zions10q.htm
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,
2008 |
|
OR
o
|
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: 001-12307
ZIONS
BANCORPORATION
(Exact
name of registrant as specified in its charter)
UTAH
|
|
|
|
87-0227400
|
(State
or other jurisdiction
of
Incorporation or organization)
|
|
|
|
(IRS
Employer Identification No.)
|
ONE
SOUTH MAIN, 15th
FLOOR
SALT
LAKE CITY, UTAH
|
|
84133
|
(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 a large accelerated filer, an
accelerated filer, a non-accelerated filer, or a small reporting company. See
the definitions of “large accelerated filer,” “accelerated filer” and “small
reporting company” in Rule 12b-2 of the Exchange Act.
Large
accelerated filer x Accelerated
filer o Non-accelerated
filer o Smaller
reporting company o
Indicate
by check mark whether the registrant is a shell company (as defined in Rule
12b-2 of the Exchange Act).
Yes o No
x
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 July 31,
2008
|
107,574,383 shares
|
ZIONS BANCORPORATION AND SUBSIDIARIES
INDEX
|
|
Page
|
PART
I.
|
|
|
|
|
|
ITEM
1.
|
|
|
|
|
|
|
|
3
|
|
|
4
|
|
|
5
|
|
|
6
|
|
|
8
|
|
|
|
ITEM
2.
|
|
20
|
|
|
|
ITEM
3.
|
|
53
|
|
|
|
ITEM
4.
|
|
53
|
|
|
|
|
|
|
PART
II.
|
|
|
|
|
|
ITEM
1.
|
|
53
|
|
|
|
ITEM
1A.
|
|
53
|
|
|
|
ITEM
2.
|
|
54
|
|
|
|
ITEM
4.
|
|
54 |
|
|
|
ITEM
6.
|
|
55
|
|
|
|
|
|
|
|
|
56
|
ZIONS
BANCORPORATION AND SUBSIDIARIES
|
|
June
30,
|
|
December
31,
|
|
June
30,
|
(In
thousands, except share amounts)
|
|
2008
|
|
2007
|
|
2007
|
|
|
(Unaudited)
|
|
|
|
|
(Unaudited)
|
ASSETS
|
|
|
|
|
|
|
|
|
|
Cash
and due from banks
|
|
$ |
1,751,724 |
|
|
$ |
1,855,155 |
|
|
$ |
1,640,946 |
|
Money
market investments:
|
|
|
|
|
|
|
|
|
|
|
|
|
Interest-bearing
deposits and commercial paper
|
|
|
504,314 |
|
|
|
726,446 |
|
|
|
39,881 |
|
Federal
funds sold
|
|
|
274,456 |
|
|
|
102,225 |
|
|
|
120,959 |
|
Security
resell agreements
|
|
|
484,487 |
|
|
|
671,537 |
|
|
|
482,893 |
|
Investment
securities:
|
|
|
|
|
|
|
|
|
|
|
|
|
Held-to-maturity,
at adjusted cost (approximate fair value
|
|
|
|
|
|
|
|
|
|
|
|
|
$1,730,104,
$702,148, and $685,521)
|
|
|
1,914,833 |
|
|
|
704,441 |
|
|
|
702,189 |
|
Available-for-sale,
at fair value
|
|
|
2,817,682 |
|
|
|
5,134,610 |
|
|
|
4,564,183 |
|
Trading
account, at fair value (includes $463, $741, and $1,745
|
|
|
|
|
|
|
|
|
|
transferred
as collateral under repurchase agreements)
|
|
|
51,670 |
|
|
|
21,849 |
|
|
|
22,808 |
|
|
|
|
4,784,185 |
|
|
|
5,860,900 |
|
|
|
5,289,180 |
|
Loans:
|
|
|
|
|
|
|
|
|
|
|
|
|
Loans
held for sale
|
|
|
158,509 |
|
|
|
207,943 |
|
|
|
226,041 |
|
Loans
and leases
|
|
|
41,874,224 |
|
|
|
39,044,163 |
|
|
|
36,715,752 |
|
|
|
|
42,032,733 |
|
|
|
39,252,106 |
|
|
|
36,941,793 |
|
Less:
|
|
|
|
|
|
|
|
|
|
|
|
|
Unearned
income and fees, net of related costs
|
|
|
159,756 |
|
|
|
164,327 |
|
|
|
153,588 |
|
Allowance
for loan losses
|
|
|
548,958 |
|
|
|
459,376 |
|
|
|
380,295 |
|
Loans
and leases, net of allowance
|
|
|
41,324,019 |
|
|
|
38,628,403 |
|
|
|
36,407,910 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Other
noninterest-bearing investments
|
|
|
1,153,933 |
|
|
|
1,034,412 |
|
|
|
972,830 |
|
Premises
and equipment, net
|
|
|
656,013 |
|
|
|
655,712 |
|
|
|
648,731 |
|
Goodwill
|
|
|
2,009,511 |
|
|
|
2,009,513 |
|
|
|
2,013,314 |
|
Core
deposit and other intangibles
|
|
|
132,481 |
|
|
|
149,493 |
|
|
|
180,867 |
|
Other
real estate owned
|
|
|
125,186 |
|
|
|
15,201 |
|
|
|
10,646 |
|
Other
assets
|
|
|
1,430,574 |
|
|
|
1,238,417 |
|
|
|
883,288 |
|
|
|
$ |
54,630,883 |
|
|
$ |
52,947,414 |
|
|
$ |
48,691,445 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
LIABILITIES
AND SHAREHOLDERS' EQUITY
|
|
|
|
|
|
|
|
|
|
|
|
|
Deposits:
|
|
|
|
|
|
|
|
|
|
|
|
|
Noninterest-bearing
demand
|
|
$ |
9,735,265 |
|
|
$ |
9,618,300 |
|
|
$ |
9,857,638 |
|
Interest-bearing:
|
|
|
|
|
|
|
|
|
|
|
|
|
Savings
and NOW
|
|
|
4,590,767 |
|
|
|
4,507,837 |
|
|
|
4,368,184 |
|
Money
market
|
|
|
11,175,844 |
|
|
|
10,304,225 |
|
|
|
10,344,110 |
|
Internet
money market
|
|
|
2,211,557 |
|
|
|
2,163,014 |
|
|
|
1,544,031 |
|
Time
under $100,000
|
|
|
2,466,082 |
|
|
|
2,562,363 |
|
|
|
2,535,881 |
|
Time
$100,000 and over
|
|
|
4,102,369 |
|
|
|
4,391,588 |
|
|
|
4,881,994 |
|
Foreign
|
|
|
3,326,111 |
|
|
|
3,375,426 |
|
|
|
2,653,734 |
|
|
|
|
37,607,995 |
|
|
|
36,922,753 |
|
|
|
36,185,572 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Securities
sold, not yet purchased
|
|
|
46,376 |
|
|
|
224,269 |
|
|
|
28,456 |
|
Federal
funds purchased
|
|
|
2,379,055 |
|
|
|
2,463,460 |
|
|
|
2,221,887 |
|
Security
repurchase agreements
|
|
|
1,010,325 |
|
|
|
1,298,112 |
|
|
|
1,061,598 |
|
Other
liabilities
|
|
|
555,812 |
|
|
|
644,375 |
|
|
|
602,173 |
|
Commercial
paper
|
|
|
137,200 |
|
|
|
297,850 |
|
|
|
228,607 |
|
Federal
Home Loan Bank advances and other borrowings:
|
|
|
|
|
|
|
|
|
|
|
|
|
One
year or less
|
|
|
4,799,143 |
|
|
|
3,181,990 |
|
|
|
664,509 |
|
Over
one year
|
|
|
129,474 |
|
|
|
127,612 |
|
|
|
128,832 |
|
Long-term
debt
|
|
|
2,666,445 |
|
|
|
2,463,254 |
|
|
|
2,313,015 |
|
Total
liabilities
|
|
|
49,331,825 |
|
|
|
47,623,675 |
|
|
|
43,434,649 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Minority
interest
|
|
|
25,528 |
|
|
|
30,939 |
|
|
|
32,094 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Shareholders'
equity:
|
|
|
|
|
|
|
|
|
|
|
|
|
Capital
stock:
|
|
|
|
|
|
|
|
|
|
|
|
|
Preferred
stock, without par value, authorized 3,000,000 shares:
|
|
|
|
|
|
|
|
|
|
Series
A (liquidation preference $1,000 per share); issued
|
|
|
|
|
|
|
|
|
|
|
|
|
and
outstanding 240,000 shares
|
|
|
240,000 |
|
|
|
240,000 |
|
|
|
240,000 |
|
Common
stock, without par value; authorized 350,000,000 shares;
issued
|
|
|
|
|
|
|
|
|
|
|
|
|
and
outstanding 107,518,975, 107,116,505, and 108,034,079
shares
|
|
|
2,224,455 |
|
|
|
2,212,237 |
|
|
|
2,279,722 |
|
Retained
earnings
|
|
|
2,981,062 |
|
|
|
2,910,692 |
|
|
|
2,828,613 |
|
Accumulated
other comprehensive income (loss)
|
|
|
(158,325 |
) |
|
|
(58,835 |
) |
|
|
(112,840 |
) |
Deferred
compensation
|
|
|
(13,662 |
) |
|
|
(11,294 |
) |
|
|
(10,793 |
) |
Total
shareholders' equity
|
|
|
5,273,530 |
|
|
|
5,292,800 |
|
|
|
5,224,702 |
|
|
|
$ |
54,630,883 |
|
|
$ |
52,947,414 |
|
|
$ |
48,691,445 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
See
accompanying notes to consolidated financial
statements.
|
|
|
|
|
|
|
|
|
|
|
|
|
ZIONS
BANCORPORATION AND SUBSIDIARIES
(Unaudited)
|
|
Three
Months Ended
|
|
Six
Months Ended
|
(In
thousands, except per share amounts)
|
|
June
30,
|
|
June
30,
|
|
|
2008
|
|
2007
|
|
2008
|
|
2007
|
Interest
income:
|
|
|
|
|
|
|
|
|
|
|
|
|
Interest
and fees on loans
|
|
$ |
643,111 |
|
|
$ |
697,022 |
|
|
$ |
1,331,550 |
|
|
$ |
1,371,599 |
|
Interest
on loans held for sale
|
|
|
2,699 |
|
|
|
4,322 |
|
|
|
5,716 |
|
|
|
8,197 |
|
Lease
financing
|
|
|
5,767 |
|
|
|
5,234 |
|
|
|
11,585 |
|
|
|
10,440 |
|
Interest
on money market investments
|
|
|
12,313 |
|
|
|
7,756 |
|
|
|
31,341 |
|
|
|
14,098 |
|
Interest
on securities:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Held-to-maturity
– taxable
|
|
|
15,730 |
|
|
|
2,064 |
|
|
|
18,185 |
|
|
|
4,267 |
|
Held-to-maturity
– nontaxable
|
|
|
6,224 |
|
|
|
6,227 |
|
|
|
12,653 |
|
|
|
12,318 |
|
Available-for-sale
– taxable
|
|
|
35,059 |
|
|
|
63,825 |
|
|
|
97,415 |
|
|
|
132,332 |
|
Available-for-sale
– nontaxable
|
|
|
1,870 |
|
|
|
2,398 |
|
|
|
3,762 |
|
|
|
4,856 |
|
Trading
account
|
|
|
159 |
|
|
|
766 |
|
|
|
840 |
|
|
|
1,958 |
|
Total
interest income
|
|
|
722,932 |
|
|
|
789,614 |
|
|
|
1,513,047 |
|
|
|
1,560,065 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Interest
expense:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Interest
on savings and money market deposits
|
|
|
80,144 |
|
|
|
117,295 |
|
|
|
184,131 |
|
|
|
230,398 |
|
Interest
on time and foreign deposits
|
|
|
83,460 |
|
|
|
120,445 |
|
|
|
189,682 |
|
|
|
233,330 |
|
Interest
on short-term borrowings
|
|
|
43,255 |
|
|
|
43,369 |
|
|
|
106,389 |
|
|
|
92,061 |
|
Interest
on long-term borrowings
|
|
|
31,330 |
|
|
|
39,158 |
|
|
|
61,644 |
|
|
|
77,846 |
|
Total
interest expense
|
|
|
238,189 |
|
|
|
320,267 |
|
|
|
541,846 |
|
|
|
633,635 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net
interest income
|
|
|
484,743 |
|
|
|
469,347 |
|
|
|
971,201 |
|
|
|
926,430 |
|
Provision
for loan losses
|
|
|
114,192 |
|
|
|
17,763 |
|
|
|
206,474 |
|
|
|
26,874 |
|
Net
interest income after provision for loan losses
|
|
|
370,551 |
|
|
|
451,584 |
|
|
|
764,727 |
|
|
|
899,556 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Noninterest
income:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Service
charges and fees on deposit accounts
|
|
|
51,067 |
|
|
|
45,116 |
|
|
|
100,652 |
|
|
|
88,501 |
|
Other
service charges, commissions and fees
|
|
|
42,362 |
|
|
|
42,311 |
|
|
|
84,343 |
|
|
|
81,688 |
|
Trust
and wealth management income
|
|
|
10,284 |
|
|
|
9,125 |
|
|
|
19,977 |
|
|
|
17,341 |
|
Capital
markets and foreign exchange
|
|
|
12,196 |
|
|
|
11,900 |
|
|
|
22,593 |
|
|
|
21,631 |
|
Dividends
and other investment income
|
|
|
10,409 |
|
|
|
11,271 |
|
|
|
23,319 |
|
|
|
22,364 |
|
Loan
sales and servicing income
|
|
|
8,516 |
|
|
|
8,998 |
|
|
|
16,326 |
|
|
|
18,256 |
|
Income
from securities conduit
|
|
|
1,043 |
|
|
|
5,968 |
|
|
|
3,624 |
|
|
|
12,483 |
|
Fair
value and nonhedge derivative income (loss)
|
|
|
(19,789 |
) |
|
|
924 |
|
|
|
(16,002 |
) |
|
|
2,169 |
|
Equity
securities gains (losses), net
|
|
|
(8,121 |
) |
|
|
100 |
|
|
|
1,947 |
|
|
|
5,298 |
|
Fixed
income securities gains, net
|
|
|
78 |
|
|
|
13 |
|
|
|
1,853 |
|
|
|
3,714 |
|
Impairment
losses on investment securities and valuation
|
|
|
|
|
|
|
|
|
|
|
|
|
|
losses
on securities purchased from Lockhart Funding
|
|
|
(38,761 |
) |
|
|
- |
|
|
|
(84,750 |
) |
|
|
- |
|
Other
|
|
|
3,088 |
|
|
|
5,615 |
|
|
|
9,490 |
|
|
|
13,310 |
|
Total
noninterest income
|
|
|
72,372 |
|
|
|
141,341 |
|
|
|
183,372 |
|
|
|
286,755 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Noninterest
expense:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Salaries
and employee benefits
|
|
|
201,291 |
|
|
|
198,668 |
|
|
|
410,645 |
|
|
|
404,255 |
|
Occupancy,
net
|
|
|
27,364 |
|
|
|
26,334 |
|
|
|
54,163 |
|
|
|
52,923 |
|
Furniture
and equipment
|
|
|
25,610 |
|
|
|
24,272 |
|
|
|
49,348 |
|
|
|
47,539 |
|
Legal
and professional services
|
|
|
11,566 |
|
|
|
11,242 |
|
|
|
19,446 |
|
|
|
20,779 |
|
Postage
and supplies
|
|
|
8,536 |
|
|
|
9,025 |
|
|
|
18,325 |
|
|
|
17,072 |
|
Advertising
|
|
|
7,520 |
|
|
|
7,517 |
|
|
|
13,871 |
|
|
|
13,974 |
|
Merger
related expense
|
|
|
281 |
|
|
|
1,491 |
|
|
|
588 |
|
|
|
3,897 |
|
Amortization
of core deposit and other intangibles
|
|
|
8,191 |
|
|
|
11,812 |
|
|
|
17,011 |
|
|
|
22,941 |
|
Provision
for unfunded lending commitments
|
|
|
1,690 |
|
|
|
1,222 |
|
|
|
5,308 |
|
|
|
1,528 |
|
Other
|
|
|
62,368 |
|
|
|
56,029 |
|
|
|
115,815 |
|
|
|
114,683 |
|
Total
noninterest expense
|
|
|
354,417 |
|
|
|
347,612 |
|
|
|
704,520 |
|
|
|
699,591 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Income
before income taxes and minority interest
|
|
|
88,506 |
|
|
|
245,313 |
|
|
|
243,579 |
|
|
|
486,720 |
|
Income
taxes
|
|
|
22,037 |
|
|
|
86,065 |
|
|
|
71,933 |
|
|
|
174,919 |
|
Minority
interest
|
|
|
(5,729 |
) |
|
|
34 |
|
|
|
(7,301 |
) |
|
|
(671 |
) |
Net
income
|
|
|
72,198 |
|
|
|
159,214 |
|
|
|
178,947 |
|
|
|
312,472 |
|
Preferred
stock dividend
|
|
|
2,454 |
|
|
|
3,607 |
|
|
|
4,907 |
|
|
|
7,210 |
|
Net
earnings applicable to common shareholders
|
|
$ |
69,744 |
|
|
$ |
155,607 |
|
|
$ |
174,040 |
|
|
$ |
305,262 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Weighted
average common shares outstanding during the period:
|
|
|
|
|
|
|
|
|
|
Basic
shares
|
|
|
106,595 |
|
|
|
107,803 |
|
|
|
106,554 |
|
|
|
108,107 |
|
Diluted
shares
|
|
|
106,712 |
|
|
|
109,124 |
|
|
|
106,720 |
|
|
|
109,639 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net
earnings per common share:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Basic
|
|
$ |
0.65 |
|
|
$ |
1.44 |
|
|
$ |
1.63 |
|
|
$ |
2.82 |
|
Diluted
|
|
|
0.65 |
|
|
|
1.43 |
|
|
|
1.63 |
|
|
|
2.78 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
See
accompanying notes to consolidated financial statements.
|
|
|
|
|
|
|
|
|
|
|
|
|
|
ZIONS
BANCORPORATION AND SUBSIDIARIES
AND COMPREHENSIVE INCOME
(Unaudited)
|
|
|
|
|
|
|
|
|
|
|
Accumulated
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
other
|
|
|
|
|
|
|
Total
|
|
|
Preferred
|
|
Common
|
|
Retained
|
|
comprehensive
|
|
Deferred
|
|
shareholders’
|
(In
thousands, except per share amounts)
|
|
stock
|
|
stock
|
|
earnings
|
|
income
(loss)
|
|
compensation
|
|
equity
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Balance,
December 31, 2007
|
|
$ |
240,000 |
|
|
$ |
2,212,237 |
|
|
$ |
2,910,692 |
|
|
|
$ |
(58,835 |
) |
|
|
|
$ |
(11,294 |
) |
|
|
|
$ |
5,292,800 |
|
|
Cumulative
effect of change in accounting principle,
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
adoption
of SFAS 159
|
|
|
|
|
|
|
|
|
|
|
(11,471 |
) |
|
|
|
11,471 |
|
|
|
|
|
|
|
|
|
|
|
- |
|
|
Comprehensive
income:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net
income for the period
|
|
|
|
|
|
|
|
|
|
|
178,947 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
178,947 |
|
|
Other
comprehensive loss, net of tax:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net
realized and unrealized holding losses
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
on
investments and retained interests
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(170,402 |
) |
|
|
|
|
|
|
|
|
|
|
|
|
|
Foreign
currency translation
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
1 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Reclassification
for net realized losses
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
on
investments recorded in operations
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
51,117 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net
unrealized gains on derivative instruments
|
|
|
|
|
|
|
|
|
|
|
|
|
7,589 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Pension
and postretirement
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
734 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Other
comprehensive loss
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(110,961 |
) |
|
|
|
|
|
|
|
|
|
|
(110,961 |
) |
|
Total
comprehensive income
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
67,986 |
|
|
Stock
issued under dividend reinvestment plan
|
|
|
|
632 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
632 |
|
|
Net
stock issued under employee plans
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
and
related tax benefits
|
|
|
|
|
|
|
11,586 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
11,586 |
|
|
Dividends
declared on preferred stock
|
|
|
|
|
|
|
|
|
|
|
(4,907 |
) |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(4,907 |
) |
|
Dividends
on common stock, $.86 per share
|
|
|
|
|
|
|
|
(92,199 |
) |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(92,199 |
) |
|
Change
in deferred compensation
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(2,368 |
) |
|
|
|
|
(2,368 |
) |
|
Balance,
June 30, 2008
|
|
$ |
240,000 |
|
|
$ |
2,224,455 |
|
|
$ |
2,981,062 |
|
|
|
$ |
(158,325 |
) |
|
|
|
$ |
(13,662 |
) |
|
|
|
$ |
5,273,530 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Balance,
December 31, 2006
|
|
$ |
240,000 |
|
|
$ |
2,230,303 |
|
|
$ |
2,602,189 |
|
|
|
$ |
(75,849 |
) |
|
|
|
$ |
(9,620 |
) |
|
|
|
$ |
4,987,023 |
|
|
Cumulative
effect of change in accounting principle,
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
adoption
of FIN 48
|
|
|
|
|
|
|
|
|
|
|
10,408 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
10,408 |
|
|
Comprehensive
income:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net
income for the period
|
|
|
|
|
|
|
|
|
|
|
312,472 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
312,472 |
|
|
Other
comprehensive loss, net of tax:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net
realized and unrealized holding losses
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
on
investments and retained interests
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(15,672 |
) |
|
|
|
|
|
|
|
|
|
|
|
|
|
Foreign
currency translation
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
5 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Reclassification
for net realized gains
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
on
investments recorded in operations
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(3,854 |
) |
|
|
|
|
|
|
|
|
|
|
|
|
|
Net
unrealized losses on derivative instruments
|
|
|
|
|
|
|
|
|
|
|
|
|
(17,470 |
) |
|
|
|
|
|
|
|
|
|
|
|
|
|
Other
comprehensive loss
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(36,991 |
) |
|
|
|
|
|
|
|
|
|
|
(36,991 |
) |
|
Total
comprehensive income
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
275,481 |
|
|
Common
stock issued in acquisition
|
|
|
|
|
|
|
206,075 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
206,075 |
|
|
Stock
redeemed and retired
|
|
|
|
|
|
|
(231,845 |
) |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(231,845 |
) |
|
Net
stock issued under employee plans
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
and
related tax benefits
|
|
|
|
|
|
|
75,189 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
75,189 |
|
|
Dividends
declared on preferred stock
|
|
|
|
|
|
|
|
|
|
|
(7,210 |
) |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(7,210 |
) |
|
Dividends
on common stock, $.82 per share
|
|
|
|
|
|
|
|
(89,246 |
) |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(89,246 |
) |
|
Change
in deferred compensation
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(1,173 |
) |
|
|
|
|
(1,173 |
) |
|
Balance,
June 30, 2007
|
|
$ |
240,000 |
|
|
$ |
2,279,722 |
|
|
$ |
2,828,613 |
|
|
|
$ |
(112,840 |
) |
|
|
|
$ |
(10,793 |
) |
|
|
|
$ |
5,224,702 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total
comprehensive income (loss) for the three months ended June 30, 2008 and
2007 was $(9,698) and $115,631, respectively.
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
See
accompanying notes to consolidated financial statements.
