Table of Contents
UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
FORM 10-Q
x |
| QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934 |
|
|
|
For the quarterly period ended June 30, 2003 | ||
| ||
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 |
|
|
|
ONE SOUTH MAIN, SUITE 1134 |
|
|
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 (or for such shorter period that the registrant was required to file such reports), and (2) has been subject to such filing requirements for the past 90 days.
Yes x | No o |
Indicate by check mark whether the registrant is an accelerated filer (as defined in Rule 12b-2 of the Exchange Act).
Yes x | No o |
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 5, 2003 |
| 89,734,812 shares |
Table of Contents
ZIONS BANCORPORATION AND SUBSIDIARIES
INDEX
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| Page |
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PART I. |
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| |
ITEM 1. |
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| |
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| 3 | |
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| 4 | |
|
| Consolidated Statements of Changes in Shareholders’ Equity and Comprehensive Income | 6 |
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| 7 | |
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| 9 | |
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|
ITEM 2. |
| Management’s Discussion and Analysis of Financial Condition and Results of Operations | 15 |
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ITEM 3. |
| 30 | |
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ITEM 4. |
| 30 | |
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PART II. |
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| |
ITEM 1. |
| 30 | |
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ITEM 6. |
| 31 | |
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33 |
2
Table of Contents
FINANCIAL INFORMATION | ||
FINANCIAL STATEMENTS (Unaudited) | ||
ZIONS BANCORPORATION AND SUBSIDIARIES
CONSOLIDATED BALANCE SHEETS
(In thousands, except share amounts) |
| June 30, |
| December 31, |
| June 30, |
| |||
|
|
|
| |||||||
|
| (Unaudited) |
|
|
|
| (Unaudited) |
| ||
ASSETS |
|
|
|
|
|
|
|
|
|
|
Cash and due from banks |
| $ | 1,225,316 |
| $ | 1,087,296 |
| $ | 1,024,778 |
|
Money market investments: |
|
|
|
|
|
|
|
|
|
|
Interest-bearing deposits |
|
| 2,369 |
|
| 1,690 |
|
| 1,773 |
|
Federal funds sold |
|
| 61,482 |
|
| 96,077 |
|
| 21,791 |
|
Security resell agreements |
|
| 512,532 |
|
| 444,995 |
|
| 295,792 |
|
Investment securities: |
|
|
|
|
|
|
|
|
|
|
Held to maturity, at cost (approximate market value $0, $0 and $108,859) |
|
| — |
|
| — |
|
| 107,748 |
|
Available for sale, at market |
|
| 3,843,532 |
|
| 3,304,341 |
|
| 3,194,125 |
|
Trading account, at market (includes $234,162, $110,886, and $236,344 transferred as collateral under repurchase agreements) |
|
| 384,728 |
|
| 331,610 |
|
| 307,543 |
|
|
|
|
|
| ||||||
|
|
| 4,228,260 |
|
| 3,635,951 |
|
| 3,609,416 |
|
Loans: |
|
|
|
|
|
|
|
|
|
|
Loans held for sale |
|
| 236,298 |
|
| 289,499 |
|
| 165,375 |
|
Loans, leases and other receivables |
|
| 19,297,984 |
|
| 18,843,006 |
|
| 18,386,461 |
|
|
|
|
|
| ||||||
|
|
| 19,534,282 |
|
| 19,132,505 |
|
| 18,551,836 |
|
Less: |
|
|
|
|
|
|
|
|
|
|
Unearned income and fees, net of related costs |
|
| 94,460 |
|
| 92,662 |
|
| 99,282 |
|
Allowance for loan losses |
|
| 281,486 |
|
| 279,593 |
|
| 264,432 |
|
|
|
|
|
| ||||||
Net loans |
|
| 19,158,336 |
|
| 18,760,250 |
|
| 18,188,122 |
|
Other noninterest bearing investments |
|
| 599,710 |
|
| 601,641 |
|
| 697,907 |
|
Premises and equipment, net |
|
| 406,952 |
|
| 393,630 |
|
| 366,169 |
|
Goodwill |
|
| 730,069 |
|
| 730,031 |
|
| 736,524 |
|
Core deposit and other intangibles |
|
| 75,817 |
|
| 82,920 |
|
| 100,003 |
|
Other real estate owned |
|
| 18,005 |
|
| 31,608 |
|
| 13,814 |
|
Other assets |
|
| 786,780 |
|
| 699,600 |
|
| 678,625 |
|
|
|
|
|
| ||||||
|
| $ | 27,805,628 |
| $ | 26,565,689 |
| $ | 25,734,714 |
|
|
|
|
|
| ||||||
LIABILITIES AND SHAREHOLDERS’ EQUITY |
|
|
|
|
|
|
|
|
|
|
Deposits: |
|
|
|
|
|
|
|
|
|
|
Noninterest-bearing demand |
| $ | 5,715,616 |
| $ | 5,117,458 |
| $ | 4,667,661 |
|
Interest-bearing: |
|
|
|
|
|
|
|
|
|
|
Savings and money market |
|
| 11,810,192 |
|
| 11,654,258 |
|
| 10,657,877 |
|
Time under $100,000 |
|
| 1,629,569 |
|
| 1,766,844 |
|
| 1,865,214 |
|
Time $100,000 and over |
|
| 1,303,103 |
|
| 1,402,189 |
|
| 1,505,089 |
|
Foreign |
|
| 166,690 |
|
| 191,231 |
|
| 92,588 |
|
|
|
|
|
| ||||||
|
|
| 20,625,170 |
|
| 20,131,980 |
|
| 18,788,429 |
|
Securities sold, not yet purchased |
|
| 280,650 |
|
| 203,838 |
|
| 195,296 |
|
Federal funds purchased |
|
| 1,052,591 |
|
| 819,807 |
|
| 935,959 |
|
Security repurchase agreements |
|
| 874,949 |
|
| 861,177 |
|
| 889,520 |
|
Accrued liabilities |
|
| 539,360 |
|
| 535,044 |
|
| 449,812 |
|
Commercial paper |
|
| 290,907 |
|
| 291,566 |
|
| 338,986 |
|
Federal Home Loan Bank advances and other borrowings: |
|
|
|
|
|
|
|
|
|
|
One year or less |
|
| 267,768 |
|
| 15,554 |
|
| 772,422 |
|
Over one year |
|
| 235,768 |
|
| 240,698 |
|
| 240,530 |
|
Long-term debt |
|
| 1,136,049 |
|
| 1,069,505 |
|
| 763,700 |
|
|
|
|
|
| ||||||
Total liabilities |
|
| 25,303,212 |
|
| 24,169,169 |
|
| 23,374,654 |
|
|
|
|
|
| ||||||
Minority interest |
|
| 22,995 |
|
| 22,677 |
|
| 22,782 |
|
Shareholders’ equity: |
|
|
|
|
|
|
|
|
|
|
Capital stock: |
|
|
|
|
|
|
|
|
|
|
Preferred stock, without par value; authorized 3,000,000 shares; issued and outstanding, none |
|
| — |
|
| — |
|
| — |
|
Common stock, without par value; authorized 350,000,000 shares; issued and outstanding 89,724,846, 90,717,692 and 91,701,887 shares |
|
| 987,021 |
|
| 1,034,888 |
|
| 1,072,005 |
|
Retained earnings |
|
| 1,434,915 |
|
| 1,292,741 |
|
| 1,202,290 |
|
Accumulated other comprehensive income |
|
| 60,416 |
|
| 46,214 |
|
| 62,983 |
|
Shares held in trust for deferred compensation, at cost |
|
| (2,931 | ) |
| — |
|
| — |
|
|
|
|
|
| ||||||
Total shareholders’ equity |
|
| 2,479,421 |
|
| 2,373,843 |
|
| 2,337,278 |
|
|
|
|
|
| ||||||
|
| $ | 27,805,628 |
| $ | 26,565,689 |
| $ | 25,734,714 |
|
|
|
|
|
|
3
Table of Contents
ZIONS BANCORPORATION AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF INCOME
(Unaudited)
(In thousands, except per share amounts) |
| Three Months Ended |
| Six Months Ended |
| ||||||||
|
|
| |||||||||||
|
| 2003 |
| 2002 |
| 2003 |
| 2002 |
| ||||
|
|
|
|
|
| ||||||||
Interest income: |
|
|
|
|
|
|
|
|
|
|
|
|
|
Interest and fees on loans |
| $ | 297,866 |
| $ | 310,002 |
| $ | 595,215 |
| $ | 615,707 |
|
Interest on loans held for sale |
|
| 2,225 |
|
| 2,191 |
|
| 4,730 |
|
| 4,927 |
|
Lease financing |
|
| 4,479 |
|
| 5,134 |
|
| 9,013 |
|
| 10,802 |
|
Interest on money market investments |
|
| 3,611 |
|
| 4,217 |
|
| 7,548 |
|
| 7,896 |
|
Interest on securities: |
|
|
|
|
|
|
|
|
|
|
|
|
|
Held to maturity – taxable |
|
| — |
|
| 1,494 |
|
| — |
|
| 2,292 |
|
Available for sale – taxable |
|
| 31,703 |
|
| 33,500 |
|
| 59,923 |
|
| 68,128 |
|
Available for sale - nontaxable |
|
| 7,459 |
|
| 6,665 |
|
| 14,752 |
|
| 13,007 |
|
Trading account |
|
| 6,194 |
|
| 5,479 |
|
| 11,755 |
|
| 10,913 |
|
|
|
|
|
|
| ||||||||
Total interest income |
|
| 353,537 |
|
| 368,682 |
|
| 702,936 |
|
| 733,672 |
|
|
|
|
|
|
| ||||||||
Interest expense: |
|
|
|
|
|
|
|
|
|
|
|
|
|
Interest on savings and money market deposits |
|
| 28,531 |
|
| 43,028 |
|
| 61,160 |
|
| 81,483 |
|
Interest on time and foreign deposits |
|
| 18,746 |
|
| 28,862 |
|
| 39,734 |
|
| 62,252 |
|
Interest on borrowed funds |
|
| 32,307 |
|
| 37,748 |
|
| 61,881 |
|
| 74,683 |
|
|
|
|
|
|
| ||||||||
Total interest expense |
|
| 79,584 |
|
| 109,638 |
|
| 162,775 |
|
| 218,418 |
|
|
|
|
|
|
| ||||||||
Net interest income |
|
| 273,953 |
|
| 259,044 |
|
| 540,161 |
|
| 515,254 |
|
Provision for loan losses |
|
| 18,150 |
|
| 15,705 |
|
| 35,700 |
|
| 33,795 |
|
|
|
|
|
|
| ||||||||
Net interest income after provision for loan losses |
|
| 255,803 |
|
| 243,339 |
|
| 504,461 |
|
| 481,459 |
|
|
|
|
|
|
| ||||||||
Noninterest income: |
|
|
|
|
|
|
|
|
|
|
|
|
|
Service charges and fees on deposit accounts |
|
| 32,107 |
|
| 29,366 |
|
| 63,519 |
|
| 57,786 |
|
Loan sales and servicing income |
|
| 21,924 |
|
| 19,348 |
|
| 40,391 |
|
| 26,274 |
|
Other service charges, commissions and fees |
|
| 21,654 |
|
| 20,723 |
|
| 43,387 |
|
| 40,360 |
|
Trust income |
|
| 5,331 |
|
| 5,165 |
|
| 10,459 |
|
| 9,578 |
|
Income from securities conduit |
|
| 7,065 |
|
| 4,523 |
|
| 13,931 |
|
| 8,662 |
|
Dividends and other investment income |
|
| 7,831 |
|
| 8,023 |
|
| 13,828 |
|
| 16,230 |
|
Market making, trading and nonhedge derivative income |
|
| 7,821 |
|
| 8,466 |
|
| 17,693 |
|
| 23,901 |
|
Equity securities gains (losses), net |
|
| (6,460 | ) |
| 563 |
|
| (12,364 | ) |
| 1,184 |
|
Fixed income securities gains, net |
|
| 219 |
|
| 17 |
|
| 354 |
|
| 60 |
|
Other |
|
| 3,313 |
|
| 5,411 |
|
| 5,946 |
|
| 11,396 |
|
|
|
|
|
|
| ||||||||
Total noninterest income |
|
| 100,805 |
|
| 101,605 |
|
| 197,144 |
|
| 195,431 |
|
|
|
|
|
|
| ||||||||
Noninterest expense: |
|
|
|
|
|
|
|
|
|
|
|
|
|
Salaries and employee benefits |
|
| 122,985 |
|
| 119,845 |
|
| 246,571 |
|
| 233,730 |
|
Occupancy, net |
|
| 16,664 |
|
| 17,397 |
|
| 33,511 |
|
| 34,046 |
|
Furniture and equipment |
|
| 16,793 |
|
| 15,925 |
|
| 32,576 |
|
| 32,153 |
|
Legal and professional services |
|
| 6,111 |
|
| 6,642 |
|
| 11,033 |
|
| 12,244 |
|
Postage and supplies |
|
| 6,646 |
|
| 6,920 |
|
| 13,311 |
|
| 14,084 |
|
Advertising |
|
| 4,941 |
|
| 6,639 |
|
| 8,921 |
|
| 12,302 |
|
Restructuring charges |
|
| 823 |
|
| — |
|
| 823 |
|
| — |
|
Amortization of core deposit and other intangibles |
|
| 3,552 |
|
| 3,337 |
|
| 7,103 |
|
| 6,672 |
|
Other |
|
| 37,888 |
|
| 39,003 |
|
| 76,518 |
|
| 75,731 |
|
|
|
|
|
|
| ||||||||
Total noninterest expense |
|
| 216,403 |
|
| 215,708 |
|
| 430,367 |
|
| 420,962 |
|
|
|
|
|
|
| ||||||||
Income from continuing operations before income taxes and minority interest |
|
| 140,205 |
|
| 129,236 |
|
| 271,238 |
|
| 255,928 |
|
Income taxes |
|
| 48,956 |
|
| 44,947 |
|
| 95,350 |
|
| 88,972 |
|
Minority interest |
|
| (1,159 | ) |
| (575 | ) |
| (3,896 | ) |
| (725 | ) |
|
|
|
|
|
| ||||||||
Income from continuing operations |
|
| 92,408 |
|
| 84,864 |
|
| 179,784 |
|
| 167,681 |
|
|
|
|
|
|
|
4
Table of Contents
ZIONS BANCORPORATION AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF INCOME (Continued)
(Unaudited)
(In thousands, except per share amounts) |
| Three Months Ended |
| Six Months Ended |
| ||||||||
|
|
| |||||||||||
|
|
| 2003 |
|
| 2002 |
|
| 2003 |
|
| 2002 |
|
|
|
|
|
|
| ||||||||
Discontinued operations: |
|
|
|
|
|
|
|
|
|
|
|
|
|
Income (loss) from operations of discontinued subsidiaries |
| $ | 33 |
| $ | (4,750 | ) | $ | 585 |
| $ | (9,926 | ) |
Income taxes (benefit) |
|
| 16 |
|
| (1,961 | ) |
| 240 |
|
| (3,951 | ) |
|
|
|
|
|
| ||||||||
Income (loss) on discontinued operations |
|
| 17 |
|
| (2,789 | ) |
| 345 |
|
| (5,975 | ) |
|
|
|
|
|
| ||||||||
Income before cumulative effect of change in accounting principle |
|
| 92,425 |
|
| 82,075 |
|
| 180,129 |
|
| 161,706 |
|
Cumulative effect of change in accounting principle, net of tax (1) |
|
| — |
|
| — |
|
| — |
|
| (32,369 | ) |
|
|
|
|
|
| ||||||||
Net income |
| $ | 92,425 |
| $ | 82,075 |
| $ | 180,129 |
| $ | 129,337 |
|
|
|
|
|
|
| ||||||||
Weighted average shares outstanding during the period: |
|
|
|
|
|
|
|
|
|
|
|
|
|
Basic shares |
|
| 90,008 |
|
| 91,779 |
|
| 90,267 |
|
| 91,916 |
|
Diluted shares |
|
| 90,586 |
|
| 92,629 |
|
| 90,607 |
|
| 92,658 |
|
Net income per common share: |
|
|
|
|
|
|
|
|
|
|
|
|
|
Basic: |
|
|
|
|
|
|
|
|
|
|
|
|
|
Income from continuing operations |
| $ | 1.03 |
| $ | 0.92 |
| $ | 1.99 |
| $ | 1.82 |
|
Income (loss) on discontinued operations |
|
| — |
|
| (0.03 | ) |
| 0.01 |
|
| (0.06 | ) |
Cumulative effect of change in accounting principle |
|
| — |
|
| — |
|
| — |
|
| (0.35 | ) |
|
|
|
|
|
| ||||||||
Net income |
| $ | 1.03 |
| $ | 0.89 |
| $ | 2.00 |
| $ | 1.41 |
|
|
|
|
|
|
| ||||||||
Diluted: |
|
|
|
|
|
|
|
|
|
|
|
|
|
