20 million, and $9 million,
respectively, related to commitments to extend credit and standby letters
of credit.
The Company's total recorded investment in impaired loans amounted to $57
million and $41 million as of December 31, 1999 and 1998, respectively.
Included in the allowance for loan losses as of December 31, 1999 and
1998, is a required allowance of $16 million and $5 million, respectively,
on $22 million and $11 million, respectively, of the recorded investment
in impaired loans. Contractual interest due and interest foregone on
impaired loans totaled $5.3 million and $3.2 million, respectively, for
1999, $3.8 million and $2.1 million, respectively, for 1998, and $554
thousand and $244 thousand, respectively, for 1997. The average recorded
investment in impaired loans amounted to $27 million in 1999, $18 million
in 1998, and $7 million in 1997.
(5) CONCENTRATIONS OF CREDIT RISK
Credit risk represents the loss that would be recognized subsequent to the
reporting date if counterparties failed to perform as contracted.
Concentrations of credit risk (whether on- or off-balance sheet) that
arise from financial instruments exist for groups of customers or
counterparties when they have similar economic characteristics that would
cause their ability to meet contractual obligations to be similarly
affected by changes in economic or other conditions. The Company does not
have significant exposure to any individual customer or counterparty.
Most of the Company's business activity is with customers located within
the states of Utah, Idaho, California, Colorado, Arizona, Nevada, and
Washington. The commercial loan portfolio is well diversified, consisting
of 11 major industry classification groupings. As of December 31, 1999,
the larger concentrations of risk in the commercial loan and leasing
portfolio are represented by the real estate, construction, business
services and transportation industry groupings. The Company has minimal
credit exposure from lending transactions with highly leveraged entities.
The majority of foreign loans are supported by domestic real estate or
letters of credit.
52
<PAGE> 55
ZIONS BANCORPORATION AND SUBSIDIARIES
Notes to Consolidated Financial Statements
December 31, 1999 and 1998
(6) PREMISES AND EQUIPMENT
The following table presents comparative data for premises and equipment
(in thousands):
<TABLE>
<CAPTION>
1999 1998
-------- -------
<S> <C> <C>
Land $ 50,209 47,931
Buildings 150,399 134,618
Furniture and equipment 263,270 224,160
Leasehold improvements 64,887 55,800
-------- -------
Total 528,765 462,509
Less accumulated depreciation and amortization 241,317 212,613
-------- -------
Net book value $287,448 249,896
======== =======
</TABLE>
(7) MORTGAGE SERVICING RIGHTS
Mortgage servicing rights, included in other assets in the accompanying
balance sheets, are summarized as follows (in thousands):
<TABLE>
<CAPTION>
1999 1998
-------- -------
<S> <C> <C>
Balance at beginning of year $ 15,314 10,595
Additions 2,223 9,231
Obtained through acquisition -- 1,595
Amortization (1,054) (5,484)
Sales (14,619) (623)
-------- -------
Balance at end of year $ 1,864 15,314
======== =======
</TABLE>
At December 31, 1999 and 1998, the aggregate fair value of mortgage
servicing rights was $2.5 million and $20.4 million, respectively. Fair
values are determined by discounted anticipated future net cash flows from
mortgage servicing activities considering market consensus loan prepayment
predictions, interest rates, servicing costs, and other economic factors.
(8) DEPOSITS
At December 31, 1999, the scheduled maturities of all time deposits are as
follows (in thousands):
<TABLE>
<S> <C>
2000 $2,452,435
2001 279,733
2002 82,069
2003 65,653
2004 and thereafter 35,386
----------
$2,915,276
==========
</TABLE>
53
<PAGE> 56
ZIONS BANCORPORATION AND SUBSIDIARIES
Notes to Consolidated Financial Statements
December 31, 1999 and 1998
The aggregate amount of time deposits with a denomination of $100,000 or
more was $1,079 million and $1,637 million at December 31, 1999 and 1998,
respectively. At December 31, 1999, the contractual maturities of these
deposits were as follows: $447 million in 3 months or less, $229 million
over 3 months through 6 months, $334 million over 6 months through 12
months and $69 million over 12 months.
Deposit overdrafts that have been reclassified as loan balances were $21
million and $23 million at December 31, 1999 and 1998, respectively.
(9) SHORT-TERM BORROWINGS
Short-term borrowings generally mature in less than 30 days. The following
table shows selected information for these borrowings (in thousands):
<TABLE>
<CAPTION>
1999 1998 1997
---------- --------- ---------
<S> <C> <C> <C>
Federal funds purchased:
Average amount outstanding $ 717,085 401,412 297,399
Weighted average rate 4.91% 4.61% 5.46%
Highest month-end balance 866,716 594,503 487,098
Year-end balance 825,997 337,283 294,129
Weighted average rate on outstandings at
year-end 4.69% 4.58% 5.83%
Security repurchase agreements:
Average amount outstanding $1,651,514 1,507,196 1,907,410
Weighted average rate 4.44% 4.77% 5.17%
Highest month-end balance 2,462,928 1,771,702 2,277,067
Year-end balance 1,366,653 992,671 1,067,060
Weighted average rate on outstandings at 4.53% 4.40% 5.70%
year-end
</TABLE>
The Company participates in overnight and term security repurchase
agreements. Most of the overnight agreements are performed with sweep
accounts in conjunction with a master repurchase agreement. In this case,
securities under the Company's control are pledged for and interest is
paid on the collected balance of the customers' accounts. For term
repurchase agreements, securities are transferred to the applicable
counterparty.
54
<PAGE> 57
ZIONS BANCORPORATION AND SUBSIDIARIES
Notes to Consolidated Financial Statements
December 31, 1999 and 1998
(10) FEDERAL HOME LOAN BANK ADVANCES AND OTHER BORROWINGS
The following table presents comparative data for FHLB advances and other
borrowings over one year (in thousands):
<TABLE>
<CAPTION>
1999 1998
-------- ------
<S> <C> <C>
FHLB advances payable by subsidiaries, 4.97%-7.30% $100,622 44,696
Notes payable, 5.60%-8.32% 12,000 12,100
-------- ------
$112,622 56,796
======== ======
</TABLE>
Federal Home Loan Bank advances as of December 31, 1999 are borrowed by
Zions First National Bank (ZFNB) and Vectra Bank Colorado, N.A. (Vectra),
wholly-owned subsidiaries, under their lines of credit with the Federal
Home Loan Bank of Seattle and Topeka, respectively. The lines of credit
are secured under a blanket pledge whereby ZFNB and Vectra maintain
unencumbered collateral with carrying amount, which has been adjusted
using a pledge requirement percentage based upon the types of collateral
pledged, equal to at least 100 percent of outstanding advances.
Interest expense on FHLB advances and other borrowings over one year was
$4.8 million, $6.6 million, and $8.2 million for the years ended December
31, 1999, 1998, and 1997, respectively.
Maturities of Federal Home Loan Bank advances and other borrowings over
one year are as follows (in thousands):
<TABLE>
<CAPTION>
<S> <C>
2000 $ 70,342
2001 3,813
2002 3,005
2003 3,364
2004 2,632
Thereafter 29,466
--------
$112,622
========
</TABLE>
55
<PAGE> 58
ZIONS BANCORPORATION AND SUBSIDIARIES
Notes to Consolidated Financial Statements
December 31, 1999 and 1998
(11) LONG-TERM DEBT
Long-term debt is summarized as follows (in thousands):
<TABLE>
<CAPTION>
1999 1998
-------- -------
<S> <C> <C>
Guaranteed preferred beneficial interests in
junior subordinated deferrable interest debentures $223,000 223,000
Subordinated notes:
Floating rate subordinated notes,
maturity 2005-2008 177,000 177,000
8.625%-9.00% subordinated notes,
maturity in 1998-2002 50,100 50,150
Capital leases and other notes payable 3,371 3,585
-------- -------
$453,471 453,735
======== =======
</TABLE>
The guaranteed preferred beneficial interests in junior subordinated
deferrable interest debentures include $200 million of 8.536 percent
debentures issued by Zions Institutional Capital Trust A (ZICTA), $5.5
million of 10.25 percent debentures issued by GB Capital Trust (GBCT), and
$17.5 million of 9.50 percent debentures issued by VBC Capital I Trust
(VBCCIT).
The ZICTA debentures are direct and unsecured obligations of ZFNB and are
subordinate to the claims of depositors and general creditors. The Company
has irrevocably and unconditionally guaranteed all of ZFNB's obligations
under the debentures. The GBCT and VBCCIT debentures are direct and
unsecured obligations of the Company through the acquisition of GB
Bancorporation and Vectra Banking Corporation, and are subordinate to
other indebtedness and general creditors of the Company. ZICTA, GBCT, and
VBCCIT debentures have the right, with the approval of banking regulators,
to early redemption in 2006, 2007, and 2002, respectively. ZICTA and GBCT
debentures require semiannual interest payments and mature on December 15,
2026 and January 15, 2027, respectively. VBCCIT debentures require
quarterly interest payments and mature on April 30, 2027.
Floating-rate subordinated notes consist of $67 million callable in 2000
and $110 million callable in 2003. These notes require quarterly interest
payments. Subordinated notes also include $50.1 million of 8.625 percent
notes which are not redeemable prior to maturity and require semiannual
interest payments. All subordinated notes are unsecured.
56
<PAGE> 59
ZIONS BANCORPORATION AND SUBSIDIARIES
Notes to Consolidated Financial Statements
December 31, 1999 and 1998
Interest expense on long-term debt was $35.1 million, $29.1 million, and
$22.4 million for the years ended December 31, 1999, 1998, and 1997,
respectively.
Maturities and sinking fund requirements on long-term debt at December 31,
1999 for each of the succeeding five years are as follows (in thousands):
<TABLE>
<CAPTION>
PARENT
CONSOLIDATED ONLY
------------ -------
<S> <C> <C>
2000 $ 590 100
2001 456 -
2002 50,481 50,000
2003 516 -
2004 522 -
Thereafter 400,906 177,000
--------- -------
$ 453,471 227,100
========= =======
</TABLE>
(12) COMMITMENTS AND CONTINGENT LIABILITIES
The Company is a party to financial instruments with off-balance sheet
risk in the normal course of business to meet the financing needs of its
customers, to reduce its own exposure to fluctuations in interest rates,
and to make a market in U.S. government, agency, and municipal securities.
These financial instruments involve, to varying degrees, elements of
credit, liquidity, and interest rate risk in excess of the amount
recognized in the balance sheets.
Contractual amounts of the off-balance sheet financial instruments used to
meet the financing needs of the Company's customers are as follows (in
thousands):
<TABLE>
<CAPTION>
1999 1998
---------- ---------
<S> <C> <C>
Commitments to extend credit $5,810,745 4,765,945
Standby letters of credit:
Performance 79,184 219,820
Financial 110,676 104,530
Commercial letters of credit 17,689 25,294
</TABLE>
Commitments to extend credit are agreements to lend to a customer as long
as there is no violation of any condition established in the contract.
Commitments generally have fixed expiration dates or other termination
clauses and may require the payment of a fee. The amount of collateral
obtained, if deemed necessary by the Company upon extension of credit, is
based on management's credit evaluation of the counterparty. Collateral
varies but may include accounts receivable, inventory, property, plant and
equipment, and income-producing properties.
57
<PAGE> 60
ZIONS BANCORPORATION AND SUBSIDIARIES
Notes to Consolidated Financial Statements
December 31, 1999 and 1998
Establishing commitments to extend credit gives rise to credit risk. As of
December 31, 1999, a significant portion of the Company's commitments is
expected to expire without being drawn upon; commitments totaling $3.5
million expire in 2000. As a result, the Company's actual future credit
exposure or liquidity requirements will be lower than the contractual
amounts of the commitments. The Company uses the same credit policies and
procedures in making commitments to extend credit and conditional
obligations as it does for on-balance sheet instruments. These policies
and procedures include credit approvals, limits, and monitoring.
Standby and commercial letters of credit are conditional commitments
issued by the Company generally to guarantee the performance of a customer
to a third party. The guarantees are primarily issued to support public
and private borrowing arrangements, including commercial paper, bond
financing, and similar transactions. Standby letters of credit include
commitments in the amount of $183.3 million expiring in 2000 and $6.6
million expiring thereafter through 2007. The credit risk involved in
issuing letters of credit is essentially the same as that involved in
extending loan facilities to customers. The Company generally holds
marketable securities and cash equivalents as collateral supporting those
commitments for which collateral is deemed necessary.