|
|
ZIONS
BANCORPORATION AND SUBSIDIARIES
(Unaudited)
|
|
Three
Months Ended
|
|
Six
Months Ended
|
(In
thousands)
|
|
June
30,
|
|
June
30,
|
|
|
2008
|
|
2007
|
|
2008
|
|
2007
|
CASH
FLOWS FROM OPERATING ACTIVITIES:
|
|
|
|
|
|
|
|
|
|
|
|
|
Net
income for the period
|
|
$ |
72,198 |
|
|
$ |
159,214 |
|
|
$ |
178,947 |
|
|
$ |
312,472 |
|
Adjustments
to reconcile net income to net cash
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
provided
by (used in) operating activities:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Impairment
losses on investment securities and valuation
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
losses
on securities purchased from Lockhart Funding
|
|
|
38,761 |
|
|
|
- |
|
|
|
84,750 |
|
|
|
- |
|
Provision
for loan losses
|
|
|
114,192 |
|
|
|
17,763 |
|
|
|
206,474 |
|
|
|
26,874 |
|
Depreciation
of premises and equipment
|
|
|
16,662 |
|
|
|
19,548 |
|
|
|
34,912 |
|
|
|
39,652 |
|
Amortization
|
|
|
18,903 |
|
|
|
12,494 |
|
|
|
29,267 |
|
|
|
22,995 |
|
Deferred
income tax benefit
|
|
|
(38,657 |
) |
|
|
(1,294 |
) |
|
|
(70,894 |
) |
|
|
(22,024 |
) |
Share-based
compensation
|
|
|
7,784 |
|
|
|
6,577 |
|
|
|
14,380 |
|
|
|
12,982 |
|
Excess
tax benefits from share-based compensation
|
|
|
(142 |
) |
|
|
(2,837 |
) |
|
|
(399 |
) |
|
|
(10,593 |
) |
Gain
(loss) allocated to minority interest
|
|
|
(5,729 |
) |
|
|
34 |
|
|
|
(7,301 |
) |
|
|
(671 |
) |
Equity
securities losses (gains), net
|
|
|
8,121 |
|
|
|
(100 |
) |
|
|
(1,947 |
) |
|
|
(5,298 |
) |
Fixed
income securities gains, net
|
|
|
(78 |
) |
|
|
(13 |
) |
|
|
(1,853 |
) |
|
|
(3,714 |
) |
Net
decrease (increase) in trading securities
|
|
|
(10,863 |
) |
|
|
9,630 |
|
|
|
(21,720 |
) |
|
|
40,628 |
|
Principal
payments on and proceeds from sales of
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
loans
held for sale
|
|
|
375,286 |
|
|
|
328,588 |
|
|
|
663,356 |
|
|
|
567,917 |
|
Additions
to loans held for sale
|
|
|
(328,524 |
) |
|
|
(317,163 |
) |
|
|
(629,771 |
) |
|
|
(605,000 |
) |
Net
gains on sales of loans, leases and other assets
|
|
|
(4,773 |
) |
|
|
(2,040 |
) |
|
|
(10,543 |
) |
|
|
(5,954 |
) |
Income
from increase in cash surrender value of
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
bank-owned
life insurance
|
|
|
(6,273 |
) |
|
|
(6,366 |
) |
|
|
(12,601 |
) |
|
|
(13,157 |
) |
Change
in accrued income taxes
|
|
|
(137,756 |
) |
|
|
(86,060 |
) |
|
|
(77,625 |
) |
|
|
13,061 |
|
Change
in accrued interest receivable
|
|
|
5,466 |
|
|
|
(4,389 |
) |
|
|
22,219 |
|
|
|
972 |
|
Change
in other assets
|
|
|
(187,696 |
) |
|
|
26,384 |
|
|
|
(81,273 |
) |
|
|
(3,905 |
) |
Change
in other liabilities
|
|
|
56,808 |
|
|
|
31,420 |
|
|
|
(27,325 |
) |
|
|
(45,780 |
) |
Change
in accrued interest payable
|
|
|
(14,428 |
) |
|
|
(5,052 |
) |
|
|
(11,324 |
) |
|
|
(2,171 |
) |
Other,
net
|
|
|
3,021 |
|
|
|
(7,253 |
) |
|
|
8,851 |
|
|
|
(12,937 |
) |
Net
cash provided by (used in) operating activities
|
|
|
(17,717 |
) |
|
|
179,085 |
|
|
|
288,580 |
|
|
|
306,349 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
CASH
FLOWS FROM INVESTING ACTIVITIES:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net
decrease in money market investments
|
|
|
791,730 |
|
|
|
341,005 |
|
|
|
236,951 |
|
|
|
2,323 |
|
Proceeds
from maturities of investment securities
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
held-to-maturity
|
|
|
30,081 |
|
|
|
30,243 |
|
|
|
53,892 |
|
|
|
54,034 |
|
Purchases
of investment securities held-to-maturity
|
|
|
(19,265 |
) |
|
|
(41,899 |
) |
|
|
(40,183 |
) |
|
|
(79,752 |
) |
Proceeds
from sales of investment securities
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
available-for-sale
|
|
|
48,149 |
|
|
|
232,713 |
|
|
|
504,456 |
|
|
|
358,585 |
|
Proceeds
from maturities of investment securities
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
available-for-sale
|
|
|
1,668,775 |
|
|
|
771,463 |
|
|
|
2,638,685 |
|
|
|
1,355,188 |
|
Purchases
of investment securities available-for-sale
|
|
|
(1,561,059 |
) |
|
|
(684,502 |
) |
|
|
(2,326,897 |
) |
|
|
(1,281,328 |
) |
Proceeds
from sales of loans and leases
|
|
|
30,178 |
|
|
|
19,786 |
|
|
|
49,139 |
|
|
|
30,717 |
|
Securitized
loans purchased
|
|
|
(874,100 |
) |
|
|
- |
|
|
|
(1,157,304 |
) |
|
|
- |
|
Net
increase in loans and leases
|
|
|
(1,324,528 |
) |
|
|
(906,609 |
) |
|
|
(1,930,964 |
) |
|
|
(1,429,318 |
) |
Net
decrease (increase) in other noninterest-bearing
investments
|
|
|
(40,114 |
) |
|
|
20,390 |
|
|
|
(113,868 |
) |
|
|
87,214 |
|
Proceeds
from sales of premises and equipment and other assets
|
|
|
1,170 |
|
|
|
1,838 |
|
|
|
8,428 |
|
|
|
3,754 |
|
Purchases
of premises and equipment
|
|
|
(18,029 |
) |
|
|
(26,188 |
) |
|
|
(43,807 |
) |
|
|
(48,887 |
) |
Proceeds
from sales of other real estate owned
|
|
|
13,063 |
|
|
|
2,630 |
|
|
|
18,991 |
|
|
|
5,091 |
|
Net
cash received from (paid for) acquisitions
|
|
|
- |
|
|
|
(1,668 |
) |
|
|
- |
|
|
|
40,244 |
|
Net
cash received from sale of subsidiary
|
|
|
- |
|
|
|
- |
|
|
|
- |
|
|
|
6,995 |
|
Net
cash used in investing activities
|
|
|
(1,253,949 |
) |
|
|
(240,798 |
) |
|
|
(2,102,481 |
) |
|
|
(895,140 |
) |
ZIONS
BANCORPORATION AND SUBSIDIARIES
CONSOLIDATED
STATEMENTS OF CASH FLOWS (Continued)
(Unaudited)
|
|
Three
Months Ended
|
|
Six
Months Ended
|
(In
thousands)
|
|
June
30,
|
|
June
30,
|
|
|
2008
|
|
2007
|
|
2008
|
|
2007
|
CASH
FLOWS FROM FINANCING ACTIVITIES:
|
|
|
|
|
|
|
|
|
|
|
|
|
Net
increase (decrease) in deposits
|
|
$ |
91,626 |
|
|
$ |
(139,490 |
) |
|
$ |
685,164 |
|
|
$ |
109,069 |
|
Net
change in short-term funds borrowed
|
|
|
1,171,068 |
|
|
|
445,999 |
|
|
|
906,418 |
|
|
|
482,668 |
|
Proceeds
from FHLB advances and other borrowings over one year
|
|
|
3,500 |
|
|
|
- |
|
|
|
3,500 |
|
|
|
- |
|
Payments
on FHLB advances and other borrowings over one year
|
|
|
(1,032 |
) |
|
|
(614 |
) |
|
|
(1,638 |
) |
|
|
(8,226 |
) |
Proceeds
from issuance of long-term debt
|
|
|
166,188 |
|
|
|
- |
|
|
|
232,876 |
|
|
|
- |
|
Debt
issuance costs
|
|
|
(480 |
) |
|
|
- |
|
|
|
(611 |
) |
|
|
(32 |
) |
Payments
on long-term debt
|
|
|
(18,025 |
) |
|
|
(19,713 |
) |
|
|
(18,025 |
) |
|
|
(27,250 |
) |
Proceeds
from issuance of common stock
|
|
|
854 |
|
|
|
17,827 |
|
|
|
2,073 |
|
|
|
52,406 |
|
Payments
to redeem common stock
|
|
|
(2,343 |
) |
|
|
(128,603 |
) |
|
|
(2,580 |
) |
|
|
(231,845 |
) |
Excess
tax benefits from share-based compensation
|
|
|
142 |
|
|
|
2,837 |
|
|
|
399 |
|
|
|
10,593 |
|
Dividends
paid on preferred stock
|
|
|
(2,454 |
) |
|
|
(3,607 |
) |
|
|
(4,907 |
) |
|
|
(7,210 |
) |
Dividends
paid on common stock
|
|
|
(46,193 |
) |
|
|
(46,496 |
) |
|
|
(92,199 |
) |
|
|
(89,246 |
) |
Net
cash provided by financing activities
|
|
|
1,362,851 |
|
|
|
128,140 |
|
|
|
1,710,470 |
|
|
|
290,927 |
|
Net
increase (decrease) in cash and due from banks
|
|
|
91,185 |
|
|
|
66,427 |
|
|
|
(103,431 |
) |
|
|
(297,864 |
) |
Cash
and due from banks at beginning of period
|
|
|
1,660,539 |
|
|
|
1,574,519 |
|
|
|
1,855,155 |
|
|
|
1,938,810 |
|
Cash
and due from banks at end of period
|
|
$ |
1,751,724 |
|
|
$ |
1,640,946 |
|
|
$ |
1,751,724 |
|
|
$ |
1,640,946 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
SUPPLEMENTAL
DISCLOSURES OF CASH FLOW INFORMATION:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Cash
paid for:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Interest
|
|
$ |
252,635 |
|
|
$ |
322,947 |
|
|
$ |
554,656 |
|
|
$ |
628,986 |
|
Income
taxes
|
|
|
196,823 |
|
|
|
171,999 |
|
|
|
217,252 |
|
|
|
171,983 |
|
Noncash
items:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Investment
securities available-for-sale transferred to
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
held-to-maturity
|
|
|
1,226,832 |
|
|
|
- |
|
|
|
1,226,832 |
|
|
|
- |
|
Loans
transferred to other real estate owned
|
|
|
104,242 |
|
|
|
6,455 |
|
|
|
134,474 |
|
|
|
9,804 |
|
Acquisitions:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Common
stock issued
|
|
|
- |
|
|
|
- |
|
|
|
- |
|
|
|
206,075 |
|
Assets
acquired
|
|
|
- |
|
|
|
- |
|
|
|
- |
|
|
|
1,348,233 |
|
Liabilities
assumed
|
|
|
- |
|
|
|
- |
|
|
|
- |
|
|
|
1,142,158 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
See
accompanying notes to consolidated financial statements.
|
|
|
|
|
|
|
|
|
|
|
|
|
|
ZIONS BANCORPORATION AND
SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(Unaudited)
June 30,
2008
The
accompanying unaudited consolidated financial statements of Zions Bancorporation
(“the Parent”) and its majority-owned subsidiaries (collectively “the Company,”
“Zions,” “we,” “our,” “us”) have been prepared in accordance with U.S. generally
accepted accounting principles 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 period presentation.
These reclassifications did not affect net income or shareholders’
equity.
Operating
results for the three- and six-month periods ended June 30, 2008 are not
necessarily indicative of the results that may be expected in future periods.
The consolidated balance sheet at December 31, 2007 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 the Company’s Annual
Report on Form 10-K for the year ended December 31, 2007.
The
Company provides a full range of banking and related services through banking
subsidiaries in ten Western and Southwestern states as follows: Zions
First National Bank (“Zions Bank”), in Utah and Idaho; California Bank &
Trust (“CB&T”); Amegy Corporation (“Amegy”) and its subsidiary, Amegy Bank,
in Texas; National Bank of Arizona (“NBA”); Nevada State Bank (“NSB”); Vectra
Bank Colorado (“Vectra”), in Colorado and New Mexico; The Commerce Bank of
Washington (“TCBW”); and The Commerce Bank of Oregon (“TCBO”). The Parent also
owns and operates certain nonbank subsidiaries that engage in the development
and sale of financial technologies and related services, including NetDeposit,
Inc. and P5, Inc.
2.
|
CERTAIN
RECENT ACCOUNTING PRONOUNCEMENTS
|
In March
2008, the Financial Accounting Standards Board (“FASB”) issued Statement of
Financial Accounting Standards (“SFAS”) No. 161, Disclosures about Derivative
Instruments and Hedging Activities, an amendment of FASB Statement No.
133. SFAS 161, among other things, requires greater transparency in
disclosing information about derivatives including the objectives for their use,
the volume of derivative activity, tabular disclosure of financial statement
amounts, and any credit-risk-related features. The Statement is effective for
annual and interim financial statements beginning after November 15, 2008.
Earlier application is encouraged but not required. Management is evaluating the
impact this Statement may have on the Company’s financial
statements.
In
December 2007, the FASB issued SFAS No. 141 (revised 2007), Business Combinations, and
SFAS No. 160, Accounting and
Reporting of Noncontrolling Interests in Consolidated Financial Statements, an
amendment of ARB No. 51. These new standards will significantly change
the financial accounting and reporting of business combination transactions and
noncontrolling (or minority) interests in consolidated
ZIONS
BANCORPORATION AND SUBSIDIARIES
financial
statements. Both Statements are effective for the first annual reporting period
after December 31, 2008. Generally, adoption is prospective and early adoption
is not permitted. Management is evaluating the impact these Statements may have
on the Company’s financial statements.
Effective
January 1, 2008, we adopted the provisions of FASB Staff Position (“FSP”) FIN
39-1, Offsetting of Amounts
Related to Certain Contracts. FSP FIN 39-1 permits entities to offset
fair value amounts recognized for the right to reclaim cash collateral (a
receivable) or the obligation to return cash collateral (a payable) against
recognized fair value amounts of derivatives executed with the same counterparty
under a master netting arrangement. At June 30, 2008, cash collateral was used
to reduce recorded amounts of derivative assets by approximately $48 million and
derivative liabilities by approximately $160 million.
Additional
accounting pronouncements recently adopted are discussed where applicable in the
Notes to Consolidated Financial Statements.
During
the second quarter of 2008, we reassessed the classification of certain
asset-backed and trust preferred collateralized debt obligations (“CDOs”). On
April 28, 2008, we reclassified approximately $1.2 billion at fair value of
these available-for-sale securities to held-to-maturity. The related unrealized
pretax loss of approximately $273 million included in accumulated other
comprehensive income (“OCI”) remained in OCI and is being amortized as a yield
adjustment through earnings over the remaining terms of the securities. No gain
or loss was recognized at the time of reclassification. We consider the
held-to-maturity classification to be more appropriate because we have the
ability and the intent to hold these securities to maturity.
As a result of an ongoing
valuation review of our investment securities portfolio, we recognized a pretax
charge of approximately $38.8 million during the second quarter of 2008 for
certain investment securities deemed to have other-than-temporary impairment
(“OTTI”). These investments consisted of certain asset-backed CDOs, including
structured asset-backed (“ABS”) CDOs, bank and insurance income notes, and trust
preferred securities related to real estate investment trusts (“REITs”). The
amount comprises the “Impairment losses on investment securities and
valuation losses on securities purchased from Lockhart Funding” in the statement
of income for the second quarter of 2008. Approximately $28.7 million of the
amount resulted from write-downs of two ABS CDOs and one bank and insurance
income note that were first deemed to have OTTI this quarter. The remaining
$10.1 million resulted from write-downs of six REIT trust preferred CDOs and one
bank and insurance income note for which OTTI had previously been recognized.
OTTI was approximately $79.6 million for the first six months of
2008.
4.
|
OFF-BALANCE
SHEET ARRANGEMENT
|
Zions
Bank provides a liquidity facility for a fee to Lockhart Funding, LLC
(“Lockhart”), an off-balance sheet qualifying special-purpose entity (“QSPE”)
securities conduit. Lockhart was structured to purchase floating rate U.S.
Government and AAA-rated securities with funds from the issuance of asset-backed
commercial paper. Zions Bank also provides interest rate hedging support and
administrative and investment advisory services for a fee.
Pursuant
to the Liquidity Agreement, Zions Bank is required to purchase nondefaulted
securities from Lockhart to provide funds for Lockhart to repay maturing
commercial paper upon Lockhart’s inability to
ZIONS
BANCORPORATION AND SUBSIDIARIES
access a
sufficient amount of funding in the commercial paper market, or upon a
commercial paper market disruption as specified in governing documents for
Lockhart. Pursuant to the governing documents, including the Liquidity
Agreement, if any security in Lockhart is downgraded below AA-, or the downgrade
of one or more securities results in more than ten securities having ratings of
AA+ to AA-, Zions Bank must either 1) place its letter of credit on the
security, 2) obtain credit enhancement from a third party, or 3) purchase the
security from Lockhart at book value. Zions Bank may incur losses if it is
required to purchase securities from Lockhart when the fair value of the
securities at the time of purchase is less than book value.
On June 23, 2008, Zions
Bank purchased $787 million of securities and related accrued interest at book
value from Lockhart. The purchase of these securities was required by the
Liquidity Agreement when MBIA Inc., and the securities it insured, was
downgraded below AA-. The purchases comprised the entire remaining small
business loan securitizations created by Zions Bank and held by Lockhart. No gain
or loss was recognized on these purchases. Upon dissolution of the
securitization trusts (including $87 million of related securities owned by the
Parent), Zions Bank recorded $897 million of loans on its balance sheet
including $23 million of premium. See further discussion of the premium in Note
8.
The
commitment of Zions Bank to Lockhart cannot exceed the book value of Lockhart’s
securities portfolio, which was approximately $862 million at June 30, 2008.
Lockhart is limited in size by program agreements, agreements with rating
agencies, and the size of the liquidity facility. The book value of
Lockhart’s remaining securities portfolio exceeded the fair value of the
securities by approximately $65 million at June 30, 2008. During the first
quarter of 2008, Zions Bank recorded valuation losses of approximately $5.2
million when it purchased certain securities from
Lockhart.
As
permitted by the governing documents, the Company has also purchased
asset-backed commercial paper from Lockhart and held approximately $493 million
on its balance sheet at June 30, 2008. The average amount of Lockhart commercial
paper included in money market investments for the three months ended June 30,
2008 was approximately $1.1 billion. These purchases were made to provide
liquidity to Lockhart due to ongoing contraction and disruptions in the
asset-backed commercial paper markets. If at any given time the Company were to
own more than 90% of Lockhart’s outstanding commercial paper (beneficial
interest), Lockhart would cease to be a QSPE and the Company would be required
to consolidate Lockhart in its financial statements.
During
the second quarter of 2008, the Company issued a total of $166 million of one-
and two-year senior medium-term notes at coupon rates ranging from 4.50% to
5.45%. Interest is payable semiannually. These unsecured notes were sold via
Zions’ online auction process and direct sales. They were issued under the
Company’s existing shelf registration with the Securities and Exchange
Commission (“SEC”). Approximately $18 million of the proceeds was used to retire
previous indebtedness of senior notes. The total amount of senior medium-term
notes issued during the first six months of 2008 was $233 million.
ZIONS
BANCORPORATION AND SUBSIDIARIES
Changes
in accumulated other comprehensive income (loss) are summarized as follows
(in
thousands):
|
|
Net
unrealized
|
|
Net
|
|
|
|
|
|
|
|
|
gains
(losses)
|
|
unrealized
|
|
|
|
|
|
|
|
|
on
investments,
|
|
gains
(losses)
|
|
Pension
|
|
|
|
|
|
retained
interests
|
|
on
derivative
|
|
and
post-
|
|
|
|
|
|
and
other
|
|
instruments
|
|
retirement
|
|
Total
|
Six
Months Ended June 30, 2008:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Balance,
December 31, 2007
|
|
|
$ |
(108,766 |
) |
|
|
|
$ |
65,213 |
|
|
|
$ |
(15,282 |
) |
|
$ |
(58,835 |
) |
Cumulative
effect of change in accounting
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
principle,
adoption of SFAS 159
|
|
|
|
11,471 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
11,471 |
|
Other
comprehensive income (loss), net of tax:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net
realized and unrealized holding losses,
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
net
of income tax benefit of $105,553
|
|
|
|
(170,402 |
) |
|
|
|
|
|
|
|
|
|
|
|
|
|
(170,402 |
) |
Foreign
currency translation
|
|
|
|
1 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
1 |
|
Reclassification
for net realized losses recorded in
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
operations,
net of income tax benefit of $31,664
|
|
|
|
51,117 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
51,117 |
|
Net
unrealized gains, net of reclassification
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
to
operations of $23,362 and income
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
tax
expense of $4,942
|
|
|
|
|
|
|
|
|
|
7,589 |
|
|
|
|
|
|
|
|
7,589 |
|
Pension
and postretirement, net of income tax
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
expense
of $477
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
734 |
|
|
|
734 |
|
Other
comprehensive income (loss)
|
|
|
|
(119,284 |
) |
|
|
|
|
7,589 |
|
|
|
|
734 |
|
|
|
(110,961 |
) |
Balance,
June 30, 2008
|
|
|
$ |
(216,579 |
) |
|
|
|
$ |
72,802 |
|
|
|
$ |
(14,548 |
) |
|
$ |
(158,325 |
) |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Six
Months Ended June 30, 2007:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Balance,
December 31, 2006
|
|
|
$ |
(18,371 |
) |
|
|
|
$ |
(41,716 |
) |
|
|
$ |
(15,762 |
) |
|
$ |
(75,849 |
) |
Other
comprehensive income (loss), net of tax:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net
realized and unrealized holding losses,
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
net
of income tax benefit of $9,707
|
|
|
|
(15,672 |
) |
|
|
|
|
|
|
|
|
|
|
|
|
|
(15,672 |
) |
Foreign
currency translation
|
|
|
|
5 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
5 |
|
Reclassification
for net realized gains recorded in
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
operations,
net of income tax expense of $2,388
|
|
|
|
(3,854 |
) |
|
|
|
|
|
|
|
|
|
|
|
|
|
(3,854 |
) |
Net
unrealized losses, net of reclassification
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
to
operations of $(22,011) and income
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
tax
benefit of $10,836
|
|
|
|
|
|
|
|
|
|
(17,470 |
) |
|
|
|
|
|
|
|
(17,470 |
) |
Other
comprehensive loss
|
|
|
|
(19,521 |
) |
|
|
|
|
(17,470 |
) |
|
|
|
- |
|
|
|
(36,991 |
) |
Balance,
June 30, 2007
|
|
|
$ |
(37,892 |
) |
|
|
|
$ |
(59,186 |
) |
|
|
$ |
(15,762 |
) |
|
$ |
(112,840 |
) |
Total
shares of common stock issued during the three months ended June 30, 2008 and
2007 were 442,475 and 556,325, and during the six months ended June 30, 2008 and
2007 were 463,057 and 4,110,032, respectively. Of these respective share
amounts, 8,416 and 338,702, and 44,998 and 1,281,775 net shares were issued for
the exercise of stock options, and 413,427 and 217,623, and 417,427 and 228,140
were issued as restricted stock.
On July
2, 2008, the Company completed a $46.7 million offering of 9.50% Series C
Fixed-Rate Non-Cumulative Perpetual Preferred Stock. The Company issued 46,949
shares in the form of 1,877,971 depositary shares with each depositary share
representing a 1/40th
ownership interest in a share of the preferred stock. Terms and conditions,
except for the dividend amount, are generally similar to the existing issuance
of Series A floating rate preferred stock described in the Company’s Annual
Report on Form 10-K for the year ended December 31, 2007. The offering was sold
via Zions’ online auction process and direct sales primarily by the Company’s
broker/dealer subsidiary.
ZIONS
BANCORPORATION AND SUBSIDIARIES
Income
tax expense for the second quarter of 2008 included a benefit of $5.9 million
from a settlement with governmental authorities that allowed the Company to
reduce its liability and related interest for uncertain tax positions under the
provisions of FIN 48.
Effective
January 1, 2008, the Company adopted SFAS No. 157, Fair Value Measurements, and SFAS No. 159, The Fair Value Option for Financial
Assets and Financial Liabilities. Both Standards address the application
of fair value accounting and reporting.
Fair
Value Measurements
SFAS 157
defines fair value, establishes a consistent framework for measuring fair value,
and enhances disclosures about fair value measurements. In February 2008, the
FASB amended SFAS 157 with the issuance of FSP FAS 157-1, which excludes with
certain exceptions SFAS No. 13, Accounting for Leases, from
the scope of SFAS 157, and FSP FAS 157-2, which delayed the adoption of SFAS 157
for one year for the measurement of nonfinancial assets and nonfinancial
liabilities. There was no material effect from the adoption of SFAS 157 on the
Company’s consolidated financial statements.
SFAS 157
defines fair value as the exchange price that would be received for an asset or
paid to transfer a liability (an exit price) in the principal or most
advantageous market for the asset or liability in an orderly transaction between
market participants on the measurement date. To measure fair value, SFAS 157 has
established a hierarchy which requires an entity to maximize the use of
observable inputs and minimize the use of unobservable inputs. This hierarchy
uses three levels of inputs to measure the fair value of assets and liabilities
as follows:
Level 1 –
Quoted prices in active markets for identical assets or liabilities; includes
certain U.S. Treasury and other U.S. Government and agency securities actively
traded in over-the-counter markets; certain securities sold, not yet purchased;
and certain derivatives.
Level 2 –
Observable inputs other than Level 1 including quoted prices for similar assets
or liabilities, quoted prices in less active markets, or other observable inputs
that can be corroborated by observable market data; also includes derivative
contracts whose value is determined using a pricing model with observable market
inputs or can be derived principally from or corroborated by observable market
data. This category generally includes certain U.S. Government and agency
securities; certain CDO securities; corporate debt securities; certain
private equity investments; certain securities sold, not yet purchased; and
certain derivatives.
Level 3 –
Unobservable inputs supported by little or no market activity for financial
instruments whose value is determined using pricing models, discounted cash flow
methodologies, or similar techniques, as well as instruments for which the
determination of fair value requires significant management judgment or
estimation; also includes observable inputs for nonbinding single dealer quotes
not corroborated by observable market data. This category generally includes
certain CDO securities, certain private equity investments, and retained
interests from securitizations.
The
Company uses fair value to measure certain assets and liabilities on a recurring
basis when fair value is the primary measure for accounting. This is done
primarily for available-for-sale and trading investment securities;
certain private equity investments; certain retained interests from
securitizations; securities sold, not yet purchased; and derivatives. Fair value
is used on a nonrecurring basis to measure certain assets when applying lower of
cost or market accounting or when adjusting carrying values, such as for loans
held for sale, impaired loans, certain private equity investments, and other
real estate owned. Fair value is also used when evaluating impairment on certain
assets, including held-to-maturity and available-for-sale securities, goodwill,
and core deposit and other intangibles, and for annual disclosures required by
SFAS No. 107, Disclosures
about Fair Value of Financial Instruments.
ZIONS
BANCORPORATION AND SUBSIDIARIES
The
Company uses models when quotations are not available for certain securities or
in markets where trading activity has slowed or ceased. When quotations are not
available, and are not provided by third party pricing services, management
judgment is necessary to determine fair value. In situations involving
management judgment, fair value is determined using discounted cash flow
analysis or other valuation models, which incorporate available market
information, including appropriate benchmarking to similar instruments, analysis
of default and recovery rates, estimation of prepayment characteristics and
implied volatilities.
The
Company has valued certain REIT and ABS CDOs using models provided by third
party vendors. The models utilized relevant data assumptions to value these CDO
securities and were evaluated by the Company to determine if the models
appropriately calculated values. These assumptions included but were not limited
to probability of default, collateral recovery rates, discount rates,
over-collateralization levels, market indices such as ABX, and rating transition
probability matrices from rating agencies. The model prices obtained from third
party services were evaluated for reasonableness including quarter to quarter
changes in assumptions and comparison to other available data which included
third party and internal model results and valuations. The Company’s decision to
use Level 3 model pricing for certain CDOs was made due to continued trading
contraction of these securities and the lack of observable market inputs to
value such securities.
Available-for-sale
and trading investment securities are fair valued under Level 1 using quoted
market prices when available for identical securities. When quoted prices are
not available, fair values are determined under Level 2 using quoted prices for
similar securities or independent pricing services that incorporate observable
market data when possible. Available-for-sale securities include certain CDOs
that consist of trust preferred securities related to banks and insurance
companies and to REITs. Where possible, the fair value of these CDOs is priced
under Level 2 using a whole market price quote method that incorporates matrix
pricing and uses the prices of securities of similar type and rating to value
comparable securities held by the Company. This method is described more fully
in the Company’s Annual Report on Form 10-K for the year ended December 31,
2007. If sufficient information is not available for matrix pricing, fair value
is determined under Level 3 using nonbinding single dealer quotes or model
pricing as discussed in the preceding paragraph.
Private
equity investments valued under Level 2 on a recurring basis are investments in
partnerships that invest in financial institutions. Fair values are determined
from net asset values provided by the partnerships. Private equity investments
valued under Level 3 on a nonrecurring basis are recorded initially at
acquisition cost, which is considered the best indication of fair value unless
there have been significant subsequent positive or negative developments that
justify an adjustment in the fair value estimate. Subsequent adjustments to
recorded amounts are based as necessary on current and projected financial
performance, recent financing activities, economic and market conditions, market
comparables, market liquidity, sales restrictions, and other
factors.
ZIONS
BANCORPORATION AND SUBSIDIARIES
Retained
interests from securitizations are fair valued under Level 3 based on the
modeling techniques previously described. The assumptions used in the models are
evaluated quarterly.
Derivatives
are fair valued primarily under Level 2 using third party services. Observable
market inputs include yield curves, option volatilities, counterparty credit
risk, and other related data. Certain foreign exchange derivatives have been
fair valued under Level 1 because they are traded in active markets. Amounts
disclosed in the following table are net of the cash collateral offsets pursuant
to the guidance of FSP FIN 39-1, as discussed in Note 2.
Securities
sold, not yet purchased are fair valued under Level 1 when quoted prices are
available for the securities involved. Those under Level 2 are fair valued
similar to trading account investment securities.
