-----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, S/TbfISP8p9lcHVnbJuOugMap3cOnxX9pNbsTbfbQaw33WmLtmF7PXX3aQ7gotjh yVSFDReQWS3dPZ3YS10c3A== 0000109380-00-000021.txt : 20000512 0000109380-00-000021.hdr.sgml : 20000512 ACCESSION NUMBER: 0000109380-00-000021 CONFORMED SUBMISSION TYPE: 10-Q PUBLIC DOCUMENT COUNT: 2 CONFORMED PERIOD OF REPORT: 20000331 FILED AS OF DATE: 20000511 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: 626826 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 [ X ] QUARTERLY REPORT UNDER SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934 For the quarterly period ended March 31, 2000 -------------- OR [ ] TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934 For the transition period from to COMMISSION FILE NUMBER 0-2610 ZIONS BANCORPORATION (Exact name of Registrant as specified in its charter) UTAH 87-0227400 - --------------------------------- ------------------- (State or other jurisdiction (I.R.S. Employer of incorporation or organization) Identification No.) ONE SOUTH MAIN, SUITE 1380 SALT LAKE CITY, UTAH 84111 - ---------------------------------------- ---------- (Address of principal executive offices) (Zip Code) Registrant's telephone number, including area code: (801) 524-4787 Indicate by check mark whether the registrant (1) has filed all reports required to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during the preceding 12 months and (2) has been subject to such filing requirement for the past 90 days. Yes [ X ] No [ ] Indicate the number of shares outstanding of each of the issuer's classes of common stock, as of the latest practicable date. Common Stock, without par value, outstanding at May 1, 2000 85,700,478 shares 1 ZIONS BANCORPORATION AND SUBSIDIARIES INDEX Page ---- PART I. FINANCIAL INFORMATION --------------------- ITEM 1. Financial Statements (unaudited) Consolidated Balance Sheets 3 Consolidated Statements of Operations 4 Consolidated Statements of Cash Flows 5 Consolidated Statements of Changes in Shareholders' Equity and Comprehensive Income (Loss) 7 Notes to Consolidated Financial Statements 8 ITEM 2. Management's Discussion and Analysis 9 PART II. OTHER INFORMATION ----------------- ITEM 6. Exhibits and Reports on Form 8-K 25 SIGNATURES 25 2 ZIONS BANCORPORATION AND SUBSIDIARIES CONSOLIDATED BALANCE SHEETS (Unaudited)
March 31, December 31, March 31, (In thousands, except share amounts) 2000 1999 1999 ------------ ------------ ------------ ASSETS Cash and due from banks ............................................. $ 929,763 $ 898,300 $ 851,118 Money market investments: Interest-bearing deposits ...................................... 18,019 17,371 25,200 Federal funds sold ............................................. 185,937 85,898 200,092 Security resell agreements ..................................... 582,730 421,900 248,286 Investment securities: Held to maturity, at cost (approximate market value $3,251,145, $3,290,508, and $3,120,439) ........................ 3,294,839 3,330,444 3,105,885 Available for sale, at market .................................. 641,846 778,930 702,051 Trading account, at market...................................... 396,767 327,845 221,127 ------------ ------------ ------------ 4,333,452 4,437,219 4,029,063 Loans: Loans held for sale ............................................ 179,332 204,800 179,672 Loans, leases, and other receivables ........................... 13,003,980 12,648,325 11,392,201 ------------ ------------ ------------ 13,183,312 12,853,125 11,571,873 Less: Unearned income and fees, net of related costs ................. 58,947 62,480 45,890 Allowance for loan losses ...................................... 200,065 204,114 206,058 ------------ ------------ ------------ Net loans ................................................ 12,924,300 12,586,531 11,319,925 Premises and equipment, net ......................................... 290,752 287,448 253,394 Goodwill and core deposit intangibles ............................... 656,930 666,219 651,276 Other real estate owned ............................................. 7,508 8,939 7,064 Other assets ........................................................ 1,067,166 871,075 940,999 ------------ ------------ ------------ $ 20,996,557 $ 20,280,900 $ 18,526,417 ============ ============ ============ LIABILITIES AND SHAREHOLDERS' EQUITY Deposits: Noninterest-bearing ............................................. $ 3,426,885 $ 3,276,097 $ 3,286,910 Interest-bearing: Savings and money market ................................... 7,982,643 7,660,786 7,103,855 Time: Under $100,000 ......................................... 1,748,093 1,836,645 2,159,569 Over $100,000 .......................................... 1,283,157 1,078,631 1,441,284 Foreign .................................................... 143,998 209,780 154,059 ------------ ------------ ------------ 14,584,776 14,061,939 14,145,677 Securities sold, not yet purchased .................................. 257,605 237,020 247,249 Federal funds purchased ............................................. 952,471 825,997 373,857 Security repurchase agreements ...................................... 1,481,892 1,366,653 876,640 Accrued liabilities ................................................. 399,027 247,406 446,116 Commercial paper .................................................... 305,618 238,660 145,416 Federal Home Loan Bank advances and other borrowings: Less than one year ............................................. 801,574 1,038,045 254,130 Over one year .................................................. 150,201 112,622 50,798 Long-term debt ...................................................... 437,647 453,471 453,554 ------------ ------------ ------------ Total liabilities .......................................... 19,370,811 18,581,813 16,993,437 ------------ ------------ ------------ Minority interest ................................................... 40,079 39,249 37,599 Shareholders' equity: Capital stock: Preferred stock, without par value; authorized 3,000,000 shares; issued and outstanding, none ........ -- -- -- Common stock, without par value; authorized 200,000,000 shares; issued and outstanding 85,694,426, 85,592,643 and 84,315,145 shares ........................ 888,725 888,231 822,400 Accumulated other comprehensive loss ........................... (25,500) (4,158) (1,475) Retained earnings .............................................. 722,442 775,765 674,456 ------------ ------------ ------------ Total shareholders' equity ................................ 1,585,667 1,659,838 1,495,381 ------------ ------------ ------------ $ 20,996,557 $ 20,280,900 $ 18,526,417 ============ ============ ============
3 ZIONS BANCORPORATION AND SUBSIDIARIES CONSOLIDATED STATEMENTS OF OPERATIONS (Unaudited)
Three Months Ended March 31, ---------------------- (In thousands, except per share amounts) 2000 1999 --------- --------- Interest income: Interest and fees on loans ................................. $ 280,384 $ 233,057 Interest on loans held for sale ............................ 3,319 3,405 Lease financing ............................................ 4,212 3,424 Interest on money market investments ....................... 20,089 14,816 Interest on securities: Held to maturity: Taxable .......................................... 48,742 41,216 Nontaxable ....................................... 4,013 4,480 Available for sale: Taxable .......................................... 8,562 10,271 Nontaxable ....................................... 1,278 709 Trading account ....................................... 8,956 6,792 --------- --------- Total interest income ................................. 379,555 318,170 --------- --------- Interest expense: Interest on savings and money market deposits .............. 74,896 54,650 Interest on time and foreign deposits ...................... 39,096 47,583 Interest on borrowed funds ................................. 74,571 39,082 --------- --------- Total interest expense ................................ 188,563 141,315 --------- --------- Net interest income ................................... 190,992 176,855 Provision for loan losses ....................................... 5,248 4,741 --------- --------- Net interest income after provision for loan losses ... 185,744 172,114 --------- --------- Noninterest income: Service charges on deposit accounts ........................ 19,049 18,668 Other service charges, commissions and fees ................ 