Notional values of interest rate contracts are summarized as follows (in
thousands):
<TABLE>
<CAPTION>
1999 1998
-------- ---------
<S> <C> <C>
Caps and floors - written $875,634 707,137
Swaps 711,228 1,364,584
Forwards 14,885 133,204
</TABLE>
The Company enters into interest rate caps and floors, exchange contracts
(swaps), and forward agreements as part of its overall asset and liability
duration and interest rate risk management strategy. These transactions
enable the Company to manage asset and liability durations, and transfer,
modify, or reduce its interest rate risk. With the exception of interest
rate caps and floors, these instruments are used to hedge asset and
liability portfolios and, therefore, are not marked to market. The
notional amounts of the contracts are used to express volume, but the
amounts potentially subject to credit risk are much smaller. Exposure to
credit risk arises from the possibility of nonperformance by
counterparties to the interest rate contracts. The Company controls this
credit risk (except futures contracts and interest rate cap and floor
contracts written, for which credit risk is de minimus) through credit
approvals, limits, and monitoring procedures. As the Company generally
enters into transactions only with high-quality counterparties, no losses
associated with counterparty nonperformance on interest rate contracts
have occurred. Nevertheless, the related credit risk is considered and
provided for in the allowance for loan losses.
Interest rate caps and floors obligate one of the parties to the contract
to make payments to the other if an interest rate index exceeds a
specified upper "capped" level or if the index falls below a specified
"floor" level. The interest rate caps and floors to which the Company is a
party at December 31, 1999, have remaining terms of three to twenty-three
years.
58
<PAGE> 61
ZIONS BANCORPORATION AND SUBSIDIARIES
Notes to Consolidated Financial Statements
December 31, 1999 and 1998
Interest rate swaps generally involve the exchange of fixed and variable
rate interest payment obligations based on an underlying notional value,
without the exchange of the notional value. Entering into interest rate
swap agreements involves not only the risk of dealing with counterparties
and their ability to meet the terms of the contract but also the interest
rate risk associated with unmatched positions. Swaps to which the Company
is a party at December 31, 1999, have remaining terms ranging from one to
six years.
Forwards are contracts for the delayed delivery of financial instruments
in which the seller agrees to deliver on a specified future date, a
specified instrument, at a specified price or yield. As of December 31,
1999, the Company's forward contracts have remaining terms ranging from
one to four months.
As a market maker in U.S. government, agency, and municipal securities,
the Company enters into agreements to purchase and sell such securities.
As of December 31, 1999 and 1998, the Company had outstanding commitments
to purchase securities of $240 million and $533 million, respectively, and
outstanding commitments to sell securities of $243 million and $529
million, respectively. These agreements at December 31, 1999, have
remaining terms of one month or less.
The contract or notional amount of financial instruments indicates a level
of activity associated with a particular class of financial instrument and
is not a reflection of the actual level of risk. As of December 31, 1999
and 1998, the regulatory risk-weighted values assigned to all off-balance
sheet financial instruments described herein totaled $1,389 million and
$876 million, respectively.
The Company has a total of $50 million available in lines of credit from
two separate institutions. At December 31, 1999, the Company had drawn $25
million on these lines, with interest rates ranging from 5.17 percent to
6.64 percent. There were no compensating balance arrangements on either of
these lines of credit.
At December 31, 1999, the Company was required to maintain a cash balance
of $38 million with the Federal Reserve Banks to meet minimum balance
requirements in accordance with Federal Reserve Board regulations.
The Company is a defendant in various legal proceedings arising in the
normal course of business. The Company does not believe that the outcome
of any such proceedings will have a material adverse effect on its
consolidated financial position, operations, or liquidity.
59
<PAGE> 62
ZIONS BANCORPORATION AND SUBSIDIARIES
Notes to Consolidated Financial Statements
December 31, 1999 and 1998
The Company has commitments for leasing premises and equipment under the
terms of noncancelable capital and operating leases expiring from 2000 to
2067. Premises leases under capital leases were recorded at $15 million,
net of $13 million accumulated amortization at December 31, 1999.
Amortization charge applicable to premises leased under capital leases is
included in depreciation expense. Future aggregate minimum rental payments
under existing noncancelable leases at December 31, 1999 are as follows
(in thousands):
<TABLE>
<CAPTION>
CAPITAL OPERATING
LEASES LEASES
-------- ---------
<S> <C> <C>
2000 $ 719 20,753
2001 671 18,491
2002 671 16,917
2003 671 15,510
2004 671 14,262
Thereafter 3,701 62,379
-------- -------
7,104 148,312
Amounts representing interest (3,988) -
-------- -------
Present value of net minimum lease payments $ 3,116 148,312
======== =======
</TABLE>
Future aggregate minimum rental payments have been reduced by
noncancelable subleases as follows: 2000, $1.0 million; 2001, $739
thousand; 2002, $481 thousand; 2003, $307 thousand; 2004, $269 thousand;
and thereafter $5.8 million. Aggregate rental expense on operating leases
amounted to $40.3 million, $33.3 million, and $18.3 million for the years
ended December 31, 1999, 1998, and 1997, respectively.
(13) STOCK OPTIONS
The Company adopted a qualified stock option plan in 1981, under which
stock options may be granted to key employees; and a nonqualified plan
under which options may be granted to nonemployee directors. Under the
qualified plan and nonqualified plan, respectively, 3,244,000 and 400,000
shares of common stock were reserved.
No compensation expense was recorded for the qualified and nonqualified
option plans, as the exercise price was equal to the quoted market price
of the stock at the time of grant. Options granted are generally
exercisable in increments from one to four years after the date of grant
and expire six years after the date of grant. Under the nonqualified plan,
options expire five to ten years from the date of grant. At December 31,
1999, there were 86,573 and 259,000 additional shares available for grant
under the qualified and nonqualified plan, respectively.
60
<PAGE> 63
ZIONS BANCORPORATION AND SUBSIDIARIES
Notes to Consolidated Financial Statements
December 31, 1999 and 1998
During 1998, the Company adopted a broad-based employee stock option plan
in substitution of an employee profit-sharing plan, which assets were
comprised of Company common stock. Substantially all participants of the
employee profit-sharing plan are eligible to participate in the employee
stock option plan. The Company bases participation in the employee stock
option plan upon employment for a full year prior to the option grant date
with service of 20 hours a week or more. Stock options will be granted to
eligible employees based on an internal job grade structure. All options
vest at a rate of one third each year with expiration at four years after
grant date. At December 31, 1999, there were 1,500,000 options authorized
with 399,763 options outstanding. The plan is noncompensatory and results
in no expense to the Company, as the exercise price of the options is
equal to the quoted market price of the stock at the option grant date.
The per share weighted-average fair value of stock options granted during
1999, 1998, and 1997 was $28.01, $17.82, and $10.56, respectively, on the
date of grant using the Black-Scholes option-pricing model. The following
weighted-average assumptions were used in 1999, 1998, and 1997: expected
dividend yield ranging from 1.4% to 1.8%; expected volatility ranging from
22.2% to 39.3%; risk-free interest rates ranging from 5.2% to 6.5% and
expected life ranging from 1 to 5.5 years.
Had the Company determined compensation cost based on the fair value at
the grant date for its stock options under Statement No. 123, the
Company's net income and earnings per share would have been reduced to the
pro forma amounts indicated below:
<TABLE>
<CAPTION>
1999 1998 1997
-------- ------- -------
<S> <C> <C> <C>
Net income (in thousands):
As reported $194,064 143,353 131,403
Pro forma 185,136 138,549 130,163
Earnings per share:
As reported:
Basic 2.29 1.77 1.95
Diluted 2.26 1.75 1.92
Pro forma:
Basic 2.19 1.71 1.93
Diluted 2.16 1.69 1.91
</TABLE>
Pro forma amounts reflect only stock-based compensation grants made after
1994. The full impact of calculating compensation cost for stock options
under Statement No. 123 is not reflected in the pro forma amounts
presented above because compensation cost is reflected over the options'
vesting period and compensation cost of options granted prior to January
1, 1995 is not considered.
61
<PAGE> 64
ZIONS BANCORPORATION AND SUBSIDIARIES
Notes to Consolidated Financial Statements
December 31, 1999 and 1998
The following table is a summary of the Company's stock option activity
and related information for the three years ended December 31, 1999:
<TABLE>
<CAPTION>
WEIGHTED
AVERAGE
NUMBER OF EXERCISE
SHARES PRICE
--------- --------
<S> <C> <C>
Balance at December 31, 1996 1,532,373 10.35
Acquired 184,991 12.54
Granted 581,182 28.87
Exercised (373,656) 8.59
Forfeited (47,767) 13.25
---------
Balance at December 31, 1997 1,877,123 16.57
Acquired 430,998 11.35
Granted 1,343,612 45.62
Exercised (659,168) 11.38
Forfeited (25,964) 32.82
---------
Balance at December 31, 1998 2,966,601 29.98
Acquired 64,652 27.26
Granted 1,172,542 65.29
Exercised (625,537) 20.06
Forfeited (232,567) 42.32
---------
Balance at December 31, 1999 3,345,691 43.30
=========
Outstanding options exercisable as of:
December 31, 1999 1,222,187 26.62
December 31, 1998 1,116,087 14.90
December 31, 1997 671,333 10.04
</TABLE>
62
<PAGE> 65
ZIONS BANCORPORATION AND SUBSIDIARIES
Notes to Consolidated Financial Statements
December 31, 1999 and 1998
Selected information on stock options as of December 31, 1999 follows:
<TABLE>
<CAPTION>
OUTSTANDING OPTIONS EXERCISABLE OPTIONS
---------------------------------------- ------------------------
WEIGHTED-
WEIGHTED- AVERAGE WEIGHTED-
NUMBER AVERAGE REMAINING NUMBER AVERAGE
EXERCISE OF EXERCISE CONTRACTUAL OF EXERCISE
PRICE RANGE SHARES PRICE LIFE SHARES PRICE
---------------- --------- --------- ----------- --------- ---------
<S> <C> <C> <C> <C> <C>
$2.38 to $ 3.81 32,943 3.29 2.83 years 29,343 3.40
$4.06 to $ 6.19 24,893 4.93 7.83 24,893 4.93
$6.42 to $ 9.63 65,998 8.25 4.74 65,998 8.25
$ 9.94 to $14.78 287,486 12.05 3.55 274,912 11.99
$16.79 to $23.08 373,832 19.14 4.68 212,659 18.90
$25.68 to $38.58 452,225 30.32 3.61 239,909 29.76
$39.13 to $56.03 1,196,135 47.58 4.83 363,786 45.59
$60.31 to $69.13 912,179 68.61 5.14 10,687 67.83
--------- ---------
3,345,691 43.30 4.96 years 1,222,187 26.62
========== =========
</TABLE>
(14) NET INCOME PER COMMON SHARE
Basic and diluted net income per common share, based on the
weighted-average outstanding shares, are summarized as follows (in
thousands, except per share amounts):
<TABLE>
<CAPTION>
1999 1998 1997
-------- ------- -------
<S> <C> <C> <C>
Basic:
Net income $194,064 143,353 131,403
Less preferred dividends 34 46 41
-------- ------- -------
Net income applicable to common stock $194,030 143,307 131,362
======== ======= =======
Average common shares outstanding 84,613 80,788 67,303
======== ======= =======
Net income per common share - basic $ 2.29 1.77 1.95
======== ======= =======
Diluted:
Net income applicable to common stock $194,030 143,307 131,362
======== ======= =======
Average common shares outstanding 84,613 80,788 67,303
Stock option adjustment 1,082 1,130 955
-------- ------- -------
Average common shares outstanding - diluted 85,695 81,918 68,258
======== ======= =======
Net income per common share - diluted $ 2.26 1.75 1.92
======== ======= =======
</TABLE>
63
<PAGE> 66
ZIONS BANCORPORATION AND SUBSIDIARIES
Notes to Consolidated Financial Statements
December 31, 1999 and 1998
(15) SHAREHOLDER RIGHTS PROTECTION PLAN
The Company has in place a Shareholder Rights Protection Plan. The
Shareholder Rights Protection Plan contains provisions intended to protect
shareholders in the event of unsolicited offers or attempts to acquire the
Company, including offers that do not treat all shareholders equally,
acquisitions in the open market of shares constituting control without
offering fair value to all shareholders, and other coercive or unfair
takeover tactics that could impair the Board of Directors' ability to
represent shareholders' interests fully. The Shareholder Rights Protection
Plan provides that attached to each share of common stock is one right (a
"Right") to purchase one one-hundredth of a share of participating
preferred stock for an exercise price of $90, subject to adjustment.
The Rights have certain anti-takeover effects. The Rights may cause
substantial dilution to a person that attempts to acquire the Company
without the approval of the Board of Directors. The Rights, however,
should not affect offers for all outstanding shares of common stock at a
fair price and, otherwise, in the best interests of the Company and its
shareholders as determined by the Board of Directors. The Board of
Directors may, at its option, redeem all, but not fewer than all, of the
then outstanding Rights at any time until the 10th business day following
a public announcement that a person or a group had acquired beneficial
ownership of 10 percent or more of the Company's outstanding common stock
or total voting power.