Assets
and liabilities measured at fair value on a recurring basis, including those
elected under SFAS 159, are summarized as follows at June 30, 2008 (in thousands):
|
|
Level
1
|
|
Level
2
|
|
Level
3
|
|
Total
|
ASSETS
|
|
|
|
|
|
|
|
|
|
|
|
|
Investment
securities:
|
|
|
|
|
|
|
|
|
|
|
|
|
Available-for-sale
|
|
$ |
114,809 |
|
|
$ |
2,520,605 |
|
|
$ |
182,268 |
|
|
$ |
2,817,682 |
|
Trading
account
|
|
|
|
|
|
|
45,946 |
|
|
|
5,724 |
|
(1)
|
|
51,670 |
|
Other
noninterest-bearing investments:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Private
equity
|
|
|
|
|
|
|
24,217 |
|
|
|
|
|
|
|
24,217 |
|
Other
assets:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Derivatives
|
|
|
7,099 |
|
|
|
432,894 |
|
|
|
|
|
|
|
439,993 |
|
|
|
$ |
121,908 |
|
|
$ |
3,023,662 |
|
|
$ |
187,992 |
|
|
$ |
3,333,562 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
LIABILITIES
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Securities
sold, not yet purchased
|
|
$ |
18,461 |
|
|
$ |
27,915 |
|
|
|
|
|
|
$ |
46,376 |
|
Other
liabilities:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Derivatives
|
|
|
7,425 |
|
|
|
140,871 |
|
|
|
|
|
|
|
148,296 |
|
Other
|
|
|
|
|
|
|
|
|
|
$ |
292 |
|
|
|
292 |
|
|
|
$ |
25,886 |
|
|
$ |
168,786 |
|
|
$ |
292 |
|
|
$ |
194,964 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(1)
Elected under SFAS 159 for fair value option, as discussed
subsequently.
|
The
following reconciles the beginning and ending balances of assets and liabilities
for the three- and six-month periods ended June 30, 2008 that are measured at
fair value on a recurring basis using Level 3 inputs (in thousands):
|
|
Level
3 Instruments
|
|
|
Three
Months Ended June 30, 2008
|
|
|
Investment
securities
|
|
Retained
|
|
|
|
|
|
Available-
|
|
Trading
|
|
interests
from
|
|
Other
|
|
|
for-sale
|
|
account
(1)
|
|
securitizations
(1)
|
|
liabilities
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Balance
at March 31, 2008
|
|
$ |
587,193 |
|
|
$ |
5,767 |
|
|
|
$ |
38,788 |
|
|
|
$ |
(23 |
) |
Total
net gains (losses) included in:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Statement
of income (2):
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Fair
value and nonhedge derivative income (loss)
|
|
|
|
|
|
|
(43 |
) |
|
|
|
(3,822 |
) |
|
|
|
|
|
Impairment
losses on available-for sale securities
|
|
|
(26,448 |
) |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Other
noninterest expense
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
731 |
|
Other
comprehensive income (loss)
|
|
|
7,000 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Proceeds
from ESOARS auction
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(1,000 |
) |
Fair
value of available-for-sale securities
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
transferred
to held-to-maturity
|
|
|
(200,873 |
) |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Purchases,
sales, issuances, and settlements, net
|
|
|
(3,425 |
) |
|
|
|
|
|
|
|
(8,231 |
) |
|
|
|
|
|
Net
transfers in (out)
|
|
|
(181,179 |
) |
|
|
- |
|
|
|
|
(26,735 |
) |
|
|
|
- |
|
Balance
at June 30, 2008
|
|
$ |
182,268 |
|
|
$ |
5,724 |
|
|
|
$ |
- |
|
|
|
$ |
(292 |
) |
ZIONS
BANCORPORATION AND SUBSIDIARIES
|
|
Level
3 Instruments
|
|
|
Six
Months Ended June 30, 2008
|
|
|
Investment
securities
|
|
Retained
|
|
|
|
|
Available-
|
|
Trading
|
|
interests
from
|
|
Other
|
|
|
for-sale
|
|
account
(1)
|
|
securitizations
(1)
|
|
liabilities
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Balance
at January 1, 2008
|
|
$ |
337,338 |
|
|
$ |
8,100 |
|
|
|
$ |
42,426 |
|
|
|
$ |
(44 |
) |
Total
net gains (losses) included in:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Statement
of income (2):
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Fair
value and nonhedge derivative income (loss)
|
|
|
|
|
|
|
(2,376 |
) |
|
|
|
(2,098 |
) |
|
|
|
|
|
Impairment
losses on available-for sale securities
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
and
valuation losses on securities purchased
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
from
Lockhart Funding
|
|
|
(68,026 |
) |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Other
noninterest expense
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
752 |
|
Other
comprehensive income (loss)
|
|
|
(66,131 |
) |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Proceeds
from ESOARS auction
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(1,000 |
) |
Fair
value of available-for-sale securities
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
transferred
to held-to-maturity
|
|
|
(200,873 |
) |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Purchases,
sales, issuances, and settlements, net
|
|
|
(1,670 |
) |
|
|
|
|
|
|
|
(13,593 |
) |
|
|
|
|
|
Net
transfers in (out)
|
|
|
181,630 |
|
|
|
- |
|
|
|
|
(26,735 |
) |
|
|
|
- |
|
Balance
at June 30, 2008
|
|
$ |
182,268 |
|
|
$ |
5,724 |
|
|
|
$ |
- |
|
|
|
$ |
(292 |
) |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(1)
Elected under SFAS 159 for fair value option, as discussed
subsequently.
|
(2)
Amounts are all unrealized.
|
Assets
measured at fair value on a nonrecurring basis are summarized as follows (in thousands):
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Gains
(losses) from fair value changes
|
|
|
Fair
value at June 30, 2008
|
|
Three
months ended
|
|
Six
months ended
|
|
|
Level
1
|
|
Level
2
|
|
Level
3
|
|
Total
|
|
June
30, 2008
|
|
June
30, 2008
|
ASSETS
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Loans
held for sale
|
|
|
|
|
|
$ |
19,861 |
|
|
|
|
|
$ |
19,861 |
|
|
|
$ |
191 |
|
|
|
|
$ |
6 |
|
|
Impaired
loans
|
|
|
|
|
|
|
135,626 |
|
|
|
|
|
|
135,626 |
|
|
|
|
(27,997 |
) |
|
|
|
|
(41,533 |
) |
|
Other
noninterest-bearing
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
investments:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Private
equity
|
|
|
|
|
|
|
|
|
|
$ |
86,090 |
|
|
|
86,090 |
|
|
|
|
(7,778 |
) |
|
|
|
|
(7,048 |
) |
|
Other
real estate owned
|
|
|
|
|
|
|
6,378 |
|
|
|
|
|
|
|
6,378 |
|
|
|
|
(1,503 |
) |
|
|
|
|
(2,292 |
) |
|
|
|
$ |
- |
|
|
$ |
161,865 |
|
|
$ |
86,090 |
|
|
$ |
247,955 |
|
|
|
$ |
(37,087 |
) |
|
|
|
$ |
(50,867 |
) |
|
Loans
held for sale relate to loans purchased under the Small Business Administration
7(a) program. They are fair valued under Level 2 based on quotes from
broker/dealers.
Impaired
loans that are collateral-dependent are fair valued under Level 2 based on the
fair value of the collateral, which is determined when appropriate from
appraisals and other observable market data.
Other
real estate owned is fair valued under Level 2 at the lower of cost or fair
value based on property appraisals at the time of transfer and as appropriate
thereafter.
Fair
Value Option
SFAS 159
allows for the option to report certain financial assets and liabilities at fair
value initially and at subsequent measurement dates with changes in fair value
included in earnings. The option may be applied instrument by instrument, but is
on an irrevocable basis. As of January 1, 2008, the Company elected the fair
value option for one available-for-sale REIT trust preferred CDO security and
three retained interests
ZIONS
BANCORPORATION AND SUBSIDIARIES
on
selected small business loan securitizations. The cumulative effect of adopting
SFAS 159 decreased retained earnings at January 1, 2008 by approximately $11.5
million.
The REIT
trust preferred CDO was selected as part of a directional hedging program to
hedge the credit exposure the Company has to homebuilders in its REIT CDO
portfolio. This allows the Company to avoid complex hedge accounting provisions
associated with the implemented hedging program. Management selected this
security because it had the most exposure to the homebuilder market compared to
the other REIT CDOs in the Company’s portfolio, both in dollar amount and as a
percentage, and was therefore considered the most suitable for
hedging.
The
retained interests were selected to more appropriately reflect their fair value
and to account for increases and decreases in their fair value through earnings.
Net decreases in fair value of approximately $2.1 million from January 1, 2008
through June 23, 2008 were recognized in fair value and nonhedge derivative
income (loss) in the statement of income. However as discussed in Note 4, on
June 23, 2008, Zions Bank purchased securities from Lockhart that comprised the
entire remaining small business loan securitizations created by Zions Bank and
held by Lockhart. These retained interests related to the securities purchased
and, as part of the purchase transaction, were included with the $23 million
premium amount recorded with the loan balances at Zions Bank.
9.
|
GUARANTEES
AND COMMITMENTS
|
The
following are guarantees issued by the Company (in thousands):
|
|
June
30,
|
|
December
31,
|
|
|
2008
|
|
2007
|
Standby
letters of credit:
|
|
|
|
|
|
|
Financial
|
|
$ |
1,350,755 |
|
|
$ |
1,317,304 |
|
Performance
|
|
|
320,869 |
|
|
|
351,150 |
|
|
|
$ |
1,671,624 |
|
|
$ |
1,668,454 |
|
The
Company’s Annual Report on Form 10-K for the year ended December 31, 2007
contains further information on these letters of credit including their terms
and collateral requirements. At June 30, 2008, the carrying value recorded by
the Company as a liability for these guarantees was $5.9 million.
As of
June 30, 2008, the Parent has guaranteed approximately $300.4 million of debt
primarily issued by affiliated trusts issuing trust preferred
securities.
During
the first quarter of 2008, the Company’s subsidiary banks recorded an aggregate
pretax cash gain of approximately $12.4 million from the partial redemption of
their equity interests in Visa Inc. The redemption approximated 39% of the
subsidiary banks’ equity interests and was included in “Equity securities gains
(losses), net” in the statement of income for the six months ended June 30,
2008. Also during the first quarter of 2008, the Company reversed approximately
$5.6 million of the $8.1 million accrual established during the fourth quarter
of 2007 for indemnification liabilities related to certain Visa litigation. The
effect of this reversal is included in other noninterest expense in the
statement of income for the six months ended June 30, 2008. In accordance with
generally accepted accounting principles and recent guidance from the SEC, the
Company’s subsidiary banks have not recognized any value for their remaining
investment in Visa.
See Note
4 for a discussion of Zions Bank’s commitment to Lockhart.
ZIONS
BANCORPORATION AND SUBSIDIARIES
The
following discloses the net periodic benefit cost (credit) and its components
for the Company’s pension and postretirement plans (in thousands):
|
|
|
|
|
|
|
|
Supplemental
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Supplemental
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
retirement
|
|
Postretirement
|
|
|
|
|
|
|
|
retirement
|
|
Postretirement
|
|
|
Pension
benefits
|
|
benefits
|
|
benefits
|
|
Pension
benefits
|
|
benefits
|
|
benefits
|
|
|
Three
Months Ended June 30,
|
|
Six
Months Ended June 30,
|
|
|
2008
|
|
2007
|
|
2008
|
|
2007
|
|
2008
|
|
2007
|
|
2008
|
|
2007
|
|
2008
|
|
2007
|
|
2008
|
|
2007
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Service
cost
|
|
$ |
95 |
|
|
$ |
122 |
|
|
$ |
- |
|
|
$ |
- |
|
|
$ |
64 |
|
|
$ |
27 |
|
|
$ |
202 |
|
|
$ |
243 |
|
|
$ |
- |
|
|
$ |
- |
|
|
$ |
92 |
|
|
$ |
53 |
|
Interest
cost
|
|
|
2,095 |
|
|
|
2,121 |
|
|
|
187 |
|
|
|
177 |
|
|
|
207 |
|
|
|
82 |
|
|
|
4,440 |
|
|
|
4,243 |
|
|
|
357 |
|
|
|
355 |
|
|
|
288 |
|
|
|
158 |
|
Expected
return on plan assets
|
|
|
(2,671 |
) |
|
|
(2,899 |
) |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(5,661 |
) |
|
|
(5,798 |
) |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Amortization
of prior service
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
cost
(credit)
|
|
|
|
|
|
|
|
|
|
|
43 |
|
|
|
31 |
|
|
|
(162 |
) |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
74 |
|
|
|
62 |
|
|
|
(162 |
) |
|
|
|
|
Amortization
of transition liability
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
4 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
8 |
|
|
|
|
|
|
|
|
|
Settlement
gain
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(2,973 |
) |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(2,973 |
) |
|
|
|
|
Amortization
of net actuarial
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(gain)
loss
|
|
|
231 |
|
|
|
255 |
|
|
|
(5 |
) |
|
|
(3 |
) |
|
|
(235 |
) |
|
|
(69 |
) |
|
|
489 |
|
|
|
510 |
|
|
|
(12 |
) |
|
|
(6 |
) |
|
|
(290 |
) |
|
|
(134 |
) |
Net
periodic benefit cost (credit)
|
|
$ |
(250 |
) |
|
$ |
(401 |
) |
|
$ |
225 |
|
|
$ |
209 |
|
|
$ |
(3,099 |
) |
|
$ |
40 |
|
|
$ |
(530 |
) |
|
$ |
(802 |
) |
|
$ |
419 |
|
|
$ |
419 |
|
|
$ |
(3,045 |
) |
|
$ |
77 |
|
As
disclosed in the Company’s Annual Report on Form 10-K for the year ended
December 31, 2007, the Company has frozen its participation and benefit accruals
for the pension plan and its contributions for individual benefit payments in
the postretirement benefit plan. The settlement gain resulted from the Company’s
curtailment of coverage effective June 1, 2008 for certain participants in the
postretirement benefit plan and was accounted for in accordance with applicable
accounting standards.
11.
|
OPERATING
SEGMENT INFORMATION
|
We manage
our operations and prepare management reports and other information with a
primary focus on geographical area. As of June 30, 2008, we operate eight
community/regional banks in distinct geographical areas. Performance assessment
and resource allocation are based upon this geographical structure. Zions Bank
operates 114 branches in Utah and 25 branches in Idaho. CB&T operates 90
branches in California. Amegy operates 86 branches in Texas. NBA operates 77
branches in Arizona. NSB operates 71 branches in Nevada. Vectra operates 40
branches in Colorado and one branch in New Mexico. TCBW operates one branch in
the state of Washington. TCBO operates one branch in Oregon. In addition, as of
June 30, 2008, Zions Bank, CB&T, Amegy, NBA, Vectra, and TCBW each operate a
foreign branch in the Grand Cayman Islands. NSB has an application pending to
open a foreign branch. The operating segment identified as “Other” includes the
Parent, Zions Management Services Company (“ZMSC”), certain nonbank financial
service and financial technology subsidiaries, other smaller nonbank operating
units, TCBO, and eliminations of transactions between segments.
ZMSC
provides internal technology and operational services to affiliated operating
businesses of the Company. ZMSC charges most of its costs to the affiliates on
an approximate break-even basis.
The
accounting policies of the individual operating segments are the same as those
of the Company. Transactions between operating segments are primarily conducted
at fair value, resulting in profits that are eliminated for reporting
consolidated results of operations. Operating segments pay for centrally
provided services based upon estimated or actual usage of those
services.
ZIONS
BANCORPORATION AND SUBSIDIARIES
The
following table presents selected operating segment information for the three
months ended June 30, 2008 and 2007:
(In
millions)
|
|
Zions
Bank
|
|
CB&T
|
|
Amegy
|
|
NBA
|
|
NSB
|
|
|
2008
|
|
2007
|
|
2008
|
|
2007
|
|
2008
|
|
2007
|
|
2008
|
|
2007
|
|
2008
|
|
2007
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
CONDENSED
INCOME STATEMENT
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net
interest income
|
|
$ |
166.5 |
|
|
$ |
135.7 |
|
|
$ |
101.2 |
|
|
$ |
109.8 |
|
|
$ |
89.4 |
|
|
$ |
81.0 |
|
|
$ |
57.8 |
|
|
$ |
64.5 |
|
|
$ |
40.2 |
|
|
$ |
47.0 |
|
Provision
for loan losses
|
|
|
43.5 |
|
|
|
3.0 |
|
|
|
19.4 |
|
|
|
4.0 |
|
|
|
8.3 |
|
|
|
5.7 |
|
|
|
23.3 |
|
|
|
3.6 |
|
|
|
13.3 |
|
|
|
1.2 |
|
Net
interest income after
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
provision
for loan losses
|
|
|
123.0 |
|
|
|
132.7 |
|
|
|
81.8 |
|
|
|
105.8 |
|
|
|
81.1 |
|
|
|
75.3 |
|
|
|
34.5 |
|
|
|
60.9 |
|
|
|
26.9 |
|
|
|
45.8 |
|
Impairment
losses on investment
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
securities
|
|
|
(12.3 |
) |
|
|
- |
|
|
|
- |
|
|
|
- |
|
|
|
- |
|
|
|
- |
|
|
|
- |
|
|
|
- |
|
|
|
- |
|
|
|
- |
|
Other
noninterest income
|
|
|
40.1 |
|
|
|
63.5 |
|
|
|
18.6 |
|
|
|
19.1 |
|
|
|
36.4 |
|
|
|
31.1 |
|
|
|
7.6 |
|
|
|
8.3 |
|
|
|
9.2 |
|
|
|
8.5 |
|
Noninterest
expense
|
|
|
114.3 |
|
|
|
112.8 |
|
|
|
59.0 |
|
|
|
58.7 |
|
|
|
74.7 |
|
|
|
74.5 |
|
|
|
33.7 |
|
|
|
36.0 |
|
|
|
29.9 |
|
|
|
27.0 |
|
Income
(loss) before income taxes
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
and
minority interest
|
|
|
36.5 |
|
|
|
83.4 |
|
|
|
41.4 |
|
|
|
66.2 |
|
|
|
42.8 |
|
|
|
31.9 |
|
|
|
8.4 |
|
|
|
33.2 |
|
|
|
6.2 |
|
|
|
27.3 |
|
Income
tax expense (benefit)
|
|
|
10.6 |
|
|
|
28.3 |
|
|
|
16.3 |
|
|
|
26.5 |
|
|
|
14.1 |
|
|
|
9.8 |
|
|
|
3.4 |
|
|
|
13.0 |
|
|
|
2.1 |
|
|
|
9.6 |
|
Minority
interest
|
|
|
- |
|
|
|
- |
|
|
|
- |
|
|
|
- |
|
|
|
- |
|
|
|
- |
|
|
|
- |
|
|
|
- |
|
|
|
- |
|
|
|
- |
|
Net
income (loss)
|
|
|
25.9 |
|
|
|
55.1 |
|
|
|
25.1 |
|
|
|
39.7 |
|
|
|
28.7 |
|
|
|
22.1 |
|
|
|
5.0 |
|
|
|
20.2 |
|
|
|
4.1 |
|
|
|
17.7 |
|
Preferred
stock dividend
|
|
|
- |
|
|
|
- |
|
|
|
- |
|
|
|
- |
|
|
|
- |
|
|
|
- |
|
|
|
- |
|
|
|
- |
|
|
|
- |
|
|
|
- |
|
Net
earnings applicable to
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
common
shareholders
|
|
$ |
25.9 |
|
|
$ |
55.1 |
|
|
$ |
25.1 |
|
|
$ |
39.7 |
|
|
$ |
28.7 |
|
|
$ |
22.1 |
|
|
$ |
5.0 |
|
|
$ |
20.2 |
|
|
$ |
4.1 |
|
|
$ |
17.7 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
AVERAGE
BALANCE SHEET DATA
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total
assets
|
|
$ |
18,892 |
|
|
$ |
15,444 |
|
|
$ |
10,176 |
|
|
$ |
10,102 |
|
|
$ |
11,933 |
|
|
$ |
9,934 |
|
|
$ |
5,270 |
|
|
$ |
5,474 |
|
|
$ |
3,821 |
|
|
$ |
3,859 |
|
Total
loans and leases
|
|
|
13,856 |
|
|
|
11,389 |
|
|
|
7,869 |
|
|
|
7,871 |
|
|
|
8,388 |
|
|
|
6,698 |
|
|
|
4,493 |
|
|
|
4,667 |
|
|
|
3,205 |
|
|
|
3,207 |
|
Total
deposits
|
|
|
11,489 |
|
|
|
11,262 |
|
|
|
8,024 |
|
|
|
8,142 |
|
|
|
8,245 |
|
|
|
7,029 |
|
|
|
3,900 |
|
|
|
4,355 |
|
|
|
3,242 |
|
|
|
3,327 |
|
Shareholder’s
equity:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Preferred
equity
|
|
|
- |
|
|
|
- |
|
|
|
- |
|
|
|
- |
|
|
|
- |
|
|
|
- |
|
|
|
- |
|
|
|
- |
|
|
|
- |
|
|
|
- |
|
Common
equity
|
|
|
1,055 |
|
|
|
997 |
|
|
|
1,055 |
|
|
|
1,111 |
|
|
|
1,982 |
|
|
|
1,834 |
|
|
|
591 |
|
|
|
613 |
|
|
|
298 |
|
|
|
263 |
|
Total
shareholder’s equity
|
|
|
1,055 |
|
|
|
997 |
|
|
|
1,055 |
|
|
|
1,111 |
|
|
|
1,982 |
|
|
|
1,834 |
|
|
|
591 |
|
|
|
613 |
|
|
|
298 |
|
|
|
263 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Consolidated
|
|
|
|
|
|
|
|
|
(In
millions)
|
|
Vectra
|
|
TCBW
|
|
Other
|
|
Company
|
|
|
|
|
|
|
|
|
|
|
2008
|
|
2007
|
|
2008
|
|
2007
|
|
2008
|
|
2007
|
|
2008
|
|
2007
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
CONDENSED
INCOME STATEMENT
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net
interest income
|
|
$ |
26.6 |
|
|
$ |
23.5 |
|
|
$ |
8.1 |
|
|
$ |
8.6 |
|
|
$ |
(5.1 |
) |
|
$ |
(0.8 |
) |
|
$ |
484.7 |
|
|
$ |
469.3 |
|
|
|
|
|
|
|
|
|
Provision
for loan losses
|
|
|
6.0 |
|
|
|
0.2 |
|
|
|
- |
|
|
|
- |
|
|
|
0.4 |
|
|
|
0.1 |
|
|
|
114.2 |
|
|
|
17.8 |
|
|
|
|
|
|
|
|
|
Net
interest income after
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
provision
for loan losses
|
|
|
20.6 |
|
|
|
23.3 |
|
|
|
8.1 |
|
|
|
8.6 |
|
|
|
(5.5 |
) |
|
|
(0.9 |
) |
|
|
370.5 |
|
|
|
451.5 |
|
|
|
|
|
|
|
|
|
Impairment
losses on investment
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
securities
|
|
|
- |
|
|
|
- |
|
|
|
- |
|
|
|
- |
|
|
|
(26.5 |
) |
|
|
- |
|
|
|
(38.8 |
) |
|
|
- |
|
|
|
|
|
|
|
|
|
Other
noninterest income
|
|
|
6.9 |
|
|
|
6.9 |
|
|
|
0.7 |
|
|
|
0.4 |
|
|
|
(8.4 |
) |
|
|
3.6 |
|
|
|
111.1 |
|
|
|
141.4 |
|
|
|
|
|
|
|
|
|
Noninterest
expense
|
|
|
22.3 |
|
|
|
20.9 |
|
|
|
3.5 |
|
|
|
3.5 |
|
|
|
17.0 |
|
|
|
14.2 |
|
|
|
354.4 |
|
|
|
347.6 |
|
|
|
|
|
|
|
|
|
Income
(loss) before income taxes
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
and
minority interest
|
|
|
5.2 |
|
|
|
9.3 |
|
|
|
5.3 |
|
|
|
5.5 |
|
|
|
(57.4 |
) |
|
|
(11.5 |
) |
|
|
88.4 |
|
|
|
245.3 |
|
|
|
|
|
|
|
|
|
Income
tax expense (benefit)
|
|
|
1.8 |
|
|
|
3.4 |
|
|
|
1.8 |
|
|
|
1.8 |
|
|
|
(28.1 |
) |
|
|
(6.3 |
) |
|
|
22.0 |
|
|
|
86.1 |
|
|
|
|
|
|
|
|
|
Minority
interest
|
|
|
- |
|
|
|
- |
|
|
|
- |
|
|
|
- |
|
|
|
(5.7 |
) |
|
|
- |
|
|
|
(5.7 |
) |
|
|
- |
|
|
|
|
|
|
|
|
|
Net
income (loss)
|
|
|
3.4 |
|
|
|
5.9 |
|
|
|
3.5 |
|
|
|
3.7 |
|
|
|
(23.6 |
) |
|
|
(5.2 |
) |
|
|
72.1 |
|
|
|
159.2 |
|
|
|
|
|
|
|
|
|
Preferred
stock dividend
|
|
|
- |
|
|
|
- |
|
|
|
- |
|
|
|
- |
|
|
|
2.4 |
|
|
|
3.6 |
|
|
|
2.4 |
|
|
|
3.6 |
|
|
|
|
|
|
|
|
|
Net
earnings applicable to
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
common
shareholders
|
|
$ |
3.4 |
|
|
$ |
5.9 |
|
|
$ |
3.5 |
|
|
$ |
3.7 |
|
|
$ |
(26.0 |
) |
|
$ |
(8.8 |
) |
|
$ |
69.7 |
|
|
$ |
155.6 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
AVERAGE
BALANCE SHEET DATA
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total
assets
|
|
$ |
2,745 |
|
|
$ |
2,410 |
|
|
$ |
917 |
|
|
$ |
821 |
|
|
$ |
(461 |
) |
|
$ |
(122 |
) |
|
$ |
53,293 |
|
|
$ |
47,922 |
|
|
|
|
|
|
|
|
|
Total
loans and leases
|
|
|
2,039 |
|
|
|
1,769 |
|
|
|
555 |
|
|
|
462 |
|
|
|
107 |
|
|
|
80 |
|
|
|
40,512 |
|
|
|
36,143 |
|
|
|
|
|
|
|
|
|
Total
deposits
|
|
|
1,743 |
|
|
|
1,711 |
|
|
|
569 |
|
|
|
509 |
|
|
|
(438 |
) |
|
|
(371 |
) |
|
|
36,774 |
|
|
|
35,964 |
|
|
|
|
|
|
|
|
|
Shareholder’s
equity:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Preferred
equity
|
|
|
- |
|
|
|
- |
|
|
|
- |
|
|
|
- |
|
|
|
240 |
|
|
|
240 |
|
|
|
240 |
|
|
|
240 |
|
|
|
|
|
|
|
|
|
Common
equity
|
|
|
333 |
|
|
|
314 |
|
|
|
68 |
|
|
|
58 |
|
|
|
(312 |
) |
|
|
(197 |
) |
|
|
5,070 |
|
|
|
4,993 |
|
|
|
|
|
|
|
|
|
Total
shareholder’s equity
|
|
|
333 |
|
|
|
314 |
|
|
|
68 |
|
|
|
58 |
|
|
|
(72 |
) |
|
|
43 |
|
|
|
5,310 |
|
|
|
5,233 |
|
|
|
|
|
|
|
|
|
ZIONS
BANCORPORATION AND SUBSIDIARIES
The
following table presents selected operating segment information for the six
months ended June 30, 2008 and 2007:
(In
millions)
|
|
Zions
Bank
|
|
CB&T
|
|
Amegy
|
|
NBA
|
|
NSB
|
|
|
2008
|
|
2007
|
|
2008
|
|
2007
|
|
2008
|
|
2007
|
|
2008
|
|
2007
|
|
2008
|
|
2007
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
CONDENSED
INCOME STATEMENT
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net
interest income
|
|
$ |
328.7 |
|
|
$ |
262.7 |
|
|
$ |
201.0 |
|
|
$ |
220.2 |
|
|
$ |
177.3 |
|
|
$ |
158.4 |
|
|
$ |
115.6 |
|
|
$ |
127.8 |
|
|
$ |
80.9 |
|
|
$ |
94.8 |
|
Provision
for loan losses
|
|
|
74.1 |
|
|
|
8.5 |
|
|
|
43.9 |
|
|
|
5.0 |
|
|
|
18.7 |
|
|
|
7.1 |
|
|
|
42.8 |
|
|
|
3.5 |
|
|
|
17.8 |
|
|
|
3.0 |
|
Net
interest income after
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
provision
for loan losses
|
|
|
254.6 |
|
|
|
254.2 |
|
|
|
157.1 |
|
|
|
215.2 |
|
|
|
158.6 |
|
|
|
151.3 |
|
|
|
72.8 |
|
|
|
124.3 |
|
|
|
63.1 |
|
|
|
91.8 |
|
Impairment
losses on investment
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
securities
and valuation losses
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
on
securities purchased from
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Lockhart
Funding
|
|
|
(17.5 |
) |
|
|
- |
|
|
|
- |
|
|
|
- |
|
|
|
- |
|
|
|
- |
|
|
|
- |
|
|
|
- |
|
|
|
- |
|
|
|
- |
|
Other
noninterest income
|
|
|
112.9 |
|
|
|
130.4 |
|
|
|
41.0 |
|
|
|
42.5 |
|
|
|
73.0 |
|
|
|
61.1 |
|
|
|
16.0 |
|
|
|
16.3 |
|
|
|
22.0 |
|
|
|
16.4 |
|
Noninterest
expense
|
|
|
226.1 |
|
|
|
221.1 |
|
|
|
120.1 |
|
|
|
118.0 |
|
|
|
152.0 |
|
|
|
148.5 |
|
|
|
67.4 |
|
|
|
74.6 |
|
|
|
58.2 |
|
|
|
55.5 |
|
Income
(loss) before income taxes
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
and
minority interest
|
|
|
123.9 |
|
|
|
163.5 |
|
|
|
78.0 |
|
|
|
139.7 |
|
|
|
79.6 |
|
|
|
63.9 |
|
|
|
21.4 |
|
|
|
66.0 |
|
|
|
26.9 |
|
|
|
52.7 |
|
Income
tax expense (benefit)
|
|
|
40.7 |
|
|
|
55.2 |
|
|
|
30.6 |
|
|
|
57.9 |
|
|
|
26.0 |
|
|
|
20.8 |
|
|
|
8.4 |
|
|
|
25.8 |
|
|
|
9.3 |
|
|
|
18.4 |
|
Minority
interest
|
|
|
- |
|
|
|
0.3 |
|
|
|
- |
|
|
|
- |
|
|
|
0.3 |
|
|
|
0.1 |
|
|
|
- |
|
|
|
- |
|
|
|
- |
|
|
|
- |
|
Net
income (loss)
|
|
|
83.2 |
|
|
|
108.0 |
|
|
|
47.4 |
|
|
|
81.8 |
|
|
|
53.3 |
|
|
|
43.0 |
|
|
|
13.0 |
|
|
|
40.2 |
|
|
|
17.6 |
|
|
|
34.3 |
|
Preferred
stock dividend
|
|
|
- |
|
|
|
- |
|
|
|
- |
|
|
|
- |
|
|
|
- |
|
|
|
- |
|
|
|
- |
|
|
|
- |
|
|
|
- |
|
|
|
- |
|
Net
earnings applicable to
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
common
shareholders
|
|
$ |
83.2 |
|
|
$ |
108.0 |
|
|
$ |
47.4 |
|
|
$ |
81.8 |
|
|
$ |
53.3 |
|
|
$ |
43.0 |
|
|
$ |
13.0 |
|
|
$ |
40.2 |
|
|
$ |
17.6 |
|
|
$ |
34.3 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
AVERAGE
BALANCE SHEET DATA
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total
assets
|
|
$ |
18,756 |
|
|
$ |
15,292 |
|
|
$ |
10,172 |
|
|
$ |
10,180 |
|
|
$ |
11,836 |
|
|
$ |
9,986 |
|
|
$ |
5,296 |
|
|
$ |
5,419 |
|
|
$ |
3,865 |
|
|
$ |
3,872 |
|
Total
loans and leases
|
|
|
13,542 |
|
|
|
11,145 |
|
|
|
7,838 |
|
|
|
7,933 |
|
|
|
8,223 |
|
|
|
6,591 |
|
|
|
4,509 |
|
|
|
4,622 |
|
|
|
3,212 |
|
|
|
3,205 |
|
Total
deposits
|
|
|
11,393 |
|
|
|
11,047 |
|
|
|
8,007 |
|
|
|
8,158 |
|
|
|
8,189 |
|
|
|
6,947 |
|
|
|
3,882 |
|
|
|
4,314 |
|
|
|
3,266 |
|
|
|
3,350 |
|
Shareholder’s
equity:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Preferred
equity
|
|
|
- |
|
|
|
- |
|
|
|
- |
|
|
|
- |
|
|
|
- |
|
|
|
- |
|
|
|
- |
|
|
|
- |
|
|
|
- |
|
|
|
- |
|
Common
equity
|
|
|
