-----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, DAowM3M+HFKATJSBnJquy1c8ds2gIqRZU8OeejU3KCy0cNyG9u0AopAn0ZNCcyih NPZ+W2eXZAnPNWZeKBWyAw== 0000109380-99-000016.txt : 19990816 0000109380-99-000016.hdr.sgml : 19990816 ACCESSION NUMBER: 0000109380-99-000016 CONFORMED SUBMISSION TYPE: 10-Q PUBLIC DOCUMENT COUNT: 2 CONFORMED PERIOD OF REPORT: 19990630 FILED AS OF DATE: 19990813 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 SEC ACT: SEC FILE NUMBER: 000-02610 FILM NUMBER: 99689485 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 1 ZIONS BANCORPORATION QUARTERLY REPORT UNITED STATES SECURITIES AND EXCHANGE COMMISSION Washington, D.C. 20549 FORM 10-Q FORM 10-Q [ X ] QUARTERLY REPORT UNDER SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934 For the quarterly period ended June 30, 1999 OR [ ] TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934 For the transition period from to COMMISSION FILE NUMBER 0-2610 ZIONS BANCORPORATION (Exact name of Registrant as specified in its charter) UTAH 87-0227400 - --------------------------------- ------------------- (State or other jurisdiction (I.R.S. Employer of incorporation or organization) Identification No.) ONE SOUTH MAIN, SUITE 1380 SALT LAKE CITY, UTAH 84111 - ---------------------------------------- ---------- (Address of principal executive offices) (Zip Code) Registrant's telephone number, including area code: (801) 524-4787 Indicate by check mark whether the registrant (1) has filed all reports required to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during the preceding 12 months and (2) has been subject to such filing requirement for the past 90 days. Yes [ X ] No Indicate the number of shares outstanding of each of the issuer's classes of common stock, as of the latest practicable date. Common Stock, without par value, outstanding at August 9, 1998 79,000,686 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 ...........................10 PART II. OTHER INFORMATION ----------------- ITEM 4. Submission of Matters to a Vote of Shareholders ................29 ITEM 6. Exhibits and Reports on Form 8-K ...............................30 SIGNATURES ...................................................................30 - ---------- 2 ZIONS BANCORPORATION AND SUBSIDIARIES CONSOLIDATED BALANCE SHEETS (Unaudited)
June 30, December 31, June 30, (In thousands, except share amounts) 1999 1998 1998 ------------ ------------ ------------ ASSETS Cash and due from banks ........................................ $ 882,772 $ 864,446 $ 697,265 Money market investments: Interest-bearing deposits ................................. 17,757 30,484 56,643 Federal funds sold ........................................ 101,022 199,446 103,203 Security resell agreements ................................ 281,351 382,275 1,133,869 Investment securities: Held to maturity, at cost (approximate market value $3,218,343, $2,821,535, and $2,264,846) ................... 3,224,716 2,803,903 2,249,644 Available for sale, at market ............................. 465,838 684,581 589,448 Trading account, at market ................................ 416,130 191,855 401,914 ------------ ------------ ------------ 4,106,684 3,680,339 3,241,006 Loans: Loans held for sale ....................................... 195,217 232,253 198,180 Loans, leases, and other receivables ...................... 10,901,138 10,449,362 6,123,467 ------------ ------------ ------------ 11,096,355 10,681,615 6,321,647 Less: Unearned income and fees, net of related costs ............ 49,693 48,123 42,288 Allowance for loan losses ................................. 204,825 205,553 98,488 ------------ ------------ ------------ Net Loans ........................................... 10,841,837 10,427,939 6,180,871 Premises and equipment, net .................................... 249,599 231,066 170,560 Goodwill and core deposit intangibles .......................... 261,787 271,578 170,993 Other real estate owned ........................................ 7,322 5,270 3,593 Other assets ................................................... 855,605 556,078 362,418 ------------ ------------ ------------ $ 17,605,736 $ 16,648,921 $ 12,120,421 ============ ============ ============ LIABILITIES AND SHAREHOLDERS' EQUITY Deposits: Noninterest-bearing ....................................... $ 3,076,922 $ 3,170,436 $ 2,238,182 Interest-bearing: Savings and money market .............................. 6,812,278 6,077,556 4,262,240 Time: Under $100,000 .................................... 1,938,753 2,340,598 1,226,587 Over $100,000 ..................................... 1,079,042 1,528,329 649,889 Foreign ............................................... 163,729 204,244 175,002 ------------ ------------ ------------ 13,070,724 13,321,163 8,551,900 Securities sold, not yet purchased ............................. 377,056 29,702 225,833 Federal funds purchased ........................................ 669,115 337,283 373,623 Security repurchase agreements ................................. 851,138 932,560 1,110,161 Accrued liabilities ............................................ 329,344 319,278 378,342 Commercial paper ............................................... 133,969 49,217 -- Federal Home Loan Bank advances and other borrowings: Less than one year ........................................ 532,166 100,750 29,384 Over one year ............................................. 60,216 56,796 118,011 Long-term debt ................................................. 453,249 453,735 386,243 ------------ ------------ ------------ Total liabilities ...................................... 16,476,977 15,600,484 11,173,497 ------------ ------------ ------------ Minority interest .............................................. 37,487 34,781 -- Shareholders' equity: Capital stock: Preferred stock, without par value; authorized 3,000,000 shares; issued and outstanding, none ... -- -- -- Common stock, without par value; authorized 200,000,000 shares; issued and outstanding 79,010,705, 78,636,083 and 76,971,917 shares ....... 329,370 324,099 326,079 Accumulated other comprehensive loss ...................... (401) (4,280) (106) Retained earnings ......................................... 762,303 693,837 620,951 ------------ ------------ ------------ Total shareholders' equity ........................... 1,091,272 1,013,656 946,924 ------------ ------------ ------------ $ 17,605,736 $ 16,648,921 $ 12,120,421 ============ ============ ============
3 ZIONS BANCORPORATION AND SUBSIDIARIES CONSOLIDATED STATEMENTS OF INCOME (Unaudited)
Three Months Ended Six Months Ended June 30, June 30, ----------------------------------------------- (In thousands, except per share amounts) 1999 1998 1999 1998 --------- --------- --------- --------- Interest income: Interest and fees on loans ................................$ 231,460 $ 142,690 $ 451,889 $ 276,275 Interest on loans held for sale ........................... 3,088 3,660 6,493 7,216 Lease financing ........................................... 3,253 2,879 6,677 6,211 Interest on money market investments ...................... 16,399 24,683 30,528 47,680 Interest on securities: Held to maturity: Taxable ......................................... 42,885 25,724 84,263 58,548 Nontaxable ...................................... 4,441 3,433 8,417 6,807 Available for sale: Taxable ......................................... 5,476 8,324 12,518 17,797 Nontaxable ...................................... 118 201 246 505 Trading account ...................................... 7,983 7,235 14,775 12,246 --------- --------- --------- --------- Total interest income ................................ 315,103 218,829 615,806 433,285 --------- --------- --------- --------- Interest expense: Interest on savings and money market deposits ............. 55,366 36,836 106,060 72,449 Interest on time and foreign deposits ..................... 39,086 27,029 83,747 53,127 Interest on borrowed funds ................................ 46,082 33,291 84,552 69,413 --------- --------- --------- --------- Total interest expense ............................... 140,534 97,156 274,359 194,989 --------- --------- --------- --------- Net interest income .................................. 174,569 121,673 341,447 238,296 Provision for loan losses ...................................... 3,633 3,264 7,864 6,819 --------- --------- --------- --------- Net interest income after provision for loan losses .. 170,936 118,409 333,583 231,477 --------- --------- --------- --------- Noninterest income: Service charges on deposit accounts ....................... 17,720 12,903 35,528 26,366 Other service charges, commissions and fees ............... 17,280 13,091 32,621 24,346 Trust income .............................................. 3,846 2,034 6,815 3,641 Investment securities gain (loss), net .................... 215 2,227 (1,113) 3,026 Underwriting and trading income ........................... 3,223 2,189 7,244 4,132 Loan sales and servicing income ........................... 12,410 11,934 27,582 23,405 Other ..................................................... 6,051 3,374 15,411 7,642 --------- --------- --------- --------- Total noninterest income ............................. 60,745 47,752 124,088 92,558 --------- --------- --------- --------- Noninterest expense: Salaries and employee benefits ............................ 82,560 54,305 164,883 107,296 Occupancy, net ............................................ 11,260 6,152 22,744 12,009 Furniture and equipment ................................... 10,089 8,605 20,068 16,411 Other real estate expense (income) ........................ (486) 206 (442) (48) Legal and professional services ........................... 4,900 4,138 8,140 6,992 Supplies .................................................. 2,990 2,651 5,566 5,198 Postage ................................................... 2,889 2,081 5,695 4,249 Advertising ............................................... 5,865 2,490 8,791 5,118 Merger related expenses ................................... 1,119 12,031 2,164 14,004 FDIC premiums ............................................. 789 356 1,146 678 Amortization of goodwill and core deposit intangibles ..... 3,474 2,397 6,771 4,777 Amortization of mortgage servicing assets ................. 115 1,289 766 2,421 Other ..................................................... 25,597 20,711 53,617 39,064 --------- --------- --------- --------- Total noninterest expense ............................ 151,161 117,412 299,909 218,169 --------- --------- --------- --------- Income before income taxes and minority interest ............... 80,520 48,749 157,762 105,866 Income taxes ................................................... 27,102 15,765 54,029 33,886 --------- --------- --------- --------- Net income before minority interest ................. 53,418 32,984 103,733 71,980 Minority interest .............................................. 610 -- 2,074 -- --------- --------- --------- --------- Net income ..........................................$ 52,808 $ 32,984 $ 101,659 $ 71,980 ========= ========= ========= ========= Weighted-average common and common-equivalent shares outstanding during the period ....................... 80,135 75,706 80,017 74,688 Net income per common share: Basic ........................................................$ 0.67 $ 0.44 $ 1.29 $ 0.98 Diluted ......................................................$ 0.66 $ 0.44 $ 1.27 $ 0.96