Income from continuing operations |
| $ | 1.02 |
| $ | 0.92 |
| $ | 1.98 |
| $ | 1.81 |
|
Income (loss) on discontinued operations |
|
| — |
|
| (0.03 | ) |
| 0.01 |
|
| (0.06 | ) |
Cumulative effect of change in accounting principle |
|
| — |
|
| — |
|
| — |
|
| (0.35 | ) |
|
|
|
|
|
| ||||||||
Net income |
| $ | 1.02 |
| $ | 0.89 |
| $ | 1.99 |
| $ | 1.40 |
|
|
|
|
|
|
|
(1) | For the six months ended June 30, 2002, the cumulative effect adjustment relates to an impairment charge from the adoption of Statement of Financial Accounting Standards No. 142, Goodwill and Other Intangible Assets, net of income tax benefit of $2,676. |
5
Table of Contents
ZIONS BANCORPORATION AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF CHANGES IN SHAREHOLDERS’ EQUITY AND COMPREHENSIVE INCOME
(Unaudited)
|
| Six Months Ended June 30, 2003 |
| ||||||||||||||||||||||
|
|
| |||||||||||||||||||||||
|
|
|
|
|
|
|
| Accumulated Other Comprehensive |
|
|
|
|
|
|
| ||||||||||
|
|
|
|
|
|
|
|
|
|
|
|
|
|
| |||||||||||
(In thousands) |
| Common |
| Retained |
| Net Unrealized |
| Net |
| Minimum |
| Subtotal |
| Shares |
| Total Shareholders’ Equity |
| ||||||||
|
|
|
|
|
|
|
|
| |||||||||||||||||
Balance, January 1, 2003 |
| $ | 1,034,888 |
| $ | 1,292,741 |
| $ | 44,151 |
| $ | 25,420 |
| $ | (23,357 | ) | $ | 46,214 |
| $ | — |
| $ | 2,373,843 |
|
Comprehensive income: |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net income for the period |
|
|
|
|
| 180,129 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
| 180,129 |
|
Other comprehensive income, net of tax: |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net realized and unrealized holding gains during the period, net of income tax expense of $7,053 |
|
|
|
|
|
|
|
| 11,386 |
|
|
|
|
|
|
|
| 11,386 |
|
|
|
|
|
|
|
Reclassification for net realized gains recorded in operations, net of income tax expense of $2,960 |
|
|
|
|
|
|
|
| (4,779 | ) |
|
|
|
|
|
|
| (4,779 | ) |
|
|
|
|
|
|
Net unrealized gains on derivative instruments, net of reclassification to operations of $19,227 and income tax expense of $4,648 |
|
|
|
|
|
|
|
|
|
|
| 7,595 |
|
|
|
|
| 7,595 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
| ||||||||
Other comprehensive income |
|
|
|
|
|
|
|
| 6,607 |
|
| 7,595 |
|
| — |
|
| 14,202 |
|
|
|
|
| 14,202 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
| ||
Total comprehensive income |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
| 194,331 |
|
Cost of shares held in trust for deferred compensation |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
| (2,931 | ) |
| (2,931 | ) |
Cash dividends–common, $.42 per share |
|
|
|
|
| (37,955 | ) |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
| (37,955 | ) |
Stock redeemed and retired |
|
| (56,458 | ) |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
| (56,458 | ) |
Stock options exercised, net of shares tendered and retired |
|
| 8,591 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
| 8,591 |
|
|
|
|
|
|
|
|
|
|
| ||||||||||||||||
Balance, June 30, 2003 |
| $ | 987,021 |
| $ | 1,434,915 |
| $ | 50,758 |
| $ | 33,015 |
| $ | (23,357 | ) | $ | 60,416 |
| $ | (2,931 | ) | $ | 2,479,421 |
|
|
|
|
|
|
|
|
|
|
|
|
| Six Months Ended June 30, 2002 |
| ||||||||||||||||||||||
|
|
| |||||||||||||||||||||||
|
|
|
|
|
|
|
| Accumulated Other Comprehensive |
|
|
|
|
|
|
| ||||||||||
|
|
|
|
|
|
|
|
|
|
|
|
|
|
| |||||||||||
(In thousands) |
| Common |
| Retained |
| Net Unrealized |
| Net |
| Minimum |
| Subtotal |
| Shares |
| Total Shareholders’ Equity |
| ||||||||
|
|
|
|
|
|
|
|
| |||||||||||||||||
Balance, January 1, 2002 |
| $ | 1,111,214 |
| $ | 1,109,704 |
| $ | 31,774 |
| $ | 28,177 |
|
|
|
| $ | 59,951 |
|
|
|
| $ | 2,280,869 |
|
Comprehensive income: |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net income for the period |
|
|
|
|
| 129,337 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
| 129,337 |
|
Other comprehensive income, net of tax: |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net realized and unrealized holding gains during the period, net of income tax expense of $7,705 |
|
|
|
|
|
|
|
| 12,439 |
|
|
|
|
|
|
|
| 12,439 |
|
|
|
|
|
|
|
Reclassification for net realized gains recorded in operations, net of income tax expense of $23 |
|
|
|
|
|
|
|
| (37 | ) |
|
|
|
|
|
|
| (37 | ) |
|
|
|
|
|
|
Net unrealized losses on derivative instruments, net of reclassification to operations of $19,992 and income tax benefit of $5,804 |
|
|
|
|
|
|
|
|
|
|
| (9,370 | ) |
|
|
|
| (9,370 | ) |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
| ||||||||
Other comprehensive income (loss) |
|
|
|
|
|
|
|
| 12,402 |
|
| (9,370 | ) |
|
|
|
| 3,032 |
|
|
|
|
| 3,032 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
| ||
Total comprehensive income |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
| 132,369 |
|
Cash dividends–common, $.40 per share |
|
|
|
|
| (36,751 | ) |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
| (36,751 | ) |
Stock redeemed and retired |
|
| (56,461 | ) |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
| (56,461 | ) |
Stock options exercised, net of shares tendered and retired |
|
| 17,252 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
| 17,252 |
|
|
|
|
|
|
|
|
|
|
| ||||||||||||||||
Balance, June 30, 2002 |
| $ | 1,072,005 |
| $ | 1,202,290 |
| $ | 44,176 |
| $ | 18,807 |
|
|
|
| $ | 62,983 |
|
|
|
| $ | 2,337,278 |
|
|
|
|
|
|
|
|
|
|
|
Total comprehensive income for the three months ended June 30, 2003 and 2002 was $114,283 and $93,358, respectively.
6
Table of Contents
ZIONS BANCORPORATION AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF CASH FLOWS
(Unaudited)
(In thousands) |
| Three Months Ended |
| Six Months Ended |
| ||||||||
|
|
| |||||||||||
|
| 2003 |
| 2002 |
| 2003 |
| 2002 |
| ||||
|
|
|
|
|
| ||||||||
CASH FLOWS FROM OPERATING ACTIVITIES: |
|
|
|
|
|
|
|
|
|
|
|
|
|
Net income |
| $ | 92,425 |
| $ | 82,075 |
| $ | 180,129 |
| $ | 129,337 |
|
Adjustments to reconcile net income to net cash provided by (used in) operating activities: |
|
|
|
|
|
|
|
|
|
|
|
|
|
Cumulative effect of change in accounting principle, net of tax |
|
| — |
|
| — |
|
| — |
|
| 32,369 |
|
Provision for loan losses |
|
| 18,150 |
|
| 15,705 |
|
| 35,700 |
|
| 33,795 |
|
Depreciation of premises and equipment |
|
| 14,381 |
|
| 14,994 |
|
| 28,486 |
|
| 30,127 |
|
Amortization |
|
| 10,045 |
|
| 11,437 |
|
| 17,035 |
|
| 21,380 |
|
Loss to minority interest |
|
| (1,159 | ) |
| (575 | ) |
| (3,896 | ) |
| (725 | ) |
Equity securities losses (gains), net |
|
| 6,460 |
|
| (563 | ) |
| 12,364 |
|
| (1,184 | ) |
Fixed income securities gains, net |
|
| (219 | ) |
| (17 | ) |
| (354 | ) |
| (60 | ) |
Proceeds from sales of trading account securities |
|
| 68,787,574 |
|
| 56,085,237 |
|
| 143,323,104 |
|
| 120,905,430 |
|
Increase in trading account securities |
|
| (68,836,297 | ) |
| (56,108,472 | ) |
| (143,376,222 | ) |
| (121,110,077 | ) |
Proceeds from sales of loans held for sale |
|
| 178,404 |
|
| 141,458 |
|
| 338,398 |
|
| 258,448 |
|
Increase in loans held for sale |
|
| (187,601 | ) |
| (100,075 | ) |
| (285,197 | ) |
| (125,864 | ) |
Net gains on sales of loans, leases and other assets |
|
| (13,415 | ) |
| (13,431 | ) |
| (24,236 | ) |
| (12,735 | ) |
Change in accrued income taxes |
|
| (41,888 | ) |
| (31,100 | ) |
| (27,116 | ) |
| 5,817 |
|
Change in accrued interest receivable |
|
| (1,769 | ) |
| (10,331 | ) |
| 377 |
|
| 15,731 |
|
Change in other assets |
|
| (135,131 | ) |
| (126,011 | ) |
| (70,200 | ) |
| (142,144 | ) |
Change in other liabilities |
|
| 71,097 |
|
| 90,939 |
|
| 3,754 |
|
| 11,196 |
|
Change in accrued interest payable |
|
| (5,612 | ) |
| (8,478 | ) |
| (3,243 | ) |
| 4,023 |
|
Other, net |
|
| 4,951 |
|
| (5,018 | ) |
| 6,926 |
|
| (2,500 | ) |
|
|
|
|
|
| ||||||||
Net cash provided by (used in) operating activities |
|
| (39,604 | ) |
| 37,774 |
|
| 155,809 |
|
| 52,364 |
|
|
|
|
|
|
| ||||||||
CASH FLOWS FROM INVESTING ACTIVITIES: |
|
|
|
|
|
|
|
|
|
|
|
|
|
Net decrease (increase) in money market investments |
|
| 571,626 |
|
| 11,735 |
|
| (34,592 | ) |
| (36,776 | ) |
Proceeds from maturities of investment securities held to maturity |
|
| — |
|
| 233 |
|
| — |
|
| 1,209 |
|
Purchases of investment securities held to maturity |
|
| — |
|
| (29,400 | ) |
| — |
|
| (29,400 | ) |
Proceeds from sales of investment securities available for sale |
|
| 1,357,261 |
|
| 1,845,015 |
|
| 3,598,506 |
|
| 6,969,548 |
|
Proceeds from maturities of investment securities available for sale |
|
| 353,134 |
|
| 774,309 |
|
| 643,808 |
|
| 972,180 |
|
Purchases of investment securities available for sale |
|
| (2,215,602 | ) |
| (2,655,852 | ) |
| (4,765,229 | ) |
| (7,832,592 | ) |
Proceeds from sales of loans and leases |
|
| 156,384 |
|
| 297,062 |
|
| 264,380 |
|
| 474,922 |
|
Net increase in loans and leases |
|
| (472,118 | ) |
| (946,394 | ) |
| (744,536 | ) |
| (1,792,219 | ) |
Payments on leveraged leases |
|
| — |
|
| — |
|
| (5,438 | ) |
| (5,585 | ) |
Principal collections on leveraged leases |
|
| — |
|
| — |
|
| 5,438 |
|
| 5,585 |
|
Proceeds from sales of premises and equipment |
|
| 58 |
|
| 4,526 |
|
| 1,187 |
|
| 5,340 |
|
Purchases of premises and equipment |
|
| (19,637 | ) |
| (14,939 | ) |
| (43,194 | ) |
| (33,611 | ) |
Proceeds from sales of other assets |
|
| 7,443 |
|
| 8,547 |
|
| 26,562 |
|
| 12,714 |
|
Net cash paid for net liabilities on branches sold |
|
| — |
|
| (48,678 | ) |
| — |
|
| (68,352 | ) |
|
|
|
|
|
| ||||||||
Net cash used in investing activities |
|
| (261,451 | ) |
| (753,836 | ) |
| (1,053,108 | ) |
| (1,357,037 | ) |
|
|
|
|
|
|
7
Table of Contents
ZIONS BANCORPORATION AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF CASH FLOWS (Continued)
(Unaudited)
(In thousands) |
| Three Months Ended |
| Six Months Ended |
| ||||||||
|
|
| |||||||||||
|
| 2003 |
| 2002 |
| 2003 |
| 2002 |
| ||||
|
|
|
|
|
| ||||||||
CASH FLOWS FROM FINANCING ACTIVITIES: |
|
|
|
|
|
|
|
|
|
|
|
|
|
Net increase (decrease) in deposits |
| $ | (157,869 | ) | $ | 788,087 |
| $ | 492,684 |
| $ | 1,029,578 |
|
Net change in short-term funds borrowed |
|
| 629,090 |
|
| 104,431 |
|
| 574,923 |
|
| 416,925 |
|
Proceeds from FHLB advances and other borrowings over one year |
|
| — |
|
| — |
|
| — |
|
| 1,500 |
|
Payments on FHLB advances and other borrowings over one year |
|
| (690 | ) |
| (689 | ) |
| (1,430 | ) |
| (1,428 | ) |
Proceeds from issuance of long-term debt |
|
| 123,028 |
|
| — |
|
| 172,930 |
|
| — |
|
Payments on long-term debt |
|
| (110,103 | ) |
| (17,473 | ) |
| (117,084 | ) |
| (17,642 | ) |
Proceeds from issuance of common stock |
|
| 6,160 |
|
| 9,382 |
|
| 7,709 |
|
| 15,121 |
|
Payments to redeem common stock |
|
| (32,231 | ) |
| (31,159 | ) |
| (56,458 | ) |
| (56,461 | ) |
Dividends paid |
|
| (18,924 | ) |
| (18,350 | ) |
| (37,955 | ) |
| (36,751 | ) |
|
|
|
|
|
| ||||||||
Net cash provided by financing activities |
|
| 438,461 |
|
| 834,229 |
|
| 1,035,319 |
|
| 1,350,842 |
|
|
|
|
|
|
| ||||||||
Net increase in cash and due from banks |
|
| 137,406 |
|
| 118,167 |
|
| 138,020 |
|
| 46,169 |
|
Cash and due from banks at beginning of period |
|
| 1,087,910 |
|
| 906,611 |
|
| 1,087,296 |
|
| 978,609 |
|
|
|
|
|
|
| ||||||||
Cash and due from banks at end of period |
| $ | 1,225,316 |
| $ | 1,024,778 |
| $ | 1,225,316 |
| $ | 1,024,778 |
|
|
|
|
|
|
| ||||||||
SUPPLEMENTAL DISCLOSURES OF CASH FLOW INFORMATION: | |||||||||||||
Cash paid for: |
|
|
|
|
|
|
|
|
|
|
|
|
|
Interest |
| $ | 83,476 |
| $ | 131,673 |
| $ | 166,209 |
| $ | 213,309 |
|
Income taxes |
|
| 103,766 |
|
| 80,175 |
|
| 129,837 |
|
| 81,960 |
|
Loans transferred to other real estate owned |
|
| 9,006 |
|
| 8,851 |
|
| 15,291 |
|
| 16,544 |
|
8
Table of Contents
ZIONS BANCORPORATION AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(Unaudited)
June 30, 2003
1. BASIS OF PRESENTATION
The accompanying unaudited consolidated financial statements have been prepared in accordance with accounting principles generally accepted in the United States for interim financial information and with the instructions to Form 10-Q and Article 10 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. Certain prior period amounts have been reclassified to conform to the current financial statement presentation.