15,839 16,117 Trust income ............................................... 4,487 3,377 Investment securities gain (loss), net ..................... 1,135 (1,304) Impairment loss on First Security Corporation common stock . (96,911) -- Underwriting and trading income ............................ 3,347 4,021 Loan sales and servicing income ............................ 9,824 15,172 Other income ............................................... 6,919 9,429 --------- --------- Total noninterest income .............................. (36,311) 65,480 --------- --------- Noninterest expense: Salaries and employee benefits ............................. 81,137 86,282 Occupancy, net ............................................. 12,219 12,665 Furniture and equipment .................................... 12,768 10,655 Other real estate expense .................................. 299 44 Legal and professional services ............................ 4,990 3,616 Supplies ................................................... 2,506 2,704 Postage .................................................... 3,042 2,911 Advertising ................................................ 4,564 3,152 Merger related expense ..................................... 41,543 1,045 FDIC premiums .............................................. 867 382 Amortization of goodwill and core deposit intangibles ...... 9,290 8,728 Amortization of mortgage servicing assets .................. 80 651 Other ...................................................... 27,007 29,770 --------- --------- Total noninterest expense ............................. 200,312 162,605 --------- --------- Income (loss) before income taxes and minority interest ......... (50,879) 74,989 Income taxes (benefit) .......................................... (21,955) 26,729 --------- --------- Net income (loss) before minority interest ............ (28,924) 48,260 Minority interest ............................................... (432) 1,356 --------- --------- Net income (loss) ..................................... $ (28,492) $ 46,904 ========= =========== Weighted average common and common-equivalent shares outstanding during the period ......................... 86,459 85,493 Net income (loss) per common share: Basic ...................................................... $ (0.33) $ 0.56 Diluted .................................................... $ (0.33) $ 0.55
4 ZIONS BANCORPORATION AND SUBSIDIARIES CONSOLIDATED STATEMENTS OF CASH FLOWS (Unaudited)
Three Months Ended March 31, ---------------------------- (In thousands) 2000 1999 ------------ ------------ Cash flows from operating activities: Net income (loss) .................................................. $ (28,492) $ 46,904 Adjustments to reconcile net income (loss) to net cash provided by operating activities: Provision for loan losses ..................................... 5,248 4,741 Depreciation of premises and equipment ........................ 11,368 9,087 Amortization .................................................. 12,084 13,895 Accretion of unearned income and fees, net of related costs ............................................ (3,533) 2,850 Income (loss) to minority interest ............................ (432) 1,356 Proceeds from sales of trading account securities ............. 52,382,348 45,855,598 Increase in trading account securities ........................ (52,451,270) (45,884,870) Investment securities (gain) loss, net ........................ (1,135) 1,304 Impairment loss on First Security Corporation common stock .... 96,911 -- Proceeds from loans held for sale ............................. 192,732 308,109 Increase in loans held for sale ............................... (167,326) (256,376) Net gain on sales of loans, leases and other assets ........... (7,964) (12,630) Change in accrued income taxes ................................ 21,933 21,956 Change in accrued interest receivable ......................... (17,332) (11,962) Change in accrued interest payable ............................ 3,018 (1,135) Other, net .................................................... (30,758) (82,113) ------------ ------------ Net cash provided by operating activities ................ 17,400 16,714 ------------ ------------ Cash flows from investing activities: Net decrease (increase) in money market investments ................ (261,517) 186,302 Proceeds from maturities of investment securities held to maturity .............................................. 94,334 296,070 Purchases of investment securities held to maturity ................ (60,585) (555,370) Proceeds from sales of investment securities available for sale ............................................ 84,344 138,651 Proceeds from maturities of investment securities available for sale ............................................ 27,504 94,151 Purchases of investment securities available for sale .............. (111,957) (186,468) Proceeds from sales of loans and leases ............................ 137,702 196,037 Net increase in loans and leases ................................... (497,752) (552,869) Payments on leveraged leases ....................................... (4,943) (4,168) Principal collections on leveraged leases .......................... 4,943 4,168 Proceeds from sales of premises and equipment ...................... 1,892 1,627 Purchases of premises and equipment ................................ (16,539) (14,366) Proceeds from sales of mortgage-servicing rights ................... 945 14,918 Purchases of mortgage-servicing rights ............................. (62) (792) Proceeds from sales of other assets ................................ 3,333 2,129 Cash paid for acquisitions, net of cash received ................... -- 592 ------------ ------------ Net cash used in investing activities .................... (598,358) (379,388) ------------ ------------
5 ZIONS BANCORPORATION AND SUBSIDIARIESCONSOLIDATED STATEMENTS OF CASH FLOWS (Continued) (Unaudited)
Three Months Ended March 31, ---------------------------- (In thousands) 2000 1999 ------------ ------------ Cash flows from financing activities: Net increase (decrease) in deposits ................................ 522,837 (80,694) Net change in short-term funds borrowed ............................ 92,785 387,669 Proceeds from FHLB advances over one year .......................... 100,000 -- Payments on FHLB advances over one year ............................ (62,421) (5,998) Payments on long-term debt ......................................... (15,824) (181) Proceeds from issuance of common stock ............................. 3,687 1,596 Payments to redeem common stock .................................... (3,812) (194) Dividends paid ..................................................... (24,831) (11,060) ------------ ------------ Net cash provided by financing activities ................ 612,421 291,138 ------------ ------------ Net increase (decrease) in cash and due from banks ...................... 31,463 (71,536) Cash and due from banks at beginning of period .......................... 898,300 922,654 ------------ ------------ Cash and due from banks at end of period ................................ $ 929,763 $ 851,118 ============ ============
SUPPLEMENTAL DISCLOSURES OF CASH FLOW INFORMATION (Unaudited)
Three Months Ended March 31, ---------------------------- (In thousands) 2000 1999 ------------ ------------ Cash paid for: Interest ........................................................... $ 185,685 $ 142,438 Income taxes ....................................................... 4 55 Loans transferred to other real estate owned ............................ 1,803 2,450
6 ZIONS BANCORPORATION AND SUBSIDIARIES CONSOLIDATED STATEMENTS OF CHANGES IN SHAREHOLDERS' EQUITY AND COMPREHENSIVE INCOME (LOSS) (Unaudited)
Three Months Ended March 31, 2000 --------------------------------------------------------------------- Accumulated Other Total Common Comprehensive Comprehensive Retained Shareholders' (In thousands) Stock Loss Loss Earnings Equity ----------- ----------- ----------- ----------- ----------- Balance, January 1, 2000 ................................ $ 888,231 $ (4,158) $ 775,765 $ 1,659,838 Net loss for the period ................................. $ (28,492) (28,492) (28,492) ----------- Other comprehensive loss, net of tax: Realized and unrealized holding loss arising during the period, net of tax benefit of $49,854 .. (80,484) Reclassification for net realized securities loss recorded in the income statement, net of tax benefit of $36,634 ......................... 59,142 ----------- Other comprehensive loss ............................ (21,342) (21,342) (21,342) ----------- Total comprehensive loss .......................... $ (49,834) =========== Cash dividends: Common, $.29 per share .............................. (24,831) (24,831) Stock redeemed and retired .............................. (3,812) (3,812) Stock options exercised, net of shares tendered and retired .............................................. 4,306 4,306 ----------- ----------- ----------- ----------- Balance, March 31, 2000 ................................. $ 888,725 $ (25,500) $ 722,442 $ 1,585,667 =========== =========== =========== ===========