4 ZIONS BANCORPORATION AND SUBSIDIARIES CONSOLIDATED STATEMENTS OF CASH FLOWS (Unaudited)
Three Months Ended Six Months Ended June 30, June 30, ------------------------------------------------------------ (In thousands) 1999 1998 1999 1998 ------------ ------------ ------------ ------------ Cash flows from operating activities: Net income .................................................... $ 52,808 $ 32,984 $ 101,659 $ 71,980 Adjustments to reconcile net income to net cash provided by (used in) operating activities: Provision for loan losses ................................ 3,633 3,264 7,864 6,819 Depreciation of premises and equipment ................... 9,316 6,320 17,851 12,282 Amortization ............................................. 6,451 5,146 13,438 10,317 Accretion of unearned income and fees, net of related costs ....................................... 6,406 (586) 8,589 (2,151) Income to minority interest .............................. 610 -- 2,074 -- Proceeds from sales of trading account securities ........ 48,341,852 42,399,035 94,197,450 77,526,251 Increase in trading account securities ................... (48,536,855) (42,524,672) (94,421,725) (77,844,484) Investment securities (gain) loss, net ................... (215) (2,227) 1,113 (3,026) Proceeds from loans held for sale ........................ 196,362 369,861 504,471 613,066 Increase in loans held for sale .......................... (211,989) (315,540) (468,365) (627,433) Net gain on sales of loans, leases and other assets ...... (9,972) (10,241) (22,583) (18,983) Change in accrued income taxes ........................... 8,580 (9,021) 28,738 7,725 Change in accrued interest receivable .................... 5,888 6,664 (6,155) 6,510 Change in accrued interest payable ....................... (836) (5,293) (2,093) 1,002 Other, net ............................................... (29,724) 206,212 (106,817) 137,868 ------------ ------------ ------------ ------------ Net cash provided by (used in) operating activities . (157,685) 161,906 (144,491) (102,257) ------------ ------------ ------------ ------------ Cash flows from investing activities: Net decrease (increase) in money market investments ........... (5,802) (59,061) 212,250 (389,617) Proceeds from maturities of investment securities held to maturity ......................................... 279,876 805,889 574,598 1,397,574 Purchases of investment securities held to maturity ........... (447,563) (1,111,268) (1,002,548) (1,166,064) Proceeds from sales of investment securities available for sale ....................................... 12,533 58,888 150,734 250,498 Proceeds from maturities of investment securities available for sale ....................................... 50,092 105,366 131,532 119,373 Purchases of investment securities available for sale ......... (90,486) (121,054) (273,925) (338,686) Proceeds from sales of loans and leases ....................... 427,133 213,254 623,170 419,530 Net increase in loans and leases .............................. (552,403) (395,593) (1,069,603) (743,749) Payments on leveraged leases .................................. -- -- (4,168) (1,067) Principal collections on leveraged leases ..................... -- -- 4,168 1,067 Proceeds from sales of premises and equipment ................. 382 2,147 872 2,391 Purchases of premises and equipment ........................... (22,959) (11,079) (37,253) (22,569) Proceeds from sales of mortgage-servicing rights .............. 6,085 271 21,003 609 Purchases of mortgage-servicing rights ........................ (136) (760) (928) (1,463) Proceeds from sales of other assets ........................... 1,413 818 3,542 4,095 Cash paid for acquisitions, net of cash received .............. -- 16,870 592 26,995 ------------ ------------ ------------ ------------ Net cash used in investing activities ............... (341,835) (495,312) (665,964) (441,083) ------------ ------------ ------------ ------------
5 ZIONS BANCORPORATION AND SUBSIDIARIES CONSOLIDATED STATEMENTS OF CASH FLOWS (Continued) (Unaudited)
Three Months Ended Six Months Ended June 30, June 30, -------------------------------------------------------- (In thousands) 1999 1998 1999 1998 ----------- ----------- ----------- ----------- Cash flows from financing activities: Net increase (decrease) in deposits .................. (134,052) (2,886) (255,900) 190,896 Net change in short-term funds borrowed .............. 728,045 165,208 1,113,932 220,299 Proceeds from FHLB advances over one year ............ 15,000 9,000 15,000 9,000 Payments on FHLB advances over one year .............. (5,582) (3,410) (11,580) (97,620) Proceeds from issuance of long-term debt ............. -- 110,000 -- 110,000 Payments on long-term debt ........................... (305) (644) (486) (3,007) Proceeds from issuance of common stock ............... 1,242 133,254 2,771 133,983 Payments to redeem common stock ...................... (772) (620) (966) (13,402) Dividends paid ....................................... (22,930) (10,675) (33,990) (19,715) ----------- ----------- ----------- ----------- Net cash provided by financing activities .. 580,646 399,227 828,781 530,434 ----------- ----------- ----------- ----------- Net increase (decrease) in cash and due from banks ........ 81,126 65,821 18,326 (12,906) Cash and due from banks at beginning of period ............ 801,646 631,444 864,446 710,171 ----------- ----------- ----------- ----------- Cash and due from banks at end of period .................. $ 882,772 $ 697,265 $ 882,772 $ 697,265 =========== =========== =========== ===========
SUPPLEMENTAL DISCLOSURES OF CASH FLOW INFORMATION (Unaudited)
Three Months Ended Six Months Ended June 30, June 30, ------------------- ------------------- (In thousands) 1999 1998 1999 1998 -------- -------- -------- -------- Cash paid for: Interest .................................. $141,355 $102,584 $276,435 $192,385 Income taxes .............................. 15,365 23,110 15,420 24,998 Loans transferred to other real estate owned ... 3,247 784 5,697 1,188
6 ZIONS BANCORPORATION AND SUBSIDIARIES CONSOLIDATED STATEMENTS OF CHANGES IN SHAREHOLDERS' EQUITY AND COMPREHENSIVE INCOME (Unaudited)
Six Months Ended June 30, 1999 --------------------------------------------------------------- Accumulated other Total Common Comprehensive comprehensive Retained Shareholders' (In thousands) Stock Income income (loss) Earnings Equity --------- --------- -------------- --------- --------- Balance, January 1, 1999 .................................... $ 324,099 $ (4,280) $ 693,837 $1,013,656 Net income for the period ................................... $ 101,659 101,659 101,659 --------- Other comprehensive income, net of tax: Realized and unrealized holding gain arising during the period, net of tax expense of $21 ......... 34 Reclassification for net realized securities loss recorded in the income statement, net of tax benefit of $2,381 .. 3,845 --------- Other comprehensive income .............................. 3,879 3,879 3,879 --------- Total comprehensive income .............................. $ 105,538 ========= Cash dividends: Preferred, paid by subsidiaries to minority shareholders .. (17) (17) Common, $.43 per share .................................. (33,973) (33,973) Issuance of common shares for acquisitions .................. 83 797 880 Stock redeemed and retired .................................. (966) (966) Stock options exercised, net of shares tendered and retired . 6,154 6,154 --------- -------------- --------- ---------- Balance, June 30, 1999 ...................................... $ 329,370 $ (401) $ 762,303 $1,091,272 ========= ============== ========= ========== Six Months Ended June 30, 1998 --------------------------------------------------------------- Accumulated other Total Common Comprehensive comprehensive Retained Shareholders' (In thousands) Stock Income income (loss) Earnings Equity --------- --------- -------------- --------- --------- Balance, January 1, 1998 .................................... $ 190,039 $ 1,902 $ 550,111 $ 742,052 Net income for the period ................................... $ 71,980 71,980 71,980 --------- Other comprehensive income, net of tax: Realized and unrealized holding loss arising during the period, net of tax benefit of $99 ......... (160) Reclassification for realized investment securities gain recorded in the income statement, net of tax expense of $1,157 .............. (1,869) --------- Other comprehensive income .............................. (2,029) (2,029) (2,029) --------- Total comprehensive income .............................. $ 69,951 ========= Cash dividends: Preferred, paid by subsidiaries to minority shareholders (30) (30) Common, $.26 per share .................................. (18,799) (18,799) Dividends of acquired companies prior to merger ......... (886) (886) Net proceeds from stock offering ............................ 129,871 129,871 Issuance of common shares for acquisitions .................. 9,721 21 18,575 28,317 Conversion of aquired company convertible debt prior to acquisition ............................... 4,546 4,546 Exercise of acquired company warrants prior to acquisition .. 1,852 1,852 Stock redeemed and retired .................................. (13,402) (13,402) Stock options exercised, net of shares tendered and retired . 3,452 3,452 --------- -------------- --------- --------- Balance, June 30, 1998 ...................................... $ 326,079 $ (106) $ 620,951 $ 946,924 ========= ============== ========= =========