1,060 |
|
|
|
992 |
|
|
|
1,063 |
|
|
|
1,110 |
|
|
|
1,969 |
|
|
|
1,824 |
|
|
|
592 |
|
|
|
580 |
|
|
|
287 |
|
|
|
265 |
|
Total
shareholder’s equity
|
|
|
1,060 |
|
|
|
992 |
|
|
|
1,063 |
|
|
|
1,110 |
|
|
|
1,969 |
|
|
|
1,824 |
|
|
|
592 |
|
|
|
580 |
|
|
|
287 |
|
|
|
265 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Consolidated
|
|
|
|
|
|
|
|
|
(In
millions) |
|
Vectra
|
|
TCBW
|
|
Other
|
|
Company
|
|
|
|
|
|
|
|
|
|
|
2008
|
|
2007
|
|
2008
|
|
2007
|
|
2008
|
|
2007
|
|
2008
|
|
2007
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
CONDENSED
INCOME STATEMENT
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net
interest income
|
|
$ |
52.8 |
|
|
$ |
46.5 |
|
|
$ |
16.5 |
|
|
$ |
16.8 |
|
|
$ |
(1.6 |
) |
|
$ |
(0.8 |
) |
|
$ |
971.2 |
|
|
$ |
926.4 |
|
|
|
|
|
|
|
|
|
Provision
for loan losses
|
|
|
8.2 |
|
|
|
(0.3 |
) |
|
|
0.4 |
|
|
|
- |
|
|
|
0.6 |
|
|
|
0.1 |
|
|
|
206.5 |
|
|
|
26.9 |
|
|
|
|
|
|
|
|
|
Net
interest income after
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
provision
for loan losses
|
|
|
44.6 |
|
|
|
46.8 |
|
|
|
16.1 |
|
|
|
16.8 |
|
|
|
(2.2 |
) |
|
|
(0.9 |
) |
|
|
764.7 |
|
|
|
899.5 |
|
|
|
|
|
|
|
|
|
Impairment
losses on investment
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
securities
and valuation losses
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
on
securities purchased from
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Lockhart
Funding
|
|
|
- |
|
|
|
- |
|
|
|
- |
|
|
|
- |
|
|
|
(67.3 |
) |
|
|
- |
|
|
|
(84.8 |
) |
|
|
- |
|
|
|
|
|
|
|
|
|
Other
noninterest income
|
|
|
13.8 |
|
|
|
12.9 |
|
|
|
1.3 |
|
|
|
0.9 |
|
|
|
(11.9 |
) |
|
|
6.3 |
|
|
|
268.1 |
|
|
|
286.8 |
|
|
|
|
|
|
|
|
|
Noninterest
expense
|
|
|
44.4 |
|
|
|
42.6 |
|
|
|
7.2 |
|
|
|
7.2 |
|
|
|
29.1 |
|
|
|
32.1 |
|
|
|
704.5 |
|
|
|
699.6 |
|
|
|
|
|
|
|
|
|
Income
(loss) before income taxes
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
and
minority interest
|
|
|
14.0 |
|
|
|
17.1 |
|
|
|
10.2 |
|
|
|
10.5 |
|
|
|
(110.5 |
) |
|
|
(26.7 |
) |
|
|
243.5 |
|
|
|
486.7 |
|
|
|
|
|
|
|
|
|
Income
tax expense (benefit)
|
|
|
5.0 |
|
|
|
6.2 |
|
|
|
3.4 |
|
|
|
3.4 |
|
|
|
(51.5 |
) |
|
|
(12.8 |
) |
|
|
71.9 |
|
|
|
174.9 |
|
|
|
|
|
|
|
|
|
Minority
interest
|
|
|
- |
|
|
|
- |
|
|
|
- |
|
|
|
- |
|
|
|
(7.6 |
) |
|
|
(1.1 |
) |
|
|
(7.3 |
) |
|
|
(0.7 |
) |
|
|
|
|
|
|
|
|
Net
income (loss)
|
|
|
9.0 |
|
|
|
10.9 |
|
|
|
6.8 |
|
|
|
7.1 |
|
|
|
(51.4 |
) |
|
|
(12.8 |
) |
|
|
178.9 |
|
|
|
312.5 |
|
|
|
|
|
|
|
|
|
Preferred
stock dividend
|
|
|
- |
|
|
|
- |
|
|
|
- |
|
|
|
- |
|
|
|
4.9 |
|
|
|
7.2 |
|
|
|
4.9 |
|
|
|
7.2 |
|
|
|
|
|
|
|
|
|
Net
earnings applicable to
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
common
shareholders
|
|
$ |
9.0 |
|
|
$ |
10.9 |
|
|
$ |
6.8 |
|
|
$ |
7.1 |
|
|
$ |
(56.3 |
) |
|
$ |
(20.0 |
) |
|
$ |
174.0 |
|
|
$ |
305.3 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
AVERAGE
BALANCE SHEET DATA
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total
assets
|
|
$ |
2,743 |
|
|
$ |
2,398 |
|
|
$ |
919 |
|
|
$ |
799 |
|
|
$ |
(483 |
) |
|
$ |
(192 |
) |
|
$ |
53,104 |
|
|
$ |
47,754 |
|
|
|
|
|
|
|
|
|
Total
loans and leases
|
|
|
2,028 |
|
|
|
1,749 |
|
|
|
536 |
|
|
|
447 |
|
|
|
94 |
|
|
|
85 |
|
|
|
39,982 |
|
|
|
35,777 |
|
|
|
|
|
|
|
|
|
Total
deposits
|
|
|
1,732 |
|
|
|
1,698 |
|
|
|
588 |
|
|
|
488 |
|
|
|
(373 |
) |
|
|
(427 |
) |
|
|
36,684 |
|
|
|
35,575 |
|
|
|
|
|
|
|
|
|
Shareholder’s
equity:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Preferred
equity
|
|
|
- |
|
|
|
- |
|
|
|
- |
|
|
|
- |
|
|
|
240 |
|
|
|
240 |
|
|
|
240 |
|
|
|
240 |
|
|
|
|
|
|
|
|
|
Common
equity
|
|
|
334 |
|
|
|
313 |
|
|
|
68 |
|
|
|
57 |
|
|
|
(275 |
) |
|
|
(167 |
) |
|
|
5,098 |
|
|
|
4,974 |
|
|
|
|
|
|
|
|
|
Total
shareholder’s equity
|
|
|
334 |
|
|
|
313 |
|
|
|
68 |
|
|
|
57 |
|
|
|
(35 |
) |
|
|
73 |
|
|
|
5,338 |
|
|
|
5,214 |
|
|
|
|
|
|
|
|
|
ZIONS
BANCORPORATION AND SUBSIDIARIES
|
MANAGEMENT’S
DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF
OPERATIONS
|
FINANCIAL
HIGHLIGHTS
(Unaudited)
|
|
Three
Months Ended
|
|
Six
Months Ended
|
(In
thousands, except per share and ratio data)
|
|
June
30,
|
|
June
30,
|
|
|
2008
|
|
2007
|
|
%
Change
|
|
2008
|
|
2007
|
|
%
Change
|
EARNINGS
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Taxable-equivalent
net interest income
|
|
$ |
490,587 |
|
|
$ |
476,060 |
|
|
|
3.05 |
% |
|
$ |
983,124 |
|
|
$ |
939,781 |
|
|
|
4.61 |
% |
Taxable-equivalent
revenue
|
|
|
562,959 |
|
|
|
617,401 |
|
|
|
(8.82 |
)% |
|
|
1,166,496 |
|
|
|
1,226,536 |
|
|
|
(4.90 |
)% |
Net
interest income
|
|
|
484,743 |
|
|
|
469,347 |
|
|
|
3.28 |
% |
|
|
971,201 |
|
|
|
926,430 |
|
|
|
4.83 |
% |
Noninterest
income
|
|
|
72,372 |
|
|
|
141,341 |
|
|
|
(48.80 |
)% |
|
|
183,372 |
|
|
|
286,755 |
|
|
|
(36.05 |
)% |
Provision
for loan losses
|
|
|
114,192 |
|
|
|
17,763 |
|
|
|
542.86 |
% |
|
|
206,474 |
|
|
|
26,874 |
|
|
|
668.30 |
% |
Noninterest
expense
|
|
|
354,417 |
|
|
|
347,612 |
|
|
|
1.96 |
% |
|
|
704,520 |
|
|
|
699,591 |
|
|
|
0.70 |
% |
Income
before income taxes and minority interest
|
|
|
88,506 |
|
|
|
245,313 |
|
|
|
(63.92 |
)% |
|
|
243,579 |
|
|
|
486,720 |
|
|
|
(49.96 |
)% |
Income
taxes
|
|
|
22,037 |
|
|
|
86,065 |
|
|
|
(74.39 |
)% |
|
|
71,933 |
|
|
|
174,919 |
|
|
|
(58.88 |
)% |
Minority
interest
|
|
|
(5,729 |
) |
|
|
34 |
|
|
nm
|
|
|
|
(7,301 |
) |
|
|
(671 |
) |
|
|
988.08 |
% |
Net
income
|
|
|
72,198 |
|
|
|
159,214 |
|
|
|
(54.65 |
)% |
|
|
178,947 |
|
|
|
312,472 |
|
|
|
(42.73 |
)% |
Net
earnings applicable to common shareholders
|
|
|
69,744 |
|
|
|
155,607 |
|
|
|
(55.18 |
)% |
|
|
174,040 |
|
|
|
305,262 |
|
|
|
(42.99 |
)% |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
PER
COMMON SHARE
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net
earnings (diluted)
|
|
|
0.65 |
|
|
|
1.43 |
|
|
|
(54.55 |
)% |
|
|
1.63 |
|
|
|
2.78 |
|
|
|
(41.37 |
)% |
Dividends
|
|
|
0.43 |
|
|
|
0.43 |
|
|
|
- |
|
|
|
0.86 |
|
|
|
0.82 |
|
|
|
4.88 |
% |
Book
value per common share
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
46.82 |
|
|
|
46.14 |
|
|
|
1.47 |
% |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
SELECTED
RATIOS
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Return
on average assets
|
|
|
0.54 |
% |
|
|
1.33 |
% |
|
|
|
|
|
|
0.68 |
% |
|
|
1.32 |
% |
|
|
|
|
Return
on average common equity
|
|
|
5.53 |
% |
|
|
12.50 |
% |
|
|
|
|
|
|
6.86 |
% |
|
|
12.38 |
% |
|
|
|
|
Efficiency
ratio
|
|
|
62.96 |
% |
|
|
56.30 |
% |
|
|
|
|
|
|
60.40 |
% |
|
|
57.04 |
% |
|
|
|
|
Net
interest margin
|
|
|
4.18 |
% |
|
|
4.53 |
% |
|
|
|
|
|
|
4.20 |
% |
|
|
4.52 |
% |
|
|
|
|
ZIONS
BANCORPORATION AND SUBSIDIARIES
FINANCIAL
HIGHLIGHTS (Continued)
(Unaudited)
|
|
Three
Months Ended
|
|
Six
Months Ended
|
(In
thousands, except share and ratio data)
|
|
June
30,
|
|
June
30,
|
|
|
2008
|
|
2007
|
|
%
Change
|
|
2008
|
|
2007
|
|
%
Change
|
AVERAGE
BALANCES
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total
assets
|
|
$ |
53,293,375 |
|
|
$ |
47,921,787 |
|
|
|
11.21 |
% |
|
$ |
53,103,599 |
|
|
$ |
47,754,384 |
|
|
|
11.20 |
% |
Total
interest-earning assets
|
|
|
47,202,577 |
|
|
|
42,151,667 |
|
|
|
11.98 |
% |
|
|
47,028,006 |
|
|
|
41,924,964 |
|
|
|
12.17 |
% |
Securities
|
|
|
4,866,421 |
|
|
|
5,426,896 |
|
|
|
(10.33 |
)% |
|
|
5,103,854 |
|
|
|
5,611,351 |
|
|
|
(9.04 |
)% |
Net
loans and leases
|
|
|
40,512,249 |
|
|
|
36,142,957 |
|
|
|
12.09 |
% |
|
|
39,982,279 |
|
|
|
35,776,561 |
|
|
|
11.76 |
% |
Goodwill
|
|
|
2,009,517 |
|
|
|
2,012,270 |
|
|
|
(0.14 |
)% |
|
|
2,009,497 |
|
|
|
1,998,096 |
|
|
|
0.57 |
% |
Core
deposit and other intangibles
|
|
|
137,675 |
|
|
|
188,843 |
|
|
|
(27.10 |
)% |
|
|
142,019 |
|
|
|
191,469 |
|
|
|
(25.83 |
)% |
Total
deposits
|
|
|
36,774,214 |
|
|
|
35,964,203 |
|
|
|
2.25 |
% |
|
|
36,684,444 |
|
|
|
35,575,016 |
|
|
|
3.12 |
% |
Core
deposits (1)
|
|
|
32,429,773 |
|
|
|
30,873,001 |
|
|
|
5.04 |
% |
|
|
32,281,560 |
|
|
|
30,617,110 |
|
|
|
5.44 |
% |
Minority
interest
|
|
|
27,244 |
|
|
|
35,009 |
|
|
|
(22.18 |
)% |
|
|
28,960 |
|
|
|
37,859 |
|
|
|
(23.51 |
)% |
Shareholders'
equity:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Preferred
equity
|
|
|
240,000 |
|
|
|
240,000 |
|
|
|
- |
|
|
|
240,000 |
|
|
|
240,000 |
|
|
|
- |
|
Common
equity
|
|
|
5,070,047 |
|
|
|
4,993,383 |
|
|
|
1.54 |
% |
|
|
5,098,334 |
|
|
|
4,973,999 |
|
|
|
2.50 |
% |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Weighted
average common and common-
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
equivalent
shares outstanding
|
|
|
106,711,948 |
|
|
|
109,123,735 |
|
|
|
(2.21 |
)% |
|
|
106,719,923 |
|
|
|
109,638,577 |
|
|
|
(2.66 |
)% |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
AT
PERIOD END
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total
assets
|
|
|
|
|
|
|
|
|
|
|
|
|
|
$ |
54,630,883 |
|
|
$ |
48,691,445 |
|
|
|
12.20 |
% |
Total
interest-earning assets
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
47,920,419 |
|
|
|
42,721,118 |
|
|
|
12.17 |
% |
Securities
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
4,784,185 |
|
|
|
5,289,180 |
|
|
|
(9.55 |
)% |
Net
loans and leases
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
41,872,977 |
|
|
|
36,788,205 |
|
|
|
13.82 |
% |
Sold
loans being serviced (2)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
513,623 |
|
|
|
2,201,897 |
|
|
|
(76.67 |
)% |
Allowance
for loan losses
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
548,958 |
|
|
|
380,295 |
|
|
|
44.35 |
% |
Reserve
for unfunded lending commitments
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
26,838 |
|
|
|
21,222 |
|
|
|
26.46 |
% |
Goodwill
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
2,009,511 |
|
|
|
2,013,314 |
|
|
|
(0.19 |
)% |
Core
deposit and other intangibles
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
132,481 |
|
|
|
180,867 |
|
|
|
(26.75 |
)% |
Total
deposits
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
37,607,995 |
|
|
|
36,185,572 |
|
|
|
3.93 |
% |
Core
deposits (1)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
33,505,626 |
|
|
|
31,303,578 |
|
|
|
7.03 |
% |
Minority
interest
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
25,528 |
|
|
|
32,094 |
|
|
|
(20.46 |
)% |
Shareholders'
equity:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Preferred
equity
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
240,000 |
|
|
|
240,000 |
|
|
|
- |
|
Common
equity
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
5,033,530 |
|
|
|
4,984,702 |
|
|
|
0.98 |
% |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Common
shares outstanding
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
107,518,975 |
|
|
|
108,034,079 |
|
|
|
(0.48 |
)% |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Average
equity to average assets
|
|
|
9.96 |
% |
|
|
10.92 |
% |
|
|
|
|
|
|
10.05 |
% |
|
|
10.92 |
% |
|
|
|
|
Common
dividend payout
|
|
|
66.23 |
% |
|
|
29.88 |
% |
|
|
|
|
|
|
52.98 |
% |
|
|
29.24 |
% |
|
|
|
|
Tangible
equity ratio
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
5.97 |
% |
|
|
6.52 |
% |
|
|
|
|
Nonperforming
assets
|
|
|
|
|
|
|
|
|
|
|
|
|
|
$ |
697,432 |
|
|
$ |
95,398 |
|
|
|
631.08 |
% |
Accruing
loans past due 90 days or more
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
108,934 |
|
|
|
47,782 |
|
|
|
127.98 |
% |
Nonperforming
assets to net loans and leases
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
and
other real estate owned at period end
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
1.66 |
% |
|
|
0.26 |
% |
|
|
|
|
(1) |
Amount consists of
total deposits excluding time deposits $100,000 and
over. |
(2) |
Amount represents
the outstanding balance of loans sold and being serviced by the
Company, excluding conforming |
|
first mortgage
residential real estate
loans.
|
ZIONS
BANCORPORATION AND SUBSIDIARIES
FORWARD-LOOKING
INFORMATION
Statements
in Management’s Discussion and Analysis that are based on other than historical
data are forward-looking, within the meaning of the Private Securities
Litigation Reform Act of 1995. Forward-looking statements provide current
expectations or forecasts of future events and include, among
others:
·
|
statements
with respect to the beliefs, plans, objectives, goals, guidelines,
expectations, anticipations, and future financial condition, results of
operations and performance of Zions Bancorporation (“the Parent”) and its
subsidiaries (collectively “the Company,” “Zions,” “we,” “our,”
“us”);
|
·
|
statements
preceded by, followed by or that include the words “may,” “could,”
“should,” “would,” “believe,” “anticipate,” “estimate,” “expect,”
“intend,” “plan,” “projects,” or similar
expressions.
|
These
forward-looking statements are not guarantees of future performance, nor should
they be relied upon as representing management’s views as of any subsequent
date. Forward-looking statements involve significant risks and uncertainties and
actual results may differ materially from those presented, either expressed or
implied, in the Management’s Discussion and Analysis. Factors that might cause
such differences include, but are not limited to:
·
|
the
Company’s ability to successfully execute its business plans, manage its
risks, and achieve its objectives;
|
·
|
changes
in political and economic conditions, including the economic effects of
terrorist attacks against the United States and related
events;
|
·
|
changes
in financial market conditions, either nationally or locally in areas in
which the Company conducts its operations, including without limitation,
reduced rates of business formation and growth, commercial and residential
real estate development and real estate
prices;
|
·
|
fluctuations
in markets for equity, fixed-income, commercial paper and other
securities, including availability, market liquidity levels, and
pricing;
|
·
|
changes
in interest rates, the quality and composition of the loan and securities
portfolios, demand for loan products, deposit flows and
competition;
|
·
|
acquisitions
and integration of acquired
businesses;
|
·
|
increases
in the levels of losses, customer bankruptcies, claims and
assessments;
|
·
|
changes
in fiscal, monetary, regulatory, trade and tax policies and laws,
including policies of the U.S. Treasury and the Federal Reserve
Board;
|
·
|
continuing
consolidation in the financial services
industry;
|
·
|
new
litigation or changes in existing
litigation;
|
·
|
success
in gaining regulatory approvals, when
required;
|
·
|
changes
in consumer spending and savings
habits;
|
·
|
increased
competitive challenges and expanding product and pricing pressures among
financial institutions;
|
·
|
demand
for financial services in the Company’s market
areas;
|
·
|
inflation
and deflation;
|
·
|
technological
changes and the Company’s implementation of new
technologies;
|
·
|
the
Company’s ability to develop and maintain secure and reliable information
technology systems;
|
·
|
legislation
or regulatory changes which adversely affect the Company’s operations or
business;
|
·
|
the
Company’s ability to comply with applicable laws and regulations;
and
|
·
|
changes
in accounting policies or procedures as may be required by the Financial
Accounting Standards Board or regulatory
agencies.
|
ZIONS
BANCORPORATION AND SUBSIDIARIES
Additional
factors that could cause actual results to differ materially from those
expressed in the forward-looking statements are discussed in the 2007 Annual
Report on Form 10-K of Zions Bancorporation filed with the Securities and
Exchange Commission (“SEC”) and available at the SEC’s Internet site (http://www.sec.gov).
The
Company specifically disclaims any obligation to update any factors or to
publicly announce the result of revisions to any of the forward-looking
statements included herein to reflect future events or
developments.
CRITICAL
ACCOUNTING POLICIES AND SIGNIFICANT ESTIMATES
The
Company has made no significant changes in its critical accounting policies and
significant estimates from those disclosed in its Annual Report on Form 10-K for
the year ended December 31, 2007, except as noted below.
Fair
Value Accounting
Effective
January 1, 2008, the Company adopted SFAS No. 157, Fair Value Measurements and
SFAS No. 159, The Fair Value
Option for Financial Assets and Financial Liabilities. SFAS 157 defines
fair value, establishes a consistent framework for measuring fair value, and
enhances disclosures about fair value measurements. Adoption of SFAS 157 has
been delayed one year for the measurement of all nonfinancial assets and
nonfinancial liabilities. The adoption of SFAS 157 did not have a material
effect on the Company’s consolidated financial statements, but significantly
expanded the disclosure requirements for fair value measurements.
SFAS 157
defines fair value as the exchange price that would be received for an asset or
paid to transfer a liability (an exit price) in the principal or most
advantageous market for the asset or liability in an orderly transaction between
market participants on the measurement date. To measure fair value, SFAS 157 has
established a hierarchy to maximize the use of observable inputs and minimize
the use of unobservable inputs. This hierarchy uses three levels of inputs to
measure the fair value of assets and liabilities as follows:
Level 1 –
Quoted prices in active markets for identical assets or liabilities; includes
certain U.S. Treasury and other U.S. Government and agency securities actively
traded in over-the-counter markets; certain securities sold, not yet
purchased; and certain derivatives.
Level 2 –
Observable inputs other than Level 1 including quoted prices for similar assets
or liabilities, quoted prices in less active markets, or other observable inputs
that can be corroborated by observable market data; also includes derivative
contracts whose value is determined using a pricing model with observable market
inputs or can be derived principally from or corroborated by observable market
data. This category generally includes certain U.S. Government and agency
securities; certain collateralized debt obligations (“CDO”) securities;
corporate debt securities; certain private equity investments; certain
securities sold, not yet purchased; and certain derivatives.
Level 3 –
Unobservable inputs supported by little or no market activity for financial
instruments whose value is determined using pricing models, discounted cash flow
methodologies, or similar techniques, as well as instruments for which the
determination of fair value requires significant management judgment or
estimation. Additionally, observable inputs such as nonbinding single dealer
quotes that are not corroborated by observable market data are included in this
category. This category generally includes certain private equity investments,
retained interests in securitizations, and certain CDO securities.
The
Company uses models when quotations are not available for certain securities or
in markets where trading activity has slowed or ceased. When quotations are not
available, and are not provided by third party pricing
ZIONS
BANCORPORATION AND SUBSIDIARIES
services,
management judgment is necessary to determine fair value. In situations
involving management judgment, fair value is determined using discounted cash
flow analysis or other valuation models, which incorporate available market
information, including appropriate benchmarking to similar instruments, analysis
of default and recovery rates, estimation of prepayment characteristics and
implied volatilities.
The
Company engaged third party pricing services to model securities that currently
have insufficient observable market data available to directly determine prices.
The Company reviewed the methodologies employed by third party models. This
included a review of all relevant data inputs and the appropriateness of key
model assumptions. These assumptions included, but were not limited to,
collateral recovery rates, discount rates, over-collateralization levels, and
probability of default. Model results are also evaluated for reasonableness
through comparison to other available data which included third party and
internal models and valuations.
At June
30, 2008, approximately 6.1% of total assets, or $3.3 billion, consisted of
financial instruments recorded at fair value on a recurring basis. Approximately
94.4% or $3.1 billion of these financial instruments used valuation
methodologies involving market-based or market-derived information, collectively
Level 1 and 2 measurements, to measure fair value. Approximately 5.6% or $188
million of these financial assets are measured using model-based techniques or
nonbinding single dealer quotes, both of which constitute Level 3 measurements.
At June 30, 2008, approximately 0.4% of total liabilities, or $195 million,
consisted of financial instruments recorded at fair value on a recurring basis.
At June 30, 2008, approximately 0.4% of total assets, or $244 million of
financial assets were valued on a nonrecurring basis. Of the $244 million of
assets valued on a nonrecurring basis, approximately $158 million were valued at
Level 2 and $86 million were valued at Level 3.
During
both the first and second quarters of 2008, observable market trading data for
certain CDO securities ceased to be available to the Company to use a Level 2
pricing method that had been used in prior quarters. The lack of observable
market trading data required the Company to use a Level 3 pricing methodology as
described above.
Total
available-for-sale securities valued at Level 3 were $182 million at June 30,
2008. In aggregate, the value of the Level 3 available-for-sale securities would
be significantly impacted if model inputs such as timing of cash flows,
probability of default, collateral performance and discount rates were to
change. A range of value estimates is not provided because all Level 3
available-for-sale securities were valued by third party vendors, which provided
point estimates.
See
“Investments Securities Portfolio” for additional information on asset-backed
securities.
SFAS 159
allows for the option to report certain financial assets and liabilities at fair
value initially and at subsequent measurement dates with changes in fair value
included in earnings. The option may be applied instrument by instrument, but is
on an irrevocable basis. On January 1, 2008, the Company applied the fair value
option to one available-for-sale real estate investment trust (“REIT”) trust
preferred CDO security and three retained interests on selected small business
loan securitizations. The REIT CDO and retained interests were valued using
Level 3 models. The cumulative effect of adopting SFAS 159 reduced the beginning
balance of retained earnings at January 1, 2008 by approximately $11.5 million,
comprised of a decrease of $11.7 million for the REIT CDO and an increase of
$0.2 million for the three retained interests. During the second quarter of
2008, the net change in fair value of these instruments decreased pretax
earnings by approximately $3.9 million, consisting of $0.1 million for the REIT
CDO and $3.8 million for the retained interests. During the first six months of
2008, the net change in fair value decreased pretax earnings by approximately
$4.5 million, consisting of a $2.4 million for the REIT CDO security and $2.1
million for the retained interests. These adjustments to fair value are included
in fair value and nonhedge derivative income (loss) in the statement of
income.
ZIONS
BANCORPORATION AND SUBSIDIARIES
The
Company elected the fair value option for the REIT CDO security as part of a
directional hedging program in an effort to hedge the credit exposure the
Company has to homebuilders in its REIT CDO portfolio. Management selected this
security because it had the most exposure to the homebuilder market compared to
the other REIT CDO securities in the Company’s portfolio, both in dollar amount
and as a percentage, and was therefore considered the most suitable for hedging.
The fair value option adoption for the REIT CDO allows the Company to avoid the
complex hedge accounting provisions under SFAS No. 133, Accounting for Derivatives,
associated with the implemented hedging program.
On June
23, 2008, Zions Bank purchased $787 million of securities from Lockhart, which
comprised the entire remaining small business loan securitizations created by
Zions Bank and held by Lockhart. As a result, the three small business
securitization retained interests elected under the fair value option were
included in this transaction and were part of the premium amount recorded with
the loan balances at Zions Bank. See “Off-Balance Sheet Arrangement” for further
discussion of these securities purchased.
Valuation
of Collateralized Debt Obligations Available-for-Sale Securities
During
the second quarter of 2008, the Company valued certain REIT and structured
Asset-Backed Securities (“ABS”) CDOs using models provided by third party
vendors. The models utilized relevant data assumptions to value these CDO
securities and were evaluated by the Company to determine if the models
appropriately calculated values. These assumptions included but were not limited
to probability of default, collateral recovery rates, discount rates, over
collateralization levels, market indices such as ABX and rating transition
probability matrices from rating agencies. The model prices obtained from third
party services were evaluated for reasonableness including quarter to quarter
changes in assumptions and comparison to other available data which included
third party and internal model results and valuations. The Company’s decision to
use Level 3 model pricing for certain CDOs was made due to continued trading
contraction of these securities and the lack of observable market inputs to
value such securities.
