UNITED STATES SECURITIES AND EXCHANGE COMMISSION Washington, D.C. 20549 FORM 10-Q [ X ] QUARTERLY REPORT UNDER SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934 For the quarterly period ended June 30, 1998 OR [ ] TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934 For the transition period from to COMMISSION FILE NUMBER 0-2610 ZIONS BANCORPORATION (Exact name of Registrant as specified in its charter) UTAH 87-0227400 - --------------------------------- ------------------- (State or other jurisdiction (I.R.S. Employer of incorporation or organization) Identification No.) ONE SOUTH MAIN, SUITE 1380 SALT LAKE CITY, UTAH 84111 - ---------------------------------------- ---------- (Address of principal executive offices) (Zip Code) Registrant's telephone number, including area code: (801) 524-4787 Indicate by check mark whether the registrant (1) has filed all reports required to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during the preceding 12 months and (2) has been subject to such filing requirement for the past 90 days. Yes [ X ] No Indicate the number of shares outstanding of each of the issuer's classes of common stock, as of the latest practicable date. Common Stock, without par value, outstanding at August 13, 1998 75,048,706 shares 1 ZIONS BANCORPORATION AND SUBSIDIARIES INDEX Page ---- PART I. FINANCIAL INFORMATION --------------------- ITEM 1. Financial Statements (unaudited) Consolidated Balance Sheets 3 Consolidated Statements of Income 4 Consolidated Statements of Cash Flows 5 Consolidated Statements of Changes in Shareholders' Equity 7 Notes to Consolidated Financial Statements 8 ITEM 2. Management's Discussion and Analysis 9 PART II. OTHER INFORMATION ----------------- ITEM 4. Submission of Matters to a Vote of Shareholders 27 ITEM 6. Exhibits and Reports on Form 8-K 28 SIGNATURES 29 - ---------- 2 ZIONS BANCORPORATION AND SUBSIDIARIES CONSOLIDATED BALANCE SHEETS (Unaudited) June 30, December 31, June 30, (In thousands, except share amounts) 1998 1997 1997 ------------ ------------ ------------ ASSETS Cash and due from banks .......................................................... $ 682,130 $ 693,492 $ 533,839 Money market investments: Interest-bearing deposits ................................................... 56,525 61,886 51,264 Federal funds sold .......................................................... 50,703 402,879 212,799 Security resell agreements .................................................. 1,133,869 349,338 567,113 Securities: Held to maturity at cost (approximate market value $2,236,802, $2,193,095 and $1,846,558): Taxable ................................................................ 1,982,108 1,951,277 1,635,596 Nontaxable ............................................................. 239,933 221,641 198,856 Available for sale at market: Taxable ................................................................ 489,550 716,495 661,360 Nontaxable ............................................................. 14,531 31,645 40,310 Trading account securities at market ........................................ 401,914 83,681 437,994 ------------ ------------ ------------ 3,128,036 3,004,739 2,974,116 Loans: Loans held for sale at cost, which approximates market ...................... 198,180 178,642 156,708 Loans, leases and other receivables ......................................... 5,969,118 5,380,480 4,847,725 ------------ ------------ ------------ 6,167,298 5,559,122 5,004,433 Less: Unearned income and fees, net of related costs .......................... 42,191 43,985 41,567 Allowance for loan losses ............................................... 96,043 89,203 86,869 ------------ ------------ ------------ 6,029,064 5,425,934 4,875,997 Premises and equipment, at cost, less accumulated depreciation ................... 169,850 154,957 139,714 Goodwill and core deposit intangibles ............................................ 170,993 174,433 121,144 Other real estate owned .......................................................... 3,593 5,738 3,998 Other assets ..................................................................... 355,774 297,330 216,295 ------------ ------------ ------------ Total assets ........................................................... $ 11,780,537 $ 10,570,726 $ 9,696,279 ============ ============ ============ LIABILITIES AND SHAREHOLDERS' EQUITY Deposits: Noninterest-bearing demand .................................................. $ 2,164,799 $ 2,009,988 $ 1,656,160 Interest-bearing: Savings and money market ............................................... 4,123,814 3,859,842 3,350,474 Time under $100,000 .................................................... 1,220,807 1,158,887 971,137 Time over $100,000 ..................................................... 627,672 508,702 403,003 Foreign ................................................................ 175,002 183,044 148,942 ------------ ------------ ------------ 8,312,094 7,720,463 6,529,716 Securities sold, not yet purchased ............................................... 225,833 45,067 161,316 Federal funds purchased .......................................................... 373,623 350,109 499,720 Security repurchase agreements ................................................... 1,045,612 1,005,590 1,208,773 Accrued liabilities .............................................................. 374,092 171,080 124,684 Federal Home Loan Bank advances and other borrowings: Less than one year .......................................................... 20,384 68,933 94,194 Over one year ............................................................... 118,011 210,681 110,132 Long-term debt ................................................................... 386,243 280,641 263,246 ------------ ------------ ------------ Total liabilities ...................................................... 10,855,892 9,852,564 8,991,781 ------------ ------------ ------------ Shareholders' equity: Capital stock: Preferred stock, without par value; authorized 3,000,000 shares; issued and outstanding, none .............................. -- -- -- Common stock, without par value; authorized 200,000,000 100,000,000 and 100,000,000 shares; issued and outstanding, 75,033,242, 69,707,084 and 69,562,253 shares ....................... 313,071 179,211 219,487 Accumulated other comprehensive income (loss) ............................... (627) 1,484 (2,670) Retained earnings ........................................................... 612,201 537,467 487,681 ------------ ------------ ------------ Total shareholders' equity ............................................. 924,645 718,162 704,498 ------------ ------------ ------------ Total liabilities and shareholders' equity ............................. $ 11,780,537 $ 10,570,726 $ 9,696,279 ============ ============ ============ 3 ZIONS BANCORPORATION AND SUBSIDIARIES CONSOLIDATED STATEMENTS OF INCOME (Unaudited) Three Months Ended Six Months Ended June 30, June 30, ---------------------------------------------- (In thousands, except per share amounts) 1998 1997 1998 1997 --------- --------- --------- --------- Interest income: Interest and fees on loans ................................ $ 139,044 $ 112,538 $ 269,079 $ 213,634 Interest on loans held for sale ........................... 3,660 3,083 7,216 5,951 Lease financing ........................................... 2,879 3,707 6,211 6,720 Interest on money market investments ...................... 24,382 23,308 47,001 44,418 Interest on securities: Held to maturity: Taxable ......................................... 25,476 26,372 57,996 47,620 Nontaxable ...................................... 3,296 2,552 6,546 5,386 Available for sale: Taxable ......................................... 7,153 11,190 15,570 21,981 Nontaxable ...................................... 193 589 488 1,162 Trading account ...................................... 7,235 4,790 12,246 8,135 --------- --------- --------- --------- Total interest income ................................ 213,318 188,129 422,353 355,007 --------- --------- --------- --------- Interest expense: Interest on savings and money market deposits ............. 35,930 28,965 70,654 55,876 Interest on time deposits under $100,000 ................. 16,482 11,858 32,707 22,326 Interest on time deposits over $100,000 .................. 8,304 5,116 15,754 9,204 Interest on foreign deposits .............................. 1,869 1,450 3,774 3,031 Interest on securities sold, not yet purchased ............ 2,892 1,414 4,606 2,658 Interest on borrowed funds ................................ 29,698 41,662 63,517 76,669 --------- --------- --------- --------- Total interest expense ............................... 95,175 90,465 191,012 169,764 --------- --------- --------- --------- Net interest income .................................. 118,143 97,664 231,341 185,243 Provision for loan losses ...................................... 3,215 1,767 6,741 3,710 --------- --------- --------- --------- Net interest income after provision for loan losses .. 114,928 95,897 224,600 181,533 --------- --------- --------- --------- Noninterest income: Service charges on deposit accounts ....................... 12,821 11,459 26,210 22,190 Other service charges, commissions and fees ............... 12,565 8,201 23,681 18,082 Trust income .............................................. 2,034 1,233 3,641 2,795 Investment securities gains, net .......................... 2,224 414 2,995 443 Trading account income .................................... 2,189 1,377 4,132 2,168 Loan sales and servicing income ........................... 11,934 10,724 23,405 20,057 Other income .............................................. 2,772 1,821 7,036 4,195 --------- --------- --------- --------- Total noninterest income ............................. 46,539 35,229 91,100 69,930 --------- --------- --------- --------- Noninterest expense: Salaries and employee benefits ............................ 53,050 42,725 104,946 82,490 Occupancy, net ............................................ 6,075 4,690 11,852 8,987 Furniture and equipment ................................... 8,529 6,071 16,263 11,556 Other real estate expense (income) ........................ 206 11 (48) 225 Legal and professional services ........................... 4,112 1,921 6,951 3,617 Supplies .................................................. 2,618 2,179 5,131 4,094 Postage ................................................... 2,062 1,679 4,208 3,416 Advertising ............................................... 2,490 2,417 5,118 4,369 FDIC premiums ............................................. 349 230 665 411 Merger expense ............................................ 