Comprehensive income for the three months ended June 30, 1999 and 1998 was $53,355 and $33,234 respectively. 7 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. On September 8, 1998, the Company acquired The Commerce Bancorporation and its banking subsidiary The Commerce Bank of Washington, N.A. All three acquisitions were accounted for as poolings of interests and were 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. On October 1, 1998, the Company acquired The Sumitomo Bank of California in a transaction accounted for as a purchase. In a purchase transaction results of operations for the acquired entity are only included subsequent to the acquisition date. Therefore, financial information as of June 30, 1999 and for the three months and six months ended June 30, 1999, can not be compared directly with the correspondent information for 1998. Operating results for the six months ended June 30, 1999 are not necessarily indicative of the results that may be expected for the year ended December 31, 1999. For further information, refer to the consolidated financial statements and footnotes thereto included in Zions Bancorporation's Annual Report to Shareholders on Form 10-K for the year ended December 31, 1998. Accounting Standards Not Adopted In June 1998, the FASB issued Statement No. 133, Accounting for Derivative Instruments and Hedging Activities. Statement No. 133 establishes accounting and reporting standards for derivative instruments, including certain derivative instruments embedded in other contracts, and for hedging activities. It requires that an entity recognize all derivatives as either assets or liabilities in the statement of financial position and measure those instruments at fair value. The accounting for gains and losses of a derivative depends on the intended use of the derivative and the resulting designation. Under this statement, an entity that elects to apply hedge accounting is required to establish at the inception of the hedge the method it will use for assessing the effectiveness of the hedging derivative and the measurement approach for determining the ineffective aspect of the hedge. Those methods must be consistent with the entity's approach to managing risk. The original effective date of this statement, as amended by Statement No. 137, has been delayed and it is now effective for all fiscal quarters of fiscal years beginning after June 15, 2000, and should not be applied retroactively to financial statements of prior periods. The Company is currently studying the statement to determine its future effects. 8 ZIONS BANCORPORATION AND SUBSIDIARIES SIGNIFICANT TRANSACTION On June 6, 1999 the Company announced a definitive agreement to merge with First Security Corporation in a stock-for-stock transaction valued at approximately $5.9 billion. The new organization will be known as First Security Corporation and will be headquartered in Salt Lake City, Utah. Under the terms of the agreement, First Security shareholders will receive 0.442 of a share of new First Security common stock in exchange for each share of First Security common stock. Zions Bancorporation shareholders will receive one share of new First Security common stock in exchange for each share of Zions common stock. The transaction will be accounted for as a pooling-of-interests and is expected to close during the fourth quarter of 1999. The combined companies will have total assets of approximately $40 billion. 9 ZIONS BANCORPORATION AND SUBSIDIARIES ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS ------------------------------------ FINANCIAL HIGHLIGHTS (Unaudited)
Three Months Ended Six Months Ended June 30, June 30, ------------------------------------------------------------------- (In thousands, except per share 1999 1998 % Change 1999 1998 % Change and ratio data) -------- -------- -------- -------- -------- -------- EARNINGS Taxable-equivalent net interest income .. $177,920 $124,360 43.07 % $347,786 $243,519 42.82 % Net interest income ..................... 174,569 121,673 43.47 % 341,447 238,296 43.29 % Noninterest income ...................... 60,745 47,752 27.21 % 124,088 92,558 34.07 % Provision for loan losses ............... 3,633 3,264 11.31 % 7,864 6,819 15.32 % Noninterest expense ..................... 151,161 117,412 28.74 % 299,909 218,169 37.47 % Income before income taxes .............. 80,520 48,749 65.17 % 157,762 105,866 49.02 % Income taxes ............................ 27,102 15,765 71.91 % 54,029 33,886 59.44 % Minority interest ....................... 610 -- 2,074 -- Net income .............................. 52,808 32,984 60.10 % 101,659 71,980 41.23 % PER COMMON SHARE Net income (diluted) .................... 0.66 0.44 50.00 % 1.27 0.96 32.29 % Dividends ............................... 0.29 0.14 107.14 % 0.43 0.26 65.38 % Book value .............................. 13.81 12.30 12.28 % SELECTED RATIOS Return on average assets ................ 1.16% 1.12% 1.15% 1.24% Return on average common equity ......... 19.49% 15.90% 19.27% 18.20% Efficiency ratio ........................ 63.34% 68.22% 63.56% 64.92% Net interest margin ..................... 4.38% 4.60% 4.39% 4.59% OPERATING CASH EARNINGS* Taxable-equivalent net interest income .. $177,920 $124,360 43.07 % $347,786 $243,519 42.82 % Net interest income ..................... 174,569 121,673 43.47 % 341,447 238,296 43.29 % Noninterest income ...................... 60,745 47,752 27.21 % 124,088 92,558 34.07 % Provision for loan losses ............... 3,633 3,264 11.31 % 7,864 6,819 15.32 % Noninterest expense ..................... 146,568 102,984 42.32 % 290,974 199,388 45.93 % Income before income taxes .............. 85,113 63,177 34.72 % 166,697 124,647 33.74 % Income taxes ............................ 27,805 19,084 45.70 % 55,462 37,710 47.08 % Minority interest ....................... 610 -- 2,074 -- Net income .............................. 56,698 44,093 28.59 % 109,161 86,937 25.56 % PER COMMON SHARE Net income (diluted) .................... 0.71 0.58 22.41 % 1.36 1.16 17.24 % Dividends ............................... 0.29 0.14 107.14 % 0.43 0.26 65.38 % Book value .............................. 10.50 10.08 4.17 % SELECTED RATIOS Return on average assets ................ 1.27% 1.51% 1.25% 1.52% Return on average common equity ......... 27.74% 26.72% 27.63% 28.04% Efficiency ratio ........................ 61.41% 59.84% 61.66% 59.33% Net interest margin ..................... 4.38% 4.60% 4.39% 4.59%
* Before amortization of goodwill and core deposit intangible assets and merger charges. 10 ZIONS BANCORPORATION AND SUBSIDIARIES FINANCIAL HIGHLIGHTS (Continued) (Unaudited)
Three Months Ended Six Months Ended June 30, June 30, ----------------------------------------------------------------------------- (In thousands, except per share and ratio data) 1999 1998 % Change 1999 1998 % Change ----------- ----------- --------- ----------- ----------- ------- AVERAGE BALANCES Total assets ................................... $18,210,764 $11,854,105 53.62% $17,849,267 $11,725,827 52.22% Securities ..................................... 4,166,405 2,881,842 44.57% 4,100,452 3,007,644 36.33% Net loans and leases ........................... 10,981,012 6,152,172 78.49% 10,848,894 5,983,574 81.31% Goodwill and core deposit intangibles .......... 266,817 170,073 56.88% 267,091 172,161 55.14% Total deposits ................................. 13,094,197 8,317,567 57.43% 13,070,435 8,189,927 59.59% Minority interest .............................. 36,330 -- 36,695 -- Shareholders' equity ........................... 1,086,593 831,887 30.62% 1,063,759 797,374 33.41% Weighted average common and common- equivalent shares outstanding ............. 80,134,550 75,705,526 5.85% 80,016,510 74,688,478 7.13% AT PERIOD END Total assets ................................... $17,605,736 $12,120,421 45.26% Securities ..................................... 4,106,684 3,241,006 26.71% Net loans and leases ........................... 11,046,662 6,279,359 75.92% Allowance for loan losses ...................... 204,825 98,488 107.97% Goodwill and core deposit intangibles .......... 261,787 170,993 53.10% Total deposits ................................. 13,070,724 8,551,900 52.84% Minority interest .............................. 37,487 -- Shareholders' equity ........................... 1,091,272 946,924 15.24% Common shares outstanding ...................... 79,010,705 76,971,917 2.65% Average equity to average assets ............... 5.97% 7.02% 5.96% 6.80% Common dividend payout ......................... 43.40% 31.86% 33.42% 26.12% Nonperforming assets ........................... 58,128 29,370 97.92% Loans past due 90 days or more ................. 27,379 18,003 52.08% Nonperforming assets to net loans and leases, other real estate owned and other nonperforming assets at June 30 ........... 0.53% 0.47%
