Zions Bancorp. and First Security Corp. late Monday disclosed a previously unnoticed incentive plan provision that, based on First Security's current share price, will trigger a multimillion-dollar increase in charges related to the banking companies' planned merger.
The clause in First Security management's stock incentive plans will accelerate the vesting of stock options for a brief period after shareholders vote on the merger, which was announced June 6. Because of this, accounting rules require the value of these options to be recognized in First Security's income statement as a compensation charge, to be added to the $210 million merger-related charge previously announced by the banking companies.
The size of the newly announced charge depends upon the First Security stock price at the time of the shareholder vote; based on the closing price of the stock Monday, the charge would amount to $60 million.
Zions chief financial officer Dale M. Gibbons said in an interview Tuesday that the additional charge stems from an oversight.
However, he noted that because "arcane accounting rules" also require First Security to record a net increase in common equity of $36 million (based for the purpose of example on Monday's closing price), the charge will result in an increase of book value per share of about 20 cents.
Analysts said the charge would not affect the financial performance of First Security or the combined bank.
"This is strictly a one-time accounting matter and doesn't impact the ongoing financial outlook and earnings stream for the companies," said Joseph K. Morford, an analyst at Dain Rauscher Wessels in San Francisco. -- Olaf de Senerpont Domis