(16) INCOME TAXES
Income taxes are summarized as follows (in thousands):
<TABLE>
<CAPTION>
1999 1998 1997
-------- ------ ------
<S> <C> <C> <C>
Federal:
Current $ 46,485 64,855 61,746
Deferred 43,648 (4,978) (1,610)
State 19,365 9,755 7,531
-------- ------ ------
$109,498 69,632 67,667
======== ======= =======
</TABLE>
A reconciliation between income tax expense computed using the statutory
federal income tax rate of 35 percent and actual income tax expense is as
follows (in thousands):
<TABLE>
<CAPTION>
1999 1998 1997
--------- ------ ------
<S> <C> <C> <C>
Income tax expense at statutory federal rate $ 107,979 74,694 69,675
State income taxes, net 12,587 6,341 4,895
Nondeductible expenses 11,232 8,643 2,738
Nontaxable interest (13,893) (9,125) (6,526)
Tax credits and other taxes (1,819) (1,877) (1,826)
Corporate reorganization (6,416) (6,117) --
Decrease in valuation allowance -- (1,992) (761)
Other items (172) (935) (528)
--------- ------ ------
Income tax expense $ 109,498 69,632 67,667
========= ======= =======
</TABLE>
64
<PAGE> 67
ZIONS BANCORPORATION AND SUBSIDIARIES
Notes to Consolidated Financial Statements
December 31, 1999 and 1998
The tax effects of temporary differences that give rise to significant
portions of the deferred tax assets and deferred tax liabilities as of
December 31, 1999 and 1998, are presented below (in thousands):
<TABLE>
<CAPTION>
1999 1998
--------- --------
<S> <C> <C>
Gross deferred tax assets:
Book loan loss deduction in excess of tax $ 78,979 78,299
Postretirement benefits 722 9,258
Deferred compensation 8,996 8,577
Deferred loan fees 2,498 5,059
Deferred agreements 2,650 3,046
Capital leases 1,648 3,268
Other real estate owned 4,584 4,890
Accrued severance costs 1,685 3,361
Other 23,452 18,673
--------- --------
Total deferred tax assets 125,214 134,431
Gross deferred tax liabilities:
Core deposits and purchase accounting (23,281) (23,719)
Premises and equipment, due to differences in
depreciation (4,566) (7,667)
FHLB stock dividends (21,320) (18,100)
Leasing operations (33,416) (28,267)
Security investments (19,199) --
Prepaid pension reserves (2,016) (1,405)
Mortgage servicing (745) (2,176)
Other (6,698) (6,529)
--------- --------
Total deferred tax liabilities (111,241) (87,863)
--------- --------
Statement No. 115 market equity adjustment 2,628 2,216
--------- --------
Net deferred tax assets $ 16,601 48,784
========= ========
</TABLE>
The Company has determined that it is not required to establish a
valuation reserve for the net deferred tax assets since it is "more likely
than not" that such net assets will be principally realized through future
taxable income and tax planning strategies. The Company's conclusion that
it is "more likely than not" that the net deferred tax assets will be
realized is based on history of growth in earnings and the prospects for
continued growth and profitability.
65
<PAGE> 68
ZIONS BANCORPORATION AND SUBSIDIARIES
Notes to Consolidated Financial Statements
December 31, 1999 and 1998
(17) REGULATORY MATTERS
The Company is subject to various regulatory capital requirements
administered by the federal banking agencies. Failure to meet minimum
capital requirements can initiate certain mandatory--and possibly
additional discretionary--actions by regulators that, if undertaken, could
have a direct material effect on the Company's consolidated financial
statements. Under capital adequacy guidelines and the regulatory framework
for prompt corrective action, the Company must meet specific capital
guidelines that involve quantitative measures of the Company's assets,
liabilities, and certain off-balance sheet items as calculated under
regulatory accounting practices. The Company's capital amounts and
classification are also subject to qualitative judgments by the regulators
about components, risk weightings, and other factors.
Quantitative measures established by regulation to ensure capital adequacy
require the Company to maintain minimum amounts and ratios (set forth in
the table below) of total and Tier I capital (as defined in the
regulations) to risk-weighted assets (as defined), and of Tier I capital
(as defined) to average assets (as defined). Management believes, as of
December 31, 1999, that the Company meets all capital adequacy
requirements to which it is subject.
As of December 31, 1999, the Company's capital ratios significantly
exceeded the minimum capital levels and is considered well capitalized
under the regulatory framework for prompt corrective action. To be
categorized as well capitalized, the Company must maintain minimum total
risk-based, Tier I risk-based, and Tier I leverage ratios as set forth in
the table. There are no conditions or events that management believes have
changed the Company's category.
The actual capital amounts and ratios of the Company and significant
banking subsidiaries are as follows (in thousands):
<TABLE>
<CAPTION>
FOR CAPITAL TO BE WELL
ACTUAL ADEQUACY PURPOSES CAPITALIZED
-------------------- -------------------- ------------------
AMOUNT RATIO AMOUNT RATIO AMOUNT RATIO
---------- ------ ---------- ------ ---------- -----
<S> <C> <C> <C> <C> <C> <C>
As of December 31, 1999:
Total capital (to risk-weighted
assets)
The Company $1,646,581 11.29% $1,167,056 8.00% $1,458,820 10.00%
Zions First National Bank 692,026 14.73 375,744 8.00 469,680 10.00
California Bank & Trust 527,964 10.32 409,093 8.00 511,367 10.00
Tier I capital (to
risk-weighted assets)
The Company 1,260,090 8.64 583,528 4.00 875,292 6.00
Zions First National Bank 432,845 9.22 187,872 4.00 281,808 6.00
California Bank & Trust 353,777 6.92 204,547 4.00 306,820 6.00
Tier I capital (to average
assets)
The Company 1,260,090 6.16 613,398 3.00 1,022,331 5.00
Zions First National Bank 432,845 5.61 231,406 3.00 385,676 5.00
California Bank & Trust 353,777 5.68 186,973 3.00 311,622 5.00
</TABLE>
66
<PAGE> 69
ZIONS BANCORPORATION AND SUBSIDIARIES
Notes to Consolidated Financial Statements
December 31, 1999 and 1998
<TABLE>
<CAPTION>
FOR CAPITAL TO BE WELL
ACTUAL ADEQUACY PURPOSES CAPITALIZED
------------------ ----------------- -------------------
AMOUNT RATIO AMOUNT RATIO AMOUNT RATIO
---------- ----- -------- ----- ---------- ------
<S> <C> <C> <C> <C> <C> <C>
As of December 31, 1998:
Total capital (to risk-weighted
assets)
The Company $1,412,508 11.34% $996,180 8.00% $1,245,225 10.00
Zions First National Bank 619,784 15.15 327,213 8.00 409,016 10.00
California Bank & Trust 461,981 10.43 354,427 8.00 443,034 10.00
Tier I capital (to
risk-weighted assets)
The Company 1,046,600 8.40 498,090 4.00 747,135 6.00
Zions First National Bank 369,900 9.04 163,607 4.00 245,410 6.00
California Bank & Trust 297,294 6.71 177,213 4.00 265,820 6.00
Tier I capital (to average
assets)
The Company 1,046,600 5.91 531,363 3.00 885,605 5.00
Zions First National Bank 369,900 5.56 199,729 3.00 332,881 5.00
California Bank & Trust 297,294 5.14 173,527 3.00 289,212 5.00
</TABLE>
Dividends declared by the Company's national banking subsidiaries in any
calendar year may not, without the approval of the appropriate federal
regulator, exceed their net earnings for that year combined with their net
earnings less dividends paid for the preceding two years. At December 31,
1999, the Company's subsidiaries had approximately $55.5 million available
for the payment of dividends under the foregoing restrictions.
(18) RETIREMENT PLANS
The Company has a noncontributory defined benefit pension plan for
eligible employees. Plan benefits are based on years of service and
employees' compensation levels. Benefits vest under the plan upon
completion of five years of service. Plan assets consist principally of
corporate equity and debt securities and cash investments.
Effective January 1, 1997, the plan was amended such that plan benefits
are now defined as a lump-sum cash value or an annuity at age 65. The 1997
income from curtailment resulted from the merger of Grossmont Bank plan
participants into the Company's plan at December 31, 1997.
On January 1, 1998, the Company adopted the provisions of Statement of
Financial Accounting Standards (Statement) No. 132. Statement No. 132
revises employer's disclosures about pension and other postretirement
benefit plans. Statement No. 132 does not change the method of accounting
for such plans.
67
<PAGE> 70
ZIONS BANCORPORATION AND SUBSIDIARIES
Notes to Consolidated Financial Statements
December 31, 1999 and 1998
The following table presents the change in the plan's benefit obligation
for the years ended December 31, 1999 and 1998, as follows (in thousands):
<TABLE>
<CAPTION>
1999 1998
--------- --------
<S> <C> <C>
Benefit obligation at beginning of year $ 108,973 66,267
Service cost 8,294 5,587
Interest cost 7,397 5,192
Acquisitions -- 41,626
Actuarial gain (7,379) (5,536)
Benefits paid (10,895) (4,163)
--------- --------
Benefit obligation at end of year $ 106,390 108,973
========= ========
</TABLE>
Plan assets included 88,558 shares of Company common stock as of December
31, 1999 and 86,760 shares as of December 31, 1998. The following table
presents the change in plan assets for the years ended December 31, 1999
and 1998, as follows (in thousands):
<TABLE>
<CAPTION>
1999 1998
--------- --------
<S> <C> <C>
Fair value of plan assets at beginning of year $ 107,245 72,966
Actual return on plan assets 25,595 10,534
Acquisitions -- 27,831
Employer contributions 17,044 77
Benefits paid (10,895) (4,163)
--------- --------
Fair value of plan assets at end of year $ 138,989 107,245
========= ========
</TABLE>
The following table presents the plan's funded status reconciled with
amounts recognized in the Company's consolidated balance sheets at
December 31, 1999 and 1998, as follows (in thousands):
<TABLE>
<CAPTION>
1999 1998
--------- --------
<S> <C> <C>
Funded status $ 32,599 $ (1,728)
Unrecognized net actuarial (gain) loss (21,302) 2,372
Unrecognized net transition asset -- (431)
Unrecognized prior service cost (2,646) (3,031)
--------- --------
Net prepaid cost (accrued liability) $ 8,651 (2,818)
========= ========
</TABLE>
The ending net accrued liability and net prepaid benefit cost at December
31, 1999 and 1998, respectively, is fully recognized in the Company's
respective consolidated balance sheets.
68
<PAGE> 71
ZIONS BANCORPORATION AND SUBSIDIARIES
Notes to Consolidated Financial Statements
December 31, 1999 and 1998
Net periodic benefit cost recognized for the years ended December 31,
1999, 1998, and 1997, includes the following components (in thousands):
<TABLE>
<CAPTION>
1999 1998 1997
------- ------ ------
<S> <C> <C> <C>
Service cost $ 8,294 5,587 3,042
Interest cost 7,397 5,192 4,066
Expected return on plan assets (9,300) (6,851) (5,076)
Amortization of prior service cost (385) (385) (384)
Amortization of transitional asset (431) (625) (625)
Recognized actuarial loss -- 39 260
------- ------ ------
Net periodic benefit cost recognized $ 5,575 2,957 1,283
======= ====== ======
</TABLE>
The weighted average discount rate used in determining the pension benefit
obligation was 8.00 percent and 6.75 percent in 1999 and 1998,
respectively. The rate of compensation increase and the expected long-term
rate of return were 5.00 percent and 9.00 percent, respectively, for both
1999 and 1998. Any net transition asset or obligation and any unrecognized
prior service cost are being amortized on a straight-line basis.
Unrecognized gains and losses are amortized using the minimum recognition
method described in paragraph 32 of Statement of Financial Accounting
Standards No. 87.
The Company also sponsors three unfunded, nonqualified supplemental
executive retirement plans, which restore pension benefits limited by
federal tax law. At December 31, 1999 and 1998, the Company's liability
included in accrued expenses totaled $5.7 million and $5.4 million,
respectively.
In addition to the Company's defined benefit pension plan, the Company
sponsors a defined benefit health care plan that provides postretirement
medical benefits to full-time employees hired before January 1, 1993, who
meet minimum age and service requirements. The plan is contributory, with
retiree contributions adjusted annually, and contains other cost-sharing
features such as deductibles and coinsurance. Plan coverage is provided by
self-funding or health maintenance organizations (HMOs) options.
Reductions in the Company's obligations to provide benefits resulting from
cost sharing changes have been applied to reduce the plan's unrecognized
transition obligation. During 1999, the Company adopted several plan
changes that reduced the liability for retiree medical coverage. The
Company's retiree premium contribution rate is frozen at 50 percent of
1996 dollar amounts until 2003, when all retiree medical coverage will be
fully paid by retirees.
