SALT LAKE CITY - Mention a $5 billion-asset bank in a booming state and a lot of people assume you're talking about a takeover candidate.

But make that assumption about $5.7 billion-asset Zions Bancorp and you'd probably be wrong. That's because even though Wall Street says midsize regionals are going the way of the dinosaurs, Zions thinks it can do just fine on its own.

"The conventional thinking today is that, in the future, survivors will either have to be very large or very small," said Harris H. Simmons, Zions' 41-year-old chief executive. "But when you poke that logic, it doesn't make a whole lot of sense."

Zions' recent performance is perhaps the best proof of that sentiment. Its second-quarter return on equity of 21.13% ranked among the best in the industry. It is only one of eight banking companies, and by far the largest, to exceed an 18% return on equity since 1992, according to Hancock Institutional Equity Services.

The brokerage firm Dean Witter Reynolds now ranks Zions as the best- performing regional bank in the country, based on a composite analysis of liquidity, efficiency, profitability, and asset quality. What's more, Zions' stock price has nearly doubled this year, trading on Tuesday at $60.25 - a notable achievement given that the rise is not tied to takeover speculation.

"Zions is doing an excellent job of rewarding" shareholders, said Alex. Brown & Sons analyst Joseph K. Morford.

To be sure, Zions benefits from a vibrant local economy that is soaring on a high-tech boom and a migration of people from California.

For the year ended in July, employment in Utah, where the bulk of Zions' operations are, grew nearly 6%. This was more than in any other state in the country, according to Joe Mattey, senior economist at the Federal Reserve Bank of San Francisco.

Nevada and Arizona, where Zions also has operations, posted the second- and third-highest employment growth in the country.

But analysts also say that Mr. Simmons, who succeeded his father as chief executive in 1990, also deserves some credit. They say he has fine- tuned traditional banking activities and stretched Zions out into nontraditional areas.

For example, Zions, with nearly three dozen supermarket branches, has a higher percentage of these offices than most banks.

Zions' rural branches have a more traditional focus. But branch managers like Kevin Van Tassell, in Roosevelt, Utah, try to use good service to win customers. For example, last year Mr. Van Tassell helped a third-generation rancher and bank customer load over 1,500 sheep into trucks during a mountain snowstorm.

"I just said, 'Hey, we're going to ship these lambs, want to look at them?'" said the rancher, Alton Moon. And Mr. Van Tassell came over to help.

Zions is also benefiting from a new focus on cost containment. As recently as 1993, the bank was reporting uncomfortably high operating expenses of 64.89% of revenues.

But last year the company hired the consulting arm of Peat Marwick to help it with a cost-cutting drive. Zions consolidated mortgage operations, put more part-time workers in branches, and pushed about 50 people into early retirement. The efficiency ratio has since declined to a respectable 57.8%.

Zions also takes a markedly different approach to balance sheet management than most banks do. It sells off nearly as many loans as it keeps.

For example, in the first half of this year, Zions booked a net increase in its loans and leases of $275 million. But it also sold off $229 million in loans.

Analysts praise the strategy, saying it keeps Zions more liquid than other banks, boosts fee revenues, and minimizes exposure to loan losses.

To keep managers focused on long-term shareholder returns, a third to half of their bonuses are tied to a four-year average of return on equity and earnings per share, a compensation scheme that experts said was unusual. No wonder. Mr. Simmons and his family own nearly 10% of the bank.

Mr. Simmons said he figures that conventional banking, managed properly, can consistently deliver a return on equity of about 15%. But to get Zions up to the 20% ROE he covets, the company needs to pursue some speciality businesses that leverage its core strengths. Mr. Simmons calls this "boutique regional banking."

It's in this area that Zions gets especially unconventional for a bank of its size. For example, it is one of the leading financers for small municipalities in the West.

The company is also one of the country's biggest originators and traders of loans backed by the Small Business Administration. Earlier this year, it hired the former head of ITT Small Business Finance to run a small-business lending unit that aims to compete nationally with the likes of the Money Store.

The new businesses have not all worked out as hoped. One problem stemmed from a 1993 acquisition of a New York primary dealer called Discount Corp.

Zions paid $65 million for the company, which was founded in 1918 by John Pierpont Morgan but had been squeezed in recent years by management problems and a narrow focus on government securities. Zions officials said they figured that Discount's $56 million portfolio of government securities, and $12 million of tax-loss benefits, made the deal a low-risk proposition.

But early this year, a Discount trader in New York improperly hedged a trade, and compounded the problem by unsuccessfully trying to trade out of it. The deal forced Zions to take a $3 million charge against earnings for trading losses, and to take another $1.3 million charge to move the core of Discount's operation - about 10 people in all - to Salt Lake City for closer supervision.

Discount employees now say the operation is working more smoothly. But analysts say that Zions' stock price suffered because of investors' concerns.

That Zions is sitting at the pinnacle of the banking industry is in many respects an unexpected development for a bank that counts Brigham Young as its founder. The bank began as Zions Savings Bank and Trust Co. in 1873 and was controlled by the Church of Jesus Christ of Latter-day Saints until 1960, when Mr. Simmons' father, Roy W. Simmons, also a Mormon, led a team of investors who bought out the church's interest.

Roy Simmons built Zions by acquisition, and took it public in 1972. While the church continues to own about a 5% interest, and two senior church officials sit on the board of Zions' lead bank, it doesn't exercise any management control, according to bank and church officials. Instead, control rests squarely with Harris Simmons, a bachelor who colleagues say regularly spends 12-hour days at the office.

It's not as if Mr. Simmons had to work to make a living. His family's stake in Zions alone is worth about $86 million, and it also owns lucrative stakes in radio and satellite broadcast companies.

But Mr. Simmons, who plays the marimba as a hobby and keeps a vacation home in Sundance, said he was struck when doing research for a college thesis on unit banking that "there really aren't any true dramatic economies of scale in banking." He added that he still holds that view, even though bankers, who he says engage in "lemming-like fits of behavior," argue otherwise.

Mr. Simmons said that while some banking businesses, like credit cards, can benefit from centralization and scale efficiencies, these businesses also suffer from "scale disadvantages," such as weak ties to customers that increase marketing and credit costs and lower customer retention.

Some bankers, including Mr. Van Tassell in Roosevelt, said that at first they weren't sure about Mr. Simmons' notions, even though he seemed to be a likable and intelligent person. But, after a few years of solid performance, many people said they have become believers.

"When he speaks, I'll tell you, you ought to listen, because it's pretty sage stuff that comes out of his mouth," said Lawrence W. Alder, president of the Utah Bankers Association.

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