Three Months Ended March 31, 1999 --------------------------------------------------------------------- Accumulated Other Total Common Comprehensive Comprehensive Retained Shareholders' (In thousands) Stock Loss Loss Earnings Equity ----------- ----------- ----------- ----------- ----------- Balance, January 1, 1999 ................................ $ 796,519 $ (3,407) $ 659,519 $ 1,452,631 Net income for the period ............................... $ 46,904 46,904 46,904 ----------- Other comprehensive income, net of tax: Realized and unrealized holding loss arising during the period, net of tax benefit of $1,258 ... (2,030) Reclassification for net realized investment securities loss recorded in the income statement, net of tax benefit of $2,455 ........... 3,962 ----------- Other comprehensive loss ............................ 1,932 1,932 1,932 ----------- Total comprehensive income ........................ $ 48,836 =========== Cash dividends: Common, $.14 per share .............................. (11,060) (11,060) Stock dividend of acquired company ...................... 21,704 (21,704) -- Issuance of common shares for acquisitions .............. 83 797 880 Stock redeemed and retired .............................. (194) (194) Stock options exercised, net of shares tendered and retired .............................................. 4,288 4,288 ----------- ----------- ----------- ----------- Balance, March 31, 1999 ................................. $ 822,400 $ (1,475) $ 674,456 $ 1,495,381 =========== =========== =========== ===========
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 October 15, 1999 the Company completed its acquisition of Pioneer Bancorporation in a transaction accounted for as a pooling of interests. The acquisition was considered significant and prior year amounts have accordingly been restated. Operating results for the three months ended March 31, 2000 are not necessarily indicative of the results that may be expected for the year ended December 31, 2000. For further information, refer to the consolidated financial statements and footnotes thereto included in Zions Bancorporation's Annual Report to Shareholders on Form 10-K for the year ended December 31, 1999. First Security Corporation Merger Termination On June 6, 1999 the Company entered into a definitive Agreement and Plan of Merger (the "Agreement") with First Security Corporation. First Security Corporation's stockholders approved the transaction at a meeting held on March 22, 2000. In a special meeting of shareholders held on March 31, 2000, the Company's shareholders declined to adopt the Agreement and the Company was notified the next day by First Security Corporation that it was terminating the Agreement. Included in results of operations for the three months ended March 31, 2000 are approximately $41.5 million of pre-tax merger expenses related to the termination of the merger and the related disengagement. Also included in results of operations is a pre-tax impairment loss on First Security Corporation common stock owned by the Company of $96.9 million. It is possible that the Company could incur additional unidentified expenses related to the merger termination and related disengagement process. Accounting Standards Not Adopted In September 1998, the FASB issued Statement No. 133, Accounting for Derivative Instruments and Hedging Activities. Statement No. 133 establishes accounting and reporting standards for derivative instruments, including certain derivative instruments embedded in other contracts, and for hedging activities. It requires that an entity recognize all derivatives as either assets or liabilities in the statement of financial position and measure those instruments at fair value. The accounting for gains and losses of a derivative depends on the intended use of the derivative and the resulting designation. Under this statement, an entity that elects to apply hedge accounting is required to establish at the inception of the hedge the method it will use for assessing the effectiveness of the hedging derivative and the measurement approach for determining the ineffective aspect of the hedge. Those methods must be consistent with the entity's approach to managing risk. The original effective date of this statement, as amended by Statement No. 137, has been delayed and it is now effective for all fiscal quarters of fiscal years beginning after September 15, 2000, and should not be applied retroactively to financial statements of prior periods. The Company is currently studying the statement to determine its future effects. 8 ZIONS BANCORPORATION AND SUBSIDIARIES ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS FINANCIAL HIGHLIGHTS (Unaudited)
Three Months Ended March 31, -------------------------------------- (In thousands, except per share and ratio data) 2000 1999 % Change ----------- ----------- --------- EARNINGS Taxable-equivalent net interest income .................. $ 194,840 $ 180,490 7.95 % Net interest income ..................................... 190,992 176,855 7.99 % Noninterest income ...................................... 60,600 65,480 (7.45)% Impairment loss First Security Corporation common stock(1) .................................... (96,911) -- Provision for loan losses ............................... 5,248 4,741 10.69 % Noninterest expense ..................................... 200,312 162,605 23.19 % Income (loss) before income taxes ....................... (50,879) 74,989 (167.85)% Income taxes (benefit) .................................. (21,955) 26,729 (182.14)% Minority interest ....................................... (432) 1,356 (131.86)% Net income (loss) ....................................... (28,492) 46,904 (160.75)% PER COMMON SHARE Net income (loss) (diluted) ............................. (0.33) 0.55 (160.00)% Dividends ............................................... 0.29 0.14 107.14 % Book value .............................................. 18.50 17.74 4.28 % SELECTED RATIOS Return on average assets ................................ (0.54)% 1.01% Return on average common equity ......................... (6.91)% 12.87% Efficiency ratio(3) ..................................... 78.42 % 66.11% Net interest margin ..................................... 4.14 % 4.39% OPERATING CASH EARNINGS(2)(3) Taxable-equivalent net interest income .................. $ 194,840 $ 180,490 7.95 % Net interest income ..................................... 190,992 176,855 7.99 % Noninterest income ...................................... 60,600 65,480 (7.45)% Provision for loan losses ............................... 5,248 4,741 10.69 % Noninterest expense ..................................... 149,479 152,832 (2.19)% Income before income taxes .............................. 96,865 84,762 14.28 % Income taxes ............................................ 32,219 28,332 13.72 % Minority interest ....................................... (432) 1,356 (131.86)% Net income .............................................. 65,078 55,074 18.16 % PER COMMON SHARE Net income (diluted) .................................... 0.75 0.64 17.19 % Dividends ............................................... 0.29 0.14 107.14 % Book value .............................................. 10.84 10.01 8.29 % SELECTED RATIOS Return on average assets ................................ 1.26% 1.22% Return on average common equity ......................... 26.27% 27.21% Efficiency ratio ........................................ 58.52% 62.13% Net interest margin ..................................... 4.14% 4.39% (1) This investment has been written down to $14.11 per common share. (2) Before amortization of goodwill and core deposit intangible assets and merger charges. (3) Excludes impairment loss on First Security Corporation common stock.