Certain
other CDOs were priced by nonbinding single dealer quotes considered to be
consistent with Level 3 valuation standards. The Company continues to utilize a
whole market price quote method for other CDOs as described in our Annual Report
on Form 10-K for the year ended December 31, 2007.
See Note
8 of the Notes to Consolidated Financial Statements and “Investment Securities
Portfolio” for further information.
Estimates
of Fair Value
The
Company measures or monitors many of its assets and liabilities on a fair value
basis. Fair value is used on a recurring basis for certain assets and
liabilities in which fair value is the primary basis of accounting. Examples of
these include derivative instruments, available-for-sale and trading securities,
certain private equity investments and certain residual interests from
Company-sponsored securitizations. Additionally, fair value is used on a
nonrecurring basis to evaluate assets or liabilities for impairment or for
disclosure purposes in accordance with SFAS No. 107, Disclosures about Fair Value of
Financial Instruments. Examples of these nonrecurring uses of fair value
include loans held for sale accounted for at the lower of cost or fair value,
certain private equity investments, other real estate owned (“OREO”), impaired
loans, long-lived assets, goodwill, and core deposit and other intangible
assets. Depending on the nature of the asset or liability, the Company uses
various valuation techniques and assumptions when estimating the instrument’s
fair value. These valuation techniques and assumptions are in accordance with
SFAS 157.
Fair
value is the price that could be received to sell an asset or paid to transfer a
liability in an orderly transaction between market participants. If observable
market prices are not available, then fair value is estimated using modeling
techniques such as discounted cash flow analyses. These modeling techniques
utilize assumptions that market participants would use in pricing the asset or
the liability, including
ZIONS
BANCORPORATION AND SUBSIDIARIES
assumptions
about the risk inherent in a particular valuation technique, the effect of a
restriction on the sale or use of an asset, and the risk of nonperformance. To
increase consistency and comparability in fair value measures, SFAS 157
established a three-level hierarchy to prioritize the inputs used in valuation
techniques between observable inputs that reflect quoted prices in active
markets, inputs other than quoted prices with observable market data, and
unobservable data such as the Company’s own data or single dealer nonbinding
pricing quotes.
In
instances where required by U.S. GAAP, the Company uses discount rates in
its determination of the fair value of residual interests from loan
securitizations. At June 30, 2008 residual interests from securitizations were
$26 million. Discount rates used are those considered to be commensurate with
the risks involved. A change in these discount rates could increase or decrease
the values of those assets and liabilities. The Company provided disclosure of
the key economic assumptions used to measure residual interests and a
sensitivity analysis to these assumption changes in Note 6, “Asset
Securitizations,” in the Notes to Consolidated Financial Statements included in
the Annual Report on Form 10-K for the year ended December 31,
2007.
Fair
values for investment securities, trading assets, and most derivative financial
instruments are based on independent, third party market prices, or if identical
market prices are not available they are based on the market prices of similar
instruments. If market prices of similar instruments are not available,
instruments are valued based on the best available data, some of which may not
be readily observable in the market. The fair values of loans are typically
based on securities prices of similar instruments and, when appropriate, include
adjustments to account for costs that would be incurred to transform a loan into
a security when sold. The fair values of OREO and other repossessed assets are
typically determined based on appraisals by third parties, less estimated
selling costs.
Estimates
of fair value are also required when performing an impairment analysis of
long-lived assets, goodwill, and core deposit and other intangible assets. The
Company reviews goodwill for impairment at the reporting unit level on an annual
basis, or more often if events or circumstances indicate the carrying value may
not be recoverable. The goodwill impairment test compares the fair value of the
reporting unit with its carrying value. If the carrying amount of the reporting
unit’s goodwill exceeds its fair value an additional analysis must be performed
to determine the amount, if any, by which goodwill is impaired. In determining
the fair value of the Company’s reporting units, management uses discounted cash
flow models which require assumptions about growth rates of the reporting units
and the cost of equity. To the extent that adequate data is available, other
valuation techniques relying on market data may be incorporated into the
estimate of a reporting unit’s fair value. The selection and weighting of the
various fair value techniques may result in a higher or lower fair value.
Judgment is applied in determining the amount that is most representative of
fair value. For long-lived assets and intangible assets subject to amortization,
an impairment loss is recognized if the carrying amount of the asset is not
recoverable and exceeds its fair value. In determining the fair value,
management uses models which require assumptions about growth rates, the life of
the asset, and/or the fair value of the assets. The Company tests long-lived
assets for impairment whenever events or changes in circumstances indicate that
its carrying amount may not be recoverable.
RESULTS
OF OPERATIONS
The
Company reported net earnings applicable to common shareholders of $69.7 million
or $0.65 per diluted share for the second quarter of 2008 compared with $155.6
million or $1.43 per diluted share for the second quarter of 2007. The
decrease is mainly due to a $96.4 million increase in the provision for loan
losses, an $18.0 million decrease in the fair value and interest on nonhedge
derivatives due to decreasing spreads between the London Interbank Offer Rate
(“LIBOR”) and prime rates, and $38.8 million of impairment losses on investment
securities recognized during the second quarter of 2008.
The
annualized return on average assets was 0.54% for the second quarter of 2008 and
1.33% for the second quarter of 2007. For the same comparative periods, the
annualized return on average common equity was 5.53% compared to 12.50%. The
efficiency ratio for the second quarter of 2008 was 63.0% compared to 56.3% for
the second quarter of 2007.
ZIONS
BANCORPORATION AND SUBSIDIARIES
Net
earnings applicable to common shareholders for the first six months of 2008 were
$174.0 million or $1.63 per diluted share, compared to $305.3 million or $2.78
per diluted share for the first six months of 2007. The
decrease reflects a $179.6 million increase in the provision for loan losses and
$84.8 million of impairment losses on investment securities and valuation losses
on securities purchased from Lockhart.
The
annualized return on average assets was 0.68% for the first six months of 2008
compared to 1.32% for the first six months of 2007. For the same comparative
periods, the annualized return on average common equity was 6.86% compared to
12.38%. The efficiency ratio for the first six months of 2008 was 60.4% compared
to 57.0% for the same period in 2007.
Net
Interest Income, Margin and Interest Rate Spreads
Taxable-equivalent
net interest income for the second quarter of 2008 increased 3.1% to $490.6
million compared with $476.1 million for the comparable period of 2007. This
growth reflects the significant increase in earning assets driven by strong loan
growth over much of 2007 and 2008. The tax rate used for calculating all
taxable-equivalent adjustments was 35% for all periods presented.
The
Company’s net interest margin was 4.18% for the second quarter of 2008 compared
to 4.23% for the first quarter of 2008 and 4.53% for second quarter of 2007. The
margin decrease for the second quarter of 2008 compared to the first quarter of
2008 was primarily driven by the increase in nonperforming assets during the
quarter. The margin decrease for the second quarter of 2008 compared to the
second quarter of 2007 resulted from a decline in noninterest-bearing demand
deposits, increased reliance on nondeposit borrowings to fund loan growth and
asset-backed commercial paper purchased from Lockhart, and also from increased
nonperforming assets. We expect that the net interest margin may continue to be
under pressure in the next few quarters due to the persistence of these
factors.
During
the second quarter of 2008, the Federal Reserve lowered the federal funds rate
by 25 basis points. This decrease had a rapid impact on loans tied to LIBOR and
the prime rate, however this impact was partially mitigated by the Company’s
hedging program. Although deposit rates did decline during the second quarter,
competitive pressures on deposit rates may impede our ability to similarly
reprice deposits in the future, which may have a negative impact on the net
interest margin during future quarters in 2008. See “Interest Rate Risk” for
further information.
The
spread on average interest-bearing funds for the second quarter of 2008 was
3.71%, which increased from 3.61% for the first quarter of 2008 and 3.62% for
the second quarter of 2007. During the second quarter of 2008 the spread on
average interest-bearing funds benefited from improved loan spreads on newly
originated and renewed loans and more favorable deposit pricing.
The
Company expects to continue its efforts over the long run to maintain a slightly
“asset-sensitive” position with regard to interest rate risk. Our estimates of
the Company’s actual rate risk position is highly dependent upon changes in both
short-term and long-term interest rates, modeling assumptions, and the actions
of competitors and customers in response to those changes.
ZIONS
BANCORPORATION AND SUBSIDIARIES
CONSOLIDATED
AVERAGE BALANCE SHEETS, YIELDS AND RATES
(Unaudited)
|
|
Three
Months Ended
|
|
Three
Months Ended
|
|
|
June
30, 2008
|
|
June
30, 2007
|
(In
thousands)
|
|
Average
|
|
Amount
of
|
|
Average
|
|
Average
|
|
Amount
of
|
|
Average
|
|
|
balance
|
|
interest
(1)
|
|
rate
|
|
balance
|
|
interest
(1)
|
|
rate
|
ASSETS
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Money
market investments
|
|
$ |
1,823,907 |
|
|
$ |
12,313 |
|
|
|
2.72 |
% |
|
$ |
581,814 |
|
|
$ |
7,756 |
|
|
|
5.35 |
% |
Securities:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Held-to-maturity
|
|
|
1,532,818 |
|
|
|
25,305 |
|
|
|
6.64 |
% |
|
|
666,283 |
|
|
|
11,644 |
|
|
|
7.01 |
% |
Available-for-sale
|
|
|
3,295,056 |
|
|
|
37,936 |
|
|
|
4.63 |
% |
|
|
4,707,154 |
|
|
|
67,514 |
|
|
|
5.75 |
% |
Trading
account
|
|
|
38,547 |
|
|
|
159 |
|
|
|
1.66 |
% |
|
|
53,459 |
|
|
|
766 |
|
|
|
5.75 |
% |
Total
securities
|
|
|
4,866,421 |
|
|
|
63,400 |
|
|
|
5.24 |
% |
|
|
5,426,896 |
|
|
|
79,924 |
|
|
|
5.91 |
% |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Loans:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Loans
held for sale
|
|
|
186,592 |
|
|
|
2,699 |
|
|
|
5.82 |
% |
|
|
254,693 |
|
|
|
4,322 |
|
|
|
6.81 |
% |
Net
loans and leases (2)
|
|
|
40,325,657 |
|
|
|
650,364 |
|
|
|
6.49 |
% |
|
|
35,888,264 |
|
|
|
704,325 |
|
|
|
7.87 |
% |
Total
loans and leases
|
|
|
40,512,249 |
|
|
|
653,063 |
|
|
|
6.48 |
% |
|
|
36,142,957 |
|
|
|
708,647 |
|
|
|
7.86 |
% |
Total
interest-earning assets
|
|
|
47,202,577 |
|
|
|
728,776 |
|
|
|
6.21 |
% |
|
|
42,151,667 |
|
|
|
796,327 |
|
|
|
7.58 |
% |
Cash
and due from banks
|
|
|
1,320,584 |
|
|
|
|
|
|
|
|
|
|
|
1,494,407 |
|
|
|
|
|
|
|
|
|
Allowance
for loan losses
|
|
|
(516,908 |
) |
|
|
|
|
|
|
|
|
|
|
(375,388 |
) |
|
|
|
|
|
|
|
|
Goodwill
|
|
|
2,009,517 |
|
|
|
|
|
|
|
|
|
|
|
2,012,270 |
|
|
|
|
|
|
|
|
|
Core
deposit and other intangibles
|
|
|
137,675 |
|
|
|
|
|
|
|
|
|
|
|
188,843 |
|
|
|
|
|
|
|
|
|
Other
assets
|
|
|
3,139,930 |
|
|
|
|
|
|
|
|
|
|
|
2,449,988 |
|
|
|
|
|
|
|
|
|
Total
assets
|
|
$ |
53,293,375 |
|
|
|
|
|
|
|
|
|
|
$ |
47,921,787 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
LIABILITIES
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Interest-bearing
deposits:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Savings
and NOW
|
|
$ |
4,651,117 |
|
|
|
8,776 |
|
|
|
0.76 |
% |
|
$ |
4,511,110 |
|
|
|
10,179 |
|
|
|
0.91 |
% |
Money
market
|
|
|
10,752,743 |
|
|
|
54,707 |
|
|
|
2.05 |
% |
|
|
10,245,788 |
|
|
|
88,578 |
|
|
|
3.47 |
% |
Internet
money market
|
|
|
2,200,695 |
|
|
|
16,661 |
|
|
|
3.04 |
% |
|
|
1,484,748 |
|
|
|
18,538 |
|
|
|
5.01 |
% |
Time
under $100,000
|
|
|
2,513,620 |
|
|
|
23,276 |
|
|
|
3.72 |
% |
|
|
2,518,631 |
|
|
|
27,382 |
|
|
|
4.36 |
% |
Time
$100,000 and over
|
|
|
4,344,441 |
|
|
|
40,462 |
|
|
|
3.75 |
% |
|
|
5,091,202 |
|
|
|
61,864 |
|
|
|
4.87 |
% |
Foreign
|
|
|
3,254,872 |
|
|
|
19,722 |
|
|
|
2.44 |
% |
|
|
2,561,459 |
|
|
|
31,199 |
|
|
|
4.89 |
% |
Total
interest-bearing deposits
|
|
|
27,717,488 |
|
|
|
163,604 |
|
|
|
2.37 |
% |
|
|
26,412,938 |
|
|
|
237,740 |
|
|
|
3.61 |
% |
Borrowed
funds:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Securities
sold, not yet purchased
|
|
|
33,299 |
|
|
|
414 |
|
|
|
5.00 |
% |
|
|
18,426 |
|
|
|
227 |
|
|
|
4.94 |
% |
Federal
funds purchased and security
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
repurchase
agreements
|
|
|
2,999,084 |
|
|
|
14,569 |
|
|
|
1.95 |
% |
|
|
2,962,417 |
|
|
|
35,378 |
|
|
|
4.79 |
% |
Commercial
paper
|
|
|
148,946 |
|
|
|
1,222 |
|
|
|
3.30 |
% |
|
|
194,134 |
|
|
|
2,647 |
|
|
|
5.47 |
% |
FHLB
advances and other borrowings:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
One
year or less
|
|
|
4,701,020 |
|
|
|
27,050 |
|
|
|
2.31 |
% |
|
|
384,648 |
|
|
|
5,117 |
|
|
|
5.34 |
% |
Over
one year
|
|
|
129,079 |
|
|
|
1,840 |
|
|
|
5.73 |
% |
|
|
129,147 |
|
|
|
1,853 |
|
|
|
5.75 |
% |
Long-term
debt
|
|
|
2,632,660 |
|
|
|
29,490 |
|
|
|
4.51 |
% |
|
|
2,366,050 |
|
|
|
37,305 |
|
|
|
6.32 |
% |
Total
borrowed funds
|
|
|
10,644,088 |
|
|
|
74,585 |
|
|
|
2.82 |
% |
|
|
6,054,822 |
|
|
|
82,527 |
|
|
|
5.47 |
% |
Total
interest-bearing liabilities
|
|
|
38,361,576 |
|
|
|
238,189 |
|
|
|
2.50 |
% |
|
|
32,467,760 |
|
|
|
320,267 |
|
|
|
3.96 |
% |
Noninterest-bearing
deposits
|
|
|
9,056,726 |
|
|
|
|
|
|
|
|
|
|
|
9,551,265 |
|
|
|
|
|
|
|
|
|
Other
liabilities
|
|
|
537,782 |
|
|
|
|
|
|
|
|
|
|
|
634,370 |
|
|
|
|
|
|
|
|
|
Total
liabilities
|
|
|
47,956,084 |
|
|
|
|
|
|
|
|
|
|
|
42,653,395 |
|
|
|
|
|
|
|
|
|
Minority
interest
|
|
|
27,244 |
|
|
|
|
|
|
|
|
|
|
|
35,009 |
|
|
|
|
|
|
|
|
|
Shareholders'
equity:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Preferred
equity
|
|
|
240,000 |
|
|
|
|
|
|
|
|
|
|
|
240,000 |
|
|
|
|
|
|
|
|
|
Common
equity
|
|
|
5,070,047 |
|
|
|
|
|
|
|
|
|
|
|
4,993,383 |
|
|
|
|
|
|
|
|
|
Total
shareholders' equity
|
|
|
5,310,047 |
|
|
|
|
|
|
|
|
|
|
|
5,233,383 |
|
|
|
|
|
|
|
|
|
Total
liabilities and shareholders' equity
|
|
$ |
53,293,375 |
|
|
|
|
|
|
|
|
|
|
$ |
47,921,787 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Spread
on average interest-bearing funds
|
|
|
|
|
|
|
|
|
|
|
3.71 |
% |
|
|
|
|
|
|
|
|
|
|
3.62 |
% |
Taxable-equivalent
net interest income and
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
net
yield on interest-earning assets
|
|
|
|
|
|
$ |
490,587 |
|
|
|
4.18 |
% |
|
|
|
|
|
$ |
476,060 |
|
|
|
4.53 |
% |
(1) |
Taxable-equivalent
rates used where applicable. |
(2) |
Net of unearned
income and fees, net of related costs. Loans include nonaccrual and
restructured loans. |
ZIONS
BANCORPORATION AND SUBSIDIARIES
CONSOLIDATED
AVERAGE BALANCE SHEETS, YIELDS AND RATES (Continued)
(Unaudited)
|
|
Six
Months Ended
|
|
Six
Months Ended
|
|
|
June
30, 2008
|
|
June
30, 2007
|
(In
thousands)
|
|
Average
|
|
Amount
of
|
|
Average
|
|
Average
|
|
Amount
of
|
|
Average
|
|
|
balance
|
|
interest
(1)
|
|
rate
|
|
balance
|
|
interest
(1)
|
|
rate
|
ASSETS
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Money
market investments
|
|
$ |
1,941,873 |
|
|
$ |
31,341 |
|
|
|
3.25 |
% |
|
$ |
537,052 |
|
|
$ |
14,098 |
|
|
|
5.29 |
% |
Securities:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Held-to-maturity
|
|
|
1,116,560 |
|
|
|
37,651 |
|
|
|
6.78 |
% |
|
|
667,690 |
|
|
|
23,218 |
|
|
|
7.01 |
% |
Available-for-sale
|
|
|
3,947,157 |
|
|
|
103,203 |
|
|
|
5.26 |
% |
|
|
4,870,033 |
|
|
|
139,803 |
|
|
|
5.79 |
% |
Trading
account
|
|
|
40,137 |
|
|
|
840 |
|
|
|
4.21 |
% |
|
|
73,628 |
|
|
|
1,958 |
|
|
|
5.36 |
% |
Total
securities
|
|
|
5,103,854 |
|
|
|
141,694 |
|
|
|
5.58 |
% |
|
|
5,611,351 |
|
|
|
164,979 |
|
|
|
5.93 |
% |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Loans:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Loans
held for sale
|
|
|
200,545 |
|
|
|
5,716 |
|
|
|
5.73 |
% |
|
|
251,959 |
|
|
|
8,197 |
|
|
|
6.56 |
% |
Net
loans and leases (2)
|
|
|
39,781,734 |
|
|
|
1,346,219 |
|
|
|
6.81 |
% |
|
|
35,524,602 |
|
|
|
1,386,142 |
|
|
|
7.87 |
% |
Total
loans and leases
|
|
|
39,982,279 |
|
|
|
1,351,935 |
|
|
|
6.80 |
% |
|
|
35,776,561 |
|
|
|
1,394,339 |
|
|
|
7.86 |
% |
Total
interest-earning assets
|
|
|
47,028,006 |
|
|
|
1,524,970 |
|
|
|
6.52 |
% |
|
|
41,924,964 |
|
|
|
1,573,416 |
|
|
|
7.57 |
% |
Cash
and due from banks
|
|
|
1,368,970 |
|
|
|
|
|
|
|
|
|
|
|
1,539,549 |
|
|
|
|
|
|
|
|
|
Allowance
for loan losses
|
|
|
(496,761 |
) |
|
|
|
|
|
|
|
|
|
|
(375,060 |
) |
|
|
|
|
|
|
|
|
Goodwill
|
|
|
2,009,497 |
|
|
|
|
|
|
|
|
|
|
|
1,998,096 |
|
|
|
|
|
|
|
|
|
Core
deposit and other intangibles
|
|
|
142,019 |
|
|
|
|
|
|
|
|
|
|
|
191,469 |
|
|
|
|
|
|
|
|
|
Other
assets
|
|
|
3,051,868 |
|
|
|
|
|
|
|
|
|
|
|
2,475,366 |
|
|
|
|
|
|
|
|
|
Total
assets
|
|
$ |
53,103,599 |
|
|
|
|
|
|
|
|
|
|
$ |
47,754,384 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
LIABILITIES
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Interest-bearing
deposits:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Savings
and NOW
|
|
$ |
4,585,133 |
|
|
|
19,245 |
|
|
|
0.84 |
% |
|
$ |
4,510,711 |
|
|
|
20,239 |
|
|
|
0.90 |
% |
Money
market
|
|
|
10,652,521 |
|
|
|
127,027 |
|
|
|
2.40 |
% |
|
|
10,246,270 |
|
|
|
174,829 |
|
|
|
3.44 |
% |
Internet
money market
|
|
|
2,209,438 |
|
|
|
37,859 |
|
|
|
3.45 |
% |
|
|
1,403,946 |
|
|
|
35,330 |
|
|
|
5.07 |
% |
Time
under $100,000
|
|
|
2,545,893 |
|
|
|
50,441 |
|
|
|
3.98 |
% |
|
|
2,476,444 |
|
|
|
53,108 |
|
|
|
4.32 |
% |
Time
$100,000 and over
|
|
|
4,402,884 |
|
|
|
89,536 |
|
|
|
4.09 |
% |
|
|
4,957,906 |
|
|
|
119,282 |
|
|
|
4.85 |
% |
Foreign
|
|
|
3,272,481 |
|
|
|
49,705 |
|
|
|
3.05 |
% |
|
|
2,503,163 |
|
|
|
60,940 |
|
|
|
4.91 |
% |
Total
interest-bearing deposits
|
|
|
27,668,350 |
|
|
|
373,813 |
|
|
|
2.72 |
% |
|
|
26,098,440 |
|
|
|
463,728 |
|
|
|
3.58 |
% |
Borrowed
funds:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Securities
sold, not yet purchased
|
|
|
33,438 |
|
|
|
747 |
|
|
|
4.49 |
% |
|
|
36,086 |
|
|
|
808 |
|
|
|
4.52 |
% |
Federal
funds purchased and security
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
repurchase
agreements
|
|
|
3,157,020 |
|
|
|
38,775 |
|
|
|
2.47 |
% |
|
|
2,978,728 |
|
|
|
70,855 |
|
|
|
4.80 |
% |
Commercial
paper
|
|
|
177,233 |
|
|
|
3,554 |
|
|
|
4.03 |
% |
|
|
186,481 |
|
|
|
5,012 |
|
|
|
5.42 |
% |
FHLB
advances and other borrowings:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
One
year or less
|
|
|
4,391,614 |
|
|
|
63,313 |
|
|
|
2.90 |
% |
|
|
578,845 |
|
|
|
15,386 |
|
|
|
5.36 |
% |
Over
one year
|
|
|
128,185 |
|
|
|
3,665 |
|
|
|
5.75 |
% |
|
|
132,846 |
|
|
|
3,824 |
|
|
|
5.80 |
% |
Long-term
debt
|
|
|
2,568,639 |
|
|
|
57,979 |
|
|
|
4.54 |
% |
|
|
2,370,213 |
|
|
|
74,022 |
|
|
|
6.30 |
% |
Total
borrowed funds
|
|
|
10,456,129 |
|
|
|
168,033 |
|
|
|
3.23 |
% |
|
|
6,283,199 |
|
|
|
169,907 |
|
|
|
5.45 |
% |
Total
interest-bearing liabilities
|
|
|
38,124,479 |
|
|
|
541,846 |
|
|
|
2.86 |
% |
|
|
32,381,639 |
|
|
|
633,635 |
|
|
|
3.95 |
% |
Noninterest-bearing
deposits
|
|
|
9,016,094 |
|
|
|
|
|
|
|
|
|
|
|
9,476,576 |
|
|
|
|
|
|
|
|
|
Other
liabilities
|
|
|
595,732 |
|
|
|
|
|
|
|
|
|
|
|
644,311 |
|
|
|
|
|
|
|
|
|
Total
liabilities
|
|
|
47,736,305 |
|
|
|
|
|
|
|
|
|
|
|
42,502,526 |
|
|
|
|
|
|
|
|
|
Minority
interest
|
|
|
28,960 |
|
|
|
|
|
|
|
|
|
|
|
37,859 |
|
|
|
|
|
|
|
|
|
Shareholders'
equity:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Preferred
equity
|
|
|
240,000 |
|
|
|
|
|
|
|
|
|
|
|
240,000 |
|
|
|
|
|
|
|
|
|
Common
equity
|
|
|
5,098,334 |
|
|
|
|
|
|
|
|
|
|
|
4,973,999 |
|
|
|
|
|
|
|
|
|
Total
shareholders' equity
|
|
|
5,338,334 |
|
|
|
|
|
|
|
|
|
|
|
5,213,999 |
|
|
|
|
|
|
|
|
|
Total
liabilities and shareholders' equity
|
|
$ |
53,103,599 |
|
|
|
|
|
|
|
|
|
|
$ |
47,754,384 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Spread
on average interest-bearing funds
|
|
|
|
|
|
|
|
|
|
|
3.66 |
% |
|
|
|
|
|
|
|
|
|
|
3.62 |
% |
Taxable-equivalent
net interest income and
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
net
yield on interest-earning assets
|
|
|
|
|
|
$ |
983,124 |
|
|
|
4.20 |
% |
|
|
|
|
|
$ |
939,781 |
|
|
|
4.52 |
% |
(1) |
Taxable-equivalent
rates used where applicable. |
(2) |
Net of unearned
income and fees, net of related costs. Loans include nonaccrual and
restructured loans. |
ZIONS
BANCORPORATION AND SUBSIDIARIES
Provisions
for Credit Losses
The
provision for loan losses is the amount of expense that, based on our judgment,
is required to maintain the allowance for loan losses at an adequate level based
upon the inherent risks in the portfolio. The provision for unfunded lending
commitments is used to maintain the reserve for unfunded lending commitments at
an adequate level. In determining adequate levels of the allowance and reserve,
we perform periodic evaluations of the Company’s various portfolios, the levels
of actual charge-offs, and statistical trends and other economic factors. See
“Credit Risk Management” for more information on how we determine the
appropriate level for the allowance for loan and lease losses and the reserve
for unfunded lending commitments.
The
provision for loan losses for the second quarter of 2008 was $114.2 million
compared to $17.8 million for the same period of 2007. On an annualized basis,
the provision was 1.13% of average loans for the second quarter of 2008 compared
to 0.20% for the second quarter of 2007. The increased provision for the second
quarter of 2008 resulted primarily from weakness in residential land
acquisition, development and construction loans in the Southwest and some
weakening in Utah residential construction lending. Net loan and lease
charge-offs increased to $67.8 million in second quarter of 2008 up from $8.7
million in same period of 2007. The $59.1 million increase during the second
quarter of 2008 was primarily driven by declining collateral values on
residential land acquisition, development and construction loans in the
Southwest and to a lesser extent in Utah. See “Nonperforming Assets” and
“Allowance and Reserve for Credit Losses” for further details. The provision for
unfunded lending commitments was $1.7 million for the second quarter of 2008
compared to $1.2 million for the second quarter of 2007. From period to period,
the amounts of unfunded lending commitments may be subject to sizeable
fluctuation due to changes in the timing, volume of loan originations, fundings,
and by changes in creditworthiness of borrowers with unfunded commitments. The
related provision will generally reflect these fluctuations. When combined, the
provisions for credit losses for the second quarter of 2008 were $115.9 million
compared to $19.0 million for the second quarter of 2007.
The
provision for loan losses for the first six months of 2008 was $206.5 million,
668.3% higher than the $26.9 million provision for the first six months of 2007.
The increased loan loss provision for the first six months of 2008 compared to
2007 is primarily caused by weakness in the residential land acquisition,
development and construction loans as previously described. The provision for
unfunded lending commitments was $5.3 million for the first half of 2008
compared to $1.5 million for the first half of 2007.
Noninterest
Income
For the
second quarter of 2008, noninterest income decreased 48.8% to $72.4 million
compared to $141.3 million for the second quarter of 2007. The decrease is
primarily due to $38.8 million of impairment losses on investment securities and
to $19.8 million of fair value and nonhedge derivative losses during the second
quarter of 2008.
Service
charges and fees on deposit accounts increased $6.0 million or 13.2% for the
second quarter of 2008 compared to the second quarter of 2007. The increase was
mainly due to the impact of increased fees across the Company.
