-----BEGIN PRIVACY-ENHANCED MESSAGE----- Proc-Type: 2001,MIC-CLEAR Originator-Name: webmaster@www.sec.gov Originator-Key-Asymmetric: MFgwCgYEVQgBAQICAf8DSgAwRwJAW2sNKK9AVtBzYZmr6aGjlWyK3XmZv3dTINen TWSM7vrzLADbmYQaionwg5sDW3P6oaM5D3tdezXMm7z1T+B+twIDAQAB MIC-Info: RSA-MD5,RSA, U2pPyKmAfeAL3OK9YzxVN0uHMwlk9MEVKEN6y7eap5lwRBbrhhd1zoDoZBQ4WDyr geEMJHt8ljUEJ68LhCP/Yg== 0000109380-00-000009.txt : 20000218 0000109380-00-000009.hdr.sgml : 20000218 ACCESSION NUMBER: 0000109380-00-000009 CONFORMED SUBMISSION TYPE: 10-Q/A PUBLIC DOCUMENT COUNT: 3 CONFORMED PERIOD OF REPORT: 19990930 FILED AS OF DATE: 20000217 FILER: COMPANY DATA: COMPANY CONFORMED NAME: ZIONS BANCORPORATION /UT/ CENTRAL INDEX KEY: 0000109380 STANDARD INDUSTRIAL CLASSIFICATION: NATIONAL COMMERCIAL BANKS [6021] IRS NUMBER: 870227400 STATE OF INCORPORATION: UT FISCAL YEAR END: 1231 FILING VALUES: FORM TYPE: 10-Q/A SEC ACT: SEC FILE NUMBER: 000-02610 FILM NUMBER: 547848 BUSINESS ADDRESS: STREET 1: ONE SOUTH MAIN STREET STREET 2: SUITE 1380 CITY: SALT LAKE CITY STATE: UT ZIP: 84111 BUSINESS PHONE: 8015244787 MAIL ADDRESS: STREET 1: ONE SOUTH MAIN STREET STREET 2: SUITE 1380 CITY: SALT LAKE CITY STATE: UT ZIP: 84111 FORMER COMPANY: FORMER CONFORMED NAME: ZIONS UTAH BANCORPORATION DATE OF NAME CHANGE: 19870615 FORMER COMPANY: FORMER CONFORMED NAME: ZIONS FIRST NATIONAL INVESTMENT CO DATE OF NAME CHANGE: 19660921 10-Q/A 1 RESTATED ZIONS BANCORPORATION QUARTERLY REPORT UNITED STATES SECURITIES AND EXCHANGE COMMISSION Washington, D.C. 20549 FORM 10-Q/A [ X ] QUARTERLY REPORT UNDER SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934 For the quarterly period ended September 30, 1999 ------------------ OR [ ] TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934 For the transition period from to COMMISSION FILE NUMBER 0-2610 ZIONS BANCORPORATION (Exact name of Registrant as specified in its charter) UTAH 87-0227400 - --------------------------------- ------------------- (State or other jurisdiction (I.R.S. Employer of incorporation or organization) Identification No.) ONE SOUTH MAIN, SUITE 1380 SALT LAKE CITY, UTAH 84111 - ---------------------------------------- ---------- (Address of principal executive offices) (Zip Code) Registrant's telephone number, including area code: (801) 524-4787 Indicate by check mark whether the registrant (1) has filed all reports required to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during the preceding 12 months and (2) has been subject to such filing requirement for the past 90 days. Yes [ X ] No [ ] Indicate the number of shares outstanding of each of the issuer's classes of common stock, as of the latest practicable date. Common Stock, without par value, outstanding at November 8, 1999 85,502,626 shares 1 ZIONS BANCORPORATION AND SUBSIDIARIES INDEX Page PART I. FINANCIAL INFORMATION ---- --------------------- ITEM 1. Financial Statements (unaudited) Consolidated Balance Sheets 3 Consolidated Statements of Income 4 Consolidated Statements of Cash Flows 5 Consolidated Statements of Changes in Shareholders' 7 Equity and Comprehensive Income Notes to Consolidated Financial Statements 8 ITEM 2. Management's Discussion and Analysis 14 PART II. OTHER INFORMATION ----------------- ITEM 6. Exhibits and Reports on Form 8-K 31 SIGNATURES 31 - ---------- 2 ZIONS BANCORPORATION AND SUBSIDIARIES CONSOLIDATED BALANCE SHEETS (Unaudited)
September 30, December 31, September 30, (In thousands, except share amounts) 1999 1998 1998 ------------ ------------ ------------ ASSETS Cash and due from banks ............................................ $ 742,714 $ 864,446 $ 618,651 Money market investments: Interest-bearing deposits ..................................... 16,562 30,484 25,572 Federal funds sold ............................................ 127,024 199,446 360,038 Security resell agreements .................................... 519,546 382,275 880,499 Investment securities: Held to maturity, at cost (approximate market value $3,298,873, $2,821,535, and $2,228,210) ....................... 3,324,387 2,804,654 2,209,223 Available for sale, at market ................................. 614,579 684,581 554,039 Trading account, at market..................................... 531,710 191,855 203,871 ------------ ------------ ------------ 4,470,676 3,681,090 2,967,133 Loans: Loans held for sale ........................................... 154,115 232,253 192,042 Loans, leases, and other receivables .......................... 11,314,971 10,452,246 6,618,519 ------------ ------------ ------------ 11,469,086 10,684,499 6,810,561 Less: Unearned income and fees, net of related costs ................ 52,414 48,123 43,554 Allowance for loan losses ..................................... 198,559 205,553 100,440 ------------ ------------ ------------ Net Loans ............................................... 11,218,113 10,430,823 6,666,567 Premises and equipment, net ........................................ 263,814 231,847 179,686 Goodwill and core deposit intangibles .............................. 634,093 663,606 566,520 Other real estate owned ............................................ 9,699 5,270 4,047 Other assets ....................................................... 948,750 530,944 493,432 ------------ ------------ ------------ $ 18,950,991 $ 17,020,231 $ 12,762,145 ============ ============ ============ LIABILITIES AND SHAREHOLDERS' EQUITY Deposits: Noninterest-bearing ............................................ $ 3,020,163 $ 3,170,436 $ 2,306,876 Interest-bearing: Savings and money market .................................. 7,025,446 6,077,556 4,470,996 Time: Under $100,000 ........................................ 1,823,855 2,340,598 1,273,949 Over $100,000 ......................................... 990,863 1,528,329 684,719 Foreign ................................................... 148,446 204,244 195,482 ------------ ------------ ------------ 13,008,773 13,321,163 8,932,022 Securities sold, not yet purchased ................................. 183,954 29,702 200,730 Federal funds purchased ............................................ 790,614 337,283 400,221 Security repurchase agreements ..................................... 1,165,703 932,560 1,045,462 Accrued liabilities ................................................ 583,600 319,278 230,942 Commercial paper ................................................... 284,014 49,217 74,630 Federal Home Loan Bank advances and other borrowings: Less than one year ............................................ 856,943 100,750 26,154 Over one year ................................................. 117,317 56,796 113,199 Long-term debt ..................................................... 453,152 453,735 384,806 ------------ ------------ ------------ Total liabilities ......................................... 17,444,070 15,600,484 11,408,166 ------------ ------------ ------------ Minority interest .................................................. 38,094 34,670 -- Shareholders' equity: Capital stock: Preferred stock, without par value; authorized 3,000,000 shares; issued and outstanding, none ....... -- -- -- Common stock, without par value; authorized 200,000,000 shares; issued and outstanding 78,992,418, 78,636,083 and 77,594,651 shares ....................... 755,282 752,845 747,538 Accumulated other comprehensive loss .......................... (7,917) (4,432) (2,593) Retained earnings ............................................. 721,462 636,664 609,034 ------------ ------------ ------------ Total shareholders' equity ............................... 1,468,827 1,385,077 1,353,979 ------------ ------------ ------------ $ 18,950,991 $ 17,020,231 $ 12,762,145 ============ ============ ============
3 ZIONS BANCORPORATION AND SUBSIDIARIES CONSOLIDATED STATEMENTS OF INCOME (Unaudited)
Three Months Ended Nine Months Ended September 30, September 30, ---------------------- ---------------------- (In thousands, except per share amounts) 1999 1998 1999 1998 --------- --------- --------- --------- Interest income: Interest and fees on loans ............................... $ 238,311 $ 152,836 $ 688,368 $ 421,375 Interest on loans held for sale .......................... 2,780 3,436 9,273 10,652 Lease financing .......................................... 3,094 2,990 9,771 9,201 Interest on money market investments ..................... 16,488 21,303 47,016 68,921 Interest on securities: Held to maturity: Taxable ........................................ 44,482 36,646 128,462 94,583 Nontaxable ..................................... 4,398 3,334 12,815 9,959 Available for sale: Taxable ........................................ 6,501 6,739 18,886 23,386 Nontaxable ..................................... 103 184 349 689 Trading account ..................................... 7,333 5,880 22,108 18,126 --------- --------- --------- --------- Total interest income ............................... 323,490 233,348 937,048 656,892 --------- --------- --------- --------- Interest expense: Interest on savings and money market deposits ............ 60,016 38,616 166,076 110,316 Interest on time and foreign deposits .................... 35,896 29,138 119,643 80,916 Interest on borrowed funds ............................... 52,326 36,014 136,878 105,406 --------- --------- --------- --------- Total interest expense .............................. 148,238 103,768 422,597 296,638 --------- --------- --------- --------- Net interest income ................................. 175,252 129,580 514,451 360,254 Provision for loan losses ..................................... 3,977 2,485 11,841 9,034 --------- --------- --------- --------- Net interest income after provision for loan losses . 171,275 127,095 502,610 351,220 --------- --------- --------- --------- Noninterest income: Service charges on deposit accounts ...................... 18,544 14,343 54,072 40,313 Other service charges, commissions and fees .............. 14,992 13,727 47,613 37,847 Trust income ............................................. 3,794 2,222 10,609 5,863 Investment securities gain (loss), net ................... (252) (845) (1,365) 2,078 Underwriting and trading income .......................... 1,549 1,450 8,793 5,582 Loan sales and servicing income .......................... 10,623 14,635 38,205 38,040 Other income ............................................. 11,920 4,075 27,331 11,675 --------- --------- --------- --------- Total noninterest income ............................ 61,170 49,607 185,258 141,398 --------- --------- --------- --------- Noninterest expense: Salaries and employee benefits ........................... 82,962 60,320 247,845 165,623 Occupancy, net ........................................... 10,661 6,960 33,424 18,594 Furniture and equipment .................................. 10,563 9,281 30,631 25,421 Other real estate expense (income) ....................... 36 218 (406) 151 Legal and professional services .......................... 3,542 2,890 11,682 9,821 Supplies ................................................. 2,673 2,580 8,239 7,713 Postage .................................................. 3,184 2,441 8,879 6,625 Advertising .............................................. 4,468 2,810 13,259 7,888 Merger related expense ................................... 1,601 3,059 3,765 12,201 FDIC premiums ............................................ 487 297 1,633 966 Amortization of goodwill and core deposit intangibles .... 8,887 8,014 26,521 22,491 Amortization of mortgage servicing assets ................ 105 1,287 871 3,708 Other .................................................... 25,127 18,316 78,744 56,813 --------- --------- --------- --------- Total noninterest expense ........................... 154,296 118,473 465,087 338,015 --------- --------- --------- --------- Income before income taxes and minority interest .............. 78,149 58,229 222,781 154,603 Income taxes .................................................. 27,706 20,918 79,181 51,362 --------- --------- --------- --------- Net income before minority interest ................. 50,443 37,311 143,600 103,241 Minority interest ............................................. 802 -- 2,662 -- --------- --------- --------- --------- Net income .......................................... $ 49,641 $ 37,311 $ 140,938 $ 103,241 ========= ========= ========= ========= Basic shares .................................................. 79,001 77,758 78,920 74,373 Diluted shares ................................................ 79,949 79,007 79,964 75,621 Net income per common share: Basic .................................................... $ 0.63 $ 0.48 $ 1.79 $ 1.39 Diluted .................................................. $ 0.62 $ 0.47 $ 1.76 $ 1.36