9 ZIONS BANCORPORATION AND SUBSIDIARIES FINANCIAL HIGHLIGHTS (Continued) (Unaudited)
Three Months Ended March 31, -------------------------------------- (In thousands, except per share and ratio data) 2000 1999 % Change ----------- ----------- --------- AVERAGE BALANCES Total assets ............................................ $21,409,208 $18,894,035 13.31 % Securities .............................................. 4,646,358 4,340,925 7.04 % Net loans and leases .................................... 12,896,311 11,316,651 13.96 % Goodwill and core deposit intangibles ................... 662,858 656,677 0.94 % Total deposits .......................................... 14,253,368 13,957,269 2.12 % Minority interest ....................................... 39,664 36,952 7.34 % Shareholders' equity .................................... 1,659,335 1,477,613 12.30 % Weighted average common and common- equivalent shares outstanding ...................... 86,459,054 85,492,502 1.13 % AT PERIOD END Total assets ............................................ $20,996,557 $18,526,417 13.33 % Securities .............................................. 4,333,452 4,029,063 7.55 % Net loans and leases .................................... 13,124,365 11,525,983 13.87 % Allowance for loan losses ............................... 200,065 206,058 (2.91)% Goodwill and core deposit intangibles ................... 656,930 651,276 0.87 % Total deposits .......................................... 14,584,776 14,145,677 3.10 % Minority interest ....................................... 40,079 37,599 6.60 % Shareholders' equity .................................... 1,585,667 1,495,381 6.04 % Common shares outstanding ............................... 85,694,426 84,315,145 1.64 % Average equity to average assets ........................ 7.75% 7.82% Common dividend payout (before merger related charges) .. 43.60% 23.29% Nonperforming assets .................................... 77,012 81,885 (5.95)% Loans past due 90 days or more .......................... 29,294 26,205 11.79 % Nonperforming assets to net loans and leases, other real estate owned and other nonperforming assets at March 31 ................... 0.59% 0.71%
10 ZIONS BANCORPORATION AND SUBSIDIARIES OPERATING RESULTS Zions Bancorporation achieved net income before merger-related charges of $57.0 million or $0.66 per diluted share for the first quarter of 2000, an increase of 20.0% and 17.9%, respectively, over the $47.5 million or $0.56 earned in the first quarter of 1999. After $85.5 million in after-tax charges ($0.99 per share) related to the Company's terminated merger with First Security Corporation, including a write down to market value of its investment in First Security Corporation common stock, the Company incurred a net loss of $28.5 million or $0.33 per diluted share for the first quarter compared to net income of $46.9 million or $0.55 per diluted share for the first quarter of 1999. The annualized return on average assets before merger-related charges was 1.07% for the first quarter of 2000, compared to 1.02% for the first quarter of 1999. The annualized return on average common shareholders' equity before merger-related charges was 13.81% compared to 13.04% for the first quarter of 1999. After merger-related charges the annualized return on average assets was a negative 0.54% and the return on average common equity was a negative 6.91% for the first quarter of 2000 compared to 1.01% and 12.87% for the first quarter of 1999. Before merger-related charges, the Company's "efficiency ratio" or noninterest expenses as a percentage of total taxable-equivalent net revenues for the first quarter of 2000 was 62.16% compared to 65.68% for the first quarter of 1999. Including merger-related charges the efficiency ratio was 78.42% for the first quarter of 2000 and 66.11% for the first quarter of 1999. The Company's first-quarter $9.5 million (20.0%) increase in earnings before merger-related expenses relative to the same period last year reflects a $14.1 million (8.0%) increase in net interest income, a $4.9 million (7.5%) decrease in noninterest income, a $.5 million (10.7%) increase in the provision for loan losses, a $2.8 million (1.7%) decrease in noninterest expense before merger-related charges, a $3.8 million (14.2%) increase in income tax expense before the effect of merger-related expenses, and a $1.8 million (131.9%) decrease in minority interest. The first quarter $75.4 million decrease in earnings after merger-related charges compared to the first quarter of 1999 includes a pre-tax impairment loss on First Security common stock of $96.9 million and an increase in other pre-tax merger-related charges of $40.5 million. The tax benefit resulting from the impairment loss and other merger-related charges is $52.6 million. The Company paid a dividend of $0.29 per share for the first quarter of 2000, an increase of 107.1% over the $0.14 paid during the first quarter of 1999. The dividend was more than doubled in July of last year to synchronize it with the rate paid by First Security Corporation. On April 27, 2000, the Company's board of directors voted to reduce its regular quarterly dividend to $0.20 per common share. The board elected to reduce the dividend to ensure that it has the capital to support its historically robust asset growth. OPERATING CASH EARNINGS RESULTS The Company is also providing its earnings performance on an operating cash basis since it believes that its cash performance is a better reflection of its financial position and shareholder value creation, as well as its ability to support growth, pay dividends, and repurchase stock than reported net income. Operating cash earnings are earnings before amortization of goodwill and core deposit intangible assets and merger-related expenses. Operating cash earnings for the quarter were $65.1 million or $0.75 per diluted share, an increase of 18.2% and 17.2%, respectively, over the $55.1 million or $0.64 per diluted share earned in the first quarter of 1999. 11 ZIONS BANCORPORATION AND SUBSIDIARIES The operating cash annualized return on average assets for the first quarter of 2000 was 1.26% compared to 1.22% for the first quarter of 1999, resulting in an operating cash annualized return on average common shareholders' equity of 26.27% compared to 27.21% for the first quarter of 1999. The Company's operating cash efficiency ratio for the first quarter of 2000 was 58.52% compared to 62.13% for the first quarter of 1999. NET INTEREST INCOME AND INTEREST RATE SPREADS Net interest income for the first quarter of 2000, adjusted to a fully taxable-equivalent basis, increased 8.0% to $194.8 million compared to $180.5 million for the first quarter of 1999. Net interest margin decreased to 4.14% compared to 4.39% for the first quarter of 1999 primarily as a result of continued robust loan growth financed by short-term funding sources instead of traditional core deposit growth normally experienced by the Company. The yield on average earning assets increased 31 basis points during the first quarter of 2000 as compared to the first quarter of 1999, and the average rate paid this quarter on interest-bearing funds increased 58 basis points from the first quarter of 1999. The spread on average interest-bearing funds for the first quarter of 2000 was 3.46% compared to 3.73% for the first quarter of 1999. 12 ZIONS BANCORPORATION AND SUBSIDIARIES CONSOLIDATED AVERAGE BALANCE SHEETS, YIELDS AND RATES (Unaudited)
Three Months Ended Three Months Ended March 31, 2000 March 31, 1999 ------------------------------- -------------------------------- Average Amount of Average Average Amount of Average (In millions) Balance Interest(1) Rate Balance Interest(1) Rate -------- -------- -------- -------- -------- -------- ASSETS Money market investments .............................. $ 1,382 $ 20.1 5.85% $ 999 $ 14.8 6.02% Securities: Held to maturity ................................. 3,312 54.9 6.67% 3,070 48.1 6.36% Available for sale ............................... 742 10.5 5.71% 744 11.4 6.19% Trading account .................................. 592 9.0 6.08% 527 6.8 5.22% -------- -------- -------- -------- Total securities ............................ 4,646 74.4 6.44% 4,341 66.3 6.19% -------- -------- -------- -------- Loans: Loans held for sale .............................. 192 3.3 6.95% 212 3.4 6.51% Net loans and leases(2) .......................... 12,704 285.6 9.04% 11,104 237.3 8.67% -------- -------- -------- -------- Total loans ................................. 12,896 288.9 9.01% 11,316 240.7 8.63% -------- -------- -------- -------- Total interest-earning assets ......................... $ 18,924 $ 383.4 8.15% $ 16,656 $ 321.8 7.84% -------- -------- Cash and due from banks ............................... 867 807 Allowance for loan losses ............................. (205) (214) Goodwill and core deposit intangibles ................. 663 657 Other assets .......................................... 1,160 988 -------- -------- Total assets .................................. $ 21,409 $ 18,894 ======== ======== LIABILITIES Interest-bearing deposits: Savings and NOW deposits ......................... $ 1,777 $ 9.9 2.23% $ 1,824 $ 10.0 2.21% Money market super NOW deposits .................. 5,995 65.0 4.36% 4,996 44.7 3.63% Time deposits under $100,000 ..................... 1,807 21.6 4.81% 2,322 27.4 4.79% Time deposits $100,000 or more ................... 1,259 15.5 4.94% 1,461 18.3 5.09% Foreign deposits ................................. 152 2.0 5.34% 175 1.8 4.23% -------- -------- -------- -------- Total interest-bearing deposits ............. 10,990 114.0 4.17% 10,778 102.2 3.85% -------- -------- -------- -------- Borrowed funds: Securities sold, not yet purchased ............... 302 4.8 6.35% 300 3.8 5.17% Federal funds purchased and security repurchase agreements ....................... 3,127 41.9 5.39% 2,082 22.4 4.36% Commercial paper ................................. 310 4.8 6.20% 70 .9 5.25% FHLB advances and other borrowings: less than one year .......................... 858 12.6 5.92% 191 2.3 4.81% over one year ............................... 115 1.7 5.74% 53 .8 6.23% Long-term debt ................................... 453 8.8 7.85% 454 8.9 7.95% -------- -------- -------- -------- Total borrowed funds ........................ 5,165 74.6 5.81% 3,150 39.1 5.03% -------- -------- -------- -------- Total interest-bearing liabilities .......... $ 16,155 $ 188.6 4.69% $ 13,928 $ 141.3 4.11% -------- -------- Noninterest-bearing deposits .......................... 3,263 3,179 Other liabilities ..................................... 292 272 -------- -------- Total liabilities ........................... 19,710 17,379 Minority interest ..................................... 40 37 Total shareholders' equity .................. 1,659 1,478 -------- -------- Total liabilities and shareholders' equity .. $ 21,409 $ 18,894 ======== ======== Spread on average interest-bearing funds .............. 3.46% 3.73% ==== ==== Net interest income and net yield on interest-earning assets .......................... $ 194.8 4.14% $ 180.5 4.39% ======== ==== ======== ====