69
<PAGE> 72
ZIONS BANCORPORATION AND SUBSIDIARIES
Notes to Consolidated Financial Statements
December 31, 1999 and 1998
The following table presents the change in the plan's benefit obligation
for the years ended December 31, 1999 and 1998, as follows (in thousands):
<TABLE>
<CAPTION>
1999 1998
-------- -------
<S> <C> <C>
Benefit obligation at beginning of year $ 12,306 3,817
Service cost 91 114
Interest cost 852 230
Acquisitions -- 8,833
Actuarial gain (385) (389)
Benefits paid (149) (299)
Curtailments (3,594) --
-------- -------
Benefit obligation at end of year $ 9,121 12,306
======== =======
</TABLE>
The following table presents the plan's funded status reconciled with
amounts recognized in the Company's consolidated balance sheets at
December 31, 1999 and 1998, as follows (in thousands):
<TABLE>
<CAPTION>
1999 1998
------- -------
<S> <C> <C>
Benefit obligation at end of year $ 9,121 12,306
Unrecognized net actuarial gain (1,889) (1,821)
------- -------
Accrued benefit cost $11,010 14,127
======= =======
</TABLE>
Net periodic benefit cost recognized for the years ended December 31,
1999, 1998, and 1997, includes the following components (in thousands):
<TABLE>
<CAPTION>
1999 1998 1997
-------- -------- ---------
<S> <C> <C> <C>
Service cost $ 91 114 111
Interest cost 852 230 270
Recognized net gain (317) (515) (487)
-------- -------- ---------
Net periodic benefit cost (credit) 626 (171) (106)
Recognized curtailment gain (3,594) - -
Recognized liability due to acquisitions - 8,833 -
-------- -------- ---------
Net periodic benefit cost (credit) after
recognition of extraordinary items (2,968) 8,662 (106)
======== ======== =========
</TABLE>
The weighted-average discount rate used in determining the accumulated
postretirement benefit obligation was 8.0 percent at December 31, 1999 and
7.0 percent at December 31, 1998.
The actuarial assumed health care cost trend rate is 6.5 percent for 2000,
decreasing to an ultimate level of 5 percent for the years 2003 and
thereafter. The effect of a one-percentage point increase and decrease in
the assumed health care cost trend rate at December 31, 1999 would be a
$2,000 increase and a $2,000 decrease, respectively, to the aggregate
service and interest cost components of the net periodic
70
<PAGE> 73
ZIONS BANCORPORATION AND SUBSIDIARIES
Notes to Consolidated Financial Statements
December 31, 1999 and 1998
postretirement health care benefit cost and a $25,000 increase and a
$25,000 decrease, respectively, to the accumulated postretirement benefit
obligation for health care benefits.
The Company has an Employee Stock Savings Plan and an Employee Investment
Savings Plan (PAYSHELTER). Under PAYSHELTER, employees select from a
nontax-deferred or tax-deferred plan and several investment alternatives.
Employees can contribute from 1 to 15 percent of compensation, which is
matched up to 50 percent by the Company for contributions up to 5 percent
and 25 percent for contributions greater than 5 percent up to 10 percent.
The Company's contributions to the plans amounted to $5.3 million, $3.7
million, and $2.4 million for the years ended December 31, 1999, 1998, and
1997, respectively.
(19) FAIR VALUE OF FINANCIAL INSTRUMENTS
Carrying value and estimated fair value of principal financial instruments
are summarized as follows (in thousands):
<TABLE>
<CAPTION>
DECEMBER 31, 1999 DECEMBER 31, 1998
---------------------------- --------------------------
CARRYING ESTIMATED CARRYING ESTIMATED
VALUE FAIR VALUE VALUE FAIR VALUE
------------ ----------- ----------- -----------
<S> <C> <C> <C> <C>
Financial assets:
Cash and due from banks $ 898,300 898,300 922,654 922,654
Money market investments 525,169 525,169 659,705 659,705
Investment securities 4,437,219 4,397,283 3,996,668 4,015,074
Loans, net 12,586,531 12,627,743 11,006,928 11,248,428
------------ ----------- ----------- -----------
Total financial assets $ 18,447,219 18,448,495 16,585,955 16,845,861
============ =========== =========== ===========
Financial liabilities:
Demand, savings, and money market $ 10,936,883 10,936,883 9,939,491 9,939,637
deposits
Time deposits 2,915,276 2,898,930 4,077,175 4,107,952
Foreign deposits 209,780 209,726 204,244 205,812
Securities sold, not yet purchased 237,020 237,020 29,702 29,702
Federal funds purchased and security
repurchase agreements 2,192,650 2,192,650 1,329,954 1,329,954
FHLB advances and other borrowings 1,389,327 1,379,127 206,763 209,797
Long-term debt 453,471 446,056 453,735 460,104
------------ ----------- ----------- -----------
Total financial liabilities $ 18,334,407 18,300,392 16,241,064 16,282,958
============ =========== =========== ===========
Off-balance sheet instruments:
Caps and floors:
Written $ (7,671) (7,671) (3,123) (3,123)
Swaps -- (9,641) -- 7,103
Forwards -- -- -- (331)
------------ ----------- ----------- -----------
Total off-balance sheet instruments $ (7,671) (17,312) (3,123) 3,649
============ =========== =========== ===========
</TABLE>
71
<PAGE> 74
ZIONS BANCORPORATION AND SUBSIDIARIES
Notes to Consolidated Financial Statements
December 31, 1999 and 1998
Financial Assets - The estimated fair value approximates the carrying
value of cash and due from banks and money market investments. For
securities, the fair value is based on quoted market prices where
available. If quoted market prices are not available, fair values are
based on quoted market prices of comparable instruments or a discounted
cash flow model based on established market rates. The fair value of
fixed-rate loans is estimated by discounting future cash flows using the
London Interbank Offered Rate (LIBOR) yield curve adjusted by a factor
which reflects the credit and interest rate risk inherent in the loan.
Variable-rate loans reprice with changes in market rates. As such their
carrying amounts are deemed to approximate fair value. The fair value of
the allowance for loan losses of $204 million and $213 million at December
31, 1999 and 1998, respectively, is the present value of estimated net
charge-offs.
Financial Liabilities - The estimated fair value of demand and savings
deposits, securities sold not yet purchased, and federal funds purchased
and security repurchase agreements approximates the carrying value. The
fair value of time and foreign deposits is estimated by discounting future
cash flows using generally the LIBOR yield curve. Substantially all FHLB
advances reprice with changes in market interest rates or have short terms
to maturity. The carrying value of such indebtedness is deemed to
approximate market value. Other borrowings are not significant. The
estimated fair value of the subordinated notes is based on a quoted market
price. The remaining long-term debt is not significant.
Off-Balance Sheet Financial Instruments - The fair value of the caps,
floors, and swaps reflects the estimated amounts that the Company would
receive or pay to terminate the contracts at the reporting date based upon
pricing or valuation models applied to current market information, thereby
taking into account the current unrealized gains or losses of open
contracts. The carrying amounts include unamortized fees paid or received
and deferred gains or losses.
The fair value of commitments to extend credit and letters of credit,
based on fees currently charged for similar commitments, is not
significant.
Limitations - These fair value disclosures represent management's best
estimates, based on relevant market information and information about the
financial instruments. However, because no markets exist for the Company's
financial instruments, fair value estimates are based on judgements
regarding future expected loss experience, current economic conditions,
risk characteristics of the various instruments, and other factors. These
estimates are subjective in nature and involve uncertainties and matters
of significant judgment and therefore cannot be determined with precision.
Changes in the above methodologies and assumptions could significantly
affect the estimates.
Further, the calculations do not represent the underlying value of the
Company. Other significant assets and liabilities, which are not
considered financial assets or liabilities and for which no fair values
have been estimated, include premises and equipment, goodwill and other
intangibles, deferred taxes, and other liabilities.
72
<PAGE> 75
ZIONS BANCORPORATION AND SUBSIDIARIES
Notes to Consolidated Financial Statements
December 31, 1999 and 1998
(20) OPERATING SEGMENT INFORMATION
As of December 31, 1998, the Company adopted FASB Statement No. 131,
Financial Reporting for Segments of a Business Enterprise. This statement
requires that a public business enterprise report financial and
descriptive information about its reportable operating segments. According
to the statement, operating segments are defined as components of an
enterprise about which separate financial information is available that is
evaluated regularly by the chief operating decision maker in deciding how
to allocate resources and in assessing performance.
The Company evaluates segment performance internally based on geography,
and thus the operating segments are so defined. All segments, except for
the segment defined as "other," are based on commercial banking
operations. The operating segment defined as "other" includes the Parent
company, smaller nonbank operating units, and eliminations of transactions
between segments.
The accounting policies of the individual operating segments are the same
as those of the Company described in note 1. Transactions between
operating segments are primarily conducted at fair value, resulting in
profits that are eliminated for reporting consolidated results of
operations. Expenses for centrally provided services are allocated based
on the estimated usage of those services.
73
<PAGE> 76
ZIONS BANCORPORATION AND SUBSIDIARIES
Notes to Consolidated Financial Statements
December 31, 1999 and 1998
The following is a summary of selected operating segment information for the
years ended December 31, 1999, 1998, and 1997 (in thousands):
<TABLE>
<CAPTION>
ZIONS FIRST
NATIONAL CALIFORNIA VECTRA NATIONAL
BANK AND BANK & BANK BANK OF
SUBSIDIARIES TRUST COLORADO ARIZONA
------------ ---------- ---------- ---------
<S> <C> <C> <C> <C>
1999:
Net interest income $ 220,018 263,682 83,103 76,928
Provision for loan losses 9,000 -- 2,586 2,400
---------- ---------- ---------- ---------
Net interest income after provision
for loan losses 211,018 263,682 80,517 74,528
Noninterest income 169,902 35,806 17,206 13,022
Merger expense and amortization of
goodwill and core deposit intangibles 1,916 25,909 13,807 1,831
Other noninterest expense 208,378 182,034 76,298 42,909
---------- ---------- ---------- ---------
Income before income taxes and
minority interest 170,626 91,545 7,618 42,810
Income taxes 53,327 42,101 5,616 16,617
Minority interest 3,065 -- -- --
---------- ---------- ---------- ---------
Net income $ 114,234 49,444 2,002 26,193
========== ========== ========== =========
Assets $7,156,888 6,566,985 2,161,216 1,600,135
Net loans and leases 4,085,175 4,559,136 1,372,710 1,212,531
Deposits 3,809,258 5,425,928 1,490,468 1,206,366
Shareholders' equity 444,401 679,288 384,398 131,322
1998:
Net interest income $ 222,044 112,726 73,447 70,687
Provision for loan losses 23,000 (18,717) 4,588 1,800
---------- ---------- ---------- ---------
Net interest income after provision
for loan losses 199,044 131,443 68,859 68,887
Noninterest income 142,654 14,284 14,844 9,312
Merger expense and amortization of
goodwill and core deposit intangibles 2,717 37,363 17,076 1,867
Other noninterest expense 216,405 78,596 57,310 40,131
---------- ---------- ---------- ---------
Income before income taxes and
minority interest 122,576 29,768 9,317 36,201
Income taxes 35,477 13,360 5,745 14,013
Minority interest -- -- -- --
---------- ---------- ---------- ---------
Net income $ 87,099 16,408 3,572 22,188
========== ========== ========== =========
Assets $6,047,071 6,183,044 2,151,029 1,451,866
Net loans and leases 3,509,319 4,180,999 1,216,359 1,012,038
Deposits 3,933,823 5,348,694 1,688,719 1,225,796
Shareholders' equity 383,350 606,195 388,506 116,262
1997:
Net interest income $ 206,009 11,727 12,980 61,577
Provision for loan losses -- 615 (70) 2,400