3,662 -- 5,635 -- Amortization of goodwill and core deposit intangibles ..... 2,397 1,301 4,777 2,316 Amortization of mortgage servicing assets ................. 1,289 399 2,421 769 Other expenses ............................................ 19,565 15,459 37,480 28,567 --------- --------- --------- --------- Total noninterest expense ............................ 106,404 79,082 205,399 150,817 --------- --------- --------- --------- Income before income taxes ..................................... 55,063 52,044 110,301 100,646 Income taxes ................................................... 17,614 18,707 35,144 35,810 --------- --------- --------- --------- Net income ..................................................... $ 37,449 $ 33,337 $ 75,157 $ 64,836 ========= ========= ========= ========= Weighted average common shares outstanding ..................... 72,843 68,556 71,931 68,279 Weighted average common and common-equivalent shares outstanding 74,027 70,755 73,037 70,436 Basic net income per common share .............................. $ 0.51 $ 0.48 $ 1.04 $ 0.94 Diluted net income per common share ............................ $ 0.51 $ 0.47 $ 1.03 $ 0.91 4 ZIONS BANCORPORATION AND SUBSIDIARIES CONSOLIDATED STATEMENTS OF CASH FLOWS (Unaudited) Three Months Ended Six Months Ended June 30, June 30, ----------------------------- ------------------------------ (In thousands) 1998 1997 1998 1997 ------------ ------------ ------------ ------------ Cash flows from operating activities: Net income ..................................................... $ 37,449 $ 33,337 $ 75,157 $ 64,836 Adjustments to reconcile net income to net cash provided by (used in) operating activities: Provision for loan losses ................................. 3,215 1,767 6,741 3,710 Write-downs of other real estate owned .................... 137 64 157 161 Depreciation of premises and equipment .................... 6,269 4,979 12,183 9,462 Amortization of premium core deposits and other intangibles 3,671 1,700 7,198 3,085 Amortization of net premium/discount on investment securities ................................ 1,470 1,400 3,114 2,630 Accretion of unearned income and fees, net of related costs ........................................ (618) 608 (2,169) (596) Proceeds from sales of trading account securities ......... 42,399,035 28,383,292 77,526,251 54,094,572 Increase in trading account securities .................... (42,524,672) (28,663,329) (77,844,484) (54,498,490) Net gain on sales of investment securities ................ (2,224) (414) (2,995) (443) Proceeds from loans held for sale ......................... 369,861 165,837 613,066 320,192 Increase in loans held for sale ........................... (315,540) (150,135) (627,433) (322,866) Net gain on sales of loans, leases and other assets ....... (10,241) (6,364) (18,983) (14,517) Net (gain) loss on sales of other real estate owned ....... 139 (79) (119) (70) Change in accrued income taxes ............................ (9,021) (12,258) 7,725 3,325 Change in accrued interest receivable ..................... 6,664 (5,225) 6,510 (11,282) Change in other assets .................................... 8,989 (16,836) (54,238) (29,975) Change in accrued interest payable ........................ (5,293) (3,445) 1,002 2,694 Change in accrued liabilities ............................. 196,798 6,895 192,194 (3,088) ------------ ------------ ------------ ------------ Net cash used in operating activities ...................................... (166,088) (258,206) (99,123) (376,660) ------------ ------------ ------------ ------------ Cash flows from investing activities: Net decrease (increase) in money market investments ........... (54,559) 223,312 (376,414) (209,827) Proceeds from maturities of investment securities held to maturity ......................................... 805,355 101,922 1,396,800 210,375 Purchases of investment securities held to maturity ........... (1,110,732) (401,801) (1,164,324) (535,065) Proceeds from sales of investment securities available for sale ....................................... 30,888 124,234 139,970 134,377 Proceeds from maturities of investment securities available for sale ....................................... 102,462 12,541 111,169 91,924 Purchases of investment securities available for sale ......... (84,083) (105,202) (193,854) (162,862) Proceeds from sales of loans and leases ....................... 213,254 367,226 419,530 550,086 Net increase in loans and leases .............................. (392,271) (352,873) (743,243) (816,560) Principal collections on leveraged leases ..................... -- -- 1,067 -- Proceeds from sales of premises and equipment ................. 2,141 560 2,385 704 Purchases of premises and equipment ........................... (11,014) (7,913) (22,445) (16,274) Proceeds from sales of other real estate owned ................ 393 1,452 3,500 1,736 Proceeds from sales of mortgage servicing rights .............. 271 151 609 374 Purchases of mortgage servicing rights ........................ (760) (115) (1,463) (173) Proceeds from sales of other assets ........................... 425 120 595 270 Purchases of other assets ..................................... -- 50 -- -- Cash paid for acquisitions, net of cash received .............. 16,870 682 26,995 14,717 ------------ ------------ ------------ ------------ Net cash used in investing activities ..................................... (481,360) (35,654) (399,123) (736,198) ------------ ------------ ------------ ------------ 5 ZIONS BANCORPORATION AND SUBSIDIARIES CONSOLIDATED STATEMENTS OF CASH FLOWS (Continued) (Unaudited) Three Months Ended Six Months Ended June 30, June 30, -------------------------- -------------------------- (In thousands) 1998 1997 1998 1997 ----------- ----------- ----------- ----------- Cash flows from financing activities: Net increase in deposits .................... 2,618 130,694 186,861 309,572 Net change in short-term funds borrowed ..... 159,044 204,334 192,316 849,094 Proceeds from FHLB advances over one year ... -- 40,000 -- 40,000 Payments on FHLB advances over one year ..... (3,410) (4,398) (97,620) (16,743) Payments on leveraged leases ................ -- -- (1,067) -- Proceeds from issuance of long-term debt .... 110,000 16,603 110,000 24,103 Payments on long-term debt .................. (644) (33) (3,007) (449) Proceeds from issuance of common stock ...... 131,142 381 131,801 1,154 Payments to redeem common stock ............. (620) (28,986) (13,402) (55,111) Dividends paid .............................. (10,675) (7,744) (18,998) (14,520) ----------- ----------- ----------- ----------- Net cash provided by financing activities ........ 387,455 350,851 486,884 1,137,100 ----------- ----------- ----------- ----------- Net increase (decrease) in cash and due from banks 72,183 56,991 (11,362) 24,242 Cash and due from banks at beginning of period ... 609,947 476,848 693,492 509,597 ----------- ----------- ----------- ----------- Cash and due from banks at end of period ......... $ 682,130 $ 533,839 $ 682,130 $ 533,839 =========== =========== =========== =========== SUPPLEMENTAL DISCLOSURES OF CASH FLOW INFORMATION (Unaudited) Three Months Ended Six Months Ended June 30, June 30, (In thousands) 1998 1997 1998 1997 -------- -------- -------- -------- Cash paid for: Interest .............................. $100,569 $ 92,548 $188,573 $165,603 Income taxes .......................... 22,501 31,473 22,501 31,856 Loans transferred to other real estate owned 784 961 1,188 3,298 6 ZIONS BANCORPORATION AND SUBSIDIARIES CONSOLIDATED STATEMENTS OF CHANGES IN SHAREHOLDERS' EQUITY (Unaudited) Six Months Ended June 30, 1998 ------------------------------------------------------------------------ Accumulated Other Total Common Comprehensive Comprehensive Retained Shareholders' (In thousands) Stock Income Income (Loss) Earnings Equity --------- ------------- ------------- --------- ------------- Balance, January 1, 1998 .................. $ 179,211 $ 1,484 $ 537,467 $ 718,162 Net income for the period ................. $ 75,157 75,157 75,157 Other comprehensive income, net of tax Unrealized holding gain (loss) on securities available for sale net of reclassification adjustment ........ (2,132) (2,132) (2,132) ------------- Total comprehensive income ............ $ 73,025 ============= Cash dividends: Preferred, paid by subsidiaries to minority shareholders .............. (30) (30) Common, $.26 per share ................ (18,799) (18,799) Dividends of acquired company prior to merger .......................... (169) (169) Net proceeds from stock offering .......... 129,871 129,871 Issuance of common shares for acquisitions 9,721 21 18,575 28,317 Conversion of acquired company convertible debt prior to acquisition .. 4,546 4,546 Stock redeemed and retired ................ (13,402) (13,402) Stock options exercised ................... 3,124 3,124 --------- ------------- --------- ------------- Balance, June 30, 1998 .................... $ 313,071 $ (627) $ 612,201 $ 924,645 ========== ============= ========= ============= Six Months Ended June 30, 1997 ------------------------------------------------------------------------ Accumulated Other Total Common Comprehensive Comprehensive Retained Shareholders' (In thousands) Stock Income Income (Loss) Earnings Equity --------- ------------- ------------- --------- ------------- Balance, January 1, 1997 .................. $ 181,084 $ (5,476) $ 437,365 $ 612,973 Net income for the period ................. $ 64,836 64,836 64,836 Other comprehensive income, net of tax Unrealized holding gain (loss) on securities available for sale net of reclassification adjustment ........ 2,806 2,806 2,806 ------------- Total comprehensive income ............ $ 67,642 ============= Cash dividends: Preferred, paid by subsidiaries to minority shareholders .............. (18) (18) Common, $.23 per share ................ (13,573) (13,573) Dividends of acquired company prior to merger .......................... (929) (929) Issuance of common shares for acquisitions 92,015 92,015 Stock redeemed and retired ................ (55,111) (55,111) Stock options exercised ................... 1,499 1,499 --------- ------------- --------- ------------- Balance, June 30, 1997 .................... $ 219,487 $ (2,670) $ 487,681 $ 704,498 ========= ============= ========= ============= Total comprehensive income for the three months ended June 30, 1998 and 1997 was $37,405 and $37,684, respectively. 