1 Taxable-equivalent rates used where applicable. 2 Net of unearned income and fees, net of related costs. Loans include nonaccrual and restructured loans. 13 ZIONS BANCORPORATION AND SUBSIDIARIES NONINTEREST INCOME Noninterest income, excluding the $96.9 impairment loss on the First Security Corporation common stock, for the first quarter of 2000 was $60.6 million, a decrease of 7.5% from the $65.5 million for the first quarter of 1999. Noninterest income for the first quarter of 2000 includes $5.1 million in venture capital investment losses and the first quarter of 1999 included gains from the sale of mortgage servicing rights and venture capital investment gains aggregating $9.8 million. Excluding these items noninterest income increased 18.1%. Comparing the segments of noninterest income for the first quarter of 2000 to the first quarter of 1999, service charges on deposit accounts increased 2.0%, other service charges, commissions and fees decreased 1.7%, trust income increased 32.9%, underwriting and trading income decreased 16.8%, loan sales and servicing income decreased 35.2% and other income decreased 26.6%. The decrease in loan sales and servicing income reflects the decrease in gains from sale of mortgage servicing rights and the decrease in other income reflects the changes in income from venture capital investments previously discussed. As of March 31, 2000 the Company owned 9,457,605 shares of First Security Corporation common stock. Due to the termination of the merger with First Security Corporation and the subsequently announced merger of First Security Corporation with Wells Fargo & Company, it was determined that the Company's unrecognized loss in the First Security Corporation was other than temporary. Accordingly, the Company recognized a pre-tax impairment loss on the stock during the first quarter of $96.9 million. The loss was determined based upon a calculated value of the First Security Corporation common stock of $14.11 using the Wells Fargo & Company closing price on the merger announcement date and the merger exchange ratio. NONINTEREST EXPENSE Noninterest expense for the first quarter of 2000 was $200.3 million, an increase of 23.2% over $162.6 million for the first quarter of 1999. Excluding merger-related expenses noninterest expense was $158.8 million for the quarter compared to $161.6 million for the first quarter of 1999, a decrease of 1.7%. Comparing significant noninterest expense segments for the first quarter of 2000 and the first quarter of 1999, salaries and employee benefits decreased 6.0%. Included in employee benefits for the first quarter of 2000 was an adjustment to reflect a reduced obligation related to changes adopted in the Company's Post Retirement Medical Benefits Plan. Occupancy expense decreased 3.5%, furniture and equipment expense increased 19.8% and legal and professional services increased 38.0%. Amortization of goodwill and core deposit intangibles increased 6.4% due to increased amortization resulting from the Company's acquisition of Regency Bancorp in October 1999 in a transaction accounted for as a purchase. The total of all other expenses excluding merger-related expenses decreased 3.2%. Noninterest expense for the first quarter of 2000 includes merger-related expenses of $41.5 million mainly related to the terminated merger agreement with First Security Corporation and the related disengagement process. At March 31, 2000, the Company had 6,654 full-time equivalent employees, 361 offices and 496 ATMs compared to 7,154 full-time equivalent employees, 352 offices and 488 ATMs at March 31, 1999. 14 ZIONS BANCORPORATION AND SUBSIDIARIES INCOME TAXES The Company's income taxes were a benefit of $22.0 million for the first quarter of 2000 compared to an expense of $26.7 million for the first quarter of 1999. Excluding the tax benefits from merger-related charges including the impairment loss on the First Security Corporation common stock, the Company's effective income tax rate for the first quarter of 2000 was 35.5% compared to 35.8% for the first quarter of 1999. ANALYSIS OF FINANCIAL CONDITION EARNING ASSETS Average earning assets increased 13.6% to $18,924 million for the three months ended March 31, 2000 compared to $16,656 million for the three months ended March 31, 1999. Earning assets comprised 88.4% of total average assets for the first three months of 2000, compared with 88.2% for the first three months of 1999. Average money market investments, consisting of interest-bearing deposits, federal funds sold and security resell agreements increased 38.3% to $1,382 million in the first three months of 2000 as compared to $999 million in the first three months of 1999. During the first three months of 2000, average securities increased 7.0% to $4,646 million compared to $4,341 million in the first three months of 1999. Average held to maturity securities increased 7.9%, available for sale securities decreased .3%, and trading account securities increased 12.3% compared with the first three months of 1999. Average net loans and leases increased 14.0% to $12,896 million for the first three months of 2000 compared to $11,316 million in the first three months of 1999, representing 68.1% of earning assets in the first three months of 2000 compared to 67.9% in the first three months of 1999. Average net loans and leases were 90.5% of average total deposits for the three months ended March 31, 2000, as compared to 81.1% for the three months ended March 31, 1999. 15 ZIONS BANCORPORATION AND SUBSIDIARIES INVESTMENT SECURITIES The following table presents the Company's investment securities on March 31, 2000, December 31, 1999 and March 31, 1999. As of March 31, 2000, the Company had approximately $46 million of Small Business Administration originator fee certificates that have been classified in other assets and are measured as available for sale securities.
March 31, December 31, March 31, 2000 1999 1999 --------------------- --------------------- --------------------- Amortized Market Amortized Market Amortized Market (In millions) cost value cost value cost value --------- --------- --------- --------- --------- --------- Held to maturity U.S. Treasury Securities .......... $ 1 $ 1 $ 1 $ 1 $ 2 $ 2 U.S. government agencies and corporations: Small Business Administration loan- backed securities ......... 436 444 440 445 350 349 Other agency securities ........ 1,294 1,256 1,270 1,233 992 993 States and political subdivisions . 318 312 314 309 379 387 Mortgage-backed securities ........ 1,246 1,238 1,305 1,303 1,383 1,389 --------- --------- --------- --------- --------- --------- 3,295 3,251 3,330 3,291 3,106 3,120 --------- --------- --------- --------- --------- --------- Available for sale U.S. Treasury securities .......... 83 83 93 93 123 124 U.S. government agencies and corporations ................... 88 87 51 50 154 155 States and political subdivisions . 113 109 102 97 60 61 Mortgage and other asset-backed securities ....................... 100 95 147 143 239 239 --------- --------- --------- --------- --------- --------- 384 374 393 383 576 579 --------- --------- --------- --------- --------- --------- Equity securities: Mutual funds: Accessor Funds, Inc. .... 149 146 141 139 106 107 Other Stock .................... 139 122 242 257 12 16 --------- --------- --------- --------- --------- --------- 288 268 383 396 118 123 --------- --------- --------- --------- --------- --------- 672 642 776 779 694 702 --------- --------- --------- --------- --------- --------- Total ............................. $ 3,967 $ 3,893 $ 4,106 $ 4,070 $ 3,800 $ 3,822 ========= ========= ========= ========= ========= =========
16 ZIONS BANCORPORATION AND SUBSIDIARIES LOANS The Company has structured its organization to separate the lending function from the credit administration function to strengthen the control and independent evaluation of credit activities. Loan policies and procedures provide the Company with a framework for consistent underwriting and a basis for sound credit decisions. In addition, the Company has well-defined standards for grading its loan portfolio, and management utilizes the comprehensive loan grading system to determine risk potential in the portfolio. Another aspect of the Company's credit risk management strategy is the diversification of the loan portfolio. The Company has a well-diversified loan portfolio with no significant exposure to highly leveraged transactions. The table below sets forth the amount of loans outstanding by type on March 31, 2000, December 31, 1999 and March 31, 1999.