Income
from securities conduit decreased $4.9 million or 82.5% for the second quarter
of 2008 compared to the second quarter of 2007. This servicing income represents
fees we receive from Lockhart and decreased because of the higher cost of
asset-backed commercial paper due to disruptions in the commercial paper markets
and because of the diminishing size of Lockhart’s securities portfolio. The book
value of Lockhart’s securities portfolio declined to $862 million at June 30,
2008 from $2.12 billion at December 31, 2007 and $3.54 billion at June 30, 2007
mainly due to purchases of Lockhart’s securities and also due to principal
repayments. We expect that the book value of the Lockhart portfolio will
continue to decrease and income from the securities conduit will not be
significant. All else being equal, net interest income is increased if and as
Lockhart-related assets are brought onto the Company’s balance sheet, roughly
offsetting the noninterest income impact.
ZIONS
BANCORPORATION AND SUBSIDIARIES
Fair
value and nonhedge derivative loss for the second quarter of 2008 was $19.8
million compared to income of $0.9 million for the second quarter of 2007. The
decrease is primarily due to decreases in the fair value of nonhedge derivatives
resulting from decreasing spreads between LIBOR and prime rates. Also included
are fair value adjustments for certain retained interests which decreased
earnings by approximately $3.8 million during the second quarter of
2008.
Net
equity securities losses were $8.1 million for the second quarter of 2008
compared to $0.1 million of gains for the second quarter of 2007. Net losses in
the second quarter of 2008 included $8.2 million of net losses on venture
capital investments. Net of related minority interest of $5.7 million, income
taxes and other expenses, the venture capital losses decreased net income for
the quarter by approximately $1.8 million.
The
Company recognized impairment losses on investment securities of $38.8 million
during the second quarter of 2008. These other-than-temporary impairment
(“OTTI”) losses were for certain CDOs, including ABS CDOs, bank and insurance
income notes, and REIT trust preferred CDOs. See “Investment Securities
Portfolio” for additional information.
Noninterest
income of $183.4 million for the first six months of 2008 decreased 36.1% from
$286.8 million for the first six months of 2007. Explanations previously
provided for the quarterly changes also apply to the year-to-date changes.
Additional explanations of variances follow.
Loan
sales and servicing income for the first six months of 2008 decreased $1.9
million or 10.6% compared to the first six months of 2007. However, the 2007
amount included a $9.3 million impairment charge on retained interests from
certain previous loan securitizations. The decreased income is primarily due to
the lower amount of sold loans being serviced, which was $0.5 billion at June
30, 2008 compared to $2.2 billion at June 30, 2007.
Net
equity securities gains for the first six months of 2008 include a $12.4 million
pretax cash gain from the partial redemption of the Company’s subsidiary banks’
equity interests in Visa Inc. Excluding this gain, the decrease from the first
six months of 2007 was primarily due to losses from venture capital investments
in the second quarter of 2008 as previously discussed. The first six months of
2007 included $2.8 million of gains from venture capital investments and a $2.5
million gain from the sale of a community bank investment.
Impairment
losses on investment securities and valuation losses on securities purchased
from Lockhart for the first six months of 2008 were $84.8 million. These OTTI
losses were for certain CDOs, including ABS CDOs, bank and insurance income
notes, and REIT trust preferred CDOs. The valuation losses on securities
purchased from Lockhart were related to fair value adjustments when the
securities were purchased at par from Lockhart and recorded on the Company’s
balance sheet at fair value. See “Off-Balance Sheet Arrangement” for additional
information.
Noninterest
Expense
Noninterest
expense for the second quarter of 2008 was $354.4 million, an increase of 2.0%
from $347.6 million for the second quarter of 2007. The Company’s efficiency
ratio for the second quarter of 2008 was 63.0% compared to 56.3% for the second
quarter of 2007 mainly reflecting the decrease in noninterest income previously
discussed.
Salaries
and employee benefits increased $2.6 million or 1.3% compared to the second
quarter of 2007. The increase reflects moderate increases in compensation
partially offset by decreased accruals for long-term incentive and profit
sharing plans based upon Company performance.
ZIONS
BANCORPORATION AND SUBSIDIARIES
Other
noninterest expense for the second quarter of 2008 increased $6.3 million or
11.3% compared to the second quarter of 2007. FDIC assessment fees increased
$3.6 million compared to the second quarter of 2007.
Noninterest
expense for the first six months of 2008 of $704.5 million increased 0.7% from
$699.6 million for the first six months of 2007. The Company’s efficiency ratio
was 60.4% for the first six months of 2008 compared to 57.0% for the same period
of 2007. Explanations previously provided for the quarterly changes also apply
to the year-to-date changes. Additional explanations of variances
follow.
Merger
related expense decreased $3.3 million or 84.9% compared to the first six months
of 2007. The decrease is mainly due to the completion of the Stockmen’s
acquisition and system conversion during the first six months of
2007.
At June
30, 2008, the Company had 10,985 full-time equivalent employees, 506 domestic
branches, and 625 ATMs, compared to 11,048 full-time equivalent employees, 514
domestic branches, and 600 ATMs at June 30, 2007.
Income
Taxes
The
Company’s income tax expense decreased to $22.0 million for the second quarter
of 2008 compared to $86.1 million for the same period in 2007. The Company’s
effective income tax rates, including the effects of minority interest, were
23.4% and 35.1% for the second quarters of 2008 and 2007, respectively. The
effective income tax rates for the first six months of 2008 and 2007 were 28.7%
and 35.9%. During the second quarter of 2008 and under the provisions of FIN 48,
the Company reduced its liability and related interest for uncertain tax
positions by $5.9 million due primarily to settlement of uncertain tax positions
with governmental authorities. Also, income taxes for the first quarter of 2007
included approximately $2.9 million of taxes and penalties for the one time
redemption of certain bank-owned life insurance contracts. The lower second
quarter and year to date tax rate for 2008 compared to 2007 is also due to the
lower taxable income in 2008, which increased the proportion of nontaxable
income relative to total income. As discussed in previous filings, the Company
has received federal income tax credits under the Community Development
Financial Institutions Fund set up by the U.S. Government that are recognized
over a seven-year period from the year of investment. The effect of these tax
credits was to reduce income tax expense by $2.9 million and $2.8 million for
first six months of 2008 and 2007, respectively.
BALANCE
SHEET ANALYSIS
Interest-Earning
Assets
Interest-earning
assets are those assets that have interest rates or yields associated with them
and consist of money market investments, securities and loans.
Average
interest-earning assets increased 12.2% to $47.0 billion for the six months
ended June 30, 2008 compared to $41.9 billion for the same period in 2007.
Average interest-earning assets as a percentage of total average assets for the
first six months of 2008 was 88.6% compared to 87.8% for the comparable period
of 2007.
Average
money market investments, consisting of interest-bearing deposits and commercial
paper, federal funds sold and security resell agreements, increased 261.6% to
$1,942 million for the first six months of 2008 compared to $537 million for the
first six months of 2007. Average money market investments for the first six
months of 2008 includes $1,147 million of asset-backed commercial paper that
subsidiary companies purchased from Lockhart during the first six months of
2008. See discussion at “Liquidity Risk Management” for further
details.
ZIONS
BANCORPORATION AND SUBSIDIARIES
Investment
Securities Portfolio
The
following tables present the Company’s held-to-maturity and available-for-sale
investment securities:
|
|
June
30, 2008
|
|
|
|
|
|
Net
|
|
|
|
|
Net
|
|
|
|
|
|
|
|
|
unrealized
|
|
|
|
|
unrealized
|
|
|
|
|
|
|
|
|
gains
(losses)
|
|
|
|
|
gains
(losses)
|
|
Estimated
|
(In
millions)
|
|
Amortized
|
|
recognized
|
|
Carrying
|
|
not
recognized
|
|
fair
|
|
|
cost
|
|
in
OCI (1)
|
|
value
|
|
in
OCI (1)
|
|
value
|
HELD-TO-MATURITY:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Municipal
securities
|
|
$ |
693 |
|
|
$ |
- |
|
|
$ |
693 |
|
|
$ |
(5 |
) |
|
$ |
688 |
|
Asset-backed
securities:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Trust
preferred securities – banks and insurance
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
A
rated
|
|
|
1,201 |
|
|
|
(197 |
) |
|
|
1,004 |
|
|
|
(139 |
) |
|
|
865 |
|
BBB
rated
|
|
|
175 |
|
|
|
(45 |
) |
|
|
130 |
|
|
|
(20 |
) |
|
|
110 |
|
|
|
|
1,376 |
|
|
|
(242 |
) |
|
|
1,134 |
|
|
|
(159 |
) |
|
|
975 |
|
Trust
preferred securities – real estate investment trusts
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
AA
rated
|
|
|
18 |
|
|
|
(5 |
) |
|
|
13 |
|
|
|
(5 |
) |
|
|
8 |
|
A
rated
|
|
|
18 |
|
|
|
(4 |
) |
|
|
14 |
|
|
|
(4 |
) |
|
|
10 |
|
|
|
|
36 |
|
|
|
(9 |
) |
|
|
27 |
|
|
|
(9 |
) |
|
|
18 |
|
Other
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
AAA
rated
|
|
|
42 |
|
|
|
- |
|
|
|
42 |
|
|
|
(13 |
) |
|
|
29 |
|
A
rated
|
|
|
23 |
|
|
|
(12 |
) |
|
|
11 |
|
|
|
1 |
|
|
|
12 |
|
BBB
rated
|
|
|
8 |
|
|
|
(1 |
) |
|
|
7 |
|
|
|
- |
|
|
|
7 |
|
|
|
|
73 |
|
|
|
(13 |
) |
|
|
60 |
|
|
|
(12 |
) |
|
|
48 |
|
Other
debt securities
|
|
|
1 |
|
|
|
- |
|
|
|
1 |
|
|
|
- |
|
|
|
1 |
|
|
|
|
2,179 |
|
|
|
(264 |
) |
|
|
1,915 |
|
|
|
(185 |
) |
|
|
1,730 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
AVAILABLE-FOR-SALE:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
U.S.
Treasury securities
|
|
|
40 |
|
|
|
1 |
|
|
|
41 |
|
|
|
|
|
|
|
41 |
|
U.S.
Government agencies and corporations:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Agency
securities
|
|
|
425 |
|
|
|
- |
|
|
|
425 |
|
|
|
|
|
|
|
425 |
|
Agency
guaranteed mortgage-backed securities
|
|
|
428 |
|
|
|
3 |
|
|
|
431 |
|
|
|
|
|
|
|
431 |
|
Small
Business Administration loan-backed securities
|
|
|
723 |
|
|
|
(17 |
) |
|
|
706 |
|
|
|
|
|
|
|
706 |
|
Municipal
securities
|
|
|
201 |
|
|
|
1 |
|
|
|
202 |
|
|
|
|
|
|
|
202 |
|
Asset-backed
securities:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Trust
preferred securities – banks and insurance
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
AAA
rated
|
|
|
664 |
|
|
|
(57 |
) |
|
|
607 |
|
|
|
|
|
|
|
607 |
|
A
rated
|
|
|
54 |
|
|
|
(11 |
) |
|
|
43 |
|
|
|
|
|
|
|
43 |
|
BBB
rated
|
|
|
7 |
|
|
|
(2 |
) |
|
|
5 |
|
|
|
|
|
|
|
5 |
|
Not
rated
|
|
|
29 |
|
|
|
3 |
|
|
|
32 |
|
|
|
|
|
|
|
32 |
|
|
|
|
754 |
|
|
|
(67 |
) |
|
|
687 |
|
|
|
|
|
|
|
687 |
|
Trust
preferred securities – real estate investment trusts
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Noninvestment
grade
|
|
|
44 |
|
|
|
(3 |
) |
|
|
41 |
|
|
|
|
|
|
|
41 |
|
Small
business loan-backed
|
|
|
13 |
|
|
|
- |
|
|
|
13 |
|
|
|
|
|
|
|
13 |
|
Other
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
AAA
rated
|
|
|
43 |
|
|
|
(3 |
) |
|
|
40 |
|
|
|
|
|
|
|
40 |
|
AA
rated
|
|
|
48 |
|
|
|
(5 |
) |
|
|
43 |
|
|
|
|
|
|
|
43 |
|
BBB
rated
|
|
|
3 |
|
|
|
- |
|
|
|
3 |
|
|
|
|
|
|
|
3 |
|
Noninvestment
grade
|
|
|
18 |
|
|
|
(1 |
) |
|
|
17 |
|
|
|
|
|
|
|
17 |
|
|
|
|
112 |
|
|
|
(9 |
) |
|
|
103 |
|
|
|
|
|
|
|
103 |
|
|
|
|
2,740 |
|
|
|
(91 |
) |
|
|
2,649 |
|
|
|
|
|
|
|
2,649 |
|
Other
securities:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Mutual
funds and stock
|
|
|
169 |
|
|
|
- |
|
|
|
169 |
|
|
|
|
|
|
|
169 |
|
|
|
|
2,909 |
|
|
|
(91 |
) |
|
|
2,818 |
|
|
|
|
|
|
|
2,818 |
|
Total
|
|
$ |
5,088 |
|
|
$ |
(355 |
) |
|
$ |
4,733 |
|
|
$ |
(185 |
) |
|
$ |
4,548 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(1) Other
comprehensive income. All amounts reported are
pretax.
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Ratings
categories include entire range. For example, "A rated" includes A+,
A and A-.
|
ZIONS
BANCORPORATION AND SUBSIDIARIES
|
|
December
31,
|
|
June
30,
|
|
|
2007
|
|
2007
|
|
|
|
|
|
Estimated
|
|
|
|
|
Estimated
|
|
|
Amortized
|
|
fair
|
|
Amortized
|
|
fair
|
(In
millions)
|
|
cost
|
|
value
|
|
cost
|
|
value
|
|
|
|
|
|
|
|
|
|
|
|
|
|
HELD-TO-MATURITY:
|
|
|
|
|
|
|
|
|
|
|
|
|
Municipal
securities
|
|
$ |
704 |
|
|
$ |
702 |
|
|
$ |
702 |
|
|
$ |
686 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
AVAILABLE-FOR-SALE:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
U.S.
Treasury securities
|
|
|
52 |
|
|
|
53 |
|
|
|
42 |
|
|
|
42 |
|
U.S.
Government agencies and corporations:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Agency
securities
|
|
|
629 |
|
|
|
626 |
|
|
|
655 |
|
|
|
645 |
|
Agency
guaranteed mortgage-backed securities
|
|
|
765 |
|
|
|
763 |
|
|
|
829 |
|
|
|
820 |
|
Small
Business Administration loan-backed securities
|
|
|
789 |
|
|
|
771 |
|
|
|
786 |
|
|
|
774 |
|
Municipal
securities
|
|
|
220 |
|
|
|
222 |
|
|
|
248 |
|
|
|
247 |
|
Asset-backed
securities:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Trust
preferred securities – banks and
insurance
|
|
|
2,123 |
|
|
|
2,019 |
|
|
|
1,521 |
|
|
|
1,496 |
|
Trust
preferred securities – real estate
investment trusts
|
|
|
156 |
|
|
|
94 |
|
|
|
229 |
|
|
|
218 |
|
Small
business loan-backed
|
|
|
183 |
|
|
|
182 |
|
|
|
185 |
|
|
|
184 |
|
Other
|
|
|
226 |
|
|
|
231 |
|
|
|
7 |
|
|
|
7 |
|
|
|
|
5,143 |
|
|
|
4,961 |
|
|
|
4,502 |
|
|
|
4,433 |
|
Other
securities:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Mutual
funds and stock
|
|
|
174 |
|
|
|
174 |
|
|
|
130 |
|
|
|
131 |
|
|
|
|
5,317 |
|
|
|
5,135 |
|
|
|
4,632 |
|
|
|
4,564 |
|
Total
|
|
$ |
6,021 |
|
|
$ |
5,837 |
|
|
$ |
5,334 |
|
|
$ |
5,250 |
|
The
amortized cost of investment securities at June 30, 2008 decreased 15.5% from
the balance at December 31, 2007. The change was largely due to security sales,
security maturity paydowns, and OTTI write-downs, offset in part by Zions Bank
purchasing securities from Lockhart. See further discussion of securities
purchases from Lockhart in “Off-Balance Sheet Arrangement.” As discussed further
in “Risk Elements: Market Risk – Fixed Income,” changes in fair value on
available-for-sale securities have been reflected in shareholders’ equity
through accumulated other comprehensive income (“OCI”).
At June
30, 2008, 93% of the $2.6 billion of available-for-sale securities, excluding
mutual funds and stock, consisted of AAA-rated structured securities, municipal
securities, and government and agency guaranteed securities, 2% consisted of
AA-rated securities, and 2% consisted of A-rated securities. In addition, 3% of
the portfolio was unrated or below investment grade securities. The $1.9 billion
of held-to-maturity securities held at adjusted amortized cost was comprised of
38% of AAA-rated securities and municipal securities, 1% of AA-rated securities,
54% of A-rated securities, and 7% of BBB-rated securities.
Included
in asset-backed securities at June 30, 2008 are CDOs collateralized by trust
preferred securities issued by banks, insurance companies, or REITs. The REIT
CDOs have some exposure to the subprime market. In addition, the $163 million of
held-to-maturity and available-for-sale “Asset-backed securities – Other”
includes $65 million of certain structured asset-backed collateralized debt
obligations (“ABS CDOs”) (also known as diversified structured finance CDOs)
purchased from Lockhart, which have minimal exposure to non-Zions’ originated
subprime and home equity mortgage securitizations. The $65 million of ABS CDOs
includes approximately $9 million of subprime mortgage securities and $13
million of home equity credit line securities. See further discussion of certain
CDOs held by Lockhart in “Off-Balance Sheet Arrangement.”
At June
30, 2008, 4.0% of the $2.8 billion of fair value of available-for-sale
securities portfolio as shown in the previous table was valued at Level 1, 89.5%
was valued at Level 2, and 6.5% was valued at Level 3
ZIONS
BANCORPORATION AND SUBSIDIARIES
under the
SFAS 157 valuation hierarchy. See Note 8 of the Notes to Consolidated Financial
Statements for further discussion of fair value accounting.
The
amortized cost of available-for-sale investment securities valued at Level 3 was
$189 million and the fair value of these securities was $182 million. The
securities valued at Level 3 were certain CDOs. For these Level 3 securities,
net pretax unrealized income recognized in OCI in the second quarter was $7
million. As of June 30, 2008, we believe that the par amounts of the Level 3
available-for-sale securities for which no OTTI has been recognized do not
differ from the amounts we currently anticipate realizing on settlement or
maturity. See “Critical Accounting Policies and Significant Estimates” for
further details about the CDO securities pricing methodologies.
We review
investment securities on an ongoing basis for the presence of OTTI, taking into
consideration current market conditions, fair value in relationship to cost,
extent and nature of change in fair value, issuer rating changes and trends,
volatility of earnings, current analysts’ evaluations, our ability and intent to
hold investments until a recovery of fair value, which may be maturity, and
other factors. The Company recognized OTTI during the second quarter of 2008 of
approximately $38.8 million pretax. Approximately $28.7 million of the amount
resulted from write-downs of two ABS CDOs and one bank and insurance income note
that were first deemed to have OTTI this quarter. The remaining $10.1 million
resulted from write-downs of six REIT trust preferred CDOs and one bank and
insurance income note for which OTTI had previously been recognized. OTTI
previously recognized on a pretax basis was $40.8 million during the first
quarter of 2008 and $108.6 million during the fourth quarter of 2007. The
decision to deem these securities OTTI was based on the near term financial
prospects for collateral in each CDO, a specific analysis of the structure of
each security, and an evaluation of the underlying collateral using information
and industry knowledge available to Zions. Future reviews for OTTI will consider
the particular facts and circumstances during the reporting period in
review.
During
the second quarter of 2008, the Company reassessed the classification of certain
asset-backed and trust preferred CDOs. On April 28, 2008, the Company
reclassified approximately $1.2 billion at fair value of these
available-for-sale securities to held-to-maturity. The related unrealized pretax
loss of approximately $273 million included in OCI remained in OCI and is being
amortized as a yield adjustment through earnings over the remaining terms of the
securities. No gain or loss was recognized at the time of reclassification. The
Company considers the held-to-maturity classification to be more appropriate
because it has the ability and the intent to hold these securities to
maturity.
The
investment securities portfolio at June 30, 2008 includes $719 million of
nonrated fixed income securities. These securities include $677 million of
nonrated municipal securities underwritten and structured by Zions Bank in
accordance with its established municipal credit standards, $13 million of
securitized small business loan trust securities from a previous securitization,
and $29 million of individual and pooled trust preferred bank and insurance
securities. Nonrated fixed income securities were $908 million at December 31,
2007 and $888 million at June 30, 2007.
Loan
Portfolio
Net loans
and leases at June 30, 2008 were $41.9 billion, an annualized increase of 14.3%
from December 31, 2007 and an increase of 13.8% over the balance at June 30,
2007. These percentage increases include the effects of both “organic” loan
growth and the purchase of securitized loans from Lockhart.
ZIONS
BANCORPORATION AND SUBSIDIARIES
The following table sets forth the loan portfolio by type of
loan:
|
|
June
30,
|
|
December
31,
|
|
June
30,
|
(In
millions) |
|
2008
|
|
2007
|
|
2007
|
|
|
|
|
|
|
|
|
|
|
Loans
held for sale
|
|
$ |
159 |
|
|
$ |
208 |
|
|
$ |
226 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Commercial
lending:
|
|
|
|
|
|
|
|
|
|
|
|
|
Commercial
and industrial
|
|
|
10,590 |
|
|
|
9,811 |
|
|
|
8,922 |
|
Leasing
|
|
|
492 |
|
|
|
503 |
|
|
|
450 |
|
Owner
occupied
|
|
|
8,912 |
|
|
|
7,545 |
|
|
|
7,123 |
|
Total
commercial lending
|
|
|
19,994 |
|
|
|
17,859 |
|
|
|
16,495 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Commercial
real estate:
|
|
|
|
|
|
|
|
|
|
|
|
|
Construction
and land development
|
|
|
8,264 |
|
|
|
8,315 |
|
|
|
7,963 |
|
Term
|
|
|
5,939 |
|
|
|
5,335 |
|
|
|
5,084 |
|
Total
commercial real estate
|
|
|
14,203 |
|
|
|
13,650 |
|
|
|
13,047 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Consumer:
|
|
|
|
|
|
|
|
|
|
|
|
|
Home
equity credit line and other
|
|
|
|
|
|
|
|
|
|
|
|
|
consumer
real estate
|
|
|
2,387 |
|
|
|
2,203 |
|
|
|
2,042 |
|
1-4
family residential
|
|
|
4,172 |
|
|
|
4,206 |
|
|
|
4,134 |
|
Bankcard
and other revolving plans
|
|
|
332 |
|
|
|
347 |
|
|
|
306 |
|
Other
|
|
|
431 |
|
|
|
452 |
|
|
|
456 |
|
Total
consumer
|
|
|
7,322 |
|
|
|
7,208 |
|
|
|
6,938 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Foreign
loans
|
|
|
25 |
|
|
|
26 |
|
|
|
12 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Other
receivables
|
|
|
330 |
|
|
|
301 |
|
|
|
224 |
|
Total
loans
|
|
$ |
42,033 |
|
|
$ |
39,252 |
|
|
$ |
36,942 |
|
Loan
growth during the first six months was concentrated primarily in commercial
lending and secondarily in commercial term real estate loans, principally at
Zions Bank and Amegy Bank of Texas, and also in Vectra and the Commerce Bank of
Washington. Construction and land development loans declined over $425 million
in California, Arizona and Nevada during the first six months, partially offset
by growth in Texas. The increase in loans includes $1,180 million of loans
resulting from the purchase of certain securities from Lockhart, as discussed in
“Off-Balance Sheet Arrangement.” These securities were backed by loans
originated or underwritten by Zions Bank and are reflected on the Company’s
balance sheet primarily as owner occupied commercial loans.
Sold
Loans Being Serviced
The
Company performs loan servicing both on loans that it holds in its portfolios
and also on loans that are owned by third party investor-owned trusts. The
Company has used asset securitizations to sell loans and in many instances
provides the servicing on these loans as a condition of the sale.
|
|
|
|
|
|
|
|
|
|
|
|
Residual
interests
|
|
|
Sold
loans being serviced
|
|
on
balance sheet at June 30, 2008
|
|
|
Sales
for six
|
|
Outstanding
|
|
Subordinated
|
|
Capitalized
|
|
|
|
|
|
|
|
months
ended
|
|
balance
at
|
|
retained
|
|
residual
|
|
|
|
|
|
(In
millions)
|
|
June
30, 2008
|
|
June
30, 2008
|
|
interests
|
|
cash
flows
|
|
Total
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Home
equity credit lines
|
|
|
$ |
- |
|
|
|
|
$ |
9 |
|
|
|
|
$ |
7 |
|
|
|
|
$ |
- |
|
|
|
|
$ |
7 |
|
|
Small
business loans
|
|
|
|
- |
|
|
|
|
|
23 |
|
|
|
|
|
13 |
|
|
|
|
|
- |
|
|
|
|
|
13 |
|
|
SBA
7(a) loans
|
|
|
|
3 |
|
|
|
|
|
78 |
|
|
|
|
|
- |
|
|
|
|
|
1 |
|
|
|
|
|
1 |
|
|
Farmer
Mac
|
|
|
|
41 |
|
|
|
|
|
404 |
|
|
|
|
|
- |
|
|
|
|
|
5 |
|
|
|
|
|
5 |
|
|
Total
|
|
|
$ |
44 |
|
|
|
|
$ |
514 |
|
|
|
|
$ |
20 |
|
|
|
|
$ |
6 |
|
|
|
|
$ |
26 |
|
|
ZIONS
BANCORPORATION AND SUBSIDIARIES
Securitized
loans being serviced for others totaled $0.5 billion at June 30, 2008 compared
to $1.9 billion at December 31, 2007, and $2.2 billion at June 30, 2007
reflecting the purchases from Lockhart as discussed in “Off-Balance Sheet
Arrangement.” The Company did not complete a small business loan securitization
during 2007 or the first six months of 2008 and also discontinued selling new
home equity credit line originations during the fourth quarter of
2006.
As of
June 30, 2008, the Company had recorded assets, comprised of subordinated
retained interests and capitalized residual cash flows, in the amount of $26
million in connection with the $0.5 billion of sold loans being serviced. As is
a common practice with securitized transactions, the Company had subordinated
retained interests in the securitized assets that totaled $20 million at June
30, 2008, which represented junior positions to the other investors in the trust
securities. The capitalized residual cash flows, which are sometimes referred to
as “excess servicing,” of $6 million primarily represent the present value of
the excess cash flows that have been projected over the lives of the sold
loans.
As of
June 30, 2008, conforming long-term first mortgage real estate loans being
serviced for others were $1,211 million, compared with $1,232 million at
December 31, 2007 and $1,218 million at June 30, 2007.
Other
Noninterest-Bearing Investments
The
following table sets forth the Company’s other noninterest-bearing
investments:
|
|
June
30,
|
|
December
31,
|
|
June
30,
|
(In
millions)
|
|
2008
|
|
2007
|
|
2007
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Bank-owned
life insurance
|
|
|
$ |
613 |
|
|
|
|
$ |
601 |
|
|
|
|
$ |
588 |
|
|
Federal
Home Loan Bank and Federal Reserve stock
|
|
|
|
337 |
|
|
|
|
|
227 |
|
|
|
|
|
191 |
|
|
SBIC
investments (1)
|
|
|
|
71 |
|
|
|
|
|
73 |
|
|
|
|
|
80 |
|
|
Non-SBIC
investment funds
|
|
|
|
79 |
|
|
|
|
|
65 |
|
|
|
|
|
47 |
|
|
Other
public companies
|
|
|
|
32 |
|
|
|
|
|
38 |
|
|
|
|
|
37 |
|
|
Other
nonpublic companies
|
|
|
|
8 |
|
|
|
|
|
16 |
|
|
|
|
|
16 |
|
|
Trust
preferred securities
|
|
|
|
14 |
|
|
|
|
|
14 |
|
|
|
|
|
14 |
|
|
|
|
|
$ |
1,154 |
|
|
|
|
$ |
1,034 |
|
|
|
|
$ |
973 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(1) Amounts
include minority investors’ interests in Zions’ managed SBIC
investments
|
of approximately $24 million, $29 million and $30 million as of the
respective dates.
|
Federal
Home Loan Bank and Federal Reserve stock investments increased $110 million from
December 31, 2007. The increase is mainly due to increased investments that
subsidiary banks made at the Federal Home Loan Banks to increase their borrowing
capacity.
Deposits
Average
total deposits for the first six months of 2008 increased 3.1% compared to the
same period in 2007, with interest-bearing deposits increasing 6.0% and
noninterest-bearing deposits decreasing 4.9%.