7 ZIONS BANCORPORATION AND SUBSIDIARIES NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Unaudited) Basis of Presentation The unaudited consolidated financial statements have been prepared in accordance with generally accepted accounting principles for interim financial information and with the instructions to Form 10-Q and Rule 10-01 of Regulation S-X. Accordingly, they do not include all of the information and footnotes required by generally accepted accounting principles for complete financial statements. In the opinion of management, all adjustments (consisting of normal recurring accruals) considered necessary for a fair presentation have been included. On January 6, 1998 the Company acquired Vectra Banking Corporation and its banking subsidiary Vectra Bank. On May 22, 1998 the Company acquired FP Bancorp, Inc. and its banking subsidiary First Pacific National Bank. Both acquisitions were accounted for as pooling of interests and were considered significant. Accordingly, prior period amounts have been restated. Certain amounts in the 1997 consolidated financial statements have also been reclassified to conform to the 1998 presentation. Operating results for the six months ended June 30, 1998 are not necessarily indicative of the results that may be expected for the year ended December 31, 1998. For further information, refer to the consolidated financial statements and footnotes thereto included in Zions Bancorporation's Annual Report to Shareholders on Form 10-K for the year ended December 31, 1997. The Company adopted Statement of Financial Accounting Standards No. 130 (Statement 130), "Reporting Comprehensive Income", effective January 1, 1998. Statement 130 establishes standards for reporting and displaying comprehensive earnings and its components in financial statements. Prior interim periods have been reclassified to conform for comparative presentation. In June 1997, the Financial Accounting Standards Board issued Statement No. 131, Disclosures about Segments of an Enterprise and Related Information. The provisions of this statement require disclosure of financial reports issued to shareholders. This statement is effective for fiscal years beginning after December 15, 1997; however, it is not required to be applied for interim reporting in the initial year of application. In February 1998, the Financial Accounting Standards Board issued Statement No. 132, Employers' Disclosures about Pensions and Other Postretirement Benefits. This statement standardizes the disclosure requirements for pensions and other postretirement benefits to the extent practicable, requires additional information on changes in the benefit obligations and fair values of plan assets that will facilitate financial analysis, and eliminates certain previously required disclosures. It does not change the measurement or recognition of those plans. This Statement is effective for fiscal years beginning after December 15, 1997. In June 1998, the Financial Accounting Standards Board issued Statement No. 133, Accounting for Derivative Instruments and Hedging Activities. This statement addresses the accounting for derivative instruments including certain derivative instruments embedded in other contracts and hedging activities. This statement is effective for fiscal quarters of all fiscal years beginning after June 15, 1999. The Company is currently studying the statement to determine its future effects. 8 ZIONS BANCORPORATION AND SUBSIDIARIES ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS ------------------------------------ FINANCIAL HIGHLIGHTS (Unaudited) Three Months Ended Six Months Ended June 30, June 30, ---------------------------------------------------------------- 1998 1997 % Change 1998 1997 % Change -------- -------- ----- -------- -------- ------ (In thousands, except per share and ratio data) EARNINGS Taxable-equivalent net interest income $120,219 $ 99,347 21.01 % $235,378 $188,704 24.73 % Net interest income .................. 118,143 97,664 20.97 % 231,341 185,243 24.89 % Noninterest income ................... 46,539 35,229 32.10 % 91,100 69,930 30.27 % Provision for loan losses ............ 3,215 1,767 81.95 % 6,741 3,710 81.70 % Noninterest expense .................. 106,404 79,082 34.55 % 205,399 150,817 36.19 % Income before income taxes ........... 55,063 52,044 5.80 % 110,301 100,646 9.59 % Income taxes ......................... 17,614 18,707 (5.84)% 35,144 35,810 (1.86)% Net income ........................... 37,449 33,337 12.33 % 75,157 64,836 15.92 % PER COMMON SHARE Net income (diluted) ................. 0.51 0.47 8.51 % 1.03 0.91 13.19 % Dividends ............................ 0.14 0.12 16.67 % 0.26 0.23 13.04 % Book value ........................... 12.32 10.13 21.62 % SELECTED RATIOS Return on average assets ............. 1.30% 1.33% 1.33% 1.36% Return on average common equity ...... 18.57% 20.16% 19.59% 20.40% Efficiency ratio ..................... 63.81% 58.76% 62.91% 58.31% Net interest margin .................. 4.56% 4.32% 4.55% 4.31% OPERATING CASH EARNINGS* Taxable-equivalent net interest income $120,219 $ 99,347 21.01 % $235,378 $188,704 24.73 % Net interest income .................. 118,143 97,664 20.97 % 231,341 185,243 24.89 % Noninterest income ................... 46,539 35,229 32.10 % 91,100 69,930 30.27 % Provision for loan losses ............ 3,215 1,767 81.95 % 6,741 3,710 81.70 % Noninterest expense .................. 100,345 77,781 29.01 % 194,987 148,501 31.30 % Income before income taxes ........... 61,122 53,345 14.58 % 120,713 102,962 17.24 % Income taxes ......................... 18,172 18,714 (2.90)% 36,202 35,845 1.00 % Net income ........................... 42,950 34,631 24.02 % 84,511 67,117 25.92 % PER COMMON SHARE Net income (diluted) ................. 0.58 0.49 18.37 % 1.16 0.95 22.11 % Dividends ............................ 0.14 0.12 16.67 % 0.26 0.23 13.04 % Book value ........................... 10.04 8.39 19.67 % SELECTED RATIOS Return on average assets ............. 1.51% 1.40% 1.51% 1.42% Return on average common equity ...... 27.28% 24.44% 28.33% 23.98% Efficiency ratio ..................... 60.17% 57.80% 59.72% 57.42% Net interest margin .................. 4.56% 4.32% 4.55% 4.31% * Before amortization of goodwill and core deposit intangible assets and merger charges. 9 ZIONS BANCORPORATION AND SUBSIDIARIES FINANCIAL HIGHLIGHTS (Continued) (Unaudited) Three Months Ended Six Months Ended June 30, June 30, ---------------------------------- ---------------------------------------- (In thousands, except per share and ratio data) 1998 1997 % Change 1998 1997 % Change ----------- ----------- ------ ----------- ----------- ------ AVERAGE BALANCES Total assets ................................ $11,574,164 $10,027,480 15.42% $11,430,048 $ 9,580,772 19.30% Securities .................................. 2,778,415 2,741,843 1.33% 2,906,621 2,558,495 13.61% Net loans and leases ........................ 5,998,996 4,816,063 24.56% 5,831,128 4,641,846 25.62% Goodwill and core deposit intangibles ....... 170,073 94,943 79.13% 172,161 76,530 124.96% Total deposits .............................. 8,126,887 6,167,565 31.77% 7,979,270 5,956,348 33.96% Shareholders' equity ........................ 808,690 663,225 21.93% 773,734 641,047 20.70% Weighted average common and common- equivalent shares outstanding .......... 74,027,000 70,755,000 4.62% 73,037,000 70,436,000 3.69% AT PERIOD END Total assets ................................ $11,780,537 $ 9,696,279 21.50% Securities .................................. 3,128,036 2,974,116 5.18% Net loans and leases ........................ 6,125,107 4,962,866 23.42% Allowance for loan losses ................... 96,043 86,869 10.56% Goodwill and core deposit intangibles ....... 170,993 121,144 41.15% Total deposits .............................. 8,312,094 6,529,716 27.30% Shareholders' equity ........................ 924,645 704,498 31.25% Common shares outstanding ................... 75,033,242 69,562,253 7.86% Average equity to average assets ............ 6.99% 6.61% 6.77% 6.69% Common dividend payout ...................... 28.05% 21.55% 25.01% 20.93% Nonperforming assets ........................ 29,333 20,781 41.15% Loans past due 90 days or more .............. 15,566 8,170 90.53% Nonperforming assets to net loans and leases, other real estate owned and other nonperforming assets at June 30 ........ .48% .42% 10 ZIONS BANCORPORATION AND SUBSIDIARIES OPERATING RESULTS Zions Bancorporation achieved record earnings for the quarter and half-year ended June 30, 1998. Consolidated net income for the second quarter of 1998 was $37.4 million or $0.51 per diluted share, an increase of 12.3% and 8.5%, respectively, over the restated $33.3 million or $0.47 earned in the second quarter of 1997. Consolidated net income for the second quarter of 1998 decreased .7% and 1.9%, respectively, from the restated $37.7 million or $0.52 per diluted share for the first quarter of 1998. The quarterly dividend per share increased 16.7% to $0.14 from $0.12 in the second quarter of 1997 and the first quarter of 1998. Consolidated net income was $75.2 million or $1.03 per diluted share for the first six months of 1998, compared to $64.8 million or $0.91 per diluted share for the first six months of 1997, which constituted increases of 15.9% and 13.2% respectively. The annualized return on average assets for the second quarter and for the first six months of 1998 was 1.30% and 1.33% compared to 1.33% and 1.36%, respectively, in 1997, resulting in an annualized return on average common shareholders' equity of 18.57% and 19.59% for the second quarter and for the first six months of 1998, compared to 20.16% and 20.40% for the same periods of 1997. The Company's "efficiency ratio," or noninterest expenses as a percentage of total taxable-equivalent net revenues for the second quarter and for the first six months of 1998 was 63.81% and 62.91%, respectively, compared to 58.76% and 58.31% for the same periods of 1997. OPERATING CASH EARNINGS RESULTS The Company is also providing its earnings performance on an operating cash basis since it believes that its cash performance is a better reflection of its financial position and shareholder value creation as well as its ability to support growth, pay dividends, and repurchase stock than reported net income. The use of purchase accounting results in increased levels of goodwill and core deposit intangible assets recognized and amortized. Operating cash earnings are earnings before amortization of goodwill and core deposit intangible assets and merger expenses. Operating cash performance ratios are determined as if goodwill and core deposit intangible assets and their associated amortization have not been recognized on the financial statements. Operating cash earnings for the quarter were $43.0 million or $0.58 per diluted share, an increase of 24.0% and 18.4%, respectively, over the $34.6 million or $0.49 per diluted share earned in the second quarter of 1997. Operating cash earnings for the second quarter of 1998 increased 3.4% over the $41.6 million earned during the first quarter of 1998. Operating cash earnings per diluted share were $0.58 for both the first and second quarters of 1998. Year-to-date operating cash earnings were $84.5 million or $1.16 per diluted share, an increase of 25.9% and 22.1%, respectively, over the $67.1 million or $0.95 per diluted share earned in the first half of 1997. The operating cash annualized return on average assets for the second quarter and for the first six months of 1998 was 1.51% and 1.51% compared to 1.40% and 1.42%, respectively, in 1997. Operating cash annualized return on average common shareholders' equity was 27.28% and 28.33% for the second quarter and for the first six months of 1998, compared to 24.44% and 23.98% for the same periods of 1997. The Company's cash efficiency ratio for the second quarter and for the first six months of 1998 was 60.17% and 59.72%, respectively, compared to 57.80% and 57.42% for the same periods of 1997. 