11 ZIONS BANCORPORATION AND SUBSIDIARIES OPERATING RESULTS Zions Bancorporation achieved record earnings for the quarter and six months ended June 30, 1999. Consolidated net income for the second quarter of 1999 was $52.8 million or $0.66 per diluted share, an increase of 60.1% and 50.0%, respectively, over the restated $33.0 million or $0.44 earned in the second quarter of 1998. Consolidated net income for the second quarter of 1999 increased 8.1% and 8.2%, respectively, from $48.9 million or $0.61 per diluted share for the first quarter of 1999. The quarterly dividend per share increased 107.1% to $0.29 from $0.14 in the second quarter of 1998 and the first quarter of 1999. As discussed in Notes to Consolidated Financial Statements, due to the acquisition of The Sumitomo Bank of California on October 1, 1998 in a transaction accounted for as a purchase, financial information for 1999 is not directly comparable to 1998. Also, the restated 1998 results of operations include pre-tax merger charges of approximately $8.4 million incurred by The Commerce Bancorporation. Consolidated net income was $101.7 million or $1.27 per diluted share for the first six months of 1999, compared to the restated $72.0 million or $0.96 per diluted share for the first six months of 1998, which constituted increases of 41.2% and 32.3% respectively. The annualized return on average assets for the second quarter and for the first six months of 1999 was 1.16% and 1.15% compared to the restated 1.12% and 1.24%, respectively, in 1998, resulting in an annualized return on average common shareholders' equity of 19.49% and 19.27% for the second quarter and for the first six months of 1999, compared to the restated 15.90% and 18.20% for the same periods of 1998. The Company's "efficiency ratio," or noninterest expenses as a percentage of total taxable-equivalent net revenues for the second quarter and for the first six months of 1999 was 63.34% and 63.56%, respectively, compared to the restated 68.22% and 64.92% for the same periods of 1998. The Company's second-quarter $19.8 million (60.1%) increase in earnings relative to the restated same period a year ago reflects a $52.9 million (43.5%) increase in net interest income, a $13.0 million (27.2%) increase in noninterest income, partially offset by a $0.4 million (11.3%) increase in the provision for loan losses, a $33.7 million (28.7%) increase in noninterest expenses and a $11.3 million (71.9%) increase in income tax expense. The Company's $29.7 million (41.2%) increase in net income for the six-month period ended June 30, 1999 compared to the restated similar period in 1998, reflects a $103.2 million (43.3%) increase in net interest income, a $31.5 million (34.1%) increase in noninterest income, partially offset by a $1.0 million (15.3%) increase in the provision for loan losses, a $81.7 million (37.5%) increase in noninterest expenses and a $20.1 million (59.4%) 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. 12 ZIONS BANCORPORATION AND SUBSIDIARIES Operating cash earnings for the quarter were $56.7 million or $0.71 per diluted share, an increase of 28.6% and 22.4%, respectively, over the restated $44.1 million or $0.58 per diluted share earned in the second quarter of 1998. Operating cash earnings for the second quarter of 1999 increased 8.1% over the $52.5 million earned during the first quarter of 1999. Operating cash earnings per diluted share for the second quarter of 1999 increased 7.6% over the $.66 for the first quarter of 1999. Year-to-date operating cash earnings were $109.2 million or $1.36 per diluted share, an increase of 25.6% and 17.2%, respectively, over the restated $86.9 million or $1.16 per diluted share earned in the first half of 1998. The operating cash annualized return on average assets for the second quarter and for the first six months of 1999 was 1.27% and 1.25% compared to the restated 1.51% and 1.52%, respectively, in 1998. Operating cash annualized return on average common shareholders' equity was 27.74% and 27.63% for the second quarter and for the first six months of 1999, compared to the restated 26.72% and 28.04% for the same periods of 1998. The Company's cash efficiency ratio for the second quarter and for the first six months of 1999 was 61.41% and 61.66%, respectively, compared to the restated 59.84% and 59.33% for the same periods of 1998. NET INTEREST INCOME AND INTEREST RATE SPREADS Net interest income for the second quarter of 1999, adjusted to a fully taxable-equivalent basis, increased 43.1% to $177.9 million compared to the restated $124.4 million for the second quarter of 1998 and increased 4.7% from $169.9 million for the first quarter of 1999. Net interest margin was 4.38% for the second quarter of 1999, compared to 4.60% for the second quarter of 1998 and 4.39% for the first quarter of 1999. Six-month net interest income, on a fully taxable-equivalent basis, was $347.8 million in 1999, an increase of 42.8% compared to $243.5 million for the first six months of 1998. Net interest margin for the first six months of 1999 was 4.39%, compared to 4.59% for the first six months of 1998. The yield on average earning assets decreased 36 basis points during the second quarter of 1999 as compared to the second quarter of 1998, and decreased 1 basis point from the first quarter of 1999. The average rate paid this quarter on interest-bearing funds decreased 31 basis points from the second quarter of 1998 and decreased 2 basis points from the first quarter of 1999. Comparing the first six months of 1999 with 1998, the yield on average earning assets decreased 41 basis points, while the cost of interest-bearing funds decreased by 38 basis points. The spread on average interest-bearing funds for the second quarter of 1999 was 3.74%, down from the 3.79% for the second quarter of 1998 and up from the 3.73% for the first quarter of 1999. The spread on average interest-bearing funds for the first six months of 1999 was 3.74% compared with 3.77% for the same period in 1998. 13 ZIONS BANCORPORATION AND SUBSIDIARIES CONSOLIDATED AVERAGE BALANCE SHEETS, YIELDS AND RATES (Unaudited)
Three Months Ended Three Months Ended June 30, 1999 June 30, 1998 ------------------------------------ -------------------------------------- Average Amount of Average Average Amount of Average (In thousands) Balance Interest(1) Rate Balance Interest(1) Rate ------------ ---------- ------- ------------ ------------ ------- ASSETS Money market investments ............................ $ 1,141,469 $ 16,399 5.76% $ 1,804,756 $ 24,683 5.49% Securities: Held to maturity ............................... 3,144,569 49,717 6.34% 1,777,373 31,006 7.00% Available for sale ............................. 416,358 5,658 5.45% 585,686 8,633 5.91% Trading account ................................ 605,478 7,983 5.29% 518,783 7,235 5.59% ------------ ---------- ------------ ------------ Total securities .......................... 4,166,405 63,358 6.10% 2,881,842 46,874 6.52% ------------ ---------- ------------ ------------ Loans: Loans held for sale ............................ 175,563 3,088 7.05% 203,997 3,660 7.20% Net loans and leases(2) ........................ 10,805,449 235,609 8.75% 5,948,175 146,299 9.87% ------------ ---------- ------------ ------------ Total loans ............................... 10,981,012 238,697 8.72% 6,152,172 149,959 9.78% ------------ ---------- ------------ ------------ Total interest-earning assets ....................... $ 16,288,886 $ 318,454 7.84% $ 10,838,770 $ 221,516 8.20% ---------- ------------ Cash and due from banks ............................. 795,014 545,231 Allowance for loan losses ........................... (201,139) (98,569) Goodwill and core deposit intangibles ............... 266,817 170,073 Other assets ........................................ 1,061,186 398,600 ------------ ------------ Total assets ................................ $ 18,210,764 $ 11,854,105 ============ ============ LIABILITIES Interest-bearing deposits: Savings and NOW deposits ....................... $ 1,533,622 $ 9,875 2.58% $ 978,567 $ 7,542 3.09% Money market and super NOW deposits ............ 5,196,625 45,491 3.51% 3,265,464 29,294 3.60% Time deposits under $100,000 ................... 1,999,308 23,790 4.77% 1,244,743 16,550 5.33% Time deposits $100,000 or more ................. 1,167,436 13,594 4.67% 612,742 8,610 5.64% Foreign deposits ............................... 165,263 1,702 4.13% 162,611 1,869 4.61% ------------ ---------- ------------ ------------ Total interest-bearing deposits ........... 10,062,254 94,452 3.77% 6,264,127 63,865 4.09% ------------ ---------- ------------ ------------ Borrowed funds: Securities sold, not yet purchased ............. 308,587 4,122 5.36% 239,185 2,892 4.85% Federal funds purchased and security repurchase agreements ..................... 2,113,809 23,451 4.45% 1,860,294 21,261 4.58% Commercial paper ............................... 135,921 1,717 5.07% 264 4 6.08% FHLB advances and other borrowings: Less than one year ........................ 620,951 7,267 4.69% 60,396 941 6.25% Over one year ............................. 57,007 896 6.30% 136,347 1,678 4.94% Long-term debt ................................. 451,392 8,629 7.67% 275,994 6,515 9.47% ------------ ---------- ------------ ------------ Total borrowed funds ...................... 3,687,667 46,082 5.01% 2,572,480 33,291 5.19% ------------ ---------- ------------ ------------ Total interest-bearing liabilities ........ $ 13,749,921 $ 140,534 4.10% $ 8,836,607 $ 97,156 4.41% ---------- ------------ Noninterest-bearing deposits ........................ 3,031,943 2,053,440 Other liabilities ................................... 305,977 132,171 ------------ ------------ Total liabilities ......................... 17,087,841 11,022,218 Minority interest ................................... 36,330 -- Total shareholders' equity ................ 1,086,593 831,887 ------------ ------------ Total liabilities and shareholders' equity $ 18,210,764 $ 11,854,105 ============ ============ Spread on average interest-bearing funds ............ 3.74% 3.79% ==== ==== Net interest income and net yield on interest-earning assets ........................ $ 177,920 4.38% $ 124,360 4.60% ========== ==== ============ ====
1 Taxable-equivalent rates used where applicable. 2 Net of unearned income and fees, net of related costs. Loans include nonaccrual and restructured loans. 14 ZIONS BANCORPORATION AND SUBSIDIARIES CONSOLIDATED AVERAGE BALANCE SHEETS, YIELDS AND RATES (Unaudited)