4 ZIONS BANCORPORATION AND SUBSIDIARIES CONSOLIDATED STATEMENTS OF CASH FLOWS (Unaudited)
Three Months Ended Nine Months Ended September 30, September 30, ----------------------------- ----------------------------- (In thousands) 1999 1998 1999 1998 ------------- ------------- ------------- ------------- Cash flows from operating activities: Net income .................................................... $ 49,641 $ 37,311 $ 140,938 $ 103,241 Adjustments to reconcile net income to net cash provided by (used in) operating activities: Provision for loan losses ................................ 3,977 2,485 11,841 9,034 Depreciation of premises and equipment ................... 9,679 6,944 27,549 19,019 Amortization ............................................. 16,451 12,105 43,001 34,462 Accretion of unearned income and fees, net of related costs ....................................... 2,721 1,256 11,310 (782) Income to minority interest .............................. 802 -- 2,662 -- Proceeds from sales of trading account securities ........ 48,729,908 48,315,077 142,927,358 125,841,328 Increase in trading account securities ................... (48,845,488) (48,117,034) (143,267,213) (125,961,518) Investment securities (gain) loss, net ................... 252 845 1,365 (2,078) Proceeds from loans held for sale ........................ 227,714 316,702 732,185 929,768 Increase in loans held for sale .......................... (186,692) (305,837) (655,057) (933,270) Net gain on sales of loans, leases and other assets ...... (6,588) (14,173) (29,171) (33,129) Change in accrued income taxes ........................... 13,886 5,940 42,624 13,353 Change in accrued interest receivable .................... (16,348) (20,755) (22,503) (14,642) Change in accrued interest payable ....................... 35 1,936 (2,058) 2,979 Other, net ............................................... 144,425 (288,522) 35,079 (152,962) ------------- ------------- ------------- ------------- Net cash provided by (used in) operating activities . 144,375 (45,720) (90) (145,197) ------------- ------------- ------------- ------------- Cash flows from investing activities: Net decrease (increase) in money market investments ........... (263,002) 32,872 (50,752) (354,545) Proceeds from maturities of investment securities held to maturity ......................................... 157,861 519,474 732,459 1,915,488 Purchases of investment securities held to maturity ........... (260,926) (478,167) (1,263,474) (1,642,239) Proceeds from sales of investment securities available for sale ....................................... 77,919 100,100 228,653 230,938 Proceeds from maturities of investment securities available for sale ....................................... 20,560 63,571 152,092 279,081 Purchases of investment securities available for sale ......... (261,380) (114,702) (535,305) (425,975) Proceeds from sales of loans and leases ....................... 190,459 218,275 813,629 637,805 Net increase in loans and leases .............................. (611,840) (550,223) (1,681,443) (1,289,949) Payments on leveraged leases .................................. (3,950) (2,773) (8,118) (3,840) Principal collections on leveraged leases ..................... 3,950 2,773 8,118 3,840 Proceeds from sales of premises and equipment ................. 4,300 1,969 5,172 4,354 Purchases of premises and equipment ........................... (28,248) (14,024) (65,501) (36,579) Proceeds from sales of mortgage-servicing rights .............. 773 1,527 21,776 2,136 Purchases of mortgage-servicing rights ........................ (86) (874) (1,014) (2,337) Proceeds from sales of other assets ........................... 2,251 1,942 5,793 5,705 Cash paid for acquisitions, net of cash received .............. -- 6,565 592 95,614 ------------- ------------- ------------- ------------- Net cash used in investing activities ............... (971,359) (211,695) (1,637,323) (580,503) ------------- ------------- ------------- -------------
5 ZIONS BANCORPORATION AND SUBSIDIARIESCONSOLIDATED STATEMENTS OF CASH FLOWS (Continued) (Unaudited)
Three Months Ended Nine Months Ended September 30, September 30, ------------------------- ------------------------- (In thousands) 1999 1998 1999 1998 ----------- ----------- ----------- ----------- Cash flows from financing activities: Net increase (decrease) in deposits ............. (61,951) 202,539 (317,851) 372,951 Net change in short-term funds borrowed ......... 717,784 6,485 1,831,716 246,884 Proceeds from FHLB advances over one year ....... 350,000 -- 365,000 -- Payments on FHLB advances over one year ......... (292,899) (6,718) (304,479) (104,338) Proceeds from issuance of long-term debt ........ -- -- -- 110,000 Payments on long-term debt ...................... (97) (1,437) (583) (4,444) Proceeds from issuance of common stock .......... 813 680 3,584 134,661 Payments to redeem common stock ................. (3,803) (11,879) (4,769) (24,272) Dividends paid .................................. (22,921) (10,869) (56,937) (30,584) ----------- ----------- ----------- ----------- Net cash provided by financing activities .. 686,926 178,801 1,515,681 700,858 ----------- ----------- ----------- ----------- Net decrease in cash and due from banks .............. (140,058) (78,614) (121,732) (24,842) Cash and due from banks at beginning of period ....... 882,772 697,265 864,446 643,493 ----------- ----------- ----------- ----------- Cash and due from banks at end of period ............. $ 742,714 $ 618,651 $ 742,714 $ 618,651 =========== =========== =========== ===========
SUPPLEMENTAL DISCLOSURES OF CASH FLOW INFORMATION (Unaudited)
Three Months Ended Nine Months Ended September 30, September 30, ------------------- ------------------- (In thousands) 1999 1998 1999 1998 -------- -------- -------- -------- Cash paid for: Interest ................................. $148,227 $101,605 $424,662 $293,990 Income taxes ............................. 9,683 10,218 25,103 35,216 Loans transferred to other real estate owned .. 4,655 2,285 10,352 3,473
6 ZIONS BANCORPORATION AND SUBSIDIARIES CONSOLIDATED STATEMENTS OF CHANGES IN SHAREHOLDERS' EQUITY AND COMPREHENSIVE INCOME (Unaudited)
Nine Months Ended September 30, 1999 ---------------------------------------------------------------- Accumulated Other Common Comprehensive Comprehensive Retained Shareholders' Stock Income Income (Loss) Earnings Equity ----------- ----------- ----------- ----------- ----------- Balance, January 1, 1999 .................................... $ 752,845 $ (4,432) $ 636,664 $ 1,385,077 Net income for the period ................................... $ 140,938 140,938 140,938 ----------- Other comprehensive income, net of tax: Realized and unrealized holding loss arising during the period, net of tax benefit of $4,637 ...... (7,485) Reclassification for net realized securities loss recorded in the income statement, net of tax benefit of $2,478. 4,000 ----------- Other comprehensive loss ................................ (3,485) (3,485) (3,485) ----------- Total comprehensive income .............................. $ 137,453 =========== Cash dividends: Common, $.72 per share .................................. (56,937) (56,937) Issuance of common shares for acquisitions .................. 83 797 880 Stock redeemed and retired .................................. (4,769) (4,769) Stock options exercised, net of shares tendered and retired . 7,123 7,123 ----------- ----------- ----------- ----------- Balance, September 30, 1999 ................................. $ 755,282 $ (7,917) $ 721,462 $ 1,468,827 =========== =========== =========== =========== Nine Months Ended September 30, 1998 ---------------------------------------------------------------- Accumulated Other Common Comprehensive Comprehensive Retained Shareholders' Stock Income Income (Loss) Earnings Equity ----------- ----------- ----------- ----------- ----------- Balance, January 1, 1998 .................................... $ 270,359 $ 3,077 $ 529,113 $ 802,549 Net income for the period ................................... $ 103,241 103,241 103,241 ----------- Other comprehensive income, net of tax: Realized and unrealized holding loss arising during the period, net of tax benefit of $2,766 ...... (4,466) Reclassification for realized investment securities gain recorded in the income statement, net of tax expense of $795 ................ (1,283) ----------- Other comprehensive loss ................................ (5,749) (5,749) (5,749) ----------- Total comprehensive income .............................. $ 97,492 =========== Cash dividends: Common, $.40 per share .................................. (29,698) (29,698) Dividends of acquired companies prior to merger ......... (886) (886) Net proceeds from stock offering ............................ 129,832 129,832 Issuance of common shares for acquisitions .................. 365,688 79 7,264 373,031 Exercise of acquired company warrants prior to .............. 1,852 1,852 acquisition Stock redeemed and retired .................................. (24,236) (24,236) Stock options exercised, net of shares tendered and retired . 4,043 4,043 ----------- ----------- ----------- ----------- Balance, September 30, 1998 ................................. $ 747,538 $ (2,593) $ 609,034 $ 1,353,979 =========== =========== =========== ===========
Comprehensive income for the three months ended September 30, 1999 and 1998 was $42,343 and $34,930 respectively. 7 ZIONS BANCORPORATION AND SUBSIDIARIES NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Unaudited) Restatement As a result of a recent interpretation by Securities and Exchange Commission Staff regarding the treatment of share repurchases under Staff Accounting Bulletin 96, the Company has restated the presentation of 8 of 13 business combinations consummated during 1997 and 1998 using the purchase method of accounting rather than poolings of interests as previously reported. The primary effects of the restatement on the consolidated financial statements included in this report on form 10Q/A are as follows: CONSOLIDATED BALANCE SHEETS