11 ZIONS BANCORPORATION AND SUBSIDIARIES The Company's second-quarter $4.1 million (12.3%) increase in earnings relative to the same period a year ago reflects a $20.5 million (21.0%) increase in net interest income, a $11.3 million (32.1%) increase in noninterest income, partially offset by a $1.4 million (82.0%) increase in the provision for loan losses, a $27.3 million (34.6%) increase in noninterest expenses and a $1.1 million (5.8%) decrease in income tax expense. The Company's $10.3 million (15.9%) increase in net income for the six-month period ended June 30, 1998 compared to the similar period in 1997, reflects a $46.1 million (24.9%) increase in net interest income, a $21.2 million (30.3%) increase in noninterest income, partially offset by a $3.0 million (81.7%) increase in the provision for loan losses, a $54.6 million (36.2%) increase in noninterest expenses and a $ .7 million (1.9%) decrease in income tax expense. NET INTEREST INCOME AND INTEREST RATE SPREADS Net interest income for the second quarter of 1998, adjusted to a fully taxable-equivalent basis, increased 21.0% to $120.2 million compared to $99.3 million for the second quarter of 1997 and increased 4.4% from $115.2 million for the first quarter of 1998. Net interest margin was 4.56%, compared to 4.32% for the second quarter of 1997 and 4.54% for the first quarter of 1998. Six-month net interest income, on a fully taxable-equivalent basis, was $235.4 million in 1998, an increase of 24.7% compared to $188.7 million for the first six months of 1997. Net interest margin for the first six months of 1998 was 4.55%, compared to 4.31% for the first six months of 1997. The yield on average earning assets decreased 8 basis points during the second quarter of 1998 as compared to the second quarter of 1997, and decreased 14 basis points from the first quarter of 1998. The average rate paid this quarter on interest-bearing funds decreased 26 basis points from the second quarter of 1997 and decreased 16 basis points from the first quarter of 1998. Comparing the first six months of 1998 with 1997, the yield on average earning assets increased 6 basis points, while the cost of interest-bearing funds decreased by 13 basis points. The spread on average interest-bearing funds for the second quarter of 1998 was 3.75%, up from the 3.57% for the second quarter of 1997 and up from the 3.73% for the first quarter of 1998. The spread on average interest-bearing funds for the first six months of 1998 was 3.75% compared with 3.56% for the same period in 1997. 12 ZIONS BANCORPORATION AND SUBSIDIARIES CONSOLIDATED AVERAGE BALANCE SHEETS, YIELDS AND RATES (Unaudited) Three Months Ended Three Months Ended June 30, 1998 June 30, 1997 -------------------------------------- --------------------------------------- Average Amount of Average Average Amount of Average (In thousands) Balance Interest(1) Rate Balance Interest(1) Rate ------------ ------------ ------- ------------ ------------ ------ ASSETS Money market investments: Interest-bearing deposits ........... $ 60,535 $ 797 5.28%$ 51,942 $ 644 4.97% Federal funds sold and security resell agreements .............. 1,738,653 23,585 5.44% 1,616,542 22,664 5.62% ------------ ------------ ------------ ------------ Total money market investments . 1,799,188 24,382 5.44% 1,668,484 23,308 5.60% ------------ ------------ ------------ ------------ Securities: Held to maturity: Taxable ........................ 1,527,959 25,476 6.69% 1,511,409 26,372 7.00% Nontaxable ..................... 221,973 4,708 8.51% 201,924 3,646 7.24% Available for sale: Taxable ........................ 495,086 7,153 5.80% 665,590 11,190 6.74% Nontaxable ..................... 14,614 276 7.58% 43,208 841 7.81% Trading account ..................... 518,783 7,235 5.59% 319,712 4,790 6.01% ------------ ------------ ------------ ------------ Total securities ............... 2,778,415 44,848 6.47% 2,741,843 46,839 6.85% ------------ ------------ ------------ ------------ Loans: Loans held for sale ................. 203,997 3,660 7.20% 164,121 3,083 7.53% Net loans and leases 2 .............. 5,794,999 142,504 9.86% 4,651,942 116,582 10.05% ------------ ------------ ------------ ------------ Total loans .................... 5,998,996 146,164 9.77% 4,816,063 119,665 9.97% ------------ ------------ ------------ ------------ Total interest-earning assets ............ $ 10,576,599 $ 215,394 8.17%$ 9,226,390 $ 189,812 8.25% ------------ ------------ Cash and due from banks .................. 530,712 455,101 Allowance for loan losses ................ (96,125) (86,036) Goodwill and core deposit intangibles .... 170,073 94,943 Other assets ............................. 392,905 337,082 ------------ ------------ Total assets ............................. $ 11,574,164 $ 10,027,480 ============ ============ LIABILITIES Interest-bearing deposits: Savings and NOW deposits ............ $ 949,407 $ 7,416 3.13%$ 863,015 $ 6,572 3.05% Money market super NOW deposits ..... 3,179,179 28,514 3.60% 2,428,433 22,393 3.70% Time deposits under $100,000 ........ 1,239,169 16,482 5.33% 930,299 11,858 5.11% Time deposits $100,000 or more ...... 588,891 8,304 5.66% 363,721 5,116 5.64% Foreign deposits .................... 162,611 1,869 4.61% 131,902 1,450 4.41% ------------ ------------ ------------ ------------ Total interest-bearing deposits 6,119,257 62,585 4.10% 4,717,370 47,389 4.03% ------------ ------------ ------------ ------------ Borrowed funds: Securities sold, not yet purchased .. 239,185 2,892 4.85% 93,678 1,414 6.05% Federal funds purchased and security repurchase agreements .......... 1,802,733 20,613 4.59% 2,467,017 33,213 5.40% FHLB advances and other borrowings: Less than one year ............. 55,735 892 6.42% 124,580 1,038 3.34% Over one year .................. 136,347 1,678 4.94% 79,526 1,220 6.15% Long-term debt ...................... 275,994 6,515 9.47% 275,181 6,191 9.02% ------------ ------------ ------------ ------------ Total borrowed funds ........... 2,509,994 32,590 5.21% 3,039,982 43,076 5.68% ------------ ------------ ------------ ------------ Total interest-bearing liabilities ....... $ 8,629,251 $ 95,175 4.42%$ 7,757,352 $ 90,465 4.68% ------------ ------------ Noninterest-bearing deposits ............. 2,007,630 1,450,195 Other liabilities ........................ 128,593 156,708 ------------ ------------ Total liabilities ........................ 10,765,474 9,364,255 Total shareholders' equity ............... 808,690 663,225 ------------ ------------ Total liabilities and shareholders' equity $ 11,574,164 $ 10,027,480 ============ ============ Spread on average interest-bearing funds . 3.75% 3.57% ==== ==== Net interest income and net yield on interest-earning assets ............. $ 120,219 4.56% $ 99,347 4.32% ============ ==== ============ ==== 1 Taxable-equivalent rates used where applicable. 2 Net of unearned income and fees, net of related costs. Loans include nonaccrual and restructured loans. 13 ZIONS BANCORPORATION AND SUBSIDIARIES CONSOLIDATED AVERAGE BALANCE SHEETS, YIELDS AND RATES (Unaudited) Six Months Ended Six Months Ended June 30, 1998 June 30, 1997 -------------------------------------- --------------------------------------- Average Amount of Average Average Amount of Average (In thousands) Balance Interest(1) Rate Balance Interest(1) Rate ------------ ------------ ------- ------------ ------------ ------ ASSETS Money market investments: Interest-bearing deposits ........... $ 62,064 $ 1,622 5.27%$ 50,915 $ 1,274 5.05% Federal funds sold and security resell agreements .............. 1,626,830 45,379 5.63% 1,571,704 43,144 5.54% ------------ ------------ ------------ ------------ Total money market investments . 1,688,894 47,001 5.61% 1,622,619 44,418 5.52% ------------ ------------ ------------ ------------ Securities: Held to maturity: Taxable ........................ 1,705,572 57,996 6.86% 1,380,572 47,620 6.96% Nontaxable ..................... 231,440 9,351 8.15% 200,865 7,694 7.72% Available for sale: Taxable ........................ 512,297 15,570 6.13% 658,602 21,981 6.73% Nontaxable ..................... 18,013 697 7.80% 42,312 1,660 7.91% Trading account ..................... 439,299 12,246 5.62% 276,144 8,135 5.94% ------------ ------------ ------------ ------------ Total securities ............... 2,906,621 95,860 6.65% 2,558,495 87,090 6.86% ------------ ------------ ------------ ------------ Loans: Loans held for sale ................. 204,470 7,216 7.12% 159,302 5,951 7.53% Net loans and leases 2 .............. 5,626,658 276,313 9.90% 4,482,544 221,009 9.94% ------------ ------------ ------------ ------------ Total loans .................... 5,831,128 283,529 9.81% 4,641,846 226,960 9.86% ------------ ------------ ------------ ------------ Total interest-earning assets ............ $ 10,426,643 $ 426,390 8.25%$ 8,822,960 $ 358,468 8.19% ------------ ------------ Cash and due from banks .................. 536,561 441,336 Allowance for loan losses ................ (95,039) (85,265) Goodwill and core deposit intangibles .... 172,161 76,530 Other assets ............................. 389,722 325,211 ------------ ------------ Total assets ............................. $ 11,430,048 $ 9,580,772 ============ ============ LIABILITIES Interest-bearing deposits: Savings and NOW deposits ............ $ 1,011,650 $ 15,266 3.04%$ 842,135 $ 12,901 3.09% Money market super NOW deposits ..... 3,061,150 55,388 3.65% 2,356,913 42,975 3.68% Time deposits under $100,000 ........ 1,234,092 32,707 5.34% 885,844 22,326 5.08% Time deposits $100,000 or more ...... 557,223 15,754 5.70% 329,941 9,204 5.63% Foreign deposits .................... 164,021 3,774 4.64% 136,634 3,031 4.47% ------------ ------------ ------------ ------------ Total interest-bearing deposits 6,028,136 122,889 4.11% 4,551,467 90,437 4.01% ------------ ------------ ------------ ------------ Borrowed funds: Securities sold, not yet purchased .. 