Six Months Ended Six Months Ended June 30, 1999 June 30, 1998 -------------------------------- -------------------------------- Average Amount of Average Average Amount of Average (In thousands) Balance Interest(1) Rate Balance Interest(1) Rate ----------- -------- ----- ----------- -------- ----- ASSETS Money market investments ........................... $ 1,040,693 $ 30,528 5.92% $ 1,713,376 $ 47,680 5.61% Securities: Held to maturity .............................. 3,084,002 97,213 6.36% 1,964,289 69,020 7.09% Available for sale ............................ 449,960 12,896 5.78% 604,056 18,574 6.20% Trading account ............................... 566,490 14,775 5.26% 439,299 12,246 5.62% ----------- -------- ----------- -------- Total securities ......................... 4,100,452 124,884 6.14% 3,007,644 99,840 6.69% ----------- -------- ----------- -------- Loans: Loans held for sale ........................... 193,856 6,493 6.75% 204,470 7,216 7.12% Net loans and leases(2) ....................... 10,655,038 460,240 8.71% 5,779,104 283,772 9.90% ----------- -------- ----------- -------- Total loans .............................. 10,848,894 466,733 8.68% 5,983,574 290,988 9.81% ----------- -------- ----------- -------- Total interest-earning assets ...................... $15,990,039 $622,145 7.85% $10,704,594 $438,508 8.26% -------- -------- Cash and due from banks ............................ 776,250 551,245 Allowance for loan losses .......................... (203,949) (97,460) Goodwill and core deposit intangibles .............. 267,091 172,161 Other assets ....................................... 1,019,836 395,287 ----------- ----------- Total assets ............................... $17,849,267 $11,725,827 =========== =========== LIABILITIES Interest-bearing deposits: Savings and NOW deposits ...................... $ 1,571,477 $ 18,505 2.37% $ 1,040,206 $ 15,508 3.01% Money market and super NOW deposits ........... 4,965,295 87,555 3.56% 3,146,893 56,941 3.65% Time deposits under $100,000 .................. 2,107,697 49,870 4.77% 1,239,574 32,847 5.34% Time deposits $100,000 or more ................ 1,252,433 30,347 4.89% 586,741 16,506 5.67% Foreign deposits .............................. 170,200 3,530 4.18% 164,021 3,774 4.64% ----------- -------- ----------- -------- Total interest-bearing deposits .......... 10,067,102 189,807 3.80% 6,177,435 125,576 4.10% ----------- -------- ----------- -------- Borrowed funds: Securities sold, not yet purchased ............ 303,998 7,939 5.27% 183,036 4,606 5.07% Federal funds purchased and security repurchase agreements .................... 2,069,609 45,223 4.41% 1,898,670 45,555 4.84% Commercial paper .............................. 102,868 2,621 5.14% 132 4 6.11% FHLB advances and other borrowings: Less than one year ....................... 405,997 9,533 4.74% 82,839 2,605 6.34% Over one year ............................ 55,209 1,717 6.27% 145,817 3,901 5.39% Long-term debt ................................ 452,535 17,519 7.81% 277,447 12,742 9.26% ----------- -------- ----------- -------- Total borrowed funds ..................... 3,390,216 84,552 5.03% 2,587,941 69,413 5.41% ----------- -------- ----------- -------- Total interest-bearing liabilities ....... $13,457,318 $274,359 4.11% $ 8,765,376 $194,989 4.49% -------- -------- Noninterest-bearing deposits ....................... 3,003,333 2,012,492 Other liabilities .................................. 288,162 150,585 ----------- ----------- Total liabilities ........................ 16,748,813 10,928,453 Minority interest .................................. 36,695 -- Total shareholders' equity ............... 1,063,759 797,374 ----------- ----------- Total liabilities and shareholders' equity $17,849,267 $11,725,827 =========== =========== Spread on average interest-bearing funds ........... 3.74% 3.77% ==== ==== Net interest income and net yield on interest-earning assets ....................... $347,786 4.39% $243,519 4.59% ======== ==== ======== ====
1 Taxable-equivalent rates used where applicable. 2 Net of unearned income and fees, net of related costs. Loans include nonaccrual and restructured loans. 15 ZIONS BANCORPORATION AND SUBSIDIARIES The Company manages its earnings sensitivity to interest rate movements, in part, by matching the repricing characteristics of its assets and liabilities and through the use of off-balance sheet arrangements such as caps, floors and interest rate exchange contracts. Net interest income from the use of such off-balance sheet arrangements for the first six months of 1999 was $5.4 million compared to $2.7 million for the first six months of 1998. PROVISION FOR LOAN LOSSES The provision for loan losses increased 11.3% to $3.6 million for the second quarter of 1999, as compared with $3.3 million for the second quarter of 1998, and decreased 14.1% from the $4.2 million for the first quarter of 1999. The provision for loan losses for the first six months of 1999 totaled $7.9 million, 15.3% more than the $6.8 million provision for the first six months of 1998. Annualized it is .15% of average loans for 1999 compared to .23% for 1998. NONINTEREST INCOME Noninterest income for the second quarter of 1999 was $60.7 million, an increase of 27.2% from the $47.8 million for the second quarter of 1998 and a decrease of 4.1% over the $63.3 million for the first quarter of 1999. Primary contributors to the increase in noninterest income were service charges on deposit accounts; other service charges, commissions and fees; trust income; underwriting and trading income; and other income. Comparing the segments of noninterest income for the second quarter of 1999 and the second quarter of 1998 service charges on deposit accounts increased 37.3%; other service charges, commissions and fees increased 32.0%; trust income increased 89.1%; underwriting and trading income increased 47.2%; loan sales and servicing income increased 4.0%; and other income increased 79.3%. Net gains of $0.2 million on the sale of investment securities was realized during the second quarter of 1999 compared to net gains of $2.2 million during the second quarter of 1998. The increase in underwriting and trading income reflects the Company's commencement of providing online executable bond sales over Bloomberg and the Internet and the underwriting of municipal revenue bonds. The increase in other income includes approximately $1.7 million of income from investments in bank owned life insurance policies, and income from nonmarketable securities previously classified as securities income. Noninterest income for the six months ending June 30, 1999 was $124.1 million, an increase of 34.1% over $92.6 million for the first six months of 1998. Comparing the segments of noninterest income for the first six months of 1999 and the first six months of 1998, service charges on deposit accounts increased 34.7%; other service charges, commissions and fees increased 34.0%; trust income increased 87.2%; underwriting and trading income increased 75.3%; loan sales and servicing income increased 17.8%; and other income increased 101.7%. Net losses of $1.1 million on the sale of investment securities was realized during the first six months of 1999 compared to net gains of $3.0 million during the first six months of 1998. The main reasons for the increase in other income are $3.3 million of income from investments in bank owned life insurance policies in 1999 and income from nonmarketable equity securities previously classified as securities income. 16 ZIONS BANCORPORATION AND SUBSIDIARIES NONINTEREST EXPENSE Noninterest expense for the second quarter of 1999 was $151.2 million, an increase of 28.7% over $117.4 million for the second quarter of 1998, and an increase of 1.6% from the $148.7 million for the first quarter of 1999. Comparing significant noninterest expense segments for the second quarter of 1999 and the second quarter of 1998, salaries and employee benefits increased 52.0%, occupancy increased 83.0%, furniture and equipment expense increased 17.2% and the total of all other expenses, excluding merger related expenses, increased 27.0% which included significant increases in legal and professional services, postage, advertising, amortization of goodwill and core deposit intangible assets and other expenses. Restated merger related expenses decreased $10.9 million mainly due to approximately $8.4 million of expenses incurred by The Commerce Bancorporation during the second quarter of 1998. Noninterest expense for the six months ending June 30, 1999 was $299.9 million, an increase of 37.5% over $218.2 million for the first six months of 1998. Comparing significant noninterest expense segments for the first six months of 1999 and the first six months of 1998, salaries and employee benefits increased 53.7%, occupancy increased 89.4%, furniture and equipment expenses increased 22.3%, and the total of all other expenses, excluding merger related expenses, increased 31.6% 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 June 30, 1999, the Company had 6,601 full time equivalent employees, 341 offices and 472 ATMs compared to 5,336 full time equivalent employees, 267 offices and 531 ATMs at June 30, 1998. INCOME TAXES The Company's income taxes increased 71.9% to $27.1 million for the second quarter of 1999 compared to $15.8 million for the second quarter of 1998 and increased 0.6% from the $26.9 million for the first quarter of 1999. The Company's income taxes were $54.0 million for the first six months of 1999 as compared to $33.9 million for the first six months of 1998. The Company's effective income tax rate was 34.25% for the first six months of 1999, up from 32.0% for the first six months of 1998. The increased effective tax rate for 1999 compared to 1998 results primarily from changes in estimates of tax benefits from NOL and refund claims recorded in 1998. ANALYSIS OF FINANCIAL CONDITION EARNING ASSETS Average earning assets increased 49.4% to $15,990 million for the six months ended June 30, 1999, compared to $10,705 million for the six months ended June 30, 1998. Earning assets comprised 89.6% of total average assets for the first six months of 1999, compared with 91.3% for the first six months of 1998. Average money market investments, consisting of interest-bearing deposits, federal funds sold and security resell agreements decreased 39.3% to $1,041 million in the first six months of 1999 as compared to $1,713 million in the first six months of 1998. 17 ZIONS BANCORPORATION AND SUBSIDIARIES During the first six months of 1999, average securities increased 36.3% to $4,100 million compared to $3,008 million in the first six months of 1998. Average held to maturity securities increased 57.0%, available for sale securities decreased 25.5%, and trading account securities increased 29.0% compared with the first six months of 1998. Average net loans and leases increased 81.3% to $10,849 million for the first six months of 1999 compared to $5,984 million in the first six months of 1998, representing 67.8% of earning assets in the first six months of 1999 compared to 55.9% in the first six months of 1998. Average net loans and leases were 83.0% of average total deposits for the six months ended June 30, 1999, as compared to 73.1% for the six months ended June 30, 1998. INVESTMENT SECURITIES The following table presents the Company's investment securities on June 30, 1999, December 31, 1998 and June 30, 1998. As of June 30, 1999, the Company had approximately $59 million of Small Business Administration originator fee certificates that have been classified in other assets and are measured as available for sale securities.