September 30, 1999 December 31, 1998 September 30, 1998 --------------------------- --------------------------- --------------------------- Previously Previously Previously (In thousands, except share amounts) Restated Reported Restated Reported Restated Reported ------------ ------------ ------------ ------------ ------------ ------------ ASSETS Investment securities held to maturity .... 3,324,387 3,324,120 2,804,654 2,803,903 2,209,223 2,208,265 Net Loans ................................. 11,218,113 11,217,978 10,430,823 10,427,939 6,666,567 6,662,767 Premises and equipment, net ............... 263,814 263,062 231,847 231,066 179,686 178,894 Goodwill and core deposit intangibles ..... 634,093 258,359 663,606 271,578 566,520 168,869 Other assets .............................. 948,750 970,111 530,944 556,078 493,432 519,922 Other categories not affected ............. 2,561,834 2,561,834 2,358,357 2,358,357 2,646,717 2,646,717 ------------ ------------ ------------ ------------ ------------ ------------ Total assets ............................. $ 18,950,991 $ 18,595,464 $ 17,020,231 $ 16,648,921 $ 12,762,145 $ 12,385,434 ============ ============ ============ ============ ============ ============ LIABILITIES AND SHAREHOLDERS' EQUITY Total liabilities not affected ............ $ 17,444,070 $ 17,444,070 $ 15,600,484 $ 15,600,484 $ 11,408,166 $ 11,408,166 Minority interest ......................... 38,094 38,523 34,670 34,781 -- -- Common stock .............................. 755,282 326,536 752,845 324,099 747,538 318,792 Accumulated other comprehensive loss ...... (7,917) (7,816) (4,432) (4,280) (2,593) (2,424) Retained earnings ......................... 721,462 794,151 636,664 693,837 609,034 660,900 ------------ ------------ ------------ ------------ ------------ ------------ Total shareholders' equity ............... 1,468,827 1,112,871 1,385,077 1,013,656 1,353,979 977,268 ------------ ------------ ------------ ------------ ------------ ------------ Total liabilities and shareholders' equity $ 18,950,991 $ 18,595,464 $ 17,020,231 $ 16,648,921 $ 12,762,145 $ 12,385,434 ============ ============ ============ ============ ============ ============
8 ZIONS BANCORPORATION AND SUBSIDIARIES NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Unaudited) CONSOLIDATED STATEMENTS OF INCOME
Three Months Ended Three Months Ended September 30, 1999 September 30, 1998 ------------------ ------------------ Previously Previously (In thousands, except per share amounts) Restated Reported Restated Reported -------- -------- -------- -------- Net interest income .......................................... $175,252 $176,323 $129,580 $130,749 Provision for loan losses .................................... 3,977 3,977 2,485 2,485 Total noninterest income ..................................... 61,170 61,170 49,607 49,607 Noninterest expense: Amortization of goodwill and core deposit intangibles ... 8,887 3,456 8,014 2,391 Other noninterest expense ............................... 145,409 145,399 110,459 110,449 -------- -------- -------- -------- Income before income taxes and minority interest ............. 78,149 84,661 58,229 65,031 Income taxes ................................................. 27,706 28,961 20,918 22,292 Minority interest ............................................ 802 906 -- -- -------- -------- -------- -------- Net income ......................................... $ 49,641 $ 54,794 $ 37,311 $ 42,739 ======== ======== ======== ======== Weighted average common and common-equivalent shares outstanding during the period ...................... 79,949 79,949 79,007 79,007 Net income per common share: Basic ................................................... $ 0.63 $ 0.69 $ 0.48 $ 0.55 Diluted ................................................. $ 0.62 $ 0.69 $ 0.47 $ 0.54 Nine Months Ended Nine Months Ended September 30, 1999 September 30, 1998 ------------------ ------------------ Previously Previously (In thousands, except per share amounts) Restated Reported Restated Reported -------- -------- -------- -------- Net interest income .......................................... $514,451 $517,770 $360,254 $369,045 Provision for loan losses .................................... 11,841 11,841 9,034 9,304 Total noninterest income ..................................... 185,258 185,258 141,398 142,165 Noninterest expense: Amortization of goodwill and core deposit intangibles ... 26,521 10,227 22,491 7,168 Other noninterest expense ............................... 438,566 438,537 315,524 323,841 -------- -------- -------- -------- Income before income taxes and minority interest ............. 222,781 242,423 154,603 170,897 Income taxes ................................................. 79,181 82,990 51,362 56,178 Minority interest ............................................ 2,662 2,980 -- -- -------- -------- -------- -------- Net income ......................................... $140,938 $156,453 $103,241 $114,719 ======== ======== ======== ======== Weighted average common and common-equivalent shares outstanding during the period ...................... 79,964 79,964 75,621 76,238 Net income per common share: Basic ................................................... $ 1.79 $ 1.98 $ 1.39 $ 1.53 Diluted ................................................. $ 1.76 $ 1.96 $ 1.36 $ 1.50
9 ZIONS BANCORPORATION AND SUBSIDIARIES NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Unaudited) Basis of Presentation The unaudited consolidated financial statements have been prepared in accordance with generally accepted accounting principles for interim financial information and with the instructions to Form 10-Q and Rule 10-01 of Regulation S-X. Accordingly, they do not include all of the information and footnotes required by generally accepted accounting principles for complete financial statements. In the opinion of management, all adjustments (consisting of normal recurring accruals) considered necessary for a fair presentation have been included. On January 6, 1998 the Company acquired Vectra Banking Corporation and its banking subsidiary Vectra Bank. On May 22, 1998, the Company acquired FP Bancorp, Inc. and its banking subsidiary First Pacific National Bank. Both acquisitions were accounted for as purchase transactions. On October 1, 1998, the Company acquired The Sumitomo Bank of California in a transaction accounted for as a purchase. In a purchase transaction results of operations for the acquired entity are only included subsequent to the acquisition date. Therefore, financial information as of September 30, 1999 and for the three months and nine months ended September 30, 1999, can not be compared directly with the corresponding information for 1998. On September 8, 1998, the Company acquired The Commerce Bancorporation and its banking subsidiary The Commerce Bank of Washington, N.A. The Commerce Bancorporation acquisition was accounted for as a pooling of interest and was considered significant. Accordingly, prior year amounts have been restated. Certain amounts in the 1998 consolidated financial statements have also been reclassified to conform to the 1999 presentation. Operating results for the nine months ended September 30, 1999 are not necessarily indicative of the results that may be expected for the year to end December 31, 1999. For further information, refer to the consolidated financial statements and footnotes thereto included in Zions Bancorporation's Annual Report to Shareholders on Form 10-K/A for the year ended December 31, 1998. Accounting Standards Not Adopted In September 1998, the FASB issued Statement No. 133, Accounting for Derivative Instruments and Hedging Activities. Statement No. 133 establishes accounting and reporting standards for derivative instruments, including certain derivative instruments embedded in other contracts, and for hedging activities. It requires that an entity recognize all derivatives as either assets or liabilities in the statement of financial position and measure those instruments at fair value. The accounting for gains and losses of a derivative depends on the intended use of the derivative and the resulting designation. Under this statement, an entity that elects to apply hedge accounting is required to establish at the inception of the hedge the method it will use for assessing the effectiveness of the hedging derivative and the measurement approach for determining the ineffective aspect of the hedge. Those methods must be consistent with the entity's approach to managing risk. The original effective date of this statement, as amended by Statement No. 137, has been delayed and it is now effective for all fiscal quarters of fiscal years beginning after September 15, 2000, and should not be applied retroactively to financial statements of prior periods. The Company is currently studying the statement to determine its future effects. 10 ZIONS BANCORPORATION AND SUBSIDIARIES Significant Transaction On June 6, 1999 the Company announced a definitive agreement to merge with First Security Corporation in a stock-for-stock transaction valued at approximately $5.9 billion. The new organization will be known as First Security Corporation and will be headquartered in Salt Lake City, Utah. Immediately prior to the merger First Security will change its common stock in a reclassification, whereby First Security stockholders will receive 0.442 of a share of First Security common stock for each share of First Security held before the reclassification. As a result of the merger, Zions Bancorporation shareholders will receive one share of new First Security common stock in exchange for each share of Zions common stock. The transaction will be accounted for as a pooling-of-interests and is expected to close during the first quarter of 2000. The combined companies will have total assets of approximately $40 billion. Operating Segment Information The following is a summary of selected operating segment information for the three months and nine months ended September 30, 1999 and September 30, 1998. The Company manages its operations and prepares management reports with a primary focus on geographical area. All segments presented, except for the segment defined as "other" are based on commercial banking operations. Zions First National Bank and subsidiaries operates 118 branches in Utah and 17 in Idaho. California Bank & Trust operates 71 branches in Northern and Southern California. Vectra Bank Colorado operates 54 branches in Colorado and one branch in New Mexico. National Bank of Arizona operates a total of 36 branches in Arizona. Nevada State Bank operates 44 offices in Nevada, and The Commerce Bank of Washington operates 1 office in Washington. The operating segment defined as "other" includes the Parent company, smaller nonbank operating units, and eliminations of transactions between segments. The accounting policies of the individual segments are the same as those of the Company. The Company allocates centrally provided services to the business segments based upon estimated usage of those services. 11 ZIONS BANCORPORATION AND SUBSIDIARIES The following table presents Operating Segment Information for the three months ended September 30, 1999 and for the three months ended September 30, 1998.