---------- ---------- ---------- ---------
Net interest income after provision
for loan losses 206,009 11,112 13,050 59,177
Noninterest income 113,756 1,775 1,668 6,272
Merger expense and amortization of
goodwill and core deposit intangibles 1,270 1,511 1,556 1,568
Other noninterest expense 184,772 5,300 8,928 34,168
---------- ---------- ---------- ---------
Income before income taxes 133,723 6,076 4,234 29,713
Income taxes 45,273 2,756 2,046 11,896
---------- ---------- ---------- ---------
Net income $ 88,450 3,320 2,188 17,817
========== ========== ========== =========
Assets $5,899,333 976,930 501,197 1,351,876
Net loans and leases 2,780,986 493,936 304,270 797,620
Deposits 3,665,705 776,177 395,341 1,191,774
Shareholders' equity 426,660 184,525 97,070 105,099
</TABLE>
74
<PAGE> 77
<TABLE>
<CAPTION>
NEVADA THE
STATE BANK COMMERCE CONSOLI-
AND BANK OF DATED
SUBSIDIARY WASHINGTON OTHER COMPANY
---------- ------- -------- ----------
<S> <C> <C> <C> <C>
1999:
Net interest income $ 99,885 15,792 (17,919) 741,489
Provision for loan losses 3,660 610 (300) 17,956
---------- ------- -------- ----------
Net interest income after provision
for loan losses 96,225 15,182 (17,619) 723,533
Noninterest income 23,933 735 5,941 266,545
Merger expense and amortization of
goodwill and core deposit intangibles 1,490 -- 18,746 63,699
Other noninterest expense 91,176 7,452 9,621 617,868
---------- ------- -------- ----------
Income before income taxes and
minority interest 27,492 8,465 (40,045) 308,511
Income taxes 9,001 2,788 (19,952) 109,498
Minority interest -- -- 1,884 4,949
---------- ------- -------- ----------
Net income $ 18,491 5,677 (21,977) 194,064
========== ======= ======== ==========
Assets $2,277,356 408,409 109,911 20,280,900
Net loans and leases 1,340,534 200,320 20,239 12,790,645
Deposits 1,882,349 289,182 (41,612) 14,061,939
Shareholders' equity 163,422 25,329 (168,322) 1,659,838
1998:
Net interest income $ 90,518 13,939 (9,419) 573,942
Provision for loan losses 3,685 78 (400) 14,034
---------- ------- -------- ----------
Net interest income after provision
for loan losses 86,833 13,861 (9,019) 559,908
Noninterest income 25,298 1,702 2,103 210,197
Merger expense and amortization of
goodwill and core deposit intangibles 1,490 7,702 1,554 69,769
Other noninterest expense 71,856 7,453 15,180 486,931
---------- ------- -------- ----------
Income before income taxes and
minority interest 38,785 408 (23,650) 213,405
Income taxes 11,835 346 (11,144) 69,632
Minority interest -- -- 420 420
---------- ------- -------- ----------
Net income $ 26,950 62 (12,926) 143,353
========== ======= ======== ==========
Assets 2,150,095 337,351 (270,833) 18,049,623
Net loans and leases 1,133,680 154,892 12,199 11,219,486
Deposits 1,829,117 221,403 (26,642) 14,220,910
Shareholders' equity 152,530 23,159 (217,371) 1,452,631
1997:
Net interest income $ 71,006 12,596 (6,291) 369,604
Provision for loan losses 2,860 300 (175) 5,930
---------- ------- -------- ----------
Net interest income after provision
for loan losses 68,146 12,296 (6,116) 363,674
Noninterest income 19,470 1,303 4,066 148,310
Merger expense and amortization of
goodwill and core deposit intangibles 450 -- 1,422 7,777
Other noninterest expense 55,116 7,059 9,794 305,137
---------- ------- -------- ----------
Income before income taxes 32,050 6,540 (13,266) 199,070
Income taxes 9,819 2,082 (6,205) 67,667
---------- ------- -------- ----------
Net income $ 22,231 4,458 (7,061) 131,403
========== ======= ======== ==========
Assets $1,838,159 298,478 (72,377) 10,793,596
Net loans and leases 928,980 153,765 3,315 5,462,872
Deposits 1,573,422 235,771 (8,179) 7,830,011
Shareholders' equity 140,227 23,890 (120,865) 856,606
</TABLE>
75
<PAGE> 78
ZIONS BANCORPORATION AND SUBSIDIARIES
Notes to Consolidated Financial Statements
December 31, 1999 and 1998
(21) QUARTERLY FINANCIAL INFORMATION (UNAUDITED)
Financial information by quarter for the three years ended December 31,
1999, is as follows (in thousands, except per share amounts):
<TABLE>
<CAPTION>
GROSS NET NON- NON-
INTEREST INTEREST INTEREST INTEREST
INCOME INCOME INCOME EXPENSE
---------- ------- ------- -------
<S> <C> <C> <C> <C>
1999:
First quarter $ 318,170 176,855 65,480 162,605
Second quarter 333,524 185,303 63,007 165,886
Third quarter 344,284 187,817 63,591 163,038
Fourth quarter 363,360 191,514 74,467 190,038
---------- ------- ------- -------
$1,359,338 741,489 266,545 681,567
========== ======= ======= =======
1998:
First quarter $ 221,870 119,546 45,855 106,406
Second quarter 234,570 130,272 50,215 126,872
Third quarter 250,809 139,681 53,071 126,298
Fourth quarter 325,599 184,445 61,056 197,123
---------- ------- ------- -------
$1,032,848 573,944 210,197 556,699
========== ======= ======= =======
</TABLE>
<TABLE>
<CAPTION>
INCOME
BEFORE DILUTED
INCOME NET
PROVISION TAXES INCOME
FOR AND PER
LOAN MINORITY NET COMMON
LOSSES INTEREST INCOME SHARE
------- ------- ------- -------
<S> <C> <C> <C> <C>
1999:
First quarter 4,741 74,989 46,904 0.55
Second quarter 4,143 78,281 50,832 0.59
Third quarter 4,517 83,853 53,779 0.63
Fourth quarter 4,555 71,388 42,549 0.49
------- ------- ------- ----
17,956 308,511 194,064 2.26
======= ======= ======= ====
1998:
First quarter 3,645 55,350 38,086 0.49
Second quarter 3,624 49,988 34,323 0.42
Third quarter 3,130 63,324 41,007 0.49
Fourth quarter 3,635 44,743 29,937 0.35
------- ------- ------- ----
14,034 213,405 143,353 1.75
======= ======= ======= ====
</TABLE>
76
<PAGE> 79
(22) Parent Company Financial Information
Condensed financial information of Zions Bancorporation
(parent only) follows:
ZIONS BANCORPORATION
Condensed Balance Sheets
December 31, 1999 and 1998
(In thousands)
<TABLE>
<CAPTION>
ASSETS 1999 1998
----------- ----------
<S> <C> <C>
Cash and due from banks $ 3,509 158
Interest-bearing deposits 22,899 20,744
Investment securities 251,949 9,950
Loans, lease financing, and other receivables, net 15,794 14,797
Investments in subsidiaries:
Commercial banks and bank holding company 1,795,889 1,634,346
Other 84,160 25,711
Receivables from subsidiaries:
Commercial banks 110,000 110,000
Other 9,565 2,865
Other assets 63,092 32,801
----------- ----------
$ 2,356,857 1,851,372
=========== ==========
LIABILITIES AND SHAREHOLDERS' EQUITY
Accrued liabilities $ 32,486 36,731
Borrowings less than one year 413,660 111,217
Subordinated debt to subsidiary 23,773 23,773
Long-term debt 227,100 227,000
----------- ----------
Total liabilities 697,019 398,721
----------- ----------
Shareholders' equity:
Common stock 888,231 796,519
Net unrealized holding losses on securities available for sale (4,158) (3,407)
Retained earnings 775,765 659,519
----------- ----------
Total shareholders' equity 1,659,838 1,452,631
----------- ----------
$ 2,356,857 1,851,352
=========== ==========
</TABLE>
Condensed Statements of Income
Years ended December 31, 1999, 1998, and 1997
(In thousands)
<TABLE>
<CAPTION>
1999 1998 1997
--------- -------- --------
<S> <C> <C> <C>
Interest income - interest and fees on loans and securities $ 11,846 7,066 948
Interest expense - interest on borrowed funds 32,529 17,307 6,674
--------- -------- --------
Net interest loss (20,683) (10,241) (5,726)
--------- -------- --------
Other income:
Dividends from consolidated subsidiaries:
Commercial banks 109,868 210,890 98,234
Other -- 1,430 500
Other income 3,968 7,064 5,381
--------- -------- --------
113,836 219,384 104,115
--------- -------- --------
Expenses:
Salaries and employee benefits 8,659 5,504 7,768
Operating expenses 2,517 8,512 4,133
--------- -------- --------
11,176 14,016 11,901
--------- -------- --------
Income before income tax benefit 81,977 195,127 86,488
Income tax benefit 14,471 8,304 5,678
--------- -------- --------
Income before equity in undistributed income of consolidated subsidiaries 96,448 203,431 92,166
--------- -------- --------
Equity in undistributed net income of consolidated subsidiaries:
Commercial banks and bank holding company 103,767 (55,306) 39,588
Other (6,151) (4,772) (351)
--------- -------- --------
97,616 (60,078) 39,237
--------- -------- --------
Net income $ 194,064 143,353 131,403
========= ======== ========
</TABLE>
77
<PAGE> 80
ZIONS BANCORPORATION
Condensed Statements of Cash Flows
Years ended December 31, 1999, 1998, and 1997
(In thousands)
<TABLE>
<CAPTION>
1999 1998 1997
--------- -------- --------
<S> <C> <C> <C>
Cash flows from operating activities:
Net income $ 194,064 143,353 131,403
Adjustments to reconcile net income to net cash provided by
operating activities:
Undistributed net income of consolidated subsidiaries (97,616) 60,078 (39,237)
Depreciation of premises and equipment 145 160 161
Investment securities gain (800) -- --
Amortization of intangibles 663 644 644
Other (14,219) 16,272 (7,526)
--------- -------- --------
Net cash provided by operating activities 82,237 220,507 85,445
--------- -------- --------
Cash flows from investing activities:
Net (increase) decrease in interest-bearing deposits (2,155) (17,895) 679
Collection of advances to subsidiaries 9,890 8,054 1,911
Advances to subsidiaries (16,590) (118,261) (4,226)
Proceeds from sale of investment in securities available for sale 20,664 -- --
Purchase of investment securities available for sale (250,780) -- --
Increase of investment in subsidiaries (88,725) (335,340) (31,430)
Other 178 (18,344) (1,354)
--------- -------- --------
Net cash used in investing activities (327,518) (481,786) (34,420)
--------- -------- --------
Cash flows from financing activities:
Net change in commercial paper and other borrowings under one year 302,443 38,167 44,000
Proceeds from borrowings over one year -- -- 50,000
Payments on borrowings over one year -- (25,000) --
Proceeds from issuance of long-term debt -- 177,267 232
Payments on long-term debt -- (2,000) (5)
Proceeds from issuance of common stock 9,753 139,974 4,147
Payments to redeem common stock (6,650) (26,741) (121,389)
Dividends paid (56,914) (41,600) (29,004)
--------- -------- --------
Net cash provided by (used in) financing activities 248,632 260,067 (52,019)
--------- -------- --------
Net increase (decrease) in cash and due from banks 3,351 (1,212) (994)
Cash and due from banks at beginning of year 158 1,370 2,364
--------- -------- --------
Cash and due from banks at end of year $ 3,509 158 1,370
========= ======== ========
</TABLE>
The parent company paid interest of $30.7 million, $16.4 million, and $8.3
million for the years ended December 31, 1999, 1998, and 1997, respectively.
78
<PAGE> 81
ITEM 9. CHANGES IN AND DISAGREEMENTS WITH ACCOUNTANTS ON
ACCOUNTING AND DISCLOSURE
None.
PART III
ITEM 10. DIRECTORS AND EXECUTIVE OFFICERS OF THE REGISTRANT
See Item 13. below.
ITEM 11. EXECUTIVE COMPENSATION
See Item 13. below.
ITEM 12. SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND MANAGEMENT
See Item 13. below.
ITEM 13. CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS
Information related to the Company's Executive Officers is included on page 7.
Pursuant to Instruction G(3) to Form 10-K, the remainder of the information to
be provided in Items 10, 11, 12 and 13 of Form 10-K (other than information
pursuant to Rule 402 (j), (k), and (l) of Regulation S-K) are incorporated by
reference to the Company's definitive proxy statement for the annual meeting of
stockholders, which proxy statement will be filed with the Securities and
Exchange Commission pursuant to Regulation 14A within 120 days of the close of
the Company's 1999 fiscal year.
PART IV
ITEM 14. EXHIBITS, FINANCIAL STATEMENT SCHEDULES, AND REPORTS ON FORM 8-K
(a) The following documents are part of this report and appear on the pages
indicated:
(1) Financial Statements:
<TABLE>
<CAPTION>
Page
----
<S> <C>
Independent Auditors' Report 35
Consolidated Balance Sheets - December 31, 1999 and 1998 36
Consolidated Statements of Income - Years ended December 31, 1999, 1998, and 1997 37
Consolidated Statements of Cash Flows - Years ended December 31, 1999, 1998, and 1997 38
Consolidated Statements of Changes in Shareholders' Equity and Comprehensive Income -
Years ended December 31, 1999, 1998 and 1997 39
Notes to Consolidated Financial Statements 41
</TABLE>
79
<PAGE> 82
(2) The Financial Statement Schedules are omitted because conditions requiring
their filing do not exist.