June 30, December 31, June 30, 1999 1998 1998 --------------------- --------------------- --------------------- Amortized Market Amortized Market Amortized Market (In millions) cost value cost value cost value --------- --------- --------- --------- --------- --------- Held to maturity - ---------------- U.S. Treasury Securities ........... $ 2 $ 2 $ 63 $ 63 $ 5 $ 5 U.S. government agencies and corporations: Small Business Administration loan- backed securities .......... 367 363 358 356 396 401 Other agency securities ...... 1,088 1,081 939 944 1,451 1,455 States and political subdivisions .. 351 351 285 293 267 273 Mortgage-backed securities ......... 1,417 1,421 1,159 1,166 131 131 --------- --------- --------- --------- --------- --------- 3,225 3,218 2,804 2,822 2,250 2,265 --------- --------- --------- --------- --------- --------- Available for sale - ------------------ U.S. Treasury securities ........... 76 76 46 47 26 27 U.S. government agencies and corporations: Small Business Administration originator fee certificates ........ -- -- 85 69 82 79 Other agency securities ...... 65 65 112 113 171 171 States and political subdivisions .. 9 8 15 16 15 15 Mortgage and other asset-backed securities ......... 112 113 179 180 42 42 --------- --------- --------- --------- --------- --------- 262 262 437 425 336 334 --------- --------- --------- --------- --------- --------- Equity securities: Mutual funds: Accessor Funds, Inc. ....... 120 120 116 118 110 110 Stock: Federal Home Loan Bank ..... -- -- 101 100 103 103 Other ...................... 73 84 37 41 40 42 --------- --------- --------- --------- --------- --------- 193 204 254 259 253 255 --------- --------- --------- --------- --------- --------- 455 466 691 684 589 589 --------- --------- --------- --------- --------- --------- Total............................... $ 3,680 $ 3,684 $ 3,495 $ 3,506 $ 2,839 $ 2,854 ========= ========= ========= ========= ========= =========
18 ZIONS BANCORPORATION AND SUBSIDIARIES LOANS The Company has structured its organization to separate the lending function from the credit administration function to strengthen the control and independent evaluation of credit activities. Loan policies and procedures provide the Company with a framework for consistent underwriting and a basis for sound credit decisions. In addition, the Company has well-defined standards for grading its loan portfolio, and management utilizes the comprehensive loan grading system to determine risk potential in the portfolio. Another aspect of the Company's credit risk management strategy is the diversification of the loan portfolio. The Company has a well-diversified loan portfolio with no significant exposure to highly leveraged transactions. The table below sets forth the amount of loans outstanding by type on June 30, 1999, December 31, 1998 and June 30, 1998. (In millions)
June 30, December 31, June 30, Types 1999 1998 1998 - ----- ----------- ----------- ----------- Loans held for sale .......................... $ 195 $ 232 $ 198 Commercial, financial, and agricultural ...... 2,650 2,692 1,629 Real estate: Construction .......................... 1,190 867 578 Other: Home equity credit line .... 280 222 175 1-4 family residential ..... 2,346 2,186 1,072 Other real estate-secured .. 3,546 3,624 2,003 ----------- ----------- ----------- 6,172 6,032 3,250 ----------- ----------- ----------- 7,362 6,899 3,828 Consumer: Bankcard .............................. 80 87 57 Other ................................. 482 452 384 ----------- ----------- ----------- 562 539 441 Lease financing .............................. 218 214 175 Foreign loans ................................ 50 44 -- Other receivables ............................ 59 62 51 ----------- ----------- ----------- Total loans ........................... $ 11,096 $ 10,682 $ 6,322 =========== =========== ===========
Loans held for sale on June 30, 1999 decreased 15.9% from year-end 1998. All other loans, net of unearned income and fees increased 4.3% to $10,851 million on June 30, 1999 compared to $10,401 million on December 31, 1998. Construction loans, other real estate-secured loans, consumer loans, lease financing, and foreign loans increased from year end 37.3%, 2.3%, 4.2%, 2.2% and 14.2%, respectively, as commercial loans, and other receivables decreased 1.6%, and 4.7%, respectively. Within the other real estate-secured loan portfolio, home equity credit line loans increased 26.1%, 1-4 family residential loans increased 7.3% and all other real estate loans decreased 2.1% from year end. 19 ZIONS BANCORPORATION AND SUBSIDIARIES On June 30, 1999, long-term first mortgage real estate loans serviced for others totaled $204 million and consumer and other loan securitizations, which relate primarily to loans sold under revolving securitization structures, totaled $1,213 million. During the first six months of 1999, the Company sold $504 million of loans classified in held for sale, and securitized and sold SBA 504 loans, home equity credit line loans, credit card receivables and automobile loans totaling $669 million. During the first six months of 1999, total loans sold were $1,173 million. Commitments to extend credit on loans and standby letters of credit on June 30, 1999, December 31, 1998 and June 30, 1998 totaled $5,282 million, $4,758 million and $3,130 million, respectively. RISK ELEMENTS The Company's nonperforming assets, which include nonaccruing loans, restructured loans, other real estate owned and other nonperforming assets, were $58 million on June 30, 1999, down from $64 million on December 31, 1998, and up from $29 million on June 30, 1998. Such nonperforming assets as a percentage of net loans and leases, other real estate owned and other nonperforming assets were .53%, .60% and .47% on June 30, 1999, December 31, 1998, and June 30, 1998, respectively. Accruing loans past due 90 days or more totaled $27 million on June 30, 1999, up from $26 million on December 31, 1998, and up from $18 million on June 30, 1998. These loans equaled .25% of net loans and leases on June 30, 1999, as compared to .24% on December 31, 1998 and .29% on June 30, 1998. No loans to borrowers were considered potential problems at June 30, 1999, December 31, 1998 and June 30, 1998. Potential problem loans are defined as loans presently on accrual, not contractually past due 90 days or more and not restructured, but about which management has serious doubt as to the future ability of the borrower to comply with present repayment terms and which may result in the reporting of the loans as nonperforming assets. The Company's total recorded investment in impaired loans included in nonaccrual loans and leases, amounted to $36 million on June 30, 1999, as compared to $41 million on December 31, 1998, and $16 million on June 30, 1998. The Company considers a loan to be impaired when the accrual of interest has been discontinued and it meets other criteria under the statements. The amount of the impairment is measured based on the present value of expected cash flows, the observable market price of the loan, or the fair value of the collateral. Impairment losses are included in the allowance for loan losses through a provision for loan losses. Included in the allowance for loan losses on June 30, 1999, December 31, 1998, and June 30, 1998, is a required allowance of $16 million, $5 million and $1 million, respectively, on $21 million, $12 million and $5 million, respectively, of the recorded investment in impaired loans. 20 ZIONS BANCORPORATION AND SUBSIDIARIES The following table sets forth the nonperforming assets on June 30, 1999, December 31, 1998, and June 30, 1998.
June 30, December 31, June 30, (In millions) 1999 1998 1998 ------- ------- ------- Nonaccrual loans .............................. $ 48 $ 54 $ 25 Restructured loans ............................ 3 5 1 Other real estate owned and other nonperforming assets ..................... 7 5 3 ------- ------- ------- Total .................................... $ 58 $ 64 $ 29 ======= ======= ======= % of net loans and leases*, other real estate owned and other nonperforming assets ..... .53% .60% .47% Accruing loans past due 90 days or more ....... $ 27 $ 26 $ 18 ======= ======= ======= % of net loans and leases* .................... .25% .24% .29% *Includes loans held for sale
ALLOWANCE FOR LOAN LOSSES The Company's allowance for loan losses was 1.85% of net loans and leases on June 30, 1999, compared to 1.93% on December 31, 1998, and 1.57% on June 30, 1998. Net recoveries during the second quarter of 1999 were $2 million, or .08% of average net loans and leases, compared to net charge-offs of $3 million, or .20% of average net loans and leases for the second quarter of 1998. Net charge-offs for the first six months of 1999 were $9 million, or .16% of average net loans and leases, compared to $4 million or .13% of average net loans and leases for the first six months of 1998. The allowance, as a percentage of nonaccrual loans and restructured loans, was 403.15% on June 30, 1999, compared to 347.86% on December 31, 1998, and 382.08% on June 30, 1998. The allowance, as a percentage of nonaccrual loans and accruing loans past due 90 days or more was 273.51% on June 30, 1999, compared to 258.04% on December 31, 1998 and 228.54% on June 30, 1998. Commitments to extend credit on loans and standby letters of credit on June 30, 1999, December 31, 1998 and June 30, 1998, totaled $5,282 million, $4,758 million and $3,130 million, respectively. 21 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.
Six Months Twelve Months Six Months Ended Ended Ended (In millions) June 30, December 31, June 30, 1999 1998 1998 ------------ ------------ ------------ Average loans* and leases outstanding (net of unearned income) ................ $ 10,849 $ 7,174 $ 5,984 ============ ============ ============ Allowance for possible losses: Balance at beginning of the period ........... $ 206 $ 92 $ 92 Allowance of companies acquired .............. -- 117 3 Provision charged against earnings ........... 8 12 7 Loans and leases charged-off: Loans held for sale ..................... -- -- -- Commercial, financial and agricultural .. (13) (8) (2) Real estate ............................. (1) (6) (1) Consumer ................................ (4) (9) (5) Lease financing ......................... (2) (1) -- ------------ ------------ ------------ Total .............................. (20) (24) (8) ------------ ------------ ------------ Recoveries: Loans held for sale ..................... -- -- -- Commercial, financial and agricultural .. 4 3 2 Real estate ............................. 6 3 1 Consumer ................................ 1 3 1 Lease financing ......................... -- -- -- ------------ ------------ ------------ Total .............................. 11 9 4 ------------ ------------ ------------ Net loan and lease charge-offs ............... (9) (15) (4) ------------ ------------ ------------ Balance at end of the period ................. $ 205 $ 206 $ 98 ============ ============ ============ *Includes loans held for sale Ratio of net charge-offs to average loans and leases ................ .16% .21% .13%