183,036 4,606 5.07% 90,507 2,658 5.92% Federal funds purchased and security repurchase agreements .......... 1,843,345 44,332 4.85% 2,314,948 60,379 5.26% FHLB advances and other borrowings: Less than one year ............. 79,734 2,542 6.43% 98.965 2,073 4.22% Over one year .................. 145,817 3,901 5.39% 75,523 2,292 6.12% Long-term debt ...................... 277,447 12,742 9.26% 267,390 11,925 8.99% ------------ ------------ ------------ ------------ Total borrowed funds ........... 2,529,379 68,123 5.43% 2,847,333 79,327 5.62% ------------ ------------ ------------ ------------ Total interest-bearing liabilities ....... $ 8,557,515 $ 191,012 4.50%$ 7,398,800 $ 169,764 4.63% ------------ ------------ Noninterest-bearing deposits ............. 1,951,134 1,404,881 Other liabilities ........................ 147,665 136,044 ------------ ------------ Total liabilities ........................ 10,656,314 8,939,725 Total shareholders' equity ............... 773,734 641,047 ------------ ------------ Total liabilities and shareholders' equity $ 11,430,048 $ 9,580,772 ============ ============ Spread on average interest-bearing funds . 3.75% 3.56% ==== ==== Net interest income and net yield on interest-earning assets ............. $ 235,378 4.55% $ 188,704 4.31% ============ ==== ============ ==== 1 Taxable-equivalent rates used where applicable. 2 Net of unearned income and fees, net of related costs. Loans include nonaccrual and restructured loans. 14 ZIONS BANCORPORATION AND SUBSIDIARIES The Company manages its earnings sensitivity to interest rate movements, in part, by matching the repricing characteristics of its assets and liabilities and through the use of off-balance sheet arrangements such as caps, floors and interest rate exchange contracts. Net interest income from the use of such off-balance sheet arrangements for the first six months of 1998 was $2.7 million compared to $.9 million for the first six months of 1997. PROVISION FOR LOAN LOSSES The provision for loan losses increased 82.0% to $3.2 million for the second quarter of 1998, as compared with $1.8 million for the second quarter of 1997, and decreased 8.8% from the $3.5 million for the first quarter of 1998. The provision for loan losses for the first six months of 1998 totaled $6.7 million, 81.7% more than the $3.7 million provision for the first six months of 1997. Annualized it is .23% of average loans for 1998 compared to .16% for 1997. NONINTEREST INCOME Noninterest income for the second quarter of 1998 was $46.5 million, an increase of 32.1% from the $35.2 million for the second quarter of 1997 and an increase of 4.4% over the $44.6 million for the first quarter of 1998. Primary contributors to the increase in noninterest income were service charges on deposit accounts; other service charges, commissions and fees; trust income; trading income; and loan sales and servicing income. Comparing the segments of noninterest income for the second quarter of 1998 and the second quarter of 1997 service charges on deposit accounts; other service charges, commissions and fees; trust income; trading account income; loan sales and servicing income; and other income increased 11.9%, 53.2%, 65.0%, 59.0%, 11.3%, and 52.2%, respectively. Net gains of $2.2 million on the sale of investment securities was realized during the second quarter of 1998 compared to net gains of $.4 million during the second quarter of 1997. Noninterest income for the six months ending June 30, 1998 was $91.1 million, an increase of 30.3% over $69.9 million for the first six months of 1997. Comparing the segments of noninterest income for the first six months of 1998 and the first six months of 1997, service charges on deposit accounts; other service charges, commissions and fees; trust income; trading account income; loan sales and servicing income; and other income increased 18.1%, 31.0%, 30.3%, 90.6%, 16.7%, and 67.7%, respectively. Net gains of $3.0 million on the sale of investment securities was realized during the first six months of 1998 compared to $.4 million during the first six months of 1997. 15 ZIONS BANCORPORATION AND SUBSIDIARIES Noninterest expense for the second quarter of 1998 was $106.4 million, an increase of 34.5% over $79.1 million for the second quarter of 1997, and an increase of 7.5% from the $99.0 million for the first quarter of 1998. Comparing significant noninterest expense segments for the second quarter of 1998 and the second quarter of 1997, salaries and employee benefits increased 24.2%, occupancy increased 29.5%, furniture and equipment expense increased 40.5% and the total of all other expenses increased 51.4% which included significant increases in legal and professional services, merger expenses, amortization of intangible assets and other expenses. Noninterest expense for the six months ending June 30, 1998 was $205.4 million, an increase of 36.2% over $150.8 million for the first six months of 1997. Comparing significant noninterest expense segments for the first six months of 1998 and the first six months of 1997, salaries and employee benefits increased 27.2%, occupancy increased 31.9%, furniture and equipment expenses increased 40.7%, and the total of all other expenses increased 51.4% which included significant increases for legal and professional services, merger expenses, amortization of intangible assets and other expenses. The increase in noninterest expense in 1998 resulted primarily from acquisitions, expansion of business lines and investment in personnel in selected areas to enhance future revenue growth. At June 30, 1998, the Company had 5,288 full-time equivalent employees, 266 offices and 531 ATMs compared to 4,243 full time equivalent employees, 198 offices and 474 ATMs at June 30, 1997. INCOME TAXES The Company's income taxes decreased 5.8% to $17.6 million for the second quarter of 1998 compared to $18.7 million for the second quarter of 1997 and increased .5% from the $17.5 million for the first quarter of 1998. The Company's income taxes were $35.1 million for the first six months of 1998 as compared to $35.8 million for the first six months of 1997. The Company's effective income tax rate was 31.86% for the first six months of 1998, down from 35.58% for the first six months of 1997. The decreased effective tax rate results primarily from the Company's efforts to restructure its balance sheet and changes in estimates of tax benefits from NOL and refund claims. ANALYSIS OF FINANCIAL CONDITION EARNING ASSETS Average earning assets increased 18.2% to $10,426.6 million for the six months ended June 30, 1998, compared to $8,823.0 million for the six months ended June 30, 1997. Earning assets comprised 91.2% of total average assets for the first six months of 1998, compared with 92.1% for the first six months of 1997. Average money market investments, consisting of interest-bearing deposits, federal funds sold and security resell agreements increased 4.1% to $1,688.9 million in the first six months of 1998 as compared to $1,622.6 million in the first six months of 1997. During the first six months of 1998, average securities increased 13.6% to $2,906.6 million compared to $2,558.5 million in the first six months of 1997. Average held to maturity securities increased 22.5%, available for sale securities decreased 24.3%, and trading account securities increased 59.1% compared with the first six months of 1997. 16 ZIONS BANCORPORATION AND SUBSIDIARIES Average net loans and leases increased 25.6% to $5,831.1 million for the first six months of 1998 compared to $4,641.8 million in the first six months of 1997, representing 55.9% of earning assets in the first six months of 1998 compared to 52.6% in the first six months of 1997. Average net loans and leases were 73.1% of average total deposits for the six months ended June 30, 1998, as compared to 77.9% for the six months ended June 30, 1997. INVESTMENT SECURITIES The following table presents the Company's investment securities on June 30, 1998, December 31, 1997 and June 30, 1997. June 30, December 31, June 30, 1998 1997 1997 --------------------------- -------------------------- --------------------------- Amortized Market Amortized Market Amortized Market (In thousands) cost value cost value cost value ------------ ------------ ------------ ------------ ------------ ------------ Held to maturity U.S. Treasury Securities ............. $ 1,002 $ 1,006 $ -- $ -- $ 13,397 $ 13,532 U.S. government agencies and corporations: Small Business Administration loan- backed securities ............ 395,676 401,220 440,615 448,867 468,106 474,959 Other agency securities ........... 1,440,447 1,443,991 1,414,405 1,420,211 1,062,506 1,063,591 States and political subdivisions .... 254,518 259,878 229,339 234,235 209,653 212,662 Mortgage-backed securities ........... 130,398 130,707 88,559 89,782 80,790 81,814 ------------ ------------ ------------ ------------ ------------ ------------ 2,222,041 2,236,802 2,172,918 2,193,095 1,834,452 1,846,558 ------------ ------------ ------------ ------------ ------------ ------------ Available for sale U.S. Treasury securities ............. 20,449 20,841 31,387 31,706 25,558 25,630 U.S. government agencies ............. 186,404 182,780 370,441 367,592 197,895 196,313 States and political subdivisions .... 14,349 14,531 30,490 31,645 40,931 42,271 Mortgage and other asset-backed securities ........... 41,886 42,338 82,764 83,744 229,203 224,811 ------------ ------------ ------------ ------------ ------------ ------------ 263,138 260,490 515,082 514,687 493,587 489,025 ------------ ------------ ------------ ------------ ------------ ------------ Equity securities: Mutual funds: Accessor Funds, Inc. ......... 109,534 109,653 109,530 110,958 108,989 108,903 Stock: Federal Home Loan Bank ....... 103,033 103,033 97,711 97,711 93,658 93,658 Other ........................ 29,416 30,905 23,393 24,784 9,668 10,084 ------------ ------------ ------------ ------------ ------------ ------------ 241,983 243,591 230,634 233,453 212,315 212,645 ------------ ------------ ------------ ------------ ------------ ------------ 505,121 504,081 745,716 748,140 705,902 701,670 ------------ ------------ ------------ ------------ ------------ ------------ Trading U.S. Treasury Securities ............. 111,128 111,128 346 346 55,136 55,136 U.S. government agencies and corporations: Small Business Administration loan-backed securities ....... -- -- 14 14 7,665 7,665 Other agency securities ........... 261,439 261,439 44,493 44,493 358,966 358,966 States and political subdivisions .... 5,467 5,467 8,498 8,498 9,067 9,067 Mortgage-backed securities ........... -- -- 630 630 7,160 7,160 Certificates of Deposit .............. 