Operating results for the three- and six-month periods ended June 30, 2003 are not necessarily indicative of the results that may be expected for the year ended December 31, 2003. The balance sheet at December 31, 2002 is from the audited financial statements at that date, but does not include all of the information and footnotes required by generally accepted accounting principles for complete financial statements. For further information, refer to the consolidated financial statements and footnotes thereto included in Zions Bancorporation’s Annual Report on Form 10-K for the year ended December 31, 2002.
2. RECENT ACCOUNTING PRONOUNCEMENTS
In April 2003, the Financial Accounting Standards Board (“FASB”) issued Statement of Financial Accounting Standards (“SFAS”) No. 149, Amendment of FASB Statement No. 133 on Derivatives and Hedging Transactions. SFAS 149 amends and clarifies the accounting for derivatives, including certain derivative instruments embedded in other contracts, and for certain hedging activities entered into after June 30, 2003. In May 2003, the FASB issued SFAS 150, Accounting for Certain Financial Instruments with Characteristics of both Liabilities and Equity. SFAS 150 affects the issuer’s accounting for certain freestanding financial instruments that have both debt and equity characteristics. Neither of these statements is expected to have any material impact on the Company’s financial position or results of operations.
3. STOCK-BASED COMPENSATION
The following disclosures are required by SFAS 148, Accounting for Stock-Based Compensation – Transition and Disclosure. This Statement provides guidance to transition from the intrinsic value method of accounting for stock-based compensation under Accounting Principles Board Opinion 25 (“APB 25”), Accounting for Stock Issued to Employees, to the fair value method of accounting under SFAS 123, Accounting for Stock-Based Compensation. The Company continues to account for its stock-based compensation plans under APB 25 and has not recorded any compensation expense, as the exercise price of the stock was equal to its quoted market price on the date of grant.
As also required by SFAS 148 for interim financial statements, the following discloses the impact on net income and net income per common share if the Company had applied the provisions of SFAS 123 to stock-based employee compensation (in thousands, except per share amounts):
|
| Three Months Ended |
| Six Months Ended |
| ||||||||
|
|
|
| ||||||||||
|
| 2003 |
| 2002 |
| 2003 |
| 2002 |
| ||||
|
|
|
|
|
| ||||||||
Net income, as reported |
| $ | 92,425 |
| $ | 82,075 |
| $ | 180,129 |
| $ | 129,337 |
|
Deduct: Total stock-based employee compensation expense determined under fair value based method for all awards, net of related tax effects |
|
| (4,264 | ) |
| (5,396 | ) |
| (9,647 | ) |
| (9,799 | ) |
|
|
|
|
|
| ||||||||
Pro forma net income |
| $ | 88,161 |
| $ | 76,679 |
| $ | 170,482 |
| $ | 119,538 |
|
|
|
|
|
|
| ||||||||
Net income per common share: |
|
|
|
|
|
|
|
|
|
|
|
|
|
Basic - as reported |
| $ | 1.03 |
| $ | 0.89 |
| $ | 2.00 |
| $ | 1.41 |
|
Basic - pro forma |
|
| 0.98 |
|
| 0.84 |
|
| 1.89 |
|
| 1.30 |
|
Diluted - as reported |
|
| 1.02 |
|
| 0.89 |
|
| 1.99 |
|
| 1.40 |
|
Diluted - pro forma |
|
| 0.97 |
|
| 0.83 |
|
| 1.88 |
|
| 1.29 |
|
9
Table of Contents
ZIONS BANCORPORATION AND SUBSIDIARIES
4. GUARANTEES
The following are the financial and performance letters of credit issued by the Company as guarantees that come under the provisions of Interpretation No. 45 ("FIN 45") of the FASB, Guarantor’s Accounting and Disclosure Requirements for Guarantees, Including Indirect Guarantees of Indebtedness of Others, (in thousands):
|
| June 30, |
| ||||
|
|
| |||||
|
| 2003 |
| 2002 |
| ||
|
|
|
| ||||
Standby letters of credit: |
|
|
|
|
|
|
|
Performance |
| $ | 81,585 |
| $ | 83,619 |
|
Financial |
| 270,344 |
|
| 223,834 |
| |
|
|
|
| ||||
|
| $ | 351,929 |
| $ | 307,453 |
|
|
|
|
|
The Company’s Annual Report on Form 10-K for the year ended December 31, 2002 contains further information on the nature of these letters of credit along with their terms and collateral requirements. The adoption of FIN 45 was not material to the Company's financial position or results of operations.
At June 30, 2003, the Company has guaranteed approximately $676 million of debt issued by various subsidiaries.
Zions First National Bank (“ZFNB”) provides a liquidity facility (“Liquidity Facility”) for a fee to a qualifying special-purpose entity securities conduit (“Conduit”). The Conduit purchases U.S. Government and AAA-rated securities with funds from the issuance of commercial paper. Pursuant to the Liquidity Facility contract, ZFNB is required to purchase securities from the Conduit to provide funds for the Conduit to repay maturing commercial paper upon the Conduit’s inability to access the commercial paper market, or upon a commercial paper market disruption as specified in governing documents to the Conduit. At any given time, the maximum commitment of ZFNB is the lesser of the size of the Liquidity Facility commitment or the market value of the Conduit’s securities portfolio. At June 30, 2003, the size of the Liquidity Facility commitment was up to $5.1 billion and the market value of the Conduit’s securities portfolio was approximately $4.0 billion. No amounts were outstanding under the Liquidity Facility at June 30, 2003.
In June 2003, the FASB issued for public comment an Exposure Draft, Qualifying Special-Purpose Entities and Isolation of Transferred Assets, that would amend SFAS 140, Accounting for Transfers and Servicing of Financial Assets and Extinguishments of Liabilities. This new guidance proposes to change the requirements that an entity must meet to be considered a qualifying special-purpose entity. If this guidance were adopted as presently proposed, the Company would be required to consolidate the Conduit discussed above in its financial statements. Management is looking at ways to restructure the Conduit to maintain its status as a qualifying special-purpose entity. Any impact on operations as a result of the restructuring is not expected to be material.
5. ACCOUNTING FOR VARIABLE INTEREST ENTITIES
In January 2003, the FASB issued Interpretation No. 46 (“FIN 46”), Consolidation of Variable Interest Entities. FIN 46 provides guidance on identifying a variable interest entity (“VIE”) and determining when the assets, liabilities, noncontrolling interests, and results of operations of a VIE are to be included in a company’s consolidated financial statements. FIN 46 also requires additional disclosures by primary beneficiaries and other significant variable interest holders. The provisions of FIN 46 are required
10
Table of Contents
ZIONS BANCORPORATION AND SUBSIDIARIES
immediately for companies with an interest in a VIE created after January 31, 2003. A public company with an interest in a VIE created before February 1, 2003 must apply the provisions of FIN 46 as of the beginning of the first interim or annual reporting period beginning after June 15, 2003.
Zions First National Bank holds variable interests in securitization structures as described in the Company’s Annual Report on Form 10-K for the year ended December 31, 2002. All such structures are qualifying special-purpose entities, which are exempt from the consolidation requirements of FIN 46. As noted in the Quarterly Report on Form 10-Q for the first quarter of 2003, the Company was assessing the impact of FIN 46 on one VIE and has now determined that the VIE is not required to be consolidated in the Company’s financial statements.
6. DEFERRED COMPENSATION
During the second quarter of 2003, the Company began accounting for a new and a previously formed deferred compensation rabbi trust established for certain employees and directors in accordance with Emerging Issues Task Force Issue No. 97-14, Accounting for Deferred Compensation Arrangements Where Amounts Earned Are Held in a Rabbi Trust and Invested. Amounts deferred are held in rabbi trusts and invested in diversified assets or shares of the Company’s stock, subject to plan limitations. The Company consolidates the assets and obligations of the trusts and accounts for amounts invested in the Company’s stock at cost in shareholders’ equity in a manner similar to the accounting for treasury stock. At June 30, 2003, other invested assets of the trusts amounted to approximately $19.6 million and are included in other assets. The deferred compensation obligations amounted to approximately $22.5 million and are included in accrued liabilities. There is no effect on net income. Prior to this quarter, the previously existing rabbi trust was not consolidated as the deferred amounts were not considered material.
7. DEBT FINANCING
In June 2003, the Company’s board of directors passed a resolution allowing the issuance of up to $1 billion of new senior and/or subordinated debt, which is to be registered with the Securities and Exchange Commission. Proceeds of this debt will be used to refinance certain currently outstanding debt and for other general corporate purposes.
8. SUBSEQUENT EVENTS
On July 1, 2003, the Company auctioned its holdings of 5,941,080 shares of ICAP plc (formerly known as Garban-Intercapital plc) for approximately $107 million, resulting in a pretax gain of approximately $68 million to be recognized in the third quarter. The Company previously accounted for its investment in ICAP under the equity method.
On July 15, 2003, the board of directors declared a regular quarterly dividend of $.30 per common share beginning with the third quarter of 2003, an increase of 43% over the previous $.21 dividend per common share.
11
Table of Contents
ZIONS BANCORPORATION AND SUBSIDIARIES
9. OPERATING SEGMENT INFORMATION
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 operates 125 branches in Utah and 22 in Idaho. California Bank & Trust operates 91 branches in Northern and Southern California. Nevada State Bank operates 64 branches in Nevada. National Bank of Arizona operates 53 branches in Arizona. Vectra Bank Colorado operates 52 branches in Colorado and one branch in New Mexico. The Commerce Bank of Washington operates one branch in the state of Washington. The operating segment identified as “Other” includes the parent company, certain e-commerce subsidiaries, other 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 Company initiated a program in 2002 to allocate income between certain of its banking subsidiaries to better match revenues from hedging strategies to the operating units which gave rise to the exposures being hedged. Allocated income (expense) from this program included in net interest income of the banking subsidiaries is as follows (in millions):
|
| Three Months Ended |
| Six Months Ended |
| ||||||||
|
|
|
| ||||||||||
|
| 2003 |
| 2002 |
| 2003 |
| 2002 |
| ||||
|
|
|
|
|
| ||||||||
Zions First National Bank |
| $ | (6.1 | ) | $ | (13.3 | ) | $ | (13.6 | ) | $ | (24.6 | ) |
Nevada State Bank |
|
| 0.6 |
|
| 2.8 |
|
| 1.4 |
|
| 6.2 |
|
National Bank of Arizona |
|
| 1.6 |
|
| 3.3 |
|
| 3.5 |
|
| 5.1 |
|
Vectra Bank Colorado |
|
| 2.9 |
|
| 6.0 |
|
| 6.4 |
|
| 11.2 |
|
The Commerce Bank of Washington |
|
| 1.0 |
|
| 1.2 |
|
| 2.3 |
|
| 2.1 |
|
|
|
|
|
|
| ||||||||
|
| $ | — |
| $ | — |
| $ | — |
| $ | — |
|
|
|
|
|
|
|
Effective January 1, 2003, the Company changed the method by which it allocates this hedge program income (expense). Therefore, the amounts allocated to each segment for the periods shown are not directly comparable. Further, the amount of allocated hedge income is expected to decrease in subsequent quarters as the underlying hedges mature and new hedges are being recorded directly at the banking subsidiaries.