ZIONS FIRST NATIONAL BANK CALIFORNIA VECTRA BANK NATIONAL BANK OF AND SUBSIDIARIES BANK & TRUST COLORADO ARIZONA -------------------- -------------------- --------------------- -------------------- (Amounts in millions) 1999 1998 1999 1998 1999 1998 1999 1998 --------- --------- --------- --------- --------- --------- --------- --------- CONDENSED INCOME STATEMENT Net interest income .......... $ 55.7 $ 57.3 $ 66.6 $ 19.5 $ 20.7 $ 19.8 $ 19.8 $ 17.7 Provision for loan losses .... 2.3 1.5 -- -- 0.6 0.6 0.6 -- Noninterest income ........... 38.7 34.8 8.5 2.3 4.0 4.5 3.6 2.6 Noninterest expense .......... 52.3 54.6 47.7 17.7 22.2 19.1 11.2 10.5 Income tax expense (benefit) . 12.2 8.2 12.3 2.3 1.7 2.5 4.2 3.7 Minority interest ............ 0.2 -- -- -- -- -- -- -- --------- --------- --------- --------- --------- --------- --------- --------- Net income .............. $ 27.4 $ 27.8 $ 15.1 $ 1.8 $ 0.2 $ 2.1 $ 7.4 $ 6.1 ========= ========= ========= ========= ========= ========= ========= ========= AVERAGE BALANCE SHEET DATA Total assets ................. $ 7,233 $ 6,704 $ 6,213 $ 1,535 $ 2,227 $ 1,791 $ 1,515 $ 1,385 Net loans and leases ......... 3,701 3,012 4,174 801 1,380 974 1,123 889 Total deposits ............... 3,742 4,029 5,317 1,212 1,565 1,339 1,258 1,168 NEVADA STATE BANK THE COMMERCE BANK OF AND SUBSIDIARIES WASHINGTON OTHER CONSOLIDATED COMPANY -------------------- -------------------- --------------------- -------------------- (Amounts in millions) 1999 1998 1999 1998 1999 1998 1999 1998 --------- --------- --------- --------- --------- --------- --------- --------- CONDENSED INCOME STATEMENT Net interest income .......... $ 13.0 $ 12.5 $ 4.1 $ 3.4 $ (4.7) $ (0.6) $ 175.2 $ 129.6 Provision for loan losses .... 0.4 0.4 0.1 -- -- -- 4.0 2.5 Noninterest income ........... 4.3 4.3 0.2 0.3 1.9 0.8 61.2 49.6 Noninterest expense .......... 11.1 11.0 2.0 1.7 7.8 3.9 154.3 118.5 Income tax expense (benefit) . 2.0 2.0 0.7 0.6 (5.4) 1.6 27.7 20.9 Minority interest ............ -- -- -- -- 0.6 -- 0.8 -- --------- --------- --------- --------- --------- --------- --------- --------- Net income .............. $ 3.8 $ 3.4 $ 1.5 $ 1.4 $ (5.8) $ (5.3) $ 49.6 $ 37.3 ========= ========= ========= ========= ========= ========= ========= ========= AVERAGE BALANCE SHEET DATA Total assets ................. $ 1,194 $ 1,066 $ 391 $ 308 $ 97 $ (57) $ 18,870 $ 12,732 Net loans and leases ......... 592 522 173 158 24 16 11,167 6,372 Total deposits ............... 960 867 267 214 (19) (288) 13,090 8,541
12 ZIONS BANCORPORATION AND SUBSIDIARIES The following table presents Operating Segment Information for the nine months ended September 30, 1999 and for the nine months ended September 30, 1998.
ZIONS FIRST NATIONAL BANK CALIFORNIA VECTRA BANK NATIONAL BANK OF AND SUBSIDIARIES BANK & TRUST COLORADO ARIZONA -------------------- -------------------- --------------------- -------------------- (Amounts in millions) 1999 1998 1999 1998 1999 1998 1999 1998 --------- --------- --------- --------- --------- --------- --------- --------- CONDENSED INCOME STATEMENT Net interest income .......... $ 165.6 $ 164.0 $ 192.2 $ 49.5 $ 62.2 $ 52.0 $ 56.6 $ 52.5 Provision for loan losses .... 6.8 4.5 -- 1.3 1.9 1.2 1.8 1.2 Noninterest income ........... 117.7 103.7 26.3 5.8 13.0 9.9 9.8 6.8 Noninterest expense .......... 158.6 160.1 147.9 40.4 65.7 48.4 33.1 31.0 Income tax expense (benefit) . 36.0 31.2 32.3 5.7 4.9 6.4 12.1 10.6 Minority interest ............ 0.9 -- -- -- -- -- -- -- --------- --------- --------- --------- --------- --------- --------- --------- Net income .............. $ 80.8 $ 71.9 $ 38.3 $ 7.9 $ 2.7 $ 5.9 $ 19.4 $ 16.5 ========= ========= ========= ========= ========= ========= ========= ========= AVERAGE BALANCE SHEET DATA Total assets ................. $ 7,115 $ 6,446 $ 6,207 $ 1,351 $ 2,155 $ 1,747 $ 1,493 $ 1,357 Net loans and leases ......... 3,639 2,894 4,198 681 1,294 944 1,083 851 Total deposits ............... 3,754 3,777 5,327 1,048 1,595 1,267 1,244 1,162 NEVADA STATE BANK THE COMMERCE BANK OF AND SUBSIDIARIES WASHINGTON OTHER CONSOLIDATED COMPANY -------------------- -------------------- --------------------- -------------------- (Amounts in millions) 1999 1998 1999 1998 1999 1998 1999 1998 --------- --------- --------- --------- --------- --------- --------- --------- CONDENSED INCOME STATEMENT Net interest income .......... $ 38.2 $ 37.6 $ 11.3 $ 10.4 $ (11.6) $ (5.8) $ 514.5 $ 360.2 Provision for loan losses .... 1.2 1.2 0.5 0.1 (0.4) (0.5) 11.8 9.0 Noninterest income ........... 12.6 11.2 0.6 1.2 5.2 2.8 185.2 141.4 Noninterest expense .......... 33.4 32.3 5.5 13.9 20.7 11.9 465.1 338.0 Income tax expense (benefit) . 5.5 5.1 1.9 (0.6) (13.5) (7.0) 79.2 51.4 Minority interest ............ -- -- -- -- 1.8 -- 2.7 -- --------- --------- --------- --------- --------- --------- --------- --------- Net income .............. $ 10.7 $ 10.2 $ 4.0 $ (1.8) $ (15.0) $ (7.4) $ 140.9 $ 103.2 ========= ========= ========= ========= ========= ========= ========= ========= AVERAGE BALANCE SHEET DATA Total assets ................. $ 1,148 $ 1,026 $ 359 $ 300 $ (44) $ (56) $ 18,433 $ 12,171 Net loans and leases ......... 558 508 163 154 21 8 10,956 6,040 Total deposits ............... 940 851 241 212 (24) (112) 13,077 8,205
13 ZIONS BANCORPORATION AND SUBSIDIARIES ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS ------------------------------------ FINANCIAL HIGHLIGHTS (Unaudited)
Three Months Ended Nine Months Ended September 30, September 30, --------------------------------------- ----------------------------------------- (In thousands, except per share and ratio data) 1999 1998 % Change 1999 1998 % Change ----------- ----------- ----------- ----------- ----------- ----------- EARNINGS Taxable-equivalent net interest income ...... $ 177,954 $ 132,368 34.44 % $ 522,198 $ 368,157 41.84 % Net interest income ......................... 175,252 129,580 35.25 % 514,451 360,254 42.80 % Noninterest income .......................... 61,170 49,607 23.31 % 185,258 141,398 31.02 % Provision for loan losses ................... 3,977 2,485 60.04 % 11,841 9,034 31.07 % Noninterest expense ......................... 154,296 118,473 30.24 % 465,087 338,015 37.59 % Income before income taxes .................. 78,149 58,229 34.21 % 222,781 154,603 44.10 % Income taxes ................................ 27,706 20,918 32.45 % 79,181 51,362 54.16 % Minority interest ........................... 802 -- 2,662 -- Net income .................................. 49,641 37,311 33.05 % 140,938 103,241 36.51 % PER COMMON SHARE Net income (diluted) ........................ 0.62 0.47 31.91 % 1.76 1.36 29.41 % Dividends ................................... 0.29 0.14 107.14 % 0.72 0.40 80.00 % Book value .................................. 18.59 17.45 6.53 % SELECTED RATIOS Return on average assets .................... 1.04% 1.16% 1.02% 1.13% Return on average common equity ............. 13.40% 10.92% 13.06% 11.54% Efficiency ratio ............................ 64.53% 65.10% 65.74% 66.34% Net interest margin ......................... 4.24% 4.71% 4.31% 4.58% OPERATING CASH EARNINGS* Taxable-equivalent net interest income ...... $ 177,954 $ 132,368 34.44 % $ 522,198 $ 368,157 41.84 % Net interest income ......................... 175,252 129,580 35.25 % 514,451 360,254 42.80 % Noninterest income .......................... 61,170 49,607 23.31 % 185,258 141,398 31.02 % Provision for loan losses ................... 3,977 2,485 60.04 % 11,841 9,034 31.07 % Noninterest expense ......................... 143,808 107,399 33.90 % 434,801 303,323 43.35 % Income before income taxes .................. 88,637 69,303 27.90 % 253,067 189,295 33.69 % Income taxes ................................ 29,468 22,899 28.69 % 84,122 58,316 44.25 % Minority interest ........................... 802 -- 2,662 -- Net income .................................. 58,367 46,404 25.78 % 166,283 130,979 26.95 % PER COMMON SHARE Net income (diluted) ........................ 0.73 0.59 23.73 % 2.08 1.73 20.23 % Dividends ................................... 0.29 0.14 107.14 % 0.72 0.40 80.00 % Book value .................................. 10.57 10.15 4.14 % SELECTED RATIOS Return on average assets .................... 1.27% 1.51% 1.25% 1.51% Return on average common equity ............. 27.72% 23.43% 27.93% 26.62% Efficiency ratio ............................ 60.14% 59.02% 61.46% 59.53% Net interest margin ......................... 4.24% 4.71% 4.31% 4.58% * Before amortization of goodwill and core deposit intangible assets and merger charges. 14 ZIONS BANCORPORATION AND SUBSIDIARIES FINANCIAL HIGHLIGHTS (Continued) (Unaudited) Three Months Ended Nine Months Ended September 30, September 30, --------------------------------------- ----------------------------------------- (In thousands, except per share and ratio data) 1999 1998 % Change 1999 1998 % Change ----------- ----------- ----------- ----------- ----------- ----------- AVERAGE BALANCES Total assets ................................ $18,869,505 $12,732,048 48.20% $18,433,369 $12,170,800 51.46% Securities .................................. 4,325,785 3,321,946 30.22% 4,175,937 3,084,438 35.39% Net loans and leases ........................ 11,167,112 6,372,120 75.25% 10,956,278 6,040,400 81.38% Goodwill and core deposit intangibles ....... 634,869 569,360 11.51% 647,414 538,346 20.26% Total deposits .............................. 13,090,340 8,541,182 53.26% 13,077,070 8,204,810 59.38% Minority interest ........................... 37,962 -- 37,046 -- Shareholders' equity ........................ 1,470,241 1,355,212 8.49% 1,443,347 1,196,175 20.66% Weighted average common and common- equivalent shares outstanding .......... 79,949,442 79,006,517 1.19% 79,963,702 75,621,288 5.74% AT PERIOD END Total assets ................................ $18,950,991 $12,762,145 48.49% Securities .................................. 4,470,676 2,967,133 50.67% Net loans and leases ........................ 11,416,672 6,767,007 68.71% Allowance for loan losses ................... 198,559 100,440 97.69% Goodwill and core deposit intangibles ....... 634,093 566,520 11.93% Total deposits .............................. 13,008,773 8,932,022 45.64% Minority interest ........................... 38,094 -- Shareholders' equity ........................ 1,468,827 1,353,979 8.48% Common shares outstanding ................... 78,992,418 77,594,651 1.80% Average equity to average assets ............ 7.79% 10.64% 7.83% 9.83% Common dividend payout ...................... 46.21% 26.92% 40.38% 28.73% Nonperforming assets ........................ 58,334 35,793 62.98% Loans past due 90 days or more .............. 32,515 12,432 161.54% Nonperforming assets to net loans and leases, other real estate owned and other nonperforming assets at September 30 ... 0.51% 0.53%