23,880 23,880 29,700 29,700 -- -- ------------ ------------ ------------ ------------ ------------ ------------ 401,914 401,914 83,681 83,681 437,994 437,994 ------------ ------------ ------------ ------------ ------------ ------------ Total .................................... $ 3,129,076 $ 3,142,797 $ 3,002,315 $ 3,024,916 $ 2,978,348 $ 2,986,222 ============ ============ ============ ============ ============ ============ 17 ZIONS BANCORPORATION AND SUBSIDIARIES LOANS The Company has structured its organization to separate the lending function from the credit administration function to strengthen the control and independent evaluation of credit activities. Loan policies and procedures provide the Company with a framework for consistent underwriting and a basis for sound credit decisions. In addition, the Company has well-defined standards for grading its loan portfolio, and management utilizes the comprehensive loan grading system to determine risk potential in the portfolio. Another aspect of the Company's credit risk management strategy is the diversification of the loan portfolio. The Company has a well-diversified loan portfolio with no significant exposure to highly leveraged transactions and has no foreign credits in its loan portfolio. The table below sets forth the amount of loans outstanding by type on June 30, 1998, December 31, 1997 and June 30, 1997. (In thousands) June 30, December 31, June 30, Types 1998 1997 1997 - ----- ---------- ---------- ---------- Loans held for sale .................... $ 198,180 $ 178,642 $ 156,708 Commercial, financial, and agricultural 1,553,725 1,374,586 1,229,824 Real estate: Construction .................... 569,018 517,888 481,886 Other: Home equity credit line . 159,223 179,325 162,421 1-4 family residential .. 1,057,438 817,926 857,620 Other real estate-secured 1,993,930 1,725,921 1,493,397 ---------- ---------- ---------- 3,210,591 2,723,172 2,513,438 ---------- ---------- ---------- 3,779,609 3,241,060 2,995,324 Consumer: Bankcard ........................ 56,949 65,521 42,238 Other ........................... 378,757 451,633 369,239 ---------- ---------- ---------- 435,706 517,154 411,477 Lease financing ........................ 174,318 176,514 158,767 Other receivables ...................... 25,760 71,166 52,333 ---------- ---------- ---------- Total loans ..................... $6,167,298 $5,559,122 $5,004,433 ========== ========== ========== Loans held for sale on June 30, 1998 increased 10.9% from year-end 1997. All other loans, net of unearned income and fees increased 11.1% to $5,926.9 million on June 30, 1998 compared to $5,336.5 million on December 31, 1997. Commercial loans, construction loans, and other real estate-secured loans increased from year end 13.0%, 9.9%, and 17.9%, respectively, as consumer loans, lease financing and other receivables decreased 18.7%, 1.2%, and 63.8%, respectively. Within the other real estate-secured loan portfolio, home equity credit line loans decreased 11.2%, 1-4 family residential loans increased 29.3% and all other real estate loans increased 15.5% from year end. 18 ZIONS BANCORPORATION AND SUBSIDIARIES On June 30, 1998, long-term first mortgage real estate loans serviced for others totaled $1,797.5 million and consumer and other loan securitizations, which relate primarily to loans sold under revolving securitization structures, totaled $1,033.8 million. During the first six months of 1998, the Company sold $636.2 million of loans classified in held for sale, and securitized and sold SBA 504 loans, home equity credit line loans, credit card receivables and automobile loans totaling $409.9 million. During the first six months of 1998, total loans sold were $1,046.1 million. RISK ELEMENTS The Company's nonperforming assets, which include nonaccruing loans, restructured loans, other real estate owned and other nonperforming assets, were $29.3 million on June 30, 1998, up from $23.5 million on December 31, 1997, and up from $20.8 million on June 30, 1997. Such nonperforming assets as a percentage of net loans and leases, other real estate owned and other nonperforming assets were .48%, .43% and .42% on June 30, 1998, December 31, 1997, and June 30, 1997, respectively. Accruing loans past due 90 days or more totaled $15.6 million on June 30, 1998, up from $10.6 million on December 31, 1997, and up from $8.2 million on June 30, 1997. These loans equaled .25% of net loans and leases on June 30, 1998, as compared to .19% on December 31, 1997 and .16% on June 30, 1997. No loans to borrowers were considered potential problems at June 30, 1998 and December 31, 1997. On June 30, 1997, there was one potential problem loan of $2.5 million. Potential problem loans are defined as loans presently on accrual, not contractually past due 90 days or more and not restructured, but about which management has serious doubt as to the future ability of the borrower to comply with present repayment terms and which may result in the reporting of the loans as nonperforming assets. The Company's total recorded investment in impaired loans included in nonaccrual loans and leases, amounted to $15.5 million on June 30, 1998, as compared to $7.1 million on December 31, 1997, and $6.8 million on June 30, 1997. The Company considers a loan to be impaired when the accrual of interest has been discontinued and it meets other criteria under the statements. The amount of the impairment is measured based on the present value of expected cash flows, the observable market price of the loan, or the fair value of the collateral. Impairment losses are included in the allowance for loan losses through a provision for loan losses. Included in the allowance for loan losses on June 30, 1998, December 31, 1997, and June 30, 1997, is a required allowance of $1.2 million, $46 thousand and $1.6 million, respectively, on $5.2 million, $.3 million and $3.3 million, respectively, of the recorded investment in impaired loans. 19 ZIONS BANCORPORATION AND SUBSIDIARIES The following table sets forth the nonperforming assets on June 30, 1998, December 31, 1997, and June 30, 1997. June 30, December 31, June 30, (In thousands) 1998 1997 1997 ------- ------- ------- Nonaccrual loans ............................ $25,055 $16,299 $15,953 Restructured loans .......................... 685 1,510 830 Other real estate owned and other nonperforming assets ................... 3,593 5,738 3,998 ------- ------- ------- Total .................................. $29,333 $23,547 $20,781 ======= ======= ======= % of net loans and leases*, other real estate owned and other nonperforming assets ... .48% .43% .42% Accruing loans past due 90 days or more ..... $15,566 $10,616 $ 8,170 ======= ======= ======= % of net loans and leases* .................. .25% .19% .16% *Includes loans held for sale ALLOWANCE FOR LOAN LOSSES The Company's allowance for loan losses was 1.57% of net loans and leases on June 30, 1998, compared to 1.62% on December 31, 1997, and 1.75% on June 30, 1997. Net charge-offs during the second quarter of 1998 were $3.1 million, or .21% of average net loans and leases, compared to $2.3 million, or .19% of average net loans and leases for the second quarter of 1997. Net charge-offs for the first six months of 1998 were $3.7 million, or .13% of average net loans and leases, compared to $4.2 million or .18% of average net loans and leases for the first six months of 1997. The allowance, as a percentage of nonaccrual loans and restructured loans, was 373.13% on June 30, 1998, compared to 500.89% on December 31, 1997, and 517.60% on June 30, 1997. The allowance, as a percentage of nonaccrual loans and accruing loans past due 90 days or more was 236.44% on June 30, 1998, compared to 331.42% on December 31, 1997 and 360.11% on June 30, 1997. On June 30, 1998, December 31, 1997, and June 30, 1997, the allowance for loan losses includes an allocation of $9.5 million, $8.9 million and $8.0 million, respectively, related to commitments to extend credit on loans and standby letters of credit. Commitments to extend credit on loans and standby letters of credit on June 30, 1998, December 31, 1997 and June 30, 1997, totaled $3,045.4 million, $2,700.1 million and $2,363.4 million, respectively. 20 ZIONS BANCORPORATION AND SUBSIDIARIES In analyzing the adequacy of the allowance for loan and lease losses, management utilizes a comprehensive loan grading system to determine risk potential in the portfolio, and considers the results of independent internal and external credit review, historical charge-off experience, and changes in the composition and volume of the portfolio. Other factors, such as general economic conditions and collateral values, are also considered. Larger problem credits are individually evaluated to determine appropriate reserve allocations. Additions to the allowance are based upon the resulting risk profile of the portfolio developed through the evaluation of the above factors. The following table shows the changes in the allowance for loan losses and a summary of loan loss experience. Six Months Twelve Months Six Months Ended Ended Ended (In thousands) June 30, December 31, June 30, 1998 1997 1997 ----------- ----------- ----------- Average loans* and leases outstanding (net of unearned income) ............. $ 5,831,128 $ 4,975,871 $ 4,641,846 =========== =========== =========== Allowance for possible losses: Balance at beginning of the period ........ $ 89,203 $ 84,163 $ 84,163 Allowance of companies acquired ........... 3,827 7,063 3,223 Provision charged against earnings ........ 6,741 7,458 3,710 Loans and leases charged-off: Loans held for sale .................. -- -- -- Commercial, financial and agricultural (1,887) (6,157) (2,440) Real estate .......................... (764) (1,148) (539) Consumer ............................. (4,686) (8,939) (3,826) Lease financing ...................... (3) (279) (90) Other receivables .................... 289 -- -- ----------- ----------- ----------- Total ........................... (7,629) (16,523) (6,895) ----------- ----------- ----------- Recoveries: Loans held for sale .................. -- -- -- Commercial, financial and agricultural 1,680 2,540 1,002 Real estate .......................... 763 1,906 379 Consumer ............................. 1,396 2,450 1,284 Lease financing ...................... 53 146 3 Other receivables .................... 9 -- -- ----------- ----------- ----------- Total ........................... 3,901 7,042 2,668 ----------- ----------- ----------- Net loan and lease charge-offs ............ (3,728) (9,481) (4,227) ----------- ----------- ----------- Balance at end of the period .............. $ 96,043 $ 89,203 $ 86,869 =========== =========== =========== *Includes loans held for sale Ratio of net charge-offs to average loans and leases ............. .13% .19% .18% 21 ZIONS BANCORPORATION AND SUBSIDIARIES DEPOSITS Average total deposits of $7,979.3 million for the first six months of 1998 increased 34.0% over the $5,956.3 million for the first six months of 1997, with average demand deposits increasing 38.9%. Average money market and super NOW deposits, time deposits under $100,000, time deposits over $100,000 and foreign deposits for the first six months of 1998 increased 29.9%, 39.3%, 68.9% and 20.0% respectively, from the first six months of 1997. Average savings and NOW deposits increased 20.1% during the first six months of 1998, compared with the same period one year earlier. Total deposits increased 7.7% to $8,312.1 million on June 30, 1998 as compared to $7,720.5 million on December 31, 1997. Comparing June 30, 1998 to December 31, 1997, demand deposits, savings and money market deposits, time deposits under $100,000, and time deposits over $100,000 increased 7.7%, 6.8%, 5.3%, and 23.4%, respectively, and foreign deposits decreased 4.4%. LIQUIDITY AND INTEREST RATE SENSITIVITY The Company manages its liquidity to provide adequate funds to meet its financial obligations, including withdrawals by depositors and debt service requirements, as well as to fund customers' demand for credit. Liquidity is primarily provided by the regularly scheduled maturities of the Company's investment and loan portfolios. The Company's liquidity is enhanced by the fact that cash, money market securities and liquid investments, net of short-term or "purchased" liabilities and wholesale deposits, totaled $2,209.0 million or 29.4% of core deposits on June 30, 1998. The Company's core deposits, consisting of demand, savings and money market deposits and time deposits under $100,000, constituted 90.3% of total deposits on June 30, 1998 as compared to 91.0% on December 31, 1997 and 91.5% on June 30, 1997. Maturing balances in loan portfolios provide flexibility in managing cash flows. Maturity management of those funds is an important source of medium- to long-term liquidity. The Company's ability to raise funds in the capital markets through the securitization process and by debt issuance allows the Company to take advantage of market opportunities to meet funding needs at reasonable cost. The parent company's cash requirements consist primarily of debt service, dividends to shareholders, operating expenses, income taxes, and share repurchases. The parent company's cash needs are routinely satisfied through payments by subsidiaries of dividends, management and other fees, principal and interest payments on subsidiary borrowings from the parent company. On June 15, 1998, the Company issued $110 million of subordinated debentures. The capital qualifying securities are subordinate to the claims of depositors. With the approval of banking regulators, the ten year securities are callable in five years at par. The debentures bear interest at 70 basis points over 90-day Libor for the first five years and 120 basis points over 90-day Libor for the last five years and require quarterly interest payments. Interest rate risk is the most significant market risk regularly undertaken by Company. The Company believes there have been no significant changes in market risk compared to the disclosures in Zions Bancorporation's Annual Report to Shareholders on Form 10-K for the year ended December 31, 1997. 22 ZIONS BANCORPORATION AND SUBSIDIARIES Interest rate sensitivity measures the Company's financial exposure to changes in interest rates. Interest rate sensitivity is, like liquidity, affected by maturities of assets and liabilities. The Company assesses its interest rate sensitivity using duration, simulation, and gap 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. Gap analysis compares the volumes of assets and liabilities whose interest rates are subject to reset within specified periods. The Company, through the management of maturities and repricing of its assets and liabilities and the use of off-balance sheet arrangements such as interest rate caps, floors, futures, options, and interest rate exchange agreements, attempts to minimize the effect on net income of changes in interest rates. The Company's management exercises its best judgment in making assumptions with respect to loan and security prepayments, early deposit withdrawals and other noncontrollable events in managing the Company's exposure to changes in interest rates. The interest rate risk position is actively managed and changes daily as the interest rate environment changes; therefore, positions at the end of any period may not be reflective of the Company's interest rate position in subsequent periods. The prime lending rate is the primary basis used for pricing the Company's loans and the short-term Treasury rate is the index used for pricing many of the Company's deposits. The Company, however, is unable to economically hedge the prime/91-day T-bill spread risk through the use of off-balance sheet financial instruments. CAPITAL RESOURCES AND DIVIDENDS Total shareholders' equity on June 30, 1998 was $924.6 million, an increase of 28.8% over the $718.2 million on December 31, 1997, and an increase of 31.2% over the $704.5 million on June 30, 1997. The ratio of average equity to average assets for the first six months of 1998 was 6.77% as compared to 6.69% for the same period in 1997. On June 30, 1998, the Company's Tier I risk-based capital ratio was 13.50%, as compared to 11.52% on December 31, 1997 and 13.69% on June 30, 1997. On June 30, 1998 the Company's total risk-based capital ratio was 16.90%, as compared to 13.40% on December 31, 1997 and 15.83% on June 30, 1997. The Company's leverage ratio on June 30, 1998 was 8.06%, as compared to 6.78% on December 31, 1997 and 7.84% on June 30, 1997. Dividends declared per common share for the second quarter of 1998 of $.14 increased 16.7%, as compared to $.12 for the second quarter of 1997 and the first quarter of 1998. The common cash dividend payout of net income for the first six months of 1998 was 25.01%, as compared to 20.93% for the first six months of 1997. On June 10, 1998, the Company completed a public offering of 2,760,000 shares of its common stock. Net proceeds from the offering were $129.9 million. The Company plans to use the proceeds for the Sumitomo acquisition. During the first six months of 1998, the Company repurchased and retired 276,412 shares of its common stock at a cost of $12.4 million. 23 ZIONS BANCORPORATION AND SUBSIDIARIES MERGERS AND ACQUISITIONS On May 22, 1998, the Company acquired FP Bancorp, Inc. of Escondido, California and its banking subsidiary First Pacific National Bank for 1,914,731 shares of common stock. First Pacific National Bank was merged with the Company's California banking subsidiary Grossmont Bank. FP Bancorp, Inc. had total assets of approximately $363 million at the date of acquisition. The transaction was accounted for as a pooling-of-interests. The acquisition was considered significant and prior year amounts have been restated. On May 29, 1998, the Company acquired Routt County National Bank Corporation and its banking subsidiary First National Bank of Colorado in Steamboat Springs, as well as SBT Bankshares, Inc. and its banking subsidiary State Bank and Trust of Colorado Springs. Zions Bancorporation exchanged 649,988 shares of its common stock for all the shares of Routt County National Bank Corporation and 460,311 shares of its common stock for all the common and common equivalent shares of SBT Bankshares, Inc. The acquisitions were not significant to the consolidated financial statements and were accounted for as poolings-of-interests. On March 25, 1998, the Company announced a definitive agreement to acquire The Sumitomo Bank of California with headquarters in San Francisco, California. The Company will pay approximately $546 million for the acquisition. At June 30, 1998, The Sumitomo Bank of California had total assets of approximately $4.7 billion. The transaction will be accounted for as purchase and is intended to close in the third quarter of 1998. It is anticipated that The Sumitomo Bank of California will be merged with Grossmont Bank and First Pacific National Bank which was acquired during this quarter and the combined bank will be renamed California Bank and Trust. The combined bank will be the fifth largest commercial bank in the state. On May 8, 1998, the Company and Kersey Bancorp, Inc., the parent company of Independent Bank in Kersey, Colorado announced a definitive agreement to merge Kersey Bancorp, Inc. with and into a subsidiary of Zions Bancorporation in exchange for common shares of Zions Bancorporation. At December 31, 1997, Kersey Bancorp, Inc. had total assets of $135 million and seven banking offices in Northeastern Colorado. The merger is intended to be accounted for as a pooling-of-interests, and is expected to close in the third quarter of 1998, subject to the approval of banking regulators and the shareholders of Kersey Bancorp, Inc. On May 14, 1998, the Company and The Commerce Bancorporation, the parent company of The Commerce Bank of Washington, N.A. in Seattle, Washington, announced a definitive agreement to merge The Commerce Bancorporation with and into Zions Bancorporation in exchange for common shares of Zions Bancorporation. At March 31, 1998, Commerce had total assets of $330 million and operated one office in Seattle. The merger is intended to be accounted for as a pooling-of-interests and is expected to close in the third quarter of 1998, subject to the approval of banking regulators and the shareholders of The Commerce Bancorporation. On May 15, 1998, the Company and Mountain Financial Holding Company, the parent company of Mountain National Bank, in Woodland Park, Colorado, announced a definitive agreement to merge Mountain Financial Holding Company with and into a subsidiary of Zions Bancorporation in exchange for common shares of Zions Bancorporation. As of December 31, 1997, Mountain Financial Holding Company had total assets of $85 million and 2 banking offices in Woodland Park and Cripple Creek, Colorado. The transaction is intended to be accounted for as a pooling-of-interests. The merger is subject to the approval 24 ZIONS BANCORPORATION AND SUBSIDIARIES of banking regulators and the shareholders of Mountain Financial Holding Company and is expected to close in the third quarter of 1998. On June 3, 1998, the Company announced a definitive agreement to merge with Eagle Holding Company, a bank holding company in Broomfield, Colorado. Eagle Holding Company will merge with and into a subsidiary of Zions Bancorporation in exchange for common shares of Zions. Eagle Bank has $41 million in assets and one banking location. The merger is subject to the approval of banking regulators and