12
Table of Contents
ZIONS BANCORPORATION AND SUBSIDIARIES
The following table presents selected operating segment information for the three months ended June 30, 2003 and 2002:
(In millions) |
| Zions First |
| California |
| Nevada |
| National |
| ||||||||||||||||
|
|
|
|
| |||||||||||||||||||||
|
| 2003 |
| 2002 |
| 2003 |
| 2002 |
| 2003 |
| 2002 |
| 2003 |
| 2002 |
| ||||||||
|
|
|
|
|
|
|
|
|
| ||||||||||||||||
CONDENSED INCOME STATEMENT |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net interest income |
| $ | 84.3 |
| $ | 70.7 |
| $ | 96.1 |
| $ | 96.1 |
| $ | 31.3 |
| $ | 31.0 |
| $ | 31.7 |
| $ | 29.8 |
|
Provision for loan losses |
|
| 11.5 |
|
| 8.0 |
|
| 4.1 |
|
| 4.5 |
|
| 1.1 |
|
| 1.2 |
|
| — |
|
| 0.4 |
|
|
|
|
|
|
|
|
|
|
| ||||||||||||||||
Net interest income after provision for loan losses |
|
| 72.8 |
|
| 62.7 |
|
| 92.0 |
|
| 91.6 |
|
| 30.2 |
|
| 29.8 |
|
| 31.7 |
|
| 29.4 |
|
Noninterest income |
|
| 49.7 |
|
| 57.1 |
|
| 19.5 |
|
| 19.7 |
|
| 9.1 |
|
| 7.3 |
|
| 6.2 |
|
| 5.3 |
|
Noninterest expense |
|
| 78.5 |
|
| 77.9 |
|
| 57.4 |
|
| 58.7 |
|
| 21.1 |
|
| 21.0 |
|
| 19.2 |
|
| 17.3 |
|
|
|
|
|
|
|
|
|
|
| ||||||||||||||||
Income from continuing operations before income taxes and minority interest |
|
| 44.0 |
|
| 41.9 |
|
| 54.1 |
|
| 52.6 |
|
| 18.2 |
|
| 16.1 |
|
| 18.7 |
|
| 17.4 |
|
Income tax expense (benefit) |
|
| 13.6 |
|
| 14.0 |
|
| 21.6 |
|
| 21.2 |
|
| 6.2 |
|
| 5.4 |
|
| 7.3 |
|
| 6.9 |
|
Minority interest |
|
| (0.2 | ) |
| (0.2 | ) |
| — |
|
| — |
|
| — |
|
| — |
|
| — |
|
| — |
|
|
|
|
|
|
|
|
|
|
| ||||||||||||||||
Income from continuing operations |
|
| 30.6 |
|
| 28.1 |
|
| 32.5 |
|
| 31.4 |
|
| 12.0 |
|
| 10.7 |
|
| 11.4 |
|
| 10.5 |
|
Income (loss) on discontinued operations |
|
| — |
|
| — |
|
| — |
|
| — |
|
| — |
|
| — |
|
| — |
|
| — |
|
|
|
|
|
|
|
|
|
|
| ||||||||||||||||
Income before cumulative effect adjustment |
|
| 30.6 |
|
| 28.1 |
|
| 32.5 |
|
| 31.4 |
|
| 12.0 |
|
| 10.7 |
|
| 11.4 |
|
| 10.5 |
|
Cumulative effect adjustment |
|
| — |
|
| — |
|
| — |
|
| — |
|
| — |
|
| — |
|
| — |
|
| — |
|
|
|
|
|
|
|
|
|
|
| ||||||||||||||||
Net income (loss) |
| $ | 30.6 |
| $ | 28.1 |
| $ | 32.5 |
| $ | 31.4 |
| $ | 12.0 |
| $ | 10.7 |
| $ | 11.4 |
| $ | 10.5 |
|
|
|
|
|
|
|
|
|
|
| ||||||||||||||||
AVERAGE BALANCE SHEET DATA |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Assets |
| $ | 11,200 |
| $ | 10,294 |
| $ | 8,688 |
| $ | 8,624 |
| $ | 2,812 |
| $ | 2,565 |
| $ | 2,876 |
| $ | 2,620 |
|
Net loans and leases |
|
| 6,778 |
|
| 6,647 |
|
| 6,039 |
|
| 5,749 |
|
| 1,977 |
|
| 1,624 |
|
| 2,082 |
|
| 1,826 |
|
Deposits |
|
| 6,689 |
|
| 6,011 |
|
| 7,133 |
|
| 6,712 |
|
| 2,478 |
|
| 2,231 |
|
| 2,451 |
|
| 2,214 |
|
Shareholder’s equity |
|
| 687 |
|
| 646 |
|
| 980 |
|
| 1,009 |
|
| 174 |
|
| 160 |
|
| 228 |
|
| 211 |
|
(In millions) |
| Vectra Bank |
| The Commerce |
| Other |
| Consolidated |
| ||||||||||||||||
|
|
|
|
| |||||||||||||||||||||
|
| 2003 |
| 2002 |
| 2003 |
| 2002 |
| 2003 |
| 2002 |
| 2003 |
| 2002 |
| ||||||||
|
|
|
|
|
|
|
|
|
| ||||||||||||||||
CONDENSED INCOME STATEMENT |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net interest income |
| $ | 26.1 |
| $ | 28.9 |
| $ | 6.4 |
| $ | 6.2 |
| $ | (1.9 | ) | $ | (3.6 | ) | $ | 274.0 |
| $ | 259.1 |
|
Provision for loan losses |
|
| 1.4 |
|
| 1.5 |
|
| — |
|
| 0.1 |
|
| — |
|
| — |
|
| 18.1 |
|
| 15.7 |
|
|
|
|
|
|
|
|
|
|
| ||||||||||||||||
Net interest income after provision for loan losses |
|
| 24.7 |
|
| 27.4 |
|
| 6.4 |
|
| 6.1 |
|
| (1.9 | ) |
| (3.6 | ) |
| 255.9 |
|
| 243.4 |
|
Noninterest income |
|
| 10.4 |
|
| 7.8 |
|
| 0.5 |
|
| 0.5 |
|
| 5.4 |
|
| 3.9 |
|
| 100.8 |
|
| 101.6 |
|
Noninterest expense |
|
| 25.1 |
|
| 24.9 |
|
| 2.7 |
|
| 2.7 |
|
| 12.5 |
|
| 13.2 |
|
| 216.5 |
|
| 215.7 |
|
|
|
|
|
|
|
|
|
|
| ||||||||||||||||
Income from continuing operations before income taxes and minority interest |
|
| 10.0 |
|
| 10.3 |
|
| 4.2 |
|
| 3.9 |
|
| (9.0 | ) |
| (12.9 | ) |
| 140.2 |
|
| 129.3 |
|
Income tax expense (benefit) |
|
| 3.6 |
|
| 3.7 |
|
| 1.5 |
|
| 1.4 |
|
| (4.8 | ) |
| (7.6 | ) |
| 49.0 |
|
| 45.0 |
|
Minority interest |
|
| — |
|
| — |
|
| — |
|
| — |
|
| (1.0 | ) |
| (0.4 | ) |
| (1.2 | ) |
| (0.6 | ) |
|
|
|
|
|
|
|
|
|
| ||||||||||||||||
Income from continuing operations |
|
| 6.4 |
|
| 6.6 |
|
| 2.7 |
|
| 2.5 |
|
| (3.2 | ) |
| (4.9 | ) |
| 92.4 |
|
| 84.9 |
|
Income (loss) on discontinued operations |
|
| — |
|
| — |
|
| — |
|
| — |
|
| — |
|
| (2.9 | ) |
| — |
|
| (2.9 | ) |
|
|
|
|
|
|
|
|
|
| ||||||||||||||||
Income before cumulative effect adjustment |
|
| 6.4 |
|
| 6.6 |
|
| 2.7 |
|
| 2.5 |
|
| (3.2 | ) |
| (7.8 | ) |
| 92.4 |
|
| 82.0 |
|
Cumulative effect adjustment |
|
| — |
|
| — |
|
| — |
|
| — |
|
| — |
|
| — |
|
| — |
|
| — |
|
|
|
|
|
|
|
|
|
|
| ||||||||||||||||
Net income (loss) |
| $ | 6.4 |
| $ | 6.6 |
| $ | 2.7 |
| $ | 2.5 |
| $ | (3.2 | ) | $ | (7.8 | ) | $ | 92.4 |
| $ | 82.0 |
|
|
|
|
|
|
|
|
|
|
| ||||||||||||||||
AVERAGE BALANCE SHEET DATA |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Assets |
| $ | 2,733 |
| $ | 2,580 |
| $ | 632 |
| $ | 549 |
| $ | (921 | ) | $ | (1,103 | ) | $ | 28,021 |
| $ | 26,129 |
|
Net loans and leases |
|
| 1,856 |
|
| 1,832 |
|
| 328 |
|
| 310 |
|
| 146 |
|
| 96 |
|
| 19,207 |
|
| 18,083 |
|
Deposits |
|
| 1,883 |
|
| 1,720 |
|
| 444 |
|
| 390 |
|
| (1,203 | ) |
| (1,060 | ) |
| 19,875 |
|
| 18,218 |
|
Shareholder’s equity |
|
| 447 |
|
| 435 |
|
| 48 |
|
| 41 |
|
| (105 | ) |
| (185 | ) |
| 2,459 |
|
| 2,317 |
|
13
Table of Contents
ZIONS BANCORPORATION AND SUBSIDIARIES
The following table presents selected operating segment information for the six months ended June 30, 2003 and 2002:
(In millions) |
| Zions First |
| California |
| Nevada |
| National |
| ||||||||||||||||
|
|
|
|
| |||||||||||||||||||||
|
| 2003 |
| 2002 |
| 2003 |
| 2002 |
| 2003 |
| 2002 |
| 2003 |
| 2002 |
| ||||||||
|
|
|
|
|
|
|
|
|
| ||||||||||||||||
CONDENSED INCOME STATEMENT |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net interest income |
| $ | 168.4 |
| $ | 146.6 |
| $ | 190.9 |
| $ | 188.7 |
| $ | 60.9 |
| $ | 62.9 |
| $ | 61.9 |
| $ | 57.0 |
|
Provision for loan losses |
|
| 23.5 |
|
| 19.3 |
|
| 6.3 |
|
| 8.5 |
|
| 3.1 |
|
| 2.2 |
|
| — |
|
| 1.0 |
|
|
|
|
|
|
|
|
|
|
| ||||||||||||||||
Net interest income after provision for loan losses |
|
| 144.9 |
|
| 127.3 |
|
| 184.6 |
|
| 180.2 |
|
| 57.8 |
|
| 60.7 |
|
| 61.9 |
|
| 56.0 |
|
Noninterest income |
|
| 106.4 |
|
| 107.3 |
|
| 37.7 |
|
| 40.6 |
|
| 16.2 |
|
| 14.1 |
|
| 11.7 |
|
| 10.1 |
|
Noninterest expense |
|
| 153.5 |
|
| 150.5 |
|
| 115.3 |
|
| 118.1 |
|
| 42.3 |
|
| 41.1 |
|
| 39.0 |
|
| 33.3 |
|
|
|
|
|
|
|
|
|
|
| ||||||||||||||||
Income from continuing operations before income taxes and minority interest |
|
| 97.8 |
|
| 84.1 |
|
| 107.0 |
|
| 102.7 |
|
| 31.7 |
|
| 33.7 |
|
| 34.6 |
|
| 32.8 |
|
Income tax expense (benefit) |
|
| 30.7 |
|
| 28.1 |
|
| 42.8 |
|
| 41.7 |
|
| 10.8 |
|
| 11.4 |
|
| 13.7 |
|
| 13.0 |
|
Minority interest |
|
| (0.3 | ) |
| (0.2 | ) |
| — |
|
| — |
|
| — |
|
| — |
|
| — |
|
| — |
|
|
|
|
|
|
|
|
|
|
| ||||||||||||||||
Income from continuing operations |
|
| 67.4 |
|
| 56.2 |
|
| 64.2 |
|
| 61.0 |
|
| 20.9 |
|
| 22.3 |
|
| 20.9 |
|
| 19.8 |
|
Income (loss) on discontinued operations |
|
| — |
|
| — |
|
| — |
|
| — |
|
| — |
|
| — |
|
| — |
|
| — |
|
|
|
|
|
|
|
|
|
|
| ||||||||||||||||
Income before cumulative effect adjustment |
|
| 67.4 |
|
| 56.2 |
|
| 64.2 |
|
| 61.0 |
|
| 20.9 |
|
| 22.3 |
|
| 20.9 |
|
| 19.8 |
|
Cumulative effect adjustment |
|
| — |
|
| — |
|
| — |
|
| — |
|
| — |
|
| — |
|
| — |
|
| — |
|
|
|
|
|
|
|
|
|
|
| ||||||||||||||||
Net income (loss) |
| $ | 67.4 |
| $ | 56.2 |
| $ | 64.2 |
| $ | 61.0 |
| $ | 20.9 |
| $ | 22.3 |
| $ | 20.9 |
| $ | 19.8 |
|
|
|
|
|
|
|
|
|
|
| ||||||||||||||||
AVERAGE BALANCE SHEET DATA |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Assets |
| $ | 11,326 |
| $ | 10,153 |
| $ | 8,702 |
| $ | 8,486 |
| $ | 2,769 |
| $ | 2,527 |
| $ | 2,830 |
| $ | 2,610 |
|
Net loans and leases |
|
| 6,742 |
|
| 6,456 |
|
| 6,078 |
|
| 5,733 |
|
| 1,914 |
|
| 1,590 |
|
| 2,028 |
|
| 1,815 |
|
Deposits |
|
| 6,887 |
|
| 5,652 |
|
| 7,035 |
|
| 6,723 |
|
| 2,433 |
|
| 2,186 |
|
| 2,399 |
|
| 2,197 |
|
Shareholder’s equity |
|
| 683 |
|
| 646 |
|
| 989 |
|
| 1,008 |
|
| 173 |
|
| 161 |
|
| 230 |
|
| 213 |
|
(In millions) |
| Vectra Bank |
| The Commerce |
| Other |
| Consolidated |
| ||||||||||||||||
|
|
|
|
| |||||||||||||||||||||
|
| 2003 |
| 2002 |
| 2003 |
| 2002 |
| 2003 |
| 2002 |
| 2003 |
| 2002 |
| ||||||||
|
|
|
|
|
|
|
|
|
| ||||||||||||||||
CONDENSED INCOME STATEMENT |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net interest income |
| $ | 50.1 |
| $ | 56.1 |
| $ | 12.1 |
| $ | 11.7 |
| $ | (4.1 | ) | $ | (7.7 | ) | $ | 540.2 |
| $ | 515.3 |
|
Provision for loan losses |
|
| 2.8 |
|
| 2.4 |
|
| — |
|
| 0.4 |
|
| — |
|
| — |
|
| 35.7 |
|
| 33.8 |
|
|
|
|
|
|
|
|
|
|
| ||||||||||||||||
Net interest income after provision for loan losses |
|
| 47.3 |
|
| 53.7 |
|
| 12.1 |
|
| 11.3 |
|
| (4.1 | ) |
| (7.7 | ) |
| 504.5 |
|
| 481.5 |
|
Noninterest income |
|
| 19.7 |
|
| 15.2 |
|
| 0.9 |
|
| 0.9 |
|
| 4.5 |
|
| 7.2 |
|
| 197.1 |
|
| 195.4 |
|
Noninterest expense |
|
| 50.4 |
|
| 50.1 |
|
| 5.7 |
|
| 5.2 |
|
| 24.2 |
|
| 22.6 |
|
| 430.4 |
|
| 420.9 |
|
|
|
|
|
|
|
|
|
|
| ||||||||||||||||
Income from continuing operations before income taxes and minority interest |
|
| 16.6 |
|
| 18.8 |
|
| 7.3 |
|
| 7.0 |
|
| (23.8 | ) |
| (23.1 | ) |
| 271.2 |
|
| 256.0 |
|
Income tax expense (benefit) |
|
| 5.9 |
|
| 6.6 |
|
| 2.6 |
|
| 2.5 |
|
| (11.2 | ) |
| (14.3 | ) |
| 95.3 |
|
| 89.0 |
|
Minority interest |
|
| — |
|
| — |
|
| — |
|
| — |
|
| (3.6 | ) |
| (0.5 | ) |
| (3.9 | ) |
| (0.7 | ) |
|
|
|
|
|
|
|
|
|
| ||||||||||||||||
Income from continuing operations |
|
| 10.7 |
|
| 12.2 |
|
| 4.7 |
|
| 4.5 |
|
| (9.0 | ) |
| (8.3 | ) |
| 179.8 |
|
| 167.7 |
|
Income (loss) on discontinued operations |
|
| — |
|
| — |
|
| — |
|
| — |
|
| 0.3 |
|
| (6.0 | ) |
| 0.3 |
|
| (6.0 | ) |
|
|
|
|
|
|
|
|
|
| ||||||||||||||||
Income before cumulative effect adjustment |
|
| 10.7 |
|
| 12.2 |
|
| 4.7 |
|
| 4.5 |
|
| (8.7 | ) |
| (14.3 | ) |
| 180.1 |
|
| 161.7 |
|
Cumulative effect adjustment |
|
| — |
|
| — |
|
| — |
|
| — |
|
| — |
|
| (32.4 | ) |
| — |
|
| (32.4 | ) |
|
|
|
|
|
|
|
|
|
| ||||||||||||||||
Net income (loss) |
| $ | 10.7 |
| $ | 12.2 |
| $ | 4.7 |
| $ | 4.5 |
| $ | (8.7 | ) | $ | (46.7 | ) | $ | 180.1 |
| $ | 129.3 |
|
|
|
|
|
|
|
|
|
|
| ||||||||||||||||
AVERAGE BALANCE SHEET DATA |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Assets |
| $ | 2,743 |
| $ | 2,584 |
| $ | 629 |
| $ | 536 |
| $ | (1,330 | ) | $ | (991 | ) | $ | 27,669 |
| $ | 25,905 |
|
Net loans and leases |
|
| 1,862 |
|
| 1,827 |
|
| 320 |
|
| 299 |
|
| 143 |
|
| 93 |
|
| 19,087 |
|
| 17,813 |
|
Deposits |
|
| 1,893 |
|
| 1,719 |
|
| 439 |
|
| 380 |
|
| (1,189 | ) |
| (909 | ) |
| 19,897 |
|
| 17,948 |
|
Shareholder’s equity |
|
| 444 |
|
| 437 |
|
| 47 |
|
| 40 |
|
| (135 | ) |
| (211 | ) |
| 2,431 |
|
| 2,294 |
|
14
Table of Contents
ZIONS BANCORPORATION AND SUBSIDIARIES
MANAGEMENT’S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS |
FINANCIAL HIGHLIGHTS
(Unaudited)
(In thousands, except per share and ratio data) |
| Three Months Ended |
|
| Six Months Ended |
| ||||||||||||||
|
|
|
| |||||||||||||||||
|
| 2003 |
| 2002 |
| % Change |
|
| 2003 |
| 2002 |
| % Change |
| ||||||
|
|
|
|
|
|
|
|
| ||||||||||||
EARNINGS |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
| |
Taxable-equivalent net interest income |
| $ | 279,794 |
| $ | 264,282 |
|
| 5.87 | % | $ | 551,774 |
| $ | 525,587 |
|
| 4.98 | % | |
Net interest income |
|
| 273,953 |
|
| 259,044 |
|
| 5.76 | % |
| 540,161 |
|
| 515,254 |
|
| 4.83 | % | |
Noninterest income |
|
| 100,805 |
|
| 101,605 |
|
| (0.79 | )% |
| 197,144 |
|
| 195,431 |
|
| 0.88 | % | |
Provision for loan losses |
|
| 18,150 |
|
| 15,705 |
|
| 15.57 | % |
| 35,700 |
|
| 33,795 |
|
| 5.64 | % | |
Noninterest expense |
|
| 216,403 |
|