15 ZIONS BANCORPORATION AND SUBSIDIARIES OPERATING RESULTS Zions Bancorporation achieved record earnings for the quarter and nine months ended September 30, 1999. Consolidated net income for the third quarter of 1999 was $49.6 million or $0.62 per diluted share, an increase of 33.0% and 31.9%, respectively, over the $37.3 million or $0.47 earned in the third quarter of 1998. Consolidated net income for the third quarter of 1999 increased 4.2% and 5.1%, respectively, from $47.6 million or $0.59 per diluted share for the second quarter of 1999. The quarterly dividend per share remained the same as the second quarter of 1999 at $.29 per share. The dividend was up 107.1% from the $.14 per share dividend for the third quarter of 1998. As discussed in Notes to Consolidated Financial Statements, due to the 1998 acquisitions accounted for as purchases, financial information for 1999 is not directly comparable to 1998. Consolidated net income was $140.9 million or $1.76 per diluted share for the first nine months of 1999, compared to the $103.2 million or $1.36 per diluted share for the first nine months of 1998, which constituted increases of 36.5% and 29.4% respectively. The annualized return on average assets for the third quarter and for the first nine months of 1999 was 1.04% and 1.02% compared to 1.16% and 1.13%, respectively, in 1998, resulting in an annualized return on average common shareholders' equity of 13.40% and 13.06% for the third quarter and for the first nine months of 1999, compared to 10.92% and 11.54% for the same periods of 1998. The Company's "efficiency ratio," or noninterest expenses as a percentage of total taxable-equivalent net revenues for the third quarter and for the first nine months of 1999 was 64.53% and 65.74%, respectively, compared to 65.10% and 66.34% for the same periods of 1998. The Company's third-quarter $12.3 million (33.0%) increase in earnings relative to the same period a year ago reflects a $45.7 million (35.2%) increase in net interest income, a $11.6 million (23.3%) increase in noninterest income, partially offset by a $1.5 million (60.0%) increase in the provision for loan losses, a $35.8 million (30.2%) increase in noninterest expenses and a $6.8 million (32.5%) increase in income tax expense. The Company's $37.7 million (36.5%) increase in net income for the nine-month period ended September 30, 1999 compared to the similar period in 1998, reflects a $154.2 million (42.8%) increase in net interest income, a $43.9 million (31.0%) increase in noninterest income, partially offset by a $2.8 million (31.1%) increase in the provision for loan losses, a $127.1 million (37.6%) increase in noninterest expenses and a $27.8 million (54.2%) increase in income tax expense. OPERATING CASH EARNINGS RESULTS The Company is also providing its earnings performance on an operating cash basis since it believes that its cash performance is a better reflection of its financial position and shareholder value creation as well as its ability to support growth, pay dividends, and repurchase stock than reported net income. Operating cash earnings are earnings before amortization of goodwill and core deposit intangible assets and merger expenses. 16 ZIONS BANCORPORATION AND SUBSIDIARIES Operating cash earnings for the quarter were $58.4 million or $0.73 per diluted share, an increase of 25.8% and 23.7%, respectively, over the $46.4 million or $0.59 per diluted share earned in the third quarter of 1998. Operating cash earnings for the third quarter of 1999 increased 4.1% over the $56.1 million earned during the second quarter of 1999. Operating cash earnings per diluted share for the third quarter of 1999 increased 4.3% over the $.70 for the second quarter of 1999. Year-to-date operating cash earnings were $166.3 million or $2.08 per diluted share, an increase of 27.0% and 20.2%, respectively, over the $131.0 million or $1.73 per diluted share earned in the first nine months of 1998. The operating cash annualized return on average assets for the third quarter and for the first nine months of 1999 was 1.27% and 1.25% compared to 1.51% and 1.51%, respectively, in 1998. Operating cash annualized return on average common shareholders' equity was 27.72% and 27.93% for the third quarter and for the first nine months of 1999, compared to 23.43% and 26.62% for the same periods of 1998. The Company's cash efficiency ratio for the third quarter and for the first nine months of 1999 was 60.14% and 61.46%, respectively, compared to 59.02% and 59.53% for the same periods of 1998. NET INTEREST INCOME AND INTEREST RATE SPREADS Net interest income for the third quarter of 1999, adjusted to a fully taxable-equivalent basis, increased 34.4% to $178.0 million compared to $132.4 million for the third quarter of 1998 and increased 1.0% from $176.1 million for the second quarter of 1999. Net interest margin was 4.24% for the third quarter of 1999, compared to 4.71% for the third quarter of 1998 and 4.34% for the second quarter of 1999. Nine-month net interest income, on a fully taxable-equivalent basis, was $522.2 million in 1999, an increase of 41.8% compared to $368.2 million for the first nine months of 1998. Net interest margin for the first nine months of 1999 was 4.31%, compared to 4.58% for the first nine months of 1998. The yield on average earning assets decreased 63 basis points during the third quarter of 1999 as compared to the third quarter of 1998, and decreased 3 basis points from the second quarter of 1999. The average rate paid this quarter on interest-bearing funds decreased 35 basis points from the third quarter of 1998 and increased 9 basis points from the second quarter of 1999. Comparing the first nine months of 1999 with 1998, the yield on average earning assets decreased 47 basis points, while the cost of interest-bearing funds decreased by 38 basis points. The spread on average interest-bearing funds for the third quarter of 1999 was 3.58%, down from the 3.86% for the third quarter of 1998 and down from the 3.70% for the second quarter of 1999. The spread on average interest-bearing funds for the first nine months of 1999 was 3.65% compared with 3.74% for the same period in 1998. 17
Three Months Ended Three Months Ended September 30, 1999 September 30, 1998 ------------------------------- ------------------------------- Average Amount of Average Average Amount of Average (In millions) Balance Interest(1) Rate Balance Interest(1) Rate -------- -------- -------- -------- -------- -------- ASSETS Money market investments .............................. $ 1,162 $ 16.5 5.63% $ 1,460 $ 21.3 5.79% Securities: Held to maturity ................................. 3,301 50.8 6.10% 2,387 41.8 6.94% Available for sale ............................... 549 6.6 4.81% 579 7.0 4.81% Trading account .................................. 476 7.3 6.11% 356 5.9 6.55% -------- -------- -------- -------- Total securities ............................ 4,326 64.7 5.94% 3,322 54.7 6.53% -------- -------- -------- -------- Loans: Loans held for sale .............................. 168 2.8 6.56% 180 3.4 7.58% Net loans and leases(2)........................... 10,999 242.2 8.74% 6,192 156.7 10.04% -------- -------- -------- -------- Total loans ................................. 11,167 245.0 8.70% 6,372 160.1 9.97% -------- -------- -------- -------- Total interest-earning assets ......................... $ 16,655 $ 326.2 7.77% $ 11,154 $ 236.1 8.40% -------- -------- Cash and due from banks ............................... 803 672 Allowance for loan losses ............................. (205) (98) Goodwill and core deposit intangibles ................. 635 569 Other assets .......................................... 982 435 -------- -------- Total assets .................................. $ 18,870 $ 12,732 ======== ======== LIABILITIES Interest-bearing deposits: Savings and NOW deposits ......................... $ 1,543 $ 8.9 2.29% $ 1,371 $ 11.1 3.21% Money market super NOW deposits .................. 5,473 51.1 3.71% 2,959 27.5 3.69% Time deposits under $100,000 ..................... 1,908 22.3 4.63% 1,327 18.2 5.44% Time deposits $100,000 or more ................... 985 11.9 4.79% 595 8.8 5.83% Foreign deposits ................................. 158 1.7 4.38% 201 2.2 4.34% -------- -------- -------- -------- Total interest-bearing deposits ............. 10,067 95.9 3.78% 6,453 67.8 4.17% -------- -------- -------- -------- Borrowed funds: Securities sold, not yet purchased ............... 246 4.2 6.80% 219 2.8 5.16% Federal funds purchased and security repurchase agreements ....................... 2,314 26.6 4.56% 1,839 22.7 4.90% Commercial paper ................................. 270 3.7 5.41% 37 0.5 5.41% FHLB advances and other borrowings: less than one year .......................... 596 7.8 5.18% 18 0.3 6.41% over one year ............................... 79 1.4 7.04% 102 1.7 6.58% Long-term debt ................................... 453 8.6 7.57% 404 7.9 7.80% -------- -------- -------- -------- Total borrowed funds ........................ 3,958 52.3 5.24% 2,619 35.9 5.45% -------- -------- -------- -------- Total interest-bearing liabilities .......... $ 14,025 $ 148.2 4.19% $ 9,072 $ 103.7 4.54% -------- -------- Noninterest-bearing deposits .......................... 3,023 2,088 Other liabilities ..................................... 314 217 -------- -------- Total liabilities ........................... 17,362 11,377 Minority interest ..................................... 38 -- Total shareholders' equity .................. 1,470 1,355 -------- -------- Total liabilities and shareholders' equity... $ 18,870 $ 12,732 ======== ======== Spread on average interest-bearing funds .............. 3.58% 3.86% ======== ======== Net interest income and net yield on interest-earning assets .......................... $ 178.0 4.24% $ 132.4 4.71% ======== ======== ======== ========
1 Taxable-equivalent rates used where applicable. 2 Net of unearned income and fees, net of related costs. Loans include nonaccrual and restructured loans. 18 ZIONS BANCORPORATION AND SUBSIDIARIES CONSOLIDATED AVERAGE BALANCE SHEETS, YIELDS AND RATES (Unaudited)