(3) Exhibits Index:
<TABLE>
<CAPTION>
Exhibit
Number Description
- ------- -----------
<S> <C>
2.1 Agreement and Plan of Merger, dated as of June 6, 1999 by and among
Zions Bancorporation and First Security Corporation, incorporated
by reference to Exhibit 2.1 of Form S-4 of First Security
Corporation Registration No. 333-91401.*
3.1 Restated Articles of Incorporation of Zions Bancorporation dated
November 8, 1993, incorporated by reference to Exhibit 3.1 of
Form S-4 filed on November 22, 1993.*
3.2 Restated Bylaws of Zions Bancorporation, dated November 8, 1993,
incorporated by Reference to Exhibit 3.2 of Form S-4 filed
November 22, 1993.*
3.3 Articles of Amendment to the Restated Articles of Incorporation of
Zions Bancorporation dated April 30, 1997, incorporated by
reference to Exhibit 3.1 of Form 10-Q for the quarter ended June
30, 1997.*
3.4 Articles of Amendment to the Restated Articles of Incorporation of
Zions Bancorporation dated April 24, 1998, incorporated by
reference to Exhibit 3 of Form 10-Q for the quarter ended June 30,
1998.*
3.5 Amendment to the Restated Bylaws of Zions Bancorporation, dated
September 18, 1998, incorporated by reference to Exhibit 3 of
Form 10-Q for the quarter ended September 30, 1998.*
4 Shareholder Protection Rights Agreement, dated September 27, 1996,
incorporated by reference to Exhibit 1 of Form 8-K filed October
12, 1996.*
10.1 Amended and Restated Zions Bancorporation Pension Plan,
incorporated by reference to Exhibit 10.1 of Form 10-K for the
year ended December 31, 1994.*
10.2 Amendment to Zions Bancorporation Pension Plan effective December
1, 1994, incorporated by reference to Exhibit 10.2 of Form 10-K
for the year ended December 31, 1994.*
10.3 Zions Bancorporation Supplemental Retirement Plan Form,
incorporated by reference to Exhibit 19.4 of Form 10-Q for the
quarter ended September 30, 1985.*
10.4 Zions Bancorporation Key Employee Incentive Stock Option Plan dated
April 28, 1982, incorporated by reference to Exhibit 10.1 of Form
10-Q for the quarter ended June 30, 1995.*
10.5 Amendment No. 1 to Zions Bancorporation Key Employee Incentive
Stock Option plan * dated April 27, 1990, incorporated by reference
to Exhibit 10.2 of Form 10-Q for the quarter ended June 30, 1995.
</TABLE>
80
<PAGE> 83
<TABLE>
<S> <C>
10.6 Amendment No. 2 to Zions Bancorporation Key Employee Incentive
Stock Option plan dated April 28, 1995, incorporated by reference
to Exhibit 10.3 of From 10-Q for the quarter ended June 30, 1995.*
10.7 Amendment No. 3 to Zions Bancorporation Key Employee Incentive
Stock Option plan dated April 24, 1998, incorporated by reference
to Exhibit 10 of Form 10-Q for the quarter ended June 30, 1998.*
10.8 Zions Bancorporation Deferred Compensation Plan for Directors, as
amended May 1, 1991, incorporated by reference to Exhibit 19 of
Form 10-K for the year ended December 31, 1991.*
10.9 Zions Bancorporation Senior Management Value Sharing Plan, Award
Period 1995-1998, incorporated by reference to Exhibit 10.14 of
Form 10-K for the year ended December 31, 1995.*
10.10 Zions Bancorporation Senior Management Value Sharing Plan, Award
Period 1996-1999, incorporated by reference to Exhibit 10.16 of
Form 10-K for the year ended December 31, 1996.*
10.11 Zions Bancorporation Senior Management Value Sharing Plan, Award
Period 1997-2000, incorporated by reference to Exhibit 10.16 of
Form 10-K for the year ended December 31, 1997.*
10.12 Zions Bancorporation Senior Management Value Sharing Plan, Award
Period 1998-2000, incorporated by reference to Exhibit 10.12 of
Form 10-K for the year ended December 31, 1998.*
10.13 Zions Bancorporation Executive Management Pension Plan,
incorporated by reference to Exhibit 10.10 of Form 10-K for the
year ended December 31, 1994.*
10.14 Employment Agreement between Zions Bancorporation and Mr. John
Gisi, incorporated by reference to Exhibit 10.13 of Form 10-K for
the year ended December 31, 1995.*
10.15 Zions Bancorporation Non-Employee Directors Stock Option Plan dated
April 26, 1996, incorporated by reference to Exhibit 10 of Form
10-Q for the quarter ended June 30, 1996.*
10.16 Zions Bancorporation Pension Plan amended and restated effective
April 1, 1997, incorporated by reference to Exhibit 10 of Form
10-Q for the quarter ended March 31, 1997.*
10.17 Zions Bancorporation 1998 Non-Qualified Stock Option and Incentive
Plan incorporated by reference to Exhibit 4.7 of Form S-8 filed
October 5, 1999.*
10.18 Stock Option Agreement between Zions Bancorporation and W. David
Hemingway dated April 13, 1983, incorporated by reference to
Exhibit 4.8 of Form S-8 filed March 10, 1999.*
10.19 Amended Stock Option Agreement between Zions Bancorporation and W.
David Hemingway dated January 31, 1991, incorporated by reference
to Exhibit 4.9 of Form S-8 Filed March 10, 1999*
</TABLE>
81
<PAGE> 84
<TABLE>
<S> <C>
10.20 Shareholder Agreement, dated October 1, 1998, among Zions
Bancorporation, The Robert G. Sarver Separate Property Trust
dated September 29, 1997 and CBT Holdings, incorporated by
reference to Exhibit 10.1 of Form 8-K filed October 14, 1998.*
10.21 Loan Agreement, dated October 1, 1998, between Zions Bancorporation
and The Robert G. Sarver Separate Property Trust dated September
29, 1997, incorporated by reference to Exhibit 10.2 of Form 8-K
filed October 14, 1998.*
10.22 Employment Agreement, dated October 1, 1998, between Grossmont Bank
and Robert Sarver, incorporated by reference to Exhibit 10.3 of
Form 8-K filed October 14, 1998.*
10.23 Promissory Note, dated October 1, 1998, by The Robert G. Sarver
Separate Property Trust dated September 29, 1997 in favor of
Zions Bancorporation, incorporated by reference to Exhibit 10.4 of
Form 8-K filed October 14, 1998.*
21 List of subsidiaries of Zions Bancorporation (filed)
23 Consent of KPMG LLP, independent certified public accountants
(filed)
27.1 Article 9 Financial Data Schedule for the year ended December 31,
1999 (filed)
27.2 Article 9 Restated Financial Data Schedule for the nine months
ended September 30, 1999 (filed)
27.3 Article 9 Restated Financial Data Schedule for the six months ended
June 30, 1999 (filed)
27.4 Article 9 Restated Financial Data Schedule for the three months
ended March 31, 1999 (filed)
27.5 Article 9 Restated Financial Data Schedule for the year ended
December 31, 1998 (filed)
27.6 Article 9 Restated Financial Data Schedule for the nine months
ended September 30, 1998 (filed)
27.7 Article 9 Restated Financial Data Schedule for the six months ended
June 30, 1998 (filed)
27.8 Article 9 Restated Financial Data Schedule for the three months
ended March 31, 1998 (filed)
27.9 Article 9 Restated Financial Data Schedule for the year ended
December 31, 1997 (filed)
99.1 Stock Option Agreement, dated as of June 8, 1999, by and between
Zions Bancorporation and First Security Corporation, incorporated
by reference to Exhibit 99.1 of Form S-4 of First Security
Registration No. 333-91401.*
</TABLE>
82
<PAGE> 85
<TABLE>
<S> <C>
99.2 Stock Option Agreement, dated as of June 8, 1999, by and between
First Security Corporation and Zions Bancorporation, incorporated
by reference to Exhibit 99.2 of Form S-4 of First Security
Registration No. 333-91401.*
</TABLE>
*Incorporated by reference
(b) Zions Bancorporation filed the following reports on Form 8-K during the
quarter ended December 31, 1999;
(1) Filed December 27, 1999 (Item 7), announcing the postponement of Zions
shareholders' meeting due to a change in accounting treatment for certain
prior mergers.
Zions Bancorporation's Annual Report on Form 10-K for the year ended December
31, 1999, at the time of filing with the Securities and Exchange Commission,
shall modify and supersede all documents filed prior to January 1, 2000 pursuant
to Sections 13, 14 and 15(d) of the Securities Exchange Act of 1934 for purposes
of offers or sales of any securities after the date of such filing pursuant to
any Registration Statement or Prospectus filed pursuant to the Securities Act of
1933 which incorporates by reference such Annual Report on Form 10-K.
Insofar as indemnification for liabilities arising under the Securities Act of
1933 may be permitted to directors, officers, and controlling persons of the
Registrant pursuant to the foregoing provisions, or otherwise, the Registrant
has been advised that in the opinion of the Securities and Exchange Commission
such indemnification is against public policy as expressed in the Securities Act
of 1933 and is, therefore, unenforceable. In the event that a claim for
indemnification against such liabilities (other than the payment by the
Registrant of expenses incurred or paid by a director, officer, or controlling
person of the Registrant in the successful defense of any action, suit, or
proceeding) is asserted by such director, officer, or controlling person in
connection with the securities being registered, the Registrant will, unless in
the opinion of its counsel the matter has been settled by controlling precedent,
submit to a court of appropriate jurisdiction the question whether such
indemnification by it is against public policy as expressed in the Act and will
governed by the final adjudication of such issue.
SIGNATURES
Pursuant to the requirements of Section 13 or 15(d) of the Securities Exchange
Act of 1934, the Registrant has duly caused this report to be signed on its
behalf by the undersigned, thereunto duly authorized.
March 29, 2000 ZIONS BANCORPORATION
By /s/ Harris H. Simmons
----------------------------------------
HARRIS H. SIMMONS, President and
Chief Executive Officer
83
<PAGE> 86
Pursuant to the requirements of the Securities Exchange Act of 1934, this report
has been signed below by the following persons on behalf of the Registrant and
in the capacities and on the date indicated.
March 29, 2000
<TABLE>
<CAPTION>
<S> <C>
/s/ Harris H. Simmons /s/ Dale M. Gibbons
- --------------------------------------- --------------------------------------------
HARRIS H. SIMMONS, President, Chief Dale M. Gibbons, Executive Vice President,
Executive Officer and Director Chief Financial Officer and Secretary
/s/ Roy W. Simmons /s/ Nolan Bellon
- --------------------------------------- --------------------------------------------
ROY W. SIMMONS, Chairman and Director NOLAN BELLON, Controller
/s/ Jerry C. Atkin /s/ Robert G. Sarver
- --------------------------------------- --------------------------------------------
JERRY C. ATKIN, Director ROBERT G. SARVER, Director
/s/ Grant R. Caldwell /s/ L.E. Simmons
- --------------------------------------- --------------------------------------------
GRANT R. CALDWELL, Director L.E. SIMMONS, Director
/s/ R.D. Cash /s/ Shelley Thomas
- --------------------------------------- --------------------------------------------
R. D. CASH, Director SHELLEY THOMAS, Director
/s/ Richard H. Madsen /s/ I.J. Wagner
- --------------------------------------- --------------------------------------------
RICHARD H. MADSEN, Director I.J. WAGNER, Director
/s/ Roger B. Porter
- ---------------------------------------
ROGER B. PORTER, Director
</TABLE>
84
<PAGE> 1
EXHIBIT 21
ZIONS BANCORPORATION AND SUBSIDIARIES
AT DECEMBER 31, 1999
<TABLE>
<CAPTION>
SUBSIDIARY STATE
---------- -----
<S> <C>
Zions First National Bank Federally chartered doing business in Utah and
Idaho
California Bank & Trust California
Vectra Bank Colorado Federally chartered doing business in Colorado
and New Mexico
National Bank of Arizona Federally chartered doing business in Arizona
Nevada State Bank Nevada
The Commerce Bank of Washington Federally chartered doing business in Washington
Cash Access, Inc. Utah
GB Capital Trust Delaware
Great Western Financial Corporation Utah
Lockhart Realty Company Utah
VBC Capital I Delaware
Zions Management Services Company Utah
Zions Insurance Agency, Inc. Utah
Zions Life Insurance Company Arizona
</TABLE>
<PAGE> 1
EXHIBIT 23
CONSENT OF INDEPENDENT CERTIFIED PUBLIC ACCOUNTANTS
Zions Bancorporation:
We consent to the incorporation by reference in Zions Bancorporation's (i)
Registration Statement (Form S-3 No. 33-58801) and related Prospectus pertaining
to the Zions Bancorporation Dividend Reinvestment and Common Stock Purchase
Plan, (ii) Registration Statement (Form S-8 No. 333-36207) and related
Prospectus pertaining to Zions Bancorporation Employee Stock Savings Plan, (iii)
Registration Statement (Form S-8 No. 333-36205) and related Prospectus
pertaining to Zions Bancorporation Employee Investment Savings Plan, (iv)
Registration Statement (Form S-8 No. 333-68461) and related Prospectus
pertaining to Aspen Bancshares, Inc. 1993 Non-Qualified Stock Option Plan for
Directors, Aspen Bancshares, Inc. 1990 Incentive Stock Option Plan, Vectra
Banking Corporation Employees' Equity Incentive Stock Option Plan, Vectra
Banking Corporation Non-Employee Directors' Stock Option Plan, Vectra Banking
Corporation 1989 Non-Statutory Stock Option Plan, Second Amended and Restated
1988 Stock Option Plan of FP Bancorp, Inc., SBT Bankshares, Inc. 1995
Non-Qualified Stock Option Agreement, The Commerce Bancorporation 1995 Restated
Incentive Compensation Plan, and The Commerce Bancorporation 1987 Stock Option
Plan, and (v) Registration Statement (Form S-8 No. 333-74179) and the related
Prospectus pertaining to Zions Bancorporation 1996 Non-Employee Directors Stock
Option Plan, and Hemingway Stock Option Agreement, of our report dated February
7, 2000, relating to the consolidated balance sheets of Zions Bancorporation and
subsidiaries as of December 31, 1999 and 1998, and the related consolidated
statements of income, cash flows, and changes in shareholders' equity and
comprehensive income for each of the years in the three-year period ended
December 31, 1999, which report appears in this annual report on Form 10-K for
the year ended December 31, 1999.