22 ZIONS BANCORPORATION AND SUBSIDIARIES DEPOSITS Average total deposits of $13,070 million for the first six months of 1999 increased 59.6% over the $8,190 million for the first six months of 1998, with average demand deposits increasing 49.2%. Average money market and super NOW deposits, time deposits under $100,000, time deposits over $100,000 and foreign deposits for the first six months of 1999 increased 57.8%, 70.0%, 113.5% and 3.8% respectively, from the first six months of 1998. Average savings and NOW deposits increased 51.1% during the first six months of 1999, compared with the same period one year earlier. Total deposits decreased 1.9% to $13,071 million on June 30, 1999 as compared to $13,321 million on December 31, 1998. Comparing June 30, 1999 to December 31, 1998, demand deposits, time deposits under $100,000, time deposits over $100,000 and foreign deposits decreased 2.9%, 17.2%, 29.4% and 19.8%, respectively, while savings and money market deposits increased 12.1%. LIQUIDITY AND INTEREST RATE SENSITIVITY The Company manages its liquidity to provide adequate funds to meet its financial obligations, including withdrawals by depositors and debt service requirements, as well as to fund customers' demand for credit. Liquidity is primarily provided by the regularly scheduled maturities of the Company's investment and loan portfolios. The Company's liquidity is enhanced by the fact that cash, money market securities and liquid investments, net of short-term or "purchased" liabilities and wholesale deposits, totaled $1,254 million or 10.6% of core deposits on June 30, 1999. The Company's core deposits, consisting of demand, savings and money market deposits and time deposits under $100,000, constituted 90.5% of total deposits on June 30, 1999 as compared to 87.0% on December 31, 1998 and 90.4% on June 30, 1998. Maturing balances in loan portfolios provide flexibility in managing cash flows. Maturity management of those funds is an important source of medium- to long-term liquidity. The Company's ability to raise funds in the capital markets through the securitization process and by debt issuance allows the Company to take advantage of market opportunities to meet funding needs at reasonable cost. The parent company's cash requirements consist primarily of debt service, dividends to shareholders, operating expenses, income taxes, and share repurchases. The parent company's cash needs are routinely satisfied through payments by subsidiaries of dividends, management and other fees, principal and interest payments on subsidiary borrowings from the parent company. Interest rate risk is the most significant market risk regularly undertaken by Company. The Company believes there have been no significant changes in market risk compared to the disclosures in Zions Bancorporation's Annual Report to Shareholders on Form 10-K for the year ended December 31, 1998. 23 ZIONS BANCORPORATION AND SUBSIDIARIES Interest rate sensitivity measures the Company's financial exposure to changes in interest rates. Interest rate sensitivity is, like liquidity, affected by maturities of assets and liabilities. The Company assesses its interest rate sensitivity using duration, and simulation analysis. Duration is a measure of the weighted average expected lives of the discounted cash flows from assets and liabilities. Simulation is used to estimate net interest income over time using alternative interest rate scenarios. The Company, through the management of maturities and repricing of its assets and liabilities and the use of off-balance sheet arrangements such as interest rate caps, floors, futures, options, and interest rate exchange agreements, attempts to minimize the effect on net income of changes in interest rates. The Company's management exercises its best judgment in making assumptions with respect to loan and security prepayments, early deposit withdrawals and other noncontrollable events in managing the Company's exposure to changes in interest rates. The interest rate risk position is actively managed and changes daily as the interest rate environment changes; therefore, positions at the end of any period may not be reflective of the Company's interest rate position in subsequent periods. The prime lending rate is the primary basis used for pricing the Company's loans and the short-term Treasury rate is the index used for pricing many of the Company's deposits. The Company, however, is unable to economically hedge the prime/91-day T-bill spread risk through the use of off-balance sheet financial instruments. CAPITAL RESOURCES AND DIVIDENDS Total shareholders' equity on June 30, 1999 was $1,091 million, an increase of 7.7% over the $1,014 million on December 31, 1998, and an increase of 15.2% over the $947 million on June 30, 1998. The ratio of average equity to average assets for the first six months of 1999 was 5.96% as compared to 6.80% for the same period in 1998. On June 30, 1999, the Company's Tier I risk-based capital ratio was 8.76%, as compared to 8.46% on December 31, 1998 and 13.01% on June 30, 1998. On June 30, 1999 the Company's total risk-based capital ratio was 11.72%, as compared to 11.48% on December 31, 1998 and 16.21% on June 30, 1998. The Company's leverage ratio on June 30, 1999 was 6.06%, as compared to 5.98% on December 31, 1998 and 8.33% on June 30, 1998. Dividends declared per common share for the second quarter of 1999 of $.29 increased 107.1%, as compared to $.14 for the second quarter of 1998 and the first quarter of 1999. The common cash dividend payout of net income for the first six months of 1999 was 33.42%, as compared to 26.12% for the first six months of 1998. During the first six months of 1999, the Company repurchased and retired 15,382 shares of its common stock at a cost of $966 thousand. 24 ZIONS BANCORPORATION AND SUBSIDIARIES OPERATING SEGMENT INFORMATION The following is a summary of selected operating segment information for the three months and six months ended June 30, 1999 and June 30, 1998. The Company manages its operations and prepares management reports with a primary focus on geographical area. All segments presented, except for the segment defined as "other" are based on commercial banking operations. Zions First National Bank and subsidiaries operates 117 branches in Utah and 17 in Idaho. California Bank & Trust operates 70 branches in Northern and Southern California. Vectra Bank Colorado operates 54 branches in Colorado and one branch in New Mexico. National Bank of Arizona operates a total of 36 branches in Arizona. Nevada State Bank operates 44 offices in Nevada, and The Commerce Bank of Washington operates 1 office in Washington. The operating segment defined as "other" includes the Parent company, smaller nonbank operating units, and eliminations of transactions between segments. The accounting policies of the individual segments are the same as those of the Company. The Company allocates centrally provided services to the business segments based upon estimated usage of those services. The following table presents Operating Segment Information for the three months ended June 30, 1999 and for the three months ended June 30, 1998.
ZIONS FIRST NATIONAL BANK AND CALIFORNIA VECTRA BANK NATIONAL BANK SUBSIDIARIES BANK & TRUST COLORADO OF ARIZONA -------------------- ------------------- ------------------- ------------------- (Amounts in millions) 1999 1998 1999 1998 1999 1998 1999 1998 -------- -------- -------- -------- -------- -------- -------- -------- CONDENSED INCOME STATEMENT Net interest income .......... $ 55.0 $ 54.0 $ 65.4 $ 17.9 $ 22.6 $ 18.3 $ 18.8 $ 17.5 Provision for loan losses .... 2.3 1.5 -- 0.8 0.7 0.3 0.6 0.6 Noninterest income ........... 37.4 36.3 9.3 2.1 4.0 3.2 3.5 2.0 Noninterest expense .......... 53.1 55.0 47.3 13.6 19.4 13.7 11.0 10.1 Income tax expense (benefit) . 11.1 11.7 11.8 2.1 2.0 2.9 4.3 3.6 Minority interest ............ (0.2) -- -- -- -- -- -- -- -------- -------- -------- -------- -------- -------- -------- -------- Net income .............. $ 26.1 $ 22.1 $ 15.6 $ 3.5 $ 4.5 $ 4.6 $ 6.4 $ 5.2 ======== ======== ======== ======== ======== ======== ======== ======== AVERAGE BALANCE SHEET DATA Total assets ................. $ 7,275 $ 6,266 $ 6,050 $ 1,279 $ 1,952 $ 1,597 $ 1,513 $ 1,347 Net loans and leases ......... 3,652 2,915 4,214 745 1,300 973 1,087 848 Total deposits ............... 3,731 3,678 5,349 1,159 1,602 1,318 1,261 1,153 NEVADA STATE THE COMMERCE BANK AND BANK OF CONSOLIDATED SUBSIDIARIES WASHINGTON OTHER COMPANY -------------------- ------------------- ------------------- ------------------- (Amounts in millions) 1999 1998 1999 1998 1999 1998 1999 1998 -------- -------- -------- -------- -------- -------- -------- -------- CONDENSED INCOME STATEMENT Net interest income .......... $ 12.7 $ 12.6 $ 3.7 $ 3.6 $ (3.6) $ (2.2) $ 174.6 $ 121.7 Provision for loan losses .... 0.4 0.4 -- 0.1 (0.4) (0.4) 3.6 3.3 Noninterest income ........... 4.3 3.6 0.2 0.6 2.0 -- 60.7 47.8 Noninterest expense .......... 11.5 10.7 1.8 10.4 7.1 3.9 151.2 117.4 Income tax expense (benefit) . 1.7 1.6 0.7 (1.8) (4.5) (4.3) 27.1 15.8 Minority interest ............ -- -- -- -- 0.8 -- 0.6 -- -------- -------- -------- -------- -------- -------- -------- -------- Net income .............. $ 3.4 $ 3.5 $ 1.4 $ (4.5) $ (4.6) $ (1.4) $ 52.8 $ 33.0 ======== ======== ======== ======== ======== ======== ======== ======== AVERAGE BALANCE SHEET DATA Total assets ................. $ 1,151 $ 1,022 $ 351 $ 296 $ (81) $ 47 $ 18,211 $ 11,854 Net loans and leases ......... 547 513 163 152 18 6 10,981 6,152 Total deposits ............... 945 852 233 207 (27) (49) 13,094 8,318 25 ZIONS BANCORPORATION AND SUBSIDIARIES The following table presents Operating Segment Information for the six months ended June 30, 1999 and for the six months ended June 30, 1998. ZIONS FIRST NATIONAL BANK AND CALIFORNIA VECTRA BANK NATIONAL BANK SUBSIDIARIES BANK & TRUST COLORADO OF ARIZONA -------------------- ------------------- ------------------- ------------------- (Amounts in millions) 1999 1998 1999 1998 1999 1998 1999 1998 -------- -------- -------- -------- -------- -------- -------- -------- CONDENSED INCOME STATEMENT Net interest income .......... $ 109.9 $ 106.7 $ 125.4 $ 35.2 $ 43.9 $ 34.6 $ 36.8 $ 34.8 Provision for loan losses .... 4.5 3.0 -- 1.6 1.3 0.6 1.2 1.2 Noninterest income ........... 79.0 68.9 17.8 4.3 9.0 5.4 6.2 4.2 Noninterest expense .......... 106.4 105.4 94.7 24.2 38.2 25.3 21.9 20.5 Income tax expense (benefit) . 23.8 23.0 21.0 5.3 4.7 5.4 7.9 6.9 Minority interest ............ 0.7 -- -- -- -- -- -- -- -------- -------- -------- -------- -------- -------- -------- -------- Net income .............. $ 53.5 $ 44.2 $ 27.5 $ 8.4 $ 8.7 $ 8.7 $ 12.0 $ 10.4 ======== ======== ======== ======== ======== ======== ======== ======== AVERAGE BALANCE SHEET DATA Total assets ................. $ 7,051 $ 6,312 $ 6,024 $ 1,247 $ 1,920 $ 1,511 $ 1,482 $ 1,343 Net loans and leases ......... 3,608 2,835 4,211 737 1,249 922 1,063 832 Total deposits ............... 3,760 3,651 5,332 1,127 1,610 1,231 1,237 1,159 NEVADA STATE THE COMMERCE BANK AND BANK OF CONSOLIDATED SUBSIDIARIES WASHINGTON OTHER COMPANY -------------------- ------------------- ------------------- ------------------- (Amounts in millions) 1999 1998 1999 1998 1999 1998 1999 1998 -------- -------- -------- -------- -------- -------- -------- -------- CONDENSED INCOME STATEMENT Net interest income .......... $ 25.2 $ 25.1 $ 7.2 $ 7.0 $ (6.9) $ (5.1) $ 341.5 $ 238.3 Provision for loan losses .... 0.8 0.8 0.4 0.1 (0.3) (0.5) 7.9 6.8 Noninterest income ........... 8.3 6.9 0.4 0.9 3.4 2.0 124.1 92.6 Noninterest expense .......... 22.3 21.3 3.5 12.2 12.9 9.3 299.9 218.2 Income tax expense (benefit) . 3.5 3.1 1.2 (1.2) (8.1) (8.6) 54.0 33.9 Minority interest ............ -- -- -- -- 1.4 -- 2.1 -- -------- -------- -------- -------- -------- -------- -------- -------- Net income .............. $ 6.9 $ 6.8 $ 2.5 $ (3.2) $ (9.4) $ (3.3) $ 101.7 $ 72.0 ======== ======== ======== ======== ======== ======== ======== ======== AVERAGE BALANCE SHEET DATA Total assets ................. $ 1,125 $ 1,006 $ 343 $ 296 $ (96) $ 11 $ 17,849 $ 11,726 Net loans and leases ......... 541 501 158 152 19 5 10,849 5,984 Total deposits ............... 930 843 228 211 (27) (32) 13,070 8,190