Nine Months Ended Nine Months Ended September 30, 1999 September 30, 1998 ------------------------------- ------------------------------- Average Amount of Average Average Amount of Average (In millions) Balance Interest(1) Rate Balance Interest(1) Rate -------- -------- -------- -------- -------- -------- ASSETS Money market investments .............................. $ 1,081 $ 47.0 5.82% $ 1,633 $ 68.9 5.64% Securities: Held to maturity ................................. 3,157 146.8 6.22% 2,098 109.9 7.00% Available for sale ............................... 483 19.4 5.37% 575 24.5 5.68% Trading account .................................. 536 22.1 5.51% 412 18.1 5.89% -------- -------- -------- -------- Total securities ............................ 4,176 188.3 6.03% 3,085 152.5 6.61% -------- -------- -------- -------- Loans: Loans held for sale .............................. 185 9.3 6.69% 196 10.7 7.26% Net loans and leases(2) .......................... 10,771 700.2 8.69% 5,844 432.7 9.90% -------- -------- -------- -------- Total loans ................................. 10,956 709.5 8.66% 6,040 443.4 9.81% -------- -------- -------- -------- Total interest-earning assets ......................... $ 16,213 $ 944.8 7.79% $ 10,758 $ 664.8 8.26% -------- -------- Cash and due from banks ............................... 785 584 Allowance for loan losses ............................. (204) (97) Goodwill and core deposit intangibles ................. 647 538 Other assets .......................................... 992 388 -------- -------- Total assets .................................. $ 18,433 $ 12,171 ======== ======== LIABILITIES Interest-bearing deposits: Savings and NOW deposits ......................... $ 1,562 $ 27.4 2.35% $ 1,144 $ 26.5 3.10% Money market super NOW deposits .................. 5,135 138.7 3.61% 3,040 83.8 3.69% Time deposits under $100,000 ..................... 2,041 72.1 4.72% 1,250 50.3 5.38% Time deposits $100,000 or more ................... 1,163 42.2 4.85% 576 24.6 5.73% Foreign deposits ................................. 166 5.3 4.25% 176 6.0 4.53% -------- -------- -------- -------- Total interest-bearing deposits ............. 10,067 285.7 3.79% 6,186 191.2 4.13% -------- -------- -------- -------- Borrowed funds: Securities sold, not yet purchased ............... 285 12.2 5.71% 195 7.4 5.11% Federal funds purchased and security repurchase agreements ....................... 2,151 71.8 4.46% 1,879 68.3 4.86% Commercial paper ................................. 159 6.3 5.31% 13 0.5 5.48% FHLB advances and other borrowings: less than one year .......................... 469 17.3 4.93% 61 2.9 6.32% over one year ............................... 63 3.1 6.61% 131 5.6 5.70% Long-term debt ................................... 453 26.2 7.73% 319 20.7 8.66% -------- -------- -------- -------- Total borrowed funds ........................ 3,580 136.9 5.11% 2,598 105.4 5.43% -------- -------- -------- -------- Total interest-bearing liabilities .......... $ 13,647 $ 422.6 4.14% $ 8,784 $ 296.6 4.52% -------- -------- Noninterest-bearing deposits .......................... 3,010 2,019 Other liabilities ..................................... 296 172 -------- -------- Total liabilities ........................... 16,953 10,975 Minority interest ..................................... 37 -- Total shareholders' equity .................. 1,443 1,196 -------- -------- Total liabilities and shareholders' equity .. $ 18,433 $ 12,171 ======== ======== Spread on average interest-bearing funds .............. 3.65% 3.74% ======== ======== Net interest income and net yield on interest-earning assets .......................... $ 522.2 4.31% $ 368.2 4.58% ======== ======== ======== ========
1 Taxable-equivalent rates used where applicable. 2 Net of unearned income and fees, net of related costs. Loans include nonaccrual and restructured loans. 19 ZIONS BANCORPORATION AND SUBSIDIARIES The Company manages its earnings sensitivity to interest rate movements, in part, by matching the repricing characteristics of its assets and liabilities and through the use of off-balance sheet arrangements such as caps, floors and interest rate exchange contracts. Net interest income from the use of such off-balance sheet arrangements for the first nine months of 1999 was $7.0 million compared to $4.5 million for the first nine months of 1998. PROVISION FOR LOAN LOSSES The provision for loan losses increased 60.0% to $4.0 million for the third quarter of 1999, as compared with $2.5 million for the third quarter of 1998, and increased 9.5% from the $3.6 million for the second quarter of 1999. The provision for loan losses for the first nine months of 1999 totaled $11.8 million, 31.1% more than the $9.0 million provision for the first nine months of 1998. Annualized, the nine month provision is .14% of average loans for 1999 compared to .20% for 1998. NONINTEREST INCOME Noninterest income for the third quarter of 1999 was $61.2 million, an increase of 23.3% from the $49.6 million for the third quarter of 1998 and an increase of 0.7% over the $60.7 million for the second quarter of 1999. Primary contributors to the increase in noninterest income were service charges on deposit accounts; other service charges, commissions and fees; trust income; underwriting and trading income; and other income. Comparing the segments of noninterest income for the third quarter of 1999 and the third quarter of 1998 service charges on deposit accounts increased 29.3%; other service charges, commissions and fees increased 9.2%; trust income increased 70.7%; underwriting and trading income increased 6.8%; loan sales and servicing income decreased 27.4%; and other income increased 192.5%. Net losses of $0.3 million on the sale of investment securities were realized during the third quarter of 1999 compared to net losses of $0.8 million during the third quarter of 1998. The increase in other income includes approximately $1.9 million of income from investments in bank owned life insurance policies, and income from nonmarketable securities previously classified as securities income. Noninterest income for the nine months ending September 30, 1999 was $185.3 million, an increase of 31.0% over $141.4 million for the first nine months of 1998. Comparing the segments of noninterest income for the first nine months of 1999 and the first nine months of 1998, service charges on deposit accounts increased 34.1%; other service charges, commissions and fees increased 25.8%; trust income increased 80.9%; underwriting and trading income increased 57.5%; loan sales and servicing income increased 0.4%; and other income increased 134.1%. Net losses of $1.4 million on the sale of investment securities were realized during the first nine months of 1999 compared to net gains of $2.1 million during the first nine months of 1998. The main reasons for the increase in other income are $5.2 million of income from investments in bank owned life insurance policies in 1999 and income from nonmarketable equity securities previously classified as securities income. The increase in underwriting and trading income reflects the Company's commencement of providing online executable bond sales over Bloomberg and the Internet and the underwriting of municipal revenue bonds. 20 ZIONS BANCORPORATION AND SUBSIDIARIES NONINTEREST EXPENSE Noninterest expense for the third quarter of 1999 was $154.3 million, an increase of 30.2% over $118.5 million for the third quarter of 1998, and a decrease of 1.5% from the $156.6 million for the second quarter of 1999. Comparing significant noninterest expense segments for the third quarter of 1999 and the third quarter of 1998, salaries and employee benefits increased 37.5%, occupancy increased 53.2%, furniture and equipment expense increased 13.8% and the total of all other expenses, excluding merger related expenses, increased 24.9% which included significant increases in legal and professional services, postage, advertising, amortization of goodwill and core deposit intangible assets and other expenses. Noninterest expense for the nine months ending September 30, 1999 was $465.1 million, an increase of 37.6% over $338.0 million for the first nine months of 1998. Comparing significant noninterest expense segments for the first nine months of 1999 and the first nine months of 1998, salaries and employee benefits increased 49.6%, occupancy increased 79.8%, furniture and equipment expenses increased 20.5%, and the total of all other expenses, excluding merger related expenses, increased 28.6% which included significant increases for legal and professional services, postage, advertising, amortization of goodwill and core deposit intangible assets and other expenses. The increase in noninterest expense in 1999 resulted primarily from acquisitions, including the acquisition of The Sumitomo Bank of California in a purchase transaction, expansion of business lines and investment in personnel in selected areas to enhance future revenue growth. At September 30, 1999, the Company had 6,554 full time equivalent employees, 343 offices and 483 ATMs compared to 5,278 full time equivalent employees, 280 offices and 395 ATMs at September 30, 1998. INCOME TAXES The Company's income taxes increased 32.5% to $27.7 million for the third quarter of 1999 compared to $20.9 million for the third quarter of 1998 and increased 7.3% from the $25.8 million for the second quarter of 1999. The Company's income taxes were $79.2 million for the first nine months of 1999 as compared to $51.4 million for the first nine months of 1998. The Company's effective income tax rate was 35.5% for the first nine months of 1999, up from 33.2% for the first nine months of 1998. The increased effective tax rate for 1999 compared to 1998 results primarily from changes in estimates of tax benefits from NOL and refund claims recorded in 1998. ANALYSIS OF FINANCIAL CONDITION EARNING ASSETS Average earning assets increased 50.7% to $16,213 million for the nine months ended September 30, 1999, compared to $10,758 million for the nine months ended September 30, 1998. Earning assets comprised 88.0% of total average assets for the first nine months of 1999, compared with 88.4% for the first nine months of 1998. Average money market investments, consisting of interest-bearing deposits, federal funds sold and security resell agreements decreased 33.8% to $1,081 million in the first nine months of 1999 as compared to $1,633 million in the first nine months of 1998. 21 ZIONS BANCORPORATION AND SUBSIDIARIES During the first nine months of 1999, average securities increased 35.4% to $4,176 million compared to $3,085 million in the first nine months of 1998. Average held to maturity securities increased 50.5%, available for sale securities decreased 16.0%, and trading account securities increased 30.1% compared with the first nine months of 1998. Average net loans and leases increased 81.4% to $10,956 million for the first nine months of 1999 compared to $6,040 million in the first nine months of 1998, representing 67.6% of earning assets in the first nine months of 1999 compared to 56.1% in the first nine months of 1998. Average net loans and leases were 83.8% of average total deposits for the nine months ended September 30, 1999, as compared to 73.6% for the nine months ended September 30, 1998. INVESTMENT SECURITIES The following table presents the Company's investment securities on September 30, 1999, December 31, 1998 and September 30, 1998. As of September 30, 1999, the Company had approximately $55 million of Small Business Administration originator fee certificates that have been classified in other assets and are measured as available for sale securities.