| 215,708 |
|
| 0.32 | % |
| 430,367 |
|
| 420,962 |
|
| 2.23 | % | |
Income before income taxes and minority interest |
|
| 140,205 |
|
| 129,236 |
|
| 8.49 | % |
| 271,238 |
|
| 255,928 |
|
| 5.98 | % | |
Income taxes |
|
| 48,956 |
|
| 44,947 |
|
| 8.92 | % |
| 95,350 |
|
| 88,972 |
|
| 7.17 | % | |
Minority interest |
|
| (1,159 | ) |
| (575 | ) |
| 101.57 | % |
| (3,896 | ) |
| (725 | ) |
| 437.38 | % | |
Income from continuing operations |
|
| 92,408 |
|
| 84,864 |
|
| 8.89 | % |
| 179,784 |
|
| 167,681 |
|
| 7.22 | % | |
Income (loss) on discontinued operations |
|
| 17 |
|
| (2,789 | ) |
| 100.61 | % |
| 345 |
|
| (5,975 | ) |
| 105.77 | % | |
Cumulative effect of change in accounting principle |
|
| — |
|
| — |
|
|
|
|
| — |
|
| (32,369 | ) |
| 100.00 | % | |
Net income |
|
| 92,425 |
|
| 82,075 |
|
| 12.61 | % |
| 180,129 |
|
| 129,337 |
|
| 39.27 | % | |
PER COMMON SHARE |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
| |
Net income (diluted) |
|
| 1.02 |
|
| 0.89 |
|
| 14.61 | % |
| 1.99 |
|
| 1.40 |
|
| 42.14 | % | |
Income from continuing operations (diluted) |
|
| 1.02 |
|
| 0.92 |
|
| 10.87 | % |
| 1.98 |
|
| 1.81 |
|
| 9.39 | % | |
Income (loss) on discontinued operations (diluted) |
|
| — |
|
| (0.03 | ) |
| 100.00 | % |
| 0.01 |
|
| (0.06 | ) |
| 116.67 | % | |
Dividends |
|
| 0.21 |
|
| 0.20 |
|
| 5.00 | % |
| 0.42 |
|
| 0.40 |
|
| 5.00 | % | |
Book value |
|
|
|
|
|
|
|
|
|
|
| 27.63 |
|
| 25.49 |
|
| 8.40 | % | |
SELECTED RATIOS |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
| |
Return on average assets |
|
| 1.32 | % |
| 1.26 | % |
|
|
|
| 1.31 | % |
| 1.01 | % |
|
|
| |
Return on average common equity |
|
| 15.07 | % |
| 14.21 | % |
|
|
|
| 14.94 | % |
| 11.37 | % |
|
|
| |
Efficiency ratio |
|
| 56.96 | % |
| 60.51 | % |
|
|
|
| 57.53 | % |
| 60.00 | % |
|
|
| |
Net interest margin |
|
| 4.50 | % |
| 4.61 | % |
|
|
|
| 4.52 | % |
| 4.65 | % |
|
|
|
15
Table of Contents
ZIONS BANCORPORATION AND SUBSIDIARIES
FINANCIAL HIGHLIGHTS (Continued)
(Unaudited)
(In thousands, except share and ratio data) |
| Three Months Ended |
|
| Six Months Ended |
| ||||||||||||||
|
|
|
| |||||||||||||||||
|
| 2003 |
| 2002 |
| % Change |
|
| 2003 |
| 2002 |
| %Change |
| ||||||
|
|
|
|
|
|
|
|
| ||||||||||||
AVERAGE BALANCES |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total assets |
| $ | 28,021,084 |
| $ | 26,128,886 |
|
| 7.24 | % | $ | 27,669,319 |
| $ | 25,905,200 |
|
| 6.81 | % | |
Securities |
|
| 4,360,357 |
|
| 3,901,341 |
|
| 11.77 | % |
| 4,137,334 |
|
| 3,990,091 |
|
| 3.69 | % | |
Net loans and leases |
|
| 19,207,484 |
|
| 18,083,224 |
|
| 6.22 | % |
| 19,086,852 |
|
| 17,812,584 |
|
| 7.15 | % | |
Goodwill |
|
| 730,067 |
|
| 735,622 |
|
| (0.76 | )% |
| 730,084 |
|
| 735,409 |
|
| (0.72 | )% | |
Core deposit and other intangibles |
|
| 79,314 |
|
| 102,544 |
|
| (22.65 | )% |
| 80,516 |
|
| 104,860 |
|
| (23.22 | )% | |
Total deposits |
|
| 19,874,701 |
|
| 18,217,798 |
|
| 9.09 | % |
| 19,896,599 |
|
| 17,947,954 |
|
| 10.86 | % | |
Minority interest |
|
| 22,991 |
|
| 21,354 |
|
| 7.67 | % |
| 22,986 |
|
| 19,958 |
|
| 15.17 | % | |
Shareholders’ equity |
|
| 2,459,145 |
|
| 2,317,029 |
|
| 6.13 | % |
| 2,430,796 |
|
| 2,293,991 |
|
| 5.96 | % | |
Weighted average common and common-equivalent shares outstanding |
|
| 90,586,065 |
|
| 92,628,770 |
|
| (2.21 | )% |
| 90,607,173 |
|
| 92,658,111 |
|
| (2.21 | )% | |
AT PERIOD END |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total assets |
|
|
|
|
|
|
|
|
|
|
| $ | 27,805,628 |
| $ | 25,734,714 |
|
| 8.05 | % |
Securities |
|
|
|
|
|
|
|
|
|
|
|
| 4,228,260 |
|
| 3,609,416 |
|
| 17.15 | % |
Net loans and leases |
|
|
|
|
|
|
|
|
|
|
|
| 19,439,822 |
|
| 18,452,554 |
|
| 5.35 | % |
Sold loans being serviced |
|
|
|
|
|
|
|
|
|
|
|
| 2,367,751 |
|
| 2,543,887 |
|
| (6.92 | )% |
Allowance for loan losses |
|
|
|
|
|
|
|
|
|
|
|
| 281,486 |
|
| 264,432 |
|
| 6.45 | % |
Goodwill |
|
|
|
|
|
|
|
|
|
|
|
| 730,069 |
|
| 736,524 |
|
| (0.88 | )% |
Core deposit and other intangibles |
|
|
|
|
|
|
|
|
|
|
|
| 75,817 |
|
| 100,003 |
|
| (24.19 | )% |
Total deposits |
|
|
|
|
|
|
|
|
|
|
|
| 20,625,170 |
|
| 18,788,429 |
|
| 9.78 | % |
Minority interest |
|
|
|
|
|
|
|
|
|
|
|
| 22,995 |
|
| 22,782 |
|
| 0.93 | % |
Shareholders’ equity |
|
|
|
|
|
|
|
|
|
|
|
| 2,479,421 |
|
| 2,337,278 |
|
| 6.08 | % |
Common shares outstanding |
|
|
|
|
|
|
|
|
|
|
|
| 89,724,846 |
|
| 91,701,887 |
|
| (2.16 | )% |
Average equity to average assets |
|
| 8.78 | % |
| 8.87 | % |
|
|
|
|
| 8.79 | % |
| 8.86 | % |
|
|
|
Common dividend payout |
|
| 20.47 | % |
| 22.36 | % |
|
|
|
|
| 21.07 | % |
| 28.41 | % |
|
|
|
Nonperforming assets |
|
|
|
|
|
|
|
|
|
|
|
| 119,371 |
|
| 115,513 |
|
| 3.34 | % |
Loans past due 90 days or more |
|
|
|
|
|
|
|
|
|
|
|
| 35,055 |
|
| 32,332 |
|
| 8.42 | % |
Nonperforming assets to net loans and leases, other real estate owned and other nonperforming assets at period end |
|
|
|
|
|
|
|
|
|
|
|
| 0.61 | % |
| 0.63 | % |
|
|
|
16
Table of Contents
ZIONS BANCORPORATION AND SUBSIDIARIES
OPERATING RESULTS
Zions Bancorporation and subsidiaries (“the Company”) achieved net income of $92.4 million, or $1.02 per diluted share for the second quarter of 2003, an increase of 12.6% and 14.6%, respectively, over the $82.1 million, or $0.89 per diluted share, in the second quarter of 2002. For the same comparative periods, income from continuing operations was also $92.4 million, or $1.02 per diluted share, an increase of 8.9% and 10.9%, respectively, over $84.9 million or $0.92 per diluted share. Net income for the second quarter of 2002 included a loss from discontinued operations of $2.8 million, or $0.03 per diluted share.
Net income for the first six months of 2003 was $180.1 million or $1.99 per diluted share, compared to $129.3 million or $1.40 per diluted share for the first six months of 2002. Included in net income for the first six months of 2002 was an impairment charge of $32.4 million, or $0.35 per diluted share, recognized as a cumulative effect adjustment, from the required adoption of Statement of Financial Accounting Standards (“SFAS”) No. 142. This impairment charge resulted from an adjustment to the carrying value of the Company’s investments in certain e-commerce subsidiaries. Also included in net income for the same period was a loss from discontinued operations of the e-commerce subsidiaries of $6.0 million, or $0.06 per diluted share. Income from continuing operations for the first six months of 2003 was $179.8 million, or $1.98 per diluted share, an increase of 7.2% and 9.4%, respectively, over income from continuing operations of $167.7 million, or $1.81 per diluted share for the same period in 2002.
The annualized return on average assets was 1.32% in the second quarter of 2003 compared to 1.26% in the second quarter of 2002. For the same comparative periods, the annualized return on average common equity was 15.07% compared to 14.21%. In addition, the efficiency ratio, defined as noninterest expenses as a percentage of the sum of taxable-equivalent net interest income and noninterest income, improved to 56.96% compared to 60.51%.
For the first six months of 2003, the annualized return on average assets was 1.31% compared to 1.01% for the first six months of 2002. For the same comparative periods, the annualized return on average common equity was 14.94% compared to 11.37%. These improved rates reflect the 2002 cumulative effect adjustment and discontinued operations previously discussed. The efficiency ratio was 57.53% compared to 60.00%.
The earnings improvement for both the second quarter and year-to-date periods in 2003 compared to the similar periods in 2002 continues to reflect the results of several actions commenced by Company management during 2002. As discussed in detail in the Company’s Annual Report on Form 10-K for the year ended December 31, 2002, the Company exited and restructured several e-commerce activities during 2002 in light of disappointing results and the difficult e-commerce market environment. The second quarter and year-to-date periods in 2003 resulted in minor gains from discontinued operations compared to the loss amounts for 2002 previously discussed. The Company’s previously announced commitment to reduce the annual run-rate of expenses by $50 million was met during the second quarter of 2003. Actions taken by management to control expenses include the e-commerce restructuring activities, branch closures, scaling back the indirect auto lending business, operations consolidation, and efforts to improve procurement processes.
Vectra Bank Colorado (“Vectra”) has taken a number of steps in recent quarters to improve performance, and substantial progress has been made. However, due in part to continued weak economic conditions in Colorado, the financial performance of Vectra has not met management’s expectations. Earlier in 2003, the Company engaged a national consulting firm to assist Vectra in analyzing its operating strategy and accelerating its profitability improvement. As a result of this analysis, Vectra will restructure to focus its
17
Table of Contents
ZIONS BANCORPORATION AND SUBSIDIARIES
efforts more specifically on serving small and middle market business customers, and employees of those businesses. This restructuring decision will necessitate a SFAS 142 impairment review one quarter earlier than the routine annual review and may result in a write-down of goodwill in the third quarter. Such a write-down, if any, would be a noncash charge and would not impact regulatory or tangible capital ratios.
NET INTEREST INCOME, INTEREST RATE SPREADS AND INTEREST RATE SENSITIVITY
Net interest income for the second quarter of 2003, adjusted to a fully taxable-equivalent basis, increased 5.9% to $279.8 million compared to $264.3 million for the second quarter of 2002. Net interest margin was 4.50% for the second quarter of 2003, compared to 4.54% for the first quarter of 2003 and 4.61% for the second quarter of 2002. For the first six months of 2003, net interest income on a fully taxable-equivalent basis was $551.8 million, an increase of 5.0% compared to $525.6 million in 2002. Net interest margin was 4.52% compared to 4.65%. The increase in net interest income results from increases in average interest-earning assets funded in part through strong growth in average noninterest-bearing deposits, partially offset by the declining net interest margin.
The Company uses interest rate swaps as an asset-liability management tool to manage the effect of changes in interest rates on net interest income. This serves to offset some, but not all, of the interest rate compression being experienced in the current economic environment. At June 30, 2003, the Company’s overall asset-liability management position remains somewhat asset sensitive.
The yield on average earning assets for the second quarter of 2003 decreased 73 basis points compared to the second quarter of 2002. The average rate paid during the second quarter on interest-bearing funds decreased 72 basis points from the second quarter of 2002. Comparing the first six months of 2003 with 2002, the yield on average earning assets decreased 73 basis points, while the cost of interest-bearing funds decreased 67 basis points.
The spread on average interest-bearing funds for the second quarter of 2003 was 4.20%, down from 4.21% for both the first quarter of 2003 and the second quarter of 2002. The spread on average interest-bearing funds for the first six months of 2003 was 4.20%, down from 4.26% for the first six months of 2002.
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 interest rate swap agreements, attempts to manage the effect on net interest income of changes in interest rates. The prime lending and the LIBOR (London Interbank Offer Rate) curve are the primary indices used for pricing the Company’s loans, and the 91-day Treasury bill rate is the index used for pricing many of the Company’s deposits. The Company does not hedge the prime/LIBOR/T-bill spread risk through the use of derivative instruments.