Total
deposits at the end of the second quarter of 2008 increased to $37.6 billion, an
annualized increase of 3.7% from the balances reported at December 31, 2007, and
increased 3.9% over the June 30, 2007 amounts. Core deposits at June 30, 2008
increased 6.0% annualized compared to the December 31, 2007 balance and 7.0%
compared to the balance at June 30, 2007.
Demand,
savings and money market deposits comprised 73.7% of total deposits at the end
of the second quarter, compared with 72.0% and 72.2% as of December 31, 2007 and
June 30, 2007, respectively.
Management
expects that deposit growth may continue to lag behind loan growth, and that a
portion of future loan growth may be funded from alternative higher cost
funding sources.
ZIONS
BANCORPORATION AND SUBSIDIARIES
Off-Balance
Sheet Arrangement
The
Company administers one QSPE securities conduit, Lockhart, which was established
in 2000. Lockhart was structured to purchase securities that are collateralized
by small business loans originated or purchased by Zions Bank; such loans were
originated during and prior to 2005. Lockhart obtains funding through the
issuance of asset-backed commercial paper and holds securities, which include
U.S. Government agency securities collateralized by small business loans and
AAA/AA-rated securities.
Liquidity
Agreement
Zions
Bank is the sole provider of a liquidity facility to Lockhart. Pursuant to the
Liquidity Agreement, Zions Bank is required to purchase nondefaulted securities
from Lockhart to provide funds to repay maturing commercial paper upon
Lockhart’s inability to access the commercial paper market for sufficient
funding, or upon a commercial paper market disruption, as specified in the
governing documents of Lockhart. In addition, pursuant to the governing
documents, including the Liquidity Agreement, if any security in Lockhart is
downgraded to below AA- or the downgrade of one or more securities results in
more than ten securities having ratings of AA+ to AA-, Zions Bank must either 1)
place its letter of credit on the security, 2) obtain a credit enhancement on
the security from a third party, or 3) purchase the security from Lockhart at
book value.
The
maximum amount of liquidity that Zions Bank can be required to provide pursuant
to the Liquidity Agreement is limited to the total amount of securities held by
Lockhart. This maximum amount was $862 million at June 30, 2008, $1.75 billion
at March 31, 2008 and $2.12 billion at December 31, 2007.
In
addition to providing the Liquidity Agreement, Zions Bank receives a fee in
exchange for providing hedge support and administrative and investment advisory
services to Lockhart.
A hedge
agreement between Lockhart and Zions Bank provides for the bank to pay Lockhart
should Lockhart’s monthly cost of funds exceed its monthly asset yield. This
agreement has never been triggered. The spread between Lockhart’s monthly asset
yield and cost of funds has narrowed as a result of increased commercial paper
rates resulting from the ongoing contraction and disruption in the credit
markets. Although not expected, it is possible that this hedge agreement could
be triggered.
In
addition to rating agency downgrades of securities held by Lockhart that would
require Zions Bank to purchase securities from Lockhart, the following rating
agency actions may result in security purchases under the Liquidity
Agreement:
·
|
downgrades
of Lockhart’s commercial paper below P-1 by Moody’s or below F1 by Fitch,
which would prevent issuance of commercial paper by
Lockhart;
|
·
|
downgrades
of bond insurer Ambac that trigger Lockhart securities’ downgrades, which
may require Zions Bank to purchase
assets.
|
At June
30, 2008, Lockhart owned one security of $98 million insured by Ambac and rated
Aa3 by Moody’s Investors Service. The Ambac-insured security had an underlying
public rating of AAA from Fitch and no underlying rating from Moody’s Investors
Service.
On June
19, 2008, MBIA, Inc. was downgraded by Moody’s to below AA-, and as a result the
MBIA, Inc. insured assets held by Lockhart were downgraded to below AA-. On June
23, 2008, Zions Bank purchased $787 million of securities from Lockhart as
required by the Liquidity Agreement. The purchases comprised
ZIONS
BANCORPORATION AND SUBSIDIARIES
the
entire remaining small business loan securitizations created by Zions Bank and
held by Lockhart. No gain or loss was recognized on these purchases. Upon
dissolution of the securitization trusts (including $87 million of related
securities owned by the Parent), the Company recorded $897 million of loans on
its balance sheet including $23 million of premium. The retained interests
related to the securities purchased were included in the purchase transaction
and recorded with the premium amount.
In the
first quarter of 2008, certain assets held by Lockhart were downgraded by rating
agencies and Lockhart was unable to sell certain amounts of commercial paper at
times due to continued deterioration in the asset-backed commercial paper
markets. These events caused purchases by Zions Bank of securities from
Lockhart, as follows:
On
February 5, 2008, a $5 million security held by Lockhart was downgraded by
Moody’s from Aa1 to Baa1. Zions Bank purchased this security at book value and
recorded the related pretax write-down of $0.8 million in adjusting the security
to fair value. In addition, Lockhart was unable to sell sufficient commercial
paper to fund commercial paper maturities and Zions Bank purchased $115 million
of MBIA-insured securities from Lockhart. These securities consisted of
securitizations of small business loans from Zions Bank and their purchase
resulted in no gain or loss. Upon dissolution of the securitization trusts, the
loans were recorded on Zions Bank’s balance sheet.
On March
5, 2008, Lockhart was unable to sell sufficient commercial paper to fund
commercial paper maturities and Zions Bank purchased $85 million of MBIA-insured
securities and a $75 million bank trust preferred CDO from Lockhart. The
MBIA-insured securities consisted of securitizations of small business loans
from Zions Bank and their purchase resulted in no gain or loss. Upon dissolution
of the securitization trusts, the loans were recorded on Zions Bank’s balance
sheet. A pretax write-down of $4.4 million was recorded by Zions Bank in
adjusting the bank trust preferred CDO security to fair value.
If
Lockhart is unable to issue additional commercial paper to finance maturing
commercial paper, or if additional assets of Lockhart are downgraded below the
ratings described above, Zions Bank will be obligated to purchase additional
assets from Lockhart. Because these purchases are transacted at book value,
Zions Bank may incur losses if the assets’ book value exceeds their fair value.
At June 30, 2008, the book value of Lockhart’s $862 million of assets exceeded
their fair value by approximately $65 million. The Company does not expect
Lockhart’s securities portfolio to ever again exceed $862 million.
Assets
Held by Lockhart
The
following schedule summarizes Lockhart’s assets by category, related amortized
cost, fair value and ratings.
|
|
June
30, 2008
|
|
|
|
|
|
Estimated
|
|
|
|
|
Amortized
|
|
fair
|
|
Rating
|
(In
millions)
|
|
cost
|
|
value
|
|
range
|
|
|
|
|
|
|
|
|
|
Assets:
|
|
|
|
|
|
|
|
|
Small
Business Administration loan-backed securities (1)
|
|
$ |
216 |
|
|
$ |
215 |
|
|
Guaranteed
by SBA
|
Asset-backed
securities:
|
|
|
|
|
|
|
|
|
|
|
Trust
preferred securities – banks and
insurance
|
|
|
603 |
|
|
|
553 |
|
|
AAA
|
Trust
preferred securities – real estate
investment trusts
|
|
|
36 |
|
|
|
24 |
|
|
AAA
to AA
|
Other
|
|
|
7 |
|
|
|
5 |
|
|
AAA
to AA
|
Total
|
|
$ |
862 |
|
|
$ |
797 |
|
|
|
(1)
The Company originated 42% of these Small Business Administration
loan-backed securities.
|
ZIONS
BANCORPORATION AND SUBSIDIARIES
At June
30, 2008, the weighted average interest rate reset of Lockhart’s assets was 3.0
months and the weighted average life of Lockhart’s assets was estimated at 4.2
years. The weighted average life of Lockhart’s asset-backed commercial paper was
7 days.
Possible
Consolidation of Lockhart
As a QSPE
currently defined by the provisions of SFAS 140, Lockhart remains off-balance
sheet and is not consolidated in the Company’s financial statements. Should the
Parent and its subsidiaries together own more than 90% of the outstanding
commercial paper (beneficial interest) of Lockhart, Lockhart would cease to be a
QSPE and would be required to be consolidated.
At June
30, 2008, Lockhart’s assets totaled $862 million at book value and the Company
owned $493 million of Lockhart commercial paper.
See
“Critical Accounting Policies and Significant Estimates” and “Liquidity Risk
Management” for additional information on Lockhart.
RISK
ELEMENTS
Since
risk is inherent in substantially all of the Company’s operations, management of
risk is an integral part of its operations and is also a key determinant of its
overall performance. We apply various strategies to reduce the risks to which
the Company’s operations are exposed, including credit, interest rate and
market, liquidity and operational risks.
Credit
Risk Management
Credit
risk is the possibility of loss from the failure of a borrower or contractual
counterparty to fully perform under the terms of a credit-related contract.
Credit risk arises primarily from the Company’s lending activities, as well as
from off-balance sheet credit instruments.
Credit
risk is managed centrally through a uniform credit policy, credit
administration, and credit exam functions at the parent. Effective
management of credit risk is essential in maintaining a safe, sound and
profitable financial institution. We have structured the organization to
separate the lending function from the credit administration function, which
provides strength to the control over and the independent evaluation of credit
activities. Formal 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 a well-defined set of standards for evaluating its
loan portfolio, and management utilizes a comprehensive loan grading system to
determine the risk potential in the portfolio. Further, an independent, internal
credit examination department periodically conducts examinations of the
Company’s lending departments. These examinations are designed to review credit
quality, adequacy of documentation, appropriate loan grading administration and
compliance with lending policies, and reports thereon are submitted to
management and to the Credit Review Committee of the Board of
Directors.
Both the
credit policy and the credit examination functions are managed centrally. Each
affiliate bank is permitted to modify corporate credit policy to be more
conservative; however, corporate approval must be obtained if a bank wishes to
create a more liberal policy. Historically, only a limited number of such
modifications have been approved. This entire process has been designed to place
an emphasis on strong underwriting standards and early detection of potential
problem credits so that action plans can be developed and implemented on a
timely basis to mitigate any potential losses.
ZIONS
BANCORPORATION AND SUBSIDIARIES
With
regard to credit risk associated with counterparties in off-balance sheet credit
instruments, Zions Bank has International Swap Dealer Association (“ISDA”)
agreements in place under which derivative transactions are entered into with
major derivative dealers. Each ISDA agreement details the collateral arrangement
between Zions Bank and its counterparty. In every case, the amount of the
collateral required to secure the exposed party in the derivative transaction is
determined by the fair value on the derivative and the credit rating of the
party with the obligation. The credit rating used in these situations is
provided by either Moody’s or Standard & Poor’s. This means that a
counterparty with a “AAA” rating would be obligated to provide less collateral
to secure a major credit exposure to Zions Bank than one with an “A” rating. All
derivative gains and losses between Zions Bank and a single counterparty are
netted to determine the net credit exposure and therefore the collateral
required. We have no significant exposure to credit default swaps.
The
Company also has off-balance sheet credit risk associated with a Liquidity
Agreement provided by Zions Bank to the QSPE securities conduit, Lockhart. See
“Off-Balance Sheet Arrangement” for further details.
Another
aspect of the Company’s credit risk management strategy is to pursue the
diversification of the loan portfolio. The Company maintains a diversified loan
portfolio with some emphasis in real estate. As set forth in the following
table, at June 30, 2008 no single loan category exceeded 25.2% of the Company’s
total loan portfolio.
|
|
June
30, 2008
|
|
December
31, 2007
|
|
June
30, 2007
|
|
|
|
|
|
%
of
|
|
|
|
|
%
of
|
|
|
|
|
%
of
|
(In
millions)
|
|
Amount
|
|
total
loans
|
|
Amount
|
|
total
loans
|
|
Amount
|
|
total
loans
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Commercial
lending:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Commercial
and industrial
|
|
$ |
10,590 |
|
|
|
25.2 |
% |
|
$ |
9,811 |
|
|
|
25.0 |
% |
|
$ |
8,922 |
|
|
|
24.2 |
% |
Leasing
|
|
|
492 |
|
|
|
1.2 |
% |
|
|
503 |
|
|
|
1.3 |
% |
|
|
450 |
|
|
|
1.2 |
% |
Owner
occupied
|
|
|
8,912 |
|
|
|
21.2 |
% |
|
|
7,545 |
|
|
|
19.2 |
% |
|
|
7,123 |
|
|
|
19.3 |
% |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Commercial
real estate:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Construction
and land development
|
|
|
8,264 |
|
|
|
19.7 |
% |
|
|
8,315 |
|
|
|
21.2 |
% |
|
|
7,963 |
|
|
|
21.6 |
% |
Term
|
|
|
5,939 |
|
|
|
14.1 |
% |
|
|
5,335 |
|
|
|
13.6 |
% |
|
|
5,084 |
|
|
|
13.8 |
% |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Consumer:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Home
equity credit line and other
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
consumer
real estate
|
|
|
2,387 |
|
|
|
5.7 |
% |
|
|
2,203 |
|
|
|
5.6 |
% |
|
|
2,042 |
|
|
|
5.5 |
% |
1-4
family residential
|
|
|
4,172 |
|
|
|
9.9 |
% |
|
|
4,206 |
|
|
|
10.7 |
% |
|
|
4,134 |
|
|
|
11.2 |
% |
Bankcard
and other revolving plans
|
|
|
332 |
|
|
|
0.8 |
% |
|
|
347 |
|
|
|
0.9 |
% |
|
|
306 |
|
|
|
0.8 |
% |
Other
|
|
|
431 |
|
|
|
1.0 |
% |
|
|
452 |
|
|
|
1.1 |
% |
|
|
456 |
|
|
|
1.2 |
% |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Other
|
|
|
514 |
|
|
|
1.2 |
% |
|
|
535 |
|
|
|
1.4 |
% |
|
|
462 |
|
|
|
1.2 |
% |
Total
loans
|
|
$ |
42,033 |
|
|
|
100.0 |
% |
|
$ |
39,252 |
|
|
|
100.0 |
% |
|
$ |
36,942 |
|
|
|
100.0 |
% |
The
Company attempts to avoid the risk of an undue concentration of credits in a
particular industry, trade group, property type, or with an individual customer
or counterparty. The majority of the Company’s business activity is with
customers located within the geographical footprint of its banking
subsidiaries.
Lending
to finance residential land acquisition, development and construction is a core
business for the Company. In some geographic markets, significant declines in
the availability of mortgage financing to buyers of newly constructed homes are
having an adverse impact on the operations of some of the Company’s developer
and builder customers.
ZIONS
BANCORPORATION AND SUBSIDIARIES
As
discussed in the following sections, the Company’s level of credit quality
continued to weaken during the second quarter of 2008. The deterioration in
credit quality is mainly related to the weakness in residential development and
construction activity in the Southwest that started in the latter half of 2007
and began to show signs of deterioration in Utah/Idaho during the first quarter
of 2008. We expect some continued credit quality deterioration related to
residential development and construction activity in some of these markets over
the next few quarters. However, we believe that credit quality conditions in our
California portfolio have begun to stabilize.
A more
comprehensive discussion of our credit risk management is contained in Zions’
Annual Report on Form 10-K for the year ended December 31, 2007.
Commercial
Real Estate Loans
Our
Commercial Real Estate (CRE) portfolio is segmented into three
categories: Commercial Term (42%) Commercial Construction (32%) and
Residential Construction (26%). A portion (32%) of the Commercial Term loans
consist of mini-perm loans on which construction is complete and the project is
either in the process of stabilization or has stabilized and the owner is timing
the market for permanent financing. Mini-perm loans generally have maturities of
3 to 7 years. The remaining 68% are term loans with initial maturities generally
of 15 to 20 years. Stabilization criteria differ by product and are dependent on
cash flow created by lease-up for office, industrial and retail products and
occupancy for retail and apartment products.
Thirty percent
of the Commercial Construction portfolio is designated as acquisition and
development and most of these A&D properties are tied to specific retail,
apartment, office or other projects. Underwriting on commercial properties is
primarily based on the economic viability of the project and with heavy
consideration given to the creditworthiness of the sponsor. The owners’ equity
is always expected to be injected prior to bank advances and re-margining
requirements are often included in the loan agreement as are guarantees of the
sponsor. Recognizing that debt is paid via cash flow, the projected economics of
the project are primary in the underwriting because it determines the ultimate
value of the property and the ability to service debt. Therefore, in most
projects (with the exception of multi-family projects) we look for substantial
pre-leasing in our underwriting and generally a projected stabilized debt
service ratio of 1.20 is required at a minimum.
Although
Residential Construction and Development is dealing with a different product
type, many of the requirements previously mentioned, such as credit worthiness
of the developer, upfront injection of the developers’ equity, re-margining
requirements and the viability of the project are all important in underwriting
a residential development loan as well. Heavy consideration is given in the
underwriting process to market acceptance of the product, location, strength of
the developer and the ability on the part of the developer to stay within
budget. Progress inspections performed by qualified independent inspectors are
routinely performed, before disbursements are made. The loan agreements
generally include limitations as to the number of model homes and homes built on
a spec basis, with preference given to pre-sold homes.
Real
estate appraisals are ordered independent of the credit officer and the
borrower, generally by the banks’ Appraisal Review function, which is staffed by
qualified appraisers; appraisals are from outside appraisers at the inception,
renewal or upon the occurrence of any event causing a “criticized” or
“classified” grade to be assigned to the credit. The frequency for obtaining
updated appraisals for these adversely graded credits is increased when
declining market conditions exist. Advance rates will vary based on the
viability of the project and creditworthiness of the sponsor, but corporate
guidelines generally limit advances to 50-65% for raw land, 65-75% for land
development, 65-75% for finished commercial lots, 75-80% for finished
residential lots, 80% for pre-sold homes, 75-80% for models and spec homes, and
75-80% for commercial properties. Exceptions may be granted on a case-by-case
basis.
ZIONS
BANCORPORATION AND SUBSIDIARIES
Loan
agreements require regular financial information on the project and sponsor in
addition to lease schedules, rent rolls, and on construction projects,
independent progress inspection reports. The receipt of these schedules is
closely monitored with calculations made to determine adherence to the covenants
spelled out in the loan agreement upon receipt. Additionally, loan by loan
reviews have been increased to quarterly reviews for all commercial and
residential land acquisition, development and construction loans at California
Bank & Trust, National Bank of Arizona, and Nevada State Bank.
We have
not been involved to any meaningful extent with insurance arrangements, credit
derivatives, or any other default agreements as a mitigation strategy for
commercial real estate loans. However, we do make use of personal or other
guarantees as risk mitigation strategies.
The
Company stress tests its CRE loan portfolio on a quarterly basis. This testing
is back tested and the results of the testing are reviewed semiannually with the
rating agencies and shared with banking regulators. The stress testing
methodology includes a loan by loan Monte Carlo simulation, an approach that
measures potential loss of principal and related revenues. The Monte Carlo
simulation stresses the probability of default and loss given default for CRE
loans based on a variety of factors including loan grade, loan-to-value,
collateral type and geography.
Nonperforming
Assets
Nonperforming
assets include nonaccrual loans, restructured loans, and other real estate
owned. Loans are generally placed on nonaccrual status when the loan is 90 days
or more past due as to principal or interest, unless the loan is both well
secured and in the process of collection. Consumer loans are not normally placed
on nonaccrual status. Generally, closed-end non-real estate secured consumer
loans are charged off when they become 120 days past due. Open-end consumer
loans are charged off when they become 180 days past due unless they are
adequately secured by real estate at which point they are placed on nonaccrual
status. Loans occasionally may be restructured to provide a reduction or
deferral of interest or principal payments. This generally occurs when the
financial condition of a borrower deteriorates to the point that the borrower
needs to be given temporary or permanent relief from the original contractual
terms of the loan. Other real estate owned is acquired primarily through or in
lieu of foreclosure on loans secured by real estate.
The
following table sets forth the Company’s nonperforming assets:
|
|
June
30,
|
|
December
31,
|
|
June
30,
|
(Amounts
in millions)
|
|
2008
|
|
2007
|
|
2007
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Nonaccrual
loans
|
|
|
$ |
570 |
|
|
|
|
$ |
259 |
|
|
|
|
$ |
82 |
|
|
Restructured
loans
|
|
|
|
2 |
|
|
|
|
|
10 |
|
|
|
|
|
2 |
|
|
Other
real estate owned
|
|
|
|
125 |
|
|
|
|
|
15 |
|
|
|
|
|
11 |
|
|
Total
|
|
|
$ |
697 |
|
|
|
|
$ |
284 |
|
|
|
|
$ |
95 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
%
of net loans and leases* and other
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
real
estate owned
|
|
|
|
1.66 |
% |
|
|
|
|
0.73 |
% |
|
|
|
|
0.26 |
% |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Accruing
loans past due 90 days or more
|
|
|
$ |
109 |
|
|
|
|
$ |
77 |
|
|
|
|
$ |
48 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
%
of net loans and leases*
|
|
|
|
0.26 |
% |
|
|
|
|
0.20 |
% |
|
|
|
|
0.13 |
% |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
*Includes
loans held for sale.
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total
nonperforming assets increased $413 million or 145.7% as of June 30, 2008
compared with the balance at December 31, 2007 and increased $602 million or
631.1% from the $95 million balance at June 30, 2007. The increase in
nonperforming assets consisted primarily of residential construction and
development loans in Nevada State Bank, National Bank of Arizona, California
Bank & Trust, and Zions Bank. Total
ZIONS
BANCORPORATION AND SUBSIDIARIES
nonaccrual
loans at June 30, 2008 increased $311 million from the balances at December 31,
2007, which included increases of $187 million for nonaccrual construction and
land development loans and $98 million for commercial lending.
Included
in nonaccrual loans are loans that we have determined to be impaired. Loans,
other than those included in large groups of smaller-balance homogeneous loans,
are considered impaired when, based on current information and events, it is
probable that the Company will be unable to collect all amounts due in
accordance with 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 fair value of the loan, or the fair
value of the collateral securing the loan.
The
Company’s total recorded investment in impaired loans was $467 million at June
30, 2008, compared with $226 million at December 31, 2007 and $53 million at
June 30, 2007. Estimated losses on impaired loans are included in the allowance
for loan losses. At June 30, 2008, the allowance for loan losses included $35
million for impaired loans with a recorded investment of $164 million. At
December 31, 2007, the allowance included $21 million for impaired loans with a
$103 million recorded investment, and at June 30, 2007 the allowance included $4
million for impaired loans with a $29 million recorded investment.
The
amount of accruing loans past due 90 days or more increased to $109 million at
June 30, 2008 up from $77 million at December 31, 2007 and $48 million at June
30, 2007.
Allowance
and Reserve for Credit Losses
Allowance for Loan
Losses – The
allowance for loan losses is established for estimated losses in the loan
portfolio outstanding at the balance sheet date. In analyzing the adequacy of
the allowance for loan losses, we utilize a comprehensive loan grading system to
determine the risk potential in the portfolio and also consider the results of
independent internal credit reviews. To determine the adequacy of the allowance,
the Company’s loan and lease portfolio is broken into segments based on loan
type.
For
commercial loans, we use historical loss experience factors by loan segment,
adjusted for changes in trends and conditions, to help determine an indicated
allowance for each portfolio segment. These factors are evaluated and updated
using migration analysis techniques and other considerations based on the makeup
of the specific segment. These other considerations include:
·
|
volumes
and trends of delinquencies;
|
·
|
levels
of nonaccruals, repossessions and
bankruptcies;
|
·
|
trends
in criticized and classified loans;
|
·
|
expected
losses on real estate secured
loans;
|
·
|
new
credit products and policies;
|
·
|
concentrations
of credit risk; and
|
·
|
experience
and abilities of the Company’s lending
personnel.
|
In
addition to the segment evaluations, nonaccrual loans graded substandard or
doubtful with an outstanding balance of $500 thousand or more are individually
evaluated in accordance with SFAS No. 114, Accounting by Creditors for
Impairment of a Loan, to determine the level of impairment and establish
a specific reserve. A specific allowance is established for loans adversely
graded below $500 thousand when it is determined that the risk associated with
the loan differs significantly from the risk factor amounts established for its
loan segment.
ZIONS
BANCORPORATION AND SUBSIDIARIES
The
allowance for consumer loans is determined using historically developed loss
experience rates at which loans migrate from one delinquency level to the next
higher level. Using average roll rates for the most recent twelve-month period
and comparing projected losses to actual loss experience, the model estimates
expected losses in dollars for the forecasted period. By refreshing the model
with updated data, it is able to project losses for a new twelve-month period
each month, segmenting the portfolio into nine product groupings with similar
risk profiles. This methodology is an accepted industry practice, and the
Company believes it has a sufficient volume of information to produce reliable
projections.
As a
final step to the evaluation process, we perform an additional review of the
adequacy of the allowance based on the loan portfolio in its entirety. This
enables us to mitigate the imprecision inherent in most estimates of expected
credit losses. This review of the allowance includes our judgmental
consideration of any adjustments necessary for subjective factors such as
economic uncertainties and excessive concentration risks.
The
methodology used by Amegy to estimate its allowance for loan losses has not yet
been conformed to the process used by the other affiliate banks. However, the
process used by Amegy is not significantly different than the process used by
our other affiliate banks.
The
Company has initiated a comprehensive review of its allowance for loan losses
methodology with a view towards updating and conforming this methodology across
all of its banking subsidiaries. The Company began implementing this updated
methodology in 2007 and expects to complete the implementation in
2009.
ZIONS
BANCORPORATION AND SUBSIDIARIES
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
|
(Amounts
in millions)
|
|
June
30,
|
|
December
31,
|
|
June
30,
|
|
|
2008
|
|
2007
|
|
2007
|
Loans*
and leases outstanding (net of
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
unearned
income) at end of period
|
|
|
$ |
41,873 |
|
|
|
|
$ |
39,088 |
|
|
|
|
$ |
36,788 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Average
loans* and leases outstanding
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(net
of unearned income)
|
|
|
$ |
39,982 |
|
|
|
|
$ |
36,808 |
|
|
|
|
$ |
35,777 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Allowance
for loan losses:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Balance
at beginning of period
|
|
|
$ |
459 |
|
|
|
|
$ |
365 |
|
|
|
|
$ |
365 |
|
|
Allowance
of companies acquired
|
|
|
|
- |
|
|
|
|
|
8 |
|
|
|
|
|
7 |
|
|
Allowance
of loans sold with branches
|
|
|
|
- |
|
|
|
|
|
(2 |
) |
|
|
|
|
- |
|
|
Allowance
associated with purchased
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
securitized
loans
|
|
|
|
2 |
|
|
|
|
|
- |
|
|
|
|
|
- |
|
|
Provision
charged against earnings
|
|
|
|
206 |
|
|
|
|
|
152 |
|
|
|
|
|
27 |
|
|
Loans
and leases charged off:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Commercial
lending
|
|
|
|
(38 |
) |
|
|
|
|
(37 |
) |
|
|
|
|
(17 |
) |
|
Commercial
real estate
|
|
|
|
(76 |
) |
|
|
|
|
(24 |
) |
|
|
|
|
(3 |
) |
|
Consumer
|
|
|
|
(14 |
) |
|
|
|
|
(16 |
) |
|
|
|
|
(7 |
) |
|
Other
receivables
|
|
|
|
(1 |
) |
|
|
|
|
(2 |
) |
|
|
|
|
(1 |
) |
|
Total
|
|
|
|
(129 |
) |
|
|
|
|
(79 |
) |
|
|
|
|
(28 |
) |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Recoveries:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Commercial
lending
|
|
|
|
3 |
|
|
|
|
|
8 |
|
|
|
|
|
5 |
|
|
Commercial
real estate
|
|
|
|
5 |
|
|
|
|
|
1 |
|
|
|
|
|
1 |
|
|
Consumer
|
|
|
|
3 |
|
|
|
|
|
5 |
|
|
|
|
|
3 |
|
|
Other
receivables
|
|
|
|
- |
|
|
|
|
|
1 |
|
|
|
|
|
- |
|
|
Total
|
|
|
|
11 |
|
|
|
|
|
15 |
|
|
|
|
|
9 |
|
|
Net
loan and lease charge-offs
|
|
|
|
(118 |
) |
|
|
|
|
(64 |
) |
|
|
|
|
(19 |
) |
|
Balance
at end of period
|
|
|
$ |
549 |
|
|
|
|
$ |
459 |
|
|
|
|
$ |
380 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Ratio
of annualized net charge-offs
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
to
average loans and leases
|
|
|
|
0.59 |
% |
|
|
|
|
0.17 |
% |
|
|
|
|
0.11 |
% |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Ratio
of allowance for loan losses to net
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
loans
and leases at end of period
|
|
|
|
1.31 |
% |
|
|
|
|
1.18 |
% |
|
|
|
|
1.03 |
% |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Ratio
of allowance for loan losses to
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
nonperforming
loans
|
|
|
|
95.93 |
% |
|
|
|
|
170.99 |
% |
|
|
|
|
448.72 |
% |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Ratio
of allowance for loan losses to
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
nonaccrual
loans and accruing loans
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
past
due 90 days or more
|
|
|
|
80.84 |
% |
|
|
|
|
136.75 |
% |
|
|
|
|
292.32 |
% |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
*Includes
loans held for sale.