(In millions) March 31, December 31, March 31, 2000 1999 1999 ------------ ------------ ------------ Types Loans held for sale ...................... $ 179 $ 205 $ 180 Commercial, financial, and agricultural .. 3,045 3,036 2,900 Real estate: Construction ......................... 1,877 1,722 1,176 Other: Home equity credit line ...... 227 232 200 1-4 family residential ....... 2,798 2,503 2,209 Other real estate-secured .... 4,100 4,168 4,002 ------------ ------------ ------------ 7,125 6,903 6,411 ------------ ------------ ------------ 9,002 8,625 7,587 Consumer: Bankcard ............................. 114 107 92 Other ................................ 476 490 461 ------------ ------------ ------------ 590 597 553 Lease financing .......................... 273 275 211 Foreign loans ............................ 42 53 92 Other receivables ........................ 52 62 49 ------------ ------------ ------------ Total loans .......................... $ 13,183 $ 12,853 $ 11,572 ============ ============ ============
Loans held for sale on March 31, 2000 decreased 12.4% from year-end 1999. All other loans, net of unearned income and fees increased 2.9% to $12,945 million on March 31, 2000, compared to $12,586 million on December 31, 1999. Commercial loans, construction loans, and other real estate-secured loans increased from year end .3%, 9.0% and 3.2%, respectively. Consumer loans, lease financing, foreign loans, and other receivables decreased 1.2%, .6%, 20.6% and 16.3% , respectively from year end. Within the other real estate-secured loan portfolio, home equity credit line loans decreased 2.1%, 1-4 family residential loans increased 11.8% and all other real estate loans decreased 1.7% from year end. 17 ZIONS BANCORPORATION AND SUBSIDIARIES On March 31, 2000, long-term first mortgage real estate serviced for others totaled $232 million and consumer and other loan securitizations, which relate primarily to loans sold under revolving securitization structures, totaled $1,217 million. During the first three months of 2000, the Company sold $193 million of loans classified in held for sale, and securitized and sold SBA loans, home equity credit line loans, credit card receivables and automobile loans totaling $131 million. During the first three months of 2000, total loans sold were $324 million. RISK ELEMENTS The Company's nonperforming assets, which include nonaccruing loans, restructured loans, other real estate owned and other nonperforming assets, were $77 million on March 31, 2000, up from $75 million on December 31, 1999, and down from $82 million on March 31, 1999. Such nonperforming assets as a percentage of net loans and leases and other real estate owned were .59%, .58% and .71% on March 31, 2000, December 31, 1999, and March 31, 1999, respectively. Accruing loans past due 90 days or more totaled $29 million on March 31, 2000, up from $21 million on December 31, 1999, and up from $26 million on March 31, 1999. These loans equaled .22%, .16%, and .23% respectively, of net loans and leases on March 31, 2000, December 31, 1999 and March 31, 1999. No loans were considered potential problem loans at March 31, 2000, December 31, 1999 or March 31, 1999. Potential problem loans are defined as loans presently on accrual, not contractually past due 90 days or more and not restructured, but about which management has serious doubt as to the future ability of the borrower to comply with present repayment terms and which may result in the reporting of the loans as nonperforming assets. The Company's total recorded investment in impaired loans included in nonaccrual loans and leases amounted to $59 million on March 31, 2000, as compared to $57 million on December 31, 1999, and $61 million on March 31, 1999. The Company considers a loan to be impaired when the accrual of interest has been discontinued and meets other criteria under the statements. The amount of the impairment is measured based on the present value of expected cash flows, the observable market price of the loan, or the fair value of the collateral. Impairment losses are included in the allowance for loan losses through a provision for loan losses. Included in the allowance for loan losses on March 31, 2000, December 31, 1999, and March 31, 1999, is a required allowance of $20 million, $16 million and $15 million, respectively, on $26 million, $22 million and $30 million, respectively, of the recorded investment in impaired loans. 18 ZIONS BANCORPORATION AND SUBSIDIARIES The following table sets forth the nonperforming assets on March 31, 2000, December 31, 1999, and March 31, 1999.
March 31, December 31, March 31, (In millions) 2000 1999 1999 ------------ ------------ ------------ Nonaccrual loans ............................... $ 69 $ 65 $ 71 Restructured loans ............................. 1 1 4 Other real estate owned and other nonperforming assets ...................... 7 9 7 ------------ ------------ ------------ Total .......................................... $ 77 $ 75 $ 82 ============ ============ ============ % of net loans and leases*, other real estate owned and other nonperforming assets ...... .59% .58% .71% Accruing loans past due 90 days or more ........ $ 29 $ 21 $ 26 ============ ============ ============ % of net loans and leases* ..................... .22% .16% .23% *Includes loans held for sale
ALLOWANCE FOR LOAN LOSSES The Company's allowance for loan losses was 1.52% of net loans and leases on March 31, 2000, compared to 1.60% on December 31, 1999, and 1.79% on March 31, 1999. Net charge-offs during the first quarter of 2000 were $9.3 million, including $6.1 million in losses from two former credits of The Sumitomo Bank of California which were charged against acquired Sumitomo reserves, or .29% of average net loans and leases annualized, compared to $11.2 million, or .40% of average net loans and leases annualized for the first quarter of 1999. The allowance, as a percentage of nonaccrual loans and restructured loans, was 287.8% on March 31, 2000, compared to 310.9% on December 31, 1999, and 275.4% on March 31, 1999. The allowance, as a percentage of nonaccrual loans and accruing loans past due 90 days or more was 204.2% on March 31, 2000, compared to 238.1% on December 31, 1999 and 211.5% on March 31, 1999. On March 31, 2000, December 31, 1999, and March 31, 1999, the allowance for loan losses includes an allocation of $24 million, $23 million and $21 million, respectively, related to commitments to extend credit on loans and standby letters of credit. Commitments to extend credit on loans and standby letters of credit on March 31, 2000, December 31, 1999 and March 31, 1999, totaled $6,749 million, $6,001 million and $5,403 million, respectively. 19 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.