18
Table of Contents
ZIONS BANCORPORATION AND SUBSIDIARIES
CONSOLIDATED AVERAGE BALANCE SHEETS, YIELDS AND RATES
(Unaudited)
|
| Three Months Ended |
|
| Three Months Ended |
| ||||||||||||||
|
|
|
|
| ||||||||||||||||
(In thousands) |
| Average |
| Amount of |
| Average |
|
| Average |
| Amount of |
| Average |
| ||||||
|
|
|
|
|
|
|
| |||||||||||||
ASSETS |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Money market investments |
| $ | 1,346,595 |
| $ | 3,611 |
|
| 1.08 | % | $ | 1,026,799 |
| $ | 4,215 |
|
| 1.65 | % | |
Securities: |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Held to maturity |
|
| — |
|
| — |
|
|
|
|
|
| 93,782 |
|
| 1,494 |
|
| 6.39 | % |
Available for sale |
|
| 3,664,436 |
|
| 43,178 |
|
| 4.73 | % |
| 3,216,084 |
|
| 43,754 |
|
| 5.46 | % | |
Trading account |
|
| 695,921 |
|
| 6,194 |
|
| 3.57 | % |
| 591,475 |
|
| 5,479 |
|
| 3.72 | % | |
|
|
|
|
|
|
|
|
|
|
|
|
|
| |||||||
Total securities |
|
| 4,360,357 |
|
| 49,372 |
|
| 4.54 | % |
| 3,901,341 |
|
| 50,727 |
|
| 5.22 | % | |
|
|
|
|
|
|
|
|
|
|
|
|
|
| |||||||
Loans: |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Loans held for sale |
|
| 216,987 |
|
| 2,225 |
|
| 4.11 | % |
| 175,662 |
|
| 2,191 |
|
| 5.00 | % | |
Net loans and leases (2) |
|
| 18,990,497 |
|
| 304,170 |
|
| 6.42 | % |
| 17,907,562 |
|
| 316,791 |
|
| 7.10 | % | |
|
|
|
|
|
|
|
|
|
|
|
|
|
| |||||||
Total loans and leases |
|
| 19,207,484 |
|
| 306,395 |
|
| 6.40 | % |
| 18,083,224 |
|
| 318,982 |
|
| 7.08 | % | |
|
|
|
|
|
|
|
|
|
|
|
|
|
| |||||||
Total interest-earning assets |
|
| 24,914,436 |
|
| 359,378 |
|
| 5.79 | % |
| 23,011,364 |
|
| 373,924 |
|
| 6.52 | % | |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
| ||||
Cash and due from banks |
|
| 944,223 |
|
|
|
|
|
|
|
|
| 919,176 |
|
|
|
|
|
|
|
Allowance for loan losses |
|
| (281,511 | ) |
|
|
|
|
|
|
|
| (266,669 | ) |
|
|
|
|
|
|
Goodwill |
|
| 730,067 |
|
|
|
|
|
|
|
|
| 735,622 |
|
|
|
|
|
|
|
Core deposit and other intangibles |
|
| 79,314 |
|
|
|
|
|
|
|
|
| 102,544 |
|
|
|
|
|
|
|
Other assets |
|
| 1,634,555 |
|
|
|
|
|
|
|
|
| 1,626,849 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
| ||||
Total assets |
| $ | 28,021,084 |
|
|
|
|
|
|
|
| $ | 26,128,886 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
| ||||
LIABILITIES |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Interest-bearing deposits: |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Savings and NOW |
| $ | 2,933,031 |
|
| 4,834 |
|
| 0.66 | % | $ | 2,528,034 |
|
| 6,963 |
|
| 1.10 | % | |
Money market super NOW |
|
| 8,744,693 |
|
| 23,697 |
|
| 1.09 | % |
| 7,795,332 |
|
| 36,065 |
|
| 1.86 | % | |
Time under $100,000 |
|
| 1,687,633 |
|
| 9,757 |
|
| 2.32 | % |
| 1,915,613 |
|
| 15,777 |
|
| 3.30 | % | |
Time $100,000 and over |
|
| 1,280,596 |
|
| 8,697 |
|
| 2.72 | % |
| 1,483,627 |
|
| 12,685 |
|
| 3.43 | % | |
Foreign |
|
| 126,987 |
|
| 292 |
|
| 0.92 | % |
| 104,124 |
|
| 400 |
|
| 1.54 | % | |
|
|
|
|
|
|
|
|
|
|
|
|
|
| |||||||
Total interest-bearing deposits |
|
| 14,772,940 |
|
| 47,277 |
|
| 1.28 | % |
| 13,826,730 |
|
| 71,890 |
|
| 2.09 | % | |
|
|
|
|
|
|
|
|
|
|
|
|
| ||||||||
Borrowed funds: |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
| |
Securities sold, not yet purchased |
|
| 554,579 |
|
| 5,104 |
|
| 3.69 | % |
| 378,173 |
|
| 4,303 |
|
| 4.56 | % | |
Federal funds purchased and security repurchase agreements |
|
| 2,733,363 |
|
| 7,411 |
|
| 1.09 | % |
| 2,654,564 |
|
| 10,873 |
|
| 1.64 | % | |
Commercial paper |
|
| 286,888 |
|
| 1,029 |
|
| 1.44 | % |
| 371,408 |
|
| 2,032 |
|
| 2.19 | % | |
FHLB advances and other borrowings: |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
| |
One year or less |
|
| 282,051 |
|
| 962 |
|
| 1.37 | % |
| 796,092 |
|
| 3,757 |
|
| 1.89 | % | |
Over one year |
|
| 238,447 |
|
| 3,104 |
|
| 5.22 | % |
| 240,834 |
|
| 3,109 |
|
| 5.18 | % | |
Long-term debt |
|
| 1,176,952 |
|
| 14,697 |
|
| 5.01 | % |
| 769,302 |
|
| 13,678 |
|
| 7.13 | % | |
|
|
|
|
|
|
|
|
|
|
|
|
| ||||||||
Total borrowed funds |
|
| 5,272,280 |
|
| 32,307 |
|
| 2.46 | % |
| 5,210,373 |
|
| 37,752 |
|
| 2.91 | % | |
|
|
|
|
|
|
|
|
|
|
|
|
| ||||||||
Total interest-bearing liabilities |
|
| 20,045,220 |
|
| 79,584 |
|
| 1.59 | % |
| 19,037,103 |
|
| 109,642 |
|
| 2.31 | % | |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
| |||||
Noninterest-bearing deposits |
|
| 5,101,761 |
|
|
|
|
|
|
|
| 4,391,068 |
|
|
|
|
|
|
| |
Other liabilities |
|
| 391,967 |
|
|
|
|
|
|
|
| 362,332 |
|
|
|
|
|
|
| |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
| |||||
Total liabilities |
|
| 25,538,948 |
|
|
|
|
|
|
|
| 23,790,503 |
|
|
|
|
|
|
| |
Minority interest |
|
| 22,991 |
|
|
|
|
|
|
|
| 21,354 |
|
|
|
|
|
|
| |
Total shareholders’ equity |
|
| 2,459,145 |
|
|
|
|
|
|
|
| 2,317,029 |
|
|
|
|
|
|
| |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
| |||||
Total liabilities and shareholders’ equity |
| $ | 28,021,084 |
|
|
|
|
|
|
| $ | 26,128,886 |
|
|
|
|
|
|
| |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
| |||||
Spread on average interest-bearing funds |
|
|
|
|
|
|
|
| 4.20 | % |
|
|
|
|
|
|
| 4.21 | % | |
Taxable-equivalent net interest income and net yield on interest-earning assets |
|
|
|
| $ | 279,794 |
|
| 4.50 | % |
|
|
| $ | 264,282 |
|
| 4.61 | % | |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(1) Taxable-equivalent rates used where applicable.
(2) Net of unearned income and fees, net of related costs. Loans include nonaccrual and restructured loans.
19
Table of Contents
ZIONS BANCORPORATION AND SUBSIDIARIES
CONSOLIDATED AVERAGE BALANCE SHEETS, YIELDS AND RATES
(Unaudited)
|
| Six Months Ended |
|
| Six Months Ended |
| ||||||||||||||
|
|
|
|
| ||||||||||||||||
(In thousands) |
| Average |
| Amount of |
| Average |
|
| Average |
| Amount of |
| Average |
| ||||||
|
|
|
|
|
|
|
| |||||||||||||
ASSETS |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Money market investments |
| $ | 1,374,631 |
| $ | 7,548 |
|
| 1.11 | % | $ | 979,032 |
| $ | 7,901 |
|
| 1.63 | % | |
Securities: |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Held to maturity |
|
| — |
|
| — |
|
|
|
|
| 86,503 |
|
| 2,292 |
|
| 5.34 | % | |
Available for sale |
|
| 3,463,280 |
|
| 82,618 |
|
| 4.81 | % |
| 3,282,589 |
|
| 88,139 |
|
| 5.41 | % | |
Trading account |
|
| 674,054 |
|
| 11,755 |
|
| 3.52 | % |
| 620,999 |
|
| 10,913 |
|
| 3.54 | % | |
|
|
|
|
|
|
|
|
|
|
|
| |||||||||
Total securities |
|
| 4,137,334 |
|
| 94,373 |
|
| 4.60 | % |
| 3,990,091 |
|
| 101,344 |
|
| 5.12 | % | |
|
|
|
|
|
|
|
|
|
|
|
| |||||||||
Loans: |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
| |
Loans held for sale |
|
| 233,595 |
|
| 4,730 |
|
| 4.08 | % |
| 194,888 |
|
| 4,927 |
|
| 5.10 | % | |
Net loans and leases (2) |
|
| 18,853,257 |
|
| 607,898 |
|
| 6.50 | % |
| 17,617,696 |
|
| 629,839 |
|
| 7.21 | % | |
|
|
|
|
|
|
|
|
|
|
|
| |||||||||
Total loans and leases |
|
| 19,086,852 |
|
| 612,628 |
|
| 6.47 | % |
| 17,812,584 |
|
| 634,766 |
|
| 7.19 | % | |
|
|
|
|
|
|
|
|
|
|
|
| |||||||||
Total interest-earning assets |
|
| 24,598,817 |
|
| 714,549 |
|
| 5.86 | % |
| 22,781,707 |
|
| 744,011 |
|
| 6.59 | % | |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
| |||||
Cash and due from banks |
|
| 927,628 |
|
|
|
|
|
|
|
| 947,890 |
|
|
|
|
|
|
| |
Allowance for loan losses |
|
| (281,388 | ) |
|
|
|
|
|
|
| (265,368 | ) |
|
|
|
|
|
| |
Goodwill |
|
| 730,084 |
|
|
|
|
|
|
|
| 735,409 |
|
|
|
|
|
|
| |
Core deposit and other intangibles |
|
| 80,516 |
|
|
|
|
|
|
|
| 104,860 |
|
|
|
|
|
|
| |
Other assets |
|
| 1,613,662 |
|
|
|
|
|
|
|
| 1,600,702 |
|
|
|
|
|
|
| |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
| |||||
Total assets |
| $ | 27,669,319 |
|
|
|
|
|
|
| $ | 25,905,200 |
|
|
|
|
|
|
| |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
| |||||
LIABILITIES |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
| |
Interest-bearing deposits: |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
| |
Savings and NOW |
| $ | 2,851,035 |
|
| 9,849 |
|
| 0.70 | % | $ | 2,440,404 |
|
| 13,037 |
|
| 1.08 | % | |
Money market super NOW |
|
| 8,893,693 |
|
| 51,311 |
|
| 1.16 | % |
| 7,573,164 |
|
| 68,446 |
|
| 1.82 | % | |
Time under $100,000 |
|
| 1,714,229 |
|
| 20,982 |
|
| 2.47 | % |
| 1,969,633 |
|
| 34,261 |
|
| 3.51 | % | |
Time $100,000 and over |
|
| 1,301,153 |
|
| 17,962 |
|
| 2.78 | % |
| 1,537,628 |
|
| 27,203 |
|
| 3.57 | % | |
Foreign |
|
| 158,088 |
|
| 790 |
|
| 1.01 | % |
| 102,699 |
|
| 788 |
|
| 1.55 | % | |
|
|
|
|
|
|
|
|
|
|
|
| |||||||||
Total interest-bearing deposits |
|
| 14,918,198 |
|
| 100,894 |
|
| 1.36 | % |
| 13,623,528 |
|
| 143,735 |
|
| 2.13 | % | |
|
|
|
|
|
|
|
|
|
|
|
| |||||||||
Borrowed funds: |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
| |
Securities sold, not yet purchased |
|
| 518,485 |
|
| 9,758 |
|
| 3.80 | % |
| 385,183 |
|
| 8,005 |
|
| 4.19 | % | |
Federal funds purchased and security repurchase agreements |
|
| 2,578,585 |
|
| 13,858 |
|
| 1.08 | % |
| 2,889,824 |
|
| 23,766 |
|
| 1.66 | % | |
Commercial paper |
|
| 290,056 |
|
| 2,149 |
|
| 1.49 | % |
| 364,317 |
|
| 3,918 |
|
| 2.17 | % | |
FHLB advances and other borrowings: |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
| |
One year or less |
|
| 145,374 |
|
| 996 |
|
| 1.38 | % |
| 596,605 |
|
| 5,566 |
|
| 1.88 | % | |
Over one year |
|
| 239,341 |
|
| 6,255 |
|
| 5.27 | % |
| 240,448 |
|
| 6,190 |
|
| 5.19 | % | |
Long-term debt |
|
| 1,138,357 |
|
| 28,865 |
|
| 5.11 | % |
| 775,257 |
|
| 27,244 |
|
| 7.09 | % | |
|
|
|
|
|
|
|
|
|
|
|
| |||||||||
Total borrowed funds |
|
| 4,910,198 |
|
| 61,881 |
|
| 2.54 | % |
| 5,251,634 |
|
| 74,689 |
|
| 2.87 | % | |
|
|
|
|
|
|
|
|
|
|
|
| |||||||||
Total interest-bearing liabilities |
|
| 19,828,396 |
|
| 162,775 |
|
| 1.66 | % |
| 18,875,162 |
|
| 218,424 |
|
| 2.33 | % | |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
| ||||
Noninterest-bearing deposits |
|
| 4,978,401 |
|
|
|
|
|
|
|
|
| 4,324,426 |
|
|
|
|
|
|
|
Other liabilities |
|
| 408,740 |
|
|
|
|
|
|
|
|
| 391,663 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
| ||||
Total liabilities |
|
| 25,215,537 |
|
|
|
|
|
|
|
|
| 23,591,251 |
|
|
|
|
|
|
|
Minority interest |
|
| 22,986 |
|
|
|
|
|
|
|
|
| 19,958 |
|
|
|
|
|
|
|
Total shareholders’ equity |
|
| 2,430,796 |
|
|
|
|
|
|
|
|
| 2,293,991 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
| ||||
Total liabilities and shareholders’ equity |
| $ | 27,669,319 |
|
|
|
|
|
|
|
| $ | 25,905,200 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
| ||||
Spread on average interest-bearing funds |
|
|
|
|
|
|
|
| 4.20 | % |
|
|
|
|
|
|
| 4.26 | % | |
Taxable-equivalent net interest income and net yield on interest-earning assets |
|
|
|
| $ | 551,774 |
|
| 4.52 | % |
|
|
| $ | 525,587 |
|
| 4.65 | % | |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(1) Taxable-equivalent rates used where applicable.
(2) Net of unearned income and fees, net of related costs. Loans include nonaccrual and restructured loans.
20
Table of Contents
ZIONS BANCORPORATION AND SUBSIDIARIES
PROVISION FOR LOAN LOSSES
The provision for loan losses was $18.2 million for the second quarter of 2003, compared to $17.6 million for the first quarter of 2003, and $15.7 million for the second quarter of 2002. The provision for loan losses for the first six months of 2003 was $35.7 million, 5.6% more than the $33.8 million provision for the first six months of 2002. Annualized, the year-to-date provision is 0.37% of average loans and leases for 2003 compared to 0.38% for the first six months of 2002. The provision reflects management’s evaluation of its various portfolios, statistical trends and other economic factors, and its desire to maintain a strong coverage of nonperforming assets in a continued uncertain economic environment in the markets in which the Company operates. Further discussion is included in the Risk Elements and Allowance for Loan Losses sections following.
NONINTEREST INCOME
Noninterest income for the second quarter of 2003 of $100.8 million decreased 0.8% from $101.6 million for the second quarter of 2002. As detailed below, the second quarter of 2003 included equity security losses of $6.5 million compared to gains of $0.6 million for the second quarter of 2002. Excluding equity security gains (losses), noninterest income increased 6.2%. Comparing other significant components of this change, service charges and fees on deposit accounts increased 9.3%, loan sales and servicing income increased 13.3%, other service charges, commissions and fees increased 4.5%, income from securities conduit increased 56.2%, dividends and other investment income decreased 2.4%, and market making, trading and nonhedge derivative income decreased 7.6%.
The increase in service charges and fees on deposit accounts resulted mainly from increased internal core deposit growth. The increase in loan sales and servicing income included $2.1 million of gains on servicing released sales of residential mortgages primarily because of increased refinancing activity, and $0.8 million of gains on sales of SBA loans. The increase in income from securities conduit resulted from the increased amount of securities in the conduit’s portfolio, resulting in increased fees from the liquidity, interest rate, and administrative services agreements for the conduit. Equity securities gains (losses) for the second quarter of 2003 included a $6.0 million write-down in the Company’s investment in Identrus, LLC, $7.1 million of net write-downs of investments made by venture capital funds, and $6.6 million of gains from sales of other publicly traded securities. Net of minority interest and income taxes, the results of the venture capital funds reduced net income by $4.3 million or $0.05 per diluted share in the second quarter of 2003.
Noninterest income for the first six months of 2003 of $197.1 million increased 0.9% from $195.4 million for the first six months of 2002. Comparing significant components of this change, service charges and fees on deposit accounts increased 9.9%, loan sales and servicing income increased 53.7%, other service charges, commissions and fees increased 7.5%, income from securities conduit increased 60.8%, dividends and other investment income decreased 14.8%, market making, trading and nonhedge derivative income decreased 26.0%, equity securities gains (losses) decreased 1,144.3%, and other noninterest income decreased 47.8%.