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net loan
and lease charge-offs, along with their annualized ratios to average loans and
leases, are shown in the preceding table for the periods presented. The same
respective amounts for the second quarter of 2008 were $68 million and
0.67%.
The total
allowance for loan losses at June 30, 2008 increased $90 million from the level
at year-end 2007. The amount of the allowance included for criticized and
classified commercial and commercial real estate loans increased $57 million. Of
this increase, $17 million was for commercial lending, and $40 million was for
commercial real estate loans. The level of the allowance for noncriticized and
nonclassified commercial
ZIONS
BANCORPORATION AND SUBSIDIARIES
and
commercial real estate loans increased $20 million consisting of a $21 million
increase for commercial lending and a $1 million decrease for commercial real
estate loans. The allowance for consumer loans increased $13 million compared to
December 31, 2007.
Reserve for Unfunded Lending
Commitments – The Company also
estimates a reserve for potential losses associated with off-balance sheet
commitments and standby letters of credit. We determine the reserve for unfunded
lending commitments using a process that is similar to the one we use for
commercial and commercial real estate loans. Based on historical experience, we
have developed experience-based loss factors that we apply to the Company’s
unfunded lending commitments to estimate the potential for loss in that
portfolio.
The
following table sets forth the reserve for unfunded lending
commitments:
|
|
Six
Months
|
|
Twelve
Months
|
|
Six
Months
|
|
|
Ended
|
|
Ended
|
|
Ended
|
(In
millions)
|
|
June
30, 2008
|
|
December
31, 2007
|
|
June
30, 2007
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Balance
at beginning of period
|
|
|
$ |
21.5 |
|
|
|
|
$ |
19.4 |
|
|
|
|
$ |
19.4 |
|
|
Reserve
of company acquired
|
|
|
|
- |
|
|
|
|
|
0.3 |
|
|
|
|
|
0.3 |
|
|
Provision
charged against earnings
|
|
|
|
5.3 |
|
|
|
|
|
1.8 |
|
|
|
|
|
1.5 |
|
|
Balance
at end of period
|
|
|
$ |
26.8 |
|
|
|
|
$ |
21.5 |
|
|
|
|
$ |
21.2 |
|
|
The
following table sets forth the total allowance and reserve for credit
losses:
|
|
June
30,
|
|
December
31,
|
|
June
30,
|
(In
millions)
|
|
2008
|
|
2007
|
|
2007
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Allowance
for loan losses
|
|
|
$ |
549 |
|
|
|
|
$ |
459 |
|
|
|
|
$ |
380 |
|
|
Reserve
for unfunded lending commitments
|
|
|
|
27 |
|
|
|
|
|
22 |
|
|
|
|
|
21 |
|
|
Total
allowance and reserve for credit losses
|
|
|
$ |
576 |
|
|
|
|
$ |
481 |
|
|
|
|
$ |
401 |
|
|
Interest
Rate and Market Risk Management
Interest
rate and market risk are managed centrally. Interest rate risk is the potential
for loss resulting from adverse changes in the level of interest rates on the
Company’s net interest income. Market risk is the potential for loss arising
from adverse changes in the fair value of fixed income securities, equity
securities, other earning assets and derivative financial instruments as a
result of changes in interest rates or other factors. As a financial institution
that engages in transactions involving an array of financial products, the
Company is exposed to both interest rate risk and market risk.
Interest Rate
Risk
Interest
rate risk is one of the most significant risks to which the Company is regularly
exposed. In general, our goal in managing interest rate risk is to have the net
interest margin increase slightly in a rising interest rate environment. We
refer to this goal as being slightly “asset-sensitive.” This approach is based
on our belief that in a rising interest rate environment, the market cost of
equity, or implied rate at which future earnings are discounted, would also tend
to rise.
We
attempt to minimize the impact of changing interest rates on net interest income
primarily through the use of interest rate swaps, and by avoiding large
exposures to fixed rate interest-earning assets that have significant negative
convexity. The prime lending rate and the LIBOR curves are the primary indices
used for pricing the Company’s loans. The interest rates paid on deposit
accounts are set by individual banks so as to be competitive in each local
market.
ZIONS
BANCORPORATION AND SUBSIDIARIES
We
monitor interest rate risk through the use of two complementary measurement
methods: duration of equity and income simulation. In the duration of equity
method, we measure the expected changes in the fair values of equity in response
to changes in interest rates. In the income simulation method, we analyze the
expected changes in income in response to changes in interest rates. For income
simulation, Company policy requires that interest sensitive income from a static
balance sheet be limited to a decline of no more than 10% during one
year if rates were to immediately rise or fall in parallel by 200 basis
points.
As of the
dates indicated, the following table shows the Company’s estimated range of
duration of equity and percentage change in interest sensitive income, based on
a static balance sheet, in the first year after the rate change if interest
rates were to sustain an immediate parallel change of 200 basis points; the
“low” and “high” results differ based on the assumed speed of repricing of
administered-rate deposits (money market, interest-on-checking, and
savings):
|
|
June
30,
|
|
December
31,
|
|
|
2008
|
|
2007
|
|
|
Low
|
|
High
|
|
Low
|
|
High
|
Duration
of equity:
|
|
|
|
|
|
|
|
|
|
|
|
|
Range
(in years)
|
|
|
|
|
|
|
|
|
|
|
|
|
Base
case
|
|
|
(0.2 |
) |
|
|
2.4 |
|
|
|
- |
|
|
|
2.5 |
|
Increase
interest rates by 200 bp
|
|
|
0.9 |
|
|
|
3.6 |
|
|
|
0.9 |
|
|
|
3.4 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Income
simulation – change in
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
interest
sensitive income:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Increase
interest rates by 200 bp
|
|
|
-1.0 |
% |
|
|
1.0 |
% |
|
|
-1.3 |
% |
|
|
1.1 |
% |
Decrease
interest rates by 200 bp
|
|
|
-1.6 |
% |
|
|
0.3 |
% |
|
|
-2.3 |
% |
|
|
-0.2 |
% |
As
discussed previously under the section “Net Interest Income, Margin and Interest
Rate Spreads,” the Company believes that in recent quarters, the dynamic balance
sheet changes with regard to changes in the mix of deposits and other funding
sources have tended to have a somewhat larger effect on the net interest spread
and net interest margin than has the Company’s interest rate risk position.
However, as also discussed in that section, competitive pressures on deposit
rates may impede our ability to reprice deposits, which would have a negative
impact on the net interest margin during the remaining six months of
2008.
Market Risk – Fixed
Income
The
Company engages in the underwriting and trading of municipal and corporate
securities. This trading activity exposes the Company to a risk of loss arising
from adverse changes in the prices of these fixed income securities held by the
Company.
At June
30, 2008, the Company had $51.7 million of trading account assets and $46.4
million of securities sold, not yet purchased compared with $21.8 million and
$22.8 million of trading assets and $224.3 million and $28.5 million of
securities sold, not yet purchased at December 31, 2007 and June 30, 2007,
respectively. The higher securities sold, not yet purchased balance in
comparison to trading account assets as of December 31, 2007 is related to bank
subsidiaries sweep products.
The
Company is exposed to market risk through changes in fair value and other than
temporary impairment of held-to-maturity and available-for-sale securities. The
Company also is exposed to market risk for interest rate swaps used to hedge
interest rate risk. Changes in fair value in available-for-sale securities and
interest rate swaps are included in OCI each quarter. During the second quarter
of 2008, the after-tax change in OCI attributable to available-for-sale
securities was $(14.7) million, which includes $4.3 million for
available-for-sale securities valued using Level 3 inputs under SFAS 157, and
the change attributable to interest rate swaps
ZIONS
BANCORPORATION AND SUBSIDIARIES
was
$(66.1) million, for a net decrease to shareholders’ equity of $(80.8)
million. If any of the available-for-sale securities becomes other than
temporarily impaired, the loss in OCI is reversed and the impairment is charged
to operations. Additionally, if any held-to-maturity securities are determined
to be other than temporarily impaired, the impairment is charged to operations.
See “Investment Securities Portfolio” for additional information on
other-than-temporary impairment.
Market Risk –
Equity Investments
Through
its equity investment activities, the Company owns equity securities that are
publicly traded and subject to fluctuations in their market prices or values. In
addition, the Company owns equity securities in companies that are not publicly
traded and that are accounted for under cost, fair value, equity, or full
consolidation methods of accounting, depending upon the Company’s ownership
position and degree of involvement in influencing the investees’ affairs. In
either case, the value of the Company’s investment is subject to fluctuation.
Since the fair value associated with these securities may fall below the
Company’s investment costs, the Company is exposed to the possibility of loss.
These equity investments are approved, monitored and evaluated by the Company’s
Equity Investment Committee.
The
Company generally conducts minority investing in prepublic venture capital
companies in which it does not have strategic involvement, through four funds
collectively referred to as Epic Venture Funds (“Epic”) (formerly Wasatch
Venture Funds). Epic screens investment opportunities and makes investment
decisions based on its assessment of business prospects and potential returns.
After an investment is made, Epic actively monitors the performance of each
company in which it has invested, and often has representation on the board of
directors of the company.
In
addition to the program described above, Amegy has in place an alternative
investments program. These investments are primarily directed towards equity
buyout and mezzanine funds with a key strategy of deriving ancillary commercial
banking business from the portfolio companies. Early stage venture capital funds
are not part of the strategy since the underlying companies are typically not
credit worthy.
The
Company also, from time to time, either starts and funds businesses or makes
significant investments in companies of strategic interest. These investments
may result in either minority or majority ownership positions, and usually give
board representation to Zions or its subsidiaries. These strategic investments
generally are in companies that are financial services or financial technologies
providers.
A more
comprehensive discussion of the Company’s interest rate and market risk
management is contained in Zions’ Annual Report on Form 10-K for the year ended
December 31, 2007.
Liquidity
Risk Management
Liquidity
is managed centrally for both the Parent and its subsidiary banks. The Parent’s
cash requirements consist primarily of debt service, investment in and advances
to subsidiaries, operating expenses, income taxes, dividends to shareholders and
share repurchases. The Parent’s cash needs are met through dividends from its
subsidiaries, investment income, subsidiaries’ proportionate share of current
income taxes, management and other fees, bank lines, equity contributed through
the exercise of stock options, commercial paper, and long-term debt and equity
issuances.
Operating
cash flows, while normally constituting a funding source for the Company, are
not large enough to provide funding in the amounts that fulfill the needs of the
Parent and its subsidiary banks. As a result, the Company utilizes other sources
at its disposal to manage its liquidity needs. For the first six months of 2008,
operations contributed $289 million toward these needs. However, during the
three months ended June 30, 2008, operating activities used cash of $18 million,
mainly due to the use of $197 million of cash to fund collateral requirements
related to energy commodity swaps and other derivatives.
ZIONS
BANCORPORATION AND SUBSIDIARIES
During
the first six months of 2008, the Parent received $66 million in cash dividends
from its subsidiaries. At June 30, 2008, $264 million of dividend capacity was
available for the subsidiary banks to pay to the Parent under regulatory
guidelines.
The
Parent also has a program to issue short-term commercial paper. At June 30,
2008, outstanding commercial paper was $137 million. In addition, at June 30,
2008, the Company has lines of credit of $395 million with certain of its
subsidiary banks. No amounts were outstanding at June 30, 2008. Interest on
these lines is at a variable rate based on specified indices. Actual amounts
that may be borrowed at any given time are based on determined collateral
requirements.
On
February 28, 2008, Moody’s downgraded its ratings for the Parent on long-term
issuer/senior debt to A3, on subordinated debt to Baa1, and on
short-term/commercial paper to P-2; it also changed its outlook from Negative to
Stable. Also, Moody’s downgraded its ratings for the three largest subsidiary
banks on long-term issuer/senior debt and certificate of deposit to A2, affirmed
the short-term/commercial paper rating of P-1, and changed its outlook from
Negative to Stable.
During
the second quarter of 2008, the Company issued a total of $166 million of one-
and two-year senior medium-term notes at coupon rates ranging from 4.50% to
5.45%. Interest is payable semiannually. These unsecured notes were sold via
Zions’ online auction process and direct sales. They were issued under the
Company’s existing shelf registration with the Securities and Exchange
Commission. Approximately $18 million of the proceeds was used to retire
previous indebtedness of senior notes. The total amount of senior medium-term
notes issued during the first six months of 2008 was $233 million.
The
subsidiary banks’ primary source of funding is their core deposits, consisting
of demand, savings and money market deposits, time deposits under $100,000 and
foreign deposits. At June 30, 2008, these core deposits, in aggregate,
constituted 89.1% of consolidated deposits, compared with 88.1% of consolidated
deposits at December 31, 2007. For the first six months of 2008, increases in
deposits resulted in net cash inflows of $685 million.
The
Federal Home Loan Bank (“FHLB”) system is also a significant source of liquidity
for each of the Company’s subsidiary banks. Zions Bank and TCBW are members of
the FHLB of Seattle. CB&T, NSB, and NBA are members of the FHLB of San
Francisco. Vectra is a member of the FHLB of Topeka and Amegy Bank is a member
of the FHLB of Dallas. The FHLB allows member banks to borrow against their
eligible loans to satisfy liquidity requirements. For the first six months of
2008, the activity in short-term FHLB borrowings resulted in a net cash inflow
of approximately $979 million.
The
Federal Reserve Board has a program to make 28- and 84-day loans to banks in the
United States and to foreign banks through foreign central banks. The program
has been extended through January 30, 2009. These loans are made using an
auction process. Zions Bank is currently participating in this program and will
continue to do so as long as money can be borrowed at an attractive rate.
Amounts that can be borrowed are based upon the amount of collateral pledged to
the Federal Reserve Bank. Borrowings outstanding at Zions Bank under this
program were $1,090 million at June 30, 2008 and $450 million at December 31,
2007.
At June
30, 2008, the amount available for additional FHLB and Federal Reserve
borrowings was approximately $5.1 billion. An additional $4.8 billion could be
borrowed upon the pledging of additional available collateral.
Zions
Bank has in prior years used asset securitizations to sell loans and provide a
flexible alternative source of funding. As a QSPE securities conduit sponsored
by Zions Bank, Lockhart has purchased and held credit-enhanced securitized
assets resulting from certain small business loan securitizations. During the
second
ZIONS
BANCORPORATION AND SUBSIDIARIES
quarter
of 2008, the entire remaining amount of these small business loans
securitizations was purchased by Zions Bank. Under the Liquidity Agreement,
Zions Bank has also purchased assets due to security ratings downgrades and the
inability of Lockhart to issue commercial paper. See “Off-Balance Sheet
Arrangement” for information about Lockhart and the Liquidity Agreement.
The
Company’s investment activities can also provide or use cash. For the first six
months of 2008, investment securities activities resulted in a decrease in
investment securities holdings and a net increase of cash in the amount of $830
million.
Maturing
balances in the various loan portfolios also provide additional flexibility in
managing cash flows. In most cases, however, loan growth has resulted in net
cash outflows from a funding standpoint. For the first six months of 2008,
organic loan growth resulted in a net cash outflow of $1.9 billion.
A more
comprehensive discussion of our liquidity management is contained in Zions’
Annual Report on Form 10-K for the year ended December 31, 2007.
Operational
Risk Management
Operational
risk is the potential for unexpected losses attributable to human error, systems
failures, fraud, or inadequate internal controls and procedures. In its ongoing
efforts to identify and manage operational risk, the Company has created a
Corporate Risk Management Department whose responsibility is to help Company
management identify and assess key risks and monitor the key internal controls
and processes that the Company has in place to mitigate operational risk. We
have documented controls and the Control Self Assessment related to financial
reporting under Section 404 of the Sarbanes-Oxley Act of 2002 and the Federal
Deposit Insurance Corporation Improvement Act of 1991.
To manage
and minimize its operating risk, the Company has in place transactional
documentation requirements, systems and procedures to monitor transactions and
positions, regulatory compliance reviews, and periodic reviews by the Company’s
internal audit and credit examination departments. In addition, reconciliation
procedures have been established to ensure that data processing systems
consistently and accurately capture critical data. Further, we maintain
contingency plans and systems for operations support in the event of natural or
other disasters. Efforts are underway to improve the Company’s oversight of
operational risk, including enhancement of risk-control self assessments and of
antifraud measures.
CAPITAL
MANAGEMENT
The
Company has a fundamental financial objective to consistently produce superior
risk-adjusted returns on its shareholders’ capital. We believe that a strong
capital position is vital to continued profitability and to promoting depositor
and investor confidence.
Total
shareholders’ equity on June 30, 2008 was $5,274 million compared to $5,328
million at March 31, 2008, $5,293 million at December 31, 2007, and $5,225
million at June 30, 2007. The Company’s capital ratios were as
follows:
ZIONS
BANCORPORATION AND SUBSIDIARIES
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Percentage
|
|
|
June
30,
|
|
December
31,
|
|
June
30,
|
|
required
to be
|
|
|
2008
|
|
2007
|
|
2007
|
|
well
capitalized
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Tangible
equity ratio
|
|
|
|
5.97 |
% |
|
|
|
|
6.17 |
% |
|
|
|
|
6.52 |
% |
|
|
|
na
|
|
|
Tangible
common equity ratio
|
|
|
|
5.51 |
% |
|
|
|
|
5.70 |
% |
|
|
|
|
6.00 |
% |
|
|
|
na
|
|
|
Average
equity to average assets
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(three
months ended)
|
|
|
|
9.96 |
% |
|
|
|
|
10.47 |
% |
|
|
|
|
10.92 |
% |
|
|
|
na
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Risk-based
capital ratios:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Tier
1 leverage
|
|
|
|
7.20 |
% |
|
|
|
|
7.37 |
% |
|
|
|
|
7.83 |
% |
|
|
|
|
5.00 |
% |
|
Tier
1 risk-based capital
|
|
|
|
7.45 |
% |
|
|
|
|
7.57 |
% |
|
|
|
|
7.82 |
% |
|
|
|
|
6.00 |
% |
|
Total
risk-based capital
|
|
|
|
11.58 |
% |
|
|
|
|
11.68 |
% |
|
|
|
|
11.91 |
% |
|
|
|
|
10.00 |
% |
|
It is our
belief that capital not considered necessary to support current and anticipated
business should be returned to the Company’s shareholders through dividends and
repurchases of its shares. The Company has stated that its target range for the
tangible equity ratio is 6.25% to 6.50%; the actual ratio at June 30, 2008 was
5.97% compared to 6.17% at December 31, 2007 and 6.52% at June 30, 2007. The
decrease in total shareholders’ equity from December 31, 2007 is primarily due
to unrealized losses in OCI from fair value declines on available-for-sale
securities. The decrease from March 31, 2008 is mainly due to unrealized losses
in OCI from fair value declines on available-for-sale securities and to
decreases in fair value on interest rate swaps used for interest rate risk
management.
As of
June 30, 2008, the Company has a $56.3 million remaining authorization from its
Board of Directors for the repurchase of common stock. However, the Company has
not repurchased any shares since August 16, 2007 and has suspended its common
stock repurchase program to conserve capital due to continuing capital market
disruptions and uncertainties regarding future economic conditions.
The
Parent and its subsidiary banks are required to maintain adequate levels of
capital as measured by several regulatory capital ratios. As of June 30, 2008,
the Company and each of its subsidiary banks met the “well capitalized”
guidelines under regulatory standards.
Dividends
of $0.43 per common share were paid in the second quarters of both 2008 and
2007. For the three months ended June 30, 2008, the Company paid $46.2 million
in common stock dividends compared to $46.5 million in the same period of
2007.
In
December 2006, the Company issued $240 million of preferred stock. During the
six months ended June 30, 2008, the Company declared and set aside funds of $4.9
million for preferred dividends compared to $7.2 million during the comparable
period in 2007. The Company declared and set aside $2.5 million for preferred
dividends during the second quarter of 2008 and $3.6 million during the second
quarter of 2007.
At its
July 2008 meeting, the Company’s Board of Directors declared a dividend of $0.43
per share of common stock. The dividend is payable August 20, 2008 to
shareholders of record as of the close of business on August 6,
2008.
Subsequent
Event
On July
2, 2008, the Company completed a $46.7 million offering of 9.50% Series C
Fixed-Rate Non-Cumulative Perpetual Preferred Stock. The Company issued 46,949
shares in the form of 1,877,971 depositary shares with each depositary share
representing a 1/40th
ownership interest in a share of the preferred stock. Terms and conditions,
except for the dividend amount, are generally similar to the existing issuance
of Series A floating rate preferred stock previously discussed and also
described in the Company’s
ZIONS
BANCORPORATION AND SUBSIDIARIES
Annual
Report on Form 10-K for the year ended December 31, 2007. The offering was sold
via Zions’ online auction process and direct sales primarily by the Company’s
broker/dealer subsidiary. On a pro forma basis, this preferred stock adds
approximately 9 basis points to all capital ratios shown previously other than
the tangible common equity ratio.
ITEM
3. QUANTITATIVE AND QUALITATIVE DISCLOSURES
ABOUT MARKET RISK
Interest
rate and market risks are among the most significant risks regularly undertaken
by the Company, and they are closely monitored as previously discussed. A
discussion regarding the Company’s management of interest rate and market risk
is included in the section entitled “Interest Rate and Market Risk Management”
in this Form 10-Q.
An
evaluation was carried out by the Company’s management, with the participation
of the Chief Executive Officer and the 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.
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.
The
Company believes there have been no significant changes in risk factors compared
to the factors identified in Zions Bancorporation’s Annual Report on Form 10-K
for the year ended December 31, 2007; however, this filing contains updated
disclosures related to significant risk factors discussed in “Credit Risk
Management,” “Market Risk – Fixed Income,” and “Liquidity Risk
Management.”
ZIONS
BANCORPORATION AND SUBSIDIARIES
ITEM
2. UNREGISTERED SALES OF EQUITY
SECURITIES AND USE OF PROCEEDS
Share
Repurchases
The
following table summarizes the Company’s share repurchases for the second
quarter of 2008:
|
|
|
|
|
|
|
|
|
|
|
|
Total
number of shares
|
|
Approximate
dollar
|
|
|
Total
number
|
|
Average
|
|
purchased
as part of
|
|
value
of shares that
|
|
|
of
shares
|
|
price
paid
|
|
publicly
announced
|
|
may
yet be purchased
|
Period
|
|
repurchased
(1)
|
|
per
share
|
|
plans
or programs
|
|
under
the plan (2)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
April
|
|
|
|
- |
|
|
|
|
$ |
- |
|
|
|
|
|
- |
|
|
|
|
$ |
56,250,315 |
|
|
May
|
|
|
|
47,042 |
|
|
|
|
|
48.82 |
|
|
|
|
|
- |
|
|
|
|
|
56,250,315 |
|
|
June
|
|
|
|
1,272 |
|
|
|
|
|
36.18 |
|
|
|
|
|
- |
|
|
|
|
|
56,250,315 |
|
|
Quarter
|
|
|
|
48,314 |
|
|
|
|
|
48.49 |
|
|
|
|
|
- |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(1)
All share repurchases during the second quarter of 2008 were made to pay
for payroll taxes upon the vesting
|
of restricted stock.
|
(2)
This is the remaining balance available under the $400 million common
stock repurchase authorization approved
|
by the Board of Directors in December
2006.
|
ITEM
4. SUBMISSION OF MATTERS TO A
VOTE OF SECURITY HOLDERS
a)
|
The
annual meeting of shareholders of the Registrant was held on April 24,
2008. The total number of shares eligible for voting was
107,138,937.
|
Proxies
were solicited by the Company’s management pursuant to Regulation 14A of the
Securities Exchange Act of 1934. Those directors nominated (Proposal 1) in the
proxy statement are shown under c) following. There was no solicitation opposing
management’s nominees for directors and all such nominees were elected pursuant
to the vote of the shareholders. Directors whose terms of office continued after
the meeting were:
|
R.
D. Cash
|
|
Roger
B. Porter
|
|
L.
E. Simmons
|
|
Patricia
Frobes
|
|
Harris
H. Simmons
|
|
Steven
C. Wheelwright
|
|
J.
David Heaney
|
|
|
|
|
c)
|
The
matters voted upon and the results were as
follows:
|
1)
|
Nomination
and election of directors (Proposal
1):
|
|
|
|
For
|
|
Against
|
|
Abstain
|
|
|
|
|
|
|
|
|
|
Jerry
C. Atkin
|
|
78,592,016
|
|
1,108,254
|
|
1,500,565
|
|
Stephen
D. Quinn
|
|
78,645,589
|
|
945,534
|
|
1,609,712
|
|
Shelley
Thomas Williams
|
|
78,520,248
|
|
1,054,435
|
|
1,626,152
|
ZIONS
BANCORPORATION AND SUBSIDIARIES
2)
|
That
the shareholders of Zions Bancorporation request its Board of Directors to
take the steps necessary to eliminate classification of terms of its Board
of Directors to require that all Directors stand for election annually.
The Board declassification shall be completed in a manner that does not
affect the unexpired terms of the previously elected Directors (Proposal
2).
|
|
For
|
|
Against
|
|
Abstain
|
|
Broker
Non-Votes
|
|
|
|
|
|
|
|
|
|
48,724,587
|
|
5,951,740
|
|
3,161,562
|
|
23,362,946
|
3)
|
Ratification
of the appointment of Ernst & Young LLP as the Company’s independent
registered public accounting firm for the fiscal year ending December 31,
2008 (Proposal 3):
|
|
For
|
|
Against
|
|
Abstain
|
|
|
|
|
|
|
|
78,991,360
|
|
702,393
|
|
1,507,082
|
|
Exhibit
Number
|
|
Description
|
|
|
|
|
|
|
|
|
|
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.
|
|
*
|
|
|
|
|
|
|
|
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-Q for the quarter ended March 31,
2008.
|
|
*
|
|
|
|
|
|
|
|
3.3
|
|
Articles
of Amendment to the Restated Articles of Incorporation of Zions
Bancorporation dated April 24, 1998, incorporated by reference to Exhibit
3.3 of Form 10-K for the year ended December 31, 2003.
|
|
*
|
|
|
|
|
|
|
|
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.
|
|
*
|
|
|
|
|
|
|
|
3.5
|
|
Articles
of Amendment to the Restated Articles of Incorporation of Zions
Bancorporation, dated December 5, 2006, incorporated by reference to
Exhibit 3.1 of Form 8-K filed December 7, 2006.
|
|
*
|
|
|
|
|
|
|
|
3.6
|
|
Articles
of Merger of The Stockmen’s Bancorp, Inc. with and into Zions
Bancorporation, effective January 17, 2007, incorporated by reference to
Exhibit 3.6 of Form 10-K for the year ended December 31,
2006.
|
|
*
|
|
|
|
|
|
|
|
3.7 |
|
Articles
of Amendment to the Restated Articles of Incorporation of Zions
Bancorporation, dated July 7,2008, incorporated by reference to Exhibit
3.1 of Form 8-K filed July 8, 2008. |
|
* |
|
|
|
|
|
|
|
3.8
|
|
Amended
and Restated Bylaws of Zions Bancorporation dated May 4, 2007,
incorporated by reference to Exhibit 3.2 of Form 8-K filed on May 9,
2007.
|
|
*
|
|
|
|
|
|
|
|
31.1
|
|
Certification
by Chief Executive Officer required by Rules 13a-15(f) and 15d-15(f) under
the Securities Exchange Act of 1934 (filed herewith).
|
|
|
|
|
|
|
|
|
|
31.2
|
|
Certification
by Chief Financial Officer required by Rules 13a-15(f) and 15d-15(f) under
the Securities Exchange Act of 1934 (filed herewith).
|
|
|
|
|
|
|
|
|
|
32
|
|
Certification
by Chief Executive Officer and Chief Financial Officer required by
Sections 13(a) or 15(d), as applicable, of the Securities Exchange Act of
1934 (15 U.S.C. 78m) and 18 U.S.C. Section 1350 (furnished
herewith).
|
|
|
|
|
|
|
|
|
|
|
*
|
Incorporated
by reference
|
|
|
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 |
|
|
|
|
|
Date:
August 8, 2008
|
By:
|
/s/ Harris
H. Simmons |
|
|
|
Name:
Harris H. Simmons |
|
|
|
Title:
Chairman, President and Chief Executive Officer |
|
|
|
|
|
|
|
|
|
|
By:
|
/s/ Doyle
L. Arnold |
|
|
|
Name:
Doyle L. Arnold |
|
|
|
Title:
Vice Chairman and Chief Financial Officer |
|
|
|
|
|