Three Months Twelve Months Three Months Ended Ended Ended (In thousands) March 31, December 31, March 31, 2000 1999 1999 ------------ ------------ ------------ Average loans* and leases outstanding (net of unearned income) ................ $ 12,896,311 $ 11,819,094 $ 11,316,651 ============ ============ ============ Allowance for possible losses: Balance at beginning of the period ........... $ 204,114 $ 212,557 $ 212,557 Allowance of companies acquired .............. -- 2,623 -- Provision charged against earnings ........... 5,248 17,956 4,741 Loans and leases charged-off: Loans held for sale ..................... -- -- -- Commercial, financial and agricultural .. (7,902) (31,742) (9,702) Real estate ............................. (355) (2,513) (110) Consumer ................................ (2,323) (9,053) (1,988) Lease financing ......................... (709) (2,163) (1,674) Other receivables ....................... -- (95) (3) ------------ ------------ ------------ Total .............................. (11,289) (45,566) (13,477) ------------ ------------ ------------ Recoveries: Loans held for sale ..................... -- -- -- Commercial, financial and agricultural .. 1,166 6,376 1,353 Real estate ............................. 147 7,202 61 Consumer ................................ 607 2,750 686 Lease financing ......................... 72 159 130 Other receivables ....................... -- 57 7 ------------ ------------ ------------ Total .............................. 1,992 16,544 2,237 ------------ ------------ ------------ Net loan and lease charge-offs ............... (9,297) (29,022) (11,240) ------------ ------------ ------------ Balance at end of the period ................. $ 200,065 $ 204,114 $ 206,058 ============ ============ ============ *Includes loans held for sale Ratio of annualized net charge-offs to average loans and leases ................ .29% .25% .40%
20 ZIONS BANCORPORATION AND SUBSIDIARIES DEPOSITS Average total deposits of $14,253 million for the first three months of 2000 increased 2.1% over the $13,957 million for the first three months of 1999, with average demand deposits increasing 2.6%. Average savings and NOW deposits, time deposits under $100,000, and average time deposits over $100,000 for the first three months of 2000 decreased 2.6%, 22.2% and 13.8%, respectively, from the first three months of 1999. Average money market and super NOW deposits increased 20.0% and foreign deposits decreased 12.9% during the first three months of 2000, compared with the same period one year earlier. Total deposits increased 3.7% to $14,585 million on March 31, 2000 as compared to $14,062 million on December 31, 1999. Comparing March 31, 2000 to December 31, 1999, demand deposits, time deposits over $100,000, and savings and money market deposits increased 4.6%, 19.0%, and 4.2%, respectively, while time deposits under $100,000 and foreign deposits decreased 4.8% and 31.4% respectively. LIQUIDITY AND INTEREST RATE SENSITIVITY The Company manages its liquidity to provide adequate funds to meet its financial obligations, including withdrawals by depositors and debt service requirements, as well as to fund customers' demand for credit. Liquidity is primarily provided by the regularly scheduled maturities of the Company's investment and loan portfolios. To meet the Company's short-term liquidity needs, on March 31, 2000, the Company had cash, money market securities and liquid investments, net of short-term or "purchased" liabilities and wholesale deposits, of $425 million or 3.2% of core deposits. The Company's core deposits, consisting of demand, savings and money market deposits and time deposits under $100,000, constituted 90.2% of total deposits on March 31, 2000 as compared to 90.8% on December 31, 1999 and 88.7% on March 31, 1999. Maturing balances in loan portfolios provide flexibility in managing cash flows. Maturity management of those funds is an important source of medium- to long-term liquidity. The Company's ability to raise funds in the capital markets through the securitization process and by debt issuance allows the Company to take advantage of market opportunities to meet funding needs at a reasonable cost. The parent company's cash requirements consist primarily of debt service, dividends to shareholders, operating expenses, income taxes, and share repurchases. The parent company's cash needs are routinely met through dividends from subsidiaries, proportionate shares of current income taxes, management and other fees, unaffiliated bank lines and debt issuance. Interest rate risk is the most significant market risk regularly undertaken by Company. The Company believes there have been no significant changes in market risk compared to the disclosures in Zions Bancorporation's Annual Report to Shareholders on Form 10-K for the year ended December 31, 1999. 21 ZIONS BANCORPORATION AND SUBSIDIARIES Interest rate sensitivity measures the Company's financial exposure to changes in interest rates. Interest rate sensitivity is, like liquidity, affected by maturities of assets and liabilities. The Company assesses its interest rate sensitivity using duration and simulation analysis. Duration is a measure of the weighted average expected lives of the discounted cash flows from assets and liabilities. Simulation is used to estimate net interest income over time using alternative interest rate scenarios. The Company, through the management of maturities and repricing of its assets and liabilities and the use of off-balance sheet arrangements such as interest rate caps, floors, futures, options, and interest rate exchange agreements, attempts to minimize the effect on net income of changes in interest rates. The Company's management exercises its best judgment in making assumptions with respect to loan and security prepayments, early deposit withdrawals and other noncontrollable events in managing the Company's exposure to changes in interest rates. The interest rate risk position is actively managed and changes daily as the interest rate environment changes; therefore, positions at the end of any period may not be reflective of the Company's interest rate position in subsequent periods. The prime lending rate is the primary basis used for pricing the Company's loans and the short-term Treasury rate is the index used for pricing many of the Company's deposits. The Company, however, is unable to economically hedge the prime/91-day T-bill spread risk through the use of off-balance sheet financial instruments. CAPITAL RESOURCES AND DIVIDENDS Total shareholders' equity on March 31, 2000 was $1,586 million, a decrease of 4.5% from the $1,660 million on December 31, 1999, and an increase of 6.0% over $1,495 million on March 31, 1999. The ratio of average equity to average assets for the first three months of 2000 was 7.75% as compared to 7.82% for the same period in 1999. On March 31, 2000, the Company's Tier I risk-based capital ratio was 8.04%, as compared to 8.64% on December 31, 1999 and 8.59% on March 31, 1999. On March 31, 2000 the Company's total risk-based capital ratio was 10.63%, as compared to 11.29% on December 31, 1999 and 11.48% on March 31, 1999. The Company's leverage ratio on March 31, 2000 was 5.73%, as compared to 6.16% on December 31, 1999 and 6.05% on March 31, 1999. Dividends declared per common share for the first quarter of 2000 of $.29 increased 107.1%, as compared to $.14 for the first quarter of 1999. The common cash dividend payout of net income for the first three months of 2000 before merger-related charges was 43.60%, as compared to 23.29% for the first three months of 1999. During the first quarter of 2000, the Company repurchased and retired 77,848 shares of its common stock at a cost of $3.8 million. OPERATING SEGMENT INFORMATION The following is a summary of selected operating segment information for the three months ended March 31, 2000 and March 31, 1999. The Company manages its operations and prepares management reports with a primary focus on geographical area. All segments presented, except for the segment defined as "other" are based on commercial banking operations. Zions First National Bank and subsidiaries operates 119 branches in Utah and 17 in Idaho. California Bank & Trust operates 73 branches in Northern and Southern California. Vectra Bank Colorado operates 54 branches in Colorado and one branch in New Mexico. National Bank of Arizona operates a total of 37 branches in Arizona. Nevada State Bank operates 59 offices in Nevada. The Commerce Bank of Washington operates one branch in the state of Washington. The operating segment defined as "other" includes the Parent company, smaller nonbank operating units, and eliminations of transactions between segments. 22 ZIONS BANCORPORATION AND SUBSIDIARIES The accounting policies of the individual segments are the same as those of the Company. The Company allocates centrally provided services to the business segments based upon estimated usage of those services. The following table presents Operating Segment Information for the three months ended March 31, 2000 and for the three months ended March 31, 1999.