/s/KPMG LLP
Salt Lake City, Utah
March 29, 2000
<TABLE> <S> <C>
<ARTICLE> 9
<LEGEND>
THIS SCHEDULE CONTAINS SUMMARY FINANCIAL INFORMATION EXTRACTED FROM THE
CONSOLIDATED BALANCE SHEET AS OF DECEMBER 31, 1999 AND THE RELATED CONSOLIDATED
STATEMENT OF INCOME FOR THE YEAR ENDED DECEMBER 31, 1999 INCLUDED IN THE
COMPANY'S FORM 10-K FOR THE YEAR ENDED DECEMBER 31, 1999 AND IS QUALIFIED IN ITS
ENTIRETY BY REFERENCE TO SUCH FINANCIAL STATEMENTS.
</LEGEND>
<MULTIPLIER> 1,000
<CURRENCY> U.S. DOLLARS
<S> <C>
<PERIOD-TYPE> YEAR
<FISCAL-YEAR-END> DEC-31-1999
<PERIOD-START> JAN-01-1999
<PERIOD-END> DEC-31-1999
<EXCHANGE-RATE> 1
<CASH> 898,300
<INT-BEARING-DEPOSITS> 17,371
<FED-FUNDS-SOLD> 507,798
<TRADING-ASSETS> 327,843
<INVESTMENTS-HELD-FOR-SALE> 778,930
<INVESTMENTS-CARRYING> 3,330,444
<INVESTMENTS-MARKET> 3,290,508
<LOANS> 12,790,645
<ALLOWANCE> 204,114
<TOTAL-ASSETS> 20,280,900
<DEPOSITS> 14,061,939
<SHORT-TERM> 3,706,375
<LIABILITIES-OTHER> 247,400
<LONG-TERM> 566,093
0
0
<COMMON> 888,231
<OTHER-SE> 771,607
<TOTAL-LIABILITIES-AND-EQUITY> 20,280,900
<INTEREST-LOAN> 1,027,228
<INTEREST-INVEST> 332,110
<INTEREST-OTHER> 0
<INTEREST-TOTAL> 1,359,338
<INTEREST-DEPOSIT> 414,478
<INTEREST-EXPENSE> 617,849
<INTEREST-INCOME-NET> 741,489
<LOAN-LOSSES> 17,956
<SECURITIES-GAINS> (5,266)
<EXPENSE-OTHER> 681,567
<INCOME-PRETAX> 303,562
<INCOME-PRE-EXTRAORDINARY> 194,064
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> 194,064
<EPS-BASIC> 2.29
<EPS-DILUTED> 2.26
<YIELD-ACTUAL> 4.22
<LOANS-NON> 64,797
<LOANS-PAST> 20,939
<LOANS-TROUBLED> 862
<LOANS-PROBLEM> 0
<ALLOWANCE-OPEN> 212,557
<CHARGE-OFFS> 45,566
<RECOVERIES> 16,544
<ALLOWANCE-CLOSE> 204,114
<ALLOWANCE-DOMESTIC> 187,520
<ALLOWANCE-FOREIGN> 0
<ALLOWANCE-UNALLOCATED> 16,594
</TABLE>
<TABLE> <S> <C>
<ARTICLE> 9
<LEGEND>
THIS SCHEDULE CONTAINS SUMMARY FINANCIAL INFORMATION EXTRACTED FROM THE
UNAUDITED CONSOLIDATED BALANCE SHEET AS OF SEPTEMBER 30, 1999 AND THE RELATED
UNAUDITED CONSOLIDATED STATEMENT OF INCOME FOR THE NINE MONTHS ENDED SEPTEMBER
30, 1999 WHICH HAVE BEEN RESTATED AS A RESULT OF POOLING OF INTERESTS.
</LEGEND>
<MULTIPLIER> 1,000
<CURRENCY> U.S. DOLLARS
<S> <C>
<PERIOD-TYPE> 9-MOS
<FISCAL-YEAR-END> DEC-31-1999
<PERIOD-START> JAN-01-1999
<PERIOD-END> SEP-30-1999
<EXCHANGE-RATE> 1
<CASH> 796,348
<INT-BEARING-DEPOSITS> 16,562
<FED-FUNDS-SOLD> 726,582
<TRADING-ASSETS> 531,710
<INVESTMENTS-HELD-FOR-SALE> 844,544
<INVESTMENTS-CARRYING> 3,368,861
<INVESTMENTS-MARKET> 3,343,152
<LOANS> 12,098,622
<ALLOWANCE> 205,926
<TOTAL-ASSETS> 20,070,668
<DEPOSITS> 13,950,115
<SHORT-TERM> 3,383,757
<LIABILITIES-OTHER> 586,588
<LONG-TERM> 570,469
0
0
<COMMON> 820,728
<OTHER-SE> 720,917
<TOTAL-LIABILITIES-AND-EQUITY> 20,070,668
<INTEREST-LOAN> 751,200
<INTEREST-INVEST> 244,778
<INTEREST-OTHER> 0
<INTEREST-TOTAL> 995,978
<INTEREST-DEPOSIT> 306,738
<INTEREST-EXPENSE> 446,003
<INTEREST-INCOME-NET> 549,975
<LOAN-LOSSES> 13,401
<SECURITIES-GAINS> (1,335)
<EXPENSE-OTHER> 491,529
<INCOME-PRETAX> 234,460
<INCOME-PRE-EXTRAORDINARY> 151,515
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> 151,515
<EPS-BASIC> 1.80
<EPS-DILUTED> 1.77
<YIELD-ACTUAL> 4.27
<LOANS-NON> 47,800
<LOANS-PAST> 32,515
<LOANS-TROUBLED> 883
<LOANS-PROBLEM> 0
<ALLOWANCE-OPEN> 212,557
<CHARGE-OFFS> 33,902
<RECOVERIES> 13,869
<ALLOWANCE-CLOSE> 205,926
<ALLOWANCE-DOMESTIC> 187,079
<ALLOWANCE-FOREIGN> 0
<ALLOWANCE-UNALLOCATED> 18,846
</TABLE>
<TABLE> <S> <C>
<ARTICLE> 9
<LEGEND>
THIS SCHEDULE CONTAINS SUMMARY FINANCIAL INFORMATION EXTRACTED FROM THE
UNAUDITED CONSOLIDATED BALANCE SHEET AS OF JUNE 30, 1999 AND THE RELATED
UNAUDITED CONSOLIDATED STATEMENT OF INCOME FOR THE SIX MONTHS ENDED JUNE 30,
1999 WHICH HAVE BEEN RESTATED AS A RESULT OF POOLING OF INTERESTS.
</LEGEND>
<MULTIPLIER> 1,000
<S> <C>
<PERIOD-TYPE> 6-MOS
<FISCAL-YEAR-END> DEC-31-1999
<PERIOD-START> JAN-01-1999
<PERIOD-END> JUN-30-1999
<CASH> 940,807
<INT-BEARING-DEPOSITS> 17,757
<FED-FUNDS-SOLD> 444,901
<TRADING-ASSETS> 416,130
<INVESTMENTS-HELD-FOR-SALE> 710,829
<INVESTMENTS-CARRYING> 3,270,066
<INVESTMENTS-MARKET> 3,263,185
<LOANS> 11,707,071
<ALLOWANCE> 212,424
<TOTAL-ASSETS> 19,065,289
<DEPOSITS> 14,034,015
<SHORT-TERM> 2,626,233
<LIABILITIES-OTHER> 333,164
<LONG-TERM> 513,465
0
0
<COMMON> 823,552
<OTHER-SE> 697,698
<TOTAL-LIABILITIES-AND-EQUITY> 19,065,289
<INTEREST-LOAN> 491,373
<INTEREST-INVEST> 160,321
<INTEREST-OTHER> 9
<INTEREST-TOTAL> 651,694
<INTEREST-DEPOSIT> 203,762
<INTEREST-EXPENSE> 289,536
<INTEREST-INCOME-NET> 362,158
<LOAN-LOSSES> 8,884
<SECURITIES-GAINS> (1,089)
<EXPENSE-OTHER> 328,491
<INCOME-PRETAX> 151,409
<INCOME-PRE-EXTRAORDINARY> 97,736
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> 97,736
<EPS-BASIC> 1.16
<EPS-DILUTED> 1.14
<YIELD-ACTUAL> 4.30
<LOANS-NON> 48,027
<LOANS-PAST> 27,379
<LOANS-TROUBLED> 3,297
<LOANS-PROBLEM> 0
<ALLOWANCE-OPEN> 212,557
<CHARGE-OFFS> 20,201
<RECOVERIES> 11,184
<ALLOWANCE-CLOSE> 212,424
<ALLOWANCE-DOMESTIC> 178,781
<ALLOWANCE-FOREIGN> 0
<ALLOWANCE-UNALLOCATED> 33,643
</TABLE>
<TABLE> <S> <C>
<ARTICLE> 9
<LEGEND>
THIS SCHEDULE CONTAINS SUMMARY FINANCIAL INFORMATION EXTRACTED FROM THE
UNAUDITED CONSOLIDATED BALANCE SHEET AS OF MARCH 31, 1999 AND THE RELATED
UNAUDITED CONSOLIDATED STATEMENT OF INCOME FOR THE THREE MONTHS ENDED MARCH 31,
1999 WHICH HAVE BEEN RESTATED AS A RESULT OF POOLING OF INTERESTS.
</LEGEND>
<MULTIPLIER> 1,000
<S> <C>
<PERIOD-TYPE> 3-MOS
<FISCAL-YEAR-END> DEC-31-1999
<PERIOD-START> JAN-01-1999
<PERIOD-END> MAR-31-1999
<CASH> 851,118
<INT-BEARING-DEPOSITS> 25,200
<FED-FUNDS-SOLD> 448,378
<TRADING-ASSETS> 221,127
<INVESTMENTS-HELD-FOR-SALE> 702,051
<INVESTMENTS-CARRYING> 3,105,885
<INVESTMENTS-MARKET> 3,120,439
<LOANS> 11,525,083
<ALLOWANCE> 206,058
<TOTAL-ASSETS> 18,526,417
<DEPOSITS> 14,145,677
<SHORT-TERM> 1,897,292
<LIABILITIES-OTHER> 446,116
<LONG-TERM> 504,352
0
0
<COMMON> 822,400
<OTHER-SE> 672,981
<TOTAL-LIABILITIES-AND-EQUITY> 18,526,417
<INTEREST-LOAN> 239,886
<INTEREST-INVEST> 78,284
<INTEREST-OTHER> 0
<INTEREST-TOTAL> 318,170
<INTEREST-DEPOSIT> 102,233
<INTEREST-EXPENSE> 141,315
<INTEREST-INCOME-NET> 176,855
<LOAN-LOSSES> 4,741
<SECURITIES-GAINS> (1,304)
<EXPENSE-OTHER> 162,605
<INCOME-PRETAX> 73,633
<INCOME-PRE-EXTRAORDINARY> 46,904
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> 46,904
<EPS-BASIC> 0.56
<EPS-DILUTED> 0.55
<YIELD-ACTUAL> 4.31
<LOANS-NON> 71,205
<LOANS-PAST> 26,205
<LOANS-TROUBLED> 3,616
<LOANS-PROBLEM> 0
<ALLOWANCE-OPEN> 212,557
<CHARGE-OFFS> 13,477
<RECOVERIES> 2,237
<ALLOWANCE-CLOSE> 206,058
<ALLOWANCE-DOMESTIC> 179,796
<ALLOWANCE-FOREIGN> 0
<ALLOWANCE-UNALLOCATED> 26,262
</TABLE>
<TABLE> <S> <C>
<ARTICLE> 9
<LEGEND>
THIS SCHEDULE CONTAINS SUMMARY FINANCIAL INFORMATION EXTRACTED FROM THE
CONSOLIDATED BALANCE SHEET AS OF DECEMBER 31, 1998 AND THE RELATED CONSOLIDATED
STATEMENT OF INCOME FOR THE YEAR ENDED DECEMBER 31, 1998 WHICH HAVE BEEN
RESTATED AS A RESULT OF POOLING OF INTERESTS.