Eagle Holding Company's shareholders and is expected to close in the third quarter of 1998. YEAR 2000 A number of electronic systems utilize a two-digit field for year references, e.g., 98 for 1998. Such systems may compute that the year 2000, if represented as 00, to be 98 years ago rather than two years hence. If these systems are not corrected prior to December 31, 1999, many processing failures could result. This section describes the status of the Company's efforts to correct these system deficiencies. State of Readiness. The company is well underway with its Year 2000 remediation effort for its in-house information systems and expects remediation to be virtually completed by December 31, 1998, except for its personal trust and mortgage systems for which the Company is awaiting vendor modifications. The Company also has a number of small decentralized systems that are not critical to the Company's mission or its internal controls that it does not expect to be corrected by the end of this year. However, the Company anticipates that all of its systems, including those mentioned above, will be compliant by June 30, 1999. The Company uses third party servicers for some of its information and data processing needs and it is monitoring the progress of these entities in addressing the Year 2000 issue and believes they will all be compliant by March 31, 1999. The Company is also assessing the operability of other devices after 1999, including vaults, fax machines, stand-alone personal computers, security systems and elevators, and addressing deficiencies, if necessary. These efforts are currently underway and we anticipate compliance to be achieved in 1999. Costs. In order to achieve and confirm Year 2000 readiness, significant costs are being incurred to test and modify or replace computer software and hardware, as well as a variety of other items, e.g., ATMs. The Company believes that its remediation costs have been mitigated since it has replaced the large preponderance of its core banking systems during the past five years with Year 2000 compliant software. However, the considerable effort required to implement new software and sufficiently test its compliance is consuming a substantial portion of the Company's internal information technology resources. This diversion of resources to the Year 2000 project has resulted in delays in implementing enhancements to a number of the Company's systems and products. The Company does not believe, however, that these delays will have a significant effect on its revenue or expense growth. In addition, a significant portion of the Company's ATM's and personal computers are expected to be replaced to achieve Year 2000 compliance. The aggregate increase in expense to achieve Year 2000 readiness is estimated to be $3 million of which $1.5 million has been incurred through June 30, 1998. This does not include an estimated capital outlay of between $2 to $4 million to replace certain ATMs and personal computers, a portion of which would have been incurred in the ordinary course of business without regard to Year 2000 issues. 25 ZIONS BANCORPORATION AND SUBSIDIARIES Risks. If the Company's mission-critical applications are not compliant by 2000, it may not be able to correctly process transactions in a reasonable period of time. This scenario could result in a wide variety of claims against the Company for improper handling of its assets as well as deposits and other borrowings from its customers. The Company is also at risk if the credit worthiness of a few of its large borrowers, or a significant number of its small borrowers, were to deteriorate quickly and severely as a result of their inability to conduct business operations after December 31, 1999, for whatever reason. The Company is presently reviewing the Year 2000 plans of a number of its credit customers to ascertain the sufficiency of their remediation efforts and the implication of their actions on their credit worthiness. The Company explicitly disclaims, however, any obligation or liability for the completeness, or lack thereof, of its customers' Year 2000 remediation plans or actions. Contingency Plans. The Company is in the process of developing contingency plans for each business unit in the event that the remediation plan is not completed in time or fails for reasons that are not presently foreseen. In the event of such a failure, these plans will outline the steps that will be taken to deal with the situation to minimize the effect on customers and losses to the Company. FORWARD-LOOKING INFORMATION Statements in Management's Discussion and Analysis that are not based on historical data are forward- looking, including, for example, the projected performance of Zions and its operations. These statements constitute forward-looking information within the meaning of the Private Securities Litigation Reform Act of 1995. Actual results may differ materially from the projections discussed in Management's Discussion and Analysis since such projections involve significant risks and uncertainties. Factors that might cause such differences include, but are not limited to: the timing of closing proposed acquisitions being delayed or such acquisitions being prohibited, competitive pressures among financial institutions increasing significantly, economic conditions, either nationally or locally in areas in which Zions conducts its operations, being less favorable than expected, legislation or regulatory changes which adversely affect the ability of the Company to conduct, or the accounting for, business combinations or share repurchases, or the cost and effort required to correct Year 2000 processing deficiencies being more difficult than expected due to the difficulty attracting and retaining qualified systems personnel or vendor-supplied software releases being delayed or not functioning properly. Zions disclaims any obligation to update any such factors or to publicly announce the result of any revisions to any of the forward-looking statements included herein to reflect future events or developments. 26 ZIONS BANCORPORATION AND SUBSIDIARIES PART II. OTHER INFORMATION ----------------- ITEM 4. SUBMISSION OF MATTERS TO A VOTE OF SHAREHOLDERS ----------------------------------------------- The following is a summary of matters submitted to vote at the Annual Meeting of Shareholders of Zions Bancorporation: a) The Annual Meeting of Shareholders was held on April 24, 1998. Total number of shares eligible for voting was 69,053,648. b) Election of Directors --------------------- Proxies were solicited by Zions Bancorporation's management pursuant to Regulation 14A under the Securities Exchange Act of 1934. There was no solicitation in opposition to management's nominees as listed in the proxy statement, and all of such nominees were elected pursuant to the vote of the shareholders as indicated in the proxy statement. c) The matters voted upon and the results were as follows: (1) Election of Directors --------------------- Withhold For Authority --- --------- Roger B. Porter 54,123,397 369,946 L.E. Simmons 54,113,515 379,827 I.J. Wagner 54,051,597 441,346 (2) Approve an increase in the number of authorized shares of Capital Stock of Zions Bancorporation ---------------------------------------- Approval to increase the authorized shares of Common Stock, without par value to 200,000,000 shares For Against Abstain 52,897,891 1,463,811 130,837 (3) Amend the Zions Bancorporation Key Employee Stock Option Plan ------------------------------------------------------------- Amend the Plan to provide for automatic increases in the aggregate number of shares available under the Plan. For Against Abstain 43,624,887 2,459,168 516,249 27 ZIONS BANCORPORATION AND SUBSIDIARIES (4) Appointment of Independent Accountants -------------------------------------- The selection of KPMG Peat Marwick LLP as the firm of independent certified public accountants to audit the books and accounts of Zions Bancorporation and its subsidiaries for the year ending December 31, 1998 was ratified For Against Abstain 54,315,714 55,093 108,036 PART II. OTHER INFORMATION (CONTINUED) ITEM 6. EXHIBITS AND REPORTS ON FORM 8-K -------------------------------- a) Exhibits Exhibit 3 Articles of Amendment to the Restated Articles of Incorporation of Zions Bancorporation dated April 24, 1998, and filed with the Department of Business Regulation, Division of Corporations of the State of Utah on April 27, 1998. Exhibit 10 1998 Amendment to Zions Bancorporation Key Employee Incentive Stock Option Plan b) Reports on Form 8-K Zions Bancorporation filed the following reports on Form 8-K during the quarter ended June 30, 1998; Form 8-K/A filed May 27, 1998 (Item 5) Zions Bancorporation filed an amendment and supplement to Form 8-K dated April 3, 1998, which announced the Agreement and Plan of Merger, by and among, Zions Bancorporation, SBC Acquisition Corp., and The Sumitomo Bank of California. Additionally, Zions Bancorporation and The Sumitomo Bank of California entered into a Voting Agreement and an Indemnification Agreement both dated as of March 25, 1998. Form 8-K filed May 18, 1998 (Item 5) Zions Bancorporation filed The Sumitomo Bank of California's unaudited balance sheet as of March 31, 1998 and unaudited statements of income, changes in shareholders' equity and cash flows for the three months ended March 31, 1998 and 1997. Form 8-K filed April 15, 1998 (Item 5) Zions Bancorporation filed (I) The Sumitomo Bank of California's audited balance sheets for the years ended December 31, 1997 and 1996 and The Sumitomo Bank of California's audited statements of income, changes in shareholders' equity and cash flows for the years ended December 31, 1997, 1996 and 1995; and (II) unaudited summary pro forma condensed balance sheet and income statement information for the pending merger with The Sumitomo Bank of California. 28 ZIONS BANCORPORATION AND SUBSIDIARIES Form 8-K filed April 3, 1998 (Item 5) On March 25, 1998, Zions Bancorporation issued a press release announcing the Agreement and Plan of Merger, by and among, Zions Bancorporation, SBC Acquisition Corp. and The Sumitomo Bank of California, pursuant to which SBC, an indirect wholly owned subsidiary of Zions Bancorporation, will merge with and into The Sumitomo Bank of California. S I G N A T U R E S ------------------- Pursuant to the requirements of the Securities Exchange Act of 1934, the Registrant has duly caused this report to be signed on its behalf by the undersigned thereunto duly authorized. ZIONS BANCORPORATION /s/Harris H. Simmons -------------------- Harris H. Simmons, President and Chief Executive Officer /s/Dale M. Gibbons ------------------ Dale M. Gibbons, Executive Vice President and Chief Financial Officer Dated August 13, 1998 29