A traditional bank facing the future, Zions First National Bank plans to continue relying on old-time banking to bring in core earnings, although it is tackling some of the most innovative areas to keep up with the times and provide capital to experiment with.

One of the bank’s new businesses puts it at the forefront of the latest technology in e-commerce, digital signatures. But even then, President and CEO A. Scott Anderson wants it to be known that although management believes strongly in the future importance of digital signatures, its primary goal is not simply to pioneer new technology.

"I want to emphasize we’re not trying to escape from being a banker. A well-run regional bank in good times ought to be able to make a 17%-to-18% ROE (return on equity). Extra income is icing on the cake, helps us increase return and prepare for the future. We want to make sure we’re at the forefront so we don’t become a dinosaur," he said.

Perhaps partly because the nearly $17-billion-asset bank is among a handful with insurance-selling power grandfathered in its charter, Salt Lake City-based Zions has the luxury of spending more time concentrating on new endeavors, such as its year-old subsidiary Digital Signature Trust Co.

Digital signatures are like ID cards in Cyberspace, an electronic way to ensure that parties in an on-line transaction are who they claim to be and the transmitted information is secure. Zions sees the business of acting as a certification authority and repository for digital signatures as a natural for banks.

"Banks have been in the business of IDing people and notarizing their signatures since the beginning of time. We expect to keep banks in this part of the business," said David Hemingway, vice chairman of investments for Zions Bancorp, the bank’s holding company. "The more we looked at this, the more we said, ‘This looks an awful lot like a trust product,’" Anderson added.

Pricing The New Product

The bank’s pricing for digital signatures varies according to the type of service: transactions, consulting-type services, or the delivery of turnkey solutions to users. An example of the latter is a fee for automating the function of letters of credit using digital signatures. The fee would include a software package, which could be free in the case of, for example, a cash management customer that does a high volume of business. Hemingway added that he believes this business has more potential impact on the banking industry than any other because of the move toward the Internet as the medium of choice in commerce.

The American Bankers Association gave the western bank the nod this fall to be the chief technology supplier in its digital certification subsidiary, ABAecom. It offers certificate authorization to banks, which can in turn sell the service to customers. Hemingway said the authority is probably not necessary for a $24.95 book from Amazon.com, but more security is needed for major transactions between companies. The digital signature assures each party that their counterpart is who they claim to be and the message sent is the entire, uncorrupted message.

"We think this will help banks build stronger relationships with customers and boost their own on-line products," Hemingway said.

In addition to serving as a back office for the ABA, which does much of the marketing of the service, the Zions subsidiary’s salespeople are scouring the country to sell the service. Already the firm serves the ANX automotive network, an exchange between auto manufacturers and their suppliers run out of Detroit. The digital signature firm also provides the authentication for San Francisco-based Stockpower Inc., which bypasses brokers and allows stocks to be traded directly on-line. Finally, the project that sparked Zions’s interest in digital signatures but has yet to come to fruition, is the cyberization of its home state’s court system. The state is working on a new infrastructure and will soon have all official court documents authorized by Digital Signature Trust.

The digital signature subsidiary is not yet in the black, and management declined to part with details of the amount of money put into the business, or when it is expected to be profitable. Officials said, however, that the firm has already issued 100,000 signatures.

Revenue Bonds Still In Infancy

Another first for the bank is the year-old business of underwriting municipal revenue bonds from the bank subsidiary, a power granted by the Office of the Comptroller of the Currency (OCC) first to Zions in December 1997, and since only to UMB of Kansas City and Memphis-based Bank of Commerce. To date Zions has underwritten six deals in the Intermountain area worth about $32 million, and holds a spot as eighth-largest municipal advisor in the country, based on the number of deals. The bank operating subsidiary’s public finance group has offices in several states and can underwrite deals anywhere in the country. Analysts said the new power to underwrite municipal revenue bonds complements the bank’s existing municipal bond underwriting business, supplementing its revenue stream, but is nothing earth-shattering.

Analysts agreed that the company has the luxury to be creative because it does the basics well.

Denis Laplante, analyst at Fox-Pitt Kelton, chalked up the digital signature business’s lack of revenue to R&D but is not worried for the bottom line given the bank’s superior track record for average earnings-per-share growth–17% annually over the last five years.

"Banks have been the source of cash management services for corporate America and I think this is the next step to this," he said.