</LEGEND>
<MULTIPLIER> 1,000
<S> <C>
<PERIOD-TYPE> YEAR
<FISCAL-YEAR-END> DEC-31-1998
<PERIOD-START> JAN-01-1998
<PERIOD-END> DEC-31-1998
<CASH> 922,654
<INT-BEARING-DEPOSITS> 30,484
<FED-FUNDS-SOLD> 629,221
<TRADING-ASSETS> 191,855
<INVESTMENTS-HELD-FOR-SALE> 954,057
<INVESTMENTS-CARRYING> 2,850,756
<INVESTMENTS-MARKET> 2,869,162
<LOANS> 11,219,486
<ALLOWANCE> 212,557
<TOTAL-ASSETS> 18,049,623
<DEPOSITS> 14,220,910
<SHORT-TERM> 1,509,623
<LIABILITIES-OTHER> 321,258
<LONG-TERM> 510,531
0
0
<COMMON> 796,519
<OTHER-SE> 656,112
<TOTAL-LIABILITIES-AND-EQUITY> 18,049,623
<INTEREST-LOAN> 721,224
<INTEREST-INVEST> 311,625
<INTEREST-OTHER> 0
<INTEREST-TOTAL> 1,032,849
<INTEREST-DEPOSIT> 317,146
<INTEREST-EXPENSE> 458,907
<INTEREST-INCOME-NET> 573,942
<LOAN-LOSSES> 14,034
<SECURITIES-GAINS> 4,055
<EXPENSE-OTHER> 556,700
<INCOME-PRETAX> 212,985
<INCOME-PRE-EXTRAORDINARY> 143,353
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> 143,353
<EPS-BASIC> 1.77
<EPS-DILUTED> 1.75
<YIELD-ACTUAL> 4.48
<LOANS-NON> 54,673
<LOANS-PAST> 25,779
<LOANS-TROUBLED> 5,212
<LOANS-PROBLEM> 0
<ALLOWANCE-OPEN> 88,622
<CHARGE-OFFS> 25,206
<RECOVERIES> 9,416
<ALLOWANCE-CLOSE> 212,557
<ALLOWANCE-DOMESTIC> 173,257
<ALLOWANCE-FOREIGN> 0
<ALLOWANCE-UNALLOCATED> 39,300
</TABLE>
<TABLE> <S> <C>
<ARTICLE> 9
<LEGEND>
THIS SCHEDULE CONTAINS SUMMARY FINANCIAL INFORMATION EXTRACTED FROM THE
UNAUDITED CONSOLIDATED BALANCE SHEET AS OF SEPTEMBER 30, 1998 AND THE RELATED
UNAUDITED CONSOLIDATED STATEMENT OF INCOME FOR THE NINE MONTHS ENDED SEPTEMBER
30, 1998 WHICH HAVE BEEN RESTATED AS A RESULT OF POOLING OF INTERESTS.
</LEGEND>
<MULTIPLIER> 1,000
<S> <C>
<PERIOD-TYPE> 9-MOS
<FISCAL-YEAR-END> DEC-31-1998
<PERIOD-START> JAN-01-1998
<PERIOD-END> SEP-30-1998
<CASH> 671,455
<INT-BEARING-DEPOSITS> 24,566
<FED-FUNDS-SOLD> 1,283,037
<TRADING-ASSETS> 203,871
<INVESTMENTS-HELD-FOR-SALE> 806,941
<INVESTMENTS-CARRYING> 2,253,519
<INVESTMENTS-MARKET> 2,274,105
<LOANS> 7,318,779
<ALLOWANCE> 107,255
<TOTAL-ASSETS> 13,728,567
<DEPOSITS> 9,769,237
<SHORT-TERM> 1,808,223
<LIABILITIES-OTHER> 233,171
<LONG-TERM> 498,005
0
0
<COMMON> 791,137
<OTHER-SE> 628,794
<TOTAL-LIABILITIES-AND-EQUITY> 13,728,567
<INTEREST-LOAN> 477,408
<INTEREST-INVEST> 229,842
<INTEREST-OTHER> 0
<INTEREST-TOTAL> 707,250
<INTEREST-DEPOSIT> 209,944
<INTEREST-EXPENSE> 317,753
<INTEREST-INCOME-NET> 389,497
<LOAN-LOSSES> 10,399
<SECURITIES-GAINS> 4,081
<EXPENSE-OTHER> 359,577
<INCOME-PRETAX> 168,662
<INCOME-PRE-EXTRAORDINARY> 113,416
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> 113,416
<EPS-BASIC> 1.42
<EPS-DILUTED> 1.40
<YIELD-ACTUAL> 4.49
<LOANS-NON> 33,296
<LOANS-PAST> 12,432
<LOANS-TROUBLED> 981
<LOANS-PROBLEM> 0
<ALLOWANCE-OPEN> 88,622
<CHARGE-OFFS> 12,026
<RECOVERIES> 5,083
<ALLOWANCE-CLOSE> 107,255
<ALLOWANCE-DOMESTIC> 25,899
<ALLOWANCE-FOREIGN> 0
<ALLOWANCE-UNALLOCATED> 81,356
</TABLE>
<TABLE> <S> <C>
<ARTICLE> 9
<LEGEND>
THIS SCHEDULE CONTAINS SUMMARY FINANCIAL INFORMATION EXTRACTED FROM THE
UNAUDITED CONSOLIDATED BALANCE SHEET AS OF JUNE 30, 1998 AND THE RELATED
UNAUDITED CONSOLIDATED STATEMENT OF INCOME FOR THE SIX MONTHS ENDED JUNE 30,
1998 WHICH HAVE BEEN RESTATED AS A RESULT OF POOLING OF INTERESTS.
</LEGEND>
<MULTIPLIER> 1,000
<S> <C>
<PERIOD-TYPE> 6-MOS
<FISCAL-YEAR-END> DEC-31-1998
<PERIOD-START> JAN-01-1998
<PERIOD-END> JUN-30-1998
<CASH> 757,657
<INT-BEARING-DEPOSITS> 56,643
<FED-FUNDS-SOLD> 1,264,072
<TRADING-ASSETS> 401,914
<INVESTMENTS-HELD-FOR-SALE> 810,976
<INVESTMENTS-CARRYING> 3,293,751
<INVESTMENTS-MARKET> 2,308,603
<LOANS> 6,800,859
<ALLOWANCE> 104,872
<TOTAL-ASSETS> 13,392,788
<DEPOSITS> 9,315,742
<SHORT-TERM> 1,802,206
<LIABILITIES-OTHER> 380,671
<LONG-TERM> 504,254
0
0
<COMMON> 798,352
<OTHER-SE> 591,563
<TOTAL-LIABILITIES-AND-EQUITY> 13,392,788
<INTEREST-LOAN> 305,165
<INTEREST-INVEST> 151,275
<INTEREST-OTHER> 0
<INTEREST-TOTAL> 456,440
<INTEREST-DEPOSIT> 135,679
<INTEREST-EXPENSE> 206,625
<INTEREST-INCOME-NET> 249,815
<LOAN-LOSSES> 7,269
<SECURITIES-GAINS> 3,524
<EXPENSE-OTHER> 233,278
<INCOME-PRETAX> 105,338
<INCOME-PRE-EXTRAORDINARY> 72,409
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> 72,409
<EPS-BASIC> 0.93
<EPS-DILUTED> 0.91
<YIELD-ACTUAL> 4.43
<LOANS-NON> 26,398
<LOANS-PAST> 18,003
<LOANS-TROUBLED> 685
<LOANS-PROBLEM> 0
<ALLOWANCE-OPEN> 88,622
<CHARGE-OFFS> 7,777
<RECOVERIES> 3,939
<ALLOWANCE-CLOSE> 104,872
<ALLOWANCE-DOMESTIC> 26,082
<ALLOWANCE-FOREIGN> 0
<ALLOWANCE-UNALLOCATED> 78,790
</TABLE>
<TABLE> <S> <C>
<ARTICLE> 9
<LEGEND>
THIS SCHEDULE CONTAINS SUMMARY FINANCIAL INFORMATION EXTRACTED FROM THE
UNAUDITED CONSOLIDATED BALANCE SHEET AS OF MARCH 31, 1998 AND THE RELATED
UNAUDITED CONSOLIDATED STATEMENT OF INCOME FOR THE THREE MONTHS ENDED MARCH 31,
1998 WHICH HAVE BEEN RESTATED AS A RESULT OF POOLING OF INTERESTS.
</LEGEND>
<MULTIPLIER> 1,000
<CURRENCY> U.S.
<S> <C>
<PERIOD-TYPE> 3-MOS
<FISCAL-YEAR-END> DEC-31-1998
<PERIOD-START> JAN-01-1998
<PERIOD-END> MAR-31-1998
<EXCHANGE-RATE> 1
<CASH> 674,141
<INT-BEARING-DEPOSITS> 64,911
<FED-FUNDS-SOLD> 1,234,243
<TRADING-ASSETS> 276,277
<INVESTMENTS-HELD-FOR-SALE> 764,854
<INVESTMENTS-CARRYING> 1,949,094
<INVESTMENTS-MARKET> 1,966,781
<LOANS> 6,269,288
<ALLOWANCE> 100,315
<TOTAL-ASSETS> 12,130,020
<DEPOSITS> 8,822,848
<SHORT-TERM> 1,626,125
<LIABILITIES-OTHER> 194,306
<LONG-TERM> 397,808
0
0
<COMMON> 521,088
<OTHER-SE> 567,845
<TOTAL-LIABILITIES-AND-EQUITY> 12,130,020
<INTEREST-LOAN> 144,817
<INTEREST-INVEST> 77,054
<INTEREST-OTHER> 0
<INTEREST-TOTAL> 221,871
<INTEREST-DEPOSIT> 65,505
<INTEREST-EXPENSE> 102,315
<INTEREST-INCOME-NET> 119,556
<LOAN-LOSSES> 3,645
<SECURITIES-GAINS> 707
<EXPENSE-OTHER> 106,437
<INCOME-PRETAX> 55,329
<INCOME-PRE-EXTRAORDINARY> 38,072
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> 38,072
<EPS-BASIC> 0.50
<EPS-DILUTED> 0.49
<YIELD-ACTUAL> 4.39
<LOANS-NON> 18,397
<LOANS-PAST> 13,844
<LOANS-TROUBLED> 1,222
<LOANS-PROBLEM> 0
<ALLOWANCE-OPEN> 88,622
<CHARGE-OFFS> 3,328
<RECOVERIES> 2,571
<ALLOWANCE-CLOSE> 100,315
<ALLOWANCE-DOMESTIC> 76,751
<ALLOWANCE-FOREIGN> 0
<ALLOWANCE-UNALLOCATED> 23,564
</TABLE>
<TABLE> <S> <C>
<ARTICLE> 9
<LEGEND>
THIS SCHEDULE CONTAINS SUMMARY FINANCIAL INFORMATION EXTRACTED FROM THE
CONSOLIDATED BALANCE SHEET AS OF DECEMBER 31, 1997 AND THE RELATED CONSOLIDATED
STATEMENT OF INCOME FOR THE YEAR ENDED DECEMBER 31, 1997 WHICH HAVE BEEN
RESTATED AS A RESULT OF POOLING OF INTERESTS.
</LEGEND>
<MULTIPLIER> 1,000
<S> <C>
<PERIOD-TYPE> YEAR
<FISCAL-YEAR-END> DEC-31-1997
<PERIOD-START> JAN-01-1997
<PERIOD-END> DEC-31-1997
<CASH> 700,860
<INT-BEARING-DEPOSITS> 61,986
<FED-FUNDS-SOLD> 875,017
<TRADING-ASSETS> 83,681
<INVESTMENTS-HELD-FOR-SALE> 755,823
<INVESTMENTS-CARRYING> 2,211,463
<INVESTMENTS-MARKET> 2,231,542
<LOANS> 5,462,872
<ALLOWANCE> 88,622
<TOTAL-ASSETS> 10,793,596
<DEPOSITS> 7,830,011
<SHORT-TERM> 1,466,119
<LIABILITIES-OTHER> 171,613
<LONG-TERM> 469,247
0
0
<COMMON> 292,383
<OTHER-SE> 564,223
<TOTAL-LIABILITIES-AND-EQUITY> 10,793,596
<INTEREST-LOAN> 448,520
<INTEREST-INVEST> 268,473
<INTEREST-OTHER> 0
<INTEREST-TOTAL> 716,993
<INTEREST-DEPOSIT> 194,384
<INTEREST-EXPENSE> 347,389
<INTEREST-INCOME-NET> 369,604
<LOAN-LOSSES> 5,930
<SECURITIES-GAINS> 888
<EXPENSE-OTHER> 312,914
<INCOME-PRETAX> 199,070
<INCOME-PRE-EXTRAORDINARY> 131,403
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> 131,403
<EPS-BASIC> 1.95
<EPS-DILUTED> 1.92
<YIELD-ACTUAL> 4.18
<LOANS-NON> 12,827
<LOANS-PAST> 9,944
<LOANS-TROUBLED> 691
<LOANS-PROBLEM> 0
<ALLOWANCE-OPEN> 76,963
<CHARGE-OFFS> 14,558
<RECOVERIES> 5,971
<ALLOWANCE-CLOSE> 88,622
<ALLOWANCE-DOMESTIC> 66,091
<ALLOWANCE-FOREIGN> 0
<ALLOWANCE-UNALLOCATED> 22,531
</TABLE>