Explanations previously provided for the quarterly changes also apply to the year-to-date changes. In addition, as previously disclosed, during the first quarter of 2002, the Company restructured certain derivatives related to sold loans. The restructuring resulted in a $13.6 million decrease in loan sales and servicing income and a corresponding increase in market making, trading and nonhedge derivative income. Without this transaction, loan sales and servicing income would have been approximately $39.9 million in the first six months of 2002, compared to $40.4 million in the first six months of 2003. Market making, trading and nonhedge derivative income was $17.7 million in the first six months of 2003 compared to $10.3 million in the first six months of 2002, excluding the $13.6 million adjustment. Of these amounts, market
21
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ZIONS BANCORPORATION AND SUBSIDIARIES
making and trading income was $13.7 million for 2003 compared to $8.7 million for 2002 and nonhedge derivative income was $4.0 million compared to $1.6 million for 2002, excluding the $13.6 million adjustment. The increase in market making and trading income reflects increased revenues from the Company’s electronic corporate bond trading business.
Dividends and other investment income consist of income from the Company’s “bank-owned life insurance” and dividends and equity in earnings from investments in unconsolidated companies. The decrease in dividends and other investment income results mainly from a $2.8 million decrease in dividend income from Federal Home Loan Bank (“FHLB”) investments resulting from decreased investments in FHLB stock. Equity securities gains (losses) included $13.7 million of net write-downs of investments made by venture capital funds and the $6.0 million write-down in the Company’s investment in Identrus, LLC, partially offset by $7.4 million of gains from sales of other publicly traded securities. Net of minority interest and income taxes, the results of the venture capital funds reduced net income by approximately $7.3 million or $0.08 per diluted share in the first six months of 2003, compared to a reduction of $0.7 million or $0.01 per diluted share for the same period in 2002.
The decrease in other income is explained principally by a pretax gain in 2002 from the sales of three California branches for approximately $3.2 million, net of nondeductible goodwill write-downs allocated to the branches sold. The after-tax gain from the sales was approximately $1.4 million.
NONINTEREST EXPENSE
Noninterest expense for the second quarter of 2003 of $216.4 million was essentially unchanged from $215.7 million in the second quarter of 2002. All significant expense categories either decreased or increased very modestly reflecting the results of the previously discussed expense control plan.
Noninterest expense for the first six months of 2003 of $430.4 million increased 2.2% from $421.0 million for the first six months of 2002, again reflecting cost control efforts. Salaries and employee benefits increased $12.8 million or 5.5%. Salaries increased $2.4 million or 1.2% and benefits increased $10.4 million driven by an increase of $3.5 million in employee health insurance costs and an increase of $6.6 million in retirement plan expenses.
At June 30, 2003, the Company had 7,945 full-time equivalent employees, 409 branches, and 579 ATMs, compared to 8,221 full-time equivalent employees, 409 branches, and 587 ATMs at June 30, 2002.
INCOME TAXES
The Company’s income taxes on continuing operations increased 8.9% to $49.0 million for the second quarter of 2003 compared to $44.9 million for the second quarter of 2002. The Company’s effective income tax rate was 34.9% for the second quarter of 2003 compared to 34.8% for the second quarter of 2002. The effective income tax rate for the first six months of 2003 was 35.2% compared to 34.8% for the first six months of 2002.
DISCONTINUED OPERATIONS
During the third quarter of 2002, the Company decided to discontinue the operations of certain e-commerce subsidiaries. The Company determined that its plan to offer all or part of these subsidiaries for sale met the held for sale and discontinued operations criteria of SFAS 144. The results of operations for the first six months of 2002 were reclassified to reflect the discontinued operations of these subsidiaries. One of these
22
Table of Contents
ZIONS BANCORPORATION AND SUBSIDIARIES
subsidiaries was sold in December 2002 and another is still held as available for sale, although operations have been significantly curtailed. The Company recorded a small profit on discontinued operations for both the second quarter of 2003 and the first six months of 2003, which included a litigation settlement in the first quarter of 2003.
ANALYSIS OF FINANCIAL CONDITION
EARNING ASSETS
Average earning assets increased 8.0% to $24.6 billion for the first six months of 2003 compared to $22.8 billion for the first six months of 2002. Earning assets comprised 88.9% of total average assets for the first six months of 2003, compared with 87.9% for the first six months of 2002.
Average money market investments, consisting of interest-bearing deposits, federal funds sold and security resell agreements, increased 40.4% to $1,375 million for the first six months of 2003 compared to $979 million for the first six months of 2002. This increase resulted from a significant acceleration in the rate of deposit growth, particularly in the second half of 2002, relative to loan growth.
Average securities increased 3.7% to $4,137 million for the first six months of 2003 compared to $3,990 million for the first six months of 2002. Average investment portfolio securities increased 2.8% and average trading securities increased 8.5%.
Average net loans and leases increased 7.2% to $19.1 billion for the first six months of 2003 compared to $17.8 billion for the first six months of 2002, representing 77.6% of earning assets in the first six months of 2003 compared to 78.2% in the first six months of 2002. Average net loans and leases were 95.9% of average total deposits for the first six months of 2003 compared to 99.2% for the first six months of 2002.
INVESTMENT SECURITIES
The following table presents the Company’s held-to-maturity and available-for-sale investment securities:
|
| June 30, |
| December 31, |
| June 30, |
| ||||||||||||
|
|
|
|
| |||||||||||||||
(In millions) |
| Amortized |
|
| Estimated |
|
| Amortized |
|
| Estimated |
|
| Amortized |
| Estimated |
| ||
|
|
|
|
|
|
| |||||||||||||
HELD TO MATURITY |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Mortgage-backed securities |
| $ | — |
| $ | — |
| $ | — |
| $ | — |
| $ | 108 |
| $ | 109 |
|
|
|
|
|
|
|
|
| ||||||||||||
AVAILABLE FOR SALE |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
U.S. Treasury securities |
|
| 35 |
|
| 38 |
|
| 44 |
|
| 47 |
|
| 51 |
|
| 54 |
|
U.S. government agencies and corporations: |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Small Business Administration loan-backed securities |
|
| 750 |
|
| 753 |
|
| 752 |
|
| 756 |
|
| 768 |
|
| 770 |
|
Other agency securities |
|
| 240 |
|
| 244 |
|
| 299 |
|
| 302 |
|
| 656 |
|
| 661 |
|
States and political subdivisions |
|
| 677 |
|
| 682 |
|
| 640 |
|
| 645 |
|
| 546 |
|
| 559 |
|
Mortgage/asset-backed and other debt securities |
|
| 1,894 |
|
| 1,923 |
|
| 1,187 |
|
| 1,208 |
|
| 826 |
|
| 842 |
|
|
|
|
|
|
|
|
| ||||||||||||
|
|
| 3,596 |
|
| 3,640 |
|
| 2,922 |
|
| 2,958 |
|
| 2,847 |
|
| 2,886 |
|
|
|
|
|
|
|
|
| ||||||||||||
Other securities: |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Mutual funds |
|
| 174 |
|
| 178 |
|
| 317 |
|
| 321 |
|
| 272 |
|
| 278 |
|
Stock |
|
| 13 |
|
| 26 |
|
| 15 |
|
| 25 |
|
| 15 |
|
| 30 |
|
|
|
|
|
|
|
|
| ||||||||||||
|
|
| 187 |
|
| 204 |
|
| 332 |
|
| 346 |
|
| 287 |
|
| 308 |
|
|
|
|
|
|
|
|
| ||||||||||||
|
|
| 3,783 |
|
| 3,844 |
|
| 3,254 |
|
| 3,304 |
|
| 3,134 |
|
| 3,194 |
|
|
|
|
|
|
|
|
| ||||||||||||
Total |
| $ | 3,783 |
| $ | 3,844 |
| $ | 3,254 |
| $ | 3,304 |
| $ | 3,242 |
| $ | 3,303 |
|
|
|
|
|
|
|
|
|
23
Table of Contents
ZIONS BANCORPORATION AND SUBSIDIARIES
LOANS
The Company has a diversified loan portfolio with some emphasis in real estate (as set forth in the following table), but has no significant exposure to highly leveraged transactions. The commercial real estate loan portfolio is also well diversified by property type and collateral location.
The table below sets forth the amount of loans outstanding by type:
(In millions) |
| June 30, |
| December 31, |
| June 30, |
| |||
|
|
|
| |||||||
Loans held for sale |
| $ | 236 |
| $ | 289 |
| $ | 165 |
|
Commercial lending: |
|
|
|
|
|
|
|
|
|
|
Commercial and industrial |
|
| 4,071 |
|
| 4,124 |
|
| 3,990 |
|
Leasing |
|
| 391 |
|
| 384 |
|
| 409 |
|
Owner occupied |
|
| 3,353 |
|
| 3,018 |
|
| 3,030 |
|
|
|
|
|
| ||||||
Total commercial lending |
|
| 7,815 |
|
| 7,526 |
|
| 7,429 |
|
Commercial real estate: |
|
|
|
|
|
|
|
|
|
|
Construction |
|
| 2,983 |
|
| 2,947 |
|
| 2,968 |
|
Term |
|
| 3,326 |
|
| 3,175 |
|
| 3,071 |
|
|
|
|
|
| ||||||
Total commercial real estate |
|
| 6,309 |
|
| 6,122 |
|
| 6,039 |
|
Consumer: |
|
|
|
|
|
|
|
|
|
|
Home equity credit line |
|
| 762 |
|
| 651 |
|
| 582 |
|
1-4 family residential (1) |
|
| 3,275 |
|
| 3,209 |
|
| 3,380 |
|
Bankcard and other revolving plans (2) |
|
| 186 |
|
| 205 |
|
| 121 |
|
Other (3) |
|
| 867 |
|
| 1,000 |
|
| 743 |
|
|
|
|
|
| ||||||
Total consumer |
|
| 5,090 |
|
| 5,065 |
|
| 4,826 |
|
Foreign loans |
|
| 17 |
|
| 5 |
|
| 25 |
|
Other receivables |
|
| 67 |
|
| 126 |
|
| 68 |
|
|
|
|
|
| ||||||
Total loans |
| $ | 19,534 |
| $ | 19,133 |
| $ | 18,552 |
|
|
|
|
|
|
(1) | Includes $137.5 million of purchased residential mortgages acquired in June 2003. |
(2) | The increase from 6/30/02 to 12/31/02 includes $68.5 million in credit card receivables repurchased from securitizations. |
(3) | The increase from 6/30/02 to 12/31/02 includes $361.7 million in auto loans repurchased from securitizations. |
Loan growth for the quarter was modest,reflecting the soft economy and the Company’s caution regarding aggressive loan growth in the current economic environment. On-balance-sheet net loans and leases at June 30, 2003 were $19.4 billion, including purchases of $137.5 million of single family mortgages in June 2003. Excluding the purchased loans, net loans and leases increased 4.6% from June 30, 2002 and an annualized increase of 2.8% from December 31, 2002. On balance sheet and sold loans being serviced were $21.8 billion at June 30, 2003, an increase of 3.2% from June 30, 2002 and an annualized increase of 1.4% from December 31, 2002, excluding the purchased loans.
On June 30, 2003, long-term conforming first mortgage real estate loans serviced for others totaled $358 million, and consumer and other loan securitizations, which include loans sold under revolving securitization structures, totaled $2,368 million. During the first six months of 2003, the Company sold $338 million of loans classified in held for sale, and securitized and sold home equity credit line and other loans totaling $241
24
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ZIONS BANCORPORATION AND SUBSIDIARIES
million. During the first six months of 2003, total loans sold were $579 million compared to total loans sold of $722 million during the first six months of 2002.
As of June 30, 2003, the following table shows that the Company had residual interests of $233 million recorded on its balance sheet related to the $2,368 million of loans sold to securitized trusts. The Company does not control or have any equity interest in the trusts. However, as is common with securitized transactions, the Company has retained subordinated interests of $134 million representing the Company’s junior position to other investors in the securities. The capitalized residual cash flows (sometimes called “excess servicing”) of $99 million principally represent the present value of estimated excess cash flows over the life of the sold loans. These excess cash flows are subject to prepayment and credit risk.
|
| Sold loans being serviced |
| Residual interests |
| |||||||||||
|
|
|
| |||||||||||||
(In millions) |
| Sales for six |
| Outstanding |
| Subordinated |
| Capitalized |
| Total |
| |||||
|
|
|
|
|
| |||||||||||
Home equity credit lines |
| $ | 163 |
| $ | 447 |
| $ | 11 |
| $ | 9 |
| $ | 20 |
|
Nonconforming residential real estate loans |
|
| — |
|
| 39 |
|
| 3 |
|
| 1 |
|
| 4 |
|
Small business loans |
|
| — |
|
| 1,253 |
|
| 120 |
|
| 81 |
|
| 201 |
|
SBA 7(a) loans |
|
| 23 |
|
| 204 |
|
| — |
|
| 3 |
|
| 3 |
|
Farmer Mac |
|
| 55 |
|
| 425 |
|
| — |
|
| 5 |
|
| 5 |
|
|
|
|
|
|
|
| ||||||||||
Total |
| $ | 241 |
| $ | 2,368 |
| $ | 134 |
| $ | 99 |
| $ | 233 |
|
|
|
|
|
|
|
|
RISK ELEMENTS
The following table sets forth the Company’s nonperforming assets:
(In millions) |
| June 30, |
| December 31, |
| June 30, |
| |||
|
|
|
| |||||||
Nonaccrual loans |
| $ | 99 |
| $ | 82 |
| $ | 101 |
|
Restructured loans |
|
| 2 |
|
| 2 |
|
| 1 |
|
Other real estate owned and other nonperforming assets |
|
| 18 |
|
| 32 |
|
| 14 |
|
|
|
|
|
| ||||||
Total |
| $ | 119 |
| $ | 116 |
| $ | 116 |
|
|
|
|
|
| ||||||
% of net loans and leases*, other real estate owned and other nonperforming assets |
|
| 0.61 | % |
| 0.61 | % |
| 0.63 | % |
Accruing loans past due 90 days or more |
| $ | 35 |
| $ | 37 |
| $ | 32 |
|
|
|
|
|
| ||||||
% of net loans and leases* |
|
| 0.18 | % |
| 0.20 | % |
| 0.18 | % |
*Includes loans held for sale
For the first six months of 2003, the Company experienced stable credit quality performance in a weak economic environment in certain of the Company’s markets. Other real estate owned and other nonperforming assets decreased from December 31, 2002 due primarily to the sale of an office building in Seattle and a retail location in Arizona.
25
Table of Contents
ZIONS BANCORPORATION AND SUBSIDIARIES
The Company’s total recorded investment in impaired loans included in nonaccrual loans and leases amounted to $58 million on June 30, 2003 compared to $44 million on December 31, 2002 and $59 million on June 30, 2002. Loans are considered impaired when it is probable that the Company will be unable to collect all amounts due according to the contractual terms of the loan agreement, including scheduled interest payments. 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 recognized by creating or adjusting an existing allocation of the allowance for loan losses. Included in the allowance for loan losses on June 30, 2003, December 31, 2002, and June 30, 2002, is a required allowance of $5 million, $7 million and $9 million, respectively, on $27 million, $20 million and $25 million, respectively, of the recorded investment in impaired loans.