ZIONS FIRST NATIONAL BANK CALIFORNIA VECTRA BANK NATIONAL BANK OF AND SUBSIDIARIES BANK & TRUST COLORADO ARIZONA -------------------- ------------------- ------------------- ------------------- (Amounts in millions) 2000 1999 2000 1999 2000 1999 2000 1999 -------- -------- -------- -------- -------- -------- -------- -------- CONDENSED INCOME STATEMENT Net interest income ....................... $ 53.7 $ 54.9 $ 70.8 $ 60.1 $ 21.9 $ 20.1 $ 20.4 $ 18.0 Provision for loan losses ................. 0.2 2.2 -- -- 1.1 0.6 0.7 0.6 Noninterest income ........................ 33.0 41.6 9.9 8.5 4.1 5.0 3.3 2.7 Merger expense and amortization of goodwill and core deposit intangibles .. 3.7 0.5 9.4 3.8 3.7 3.5 0.4 0.5 Other noninterest expense ................. 51.9 52.9 47.0 46.3 17.6 17.9 11.2 10.4 Income tax expense (benefit) .............. 9.1 12.7 11.2 8.7 2.1 2.0 4.5 3.6 Minority interest ......................... (1.1) 0.9 -- -- -- -- -- -- -------- -------- -------- -------- -------- -------- -------- -------- Net income (loss) .................... $ 22.9 $ 27.3 $ 13.1 $ 9.8 $ 1.5 $ 1.1 $ 6.9 $ 5.6 ======== ======== ======== ======== ======== ======== ======== ======== AVERAGE BALANCE SHEET DATA Total assets .............................. $ 8,272 $ 6,832 $ 6,561 $ 6,180 $ 2,154 $ 2,091 $ 1,609 $ 1,451 Net loans and leases ...................... 4,132 3,564 4,580 4,206 1,373 1,202 1,229 1,039 Total deposits ............................ 4,016 3,789 5,396 5,315 1,463 1,618 1,232 1,213 NEVADA STATE BANK THE COMMERCE BANK OF CONSOLIDATED AND SUBSIDIARIES WASHINGTON OTHER COMPANY -------------------- ------------------- ------------------- ------------------- (Amounts in millions) 2000 1999 2000 1999 2000 1999 2000 1999 -------- -------- -------- -------- -------- -------- -------- -------- CONDENSED INCOME STATEMENT Net interest income ....................... $ 25.3 $ 23.6 $ 4.7 $ 3.5 $ (5.8) $ (3.4) $ 191.0 $ 176.8 Provision for loan losses ................. 3.0 0.9 0.2 0.4 -- -- 5.2 4.7 Noninterest income ........................ 6.4 6.1 0.3 0.2 (93.3) 1.4 (36.3) 65.5 Merger expense and amortization of goodwill and core deposit intangibles .. 4.5 0.4 -- -- 29.1 1.1 50.8 9.8 Other noninterest expense ................. 17.5 18.8 2.2 1.7 2.1 4.8 149.5 152.8 Income tax expense (benefit) .............. 2.2 2.9 0.9 0.5 (51.9) (3.7) (21.9) 26.7 Minority interest ......................... -- -- -- -- 0.7 0.5 (0.4) 1.4 -------- -------- -------- -------- -------- -------- -------- -------- Net income (loss) .................... $ 4.5 $ 6.7 $ 1.7 $ 1.1 $ (79.1) $ (4.7) $ (28.5) $ 46.9 ======== ======== ======== ======== ======== ======== ======== ======== AVERAGE BALANCE SHEET DATA Total assets .............................. $ 2,319 $ 2,137 $ 419 $ 335 $ 75 $ (132) $ 21,409 $ 18,894 Net loans and leases ...................... 1,357 1,132 202 153 23 21 12,896 11,317 Total deposits ............................ 1,931 1,826 297 223 (82) (27) 14,253 13,957
For the three months ended March 31, 2000, the "other" operating segment includes the impairment loss on the First Security Corporation common stock in noninterest income and part of the merger-related expense in non-interest expense. 23 ZIONS BANCORPORATION AND SUBSIDIARIES MERGERS AND ACQUISITIONS On January 7, 2000, the Company announced a definitive agreement to acquire County Bank in Prescott, Arizona, in exchange for Zions Bancorporation common stock. As of December 31, 1999, County Bank had total assets of approximately $242 million. The transaction is expected to be accounted for as a pooling of interests and is expected to close at approximately mid-year. YEAR 2000 The Company successfully completed its Year 2000 program efforts and experienced no significant problems with its systems as a result of the Year 2000 date change. The Company also received no reports of significant customer problems related to the Year 2000 change that could put the Company at risk. The Company will continue to monitor systems activities related to identified additional critical dates during and beyond 2000. FORWARD-LOOKING INFORMATION Statements in Management's Discussion and Analysis that are not based on historical data are forward- looking, including, for example, the projected performance of Zions and its operations. These statements constitute forward-looking information within the meaning of the Private Securities Litigation Reform Act of 1995. Actual results may differ materially from the projections discussed in Management's Discussion and Analysis since such projections involve significant risks and uncertainties. Factors that might cause such differences include, but are not limited to: the timing of closing proposed acquisitions being delayed or such acquisitions being prohibited; competitive pressures among financial institutions increasing significantly; economic conditions, either nationally or locally in areas in which Zions conducts its operations, being less favorable than expected; and legislation or regulatory changes which adversely affect the Company's operations or business. Zions disclaims any obligation to update any such factors or to publicly announce the results of any revisions to any of the forward-looking statements included herein to reflect future events or developments. 24 ZIONS BANCORPORATION AND SUBSIDIARIES PART II. OTHER INFORMATION ----------------- ITEM 6. EXHIBITS AND REPORTS ON FORM 8-K -------------------------------- a) Exhibits b) Reports on Form 8-K Zions Bancorporation filed the following reports on Form 8-K during the quarter ended March 31, 2000: Form 8-K filed January 19, 2000 (Item 5.) A copy of a press release issued January 18, 2000 by Zions Bancorporation and First Security Corporation with respect to (1) the agreement for the sale of certain branches in Utah and Idaho and (2) the consolidation of the combined company's retail delivery system. Form 8-K filed February 17, 2000 (Item 5.) A copy of a press release issued on February 7, 2000 announcing fourth quarter earnings. Form 8-K filed March 13, 2000 (Item 5.) A copy of a press release issued March 13, 2000 concerning the proposed merger with First Security Corporation. Form 8-K filed March 22, 2000 (Item 5.) A copy of a press release issued March 22, 2000 regarding the meeting of First Security Corporation's stockholders held on March 22, 2000. S I G N A T U R E S ------------------- Pursuant to the requirements of the Securities Exchange Act of 1934, the Registrant has duly caused this report to be signed on its behalf by the undersigned thereunto duly authorized. ZIONS BANCORPORATION /s/Harris H. Simmons -------------------------------- Harris H. Simmons, President and Chief Executive Officer /s/Dale M. Gibbons -------------------------------- Dale M. Gibbons, Executive Vice President and Chief Financial Officer Dated May 11, 2000 25 EX-27 2 FINANCIAL DATA SCHEDULE
9 This schedule contains summary financial information extracted from the unaudited consolidated balance sheet as of March 31, 2000 and the related unaudited consolidated statement of operations for the three months ended March 31, 2000 included in the company's form 10-Q for the period ended March 31, 2000 and is qualified in its entirety by reference to such financial statements. 0000109380 Zions Bancorporation /UT/ 1,000 U.S. 3-MOS Dec-31-2000 Jan-01-2000 Mar-31-2000 1 929,763 18,019 768,667 396,767 641,846 3,294,839 3,251,145 13,124,365 200,065 20,996,557 14,584,776 3,799,160 399,027 587,848 0 0 888,725 696,942 20,996,557 287,915 91,640 0 379,555 113,992 188,563 190,992 5,248 (95,776) 200,312 50,447 (28,492) 0 0 (28,492) (.33) (.33) 4.06 68,684 29,294 820 0 204,114 11,289 1,992 200,065 195,835 0 4,230
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