September 30, 1999 December 31, 1999 September 30, 1999 --------------------- --------------------- --------------------- Amortized Market Amortized Market Amortized Market (In millions) cost value cost value cost value --------- --------- --------- --------- --------- --------- Held to maturity U.S. Treasury Securities ........... $ 1 $ 1 $ 62 $ 62 $ 3 $ 3 U.S. government agencies and corporations: Small Business Administration loan- backed securities .......... 434 429 358 356 392 392 Other agency securities ......... 1,194 1,176 941 945 1,424 1,434 States and political subdivisions .. 359 356 285 293 281 289 Mortgage-backed securities ......... 1,336 1,337 1,159 1,166 109 110 --------- --------- --------- --------- --------- --------- 3,324 3,299 2,805 2,822 2,209 2,228 --------- --------- --------- --------- --------- --------- Available for sale U.S. Treasury securities ........... 77 77 46 47 32 33 U.S. government agencies and corporations: Small Business Administration originator fee certificates ........ -- -- 85 69 86 73 Other agency securities ......... 54 54 112 113 120 122 States and political subdivisions .. 8 8 15 16 11 12 Mortgage and other asset-backed securities ........................ 102 102 179 180 38 38 --------- --------- --------- --------- --------- --------- 241 241 437 425 287 278 --------- --------- --------- --------- --------- --------- Equity securities: Mutual funds: Accessor Funds, Inc. ....... 373 371 117 118 134 137 Stock: Federal Home Loan Bank ..... -- -- 101 101 104 104 Other ...................... 3 3 36 41 33 35 --------- --------- --------- --------- --------- --------- 376 374 254 260 271 276 --------- --------- --------- --------- --------- --------- 617 615 691 685 558 554 --------- --------- --------- --------- --------- --------- Total .............................. $ 3,941 $ 3,914 $ 3,496 $ 3,507 $ 2,767 $ 2,782 ========= ========= ========= ========= ========= =========
22 ZIONS BANCORPORATION AND SUBSIDIARIES LOANS The Company has structured its organization to separate the lending function from the credit administration function to strengthen the control and independent evaluation of credit activities. Loan policies and procedures provide the Company with a framework for consistent underwriting and a basis for sound credit decisions. In addition, the Company has well-defined standards for grading its loan portfolio, and management utilizes the comprehensive loan grading system to determine risk potential in the portfolio. Another aspect of the Company's credit risk management strategy is the diversification of the loan portfolio. The Company has a well-diversified loan portfolio with no significant exposure to highly leveraged transactions. The table below sets forth the amount of loans outstanding by type on September 30, 1999, December 31, 1998 and September 30, 1998. (In millions) September 30, December 31, September 30, Types 1999 1998 1998 - ----- ----------- ----------- ----------- Loans held for sale ....................$ 154 $ 232 $ 192 Commercial, financial, and agricultural 2,747 2,692 1,765 Real estate: Construction ....................... 1,385 867 709 Other: Home equity credit line .... 199 222 175 1-4 family residential ..... 2,449 2,186 1,115 Other real estate-secured .. 3,608 3,626 2,134 ----------- ----------- ----------- 6,256 6,034 3,424 ----------- ----------- ----------- 7,641 6,901 4,133 Consumer: Bankcard ........................... 84 87 59 Other .............................. 485 452 410 ----------- ----------- ----------- 569 539 469 Lease financing ........................ 234 214 184 Foreign loans .......................... 48 44 -- Other receivables ...................... 76 62 68 ----------- ----------- ----------- Total loans ........................$ 11,469 $ 10,684 $ 6,811 =========== =========== =========== Loans held for sale on September 30, 1999 decreased 33.6% from year-end 1998. All other loans, net of unearned income and fees increased 8.3% to $11,263 million on September 30, 1999 compared to $10,404 million on December 31, 1998. Commercial loans, construction loans, other real estate-secured loans, consumer loans, lease financing, foreign loans, and other receivables increased from year end 2.1%, 59.8%, 3.8%, 5.5%, 9.8%, 6.9%, and 22.6%, respectively. Within the other real estate-secured loan portfolio, home equity credit line loans decreased 10.3%, 1-4 family residential loans increased 12.0% and all other real estate loans decreased .5% from year end. 23 ZIONS BANCORPORATION AND SUBSIDIARIES On September 30, 1999, long-term first mortgage real estate loans serviced for others totaled $228 million and consumer and other loan securitizations, which relate primarily to loans sold under revolving securitization structures, totaled $1,224 million. During the first nine months of 1999, the Company sold $732 million of loans classified in held for sale, and securitized and sold SBA 504 loans, home equity credit line loans, credit card receivables and automobile loans totaling $852 million. During the first nine months of 1999, total loans sold were $1,584 million. RISK ELEMENTS The Company's nonperforming assets, which include nonaccruing loans, restructured loans, other real estate owned and other nonperforming assets, were $58 million on September 30, 1999, down from $64 million on December 31, 1998, and up from $36 million on September 30, 1998. Such nonperforming assets as a percentage of net loans and leases, other real estate owned and other nonperforming assets were .51%, .60% and .53% on September 30, 1999, December 31, 1998, and September 30, 1998, respectively. Accruing loans past due 90 days or more totaled $33 million on September 30, 1999, up from $26 million on December 31, 1998, and up from $12 million on September 30, 1998. These loans equaled .28% of net loans and leases on September 30, 1999, as compared to .24% on December 31, 1998 and .18% on September 30, 1998. No loans to borrowers were considered potential problems at September 30, 1999, December 31, 1998 and September 30, 1998. Potential problem loans are defined as loans presently on accrual, not contractually past due 90 days or more and not restructured, but about which management has serious doubt as to the future ability of the borrower to comply with present repayment terms and which may result in the reporting of the loans as nonperforming assets. The Company's total recorded investment in impaired loans included in nonaccrual loans and leases, amounted to $39 million on September 30, 1999, as compared to $41 million on December 31, 1998, and $16 million on September 30, 1998. The Company considers a loan to be impaired when the accrual of interest has been discontinued and it meets other criteria under the statements. The amount of the impairment is measured based on the present value of expected cash flows, the observable market price of the loan, or the fair value of the collateral. Impairment losses are included in the allowance for loan losses through a provision for loan losses. Included in the allowance for loan losses on September 30, 1999, December 31, 1998, and September 30, 1998, is a required allowance of $13 million, $5 million and $1 million, respectively, on $16 million, $12 million and $5 million, respectively, of the recorded investment in impaired loans. 24 ZIONS BANCORPORATION AND SUBSIDIARIES The following table sets forth the nonperforming assets on September 30, 1999, December 31, 1998, and September 30, 1998.
September 30, December 31, September 30, (In millions) 1999 1998 1998 ----------- ----------- ----------- Nonaccrual loans ............................... $ 47 $ 54 $ 31 Restructured loans ............................. 1 5 1 Other real estate owned and other nonperforming assets ...................... 10 5 4 ----------- ----------- ----------- Total .......................................... $ 58 $ 64 $ 36 =========== =========== =========== % of net loans and leases*, other real estate owned and other nonperforming assets ...... .51% .60% .53% Accruing loans past due 90 days or more ........ $ 33 $ 26 $ 12 =========== =========== =========== % of net loans and leases* ..................... .28% .24% .18%
ALLOWANCE FOR LOAN LOSSES The Company's allowance for loan losses was 1.74% of net loans and leases on September 30, 1999, compared to 1.93% on December 31, 1998, and 1.48% on September 30, 1998. Net charge-offs during the third quarter of 1999 were $10 million, or .36% of average net loans and leases, compared to net charge-offs of $3 million, or .18% of average net loans and leases for the third quarter of 1998. Net charge-offs for the first nine months of 1999 were $19 million, or .23% of average net loans and leases, compared to $7 million or .15% of average net loans and leases for the first nine months of 1998. The allowance, as a percentage of nonaccrual loans and restructured loans, was 408.26% on September 30, 1999, compared to 347.86% on December 31, 1998, and 316.39% on September 30, 1998. The allowance, as a percentage of nonaccrual loans and accruing loans past due 90 days or more was 247.37% on September 30, 1999, compared to 258.04% on December 31, 1998 and 232.52% on September 30, 1998. Commitments to extend credit on loans and standby letters of credit on September 30, 1999, December 31, 1998 and September 30, 1998, totaled $5,608 million, $4,758 million and $3,420 million, respectively. 25 ZIONS BANCORPORATION AND SUBSIDIARIES In analyzing the adequacy of the allowance for loan and lease losses, management utilizes a comprehensive loan grading system to determine risk potential in the portfolio, and considers the results of independent internal and external credit review, historical charge-off experience, and changes in the composition and volume of the portfolio. Other factors, such as general economic conditions and collateral values, are also considered. Larger problem credits are individually evaluated to determine appropriate reserve allocations. Additions to the allowance are based upon the resulting risk profile of the portfolio developed through the evaluation of the above factors. The following table shows the changes in the allowance for loan losses and a summary of loan loss experience.
Nine months Twelve Months Nine months Ended Ended Ended (In millions) September 30, December 31, September 30, 1999 1998 1998 ------------ ------------ ------------ Average loans* and leases outstanding (net of unearned income) ............... $ 10,956 $ 7,121 $ 6,040 ============ ============ ============ Allowance for possible losses: Balance at beginning of the period .......... $ 206 $ 83 $ 83 Allowance of companies acquired ............. -- 126 15 Provision charged against earnings .......... 12 12 9 Loans and leases charged-off: Loans held for sale .................... -- -- -- Commercial, financial and agricultural . (22) (8) (4) Real estate ............................ (2) (6) (1) Consumer ............................... (7) (9) (7) Lease financing ........................ (2) (1) -- ------------ ------------ ------------ Total ............................. (33) (24) (12) ------------ ------------ ------------ Recoveries: Loans held for sale .................... -- -- -- Commercial, financial and agricultural . 5 3 2 Real estate ............................ 7 3 1 Consumer ............................... 2 3 2 Lease financing ........................ -- -- -- ------------ ------------ ------------ Total ............................. 14 9 5 ------------ ------------ ------------ Net loan and lease charge-offs .............. (19) (15) (7) ------------ ------------ ------------ Balance at end of the period ................ $ 199 $ 206 $ 100 ============ ============ ============ *Includes loans held for sale Ratio of net charge-offs to average loans and leases ............... .23% .21% .15%