ALLOWANCE FOR LOAN LOSSES
The following table shows the changes in the allowance for loan losses and a summary of loan loss experience:
(In millions) |
| Six Months |
| Twelve Months |
| Six Months |
| |||
|
|
|
| |||||||
Loans* and leases outstanding (net of unearned income) at end of period |
| $ | 19,440 |
| $ | 19,040 |
| $ | 18,453 |
|
|
|
|
|
| ||||||
Average loans* and leases outstanding (net of unearned income) |
| $ | 19,087 |
| $ | 18,114 |
| $ | 17,813 |
|
|
|
|
|
| ||||||
Allowance for loan losses: |
|
|
|
|
|
|
|
|
|
|
Allowance of companies acquired |
|
| — |
|
| 1 |
|
| — |
|
Allowance associated with repurchased revolving securitized loans |
|
| — |
|
| 10 |
|
| — |
|
Provision charged against earnings |
|
| 36 |
|
| 72 |
|
| 34 |
|
Loans and leases charged-off: |
|
|
|
|
|
|
|
|
|
|
Commercial lending |
|
| (26 | ) |
| (54 | ) |
| (26 | ) |
Commercial real estate |
|
| (1 | ) |
| (10 | ) |
| (2 | ) |
Consumer |
|
| (14 | ) |
| (20 | ) |
| (9 | ) |
|
|
|
|
| ||||||
Total |
|
| (41 | ) |
| (84 | ) |
| (37 | ) |
|
|
|
|
| ||||||
Recoveries: |
|
|
|
|
|
|
|
|
|
|
Commercial lending |
|
| 4 |
|
| 14 |
|
| 5 |
|
Commercial real estate |
|
| — |
|
| 3 |
|
| — |
|
Consumer |
|
| 2 |
|
| 4 |
|
| 2 |
|
|
|
|
|
| ||||||
Total |
|
| 6 |
|
| 21 |
|
| 7 |
|
|
|
|
|
| ||||||
Net loan and lease charge-offs |
|
| (35 | ) |
| (63 | ) |
| (30 | ) |
|
|
|
|
| ||||||
Balance at end of period |
| $ | 281 |
| $ | 280 |
| $ | 264 |
|
|
|
|
|
| ||||||
Ratio of annualized net charge-offs to average loans and leases |
|
| 0.35 | % |
| 0.35 | % |
| 0.34 | % |
Ratio of allowance for loan losses to net loans and leases |
|
| 1.45 | % |
| 1.47 | % |
| 1.43 | % |
Ratio of allowance for loan losses to nonperforming loans |
|
| 277.69 | % |
| 332.37 | % |
| 260.01 | % |
Ratio of allowance for loan losses to nonaccrual loans and accruing loans past due 90 days or more |
|
| 210.22 | % |
| 234.14 | % |
| 199.31 | % |
*Includes loans held for sale
26
Table of Contents
ZIONS BANCORPORATION AND SUBSIDIARIES
Net loan and lease charge-offs, along with their annualized ratios to average loans and leases, are shown in the previous table for the periods presented. Included in charge-offs for the first six months of 2003 were approximately $4.5 million related to the auto loan and credit card securitizations repurchased in December 2002.
At June 30, 2003, the allowance for loan losses included an allocation of $9.1 million related to commitments to extend credit for which the Company could separate the credit risk from that of any related loans on the balance sheet and for standby letters of credit. Commitments to extend credit on loans and standby letters of credit on June 30, 2003, December 31, 2002, and June 30, 2002 totaled $8,052 million, $7,915 million, and $7,502 million, respectively.
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 reviews, 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.
DEPOSITS
Deposit growth for the second quarter of 2003 moderated from the rate experienced during the first quarter and the year 2002. As expected, a governmental deposit of approximately $450 million that was deposited in the fourth quarter of 2002 was withdrawn during the second quarter. Deposits increased 9.8% over balances reported one year ago to $20.6 billion, and increased 4.9% annualized from balances reported at December 31, 2002. Excluding the governmental deposit previously discussed, deposits increased 9.6% annualized from balances reported at year-end. Deposits at June 30, 2003 were down 0.8% from balances reported at March 31, 2003. Excluding the governmental withdrawal, deposits grew at a 5.4% annualized rate during the second quarter.
Average total deposits of $19.9 billion for the first six months of 2003 increased 10.9% compared to $17.9 billion for the first six months of 2002, with average noninterest-bearing demand deposits increasing 15.1%. Average savings and NOW deposits increased 16.8% and average money market and super NOW deposits increased 17.4% during the first six months of 2003 compared to the same period in 2002. Average time deposits under $100,000 decreased 13.0% and time deposits $100,000 and over decreased 15.4% for the first six months of 2003 compared to the same period in 2002. Average foreign deposits increased 53.9% for these same periods.
LIQUIDITY
The Company manages its liquidity to provide adequate funds to meet its anticipated financial obligations, including withdrawals by depositors and debt service requirements, as well as to fund customers’ demand for credit. Liquidity is provided primarily by the regularly scheduled maturities of the Company’s investment and loan portfolios.
The Federal Home Loan Bank (“FHLB”) system is a major source of liquidity for each of the Company’s subsidiary banks. Zions First National Bank and The Commerce Bank of Washington are members of the FHLB of Seattle. California Bank & Trust, Nevada State Bank, and National Bank of Arizona are members of the FHLB of San Francisco. Vectra Bank Colorado is a member of the FHLB of Topeka. The FHLB allows member banks to borrow against their eligible loans to satisfy liquidity requirements.
27
Table of Contents
ZIONS BANCORPORATION AND SUBSIDIARIES
As another source of liquidity, the Company’s core deposits, consisting of demand, savings and money market deposits and time deposits under $100,000, constituted 92.9% of total deposits on June 30, 2003, as compared to 92.1% on December 31, 2002 and 91.5% on June 30, 2002.
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 provides the Company additional flexibility in meeting funding needs.
The parent company’s cash requirements consist primarily of debt service, operating expenses, income taxes, dividends to shareholders, and share repurchases. The parent’s cash needs are routinely met through dividends from subsidiaries, investment income, proportionate shares of current income taxes, management and other fees, unaffiliated bank lines, and debt issuance.
As discussed in the Company’s Annual Report on Form 10-K for the year ended December 31, 2002, the Company filed a prospectus supplement with the Securities and Exchange Commission during the third quarter of 2002 for the issuance of up to $340 million of Senior Medium-Term Notes, Series A and Subordinated Medium-Term Notes, Series B. As of June 30, 2003, the Company had issued $219 million of Senior Medium-Term Notes, compared to $46 million outstanding at December 31, 2002.
In June 2003, the Company repaid $110 million of floating rate subordinated notes that were callable in 2003. Also in June 2003, the Company’s board of directors passed a resolution allowing the issuance of up to $1 billion of new senior and/or subordinated debt, which is to be registered with the Securities and Exchange Commission. Proceeds of this debt will be used to refinance certain currently outstanding debt and for other general corporate purposes.
At June 30, 2003, $199.2 million of dividend capacity was available from subsidiaries to pay to the parent without having to obtain regulatory approval. During the six months ended June 30, 2003, dividends from subsidiaries were $150.5 million. The parent also has a program to issue short-term commercial paper. At June 30, 2003, outstanding commercial paper was $290.9 million. Also at June 30, 2003, the parent had a revolving credit facility with a bank totaling $40 million and a margin borrowing facility totaling $11.8 million. No amounts were outstanding on either of these facilities at June 30, 2003.
Zions First National Bank (“ZFNB”) provides a liquidity facility (“Liquidity Facility”) for a fee to a qualifying special-purpose entity securities conduit (“Conduit”). The Conduit purchases U.S. Government and AAA-rated securities with funds from the issuance of commercial paper. Pursuant to the Liquidity Facility contract, ZFNB is required to purchase securities from the Conduit to provide funds for the Conduit to repay maturing commercial paper upon the Conduit’s inability to access the commercial paper market, or upon a commercial paper market disruption as specified in governing documents to the Conduit. At any given time, the maximum commitment of ZFNB is the lesser of the size of the Liquidity Facility commitment or the market value of the Conduit’s securities portfolio. At June 30, 2003, the size of the Liquidity Facility commitment was up to $5.1 billion and the market value of the Conduit’s securities portfolio was approximately $4.0 billion. No amounts were outstanding under the Liquidity Facility at June 30, 2003.
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ZIONS BANCORPORATION AND SUBSIDIARIES
CAPITAL RESOURCES AND DIVIDENDS
Total shareholders’ equity on June 30, 2003 was $2,479 million, an increase of 4.4% over the $2,374 million on December 31, 2002, and an increase of 6.1% over the $2,337 million on June 30, 2002. The Company’s capital ratios are as follows as of the dates indicated:
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| June 30, |
| December 31, |
| June 30, |
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Tangible common equity ratio |
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| 6.20 | % |
| 6.06 | % |
| 6.03 | % |
Average common equity to average assets (three months ended) |
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| 8.78 | % |
| 8.80 | % |
| 8.87 | % |
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Risk-based capital ratios: |
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Tier 1 leverage |
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| 7.59 | % |
| 7.56 | % |
| 6.48 | % |
Tier 1 risk-based capital |
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| 9.14 | % |
| 9.26 | % |
| 8.05 | % |
Total risk-based capital |
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| 12.19 | % |
| 12.94 | % |
| 11.86 | % |
The decrease in the total risk-based capital ratio at June 30, 2003 to 12.19% from 12.94% is primarily the result of the repayment of $110 million of subordinated debt, which was includable in total risk-based capital.
During the second quarter of 2003, the Company repurchased 646,168 shares of common stock at a cost of $32.2 million, or an average price of $49.88 per share. For the first six months of 2003, the Company has repurchased 1,224,648 shares at a cost of $56.5 million, or an average price of $46.10 per share. On April 25, 2003, the board of directors authorized the Company to repurchase $50 million of Company common stock, which superseded all previous buyback authorizations. As of June 30, 2003, the Company had $21.1 million remaining in its currently authorized share repurchase program. During the first six months of 2002, the Company repurchased 1,042,980 shares of common stock at a cost of $56.5 million, or an average price of $54.13 per share.
On July 15, 2003, the board of directors declared a regular quarterly dividend of $.30 per common share beginning with the third quarter of 2003. This is a 43% increase over the $.21 per common share for the first and second quarters of 2003. Such $.09 per share dividend increase will increase total quarterly dividend payments by approximately $8 million. The Company’s decision to significantly increase its dividend reflects its continued strong internal capital generation, as well as recent tax law changes. Dividends for each quarter during 2002 were $.20 per common share. The common cash dividend payout of net income for the second quarter of 2003 was 20.5%, compared to 21.7% for the first quarter of 2003 and 22.4% for the second quarter of 2002.
CRITICAL ACCOUNTING POLICIES
The Company has reviewed and made no significant changes in critical accounting policies and assumptions compared to the disclosures made in Zions Bancorporation’s Annual Report on Form 10-K for the year ended December 31, 2002.
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ZIONS BANCORPORATION AND SUBSIDIARIES
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 the Company 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 the Company conducts its operations, being less favorable than expected; and legislation or regulatory changes which adversely affect the Company’s operations or business. The Company disclaims any obligation to update any factors or to publicly announce the results of revisions to any of the forward-looking statements included herein to reflect future events or developments.
QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK |
Interest rate risk is the most significant market risk regularly undertaken by the Company, and is closely monitored as previously discussed. The Company believes there have been no significant changes in market risk compared to the disclosures in Zions Bancorporation’s Annual Report on Form 10-K for the year ended December 31, 2002.
CONTROLS AND PROCEDURES |
An evaluation was carried out by the Company’s management with the participation of the Chief Executive Officer and Chief Financial Officer of the effectiveness of the Company’s disclosure controls and procedures (as defined in Rule 13a-15(e) under the Securities Exchange Act of 1934). Based on that evaluation, the Chief Executive Officer and Chief Financial Officer concluded that as of the end of the period covered by this report these disclosure controls and procedures were effective. There have been no changes in the Company’s internal control over financial reporting during the period covered by this report that have materially affected or are reasonably likely to materially affect the Company’s internal control over financial reporting.
LEGAL PROCEEDINGS |
The Company is a defendant in various legal proceedings arising in the normal course of business. The Company does not believe that the outcome of any such proceedings will have a material effect on its consolidated financial position, operations, or liquidity.
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ZIONS BANCORPORATION AND SUBSIDIARIES
EXHIBITS AND REPORTS ON FORM 8-K | ||||||
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| a) | Exhibits | ||||
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| Exhibit |
| Description | ||
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| 3.1 |
| Restated Articles of Incorporation of Zions Bancorporation dated November 8, 1993, incorporated by reference to Exhibit 3.1 of Form S-4 filed on November 22, 1993. | * | |
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| 3.2 |
| Articles of Amendment to the Restated Articles of Incorporation of Zions Bancorporation dated April 30, 1997, incorporated by reference to Exhibit 3.2 of Form 10-K for the year ended December 31, 2002. | * | |
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| 3.3 |
| Articles of Amendment to the Restated Articles of Incorporation of Zions Bancorporation dated April 24, 1998, incorporated by reference to Exhibit 3 of Form 10-Q for the quarter ended June 30, 1998. | * | |
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| 3.4 |
| Articles of Amendment to Restated Articles of Incorporation of Zions Bancorporation dated April 25, 2001, incorporated by reference to Exhibit 3.6 of Form S-4 filed July 13, 2001. | * | |
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| 3.5 |
| Restated Bylaws of Zions Bancorporation dated January 19, 2001, incorporated by reference to Exhibit 3.4 of Form S-4 filed February 5, 2001. | * | |
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| 10.1 |
| Zions Bancorporation Restated Deferred Compensation Plan for Directors (Effective July 1, 2003) (filed herewith). | ||
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| 31.1 |
| Certification by Chief Executive Officer required by Rule 13a-14(a) under the Securities Exchange Act of 1934 (filed herewith). | ||
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| 31.2 |
| Certification by Chief Financial Officer required by Rule 13a-14(a) under the Securities Exchange Act of 1934 (filed herewith). | ||
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| 32 |
| Certification by Chief Executive Officer and Chief Financial Officer required by Rule 13a-14(b) under the Securities Exchange Act of 1934 and 18 U.S.C. §1350 (furnished herewith). | ||
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| * | Incorporated by reference |
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ZIONS BANCORPORATION AND SUBSIDIARIES
| b) | Reports on Form 8-K | ||
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| Zions Bancorporation filed the following reports on Form 8-K during the quarter ended June 30, 2003: | ||
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| Form 8-K filed on April 17, 2003 (Items 7 and 9) – Copy of Press Release issued April 17, 2003 announcing 2003 first quarter earnings. | |
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| Form 8-K filed on April 30, 2003 (Items 7 and 9) – Copy of Press Release issued April 25, 2003 announcing Board of Directors’ authorization of a $50 million stock buyback and a $.21 dividend payable May 28, 2003. | |
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| Form 8-K filed on April 30, 2003 (Items 7 and 9) – Copy of Press Release issued April 25, 2003 announcing the election of Patricia Frobes to the Board of Directors and the retirement of I. J. Wagner from the Board. | |
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| Form 8-K filed on May 15, 2003 (Items 7 and 9) – Copies of certifications by the Chief Executive Officer, Harris H. Simmons, and Chief Financial Officer, Doyle L. Arnold, to the Securities and Exchange Commission as required by 18 U.S.C. Section 1350 and adopted pursuant to Section 906 of the Sarbanes-Oxley Act of 2002, for the Company’s Quarterly Report on Form 10-Q for the quarter ended March 31, 2002. | |
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| Form 8-K filed on June 30, 2003 (Items 7 and 9) – Copies of certifications by the Chief Executive Officer, Harris H. Simmons, and Chief Financial Officer, Doyle L. Arnold, to the Securities and Exchange Commission as required by 18 U.S.C. Section 1350 and adopted pursuant to Section 906 of the Sarbanes-Oxley Act of 2002, for the Company’s Annual Report on Form 11-K of Zions Bancorporation Payshelter 401(k) Plan for the year ended December 31, 2002. | |
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| Form 8-K filed on July 1, 2003 (Item 5) – Disclosure of Zions Bancorporation auction of its shares of ICAP plc (formerly known as Garban-Intercapital plc) for proceeds of approximately $107 million. | |
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ZIONS BANCORPORATION AND SUBSIDIARIES
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 |
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| /s/ HARRIS H. SIMMONS |
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| Harris H. Simmons, Chairman, President |
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| /s/ DOYLE L. ARNOLD |
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| Doyle L. Arnold, Executive Vice |
Dated: August 14, 2003 |
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33