26 ZIONS BANCORPORATION AND SUBSIDIARIES MERGERS AND ACQUISITIONS On April 27, 1999, the Company announced a definitive agreement to merge with Regency Bancorp of Fresno, California in exchange for common shares of Zions. Regency Bancorp's banking subsidiary, Regency Bank, will then merge into Zions' subsidiary, California Bank & Trust. As of March 31, 1999, Regency Bancorp had total assets of approximately $228 million. The merger is intended to be accounted for as a pooling of interests and is expected to close in the third quarter, subject to the approval of banking regulators and the shareholders of Regency Bancorp. On May 7, 1999, the Company announced a definitive agreement to merge with Pioneer Bancorporation of Reno, Nevada in a stock transaction valued at approximately $340.8 million. Pioneer Bancorporation's subsidiary, Pioneer Citizens Bank of Nevada, will merge into Zions' subsidiary, Nevada State Bank, creating the third largest bank in the state. As of March 31, 1999, Pioneer Bancorporation had total assets of approximately $1,077 million. The transaction is expected to close in the third quarter and is intended to be accounted for as a pooling of interests. See Notes to Consolidated Financial Statements for a description of a pending merger with First Security Corporation announced during the second quarter of 1999. YEAR 2000 A number of electronic systems utilize a two-digit field for year references, e.g., 98 for 1998. Such systems may compute that the year 2000, if represented as 00, to be 99 years ago rather than one year hence. If these systems are not corrected prior to December 31, 1999, many processing failures could result. This section describes the status of the Company's efforts to correct these system deficiencies. State of Readiness. The Company has completed its mission-critical Year 2000 Program efforts; however, it expects to continue to test its systems until year end and conduct additional remediation for systems that are modified until that time. The Company is also assessing the operability of other devices after 1999, including vaults, fax machines, stand-alone personal computers, security systems and elevators. Although the Company does not believe that the failure of these systems would have a material adverse effect on the financial condition of the enterprise, it is addressing deficiencies in these systems and expects compliance to be achieved by September 30, 1999. Costs. In order to achieve and confirm Year 2000 readiness, significant costs have been incurred to test and modify or replace computer software and hardware, as well as a variety of other items, e.g., ATMs. The Company believes that its remediation costs have been mitigated since it replaced the large majority of its core banking systems during the past five years with Year 2000 compliant software in the ordinary course of business. However, the considerable effort required to implement new software and sufficiently test its compliance has consumed a substantial portion of the Company's internal information technology resources. This diversion of resources to the Year 2000 project has resulted in delays in implementing enhancements to a number of the Company's systems and products. The Company does not believe, however, that these delays have had a significant effect on its revenue or expense growth. The aggregate increase in operating expense to achieve Year 2000 readiness is estimated to be approximately $3 million, which has been incurred through June 30, 1999. In addition, a significant portion of the Company's ATMs and personal computers are expected to be replaced during the third quarter to achieve Year 2000 compliance. The capital outlay to replace these assets is estimated to be between $3 to $4 million, a portion of which would have been incurred in the ordinary course of business without regard to Year 2000 issues. 27 ZIONS BANCORPORATION AND SUBSIDIARIES Risks. If the Company's mission-critical applications are not compliant by 2000, it may not be able to correctly process transactions in a reasonable period of time. This scenario could result in a wide variety of claims against the Company for improper handling of its assets and deposits and other borrowings from its customers. The Company is also at risk if the credit worthiness of a few of its large borrowers, or a significant number of its small borrowers, were to deteriorate quickly and severely as a result of their inability to conduct business operations after December 31, 1999, for whatever reason. The Company has surveyed and reviewed the Year 2000 plans of a number of its credit customers to ascertain the sufficiency of their remediation efforts and the implications of their actions on their credit worthiness. From this review, the Company believes that the increased credit risk that the Company may experience as a result of the Year 2000 issue will not have a material adverse effect its financial condition. The Company explicitly disclaims, however, any obligation or liability for the completeness, or lack thereof, of its customers' Year 2000 remediation plans or actions. Contingency Plans. The Company has developed business resumption plans for each significant business unit in the event that unforeseen events beyond the Company's control adversely impact our ability to provide financial services to our customers. In the event of such a failure, these plans outline the steps that will be taken to minimize the impact to customers and losses to the Company. Forward-Looking Information Statements in Management's Discussion and Analysis that are not based on historical data are forward-looking, including, for example, the projected performance of Zions and its operations. These statements constitute forward-looking information within the meaning of the Private Securities Litigation Reform Act of 1995. Actual results may differ materially from the projections discussed in Management's Discussion and Analysis since such projections involve significant risks and uncertainties. Factors that might cause such differences include, but are not limited to: the timing of closing proposed acquisitions being delayed or such acquisitions being prohibited, competitive pressures among financial institutions increasing significantly; economic conditions, either nationally or locally in areas in which Zions conducts its operations, being less favorable than expected; legislation or regulatory changes which adversely affect the Company's operations or business; the cost and effort required to correct Year 2000 processing deficiencies being greater than expected due to the difficulty attracting and retaining qualified systems personnel or vendor-supplied software releases being delayed or not functioning properly. Zions disclaims any obligation to update any such factors or to publicly announce the results of any revisions to any of the forward-looking statements included herein to reflect future events or developments. 28 ZIONS BANCORPORATION AND SUBSIDIARIES PART II. OTHER INFORMATION ----------------- ITEM 4. SUBMISSION OF MATTERS TO A VOTE OF SHAREHOLDERS ----------------------------------------------- The following is a summary of matters submitted to vote at the Annual Meeting of Shareholders of Zions Bancorporation: a) The Annual Meeting of Shareholders was held on April 23, 1999. Total number of shares eligible for voting was 78,752,711. b) Election of Directors --------------------- Proxies were solicited by Zions Bancorporation's management pursuant to Regulation 14A under the Securities Exchange Act of 1934. There was no solicitation in opposition to management's nominees as listed in the proxy statement, and all of such nominees were elected pursuant to the vote of the shareholders as indicated in the proxy statement. c) The matters voted upon and the results were as follows: (1) Election of Directors --------------------- Withhold For Authority --- --------- Jerry C. Atkin 63,234,829 146,781 Grant R. Caldwell 63,177,149 204,461 Roy W. Simmons 63,193,296 188,314 Shelley Thomas 62,688,457 693,153 (2) Approve the Long Term Executive Compensation Plan ------------------------------------------------- Approval of the Company's Value Sharing Plan for executive management. For Against Abstain 61,260,254 1,580,106 541,250 29 ZIONS BANCORPORATION AND SUBSIDIARIES PART II. OTHER INFORMATION (CONTINUED) ITEM 6. EXHIBITS AND REPORTS ON FORM 8-K -------------------------------- a) Exhibits b) Reports on Form 8-K Zions Bancorporation filed the following reports on Form 8-K during the quarter ended June 30, 1999; Form 8-K filed June 7, 1999 (Item 5). On June 6, 1999, Zions Bancorporation issued a press release announcing the Agreement and Plan of Merger whereby Zions is to merge with and into First Security Corporation with First Security as the surviving corporation. S I G N A T U R E S ------------------- Pursuant to the requirements of the Securities Exchange Act of 1934, the Registrant has duly caused this report to be signed on its behalf by the undersigned thereunto duly authorized. ZIONS BANCORPORATION /s/Harris H. Simmons -------------------------------- Harris H. Simmons, President and Chief Executive Officer /s/Dale M. Gibbons -------------------------------- Dale M. Gibbons, Executive Vice President and Chief Financial Officer Dated August 13, 1999 30 EX-27 2 FINANCIAL DATA SCHEDULE
9 This schedule contains summary financial information extracted from the unaudited consolidated balance sheet as of June 30, 1999 and the related unaudited consolidated statement of income for the six months ended June 30, 1999 included in the company's form 10-Q for the period ended June 30, 1999 and is qualified in its entirety by reference to such financial statements. 0000109380 Zions Bancorporation /UT/ 1,000 U.S. 6-MOS Dec-31-1999 Apr-01-1999 Jun-30-1999 1 882,772 17,757 382,373 416,130 465,838 3,224,716 3,218,343 11,046,662 204,825 17,605,736 13,070,724 2,563,444 329,344 513,465 0 0 329,370 761,902 17,605,736 465,059 150,747 0 615,806 189,807 274,359 341,447 7,864 (1,113) 301,983 155,688 101,659 0 0 101,659 1.29 1.27 4.31 47,509 27,379 3,297 0 205,553 19,691 11,099 204,825 171,182 0 33,643
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