26 ZIONS BANCORPORATION AND SUBSIDIARIES DEPOSITS Average total deposits of $13,077 million for the first nine months of 1999 increased 59.4% over the $8,205 million for the first nine months of 1998, with average demand deposits increasing 49.1%. Average money market and super NOW deposits, time deposits under $100,000, and time deposits over $100,000 for the first nine months of 1999 increased 68.9%, 63.4% and 102.0% respectively, from the first nine months of 1998. Average savings and NOW deposits increased 36.5% during the first nine months of 1999, compared with the same period one year earlier. Total deposits decreased 2.3% to $13,009 million on September 30, 1999 as compared to $13,321 million on December 31, 1998. Comparing September 30, 1999 to December 31, 1998, demand deposits, time deposits under $100,000, time deposits over $100,000 and foreign deposits decreased 4.7%, 22.1%, 35.2% and 27.3% respectively, while savings and money market deposits increased 15.6%. LIQUIDITY AND INTEREST RATE SENSITIVITY The Company manages its liquidity to provide adequate funds to meet its financial obligations, including withdrawals by depositors and debt service requirements, as well as to fund customers' demand for credit. Liquidity is primarily provided by the regularly scheduled maturities of the Company's investment and loan portfolios. The Company's liquidity is enhanced by the fact that cash, money market securities and liquid investments, net of short-term or "purchased" liabilities and wholesale deposits, totaled $872 million or 7.3% of core deposits on September 30, 1999. The Company's core deposits, consisting of demand, savings and money market deposits and time deposits under $100,000, constituted 91.2% of total deposits on September 30, 1999 as compared to 87.0% on December 31, 1998 and 90.1% on September 30, 1998. Maturing balances in loan portfolios provide flexibility in managing cash flows. Maturity management of those funds is an important source of medium- to long-term liquidity. The Company's ability to raise funds in the capital markets through the securitization process and by debt issuance allows the Company to take advantage of market opportunities to meet funding needs at reasonable cost. The parent company's cash requirements consist primarily of debt service, dividends to shareholders, operating expenses, income taxes, and share repurchases. The parent company's cash needs are routinely satisfied through payments by subsidiaries of dividends, management and other fees, principal and interest payments on subsidiary borrowings from the parent company. Interest rate risk is the most significant market risk regularly undertaken by Company. The Company believes there have been no significant changes in market risk compared to the disclosures in Zions Bancorporation's Annual Report to Shareholders on Form 10-K/A for the year ended December 31, 1998. 27 ZIONS BANCORPORATION AND SUBSIDIARIES Interest rate sensitivity measures the Company's financial exposure to changes in interest rates. Interest rate sensitivity is, like liquidity, affected by maturities of assets and liabilities. The Company assesses its interest rate sensitivity using duration, and simulation analysis. Duration is a measure of the weighted average expected lives of the discounted cash flows from assets and liabilities. Simulation is used to estimate net interest income over time using alternative interest rate scenarios. The Company, through the management of maturities and repricing of its assets and liabilities and the use of off-balance sheet arrangements such as interest rate caps, floors, futures, options, and interest rate exchange agreements, attempts to minimize the effect on net income of changes in interest rates. The Company's management exercises its best judgment in making assumptions with respect to loan and security prepayments, early deposit withdrawals and other noncontrollable events in managing the Company's exposure to changes in interest rates. The interest rate risk position is actively managed and changes daily as the interest rate environment changes; therefore, positions at the end of any period may not be reflective of the Company's interest rate position in subsequent periods. The prime lending rate is the primary basis used for pricing the Company's loans and the short-term Treasury rate is the index used for pricing many of the Company's deposits. The Company, however, is unable to economically hedge the prime/91-day T-bill spread risk through the use of off-balance sheet financial instruments. CAPITAL RESOURCES AND DIVIDENDS Total shareholders' equity on September 30, 1999 was $1,469 million, an increase of 6.0% over the $1,385 million on December 31, 1998, and an increase of 8.5% over the $1,354 million on September 30, 1998. The ratio of average equity to average assets for the first nine months of 1999 was 7.83% as compared to 9.83% for the same period in 1998. On September 30, 1999, the Company's Tier I risk-based capital ratio was 8.34%, as compared to 8.34% on December 31, 1998 and 12.75% on September 30, 1998. On September 30, 1999 the Company's total risk-based capital ratio was 11.17%, as compared to 11.38% on December 31, 1998 and 15.88% on September 30, 1998. The Company's leverage ratio on September 30, 1999 was 6.03%, as compared to 5.86% on December 31, 1998 and 8.35% on September 30, 1998. Dividends declared per common share for the third quarter of 1999 of $.29 were the same as the second quarter of 1999 and increased 107.1%, as compared to $.14 for the third quarter of 1998. The common cash dividend payout of net income for the first nine months of 1999 was 40.38%, as compared to 28.73% for the first nine months of 1998. During the first nine months of 1999, the Company repurchased and retired 83,332 shares of its common stock at a cost of $4.8 million. 28 ZIONS BANCORPORATION AND SUBSIDIARIES MERGERS AND ACQUISITIONS On April 27, 1999, the Company announced a definitive agreement to merge with Regency Bancorp of Fresno, California in exchange for common shares of Zions. Regency Bancorp's banking subsidiary, Regency Bank, will then merge into Zions' subsidiary, California Bank & Trust. As of June 30, 1999, Regency Bancorp had total assets of approximately $230 million. The merger will be accounted for as a purchase and closed on October 6, 1999. On May 7, 1999, the Company announced a definitive agreement to merge with Pioneer Bancorporation of Reno, Nevada in exchange for common shares of Zions. Pioneer Bancorporation's subsidiary, Pioneer Citizens Bank of Nevada, will merge into Zions' subsidiary, Nevada State Bank, creating the third largest bank in the state. As of June 30, 1999, Pioneer Bancorporation had total assets of approximately $1,102 million. The transaction closed on October 15, 1999 and will be accounted for as a pooling of interests. See Notes to Consolidated Financial Statements for a description of a pending merger with First Security Corporation announced in June 1999. YEAR 2000 A number of electronic systems utilize a two-digit field for year references, e.g., 98 for 1998. Such systems may compute that the year 2000, if represented as 00, to be 99 years ago rather than one year hence. If these systems are not corrected prior to December 31, 1999, many processing failures could result. This section describes the status of the Company's efforts to correct these system deficiencies. State of Readiness. The Company has completed its mission-critical Year 2000 Program efforts, including an integrated core (mission critical) systems test on a computer system defined as if it was year 2000. The Company has also assessed the operability of other devices after 1999, including vaults, fax machines, stand-alone personal computers, security systems and elevators. The Company believes that these systems are also Y2K compliant, and in any case the failure of these systems would not have a material adverse effect upon the financial condition of the enterprise. Costs. In order to achieve and confirm Year 2000 readiness, significant costs have been incurred to test and modify or replace computer software and hardware. The Company believes that its remediation costs have been mitigated since it replaced the large majority of its core banking systems during the past five years with Year 2000 compliant software in the ordinary course of business. However, the considerable effort required to implement new software, and sufficiently test its compliance, has consumed a substantial portion of the Company's internal information technology resources. This diversion of resources to the Year 2000 Project has resulted in delays in implementing enhancements to a number of the Company's systems and products. The Company does not believe, however, that these delays have had a significant effect on its revenue or expense growth. The aggregate increase in operating expense to achieve Year 2000 readiness is estimated to be approximately $3 million, which has already been incurred. In addition, a significant portion of the Company's personal computers was replaced to achieve Year 2000 compliance. The capital outlay to replace these assets was approximately $3 million, a portion of which would also have been incurred in the ordinary course of business without regard to Year 2000 issues. 29 ZIONS BANCORPORATION AND SUBSIDIARIES Risks. If the Company's mission-critical applications are not compliant by 2000, it may not be able to correctly process transactions in a reasonable period of time. This scenario could result in a wide variety of claims against the Company for improper handling of its assets and deposits or other borrowings from its customers. The Company is also at risk if the credit worthiness of a few of its large borrowers, or a significant number of its small borrowers, were to deteriorate quickly and severely as a result of their inability to conduct business operations after December 31, 1999, for whatever reason. The Company has surveyed and reviewed the Year 2000 plans of a number of its credit customers to ascertain the sufficiency of their remediation efforts and the implications of their actions on their credit worthiness. From this review, the Company believes that the increased credit risk that the Company may experience as a result of the Year 2000 issue will not have a material adverse effect its financial condition. The Company explicitly disclaims, however, any obligation or liability for the completeness, or lack thereof, of its customers' Year 2000 remediation plans or actions. Contingency Plans. The Company has developed business resumption plans for each significant business unit in the event that unforeseen events beyond the Company's control adversely impact its ability to provide financial services to its customers. In the event of such a failure, these plans outline the steps that will be taken to minimize the impact to customers and losses to the Company. Forward-Looking Information Statements in Management's Discussion and Analysis that are not based on historical data are forward- looking, including, for example, the projected performance of Zions and its operations. These statements constitute forward-looking information within the meaning of the Private Securities Litigation Reform Act of 1995. Actual results may differ materially from the projections discussed in Management's Discussion and Analysis since such projections involve significant risks and uncertainties. Factors that might cause such differences include, but are not limited to: the timing of closing proposed acquisitions being delayed or such acquisitions being prohibited, competitive pressures among financial institutions increasing significantly; economic conditions, either nationally or locally in areas in which Zions conducts its operations, being less favorable than expected; legislation or regulatory changes which adversely affect the Company's operations or business; the cost and effort required to correct Year 2000 processing deficiencies being greater than expected due to the difficulty attracting and retaining qualified systems personnel or vendor-supplied software releases being delayed or not functioning properly. Zions disclaims any obligation to update any such factors or to publicly announce the results of any revisions to any of the forward-looking statements included herein to reflect future events or developments. 30 ZIONS BANCORPORATION AND SUBSIDIARIES PART II. OTHER INFORMATION ----------------- ITEM 6. EXHIBITS AND REPORTS ON FORM 8-K -------------------------------- a) Exhibits b) Reports on Form 8-K Zions Bancorporation filed the following reports on Form 8-K during the quarter ended September 30, 1999; Form 8-K filed August 30, 1999 (Item 5). On August 30, 1999, Zions Bancorporation issued a joint press release with First Security Corporation describing the accounting impact of acceleration of First Security Limited Stock Appreciation Rights. S I G N A T U R E S ------------------- Pursuant to the requirements of the Securities Exchange Act of 1934, the Registrant has duly caused this report to be signed on its behalf by the undersigned thereunto duly authorized. ZIONS BANCORPORATION /s/Harris H. Simmons -------------------- Harris H. Simmons, President and Chief Executive Officer /s/Dale M. Gibbons ------------------ Dale M. Gibbons, Executive Vice President and Chief Financial Officer Dated February 16, 2000 EX-27 2 FINANCIAL DATA SCHEDULE
9 This schedule contains summary financial information extracted from the restated unaudited consolidated balance sheet as of September 30, 1999 and the related restated unaudited consolidated statement of income for the nine months ended September 30, 1999 included in the companys form 10-Q/A for the period ended September 30, 1999 and is qualified in its entirety by reference to such financial statements. 0000109380 Zions Bancorporation /UT/ 1,000 U.S. 9-MOS Dec-31-1999 Jul-01-1999 Sep-30-1999 1 742,714 16,562 646,570 531,710 614,579 3,324,387 3,298,873 11,416,672 198,559 18,950,991 13,008,773 3,281,228 583,600 570,469 0 0 755,282 713,545 18,950,991 707,412 229,636 0 937,048 285,719 422,597 514,451 11,841 (1,365) 467,749 220,119 140,938 0 0 140,938 1.79 1.76 4.24 47,752 32,515 883 0 205,553 32,546 13,711 198,559 179,713 0 18,846
EX-27 3 FINANCIAL DATA SCHEDULE
9 This schedule contains summary financial information extracted from the restated unaudited consolidated balance sheet as of September 30, 1998 and the related restated unaudited consolidated statement of income for the nine months ended September 30, 1998 included in the companys form 10-Q/A for the period ended September 30, 1999 and is qualified in its entirety by reference to such financial statements. 0000109380 Zions Bancorporation /UT/ 1,000 U.S. 9-MOS Dec-31-1998 Jul-01-1998 Sep-30-1998 1 618,651 24,566 1,240,537 203,871 554,039 2,209,223 2,228,210 6,767,007 100,440 12,761,139 8,931,016 1,747,197 230,942 498,005 0 0 747,538 606,441 12,761,139 441,228 215,664 0 656,892 191,232 296,638 360,254 9,034 2,078 338,015 154,603 103,241 0 0 103,241 1.39 1.36 4.48 30,765 12,432 981 0 82,849 11,635 5,015 100,440 19,084 0 81,356
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